Southwest Raises Fare

[jbguppy]

anyone know if wn is working on more hedges for the future???

What kind of hedge do you think you can get with oil at 75, and the bullish edge to any geopolitical ripple out there.

There is no escape from the level playing field.


JBG

And this is a bad thing for your airline? Odd isn't it that Southwest fares are going up before their hedges are all gone. Odd isn't it that even with hedges, other airlines are still pricing below Southwest. I wonder if, in the quest for market share, some of the financially distressed airlines will use this opportunity to capture that market share that is ever so important to profitablity.

How dare another airline compete with the mighty SWA. Thats not fair is it?? Doesn't everyone know that we are all here to make SWA look good. You really believe your airline is destined to remain on top of the heap forever, a god given divine right to be the most profitable, is that it.

I am going to love watching you squirm and make excuses as the chickens come home to roost in Dallas.


JBG

 

[KCFlyer]

How dare another airline compete with the mighty SWA. Thats not fair is it?? Doesn't everyone know that we are all here to make SWA look good. You really believe your airline is destined to remain on top of the heap forever, a god given divine right to be the most profitable, is that it.

I am going to love watching you squirm and make excuses as the chickens come home to roost in Dallas.
JBG

Competition is one thing...flying full planes at a loss quite another. FWIW...I don't work for Southwest. But please educate me...where has leading in market share guaranteed a profit? It hasn't worked for United in Denver...It hasnt' worked for Delta in Atlanta. It hasn't worked for Northwest in MSP.

 

[jbguppy]

Competition is one thing...flying full planes at a loss quite another. FWIW...I don't work for Southwest. But please educate me...where has leading in market share guaranteed a profit? It hasn't worked for United in Denver...It hasnt' worked for Delta in Atlanta. It hasn't worked for Northwest in MSP.

Nice diversion attempt, bottom line - you have sung the praises of SWA as it has profited only on the basis of fuel hedge.

It has done nothing superior to it's competitors but hedge fuel, which has allowed it to expand while the rest of the industry has struggled to overcome a multitude of issues.

As that advantage begins to disappear, those who have bragged about how great a company and service SWA is and provides (you are among the loudest) will now be making excuses and I look forward to your continued presence here as you are going to be taking a lot of heat if/when SWA continues to merge with the industry financially.

There are a lot of press articles citing the decline of their fuel hedge, and that those that remain in place are NOT helping their bottom line as much as they should due to higher labor cost etc.

What comes around....


Good Luck.

JBG

 

[ELP_WN_Psgr]

It has done nothing superior to it's competitors but hedge fuel, which has allowed it to expand while the rest of the industry has struggled to overcome a multitude of issues.

As that advantage begins to disappear, those who have bragged about how great a company and service SWA is and provides (you are among the loudest) will now be making excuses and I look forward to your continued presence here as you are going to be taking a lot of heat if/when SWA continues to merge with the industry financially.

There are a lot of press articles citing the decline of their fuel hedge, and that those that remain in place are NOT helping their bottom line as much as they should due to higher labor cost etc.

What comes around....
JBG

Boy, jb, for a disinterested neutral party you sure sound vitriolic.

I guess if push ever came to shove, Southwest could do what all the other airlines have done and eviscerate their employees' wages.

But it probably won't come to that. Not any time soon, anyhow. Southwest has some significant cost advantages that have nothing to do with fuel hedging.

The single fleet type is the first that comes to mind. The avoidance of the inefficiencies inherent in running a pure hub and spoke operation is another.

Have you looked at CASM ex-fuel for the various carriers. Yes, it is true, that with United paying First Officers a buck sixty an hour and making the Flight Attendants work for tips only, their labor cocsts have dropped and they are closer to Southwest in CASM than they once were.

But the problem is, and will continue to be, that their raw CASM is higher than Southwest's and, if adjusted for average stage length, is a whole lot higher.

If the legacy carriers, now that they've crapped on everyone's paycheck, ever start to make a profit how long do you think it will be before we start hearing the wails of the various unions wanting to recoup some of the lost pay and benefits (the answer is it won't be long at all).

Thus, what we are looking at is a SOuthwest Airlines Co whose labor costs will remain stable (or could go down, if management there did what management every place else did) and a bunch of legacy carriers whose labor costs have already been chopped as much as they possibly can be, which leaves them no place to go but up.

The expiration of the fuel hedges means Southwest will only enjoy a couple of cents advantage on CASM instead of 3 1/2 cents. An advantage is still an advantage, regardless of how you slice and dice it.

It is far too premature to predict any sort of problem for the folks with all the 737s. Others have done it many times, at their peril. Harding Lawrence told everyone who would listen that they'd be out of business in 60 days. When they survived that, he told everyone they would not last another 60 days.

When they broke out of the Texas/Wright Amendment area folks used to say that their costs would skyrocket once they started having to deal with (you pick) snowy weather up north, militant labor on the east and west coasts, higher costs for everything in California...that their low CASM was simply an aberration due to their flying solely in TX, OK, NM, LA...what many think of as "flyover country."

It's impossible to predict what will happem, but Southwest's CASM with fuel right now is less than the ex-fuel CASM of many carriers. And that is with a 600-some-odd mile average stage length whereas those legacy carriers enjoy an average stage length over 1000 miles. And yep, that makes a big difference.

We'll see what happens. But folks predicting financial catastrophe and ruin for Southwest over the past 35 years have about as good a track record as those who have predicted the 2nd coming of Christ or the next Elvis sighting.

 

[SharoninSAT]

VERY well said Elp Wn Psgr(great post!)

 

[whlinder]

ELP,

Do you think WN's continued entry into more 'larger' airports (PHL, PIT, DEN, IAD) will have any effect on their traditional CASM advantage?

Of course, we don't have any analysis of the revenue side of the equation. As the difference in average fares between WN and their competitors decreases, will WN start to see an erosion of their traffic base?

 

[ELP_WN_Psgr]

ELP,

Do you think WN's continued entry into more 'larger' airports (PHL, PIT, DEN, IAD) will have any effect on their traditional CASM advantage?

Of course, we don't have any analysis of the revenue side of the equation. As the difference in average fares between WN and their competitors decreases, will WN start to see an erosion of their traffic base?

Good question. Anything and everything is possible.

However, I don't see their incursions into 'larger' airports as anything new.

In 1971 Southwest started service in to the 3 "main" airports of their initial 3 stations - DAL, SAT, IAH.

Service to HOU was initiated in an effort not to avoid higher costs, but to generate enough traffic to stay alive.

Southwest's refusal to move to DFW had nothing to do with the costs of operating there....and everything to do with what Southwest thought the impact of a DFW move would be on short haul traffic.

I don't see any erosion of the traffic right now....a load factor of 80.2% for June is way high by Southwest historical standards. Conventional wisdom from the folks who used to live at 3300 Love Field Drive was that at any load factor above 67% you were losing traffic to someplace...either the car or another carrier.

I do think the recent fare increase was done the right way...they left the short haul alone. No increase on any flights of 750 or fewer miles. My contention is that the short hauls are priced appropriately...or maybe even a little too high. The medium to long hauls are where the yield drops off.

I'd like it (and I'm sure a lot of other folks would too) if you could still buy a ticket from El Paso to Dallas after 7 o'clock PM at night for $25, including all taxes and security fees. But it isn't 1977 any more. Jet fuel isn't 30 cents a gallon either. (Actually, if you go back to when Southwest started flying, they were paying 11 cents a gallon for Jet A).

The legacies will never admit it, of course, but right now the biggest differentiation between their Y product and that of Southwest is that Southwest offers a better Y product.

Southwest's fate is not tied to the outcome of the Wright Amendment proceedings, but probably 3 or 4 yrs worth of growth will be determined by how all that comes out. Southwest is not unlike a shark in that it must keep moving, keep growing, in order to survive.

If Southwest gets, at the very least, thru ticketing restrictions lifted at DAL then they have won at least 3 or 4 yrs worth of healthy growth with almost no increase in costs other than the marginal increase of flying another flight. They also get to hire some junior folks which shifts them to the left on the labor cost continuum and life looks pretty good.

But I've sort of drifted away from the topic. Southwest can fly in to airports other than remote and secondary airports without letting their costs get away from them - they've done it for years. Their labor costs are high but they have managed to extract a good deal of productivity from their labor in exchange for a decent wage. They maintain a cost advantage even with labor costs factored in and fuel costs factored out. The gap gets close, but I don't think anyone would predict that legacy carrier employees are going to sit idly by if and when their company returns to profitability and their management starts to enjoy the fruits of stock options and big bonuses. Thus, the fact that legacy carrier costs are closer to Southwest's now than they have been in years is not an indicator that those costs will stay so close. Plus, the fact that their costs are closer than normal doesn't mean that Southwest does not still have a cost advantage and will use it to their benefit.

Southwest has one other advantage - they have always, since day one, operated in a deregulated environment where the price they charge has to reflect the costs of doing business. They never had the CAB set their prices what twhen they determine how much to pay for an airplane, what wages to agree to with their labor groups --- they had to evaluate how this would impact their ability to make a buck or two. Some might argue that their fuel hedging has allowed them to charge lower fares than they normally would to disguise overpayment of their employees. I'll argue that what the fuel hedging did was allow them to engage in some market development through lower than normal fares in certain markets, and once developed, they will retain most if not all of these markets.

 

[ELP_WN_Psgr]

SWA has also enjoyed a better employee to A/C ratio then the legacies, often by 20 to 30 percent. This is erroding day by day as legacy carriers get more efficient.

The one thing folks often overlook, Bob, is that Southwest is not exactly standing still with respect to cutting costs.

Employees per aircraft is one measure.

At the end of Q1 1998, Southwest had 24151 employees and 264 planes////91.5 employees per aircraft.

Over the next 5 years...at the end of Q1 2003...Southwest had reduced that ever so slightly to 33140 employees, 377 planes, giving them 87.9 employees per aircraft.

At the end of Q1 this year, Southwest had managed to improve that to 31396 employees, 451 aircraft, that works out to 69.6 employees per aircraft.

For the sake of comparison the consolidated results for US Airways + America West had them going from 86.6 employees per aircraft at the end of Q1 2005 to 87.4 employees per aircraft at the end of Q1 2006. Due to the merger and bankruptcy and change in ticker symbol I just cannot pull down older annual or quarterly reports right now. Suffice it to say they may have improved....but Southwest has improved too. Enough to maintain a productivity edge.

We will see how this all ultimately plays out. What I think is going to happen is that legacies will start making a little money, employees will start to squall, airlines will throw some money at them to shut them up, labor costs will rise, and Southwest will be sitting right there with their cost advantage intact.

The big question in the industry ought not be "will Southwest continue to prosper." The big questions ought to be which legacies will ultimately disappear thru merger or liquidation, and will JetBlue continue to follow in the footsteps of PeoplExpress?

 

[UALDC767]

The one thing folks often overlook, Bob, is that Southwest is not exactly standing still with respect to cutting costs.

Employees per aircraft is one measure.

At the end of Q1 1998, Southwest had 24151 employees and 264 planes////91.5 employees per aircraft.

Over the next 5 years...at the end of Q1 2003...Southwest had reduced that ever so slightly to 33140 employees, 377 planes, giving them 87.9 employees per aircraft.

At the end of Q1 this year, Southwest had managed to improve that to 31396 employees, 451 aircraft, that works out to 69.6 employees per aircraft.

For the sake of comparison the consolidated results for US Airways + America West had them going from 86.6 employees per aircraft at the end of Q1 2005 to 87.4 employees per aircraft at the end of Q1 2006. Due to the merger and bankruptcy and change in ticker symbol I just cannot pull down older annual or quarterly reports right now. Suffice it to say they may have improved....but Southwest has improved too. Enough to maintain a productivity edge.

To all,

While SW has been considered the productivity leader in the industry, to just use employees/aircraft is my opinion not a very accurate measure. On the surface it is, but much like stage length adjustments for CASM, there needs to be some sort of adjustment for larger aircraft (thus requring more Flight Attendants, rampers for the extra bags, and depending on flight more pilots required to fly it,etc)

For example..... one airline has 10 737's and the other has 10 747's. All else being equal, the 747 airline is going to have more employees than the 737 one, just due to more F/A's required.

Not to say that the legacies didn't need to get more productivity from their employees (and or cut the fat) but to expect them to reach SW levels just ignores the inherent differences/requirements of the type of airplanes/business model.

Narrow body airlines maybe.....ones with widebodies, never.

DC

 

[insp89]

To all,

While SW has been considered the productivity leader in the industry, to just use employees/aircraft is my opinion not a very accurate measure. On the surface it is, but much like stage length adjustments for CASM, there needs to be some sort of adjustment for larger aircraft (thus requring more Flight Attendants, rampers for the extra bags, and depending on flight more pilots required to fly it,etc)

For example..... one airline has 10 737's and the other has 10 747's. All else being equal, the 747 airline is going to have more employees than the 737 one, just due to more F/A's required.

Not to say that the legacies didn't need to get more productivity from their employees (and or cut the fat) but to expect them to reach SW levels just ignores the inherent differences/requirements of the type of airplanes/business model.

Narrow body airlines maybe.....ones with widebodies, never.

DC

UALDC737,
I agree with you 100%...These employyee/aircraft comparisions can be down right deceiving..

To add to the examples that you listed,
I would like to know if Southwest counts the outsourced maintenance employees in their numbers..
This would make a big difference when comparing SW [which outsources ALL of it's HEAVY maintenance] to other airlines that do at least some HEAVY maintenance INHOUSE...

Can anyone elaborate on how Southwest views outsource employees in their employee/aircraft numbers ?

The bottom line is that SOMEONE is doing the heavy maint. for Southwest.
For a true comparision, The employees of these outsource companies need to be added to the Southwest numbers..

 

[UALDC767]

UALDC737,
I agree with you 100%...These employyee/aircraft comparisions can be down right deceiving..

To add to the examples that you listed,
I would like to know if Southwest counts the outsourced maintenance employees in their numbers..
This would make a big difference when comparing SW [which outsources ALL of it's HEAVY maintenance] to other airlines that do at least some HEAVY maintenance INHOUSE...

Can anyone elaborate on how Southwest views outsource employees in their employee/aircraft numbers ?

The bottom line is that SOMEONE is doing the heavy maint. for Southwest.
For a true comparision, The employees of these outsource companies need to be added to the Southwest numbers..

Insp89,

well thats a tough calculation to make regarding outsourcing. And almost every airline outsources something now a days.

Do we count the reservation staff outsourced to India and the Philippines? Or all the flying now done by Regional partners that were once mainline routes?

So the employees of outsourcing need to be included at all airlines. Southwest is not alone in that regards.

Since banktruptcy, UAL has outsourced Mechanics, Pilots, reservation staff, ground handling, even the Meteorologists, and I am sure there are more departments I have forgotten or don't know about!!

DC