Southwest's Problems Parallel Us Airways

[mweiss]

...if it was so easy to duplicate, where are all those competitors?

First of all, I don't recall saying that it was easy. Until very recently, it was hard to get a beachhead established to be able to build a second WN. Keep in mind that WN was an established airline by the time deregulation hit, making them much harder to squash. Now that the legacies are weaker, thanks almost exclusively to WN, it's possible to get those beachheads, so you're seeing a more robust crop of LCCs this time.

And there are elements of WN in the LCCs.

Keep in mind that WN has a large network of focus cities today. It takes a while to build an airline up to that point, so you're seeing something sorta hubby in F9/B6/FL, but they're growing to the point where you're starting to see additional focus cities show up.

B6 appears to be particularly similar to WN in CASM. My own analysis suggests that B6 is doing a bit better than WN, even after stage-length adjusting; others have found that they are on par.

Either way, B6 appears to be the first such competitor in the US.

 

[mweiss]

As does not having ... an express operation...

Or three. I'm sure that the overhead in having so many express operations is killing their cost-effectiveness.

 

[BoeingBoy]

As is the unit cost's of the smaller RJ's if we're to compete with the likes of WN. Mike Boyd may be almost alone in saying the era of the 50-seat RJ is almost over, but he's got some pretty good company sharing the thought that any RJ is only cost-effective in when used in it's niche.

Jim

 

[deltawatch]

Deltawatch,
Not to pile on, but I also disagree. WN has been around 35 years plus and now has the highest pay rates of any airline in the US for every workgroup, period (I even think its true vis a vis Delta for 737 pilots with the same seniority--and if not, will be after your pilots settle). Yes their average seniority is lower; they didn't furlough any junior people. But the differences are all in work rules, turn times, training costs. They average 87 employees a airplane, roughly a third lower than any legacy airline. That's what we mean by productivity.

Only time will tell!

 

[hobbes]

Actually, I think LUV is now considerably lower than 87 employees per aircraft, especially after the "early out" offer. That reduced the headcount per aircraft by about another 3 employees, I think.

LUV is also at an advantage because they haven't explored all the options that technology could give them. Over the next few years, I think you'll see more and more technological enhancements that will increase the productivity of LUV employees, allowing them to do more in less time.

I firmly believe that you can afford to pay your employees good wages, so long as you also get good productivity out of them. And when it comes to productivity, I believe LUV employees are stellar.

As far as growth of the route map goes, there are still many cities is the continental U.S. that are good opportunities for LUV, which LUV hasn't even explored yet. And beyond that, there are some international opportunities as well. I believe that it's just a matter of time before LUV starts flying beyond the borders of the continental U.S. However, there will be additional start-up costs and business model considerations associated with that, and those can be considerable. For WN, it's just cheaper to stay in the continental U.S. right now. But with 10% growth predicted for next year and years beyond, I don't think Southwest is fading with the sunset anytime soon.

In regards to Parker retiring, I think it was unfortunate, but probably the right thing. The past three years have been the most turbulant ever in this industry, and Parker was right at the center of it. He kept LUV profitable. Now...remember back in 1990, at the beginning of the Gulf War? LUV had two unprofitable quarters with Herb at the helm, and I think it's safe to say that the events of 9/11 were far more trying on this industry than those of the Gulf War. Parker, from a Leadership perspective, did a fantastic job of keeping Southwest profitable. The Southwest employees did a fantastic job of keeping Southwest profitable. Given the flight attendant negotiations, which everyone knew would be difficult, I don't blame Parker when he says he's tired. It's been a rough three years.

Kelly comes into the CEO position with a high level of respect from many of our employee groups. True, he's a bean counter, but he also understands and respects the company culture. As somebody who works for LUV, I can tell you that I knew of nobody that said "Thank God and good riddance!" when Parker retired, as I have seen done with many USAir executives. Instead, there was a sense of sadness and some regret. However, Kelly seems to have a very strong backing by both the employees and the airline community as a whole. I don't think I've heard of a single employee who doubts his capability. And let us not forget that the two most powerful leadership symbols at Southwest, Herb and Colleen, are still very active within the company.

So, for the reasons given above, I think it's a stretch and wishful thinking to say that LUV's problem's parallel those at USAir.

 

[deltawatch]

Not wishful thinking at all, I hate the Wall Street cycle I spoke of. I wish the best to the hard working folks at WN. I hope everyone gets to retire on something other than Social Security and Medicare, like you were promised when you began your career at which ever airline.

You are missing my point, to Wall Street we are all nothing but labor. They don’t care whose name is painted on the side of the airplanes they just want a quick buck.

Before Dave left he explained that Wall Street had moved their money to the start ups, like JetBlue and Airtran and that the older carriers are finished.

Why? Every article IV read says that employee costs are too high at the older airlines and it’s because they’re getting top heavy, and have higher benefit cost (pay, retirement and healthcare) etc.

Right now WN agents top out at $24.00 an hour. More and more are reaching it. Thats great they deserve it! All I know is you better keep growing and watch your back, Wall Street will turn on you if you honor your labor agreements and a new kid moves in with lower paid workers whether it’s their pay scale or the fact that everyone’s junior and they don't have a lot of retirees with benefits. The new guys are hiring kids off the street (new labor) and making them big promises. Wall Street just wants a quick buck, a 2-4 year ride.

PS: All this talk about productivity, if I get anymore productive I will fall over and collapse.

 

[mweiss]

All this talk about productivity, if I get anymore productive I will fall over and collapse.

Productivity does not equal hard work. It's not about what you're putting into it; it's about what your employer is getting out of it.

Incidentally, this is not your fault. Your employer is responsible for setting up an environment wherein you can produce as much as possible per unit of your energy.

 

[hobbes]

"to Wall Street we are all nothing but labor"

Okay, quick reality check, because what I'm hearing here is something akin to the "evil shareholder" argument.

If you invest $1000 of your money into something, do you not expect a return on your investment?

Wall Street is not some evil monster, out to turn everyone into slave labor. Wall Street simply wants a good return on investments. The percentage that qualifies as "good" depends on how high risk the investment is. Airlines are, quite simply, very high risk investments, so the expected return is generally higher. That doesn't mean that shareholders are evil, greedy, or too demanding. Everyone, you included, expects a return on their investment. For anyone to say otherwise means that they're just content with giving their money away.

Why SHOULD Wall Street care about labor? They have nothing to do with it. That's management's issue to deal with. Management has the responsibility of balancing employee satisfaction with shareholder returns. Some management, like Southwest, is generally savvy enough to realize that happy employees increase productivity and customer satisfaction. Those things, in turn, increase profit.

And some companies don't get it.

But when you're not making money, don't blame the shareholders for your woes. Who on earth wants to put their money into a high-risk investment (airlines) that isn't making any money? Would you? If you answer yes, you're basically content with giving money away.

And by the way...many private investors are not millionaires or the like. Many are everyday people like you and me, who aren't making mucho bucks.

"Wall Street will turn on you if you honor your labor agreements and a new kid moves in with lower paid workers whether it’s their pay scale or the fact that everyone’s junior and they don't have a lot of retirees with benefits."

Wall Street will not turn on us if we make a good profit. In the end, that's what Wall Street cares about. And quite frankly, we've got a LOT of topped out employees right now as we're 33 years old, and we're doing better than the rest of the industry. We've even got a CASM that's about the same as jetBlue (or lower when adjusted for stage length). I think that bodes pretty well for us. We do, however, need to get our costs under better control.

 

[deltawatch]

"Why SHOULD Wall Street care about labor?"

That’s my point.

Who will the next Darling be, VIRGIN AMERICA?

Then who......

WN has lots of equity ...today. That’s the first thing they go after..... CEO's realize the ride is coming to an end and they start sucking it away. CEO’s start turning over faster and faster; golden parachutes everywhere. At the same time they are very careful not to upset labor, don’t expect much change in your W2 until they have run the well dry. First thing you know the equity has been moved, it’s gone, and so is your future. So are the smart investors. They’re all over at Virgin America.

Keep your eye wide open, no one at Usairways did.

 

[mweiss]

"Why SHOULD Wall Street care about labor?"
That’s my point.

But your interpretation of that sentence is different from hobbes's.

Hobbes is pointing out that Wall Street doesn't look at labor at all; they look at profits (or, more precisely, expected profits). If an airline can be the most profitable by paying their rampers $1M per week, then Wall Street will reward that.

Remember, WN's been the darling of the industry for a long time...and they pay their employees among the highest wages in the industry.

Who will the next Darling be, VIRGIN AMERICA?

If their business plan is solid, sure. Why not? God forbid investors choose to invest in businesses that they think will be successful...

WN has lots of equity ...today. That’s the first thing they go after..... CEO's realize the ride is coming to an end and they start sucking it away.

Not every airline is US, believe it or not. What you seem to be unable to admit is that US had a bad business plan in 1988. It just took a long time for those chickens to come home to roost.

The only problem I see at WN right now is a growing group of union employees who don't recognize that they can't draw from the well indefinitely.

 

[ktflyhome]

Has anyone heard that Southwest employees in PHL are being harrassed by U employees???? I heard from a couple of fellow co-workers that they were, and that SW employees are calling their company and not wanting to come to work.

Heard they are having tires slashed and cars scratched in the Employee Parking lots, among other things. :unsure:

 

[cavalier]

Has anyone heard that Southwest employees in PHL are being harrassed by U employees???? I heard from a couple of fellow co-workers that they were, and that SW employees are calling their company and not wanting to come to work.

Heard they are having tires slashed and cars scratched in the Employee Parking lots, among other things. :unsure:

How can anyone possibly fault the U employee in this matter? I mean think about it: The U employees are only following the examples set forth by our great management team that was paid bonuses to stay because they are doing such a fine job and would be impossible to replace.

Satire.......but also close too damn close to truth!

 

[WorldTraveler]

All of these monumental LCC growth rates are predicated on the legacy airlines continuing to operate with a failing business model. I consider it highly UNLIKELY that all six of the current legacy airlines will fail to grasp the necessity of a new business model but instead at least one will implement one that does work. At that point, the LCC growth rates will likely slow and one or more of the legacies will be back in the race. I'm not so sure that part of the legacy strategy is not to put a few of its brethren out of business; even if it isn't a strategy, it will likely happen that some of the remaining legacies will become viable survivors. At that point, the LCCs will have to share the stage with a couple transformed and successful legacies. I know that it's hard to imagine right now, but it will happen.

 

[Borescope]

I believe that it's just a matter of time before LUV starts flying beyond the borders of the continental U.S.

There are a whole new set of problems when you stretch your wings beyond the US borders. Your 20 minute turn time for one goes out the window. This slows down the operation and the utilization of the aircraft, which is one of the factors that make WN profitible. I don't see WN going outside the US anytime soon <_<

 

[N924PS]

Has anyone heard that Southwest employees in PHL are being harrassed by U employees???? I heard from a couple of fellow co-workers that they were, and that SW employees are calling their company and not wanting to come to work.

Heard they are having tires slashed and cars scratched in the Employee Parking lots, among other things. :unsure:

Several weeks ago this rumor was circulating. During a layover in PHL I took a field trip over to the SW gates and chatted with the SW agents manning the podiums and asked if they were having any problems as you described. They said they had not experienced any problems at all. In fact one of t hem said most of the U employees they had encountered were friendly and wished them success.

An interesting note: All of the employees were "imported" from other SW cities. No Philly locals yet.