Sw's Master Strategy

[insp89]

Because American, Northwest, and Delta are trying to get their acts together and GET competitive WITHOUT making the trip to bankruptcy court. Competition IS good - trying to compete with companies "getting their act together" (round 2) is not.

[post="274596"][/post]​

We'll see how long at least one [or more] of these 3 airlines continue to "try" to stay out of bankrupcy...

You're Right. Competition IS good, Trying to compete with companies that have a fuel hedging advantage [for a while longer] is not.

 

[KCFlyer]

We'll see how long at least one [or more] of these 3 airlines continue to "try" to stay out of bankrupcy...

You're Right. Competition IS good, Trying to compete with companies that have a fuel hedging advantage [for a while longer] is not.

[post="277974"][/post]​

So...competing against an airline with competent management is bad, but competing against airlines in the "protection" of a bankruptcy court, while those same airlines continue to offer fire sale pricing to maintain "market share" is good???

 

[firstamendment]

So...competing against an airline with competent management is bad, but competing against airlines in the "protection" of a bankruptcy court, while those same airlines continue to offer fire sale pricing to maintain "market share" is good???

[post="278001"][/post]​

It still amazes me how so many of you claim to not want bad to happen to the "struggling airlines", which is ALL but maybe 2, yet the tone of these postings speak another opinion. We at US carry MILLIONS of passengers a year. So we are to discredit those millions because it is a chapter 11 airline flying them? $7 Billion in revenue? And this money is to be ignored? Give me a break. Our company is working very hard to turn things around, but like ALL BUT swa, are dealing with almost $60 a barrel. IT'S THE OIL PRICES STUPID!!!!. Let's see what SWA does when you no longer have hedging. Good for SWA for having done that, BUT, my SW friends, none of you have yet to answer the question of what your company will do when the hedging price is gone.

You all do not have to preach to the choir where US and incompetence is concerned, but turning things around takes time. I point to my friends at CAL. Their employees HATED CAL. The flying public HATED CAL...and remember how other airline employees just wanted them to go away so it would save the industry? And this was in 1988. Lo and behold, CAL is one of the most respected airlines around and would be doing even better if it weren't for the high cost of oil.

Given the right management team, the new US Airways CAN and WILL do the same. The negativity towards the fine people of US just fuels my desire to work HARDER for US to survive. Thanks for the motivation.

I find it interesting that anyone would suggest another carrier or three goes under. This does a disservice to the country. Let's say 3-4 carriers go under and SWA replaces all that lost revenue. Now I know you all think SW is perfect, but given the opportunity, those ticket prices would skyrocket. Old US Air knew how to make big bucks when they were the only player in town. Funny how so few see this happening now. That's business and if any of the SW faithful think this couldn't happen, well then you are sniffing too much canyon blue paint.

 

[KCFlyer]

It still amazes me how so many of you claim to not want bad to happen to the "struggling airlines", which is ALL but maybe 2, yet the tone of these postings speak another opinion. We at US carry MILLIONS of passengers a year. So we are to discredit those millions because it is a chapter 11 airline flying them? $7 Billion in revenue? And this money is to be ignored? Give me a break. Our company is working very hard to turn things around, but like ALL BUT swa, are dealing with almost $60 a barrel. IT'S THE OIL PRICES STUPID!!!!. Let's see what SWA does when you no longer have hedging. Good for SWA for having done that, BUT, my SW friends, none of you have yet to answer the question of what your company will do when the hedging price is gone.

Not a SW employee - but US was in trouble long before the days of $60 oil. This is their second trip to bankruptcy court. This is a capitalistic society. It's based on competition. The strategy of Southwest today is pretty much the same strategy they had 30 years ago. And management, along with labor, have actively explored ways to keep costs low. The strategy of every other airline in the past 30 years appears to be that of becoming an international carrier....a low cost carrier...a full service carrier....a "no frills" carrier....In other words....they tried to be all things to all people. Southwest never went after the business traveller who just HAD to have a first class seat and meal. They never went after the international market. They never tried to be anything more than a transportation tool that offered fairly frequent flights are reasonable fares on a purely domestic system.

What will SW do when the hedges run out? I dunno, but I am pretty sure that LUV management is not sitting back, smoking cigars and patting each other on the back about what a great thing the hedges are....I've got a feeling that they are looking at cost savings when the hedges run out, and five years further than that down the road. Hell...they've already had to adapt on competing with airlines who aren't paying their bills, but are "protected" in the bankruptcy court. And not "ALL BUT" SWA are dealing with $60 oil...I believe Airtran and Jetblue also have hedges in place. You can do that when your credit is not impacted by little things like bankruptcy filings.

You all do not have to preach to the choir where US and incompetence is concerned, but turning things around takes time. I point to my friends at CAL. Their employees HATED CAL. The flying public HATED CAL...and remember how other airline employees just wanted them to go away so it would save the industry? And this was in 1988. Lo and behold, CAL is one of the most respected airlines around and would be doing even better if it weren't for the high cost of oil.

CAL is respected by everyone except the investors who saw their investments drop to zero in both their bankruptcy proceedings. I'd venture to guess that had CAL not taken advantage of the protection offered by bankruptcy court, US might well have been far stronger and not be in the predicament that they find themselves in today.

Given the right management team, the new US Airways CAN and WILL do the same. The negativity towards the fine people of US just fuels my desire to work HARDER for US to survive. Thanks for the motivation.

That "right managment team" appears to be leading another airline right now...an airline that, IMHO, can ill afford to take on the burden of US. And I believe that should this all go thru, we'll see the "new" US back in bankrupcy court in less than two years.

I find it interesting that anyone would suggest another carrier or three goes under. This does a disservice to the country. Let's say 3-4 carriers go under and SWA replaces all that lost revenue. Now I know you all think SW is perfect, but given the opportunity, those ticket prices would skyrocket. Old US Air knew how to make big bucks when they were the only player in town. Funny how so few see this happening now. That's business and if any of the SW faithful think this couldn't happen, well then you are sniffing too much canyon blue paint.

Right now, it looks like the taxpayers may well bear the brunt of bankrupt airline pension plans. What would happen if US or UAL closed their doors...first off, the world ain't just Southwest...American, Delta, Northwest and others would fill a large part of that gap. Yes...Southwest, as well as other LCC's would benefit some, but the greater benefit would be to the industry as a whole. As far as what would happen if SWA were the only game in town...I doubt you'd see "rape and pillage" fares. Compare the PIT-PHL fare on US prior to LCC competition, then compare the MCI-STL fare on Southwest (who "owns" the market since AA pulled out). Full fare, refundable walkup fare is $75. Why haven't they taken advantage of being the only player in town? Furthermore...US and UAL want to maintain that vaunted "market share", and as a result will often times undercut Southwest's fares. If Oil is at $60 a barrel, and SWA is paying $28 a barrel and charges a fare of "X" on a route, then what is the strategy of an airline paying $60 a barrel for oil in charging a fare of "X minus $10"???

 

[BoeingBoy]

Most people tend to think that fuel hedges give SWA their only, or at least their biggest, advantage. What they overlook are the other cards SWA has up it's sleeve - most notably stage length and load factor.

SWA has probably the shortest stage length of the major carriers. By bringing the average up a couple or three hundred miles SWA could lower it's CASM enough to offset $45-$50/bbl oil as the hedges expire.

SWA also has the lowest average load factor of the majors. Merely bringing the LF up 5% (still lower than most majors) would produce enough extra revenue to offset another $10-$15/bbl in oil prices.

Jim

 

[insp89]

Most people tend to think that fuel hedges give SWA their only, or at least their biggest, advantage. What they overlook are the other cards SWA has up it's sleeve - most notably stage length and load factor.

SWA has probably the shortest stage length of the major carriers. By bringing the average up a couple or three hundred miles SWA could lower it's CASM enough to offset $45-$50/bbl oil as the hedges expire.

SWA also has the lowest average load factor of the majors. Merely bringing the LF up 5% (still lower than most majors) would produce enough extra revenue to offset another $10-$15/bbl in oil prices.

Jim

[post="278026"][/post]​

BoeingBoy, I've read an article [not too long ago] which had Southwest's CEO state that the only reason Southwest is profitable today is due to fuel hedging.

Having said that, There is no doubt Southwest's management is the best in the business...... While Usairways CEO is an EX Submarine Commander, [All he knows is how to sink things]....

If it's so easy to bring up the load factor & stage lengths at Southwest, Why haven't they done it already ?

 

[insp89]

So...competing against an airline with competent management is bad, but competing against airlines in the "protection" of a bankruptcy court, while those same airlines continue to offer fire sale pricing to maintain "market share" is good???

[post="278001"][/post]​

......It's neither good or bad,..... It's reality....I didn't write the bankrupcy rules..

The reason for the "fire sale pricing" is to counteract the "Southwest Effect" which allows Southwest to offer cheap fares in this enviroment [DUE TO FUEL HEDGING]....

 

[KCFlyer]

......It's neither good or bad,..... It's reality....I didn't write the bankrupcy rules..

The reason for the "fire sale pricing" is to counteract the "Southwest Effect" which allows Southwest to offer cheap fares in this enviroment [DUE TO FUEL HEDGING]....

[post="278072"][/post]​

So....you could lose $10 a ticket by simply matching SWA's price, but instead, you lose $20 or more per ticket in an attempt to counteract the "Southwest Effect". How long do you think the combined US/AWA can maintain this strategy before making yet another trip to bankruptcy court? SWA is hedged thru 2008/2009.

BTW - the Southwest Effect refers to the usual increase in flights and lowering of average fares in markets that prior to the arrival of Southwest were considered too expensive. It has nothing to do with fuel hedging.

 

[FWAAA]

If it's so easy to bring up the load factor & stage lengths at Southwest, Why haven't they done it already ?

[post="278068"][/post]​

WN isn't as desperate for cash as most legacy carriers, so it can be more "choosy" about its customers. WN sells a substantial percentage of its seats at full fare, which no legacy airline can claim.

How could WN easily boost its LF? Cut fares a few dollars and enlarge the number of seats in the lowest fare buckets.

But since WN doesn't HAVE TO do that (contrast the desperate airlines), it doesn't do that.

Boosting its LF would cause fewer seats to remain available for full fare purchase, which could (and probably would) lessen total revenue. Why the hell would WN do that?

 

[BoeingBoy]

BoeingBoy, I've read an article [not too long ago] which had Southwest's CEO state that the only reason Southwest is profitable today is due to fuel hedging.

[post="278068"][/post]​

True, in the sense that if the only change had been the elimination of SWA's fuel hedges they would have had a loss. The key is "if the only change had been ...."

Having said that, there is no doubt Southwest's management is the best in the business...... While Usairways CEO is an EX Submarine Commander, [All he knows is how to sink things]....

[post="278068"][/post]​

Which is why it's probable that the "if the only change had been the elimination of SWA's fuel hedges" statement represents false hope. Good management, which SWA has, would have probably found a way to be profitable if the hedges hadn't existed.

If it's so easy to bring up the load factor & stage lengths at Southwest, Why haven't they done it already ?

[post="278068"][/post]​

Aside from the obvious - they have been profitable without doing that (yes, thanks to their fuel hedges) - I suspect that you'll see the stage length go up over time as they add more longer-haul flying. The steps to increase load factor - reducing frequency - would probably be a last resort in my opinion.

Since SWA has not had a need to alter their basic operating model - good frequency and fares that produce a profit without filling most flights - they have not done it. But the option is there if the need arises, as is the option of increasing fares a reasonable amount - each $1 increase translates to $$68 million in additional revenue per year based on 1Q05 traffic numbers.

Jim

 

[insp89]

True, in the sense that if the only change had been the elimination of SWA's fuel hedges they would have had a loss. The key is "if the only change had been ...."

Which is why it's probable that the "if the only change had been the elimination of SWA's fuel hedges" statement represents false hope. Good management, which SWA has, would have probably found a way to be profitable if the hedges hadn't existed.

Aside from the obvious - they have been profitable without doing that (yes, thanks to their fuel hedges) - I suspect that you'll see the stage length go up over time as they add more longer-haul flying. The steps to increase load factor - reducing frequency - would probably be a last resort in my opinion.

Since SWA has not had a need to alter their basic operating model - good frequency and fares that produce a profit without filling most flights - they have not done it. But the option is there if the need arises, as is the option of increasing fares a reasonable amount - each $1 increase translates to $$68 million in additional revenue per year based on 1Q05 traffic numbers.

Jim

[post="278090"][/post]​

Jim, Since you agree that the reason Southwest has not needed to alter their basic operating model is due to their Fuel hedging advantage, I guess we will have to see how Southwest will handle the situation going foward.

Please forgive me Jim, I am somewhat skeptical when I see words such as "probably" and "suspect" in a sentence. "

 

[insp89]

So....you could lose $10 a ticket by simply matching SWA's price, but instead, you lose $20 or more per ticket in an attempt to counteract the "Southwest Effect". How long do you think the combined US/AWA can maintain this strategy before making yet another trip to bankruptcy court? SWA is hedged thru 2008/2009.

BTW - the Southwest Effect refers to the usual increase in flights and lowering of average fares in markets that prior to the arrival of Southwest were considered too expensive. It has nothing to do with fuel hedging.

[post="278077"][/post]​

I have nothing to do with the way Usairways prices their product.

Would you please tell me what PERCENTAGE of fuel is to be hedged thru 2008/2009 ?

The Southwest Effect has EVERYTHING to do with fuel hedging. If it were not for fuel hedging, Southwest would not have the ability to lower fares in new markets.

There will continue to be big changes occuring at Usairways and AmericaWest..I wouldn't count on another trip thru bankrupcy, Sorry...

 

[BoeingBoy]

That's ok, I put them in because I have absolutely no idea what SWA managements plans going forward are, not because the results of increasing stage length or increasing load factors on their CASM would be. For all I know, small fare increases alone may be their plan - their most recent pretty much equals their fuel hedge advantage in the 1Q05 - and they'll do nothing to increase stage length or load factor. Or they could have some other trick up their sleeve.

My whole point was that they have a choice of options to offset higher fuel prices as/if they run out of hedging advantages, though I suspect (there's that word again!) they'll report more hedging in the 2nd quarter.

Jim

 

[KCFlyer]

I have nothing to do with the way Usairways prices their product.

Would you please tell me what PERCENTAGE of fuel is to be hedged thru 2008/2009 ?

The Southwest Effect has EVERYTHING to do with fuel hedging. If it were not for fuel hedging, Southwest would not have the ability to lower fares in new markets.

There will continue to be big changes occuring at Usairways and AmericaWest..I wouldn't count on another trip thru bankrupcy, Sorry...

[post="278100"][/post]​

From the annual report:

The Company utilizes financial derivative instruments for both short-term and long-term time frames when it appears the Company can take advantage of market conditions. As of December 31, 2004, the Company had a mixture of purchased call options, collar structures, and fixed price swap agreements in place to hedge its total anticipated jet fuel requirements, at crude oil equivalent prices, for the following periods: 85 percent for 2005 at approximately $26 per barrel, 65 percent for 2006 at approximately $32 per barrel, over 45 percent for 2007 at approximately $31 per barrel, 30 percent in 2008 at approximately $33 per barrel, and over 25 percent for 2009 at approximately $35 per barrel.

How much has US/AWA hedged?

I would submit to you that even if Southwest had zero fuel hedged, the "Southwest Effect" would still be felt. And that effect is that in a market where airfares were over $700 for a 250 mile trip, the fares would fall to a far more acceptable level - and as a result, demand between the two cities would rise. That is the Southwest effect.

YOu might take a look at your 'savior' airlines annual report. There are some far bigger concerns than Southwest's fuel hedges facing them today - and that was before they offered to buy US.

While you might have nothing to do with how your airline prices their product, time is NOT on their side...how long can they maintain the strategy of fighting the "Southwest Effect" by selling tickets for less than Southwest sells theirs? That's sort of like a knight of the round table facing the threat of the Black Knight by cutting off his own arms.

 

[sfb]

The Southwest Effect has EVERYTHING to do with fuel hedging. If it were not for fuel hedging, Southwest would not have the ability to lower fares in new markets.

The Southwest Effect has almost nothing to do with fuel hedging, aside from the fact that fuel is a cost input for the company. Keeping everything else constant, without fuel hedges, Southwest would have had to raise its average fare by $3 in the first quarter to be profitable. So, instead of entering PIT-PHL with a fare of $29, they would have charged $34. Their walk-up would be $82 each way. How much was US Airways' PIT-PHL walk-up fare on May 3?

The Southwest Effect is the stimulation of passenger traffic which occurs when fares are rationalized. And the rising tide lifts all boats; US saw its PHL-PVD traffic quadruple when the airline's average fare fell from over $325 to roughly $75.

Even when Southwest holds a monopoly (or near-monopoly) in a given market, they tend to keep average fares at a reasonable level. They have 94% of the long-served ABQ-LAS market with an average fare of $118. US has 84% of BOS-PIT (a comparable distance) with an average fare of $235.