Sw's Master Strategy

[FWAAA]

sfb is correct. The "Southwest Effect" has been evident in every market WN has entered for 25+ years. Rational prices and affordable full fares lead to a dramatic expansion of traffic for all airlines. Pain for the airlines relying on extortion fares, but benefits for consumers.

Some people believe that WN has artificially lowered fares lately due to their fuel hedges.

Others believe that fares are set by balancing the supply and demand, and that has meant eroding yields and declining RASM for nearly all airlines over the past four years.

I'm a believer in the latter. Predatory pricing exists only in the minds of some people. It doesn't exist in reality.

 

[corl737]

Some people believe that WN has artificially lowered fares lately due to their fuel hedges.

SWA has always priced their products according to what they needed to meet their business goals. If their environment includes lower fuel prices due to hedges, the prices they ask are based on that environment.

Contrast this to the carriers that lowered their fares because they were out of cash and needed an immediate influx just to stay alive.

Predatory pricing exists only in the minds of some people. It doesn't exist in reality.

... at least not in AA's view of the world. May Vanguard, Legend, and others be eternally remembered. :closedeyes:

-- C

 

[BoeingBoy]

though I suspect (there's that word again!) they'll report more hedging in the 2nd quarter.

Jim

[post="278103"][/post]​

In the "I was wrong" catagory.....

WN's 2nd quarter report shows the same hedges in place as at the end of 2004.

"The Company's hedging program resulted in a reduction to fuel and oil expense of $196 million in second quarter 2005. The Company remains approximately 85 percent hedged for the second half of 2005 at $26 per barrel; approximately 65 percent in 2006 at $32 per barrel; over 45 percent in 2007 at $31 per barrel; 30 percent in 2008 at $33 per barrel; and over 25 percent in 2009 at $35 per barrel."

Jim

 

[chasef16]

The videos on thenewfoundlandgroup paint a bleak outlook for LUV.

These senior SWA pilots want to give up pay raises and accept work rule concessions.

 

[markkus757]

I don't agree with this concept of the Southwest effect being bad. Going into markets and providing reasonable fares is not something I would call bad. The people complaining about this work for companies that have continually taken advantage of the limited competition and gouge the passenger higher on the supply curve. Economics is very simple in a big picture. Southwest came in and and lowered the supply curve by increasing demand at lower prices. They overstimulate demand at these prices while still entering the market higher on the curve to keep customers wanting more. When someone like US tries to match capacity and the fare prices, they get caught up in the overflow that the lower fares creates. If the competing airlines don't want their entrance, they should set their fares at more reasonable levels so not to attract the obvious incusion.

 

[tug_slug]

I don't agree with this concept of the Southwest effect being bad. Going into markets and providing reasonable fares is not something I would call bad.

[post="282053"][/post]​

Markus,
IMO in years past Southwest could afford to go into certain markets and dominate because their cost structure was so much lower than its competition but now with so many airlines going into bk thus lowering their cost's and Southwest's fuel hedging not being as strong as it was thats no longer the case.

WN has got to do something about their employee cost's if not how much longer will they be able to keep posting a profit?

Personally Im somewhat worried about the future but then again I've always seen the glass as being half empty.

Tug

 

[ramper_in_las]

Markus,
IMO in years past Southwest could afford to go into certain markets and dominate because their cost structure was so much lower than its competition but now with so many airlines going into bk thus lowering their cost's and Southwest's fuel hedging not being as strong as it was thats no longer the case.

WN has got to do something about their employee cost's if not how much longer will they be able to keep posting a profit?

Personally Im somewhat worried about the future but then again I've always seen the glass as being half empty.

Tug

[post="282055"][/post]​

Hey Tug

I agree with you about labor cost for the company. The thing I have learned about wn is our management is 5 steps ahead of the game. This why we will keep on posting a profit as annouced this week.

 

[corl737]

WN has got to do something about their employee cost's if not how much longer will they be able to keep posting a profit?

[post="282055"][/post]​

Not a completely true statement. The correct statement is "WN has got to do something about their unit costs ...."

Employees are simply one part of the total cost picture. Employees can assume a larger percentage of the total costs if other areas are lower. That's what SWA is doing right now. Rather than take the easy route and seek to get immediate concessions from employees they're getting more efficient in other areas. Obviously this can't last forever so the looming options are to either reduce employee costs or -- Gary Kelly's (and the employee's) preferred method -- increase revenue.

I've always seen the glass as being half empty.

A glass that is half full or half empty is inefficient. I see a glass that's twice as big as it needs to be!

(stolen phrase from George Carlin.)

 

[KCFlyer]

The videos on thenewfoundlandgroup paint a bleak outlook for LUV.

These senior SWA pilots want to give up pay raises and accept work rule concessions.

[post="281978"][/post]​

YOu must feel strongly about this....two posts on your entire 'career' here, and both about that site. Ulitmate motive...or are you a "Bolshevik"?

 

[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]​

Well KC, Looks like Nortwest and Delta are done "Trying" to stay out of bankrupcy..

Looks like Southwest will be forced to compete with TWO airlines "getting their acts together"....

 

[insp89]

Not a completely true statement. The correct statement is "WN has got to do something about their unit costs ...."

Employees are simply one part of the total cost picture. Employees can assume a larger percentage of the total costs if other areas are lower. That's what SWA is doing right now. Rather than take the easy route and seek to get immediate concessions from employees they're getting more efficient in other areas. Obviously this can't last forever so the looming options are to either reduce employee costs or -- Gary Kelly's (and the employee's) preferred method -- increase revenue.
A glass that is half full or half empty is inefficient. I see a glass that's twice as big as it needs to be!

(stolen phrase from George Carlin.)

Could you please expand your discussion on "Unit" costs ? What are some of the "other areas" besides Employee Costs and Increased Revenue due to longer stage length Flying ?

 

[corl737]

Could you please expand your discussion on "Unit" costs ? What are some of the "other areas" besides Employee Costs and Increased Revenue due to longer stage length Flying ?

Anything that sends money out the door is allocated to the "cost" side of the equation. Pencils and paper clips are included in this area. Here's a rundown of some of the major components of an airline's costs that all get rolled into the equation (not including labor and fuel):

Aircraft Ownership -- lease vs purchasing aircraft
Non-Aircraft Ownership -- administrative and acft maintenance buildings, terminals, ground support equipment etc.
Professional Services -- consultants, contract services (legal, etc),
Food & Beverage -- self explanatory
Landing Fees -- a fee assessed for each aircraft operation at an airport. Usually determined by the aircraft weight, thus wear-and-tear on the airport facility.
Maintenance Material -- spare parts inventory
Aircraft Insurance -- it costs a lot to insure an airplane!
Non-Aircraft Insurance -- liability, hazard, etc.
Passenger Commissions -- travel agents
Advertising and Promotions
Utilities and Office Supplies -- large, extravagant facilities cost a lot of money to heat/cool
Interest -- unless you're able pay cash or don't have a steallar credit rating this can be a big expense!

You can read more details at the website of the Air Transport Association, http://www.airlines.org.

 

[insp89]

That overcapacity wouldn't be there if a couple of airlines closed their doors. Prior to the US/AWA merger, I would have thought those two airlines would be UAL and US, but if this merger goes thru, I believe the two airlines that shut down will be AWA and US. And when that happens, all this "overcapacity" that's been added by a profitable airline will fall short of demand - and that demand will be picked up by the surviving airlines.

:blink:

 

[KCFlyer]

:blink:

It took you 5 months and you still don't get it? Take the capacity represented by U (now LCC) and UAL and get rid of it. All this "extra capacity" that Southwest introduced would not meet the amount needed to compensate for all those missing seats from the two failed carriers. Who's gonna carry them? During the month I originally made this post, I would have said American, Delta, Northwest and Continental. But it seems that Delta and Northwest both decided to take advantage of the liberal 'bankruptcy stragtegy" to figure out how to compete. Imagine...if UAL and US would have been allowed to die peacefully, Delta and Northwest might not have had to go into bankruptcy. Guess we'll never know.

 

[insp89]

Nice back tracking..Got any more lame predictions ?