UAL takes advertising aim at Southwest

[sfb]

I'm not sure what a statstic like this would show, when you are comparing airlines with vastly different average airplane sizes. A 747 is a lot bigger than a 737, meaning more seats and passengers, etc., per plane, and you would expect a carrier that has a larger planes in its fleets to have more employees per plane, to handle everything from more reservations to serving more drinks on board. The 737 is the smallest airplane in the UA fleet.

Employees per seat, or better yet per seat mile, may be a more useful comparison.

An excellent point that a lot of folks overlook. The way the numbers worked out for the 3rd quarter:

UA ASM's per employee: 661,500
WN ASM's per employee: 696,400 -- roughly 5% better.

Southwest's productivity is even more remarkable given that their average stage length is under half that of United's -- and they manage slightly higher aircraft utilization even without operating red-eyes or any flights over about 2500 miles. Southwest's yields are actually higher than United's on an unadjusted basis (11.68 cents for WN vs. 11.39 cents for UA), but UA does much better when adjusting for stage length, of course.

 

[Fly]

Back to your post...I've never wanted to shut United down so even though I would normally assume that a post related to the prior post would be directed at the prior poster...I will have to assume that you don't mean me in this case b/c I have never wished doom for them.

Best of luck,

Ch. 12

You are correct....I did not mean you. In fact, I didn't mean any of the other posters in particular either. I was generalizing how we have endured monthly banter from posters blasting us about the paper losses as if they were real but then a paper profit is also dismissed from the same group of people. It comes off as nothing more than anti UAL rhetoric to me.

 

[dc3fanatic]

Minor technicality...it's 2009.

Not really. The vast majority of their hedges unwind in 2006.

 

[KCFlyer]

Not really. The vast majority of their hedges unwind in 2006.

Let's wait, shall we? Should WN show a profit in 2007, I'm sure that many of you will point to those same hedges as being the reason.

 

[lostplanetairman]

I believe SWA fuel hedges are not going away so soon. Last I read they were hedged to 2009 and climbing.

HR Diva

 

[dc3fanatic]

Let's wait, shall we? Should WN show a profit in 2007, I'm sure that many of you will point to those same hedges as being the reason.

Oh wait, please don't confuse my comparison as saying Southwest in inefficient. They are efficient, which isn't a function of hedging. The hedging just makes it all the better for them.

They had a few people that made some bets (or chose to reduce risk) and it has paid off for them in spades. hell, they helped drive US Airways back into bankruptcy and eventually to merge or liquidate.

They are very respectable operationally. So is United.

With respect to hedges (from the 10K)

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. As of December 31, 2004, the majority of the Company’s first quarter 2005 hedges are effectively heating oil-based positions in the form of option contracts. For the remainder of 2005, the majority of the Company’s hedge positions are effectively in the form of unleaded gasoline-based and heating oil-based option contracts. The majority of the remaining hedge positions are crude oil-based positions.

Clearly not gone in 2006, but also a significant reduction. Keep in mind that they state in % of fuel used, but the percentages are based on a projected usage. For example, if usage doubles, the percentage doesn't hold.

 

[scuba]

If memory serves, I believe that UAL started fuel hedgeing during the 1990's, well before WN. However, due to some poor decisions by UAL Management those hedges were sold before BK and since cash had to be reserved for BK they couldn't take advantage of hedging. I'm sure UAL will begin hedging fuel the very day they exit BK for as far into the future as they can to attempt to control costs.

 

[dc3fanatic]

If memory serves, I believe that UAL started fuel hedgeing during the 1990's, well before WN. However, due to some poor decisions by UAL Management those hedges were sold before BK and since cash had to be reserved for BK they couldn't take advantage of hedging. I'm sure UAL will begin hedging fuel the very day they exit BK for as far into the future as they can to attempt to control costs.

I doubt it, as a hedge today would lock it in a current market rates and many expect the market to fall. What I'm saying is that you can't currently write a hedge for $40/barrel for 2007. I think most companies will wait, time will tell.

 

[Fly]

I was under the impression that UAL had some current hedging in place.

 

[dc3fanatic]

I was under the impression that UAL had some current hedging in place.

Don't know. I can't find a current 10K to search.

 

[magsau]

Don't know. I can't find a current 10K to search.

I was present at a meeting at EXO recently where Tilton addressed this issue. Yes we have some hedges at around $40+/- a couple of dollars. The amount of hedging is only around 20-30% of the projected needs. This should give UAL an average PPG that will keep UA under the $60bbl number for the year. That was average was based on the price being $65bbl for the remainder of the needs.

When UA asked the BK court for hedging at $40bbl some thought they were nuts. Looking back it was one of the many moves made by Tilton that saved the airline.

Tilton is not here to be a best friend. He is here to turn the airline and the culture to be a fromidable carrier. As long as he is around, he said he would say through his contract but would have to discuss with the BOD any longevity, we will be OK. The guy spent a long time in the oil business so I think he has some insight into the price of oil, where to get the best deals and the ability to negotiate the best price.

As for SWA. Tilton said, TED did its job at IAD (re: flyi) and it will do its job at DEN.

 

[SVQLBA]

UAL's 3Q OPERATING Margin (excluding fuel hedges) was better than SouthWest's.

How do you like THEM apples?

Meaningless -- the whole point is WN had the management smarts to get the hedges in place -- it wasn't a windfall. Those people expecting WN profits to disappear as WN hedging decreases will be waiting a long time.

And -- for various other folks, that $10Bn profit that UAL will see is a one-off paper profit from writing off liabilities. You'll need to look at the operating profit line to see how profitable UAL really is and what you can expect for Q2 etc.

An excellent point that a lot of folks overlook. The way the numbers worked out for the 3rd quarter:

UA ASM's per employee: 661,500
WN ASM's per employee: 696,400 -- roughly 5% better.

Southwest's productivity is even more remarkable given that their average stage length is under half that of United's -- and they manage slightly higher aircraft utilization even without operating red-eyes or any flights over about 2500 miles. Southwest's yields are actually higher than United's on an unadjusted basis (11.68 cents for WN vs. 11.39 cents for UA), but UA does much better when adjusting for stage length, of course.

sfb -- excellent points. In all the accounting and cost cutting people are losing sight of the fact that by almost any measure, WN is still THE most productive carrier, especially when you account for their (still) short average stage lengths and modest average aircraft size. They could pull a Ryanair and fly -800s, or do a B6 and fly red-eyes and 1000nm avg stage lengths and easily drive their CASM down 10-20%.

 

[Fly]

And -- for various other folks, that $10Bn profit that UAL will see is a one-off paper profit from writing off liabilities. You'll need to look at the operating profit line to see how profitable UAL really is and what you can expect for Q2 etc.

Well DUHHHHH :huh: That's what we've been saying for 5 pages. Do you actually read the other posts? What we are saying is that you all made such a HUGE fuss that we were losing billions every quarter during bankruptcy and refused to listen to us when we would point out that they were nothing more than paper loss. So considering the reaction then that it must be a REAL loss, then this must be a REAL profit.

It's good to see all the people that are worried now that United is about to emerge a serious competitor with the enviable, best route structure still intact.

 

[Bear96]

An excellent point that a lot of folks overlook. The way the numbers worked out for the 3rd quarter:

UA ASM's per employee: 661,500
WN ASM's per employee: 696,400 -- roughly 5% better.

Southwest's productivity is even more remarkable given that their average stage length is under half that of United's -- and they manage slightly higher aircraft utilization even without operating red-eyes or any flights over about 2500 miles. Southwest's yields are actually higher than United's on an unadjusted basis (11.68 cents for WN vs. 11.39 cents for UA), but UA does much better when adjusting for stage length, of course.

Wow -- I am surprised that UA is as close as it is to WN in terms of employee productivity -- only a 5% difference. I would have guessed a bigger margin considering the many relative inefficiencies in UA's route system compared to WN's (i.e., many locations only having one or two large planes a day instead of more frequencies spreading out the workload over more employees instead of having a few "spikes" of activity).

Of course productivity is a factor only on the cost side of the equation. The hope is that the more inefficient parts of UA's network are made up for with higher yield to address the revenue side. Just looking at a single productivity measure at two airlines with vastly different route systems is a start but only addresses part of half of the equation.

 

[BoeingBoy]

I would have guessed a bigger margin considering the many relative inefficiencies in UA's route system compared to WN's (i.e., many locations only having one or two large planes a day instead of more frequencies spreading out the workload over more employees instead of having a few "spikes" of activity).

Just a question, since I don't know the answer.....

How many UA employees are there at those locations having only "one or two large planes a day" (international destinations, presumably) - 1, 2, a handful?

If UA is like most airlines, those international stations utilize mostly contract workers who aren't counted as UA employees. Thus they contribute to the apparent productivity.

Jim