Will Southwest Be A Threat In 3 Years?

[firstamendment]

This whole thread is predicated on a bunch of IF's. Remember the nursery rhyme that begins
If wishes were horses, beggars would ride.

Add to that...
If Kerry had gotten more votes, he would be President-elect. (Leave it alone. I'm a yellow-dog Democrat, and I'm still in mourning.)
If the Arabs and the Israelis would stop trying to annihilate each other, there would be peace in the Middle East.
If only the Dallas Cowboys would win more games, we would be leading our division right now.
"The saddest words known to men are those that say, 'It might have been.'"
--Robert Burns

[post="200773"][/post]​

"IF a picture paints a thousand words, then why can't I paint you?"

 

[WNjetdoc]

You beat me to the punch, jimntx, I noticed the same thing. If a frog had wings his arse wouldn't hit the ground when he jumped.

I think the thread starter and all the folks that agree with him/her are correct however. I think SWA shoud throw in the towel and give up. Im sure the people that run this company have not thought about anything in the future other than whats for dinner tonight. They don't have the vision to see what we need to do to stay competitive, infact I think perhaps they are stupid and shouldn't be running the company at all. What a bunch of dummies we have in charge!!!

**IF they didn't know what they were doing we wouldn't have made money every year for over 30 years, damn!
**IF they didn't know what they were doing we wouldn't have been the only company that didn't crater and lay people off and cut flts after Sept 11, damn!
**IF they didn't know what they were doing we wouldn't be growing like a weed, when every major airline is shrinking and laying people off, damn!
**IF they didn't know what they were doing we wouldn't have over 60 jets ordered for next year, which will be the most EVER IN OUR HISTORY, damn!
**Etc, etc. (there are lots more to add, feel free).

Yea, you guys are right, this company is heading in the wrong direction, I would much rather work for Usair, UAL, DAL, or some other company that is doing so much better.....a company that has people in charge that know what they are doing. I'd rather work for a company that has vision, like U, UAL, DAL, ATA....BTW, are you guys doing any hiring? He,he,he.

Get real, this comany has its game face on, its very focused and they are not playing....too bad for you guys. You may think we are fat and happy but, NOT! We are a lean mean fighting machine. Have you ever thought that by growing our routes and airline, ( I know its something that you guys don't know much about), that it offsets the pay raises and other cost increases? You guys are taking pay cuts but all of y'alls companies are shrinking, it aint going to work, sorry to tell you.

We are cutting our costs, believe it or not. Our CASM's are going down for next quarter! This company is run by people who know what they are doing. All the employee contracts are done for years to come, except the pilots, but the company knows what the employee costs are going to be for a long while. Thats why we are growing, and growing big time. Thats what makes SWA special, BOTH the company and its employees know how to make it work, we work together, not against each other, like you guys.

You can hope and wish we are heading in the wrong direction, but its only wishful thinking, sorry.

 

[firstamendment]

You beat me to the punch, jimntx, I noticed the same thing. If a frog had wings his
You can hope and wish we are heading in the wrong direction, but its only wishful thinking, sorry.

[post="200794"][/post]​

Calm down, amigo, you are preaching to the choir!! There are a few out there still in denial, but you know...we get it. Obviously you didn't read my post or were you just looking at thing that could give you a reason to join the hatefest over here on the U boards.

Your average U employees have been beating your drum to the company for years with no regard, so ease up on the employees over here.

Good for you and your very well ran company. I think most people over here respect and admire what your company has done but please remember that our emotions are very raw right now and the last thing anyone over here wants or needs is for you or any "my penis is bigger and better than your penis macho rhetoric LUV bugs rubbing the sh#t in our face. :down: :down:

 

[sfb]

1) If it weren't for their very favorable fuel hedge, Southwest would lose more than $200m in 2004. According to Southwest's 10-Q, Southwest has gained $937 million from its fuel hedges currently in place. Fuel is effectively capped at oil prices of $24 per barrel, which is 1/2 of recent prices. The hedges will expire in 36 months.

SOUTHWEST ON A FAIR FUEL BASIS IS QUITE UNPROFITABLE

It may feel nice to say this to yourself, but it's basically untrue. The "$937 million" you quote shows up as an asset in the balance sheet but it doesn't apply to the company's earnings. If you read through the 10-Q, you see that the company's gains from hedging were $131 million before taxes and profit sharing. Considering that the company had operating income of $191 million for the quarter, they still would have been profitable, even at market prices for jet fuel.

Southwest's hedges do expire over the next 36 months, but it's anyone's guess as to where fuel prices will be and where fares will be. No one else has hedges out that far, so everyone will be in the same boat as far as fuel goes. But then again, there's likely to be a bit of a shake-out in terms of industry capacity by then.

Southwest's fuel costs were roughly 10% lower than jetBlue's for the last quarter as compared to jetBlue's. And yet, LUV had a 12% operating margin ($191 million on $1674 operating revenue) while jetBlue's was around 7%. JetBlue is fairly well-hedged and yet they predict a loss for the upcoming quarter. Southwest, in contrast, is not predicting a loss.

2) Southwest's pilot wages will be the highest in the industry after NW and DL complete their cuts. Even worse, Southwest's wages continue to rise quickly and there is absolutely no sense of urgency being communicated that they are moving in the opposite direction from everybody else.

SOUTHWEST WAGES ARE VERY HIGH AND HEADED HIGHER

Again this sounds appealing but their pilots really aren't grossly out of line compared to Delta or Continental, especially when you look at the middle of the pay scales. And the one thing you leave out is that WN's pilots, along with the other work groups, are more productive than the competition. Same with the flight attendants -- they're going to be at or near the top of the industry in exchange for productivity at or near the top of the industry.

3) Southwest is abandoning much of their original strategy.
a) They are cutting frequency in short routes where they have had the greatest cost advantage and expanding in long routes.
B) They are moving away from value pricing in monopoly Texas markets where they are now quite expensive. Soon this will spread to California.
c) They are now more motivated by fear of LCCs than anything else. They are expanding in MDW to compete with Air Tran. They expanded in PHL to head off JetBlue. They are now in favor of repealing the Wright amendment to head off Air Tran growing at DFW. The trouble with this is #2 above...labor costs. Air Tran, JetBlue and the other LCCs are now much lower cost than Southwest.

THROWING AWAY STRATEGY THAT WORKED FOR YEARS

a. Cutting frequency on some short-haul routes has been a response to the realities of post-9/11 travel along with an adjustment due to fewer 122-seat aircraft being in the fleet. When security hassles now add an extra hour to travel, fewer people want to fly short-haul routes. Not to mention that ever-increasing government fees are disproportionately burdensome to short-haul travel. Note that this is a problem for US as well given their historical dependence on short-haul travel in the East.

b. Actually, the pricing in the "monopoly" Texas and California markets isn't all that different from where it was ten years ago. The last time I bought a HOU-DAL walk-up fare was in 1991 and it was $79. Now it's $94; I don't consider a 20% increase over 13 years to be grossly out-of-line. Compare that to US Airways on a GoFares route like DCA-BUF, where the lowest walk-up fare is $169 each way or DCA-PIT where the walk-up fare is nearly $450 each way! And, in any case, Southwest doesn't have a monopoly in its Texas markets; they compete with CO in Houston and AA in Dallas/Fort Worth.

c. I guess the situation in MDW depends on your viewpoint. It is very much in WN's best interest to make MDW unattractive to AirTran since ATA is going to have to dump its Midway operation either way. After all, the people currently flying on ATA are going to be flying anyway, and I'm sure Southwest would like to pick up as much of that traffic as they can handle profitably. I suppose it wouldn't be "desperation" for Southwest to just give those markets away?

PHL was an underserved market dominated by a "financially-troubled," high-cost, high-fare network carrier. From all reports, the response to WN at PHL has been phenomenal. I mean, where else would you have them go? ABE would have been more in line with their strategy in the past, but if you're WN management and you think US will be gone within five years, it makes sense to take the "crown jewel" of the US Airways system. Moreover, possible service to PHL, BWI, MCO, and MDW makes just about every East Coast city over 500,000 workable for WN.

Repeal of the Wright Amendment doesn't keep AirTran from expanding at DFW. If they were worried about AirTran building up DFW, they would have taken the gates Delta is giving up. Repealing the Wright Amendment, though, would open up a slew of high-fare routes from DAL. DFW-MCI fares are 50% higher than DFW/DAL-HRL for the exact same 461-mile distance. DFW/DAL-ELP averages $113 each way; compare that to $167 for DFW-MCI or $253 for DFW-OMA. DFW-BNA is twice as expensive as DAL/DFW-ABQ even though it's only 10% farther. Shoot, if the Wright Amendment were repealed, don't you think that would open up DAL to other airlines, too?

4) BTW, does anyone consider it interesting that after years of trying to beat Alaska Airlines (not exactly the lowest cost airline), it appears to most people that Southwest has lost that battle. No more expansion out there in the PacNW, while Alaska reports big profits without a giant fuel hedge. Oh, and finally, Spokane and Boise are in the bottom five in load factor among Southwest stations according to AvDaily (below 60%).

THEY CAN BE BEATEN

Where else should they fly in the Pacific NW? Missoula? Walla Walla? Pocatello? Eugene? Kalispell? Pasco? Medford? They serve pretty much every city of significant size out there that can support more than 3 or 4 737's per day. Alaska Airlines (mainline, not Horizon) doesn't serve any more cities in the Pacific NW than WN. And, moreover, Alaska's expansion over the past five years has largely been on flying to/from Mexico or long-hauls to the East Coast that do not compete with WN.

Alaska (like Continental) is a good example of coexisting with Southwest and being profitable on routes that don't compete with them. You can bet that one of the biggest profit drivers at AS is the SEA-ANC route that they dominate and charge high fares on.

I think the fact that Southwest is toying with eliminating open seating is indicative of just how unsettled the whole airline is and shows the desperation level when one looks toward the future. The massive number of planes Southwest plans to take next year (50+) may well be the straw that breaks the camel's back.
If Alaska can beat them, can't Air Tran, JetBlue, maybe even US Airways? Food for thought.

Well, I guess you'd argue that getting rid of the plastic boarding passes and adding leather seating, gate readers, long-haul flights, service to a congested city like PHL, changing the livery, fuel hedging, winglets, kiosks, internet reservations, online checkin, etc. were all signs of desperation for WN at one point or another. They must be desperate because they're retiring old 737-200 aircraft, too, right? They must have been desperate when they added a frequent flyer program, too! Or, you could take the simpler view that almost every business evolves over time, and that successful enterprises are willing to make changes to their product in response to customer demand or external factors.

Southwest has said in the past that they were looking at operating regional jets, but there still aren't any orders to Bombardier or Embraer. They've said they're looking at IFE but they don't seem "desperate" to order satellite TV systems. They're going to look at what the customers say they want and are willing to pay for, and then make their decision based on that.

They're not taking "50+" airplanes next year; they're taking 34 which will be a net increase of 29 when taking 5 737-200 retirements into account. The net increase in the fleet is about 7% which doesn't seem "massive" to me. The 50+ number pretty much is only in play if US or UA or some other network carrier liquidates.

In any case, hoping for Southwest to implode isn't going to fix the problems at US Airways or any other network carrier. Trust me, they're not basing their default future plans on anyone going out of business, but you can bet money that they have contingency plans in place for a variety of "market opportunities" thay may arise. Compare that to the "we don't have a Plan B" way that Wolf and Gangwal approached the UAL-U merger.

 

[diogenes]

Hummm, let's compare WN/U metrics.

Until recently, U compared favorably with or exceeded WN's DOT metrics - on time, mishandled baggage, passenger complaints. These metrics are mostly (with the exception of staffing issues)under the control of front-line grunts.

At no time has U's financial metrics (shareholder value, ROI) approached WN's.

 

[enilria]

There is a fallacy with argument #1. Lower fuel prices will not hurt SWA's profit.
Argument #2 and hence#3: employee costs have risen.

[post="200666"][/post]​

I think you miss my point on the fuel hedge. If fuel prices remain high Southwest will not be able to hedge any further at the bargain basement rates they locked in over a year ago. That means that when their current hedge unwinds, Southwest will be unprofitable along with the rest of the industry. The point is that Southwest is outperforming everybody else only because of their fuel hedge and it is doubtful such a coup can be repeated.

 

[enilria]

QUOTE(enilria @ Nov 14 2004, 06:07 AM)
We are the nation's #1 carrier for domestic passengers for the US. We have to change to accomidate demand.

I worked in Salt Lake on the ramp sometimes we would only have say 29 passengers up top flying to SEA say as an example. But down below we would have 4,000 lbs of mail and freight.

[post="200667"][/post]​

The point is that changing the formula is risky. If the changes aren't successful Southwest is risking a lot of their dynasty. Another point on the changes is that Southwest used to avoid airports with operational problems and now they are mired in Philly which is a nightmare.

Actually a full load of mail produces only about $500 (2 or 3 passengers) because freight is charged on weight and mail is not "dense" as they say in the cargo business. So no airline is making any money carrying mail. Northwest determined it wasn't worth the fuel it cost to carry it and now refuses it. Keep in mind a Fedex letter is $14 and a USPS letter is under a dollar.

 

[UNC HUSKER]

I've been saying this all along. US just needs to buy some time to correct 20 years of mismanagement. Unfortunately wages are the biggest piece of the pie.

[post="200656"][/post]​

Sorry not twenty years just fifteen! If we would have done the right thing then we as a group would not be faced with this! We are slowly going back to the way PIEDMONT INC did buisness. The problem is that we now have to pay for Ed And Seth's lets do it and do it the way we have always done it!
Now as we go into it we have to pay for fifteen years of mismanagment.....
Should have done it in mirror image but now we pay fpr the ignorance of we were a better ailine than PIEDMONT. LMAO! JETPIEDMONT

 

[foreright]

Time will only tell. One thing is for certain, IF U comes out of this thing with the necessary consessions and business model planned, and IF fuel prices continue down, and IF the economy continues an upward trend. U will be eating alot of lunchs.

 

[enilria]

It may feel nice to say this to yourself, but it's basically untrue... If you read through the 10-Q, you see that the company's gains from hedging were $131 million before taxes and profit sharing. Considering that the company had operating income of $191 million for the quarter, they still would have been profitable, even at market prices for jet fuel.

[post="200853"][/post]​

Ok...let me show you the numbers. Let's use the most recent quarter.

Let's start by using UAL's average fuel price for the quarter since they are 100% unhedged for the period. http://biz.yahoo.com/prnews/041028/cgth041_1.html

They paid $1.30 per gallon.

Southwest paid $0.80 net of hedge. http://biz.yahoo.com/e/041015/luv10-q.html

That means they saved $0.51 per gallon. They burned 306 million gallons. http://biz.yahoo.com/e/041015/luv10-q.html

306 million gallons x $0.51 per gallon extra = $156 million.

Net income for the quarter: $119 million
http://biz.yahoo.com/prnews/041014/dath005_1.html

Southwest NET LOSS FOR 3Q NET OF FUEL HEDGE : $37 million.

 

[Kev3188]

Northwest determined it wasn't worth the fuel it cost to carry it and now refuses it. Keep in mind a Fedex letter is $14 and a USPS letter is under a dollar.

[post="200914"][/post]​

NW also didn't want to invest in all of the scanners and other "infrastructure" the USPS was demanding of the carriers.

 

[sfb]

Ok...let me show you the numbers. Let's use the most recent quarter.

Let's start by using UAL's average fuel price for the quarter since they are 100% unhedged for the period. http://biz.yahoo.com/prnews/041028/cgth041_1.html

They paid $1.30 per gallon.

Southwest paid $0.80 net of hedge. http://biz.yahoo.com/e/041015/luv10-q.html

That means they saved $0.51 per gallon. They burned 306 million gallons. http://biz.yahoo.com/e/041015/luv10-q.html

306 million gallons x $0.51 per gallon extra = $156 million.

Net income for the quarter: $119 million
http://biz.yahoo.com/prnews/041014/dath005_1.html

Southwest NET LOSS FOR 3Q NET OF FUEL HEDGE : $37 million.

OK, let me explain to you exactly what's wrong with your numbers:

First, $1.301-$0.803 = 49.8 cents/gallon, not 51 cents/gallon. So even assuming that Southwest had paid the same price as United (which is a poor assumption, actually, since Southwest buys a good bit of its fuel in lower-cost areas like Texas and tankers fuel, while United buys in California and overseas), the difference would be $152 million.

Second, you are confusing NET INCOME with OPERATING INCOME. Operating income is basically calculated by subtracting operating expenses from operating revenues. It does not include things like interest and taxes. Net income, of course, includes the effect of interest and taxes. Southwest's income before income taxes (which amounted to $62 million) was $181 million. Now, if we subtract $152 million (or even $156 million if you want!) from $181 million, they still would have made $25-$29 million. The income taxes on that would have been $9-10 million which still leaves POSITIVE net income.

But wait, there's more. Southwest also computes profitsharing based on operating income, and that's included in the labor line item. So if fuel had reduced operating income by $150 million, they would have paid out somewhere in the range of $25 million less in profitsharing, reducing labor cost.

So, the long and short of it all is that Southwest's operating income would have been somewhere around $50-60 million for the quarter if they'd paid market prices for fuel, while net income would have been in the $30-40 million range -- not as impressive but still in good shape relative to the rest of the industry. But you'd have to do the same sort of calculation at AirTran (which would have lost more money in the quarter without hedging) and jetBlue (which would have been near break-even had they paid $14 million for fuel, given their average price of $1.08/gallon).

 

[jimntx]

But, in the end, if you take away the "what ifs" and the "if onlys" you are left with the fact that they DID hedge fuel, they DID NOT pay the same price for fuel that UAL paid, and they had a net income of $119 million.

The bankers and the investors look at what happened, not what might have happened.

 

[goingboeing]

SWA will remain profitable because the management at SWA knows how to run an airline.[example: fuel hedging]
They understand that the success of the airline starts with the employees instead of the shareholders.
SWA may have have to FREEZE the pay and benefits for a few years because of airlines gaining a competitive advantage thru C-11.
Because their employees trust the leadership of their management team they will do what it takes keep the company profitable.
I would not be in any hurry to write off SWA.

 

[firstamendment]

Step aside, United, a new war has just broke out! We got us a new enemy to fight. This time its's Texas and it ain't a prez but an airline. Git jer riffles and a boddle of jack. Its gonna be a long winter wit all dem figting words. 😛