Will Southwest Be A Threat In 3 Years?

[enilria]

...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.

[post="200947"][/post]​

I came up with $156m, you came up with $152m...I appreciate the correction.

I'm not confusing Net Income and Operating Income. Wall Street doesn't care about operating income. The reason is that Operating Income doesn't include mortgage ownership costs of any owned aircraft. I guess if you want to treat owned aircraft as if they were acquired for free out of a box of Wheaties and only include ownership costs on leased aircraft you could do that, but that's why Wall Street ignores operating income.

Further, you don't know that income taxes would have decreased. Income taxes are not based upon operating income or net income in much the same way your taxable income and your gross wages are different. Their taxes paid are based upon tax shelters and carry-forwards and investment credits and numerous other factors that are beyond either of our level of knowledge.

Finally, they don't have to pay taxes on any part of their $900+ million hedging gain (some of which they reported as a fuel expense offset in the quarter) until it matures or they sell the option...so that's not included either!

The bottom line is they didn't make money. You can argue they made a little bit and I can argue the opposite, but the point is that they are in the middle of the LCC pack and not leading any more which represents a fall from where they have been and IMHO indicates a trend.

 

[diogenes]

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

[post="200917"][/post]​

I'm sorry, but what we are experiencing in no way, shape, form nor fashion resembles PI.

I truly hope God is shielding Tom Davis's eyes from what is happening.

 

[sfb]

I'm not confusing Net Income and Operating Income. Wall Street doesn't care about operating income. The reason is that Operating Income doesn't include mortgage ownership costs of any owned aircraft. I guess if you want to treat owned aircraft as if they were acquired for free out of a box of Wheaties and only include ownership costs on leased aircraft you could do that, but that's why Wall Street ignores operating income.

If you look at the income/expense statement, their non-operating, non-tax expense for the quarter was in the neighborhood of $10 million. LUV's interest expense in the quarter was fairly low, at $21 million. The reason, of course, is that they own much of the fleet outright, free of debt; they have had strong enough cash flow to eschew debt financing or leasing. They didn't come out of a box of Cracker Jacks or wherever; the company reinvested its profits in the business instead of buying back a billion or so worth of stock like Wolf & Gangwal did. And the non-mortgage ownership costs of the owned aircraft DO affect operating income as part of the depreciation & amortization line item.

If you want to talk about nebulous P&L statements, why not start with the UAIR statement, where there's a line item for "other" that's over 20% of operating revenue and considerably larger than the company's fuel expense. That "other" item was up 20% year-over-year.

Further, you don't know that income taxes would have decreased. Income taxes are not based upon operating income or net income in much the same way your taxable income and your gross wages are different. Their taxes paid are based upon tax shelters and carry-forwards and investment credits and numerous other factors that are beyond either of our level of knowledge.

Look, in general, taxes do have some correlation with the net income before taxes line item. UAIR didn't pay anything out in taxes in the quarter (they actually got a $7 million refund) which makes sense given the fact that they lost a pile of money. For the most part, when you make less money (as a company), you pay less taxes. Corporations just get to deduct most of their costs of doing business, while you, as an individual, do not.

Finally, they don't have to pay taxes on any part of their $900+ million hedging gain (some of which they reported as a fuel expense offset in the quarter) until it matures or they sell the option...so that's not included either!

That's the same as on a stock or real estate investment that you might make. You don't pay capital gains until you convert the paper profit into cash. Similarly, they only converted an amount of their hedge position in the quarter corresponding to about 80% of their fuel usage. If heating oil prices go down, the value of the hedges on the balance sheet will drop, but it's not part of the company's income until the positions are sold.

The bottom line is they didn't make money. You can argue they made a little bit and I can argue the opposite, but the point is that they are in the middle of the LCC pack and not leading any more which represents a fall from where they have been and IMHO indicates a trend.

And again, they DID make money, whether or not you want to reach to try to make your point or not. And the competitors you list wouldn't have been any better off without their own hedge positions, and their employees will demand higher compensation as time goes on as well.

 

[jimntx]

We are not going to settle this tonight, boys. Tell you what. Let's bury a good bottle of 30 year old brandy here and meet back here in 5 years at the same time of day and year to see which airlines are still flying. If SWA isn't among the still profitable, we'll open the brandy and drink it. If it is, we can all eat crow. (If find that crow is best roasted with a bechamel sauce on the side. hint. hint.)