WN in MSP

[jbguppy]

If they want to stay out of bankruptcy court, they will sustain the higher fares. If they worry too much about market share...count on a fare sale.

LAX is a big market. My point was not to show the great travel deals out of LA, but to demonstrate to the all knowing UAL pilot that it would indeed be necessary for Southwest to lower fares to match United. My question is...is that a part of the United "road to profit" strategy?

As much as you would like to frame the argument to your own flawed logic and agenda, and to avoid the original question...let me get you back on track omnipotent cheerleader..

SWA is only attractive at low cost. If they are not cheaper, they are just another airline. Denver fares are down 18 percent year over year due to SWA showing up. Your claim that they are raising fares above UAL is BS. I never said that UAL was cheaper - only matching with much better service, legroom, schedule, and non-stops. They (SWA) will not be able to sustain their low cost advantage into the future due to higher labor costs (up 8.5 percent year over year according to SWA) and diminishing fuel hedges (without them they would have lost more than CAL in the first quarter).

SWA is a fuel hedge one trick pony, and the nag is getting older...
JBG

 

[KCFlyer]

SWA is only attractive at low cost. If they are not cheaper, they are just another airline. Apparently they are not. They are charging more per ticket. They are constantly looking for improvements to efficiency. And when the hedges run out, actually before the hedges run out, they are slightly raising fares.

Denver fares are down 18 percent year over year due to SWA showing up. Your claim that they are raising fares above UAL is BS. And I'll submit that Denver fares are down not so much by Southwest showing up, but by United going after "market share". As for my claims being BS...go to Southwest.com and price a flight from DEN to LAX or LAX to SEA. Depart May 26, Return May 29 (a holiday weekend). Then do the same at UAL.com. Tell me who is cheaper. The truth sometimes hurts.

I never said that UAL was cheaper - only matching with much better service, legroom, schedule, and non-stops.

Please, please PLEASE give me some examples of superior service to your average coach class passengers. The only thing I can see is assigned seating. And only time will tell if SWA starts doing that...I think that they can and still keep turn times lower because their gate staff is already pretty darn good about stopping people trying to slip thru in the wrong group. If they start assigning seats, then all you've really got is Channel 9 and your armrest entertainment center - the value of which, in the day of the I-pod, is questionable. Only super duper premium elites, or those paying full Y fare are able to avail themselves of the better legroom...the rest is stuck in the back with less legroom than a SWA flight. Does UAL typically start a new city, especially one in a hub for a competitor with a wider variety of flights and nonstops within the first couple of months? That argument is silly.


They (SWA) will not be able to sustain their low cost advantage into the future due to higher labor costs (up 8.5 percent year over year according to SWA) and diminishing fuel hedges (without them they would have lost more than CAL in the first quarter). Again the assumption that if the fuel hedges were not in place, SWA would still be pricing tickets as though oil were $35.

SWA is a fuel hedge one trick pony, and the nag is getting older... The real question is this...the hedges last 3 more years. Can UAL continue the market share battle before that "one trick pony" kills them?
JBG

 

[ngneer]

SWA is a fuel hedge one trick pony, and the nag is getting older...

SWA has steadily grown over the last 30+ years to be the nation's largest domestic passenger carrier. That's one hell of a trick.

 

[ELP_WN_Psgr]

SWA is a fuel hedge one trick pony, and the nag is getting older...

You go ahead and keep believing that.

A lot of other airline management have lost a lot of money for their companies by thinking things like that, and like

"Businessmen won't fly Southwest"

"They do not assign seats. Nobody will fly them."

"We can undercut their price selectively and jack up the price in other markets where they do not fly"

"They have no First Class. That's important to people."

"They have no club for their FF members. That's important. We can keep them from encroaching on our turf via our club."

"We'll hurt them with MetroJet."

"We'll hurt them with United Express."

"We'll hurt them with Ted."

"We'll lay 14 RTs a day on top of them between Dallas Love and Austin and underbid them for the state government official travel. That will teach them."

>>>>>>>>>>>>>>>>>>>

If somebody wants to work for United for a buck sixty an hour, fine.

Southwest's industry leading (or near industry leading) contracts have sufficient productivity built in to where Southwest can afford to pay a livable wage.

How long do you think it will take, if the legacy carriers start to make a few profits...before their unions start to squall wanting some of those "concessions" back?

>>>>>>>>>>>>>>>>>>>>>

The real bottom line is the same as it has been since June 1971. Southwest offers a quality product at a decent price.

Some things never go out of style.

Oh...and even if you take out all the fuel....Southwest still has a CASM advantage. If you adjust for stage length, that gap becomes even wider.

And about that 8.5% increase in labor costs.

That 8.5% increase in labor cost was necessary to provide a reasonable level of service to 9.9% more passengers flying 15% more RPMs.

If your airline is growing, you expect to have to pay more out in wages. You cannot run a 450 aircraft airline while keeping it staffed at the same levels you had when you had 5 airplanes and 4 stations.

Things look great as long as passenger count and RPM growth exceed the growth in labor cost. Don't you think?

 

[JS]

Originally posted by KCFlyer:

Please, please PLEASE give me some examples of superior service to your average coach class passengers. The only thing I can see is assigned seating. And only time will tell if SWA starts doing that...I think that they can and still keep turn times lower because their gate staff is already pretty darn good about stopping people trying to slip thru in the wrong group. If they start assigning seats, then all you've really got is Channel 9 and your armrest entertainment center - the value of which, in the day of the I-pod, is questionable. Only super duper premium elites, or those paying full Y fare are able to avail themselves of the better legroom...the rest is stuck in the back with less legroom than a SWA flight. Does UAL typically start a new city, especially one in a hub for a competitor with a wider variety of flights and nonstops within the first couple of months? That argument is silly.

Can an ipod tune into ATC communications? No it cannot. Sure, not everyone listens to Channel 9, but since it costs UA nothing, it is an advantage over any other airline, including Southwest.

You don't have to be super duper premium elite to sit in E+. Any UA or Star Alliance elite level (30 segments or 25,000 miles a year) can sit in E+, or one can pay $25 or so at check-in (more for international flights but that is not an issue of comparison). At the end of the year UA offers double-counting flights for status for $200, making it possible for even more people to achieve elite status. In terms of legroom, E+ is like sitting in First Class.

A couple of fare searches doesn't prove that UA is undercutting Southwest. That's like flipping a coin twice and getting heads both times and concluding the coin must have two heads with no tail. With air fares, there are too many complexities to make any meaningful conclusions with two fare searches.

While I agree with many of your points on the advantages of Southwest over the legacies, the fact of the matter is that of the legacies, UA provides the best service, bar none. Delta and US Airways used to provide very good service but they have bought into the idea of "let's cheapen ourselves like Southwest so we can make money like Southwest". That clearly does't work. Time will tell if UA's service will keep them in business for the long run, but I'm betting it will.

It is the crummy legacy carriers like US Airways and Northwest that had better watch their back!

 

[KCFlyer]

Can an ipod tune into ATC communications? No it cannot. Sure, not everyone listens to Channel 9, but since it costs UA nothing, it is an advantage over any other airline, including Southwest.

You don't have to be super duper premium elite to sit in E+. Any UA or Star Alliance elite level (30 segments or 25,000 miles a year) can sit in E+, or one can pay $25 or so at check-in (more for international flights but that is not an issue of comparison). At the end of the year UA offers double-counting flights for status for $200, making it possible for even more people to achieve elite status. In terms of legroom, E+ is like sitting in First Class.

A couple of fare searches doesn't prove that UA is undercutting Southwest. That's like flipping a coin twice and getting heads both times and concluding the coin must have two heads with no tail. With air fares, there are too many complexities to make any meaningful conclusions with two fare searches.

While I agree with many of your points on the advantages of Southwest over the legacies, the fact of the matter is that of the legacies, UA provides the best service, bar none. Delta and US Airways used to provide very good service but they have bought into the idea of "let's cheapen ourselves like Southwest so we can make money like Southwest". That clearly does't work. Time will tell if UA's service will keep them in business for the long run, but I'm betting it will.

It is the crummy legacy carriers like US Airways and Northwest that had better watch their back!

JS... Channel 9 is really cool for an aviation geek. But is it any better service for the person who doesn't care? I wasn't going to go down a city by city comparison...that's why I flipped a coin over a holiday weekend...the time when Southwest's advance fares had pretty well been sold out, and a time when a slight fare premium could be charged. FWIW, In both cases, SWA had only one flight on any leg at that price...anything else was more. UAL had several flights that were priced betweenn $30 and $90 under the lowest SWA fare. I grant you...picking two cities in mid June on a Wednesday was a lucky hit. But over a holiday that traditionally signals the start of the summer travel season?

 

[JS]

JS... Channel 9 is really cool for an aviation geek. But is it any better service for the person who doesn't care?

Well, it's not a negative for those who don't care to listen in. What is your point?

I wasn't going to go down a city by city comparison...that's why I flipped a coin over a holiday weekend...the time when Southwest's advance fares had pretty well been sold out, and a time when a slight fare premium could be charged. FWIW, In both cases, SWA had only one flight on any leg at that price...anything else was more. UAL had several flights that were priced betweenn $30 and $90 under the lowest SWA fare. I grant you...picking two cities in mid June on a Wednesday was a lucky hit. But over a holiday that traditionally signals the start of the summer travel season?

UA would be pretty stupid to constantly update their fares to meet or exceed Southwest's. Yield management knows what they are doing.

Fares differences will fall by the wayside over the long run. The real question is will both airlines be able to survive in the market, or will one perish? I think both can survive, and in fact thrive (relatively speaking) in the DEN market.

 

[KCFlyer]

Yield management knows what they are doing.

Do they?

 

[JS]

Do they?

Yes. You seem to be confusing business plans with yield management. They are two different things. Yield management is far too complicated to reverse engineer if you only look at two markets.

 

[jbguppy]

You go ahead and keep believing that.

A lot of other airline management have lost a lot of money for their companies by thinking things like that, and like

"Businessmen won't fly Southwest"

"They do not assign seats. Nobody will fly them."

"We can undercut their price selectively and jack up the price in other markets where they do not fly"

"They have no First Class. That's important to people."

"They have no club for their FF members. That's important. We can keep them from encroaching on our turf via our club."

"We'll hurt them with MetroJet."

"We'll hurt them with United Express."

"We'll hurt them with Ted."

"We'll lay 14 RTs a day on top of them between Dallas Love and Austin and underbid them for the state government official travel. That will teach them."

>>>>>>>>>>>>>>>>>>>

If somebody wants to work for United for a buck sixty an hour, fine.

Southwest's industry leading (or near industry leading) contracts have sufficient productivity built in to where Southwest can afford to pay a livable wage.

How long do you think it will take, if the legacy carriers start to make a few profits...before their unions start to squall wanting some of those "concessions" back?

>>>>>>>>>>>>>>>>>>>>>

The real bottom line is the same as it has been since June 1971. Southwest offers a quality product at a decent price.

Some things never go out of style.

Oh...and even if you take out all the fuel....Southwest still has a CASM advantage. If you adjust for stage length, that gap becomes even wider.

And about that 8.5% increase in labor costs.

That 8.5% increase in labor cost was necessary to provide a reasonable level of service to 9.9% more passengers flying 15% more RPMs.

If your airline is growing, you expect to have to pay more out in wages. You cannot run a 450 aircraft airline while keeping it staffed at the same levels you had when you had 5 airplanes and 4 stations.

Things look great as long as passenger count and RPM growth exceed the growth in labor cost. Don't you think?

I thought that 8.5% was unit adjusted, not an increase to support increased size. Pilots got a 10 percent plus raise?? Bottom line from my perspective is assigned seats, economy plus, more food options, and the list goes on and on. Point to point with the 737 vs world wide network. In a lot of ways the two carriers are apples and oranges. If you slice out our 737's and A320's its only about 260 aircraft, but cost and productivity wise they have narrowed the gap to a very small difference ex fuel.

Like it or not, while SWA has a long record of good management and profitability - those advantages have been largely eroded IMO.

Good Luck...

JBG

 

[BoeingBoy]

I thought that 8.5% was unit adjusted, not an increase to support increased size.

Nope, on a unit basis (per ASM), labor cost was down 0.6%. Total operating expense per ASM ex fuel was down 0.2%.

Can an ipod tune into ATC communications? No it cannot. Sure, not everyone listens to Channel 9, but since it costs UA nothing, it is an advantage over any other airline, including Southwest.

Unless someone is giving UA the IFE system (which makes channel 9 possible) as well as maintaining it for free, there is a cost involved.

I guess one could argue that the IFE is there anyway so having channel 9 carries no additional cost, but one could use that argument to dismiss many costs which still have to be paid.

Jim

 

[jbguppy]

Nope, on a unit basis (per ASM), labor cost was down 0.6%. Total operating expense per ASM ex fuel was down 0.2%.
Unless someone is giving UA the IFE system (which makes channel 9 possible) as well as maintaining it for free, there is a cost involved.

I guess one could argue that the IFE is there anyway so having channel 9 carries no additional cost, but one could use that argument to dismiss many costs which still have to be paid.

Jim

Not doubting your numbers, could you please share a source so I can get smarter.

Thanks in advance,

JBG

 

[BoeingBoy]

WN's 1Q06 report. It should be available on their website, but I got it from Edgar online. You'll see that everything except fuel (no surprise there), depreciation, and "other operating expenses" are down on a unit cost basis.

Oh, that's 1Q06 vs 1Q05.

Jim