SWA Business plan Tanking..Did I miss something?

[On Your Six]

On your six eats his own poo!

Don't tell anybody.

 

[Dude]

On Your Six,

4 whole months on the line and you are an expert on the 737 and the industry? Wow, did you learn such things at the USAFA? Perhaps is was your time as an ops officer that you received your enlightenment. I am truly happy that someone with as little experience as you were able to land so firmly on your feet after furlough. But please, know a product before you preach about its viability. It would be hard for me to talk about the dousche market considering I've never used them. You on the other hand.........

Seriously, SWA is an apple and everyone else is not. Comparing Southwest to everyone else doesn't reveal a fair analysis or offer a clear recommendation regarding our performance or lack thereof.

 

[klr1395]

Yeah, I'll post my W2 here for you. If you want to prove that you are indeed logical, then answer two simple questions for the rest of us:

1. Is SWA's position and growth prospects threatened by the growth of other LCCs like Jet Blue, Air Tran, Spirit, Skybus, VA and the regional operations of the legacies (E170/CR9 operators)?

2. How is the cattle car boarding process preferrable to the normal, reserved seating process in your mind (not what SAN people think)?

Just answer those two questions in a logical, non-emotional manner and I will be happy - and we can end this debate for good. One word or one sentence answers don't work - some thought and examples would be appreciated.

OYS,

I'll give it a try..

1. SWA's position and prospects are of course possibly threatened by the aforementioned carriers. They have always been threatened by one carrier or another and usually seem to come out doing fairly well (I cite Braniff early on in Texas & they ran the USAirways hub out of BWI starting in the early 90's..) I could be wrong but it does not seem like you acknowledge that it is a possibility that SWA will pressure the other LCC's and Legacies in areas that are new for SWA, (ie International, Mexico & Carribbean, I mean who ever thought they would fly outside Texas or the Wright ammendment states?). I do not think it will be long (my guess around 2009) before SWA goes north & South of our border. I also know they're already talking with Boeing about the replacement for the 737s. Who knows what it will be but my bet is that it will have IFE and ETOPS certification. They have as previously pointed out survived threats to their growth and business model. I know this does NOT guarantee success going forward but I think they have a better shot at competing in other markets than you give them credit for.

2. As far as the asigned seating issue; here are my thoughts as a frequent paying passenger of the airline industry thus far. As for the cattle car boarding style, well different people have different preferences, not to mention it is or at least used to be unique which is a draw in and of itself. My main point though is that just because an airline offers assigned seating at time of ticketing, does NOT mean that it will be a good seat. I am a Preferred @ USAirways (live in Non-SWA city, nearest is 3.5 hrs) and I still frequently end up in 'normal' or worse middle seats because load factors are high these days. If a pax is not smart or savy enough to make sure they get a seat assignment at booking then on a crowded flight they may get the good ol' "SEAT REQUEST" treatment (despite making a confirmed reservation) on their boarding pass and are at the mercy of the oft apathetic and over tasked gate agent (worse odds for a good seat than any other option). I'll take a 'C' card on SWA before the Seat Request deal. At SWA with their system, everybody has an equal shot at the best seats no matter when booked (outside 24 hrs), and that has appeal to the majority of pax who do not fly enough to earn the preferred status at the Legacies and those who offer such a product. Here's another take on the cattle car... it represents a little apprehension yes, but also a gamble and a little excitement. Some people like the gamble of it. Win or lose gambling has its appeal (look at success of Las Vegas over the years, and people who lose keep going back there). I have also flown Delta a lot and unless you are a medallion level flyer it is next to impossible to get exit or bulkhead seating. Most of the time they are taken in advance (very rarely available at aiport check-in). Now you are gambling for a better seat just like at SWA albeit with much worse odds of getting it (due to the preferred status MOST pax DO NOT have, & at SWA I have had B cards and still frequently gotten exit row seating). In this case give me SWA's cattle car process any day! Better straight-up odds for the average paying pax, and in my OPINION if I were to get stuck in a middle seat they are more comfortable at SWA than the couple I have had recently at USAirways or Delta, and not only that but the customer service is FAR better than at either of the two aforementioned legacies. SWA has the all leather seats and what I have found to be greater seat pitch (I am 6'6" tall so am very sensitive to this), and therefore a better consolation prize. Sorry for the verbal diarreah; I digress. Here's to industry wide profitability! Cheers!

 

[Orionflyer]

On Your Six

In 5 years of lurking, I've never felt compelled to add anything to an argument.... here goes:

- In your first post, you referred to "low cost 70-90 seat RJs". Are you familiar with the relative CASM numbers for a 70 seat jet and a 137 seat jet?

- IFE is not free. It costs the airline money to provide this service, a cost that SWA does not have. So many people have ipods and portable DVDs nowadays that I expect IFE to become less of an issue. SWA is wisely looking into onboard internet access, a service that cannot be brought along by a passenger.

- The bottom line for most passengers (not all) is value and reliability. Decades of evidence seems to suggest that people will give up an assigned seat and IFE to save even 2 bucks. Frequent flights, consistent ontime performance, and reasonable grace under pressure in trying circumstances brings people back to SWA. I landed in FLL last week and had to swap aircraft due to a broken one at the adjacent gate. We were about 25 minutes late leaving after taking the next inbound aircraft and we arrived only 5 minutes late. I expect that this "swap cycle" continued most of the morning until SWA maintenance arrived and returned the jet to service. Most passengers on numerous flights throughout the day were not affected by more than 10-20 minutes. At many of our competitors, a broken jet like that would mean hours, if not days, of delay. Frequency between city pairs and a non hub-and-spoke network (to this day not matched by a single competitor) allow this type of flexibility.

- I do fear the Skybus model (though not necessarily out of CMH) because the same evidence that shows that people will forego seats and IFE for a few bucks might also suggest that they will forego drinks, bags, and a 1-800 number for a few more bucks. That could be a problem... we'll see.

Despite the "low cost RJ" mistake, thank you for your constructive analysis of our airline and this business.

 

[328dude]

Plus six months ago you were considering going back to UAL..... Sorry dude, got to call bullsh!t on this one. Why the white lies?

 

[SWA/FO]

Yeah, stop playing with your five hole. :laugh:

 

[johnsonrod]

On Your Six

In 5 years of lurking, I've never felt compelled to add anything to an argument.... here goes:

- In your first post, you referred to "low cost 70-90 seat RJs". Are you familiar with the relative CASM numbers for a 70 seat jet and a 137 seat jet?

- IFE is not free. It costs the airline money to provide this service, a cost that SWA does not have. So many people have ipods and portable DVDs nowadays that I expect IFE to become less of an issue. SWA is wisely looking into onboard internet access, a service that cannot be brought along by a passenger.

- The bottom line for most passengers (not all) is value and reliability. Decades of evidence seems to suggest that people will give up an assigned seat and IFE to save even 2 bucks. Frequent flights, consistent ontime performance, and reasonable grace under pressure in trying circumstances brings people back to SWA. I landed in FLL last week and had to swap aircraft due to a broken one at the adjacent gate. We were about 25 minutes late leaving after taking the next inbound aircraft and we arrived only 5 minutes late. I expect that this "swap cycle" continued most of the morning until SWA maintenance arrived and returned the jet to service. Most passengers on numerous flights throughout the day were not affected by more than 10-20 minutes. At many of our competitors, a broken jet like that would mean hours, if not days, of delay. Frequency between city pairs and a non hub-and-spoke network (to this day not matched by a single competitor) allow this type of flexibility.

- I do fear the Skybus model (though not necessarily out of CMH) because the same evidence that shows that people will forego seats and IFE for a few bucks might also suggest that they will forego drinks, bags, and a 1-800 number for a few more bucks. That could be a problem... we'll see.

Despite the "low cost RJ" mistake, thank you for your constructive analysis of our airline and this business.

Wow - you SWA guys are a tough crowd!

The way I read it I believe OYS was talking about the use of 70-90 seat RJs to ensure feed to the larger hubs at lower operating cost structures - if I read that correctly. So, he/she is saying that the legacy carriers are effectively deploying larger and lower-cost RJs to provide capacity in more and more LCC cost-competitve markets. By lowering costs, DAL and others can compete more effecively on price. I fly into ATL all the time and I have noticed an increase in the use of E170s by Delta too - that makes sense to me. I am sure E190s are on the way too.

I actually thought OYS was pretty close to the mark on a lot of what he said. I personally don't care for the cattle-car boarding either - no offense!

 

[johnsonrod]

Plus six months ago you were considering going back to UAL..... Sorry dude, got to call bullsh!t on this one. Why the white lies?

Perhaps he got a better offer or maybe he changed his mind. Do you know him? Why go back to the bottom of the list at UAL (which has no noticeable strategy and continues to lose money) when you can fly for a "cherry" flight department that sounds pretty cool. Your accusatory tone makes you sound like a paranoid dork....

 

[Flycatcher99]

That book was written before JetBlue, Skybus and VA existed. Plus, Air Tran, Spirit, Frontier and even Alaska were much smaller operations at that time. The competitive landscape is very different now.

Going forward, you will have many LCCs searching for growth (with no growth, stock prices will dive) with considerable pressure on yields from the upstarts. Have you seen how many airplanes SWA, Air Tran, VA, Jet Blue and Spirit have on order over the next year or two? That's a huge amount of capacity searching for growth. Meanwhile, you have the incumbants like Delta, UAL, AA, CAL and now NWA (leaving Chap 11 much stronger) who won't just lie down and die - they will fight to maintain market share. These legacies will continue to expand the use of lower-cost 70-90 seat RJs (these did not exist when NUTS was written). You see this with Delta using E170s and putting them on competing Air Tran routes - the E170s are just as comfortable for pax and yet the pax have access to Delta's worldwide route structure. Watch as Delta eventually adds lower-cost E190s (in addition to the growing stable of E170s and CR9s) and deploys them on competing Air Tran, SWA and Jet Blue routes all over the country (I presume the Delta pilots on the E190s will be paid wages similar to those paid the Delta Express 737-200 pilots pre-9/11).

The point is that the LCCs will increasingly compete with each other on overlapping routes while they search for growth and places to put their new capacity. Yields can not be maintained forever on increasingly competitive routes and profits will likely suffer - that's just logical. Watch what will happen in SFO as VA ramps up while SWA and Jet Blue enter that market to cut it off. That should be fun to watch - I doubt UAL will sit there and watch the battle without ensuring it maintains its diminishing piece of the domestic pie.

Boyd can knock Skybus and VA all he wants, but remember that Jet Blue was also very well funded years ago and its viability was called into question then too - you never know in this business... Fuel prices (and the ability to hedge fuel effectively) and currency exchange rates will continue to play a role for all airlines - nobody is immune including SWA. SWA's lack of IFE and its cattle-car boarding with unassigned seats won't help its cause either.

Bottom line, I don't think SWA will ever be hurt significantly, but it will no longer have the freedom to develop markets over time and its profit margins will likely not be as fat in the future - there are too many LCCs scrapping for its core market and the Legacies are deploying lower-cost 70-90 seat RJs to maintain market share and preserve international feed. Stock analysts will continue to look for growth and profitable LCC routes/markets will continue to attract competition with growing fleets and few good places to put those expensive airplanes... Should be interesting to watch.

That's my $0.02.

My two cents' on some of these things...

Regarding the other LCC's, there certainly is competition for SWA, but they are hardly beating SWA down. Some are not even pulling a profit many quarters, and if they are, it doesn't approach SWA's. Skybus is a joke, and won't last long, IMO. Customers will ditch a place with non-existent customer service so fast it'll make your head swim. VA could be a real competitor...we'll see. Jet Blue is on thin ice, between PR with the passengers and labor issues that will be coming in years hence.

Which leads me to the legacies. Wall Street just loves the "new" legacies. They're the flavor of the month, with new low costs and great profit margins. However, something that few seem to have the perspective for is where we are in history. All carriers got hammered after 9/11, and with the monumental losses came the gargantuan paycuts and pension losses, to go with some bankruptcies. So now with passengers back in droves, carriers like AMR, Delta, NW, etc. are all enjoying great revenues to go with relatively low costs. We're at the bottom of the cost curve, historically speaking.

But do you really think that will continue, with respect to labor? Pilots at American are so mad they can't see straight, given the sacrifices they've made, while AMR execs are lining their pockets. The honeymoon is soon over for these carriers, and either labor costs will be going back up, or there will be hell to pay.

When that happens, SWA will be quietly churning on, with costs that gradually get put back in perspective. Legacies will no longer resemble LCC's so much, and SWA's costs will be far better, not empirically, but in comparison once again. Also, with the legacies pulling out of the domestic arena, SWA will be quietly picking up the left-over pieces, and also quietly pursuing the international connection.

I find it amusing when the talking heads think they can one-up the management at SWA. Not saying their concerns are entirely false, but if I were a betting man, I'd bet on Kelly, et al., long before some Wall Street "guru".

 

[igneousy2]

I am surprised that noone has broght this up yet...

The reason SWA (and a couple of others possibly) will survive is because most other airline employees feel NO loyalty to their company. In fact...right now, at almost every major/legacy out there, the employees are so PO'd at their management that they do nothing more than their jobs - if that.

At most airlines, the employees are so disenfranchised from management that many in their ranks HURT their operations deliberately.

The airline I work at has had study upon study about why we can't break out of the bottom 50% of on-time performance on a consistent basis. They can't seem to figure out that it is because most of the rank and file employees really don't give a damn if we ever break into the top half of on-time performers.

What! You want SWA to be like WHO!!!

American - Owners Equity of 226 MILLION!

oh...how about SWA copying that crack management team at Delta!

Delta - O.E = NEGATIVE 13.6 BILLION dollars

CAL = 583 MILLION

US Air = 1 Billion (this only counts from the formation of the LCC if you count all the previous US Air/America West bankruptcies it would be way-way negative.)

Jet Blue = 960 Million

Alaska = 886 Million

Air Tran = 396 Million

Northwest = Negative 8.0 Billion

Southwest = 6.5 BILLION

Hmm, since the start of their publicly traded shares SWA has created 6.5 Billion dollars of value - 6 times more than it's nearest competitor.

There is no doubt that it is a much tougher market for EVERYBODY out there then ever before. The only even-money bet out there is SWA. Slow and steady wins the race.

Later