SWA Gets More Cautious For '08

[The Prussian]

AP
Southwest Cuts Growth Plans Again
Tuesday December 4, 10:30 am ET
By David Koenig, AP Business Writer Southwest Cuts Growth Plans for Second Time; Expects 4-5 Percent in 2008

DALLAS (AP) -- Southwest Airlines Co. said Tuesday it would slow its planned growth in 2008, the second time this year that the low-cost carrier has reined in expansion as it struggles with high fuel costs.
The airline said it would grow 4 percent to 5 percent next year, compared with earlier expectations of 6 percent in 2008. The company will retire planes faster than it adds new ones in a bid to boost profits.
"We are concerned about growing evidence of slowing economic growth that would inevitably affect passenger demand, coupled with a surge in energy prices," Chief Executive Gary C. Kelly said in a statement.
Southwest's announcement came a day after rival Continental Airlines Inc. cut its growth expectations for next year to between 2 percent and 3 percent, down from 3 percent to 4 percent.
Dallas-based Southwest also reported Tuesday that November traffic grew 2.6 percent, measured by miles flown by paying passengers. That growth, however, failed to keep up with a 6.4 percent increase in capacity.
As a result, average occupancy on Southwest flights slipped to 69.3 percent from 71.8 percent in November 2006.
The airline plans to add five to 10 new planes next year, down from its previous plans for 19 Boeing 737s. Chief Financial Officer Laura Wright said the airline would also retire more older jets than previously planned.
Southwest first cut its growth plans from 8 percent to 6 percent in June, and Kelly hinted in November at further tightening.
Southwest has options to buy fuel at below-market rates, which gives it an advantage over its rivals. Still, rising fuel costs are making it harder for the airline to hit its financial goals.
In addition, Wright told investors in New York that nonfuel costs will also rise next year, citing higher maintenance needs.
The airline is also in negotiations with pilots for a new contract that could lead to higher labor costs.
Southwest is trying to offset higher costs by generating more revenue from ticket sales to business travelers. It recently began offering business travelers extra perks, such as early boarding and a drink for a slightly higher fare.
Southwest shares rose a penny to $13.74 in morning trading.

 

[Empennage]

Continental also announced yesterday slowing domestic growth to around 2-3%.

I'd say that is about the end of a so-called "pilot shortage."

 

[Ex737Driver]

Nah. We drop from 4-5% to 2-3% but it still is GROWTH. Still hiring 12-16 a week until end of April 2008. Retirements are on track at 20-25 a month. With the addition of 33 new aircraft next year, look for the sale of more 737-500/300's to reach the new reduced capacity cuts.

 

[The Prussian]

I'll agree that slowing growth would not be good news for employment, let alone anybody in the airlines. It depends how badly the economy pulls back, and where oil prices go as to how ugly it gets in this business. I'm betting it might get real ugly.

 

[Mr.B]

I'll agree that slowing growth would not be good news for employment, let alone anybody in the airlines. It depends how badly the economy pulls back, and where oil prices go as to how ugly it gets in this business. I'm betting it might get real ugly.

Its a typical airline cycle that always emerges. During the down-turns, he with cash will prevail. Those with expensive orders will have a hard time, and those with nice fuel hedges have a nice cushion.

 

[The Prussian]

A Wall Street analyst reiterates a Buy on Luv...


S&P REITERATES BUY OPINION ON SHARES OF SOUTHWEST AIRLINES


LUV; $13.74
Southwest is slowing its plan for capacity growth in 2008 to 4%-5%, compared to its prior 8% growth target. Southwest cites high oil prices and slowing economic growth, which it says will "inevitably affect passenger demand". We think slowing growth by Southwest and many competitors domestically should allow for continued progress on pricing. Also, Southwest is best protected among peers by fuel hedges. We remain positive on Southwest's new revenue-generating initiatives, which we think will help it outperform the industry in domestic unit revenue growth in 2008. We are keeping our target price at $22. /J. Corridore

 

[norskman2]

Its a typicalairlin cycle that always emerges.

Hire until you furlough, then furlough until you hire...

Here we go again....

 

[Whataburger]

Dont we have something in our CodeShare the stops it if we dont grow 5%?

 

[The Prussian]

Dont we have something in our CodeShare the stops it if we dont grow 5%?

Yes, that is the correct number, but it refers to an average growth from end of '05 to the end of '10. I don't anticipate that being an issue...

 

[tzskipper]

Dont we have something in our CodeShare the stops it if we dont grow 5%?

This may be a stupid question, but since the "codeShare" is mostly west coast to Hawaii connections, why would there be a desire to eliminate what is essentially a "free flow" of money to SWA?

SKIPPER

 

[The Prussian]

This may be a stupid question, but since the "codeShare" is mostly west coast to Hawaii connections, why would there be a desire to eliminate what is essentially a "free flow" of money to SWA?

Not a stupid question...this was a stipulation in our sideletter in which we agreed that our fleet growth would not fall below 5%...

 

[HalinTexas]

So, let me get this straight.

If you don't grow your fleet by 5% over the '05-'10 time period the codeshare ends, or stops growing?

How much has the fleet grown to date since '05?

What determines "codeshare growth?"

 

[CaptSeth]

So, let me get this straight.

If you don't grow your fleet by 5% over the '05-'10 time period the codeshare ends, or stops growing?

How much has the fleet grown to date since '05?

What determines "codeshare growth?"

More importanly, Hal, who's going to subsidize their profit sharing if they eliminate the code share? I wouldn't lose any sleep over this one. At all.

 

[HalinTexas]

My thinking is that they're grown 5% already, unless they start parking a lot of planes and furloughing lots of people.

 

[atafan]

I understand why SWA pilots are concerned about codeshare agreements but as far as this codeshare with ATA it shouldn't be of too much concern. ATA is only operating where SWA can't operate and even if they had international authorization this flying wouldn't be profitable for SWA with their current fleet and pilot contract.

It would be suicide for the SWA pilots to push their Company in a direction that might put them in a precarious position. SWA is getting International feed without the major expenses that are related to that kind of flying, not to mention the liabilities. If, when, the world gets more unstable those markets will be the first affected and with SWA's only exposure through a codeshare agreement, the only ill effect will be less feed from ATA.

Like Seth said, I'm not too concerned about the codeshare going away.

 

[Esprit]

Why is WN so concerned about ATA's operation? They haven't the proper equipment, authorization, or qualified crews to do international. Why would their domestic growth have any bearing on the type of flying ATA does?

ESPRIT

 

[FR8dognit]

Why is WN so concerned about ATA's operation? They haven't the proper equipment, authorization, or qualified crews to do international. Why would their domestic growth have any bearing on the type of flying ATA does?

ESPRIT

Because that is what our side letter says. If we can't have avg. 5% growth, all code-share ends. It is to keep the company from growing the flying without growing the pilot group.

BTW..HAL...We've hired over 1000 pilots since end of 2005. Long story short, your probably correct...we probably have grown 15% or so since then...but I have no idea how to calculate or what I would be calculating. Is it avg. growth over that time per year or growth from the original number???? Anyone know?

 

[Esprit]

Because that is what our side letter says. If we can't have avg. 5% growth, all code-share ends. It is to keep the company from growing the flying without growing the pilot group.

Oh, I'm sorry I didn't realize that you guys had a side letter.

I'm amazed everytime I run into WN guys and see how worried they are over ATA's pitily 10 757s. My guess is that WN Management isn't as short-sighted and sees the value in your code-share agreement. One need look no further than AA and BAA's One World Alliance to see how both sides benefit. I don't think that either partner (AA/BAA) has lost any growth due to this alliance. Do you honestly believe that 5% growth would continue year after year? The fact is, this codeshare adds x amount of millions to your bottom line (that otherwise you would be unable to generate on your own at this time) and you should be thankful that your management is able to see such potential. Be carefull what you wish for, HNL redeyes are a bitch.

ESPRIT

 

[puddlejumper101]

Because that is what our side letter says. If we can't have avg. 5% growth, all code-share ends. It is to keep the company from growing the flying without growing the pilot group.

Oh, I'm sorry I didn't realize that you guys had a side letter.

I'm amazed everytime I run into WN guys and see how worried they are over ATA's pitily 10 757s. My guess is that WN Management isn't as short-sighted and sees the value in your code-share agreement. One need look no further than AA and BAA's One World Alliance to see how both sides benefit. I don't think that either partner (AA/BAA) has lost any growth due to this alliance. Do you honestly believe that 5% growth would continue year after year? The fact is, this codeshare adds x amount of millions to your bottom line (that otherwise you would be unable to generate on your own at this time) and you should be thankful that your management is able to see such potential. Be carefull what you wish for, HNL redeyes are a bitch.

ESPRIT

Honestly...you my friend have a very good point. I am here at WN...and wonder this myself sometimes. Do we spend too much time worrying about things that probably are better off alone? Sometimes I think we do. The codeshare works...so let it be. Like he said...ATA is not really a threat...granted the other side of the coin is without limits any management no matter how good they are might take advantage of the opportunity without reguard. It's a balance we both have to maintain but the financial stability of WN should be more important than a codeshare with ATA. Once we hit the point when we are not growing 5% (which it will happen), then what? Getting rid of the codeshare is probably not a smart financial move is it? At some point we will hit that point and then what happens.

 

[Alcatraz]

I don't think we're worried about, to use ESPRIT's words, "ATA's 10 pitily 757s." I agree that ATA isn't a threat AT THE MOMENT. Actually, I think it's great. So I think the ATA guys can relax and not worry about the slowdown at SWA.

That being said, what we're really worried about (or at least, I'm really worried about), is if we let this slide, does this open the door to more outsourcing pilot jobs to non SWAPA pilots? I think having two or three hundred international "codeshare" flights under the SWA brand not flown by SWAPA pilots is a major threat to my job security and upgrade hopes... so where do you draw the line?

And after all, aren't even the ATA guys concerned about a few Hawaiian codeshare flights being "temporarily" shifted to other GAL entities? (I still get the ATA ALPA union updates as a furloughee)

All I want for Christmas... OK, maybe all I want in my next contract... is a REALLY good scope clause for everybody. There's already a TA on the scope section of our new (and still incomplete) contract, and I hope it's good (SWAPA won't publish the TA for the usual valid reasons).

Hang in there, everyone...