Consider Taking Off The Rose-Colored SWA Glasses For a Moment and Discuss...

[ultrarunner]

...
What makes people think that SWA won't find itself in the same position as a UAL (recently the holy grail, now the polar opposite)? Yeah, maybe they have much better management than UAL...but HOW do they survive (and continue to survive) in these unprecedented conditions and remain "low cost"?

VOR, the issues are multi-faceted....

But as others have said, from a cost-structure standpoint, SWA is the leader...

First the obvious:

One plane type. Every bloody airframe is essentially the same. This keeps pilot training costs at a minimum, spares costs at a minimum, etc...

Think about UAL, DAL, AAL and the costs associated with maintaining spares for 6 or 8 fleet types. Sims, spares, crews...etc...it goes on and on.

Secondly, SWA, in some markets, utilizes some outlying airports. So at the time, they can get a massive bang for the buck by agreeing to serve that airport.

It's no secret SWA hits their vendors pretty hard, so that also makes a big difference in cost savings.

These are just a few examples...but big ones whe you start looking at costs.

Legacies like I mentioned above need hundreds of millions a day just to turn on the lights....

Massive international hubs, half a dozen or more fleet types....

REALLY big training centers..

HUNDREDS of sims....ever been to AAL training academy? I have...it can be seen from oribit!

So, with all that said, these legacies are burnded with day-to-day fixed costs that is not supported by current fare levels.

SWA, simply by its nature, avoids that type of burden.

Now, I admit, this is a very simplistic view, but I'm not that smart...so that's all I gots!

Ultra

 

[Voice Of Reason]

Now, I admit, this is a very simplistic view, but I'm not that smart...so that's all I gots!

Ultra

...But that's a lot! :beer:
Thanks Ultra, and everyone else who helped this non-economics major understand a bit!

 

[Skybus]

There are even a couple of SWA Captains who make >$300,000 and one who made over $400,000 last year. Not unusual for some F/Os to make > $130,000

And many F/As in the 120-130K range by WORKING HARD.

Instead of trying how to make as much as possible doing as little as possible we understand by working hard we can all prosper.

 

[Skyboy722]

but those fuel hedges were complete luck - no one saw fuel going where it did today when they locked in those contracts.

I GUARANTEE you, HUNDREDS of MILLIONS of dollars were NOT thrown into a hedging investment that was a shot in the dark. And Southwest was one of few that had (and continues to have) the kind of cash to make such investments.

I for one can not wait until everyone is on a level playing field.

Even ex-fuel, Southwest has the second lowest CASM in the business. (Second only to Airtran, and only by a little). So even on a "level playing field", SW still has a significant cost advantage, for alot of reasons mentioned above.

That being said, the reality is, we are one bad CEO away from a very different reality...

 

[BrokenWing]

We pay $350. The other airlines pay $500. We can charge less for a ticket.

The other reasons include:
Great leadership, common goals, efficiency, teamwork, forward thinking mgmt., and luck. Luck is where timing and preparation come together. Was it Parker that said, "Southwest has predicted 10 out of the last 2 recessions."

The point that you're missing is even if SWA is paying $350 and everyone else is paying $500, airline travel as we know it will not be the same. There will be massive consolidation and reduction because people won't be flying. So, even if you're hedged at $350, you will not be able to sell enough tickets at the price required to support your current schedule. You might be the only game in town, but people just aren't going to fly. Luck will only get you so far, it won't fill airplanes when americans are struggling to pay bills and feed ther families.

 

[jhill]

Considering that not too long ago UAL was the "holy grail set-for-life" pilot job, and most people thought that nothing could change that...I have a topic for discussion about SWA.

Please don't turn this into a SW hating thread, or a "we'll always be on top thread" from the opposite side.

I'd like to hear from some people who feel they might have a bit of financial sense (of which I have absolutely none) which might explain to me HOW SWA can succeed in THIS economic climate (and worsening), especially once the effects of no longer benefiting from smart fuel hedges kicks in.

The only rational-seeming way for airlines to survive, seems to be to clear out the negativity that makes them so hated in the eyes of the general public, AND raise prices and pass costs along to customers, not cheap tickets from employee subsidies....

Which brings me to SWA... just HOW will they be able to continue (in THIS economic env & worse) to pay employees the way they do (well) and keep tickets dirt cheap? I just don't see how people are talking one minute as if these low cost carriers will survive (in THIS climate) and then how fares need to raise exponentially another minute (which seems to be the solution I see).

I could understand if SWA was on a Wal-Mart type road (cheap/mass product/PITIFUL wages)...but I don't get how they can continue to be on top with their current model (as the economic climate worsens, and the effects of loss of great fuel hedges kicks in).

What makes people think that SWA won't find itself in the same position as a UAL (recently the holy grail, now the polar opposite)? Yeah, maybe they have much better management than UAL...but HOW do they survive (and continue to survive) in these unprecedented conditions and remain "low cost"?

Again...break it down for the financial knowledge impaired... I am genuinely curious as to how to gauge this and not get in the mode of jumping from ship to ship (remaining at the bottom at each ship) following a good job that may not exist anywhere transporting passengers in any venue (that doesn't involve the following : being away 7 or 8 days at a time for your entire careers, justifying your flight plans to some (fractional) CEO you're flying that think he knows it all, or
going to a foreign country and fly for an Emirates type operation)....

Someone else aready said productivity. It is one of the keys. Another is employee attitude. Most folks here care about the company and even each other. Most try very hard to save the company money when and where ever we can. Back to productivity. We have some ofthe highest paid mechanics in the industry but we only have 4 per A/C. If that many. Everone here is addicted to overtime. Hard work pays off around here. I have never had so much flexibility with my schedule or so many ways to make extra money. This place is not perfect and we bitch and moan but we also work hard and pitch in to help when needed. Another key is we know damn well we are not immune to this industies woes. Every year things seem to get tougher and tougher. We are lucky to have very smart, good people in management that we can trust. They are not over paid and they work hard. They keep coming up with better ways to do things and control cost.

This is a career of luck. Wether some of these guys will admit it or not we are just lucky, especially right now. Will it last? Who knows. I just hope we all keep trying like we do now. As long as that is the case I like our chances. If we get greedy and lazy it will surely go the way of many others. With Herb gone who knows what could happen. This place is woth a lot of money and we all know what can happen there.

PS. The emirates gig is a good deal for some of us.. I've got a buddy that loves it over there and he's making big bucks with a 3 year upgrade. Mega growth planned as well.

 

[Voice Of Reason]

Someone else aready said productivity. It is one of the keys. Another is employee attitude. Most folks here care about the company and even each other. Most try very hard to save the company money when and where ever we can.

That is so true...

I wish more of these aviation execs could get it through their skulls that employees will WILLINGLY be like that if paid well and treated well.

Honestly, that's all it takes for us to go the extra mile and SAVE these companies, MAKE them successful, yet so many execs just don't get it...or egos won't LET them get it.

I'll bet that behind every snarly F/A or unbearable CA at a legacy (or frac run into the ground), there was most likely once someone who DID give a ***t early on.

Also a lot of that attitude becomes the self-fulfilling prophecy of pax who have already decided they are ALL like that and make things hell for those still trying to do a good job....

 

[Jet41]

Smart management, employees that know the value of hard work, management that knows the value of said employees, productivity, employee and management groups that work truely toward the common good

 

[say again]

Smart management, employees that know the value of hard work, management that knows the value of said employees, productivity, employee and management groups that work truely toward the common good

What a concept!! To bad others cant fathom the idea.

 

[Benjamin Dover]

And like KaptainKiwi said, we are a productive group. By the end of June I will be close to 500 hours so far, and that is with between 14-17 days off each month. I'm ok with that because I have no problem earning my paycheck. When you are getting paid to stay home, deadhead, sit in your hotel, etc., its great for you, but not the group.

Work hard, play hard, go home. Works for me.

RDG,

You are are "poster tool" for guys that give SWA a bad name. Having worked at a two different "majors" before SWA I'm sorry to deliver the news that we have the same mix of pilots as anywhere else. Our "productivity" has nothing to do with us, but it is our business model. My buds at other airlines would love to have my duty days, length of layover and average days off. You are being a d0uchebag bragging on here about how much block you fly and how hard you work. You fly more block at SWA because you have to.

I used to have 12+ hour scheduled duty days and 10 hour scheduled layovers which often became 14+ and min 8 hour FAR rest. I have yet to see anything close to that at SWA. We fly more block but have far shorter duty days and much longer layovers than other airlines. You can thank our lack of "hub and spoke" and quick turns for this, or keep believing it is all because of you if it feels better.

Humility is a beautiful concept.

BD

 

[RDG]

Well that was harsh Ben. I didn't think I was bragging and since the hundreds of readers of this post didn't either, maybe you are the one in need of a reality check?

All I said was that we are a productive group, and if you think differently, fine. But don't sling insults because you can't state your point any other way. It makes you look ignorant.

The point is here we go to work, work hard and go home. At my last airline we go to work, fly somewhere, sit for four and a half hours and fly back. We don't let our assets sit on the ground doing nothing when they should be out making money. If that is "bragging" in the world of you, I thank God I am not in it.

Freak.

 

[AlbieF15]

"outrun the other guys, not the bear..." was a commment I saw here and agreed was very true.

There has come a point in the industry where upstart airlines, while not extinct, will become less and less likely. There aren't many hedge funds or international consortiums ready to hand out the mutli millions it takes to create and run a new airline. The absence of captial at the moment, the notoriously low ROI (see Skybus, Virgin, Spirit, etc), increasing fuel prices, and less and less consumer spending all means airlines are likely competing over existing business and not creating new business. This is where SWA can get nasty.

With hedges, smart management, and efficient ops...SWA can move into DEN and make money on flights that UAL simply cannot. UAL then gets to play chicken...do they match SWA's prices and schedules and bleed cash or simply cede market share? I predict a lot of the latter in the coming months. These battles are starting to look a lot like air combat--a zero sum game. For every SWA new hire in 08 there will be a UAL or F9 furloughee soon.

Its a nasty business. Pick your team wisely.

Good luck to all...

 

[skywdriver]

Southwest locked in all of those cheap fuel contracts a long time ago.--->The hedge contract are a work in progress. What you see today isn't want we had 3 or even 5 years ago....it is also not what we will be hedged in 2-3 or even 5 years from now. Each year they are less and less hedged.---> and that due to the changing fuel market. The final numbers are not yet done for 2009...negotiations are still in progress. I think the fuels hedges are completely gone by 2012,--->Take notes...the fuel hedges are part of the long term business strategy...they aren't going away They have a good business plan, but those fuel hedges were complete luck - no one saw fuel going where it did today when they locked in those contracts.--->I really don't think the CEO signed off on "luck" back then...I'm sure the Hedging presentation had some level of "facts" associated with it. The first Hedge contract prices are not the same as the hedge contracts in place today....sure, we are paying more today than we did then...but it's a much more lucrative business proposition today than it was back then...and it works for SWA...why? Because to get in the hedge game....you gotta pay up front....not too many airlines got that kind of "jack".

I for one can not wait until everyone is on a level playing field.--->We live in a capitalist society...no business is guaranteed a "level playing field" in this country I highly doubt the people working at Southwest realize how lucky they are that a couple of guys in the finance group took a huge chance on locking into oil prices 10 years into the future.--->I can't speak for everyone here, but your "Highly doubt" feeling is misplaced when it comes to me. Thats because I sure do realize how blessed we are to have top notch people working for us. And of course, that comes from having flown at a "legacy" carrier where our dim-witted management team couldn't see into the next month....much less 10 years in advance. BTW....lots of Pilots here share my feelings toward those who work in our fuel office.

Maybe some people need to work for an airline like that to realize how good we have it here.[/quote

I am not here to start a huge argument, but unless you either worked on the futures contract team, or traded futures at some other point in your career, it would appear to me that you don't really understand the process. I worked in finance before I got back into flying for a career and had some experience dealing in gold futures. You don't get a futures contract for $70 a pop when the market price is $130. If my memory serves me correctly, and i am sure you will go back to the books on it, but I just don't feel like reading through the 10k, you guys are hedged this year at something like 75% somewhere around $60 a barrel. Oil had been on the rise since what, 03. So, those contracts were purchased well in the past for 08, I think oil got to the $60 level sometime in 05. Point being, yes, you guys have an ongoing fuel hedge program, as do the other carriers. But your huge competitive advantage was created with the contracts that were signed years ago. You make a good point, you guys had the cash to do that when most other carriers didn't.

However, please don't tell me that you think the guys on your finance team had that much insight into the oil market to know they were going to make out like they did. Hedging from a business standpoint gets its name because you are trying to hedge risk, speculative investing on the other hand is a whole different game. With hedging, you look into the future, and you have the chance to make variable costs fixed through futures contracts, you take the unknown factor out of it. Your finance team is not in the business of speculative investing. There is a lot of money to be made and lost in commodities, and there are plently of people that spend 20 hours a day studying the charts to take a speculative position. Your finance guys are not in the business of doing that, they don't have access to the information, and they don't have the time to do it. So, they got lucky. I am not saying they aren't smart guys, but don't give them more credit than they deserve. I am pretty sure if you got them out at the bar after a couple of drinks, they would tell you the same thing.

I am not a Southwest hater by any means, I am in fact very proud of your pilot group for keeping some kind of pay standards in this industry. However, I am sickened by the fact that the public expects such low fairs. You guys can hedge fuel now for the future, but you will be hedging it at $100+ a barrel. Your investors are used to a certain return now that they will not be able to get with that cost increase. Therefore you will have to raise ticket prices, because the shareholders own the company, and therefore people will have to start paying a reasonable price for tickets, and therefore the industry which this country's economy depends on will be in less of a mess than it is now. I see no way that you will be locked into a 50-60% price competitive hedging advantage over the other carriers.

I guess it only makes sense to be proud of the company you work for if they have been successful, and your guys upstairs have run a great show. However, nothing lasts forever. No one stands in the spotlight forever. I wish your company no ill will, but I hate to see people falling into the trap of believing that they will be on top of things forever. In my very small and insignificant opinion, the next wave of the industry will be with all the growth in the Asian markets. There will be a ton of demand from the pacific to here, and there will be a lot of money to be made there. The legacy carriers are not built to compete against southwest from LUV to AUS. I am sure if they could figure out a way to feed their international flying without having to actually fly the domestic system, they would get out of it. The market it totally tapped out, too many seats. However, I think you can make a fair argument that they will be able to underbid or at least evenbid the lower cost carriers on the domestic stuff and supplement the losses there with their international feed. Point being, things change. What worked yesterday, may not work tomorrow. I wish you the best of luck in your career, and appreciate the good discussion. If we ever meet in a bar on an overnight, beer is on you, because I will probably be furloughed. Cheers

 

[Cobra17]

I guess they have been "lucky" for 35+ years now.

 

[SWA/FO]

Not unusual for some F/Os to make > $130,000.

Not unusual for an F/O to make >$160,000