Is the Southwest pay/contract sustainable at current market?

[GhettoBeechjet]

I heard that we will be handed a 75% paycut just before Christmas, and the doors will be shut two weeks later. Herb and Gary suck at business. They simply got lucky for 40 years, and now their luck has run out.

It was a good ride fellas! Good thing Delta is hiring...

I know this was written sarcastically but somehow I feel the need to respond anyway. I know my previous posts seem very doom and gloom. That being said I think you would be hard pressed to find a bigger fan of a company than I am of SWA. I love working here and I appreciate it every day. That however doesn't mean that I chose to ignore reality and subsitute it with my own. I don't think anyone could ever say that SWA management sucks at business. This is why I think they will be making some difficult choices that will change the fundamentals of the business and how the airline operates. In a macro sense we have a weak dollar, weak economy, high fuel prices, and are staring at the fiscal cliff. I believe that 2013 and 2014 economically looks far worse than anyone thought 6, 12 , or 18 months ago. None of these factors are good for demand. Add into that the fact that our profit margin is unacceptably low and way off of our competitors. Basic math is that to increase that margin we need to lower expenses and/or raise revenue. For several years they have been working on the revenue side by trying to capture market share, entering higher fare markets, new Rapid Rewards, -800, evolve interior, business select and early bird. Some of these things have worked and some not so well. About the only thing they haven't done is charge for bags. Now it looks like they are forced to begin concentrating on the expense side. If you read what leadership is saying now they are currently talking about a new schedule optimization system, refreshing the fleet, underperforming routes and stations, and high labor costs. Taking that apart with more schedule optimization I expect our future schedule will look more like CALs used to with less flying on certain days of the week when demand is weaker. Underperfoming routes and stations means less flying to less cities. Refreshing the fleet means less classics. High Labor costs means they will be asking for cotract concessions in either terms of less money or higher productivity. When you add it all together it means less airframes, less flying and thus fewer pilots.

 

[GhettoBeechjet]

On the other side of the coin management has left themselves in a position where they have a lot of flexability. Plans here can and usually change rapidly as conditions change. More than once Gary and Herb have pulled rabbits out of their hats. If the service to SJU or Latin America goes very well it could be as game changer. Also playing in and maybe the biggest unknown is how AA looks coming out of bankruptcy.
At this point we have no significant cost advantage versus other airlines and still have a revenue disadvantage due to no bag fees, lack of cheap outsourced feed, and lack of high revenue international routing. What we do have is cash on hand, better than average employee relations and fleet flexability. That gives us the ability to expand if the right opportunity presents itself.

 

[GhettoBeechjet]

I hope I don't live to see the day that SWA furloughs a single pilot much less 1100. That being said if I were near the bottom of the list in either seat I think it would be prudent to be prepared for a furlough, downgrade, and much lower line totals at lower payrates. Minus another Gary/Herb rabbit in the hat that that is where we are most likely headed.


http://www.bloomberg.com/news/2012-...fit-slips-on-fuel-costs-stagnant-traffic.html

http://www.star-telegram.com/2012/05/16/3966142/southwests-just-right-business.html

 

[madjack]

Pay off your house and stay married!

 

[Lear70]

I hope I don't live to see the day that SWA furloughs a single pilot much less 1100. That being said if I were near the bottom of the list in either seat I think it would be prudent to be prepared for a furlough, downgrade, and much lower line totals at lower payrates. Minus another Gary/Herb rabbit in the hat that that is where we are most likely headed.


http://www.bloomberg.com/news/2012-...fit-slips-on-fuel-costs-stagnant-traffic.html

http://www.star-telegram.com/2012/05/16/3966142/southwests-just-right-business.html

Again, I can't say much because of some of the non-disclosure issues I had to sign during negotiations, but there's a REASON there's such a big push for SJU, code share, and Int'l Ops ASAP.

It's going to be fine. Lower line values? Probably, at least through the integration and a year or two after that, but I don't see furloughs coming. That said, people should ALWAYS have their house in financial order in this business. It's just smart living.

And Scoreboard, you're exactly right on what will happen if ALL the airlines can't simultaneously raise the bar, and Allegiant and Spirit are right on the back doorstep again, like SWA was in the 70's and 80's, ready to take those customers who want 70's era prices on their plane tickets.

That's why I fully support re-regulating the airline industry. The model of deregulation only works for the consumers on a ticket price basis and doesn't take into account the hundreds of millions of debt that gets dumped back after bankruptcies that seem to happen once every 7-10 years these days.

Re-regulate the airline industry or put legislation into effect that requires EVERY airline to price EVERY leg segment either AT or ABOVE the actual cost to produce that leg segment on an overall CASM basis based on the miles flown. No more of this "make leg A cost the flyer $19 to be cheaper than our competition and retain market share then make leg B cost $200 to "make it up"." That's how all this undercutting crap started. Eliminate that and you have competition based on service with everyone close to the same price on competing market segments.

Overall, as many airline executives have stated in the past, deregulation has been an overall failure from a business standpoint. Unless you're senior management, then it's been a win of epic proportions.

 

[jonjuan]

Deregulation has been pretty damn good for the employees and companies of SWA and AirTran.

 

[PropPiedmont]

Again, I can't say much because of some of the non-disclosure issues I had to sign during negotiations, but there's a REASON there's such a big push for SJU, code share, and Int'l Ops ASAP.

If you're referencing the SJU hub/crew base for the South American ops, I think that's already out there.

 

[Quimby]

Pay off your house and stay married!

^^^^^^^^^

 

[scoreboardII]

It's been said GK wanted to expand as fast as he did because if the market was reregulated, you would obviously want to be as big as you could get.

That said, the people won't allow it, they like the fight to the bottom. It is what it is and while many at swa say Allegient and spirit are no factor, that's exactly what they said about VA, JetBlue and swa 40 years ago.

Reregulation will never happen unless we go full retard and the government takes over the market and since these ******************** wads just reelected the messiah, I'm sure that's around the corner.

 

[HA25]

Reregulation will never happen unless we go full retard and the government takes over the market and since these ******************** wads just reelected the messiah, I'm sure that's around the corner.

you'll recall it was another Democrat that reigned in De-Regulation... Carter. So your argument is without substance.

With that said, de-regulation has been the single biggest failure for the airline industry that I can think of in it's 90+ years.

The number of airlines that have failed, and been bailed out by the government and taxpayers as a result is too big to list. The idea that a tax cab, a train or a bus has price controls and protected routes yet, the part of the transportation sector with the largest capital costs, and fuel costs has to compete in the pure free market for revenues is ludicrous!

Prior to De-regulation the airlines made a fair profit, safety wasn't compromised and labor was paid fairly... now the only two places airlines can squeeze costs is safety and labor... this is where we are today.

 

[scoreboardII]

Your implying a democrat stopped regulation so that's good, in fact, he stopped regulation so the masses could fly cheap. They will never regulate if it means paying for what they get. Right now joe blow can fly coast to coast for $400. If you drove a car getting 40mpg you would spend that on just gas, let alone hotels and food. Your confusion is you think deregulation which is bad for some companies, yet very good for others and good for all passengers, is somehow bad. It isn't , and just becuase some companies have failed, deregulation is not the sole reason, economy in general, 911, etc.

This is a free market, adapt or fail. Every business is subjected to the exact same issues airlines face yet they fail, why? Huge sums of money chasing the prospect of a fast buck. GE capital is the prime reason.

Guess what, they will never regulate again. Safety is cooked into the process, it's irrelevant in this discussion. The only way to make a buck is to undercut the competition, swa does that well, and will continue to do that well.

Local taxis are regulated because local politicians get paid by taxi companies to regulate them.

I agree charging a segment to undercut a competitor should not be allowed, so tell that to DL, AA, etc who use international fares to fund domestic routes.

 

[enigma]

Well I hear some of the Southwest pilots are making what I might call stupid money over there, and it scares me a little. Hearing 10 hours of sick a month, so everyone calls in sick to drop trips into open time for others to pick up at 150% or 200%. Capts making 360k to 400k and FOs 180k to 200k. Scamming the system or at least that is probably how management sees it. They signed off on this too.

So do you think the current market dictates this?

Ignoring this,,

Is this the average? The way I see it making 30% more than you piers is not sustainable long term in this business and tends to lead to tragedy. I think the average is FO 150k and CA 300k.

So are these numbers justified in the current market?

Justified? Heck Yeah. Every airline pilots' decent wages are justified.

Sustainable? I hope so, but seriously doubt it. At Spirit, we've doubled Captains pay (hourly rates) in the last ten years. Even going to the extent of a strike two years ago,......and we're still making yearly wages somewhere between 50 and 60 percent of SWA pilots. Our wages are more in line with the average than are SWA wages. I seriously hope that SWAPA can maintain their current rates, it gives us negotiating leverage when we next negotiate; but I know management and I find it hard to believe that SWA managers will not work their tails off to bring their costs into line with their competitors.

 

[HA25]

... I seriously hope that SWAPA can maintain their current rates, it gives us negotiating leverage when we next negotiate; but I know management and I find it hard to believe that SWA managers will not work their tails off to bring their costs into line with their competitors.

I have only been in this industry some 20 years and find this statement very depressing. To think that the bar is now set by Southwest was bad enough, but to hear people resigning themselves to the reality that this bar will be lowered is down right scary...

God help us if this is what the average pilot feels will happen.

 

[scoreboardII]

Then have a plan b buddy, have a plan b.

And one more regulation comment, if that happens, 50% of the market will go away, meaning half the pilots will lose their jobs, you ok with that?

 

[Full of LUV]

you'll recall it was another Democrat that reigned in De-Regulation... Carter. So your argument is without substance.

With that said, de-regulation has been the single biggest failure for the airline industry that I can think of in it's 90+ years.

The number of airlines that have failed, and been bailed out by the government and taxpayers as a result is too big to list. The idea that a tax cab, a train or a bus has price controls and protected routes yet, the part of the transportation sector with the largest capital costs, and fuel costs has to compete in the pure free market for revenues is ludicrous!

Prior to De-regulation the airlines made a fair profit, safety wasn't compromised and labor was paid fairly... now the only two places airlines can squeeze costs is safety and labor... this is where we are today.

First of all, deregulation is what allowed SWA and Airtran to flourish.... to advocate for re-regulation now is like, heh, we're in, slam the door quick.

Second, what "government / taxpayer" money are you referring to in the BK process? The only gubment money the industry had was right after 9/11 (Bush) in the form of ATSB loans (govt backed private industry loans) to AWA and maybe a couple of other very small airlines. I'm pretty sure that those were even paid back because the terms were not that good for long term.

Otherwise, BK socks it to the shareholders and creditors of a particular company. The fact that a company can survive BK is because on the whole, their business to the creditor is more valuable than demanding a liquidation at the BK proceedings. Look at DAL, top creditors were Employees, Boeing, Pratt Witney, and COKE (through aircraft purchase bonds where the Coke gets the depreciation and income while leasing the jet to the airline). Those companies and entities took the haircut. In fact, Govt get's EVERY dime it's owed in taxes as that debt is specifically forbidden from being discharged by one cent.
So, when an Airline goes BK if it's small and on shaky ground anyway like skybus or independence air, etc, there is no creditors that want to take a haircut and continue to do business, they want as much cash out of the corpse as possible, but when the airline is large and has a viable biz model, there is no shortage of new creditors who are willing to loan the new company capital and pay off the old debt that is not discharged in the process. Usually old creditors in this case will get cash and some new stock in the emerged company. All these negotiations is what takes an army of well healed lawyers to complete, hence the BK process is actually very expensive.
Bottom line, I luv it when all of the haters come on to say "govt / taxpayer" money is used to bailout airlines when it simply hasn't been the case, pretty much ever.
LUV

 

[jonjuan]

I agree charging a segment to undercut a competitor should not be allowed, so tell that to DL, AA, etc who use international fares to fund domestic routes.

So, Dal, AA, etc don't have price competition on international routes? Please show your data that intl fares fund domestic routes. Or are you just playing the blame game?

 

[Full of LUV]

So, Dal, AA, etc don't have price competition on international routes? Please show your data that intl fares fund domestic routes. Or are you just playing the blame game?

You know jonjuan back when SWA had the brilliant fuel hedges and was charging $50 to fly in your "free to move about the country" putting the screws to the legacies who had no financial ability to hedge....... I'm sure they were able to just cover their costs.
For SWA to now complain about airlines offering a product at below cost of production is almost too funny to comprehend.
That said, bizness is bizness and SWA has played the game the last thirty years much better than most.

 

[enigma]

I have only been in this industry some 20 years and find this statement very depressing. To think that the bar is now set by Southwest was bad enough, but to hear people resigning themselves to the reality that this bar will be lowered is down right scary...

God help us if this is what the average pilot feels will happen.

Try reading what I wrote instead of what you think I wrote. I said that SWA mgt will try hard to bring their costs in line. Whether they succeed, or fail, is up to SWAPA and their members.

Did you notice I'm with a group that handed in our jobs and careers to improve our collective position?

 

[redflyer65]

For SWA to now complain about airlines offering a product at below cost of production is almost too funny to comprehend.
That said, bizness is bizness and SWA has played the game the last thirty years much better than most.

You mean after everyone of those competitors ran through bankruptcy to cut their cost, because they were run so poorly there was no other option? Then where's the honest competition?

 

[BILL LUMBERG]

Heck Red....

I'll just start HONESTLY by writing on a cocktail napkin and then HONESTLY beg to only fly within the terms of the Wright Amendment then HONESTLY ask to later drop those rules, then HONESTLY undercut my competitors by paying my employees peanuts and have them stripped of all benefits and HONESTLY tell them to bring their own training, then HONESTLY ......

It goes on and on.....your honest competition is gladly invited by you guys when all is good and carriers that have been around for DECADES longer than you and were the actual birthers of the airway system as you so well know it go and use a LEGAL HONEST system to restructure their debts, you cry foul....

I hope you never have to see the day.......obtw, you got your big paycheck on the backs of the Uniteds and Deltas who jammed it through in 2000, so you are welcome!