$87M profit as futures trader/$26M as airline

[lowecur]

This will put a damper on the SWA share price today, as they missed estimates by 2 cents. CASM is now over 8 cents. I think CASM will get below 8 cents in the third quarter, but rise back again and stay there in the fourth quarter and beyond.

Total second quarter 2004 operating expenses were $1.52 billion, an increase of 10.5 percent, compared to $1.38 billion for second quarter 2003. Excluding the profitsharing impact of the government grant, operating expenses were $1.33 billion in second quarter 2003. Operating expenses per ASM (CASM) for second quarter 2004 increased 5.3 percent, to 8.09 cents, from 7.68 cents in second quarter 2003. Excluding the profitsharing impact of the government grant, CASM for second quarter 2003 was 7.46 cents. In addition to the expenses associated with the Company's early out offer, tentative agreement with its Flight Attendants, and significantly higher jet fuel prices, the CASM increase was driven by higher labor, aircraft maintenance, and advertising costs. Although the Company's hedging program resulted in the recognition of $87 million and $36 million in effective hedging gains in second quarter "Fuel and oil" expense in 2004 and 2003, respectively, average jet fuel cost per gallon increased 21.5 percent to 81.9 cents from 67.4 cents in second quarter 2003.

 

[chase]

Historical trends for years show the day after & for sometimes several weeks after the stock slips after we show a profit...look at the trend line & you will see what I mean...CASM above 8 is not good, no doubt about it but in terms of this rattling to go downward...that ship has sailed, it does it all the time whether we make $26M or $260M...the nice thing is the number if black vs. red...keep the big picture in mind...thanks for your concern, we're doing find at Southwest, just one's little mom & pop airline

 

[Mr. Irrelevant]

Around 4-5 years ago, Southwest went from having one person dedicating half of their time to hedging to three full-time employees whose only role is to properly hedge the airline. It may be a larger commitment now. This is a prime example on how a well managed airline can make $$$ by means other than asking for concessions from unions or relying on peaks in a cyclical economy. I won't be selling my shares.

Mr. I.

 

[lowecur]

Historical trends for years show the day after & for sometimes several weeks after the stock slips after we show a profit...look at the trend line & you will see what I mean...CASM above 8 is not good, no doubt about it but in terms of this rattling to go downward...that ship has sailed, it does it all the time whether we make $26M or $260M...the nice thing is the number if black vs. red...keep the big picture in mind...thanks for your concern, we're doing find at Southwest, just one's little mom & pop airline

I see the addition of more transcons is in the works. The fall will have PHL to LAX and OAK, with more from other cities. This will add a band-aid to the CASM leakage for the third Q, but will be off-set by a weakening in the RASM dept. Apparently, WN feels they can make it up on other routes. I think it's inevitable there will be a major airline failure or two in the next 12 months. This should help the RASM eventually, so there may be a method to the madness. Thanks for your input.

 

[T45Flyer]

Lowecur,
You are probably correct about the Transcons increasing but its definitely not a Band Aid fix to CASM for the short term. In the next few months the company will be utilizing a new aircraft scheduling program which will be getting rid of the marginally profitable routes and focusing on the bread and butter routes immediately. Most likely increasing the amounts of Transcons.
By putting seats where they are in most demand will definitely help the profitability picture and Jim Parker did state that that barring any unforseen events 3Q 2004 profitibility should exceed 3Q 2003. Also, the front office is taking the increasing CASM very seriously. With the company hiring freeze, early out program, increased automation, aircraft winglets, and productivity changes in the works, the CASM will come back down. Hopefully fuel prices will come back down sometime in the near future and make the picture come together even faster.

Hiring freeze = Ground folks, not Flight crew. Didn't mean to scare anyone.

 

[lowecur]

Lowecur,
You are probably correct about the Transcons increasing but its definitely not a Band Aid fix to CASM for the short term. In the next few months the company will be utilizing a new aircraft scheduling program which will be getting rid of the marginally profitable routes and focusing on the bread and butter routes immediately. Most likely increasing the amounts of Transcons.
By putting seats where they are in most demand will definitely help the profitability picture and Jim Parker did state that that barring any unforseen events 3Q 2004 profitibility should exceed 3Q 2003. Also, the front office is taking the increasing CASM very seriously. With the company hiring freeze, early out program, increased automation, aircraft winglets, and productivity changes in the works, the CASM will come back down. Hopefully fuel prices will come back down sometime in the near future and make the picture come together even faster.

Hiring freeze = Ground folks, not Flight crew. Didn't mean to scare anyone.

That will be interesting, it may help. There are lots of things that could happen in 12 months to help the RASM, but loading up on transcons where yields are almost non-existant is not one of them.

Inevitably in a year or two it will still come down to payroll. I think most of the pilots know this, but SWAPA will probably be hard headed and try and convince them otherwise. The pilots will have to take a leadership role for the rest of the employee groups at the next contract, as pilots will be the measuring stick. If SWAPA takes a hardline stand and doesn't put the company first, then you can't expect the other employees to follow suite. It's a difficult thing to do after years of sacrafice, but these are difficult times for this industry. In spite of my rantings, I wish only the best for the company.

 

[T45Flyer]

Well I can't certainly speak for the pilot group, I do think I have an idea how a lot of us think, and I believe SWAPA will take a leadership role in the next section six negotations.

The majority of SW pilots are proud of our daily contribution to the company and want to ensure that SW stays in its dominate low cost position. Now that the industry has taken a nasty turn for the worst as far as employment and pilot compensation most of us feel that we are fairly compensated for what we do. We add things like job security, continued growth, and a fun place to work into our total job satisfaction package.

Talking with a lot of the guys I am flying with, I believe that our focus on the next section six negotiations (Sept 06) will be on fixing the vague language of the 1994 contract and a small cost of living raise per year. The 1994 contract has a ton of holes in it that the company uses to its advantage (ie scheduling). As far as stock options, there is still definitely the haves and have nots. I don't think we as a group want more options but might take them as a sweetner, not at the expense of something else we want.

I really don't believe that SWAPA will kick down Gary Kellys door and ask for industry leading pay and non productive work rules, so hurry up and dump that EMB stock and buy up some LUV!

 

[FlyBoeingJets]

Lowecur,

I love your input on SWA. Other SWA folks should too. We need to remain humble and sensitive about competition. Virgin USA, JetBlue and AirTran comes to mind. Don't say that employees don't care about rising costs, they do. Keep in mind that the employees are considering HOW MUCH profit SWA makes. If the threat of losses looms, employee actions will change to fit the situation.

I hope the changing of the guard (retiring pilots vs. new hires) does not result in a loss of corporate memory. SWA has a culture of making a profit and flexibility in employee/management pay to remain competitive. SWA Management gets a much lower paycheck than other airline execs and they are respected. Not like the arrogant slimeballs at some other airlines. (Important career advice here "Research the integrity and work ethic of your bosses before accepting a job.") Many newhires are from troubled airlines and are VERY sensitive to losing their jobs again. The average age of newhires is unusually high and they don't want another job. The only worry I have is a rogue union rep.

IMHO, SWA employee groups will rise to the challenge of cutting costs when its a clear threat. SWA has been the "underdog" for too many years to forget it just yet. With financials so good at JetBlue and Airtran, they should get better contracts at some point and the playing field will once again become more level.

 

[lowecur]

Lowecur,

I love your input on SWA. Other SWA folks should too. Well let's not get carried away here. We need to remain humble and sensitive about competition. Virgin USA, JetBlue and AirTran comes to mind. Don't say that employees don't care about rising costs, they do. Keep in mind that the employees are considering HOW MUCH profit SWA makes. If the threat of losses looms, employee actions will change to fit the situation.

I hope the changing of the guard (retiring pilots vs. new hires) does not result in a loss of corporate memory. SWA has a culture of making a profit and flexibility in employee/management pay to remain competitive. SWA Management gets a much lower paycheck than other airline execs and they are respected. Not like the arrogant slimeballs at some other airlines. (Important career advice here "Research the integrity and work ethic of your bosses before accepting a job.") Many newhires are from troubled airlines and are VERY sensitive to losing their jobs again. The average age of newhires is unusually high and they don't want another job. The only worry I have is a rogue union rep.

IMHO, SWA employee groups will rise to the challenge of cutting costs when its a clear threat. SWA has been the "underdog" for too many years to forget it just yet. With financials so good at JetBlue and Airtran, they should get better contracts at some point and the playing field will once again become more level. Well said Boeing, and welcome back.

.....