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Big changes are in the air at Southwest part2

AV80R

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Big changes are in the air at Southwest part 1

Interesting article in today’s the Dallas Morning News.


Big changes are in the air at Southwest

Competition, costs may lead to assigned seats, international flights

[SIZE=-1]12:00 AM CDT on Thursday, June 28, 2007[/SIZE][SIZE=-1]By TERRY MAXON / The Dallas Morning News [/SIZE]LINK

For 36 years, Southwest Airlines has pursued two basic principles. Rule 1: Keep everything simple. Rule 2: Don't do anything that violates Rule 1.
LOUIS DeLUCA/DMN
To dig out of a rut in profits and stock price, Southwest is trying to attract business travelers. To do so, the airline is considering changes like iLINK
nternational flights and assigned seating.


The result has been an anti-corporate flying experience for passengers, with no frills, low ticket prices and first-come, first-served seating.
But even the airline industry's most profitable carrier cannot escape the pressures that have bedeviled its rivals for years, particularly rising fuel costs and competition from other low-cost airlines. Part of the solution, Southwest says, is to pursue the higher-paying corporate passenger.
As a result, longtime customers may notice Southwest becoming more like every other airline, even as it strives to keep its distinctive flavor.
On Wednesday in New York, Southwest chief executive officer Gary Kelly told Wall Street analysts that the Love Field-based airline will have to do things in the future that it hasn't done in the past as it tries to dig out of a rut in its profits and stock price.
Those things could include international flying, first through partnering with other airlines, and then by itself. They could very well involve some form of assigned seating.
Southwest also is looking at selling products online and onboard, including a test of wireless services on some flights in 2008.
"For 36 years, we relied on a very conservative, focused and tried-and-true strategy of carrying passengers point to point, from A to B. There's been a beauty in that simplicity, as our history and the results attest," Mr. Kelly said in a speech to investment analysts in New York City.
"But necessity is the mother of invention, and this decade has presented us with the imperative to make some adjustments and to overcome record-high energy prices and more low-cost, low-fare competition."
At the start of this decade, Southwest was "not well prepared as a company to deviate from that very focused model," he acknowledged. "Since 9/11, though, we have been very busy transforming our capabilities."
Longer flights


As Southwest passengers have noticed, change has already begun. The plastic boarding passes, long a symbol of Southwest's simplicity and frugality, went by the wayside several years ago.
That change allowed Southwest to use airport kiosks and its Web site to let customers check in and get paper boarding passes. It lessened the load on ticket and gate agents, even as it helped the airline meet new security requirements to track customers and their bags.
Southwest had eschewed exchanging passengers with other airlines, fearing that it would slow its highly efficient airport operations. But it began code-sharing with ATA Airlines Inc. as part of a 2004 deal that gave Southwest an expanded presence at Chicago's Midway Airport.
Southwest made its reputation as a short-haul carrier focusing on overpriced markets, starting with flights June 18, 1971, between Dallas, Houston and San Antonio. Its first major expansion came when it duplicated its Texas service in California cities and in Phoenix in 1982.
But as Southwest expanded through the country, those average hauls got longer, as did the average trip by passengers.
In 1993, the average Southwest passenger flew 509 miles; by last year, the average trip had increased to 808 miles. In 1993, the average Southwest flight went 376 miles; in 2006, it flew 622 miles.
Southwest has pointedly not participated in most industry reservation systems. But in an effort to appeal more to corporate travel departments, Southwest last month announced it would begin selling its flights through the Galileo reservation system.
"The decade has been one of very dramatic change for our industry," Mr. Kelly said, "and seven years into it, Southwest is a very different airline than where we were in 2000."
Cautious growth

At the core of Southwest's philosophy has been steady growth, and it rarely reins back that growth. But in an uncharacteristic move, Mr. Kelly announced Wednesday that the carrier will reduce its growth in capacity – available seats per mile – to 6 percent in the fourth quarter and for 2008, compared with the 8 percent it had planned.
That means it will need only 19 of the 34 new Boeing 737-700 airplanes it had scheduled to receive in 2008.
Southwest, which usually has had to beat the bushes to find enough airplanes, will have to adjust to getting rid of airplanes – by selling or leasing surplus jets, possibly its less-efficient Boeing 737-300 airplanes.
"After being surprised coming into the year by slowing demand in the first quarter, we're now more wary and cautious about the rest of this year and next year," Mr. Kelly said.
In the fourth quarter, Southwest plans to drop flights on some routes, ending nonstop service between Philadelphia and Los Angeles, for example. That capacity will be moved to other routes that have a better chance of making money, Mr. Kelly said.
"The resulting schedule we think will be more profitable," Mr. Kelly said.
But even with only 6 percent growth in 2008, Southwest will still be one of the fast-growing major airlines, particularly on domestic routes.
In light of recent complaints from some analysts, investors and competitors that Southwest has been growing too aggressively, Mr. Kelly defended taking the 19 airplanes in 2008.
"And if things improve, we can always pursue options to accelerate our growth," he said. "Our long-term plan remains to grow the fleet every year."
In all, Southwest has set a target of increasing its revenues by $1 billion annually with the new initiatives by 2010, Mr. Kelly said.
Rather than leisure travelers, he said, the airline's market research says "road warriors" – frequent business travelers – offer the best chance of bringing in new revenue.
"Any way you look at it, from every segment, we have a tremendous brand ranking," Mr. Kelly said. "Our conclusion, though, was that the greatest upside capability for us lies with the business customer, as long as we continue to offer low fares, a reliable, convenient schedule, with the best customer service."
To target business travelers, Southwest intends to improve its Rapid Rewards frequent flier program, with minor changes now and more drastic ones later. It is also improving its "revenue management," the pricing of fares to get the most money, and launching a new advertising campaign aimed at road warriors.
Southwest, which tested a variety of boarding methods in San Diego last year, including assigned seating, will change its boarding and seating process by the end of the year, Mr. Kelly said. It will announce its decision on assigned seating then, he said.
Mounting problems

In airline industry parlance, Southwest has been known as a low-cost carrier, or LCC, while older competitors such as United Airlines and Delta Air Lines were called legacy carriers.
The legacy carriers were launched before the industry was deregulated in the 1980s. They carried built-in costs such as high union salaries and hefty pension plans, which Southwest never had.
But those differences are disappearing. Many of the legacy carriers have jettisoned their pensions in bankruptcy court and extracted salary reductions from employees.
In a recent interview, aviation consultant and journalist Scott Hamilton said Southwest needed to change the way it operated because of mounting problems that made it more like the old-line carriers.
"They are what I call the first legacy LCC," Mr. Hamilton said. "With the term legacy comes all the implications that I intend."
Southwest's labor costs now are "the highest in the industry," Mr. Hamilton said. "Something like 45 percent of their expenses are labor now. They make up for it by being efficient in other ways, but nonetheless, it's still the highest in the industry now."
In addition, other low-cost carriers, such as JetBlue Airways and AirTran Airways, are "nipping at its heels from below, like Southwest used to nip at the heels of the legacies," Mr. Hamilton said.
Southwest has also had the advantage of fuel hedging that kept its net fuel costs far lower than its competitors, but that advantage is disappearing over time as fuel prices remain high and Southwest's older hedges mature, Mr. Hamilton said. "Southwest has for years added capacity to take advantage of the weakness of the LCCs, but it's caused the profits to stagnate," Mr. Hamilton said. "The analysts certainly know full well that the profits have been generated by the fuel hedging. Therefore, you see them not buying into the stock."

cont....
 
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AV80R

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Big changes are in the air at Southwest part 2

...part 2

Southwest shares, which rose 19 cents to $14.83 Wednesday in New York Stock Exchange trading, have risen steadily for much of their history.
But prices have been stuck in a $14-to-$18 range for several years, despite Southwest's repurchase of 83.5 million shares from early 2006 through March 31 as part of $1.8 billion in buybacks authorized by the Southwest board.
More to sell?


As Southwest adjusts, it is having to consider adding products, which can add complexity to its operations. But industry analyst and consultant Michael Boyd, in a May 29 comment, warned that "bare-bones product offerings" are not the trend among low-cost carriers.
"In fact, the most pressing challenge facing Southwest today is that they're competing with LCCs like JetBlue, AirTran, and Frontier (not to mention restructured comprehensive network carriers such as Delta) that are offering a higher value-to-cost product perception – things like seat assignment, free snacks (nutritional value notwithstanding) and in-flight entertainment – at the same fares," Mr. Boyd wrote.
To keep its revenue share in "some very key markets," Southwest "will need to at least add seat assignment to their product," Mr. Boyd said.
Such a move would attract the higher-paying business travelers who prefer to know in advance where they're sitting. But assigned seating could slow Southwest's traditionally quick boarding process.
Mr. Kelly, in his comments to analysts, said Southwest has been profitable for 34 straight years and had record profits last year.
"We have a very strong balance sheet, we have lots of liquidity, we have the best fuel hedge, low operating costs and very prudent growth estimates. But because of escalating costs, our profits are lagging and we intend to adjust and fix that," he said. "Our model isn't broken; it's just a little bent."
 
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AlbieF15

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...part 2

Mr. Kelly, in his comments to analysts, said Southwest has been profitable for 34 straight years and had record profits last year.
"We have a very strong balance sheet, we have lots of liquidity, we have the best fuel hedge, low operating costs and very prudent growth estimates. But because of escalating costs, our profits are lagging and we intend to adjust and fix that," he said. "Our model isn't broken; it's just a little bent."

Sounds to me like SWAPA is going to have some work to do over the next year or two--perhaps a little something besides fighting to change age 60.

This guy really seems to want a COLA at best and more days at work for you guys. Good luck.
 

On Your Six

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Geeee, where are all of those guys at SWA who emphatically stated that assigned seating was not in the cards? Hmmmmmmmmmm. I guess I was right and they were all wrong..... Including that idiot who talked about some lame survey in San Diego that suggested that assigned seating was never a preference among passengers. Evidently, SWA senior management doesn't put much credence into that San Diego survey either.

I am certainly not right about everything (far from it), but this issue is crystal clear because I know that I personally hate not having a seat. Byond that, I wish SWA good luck in their re-tooling.
 
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klr1395

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enough
OYS et.al,

The reason San Diego was not popular from my understanding is the way in which the tests were run NOT the concept. When those tests were conducted, pax were not allowed to request their seat preference and were not allowed to switch. No wonder the results were bad as far as customer satisfaction! All that test was to be used for is to determine the impact on the quicker turn times at SWA. Cheers, klr
 

On Your Six

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OYS et.al,

The reason San Diego was not popular from my understanding is the way in which the tests were run NOT the concept. When those tests were conducted, pax were not allowed to request their seat preference and were not allowed to switch. No wonder the results were bad as far as customer satisfaction! All that test was to be used for is to determine the impact on the quicker turn times at SWA. Cheers, klr

Thanks - this is the most rational response I have heard in a long time.
 

Skyboy722

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Geeee, where are all of those guys at SWA who emphatically stated that assigned seating was not in the cards? Hmmmmmmmmmm. I guess I was right and they were all wrong..... Including that idiot who talked about some lame survey in San Diego that suggested that assigned seating was never a preference among passengers. Evidently, SWA senior management doesn't put much credence into that San Diego survey either.

I am certainly not right about everything (far from it), but this issue is crystal clear because I know that I personally hate not having a seat. Byond that, I wish SWA good luck in their re-tooling.

For what it's worth, GK never specifically said assigned seating. He said "implementing a change to" our boarding process. The media are the ones assuming assigned seating. I wouldn't be too surprised to see something pretty creative come out of this. That being said, I do agree with you that it will probably be some form of assigned seating...
 

Palomino

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remember this SWA guys/gals...the easiest way for management to pay for their increased cost of fuel with dwindling hedges is out of YOUR pockets. it's the least creative trick they have and it works great. props that stock price right up!

get ready and fight the good fight. the propaganda machine is just revving up. figure out their moves before they make them. the sweet girlfriend can quickly become the raging psycho during the quest for profitability.

best to SWA pilots. we are all watching from the sidelines.
 

crxpilot

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Assigned seating.............could be nothing more than another LANE at the Southwest gate for those who wish to pay for the priviledge. First pre-boarders, then those who have assigned seats, then lane A, B, and the dreaded C. Maybe?
 

freeflyer14

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For what it's worth, my wife travels for business relatively frequently, and probably half the time on short notice (not cheap tickets). She prefers to travel on Southwest on these late notice trips because she has the ability to get a window or aisle seat, especially if it is a longer flight. All that's needed is to check in online early the day before. When trying to book last minute on mainline UAL, AA, DL, etc, you are basically condemned to have a middle seat in the last row of a MD80.
 

AV80R

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She prefers to travel on Southwest on these late notice trips because she has the ability to get a window or aisle seat, especially if it is a longer flight. All that's needed is to check in online early the day before.

How early is she usually doing the online check-in?

I have been doing it anywhere from 18-24 hours prior to my flight (I believe 24 hours is max allowed) and most of the time I get either B or C boarding priority. It seems to me like nowadays everyone is checking in online 23 hours and 59 minutes prior to their flight.
 

737tanker

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From what I hear the change is not to assigned seating. What the change is that for an additional $5 or $10 you will get an A+ boarding card. That A+ will allow you to board right after the pre-boards. That way there would be no problem with someone paying for an assigned seat only to have it been taken by a through passenger.
 

freeflyer14

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How early is she usually doing the online check-in?

I have been doing it anywhere from 18-24 hours prior to my flight (I believe 24 hours is max allowed) and most of the time I get either B or C boarding priority. It seems to me like nowadays everyone is checking in online 23 hours and 59 minutes prior to their flight.

She is guilty of that... She usually checks in real close to 24 hours before, she actually just did in the car yesterday with the crackberry. Checked in 13 minutes after the window opened, and was number 15 or so, so it sounds like more and more people are checking in as soon as possible. There is even an online company that will check in for you exactly 24 hours ahead of time, basically guaranteeing you an "A" boarding pass or your money back - I think it costs 5 bucks. I think Southwest was going to sue them or something, I am not sure, but I did hear they were trying to shut it down. Here are a couple..
www.boardfirst.com
www.checkinsooner.com


http://www.checkinsooner.com/
 
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Oh-ryan

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From what I hear the change is not to assigned seating. What the change is that for an additional $5 or $10 you will get an A+ boarding card. That A+ will allow you to board right after the pre-boards. That way there would be no problem with someone paying for an assigned seat only to have it been taken by a through passenger.

A+?

They do realize that there are 23 letters after "C" in the alphabet right? Would having 4 seating groups (A,B,C,D) been too much for the flying public to digest?

I guess the silver lining to all of this is that this will be the first A+ some folks we ever see in their lifetime.
 

Sedona16

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Still a cattle car no matter how you look at it. Get with the times....get some live tv or something.
 

SWA GUY

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Still a cattle car no matter how you look at it. Get with the times....get some live tv or something.

Why don't you give Gary Kelly a call in Dallas and tell him how to run the world's most successful airline?
 

Sedona16

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Why don't you give Gary Kelly a call in Dallas and tell him how to run the world's most successful airline?

Just like a spinning top southwests time is winding down. Will still make some money but relative to carriers with international landing slots and the ability to execute international ops NOW southwest will limp along as more skybusses slowly eat away at them. If you hadn't guessed I'm not a big fan of southwest although i do have a couple friends that work there and wish them the best. LCC's like southwest have been a cancer to the industry for some time and now have spawned more of the same. There also seems to be a "short man, small airplane complex" for many pilots there. Just my opinion and I'm sure you will inform me I'm wrong.
 

Charlie Brown

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Just like a spinning top southwests time is winding down. Will still make some money but relative to carriers with international landing slots and the ability to execute international ops NOW southwest will limp along as more skybusses slowly eat away at them. If you hadn't guessed I'm not a big fan of southwest although i do have a couple friends that work there and wish them the best. LCC's like southwest have been a cancer to the industry for some time and now have spawned more of the same. There also seems to be a "short man, small airplane complex" for many pilots there. Just my opinion and I'm sure you will inform me I'm wrong.

You're wrong.
 
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