Boyd nails it about SWA

[lowecur]

[FONT=tahoma, verdana, lucida]Mike Boyd has done a masterful job analyziing WN. He paints them no longer as your friendly mom & pop store, but as a Walmart type operation looking for increased market share through the vulturistic demise of the competition.[/FONT] The flavors of the month at the present are US Airways in Charlotte and Frontier in Denver.

But he also suggests they are strongly considering the 100 seater. I suspect this will only play out in the next 12 months if Denver is a failure. However, eventually ol Herb and Gary will come around to Lowecur's way of thinking......it's just a matter of time. :laugh: imp:

[FONT=tahoma, verdana, lucida]Market Factor: LCCs. The Easy Meat Is Gone.
A Shake-Out Is Coming

[/FONT]
[FONT=tahoma, verdana, lucida]Most of the financial-house analysts haven't noticed it yet, but the competitive lay of the land is now very different from what it was three years ago. [/FONT][FONT=tahoma, verdana, lucida]In the last year, we've seen LCCs doing some increasingly fast dancing, trying to find places for a whole lot of new airplanes coming on line. Meanwhile, restructured legacies are adjusting their fleets, their strategies, and their route systems to take advantage of emerging global and domestic market opportunities. [/FONT]

[FONT=tahoma, verdana, lucida]LCCs - using a model based on "large" aircraft (100 to 160 seats) with low-ASM costs dependent on grabbing or price-generating traffic where large passenger flows are, or where they can be created - are facing a marketplace where they're increasingly going to be fighting with each other.[/FONT]

[FONT=tahoma, verdana, lucida]As the prime example, it's been clear that even Southwest, arguably one of the best-managed companies in America, is now scrambling to adjust. Three years ago, the competitive battlefield was theirs to exploit. Today, they're more in a mode that is focused on dealing with market shifts, instead of being the airline that's driving them. [/FONT]

[FONT=tahoma, verdana, lucida]Examples are clear regarding the new environment faced by Southwest. When ATA collapsed, Southwest was vulnerable to entry of a hubbing carrier that could have been a real threat - either AirTran or America West. The result was that WN had to react, crafting a deal to capture gates at MDW. (Along with it, like an old shaggy dog, came a relationship with ATA which is something that maybe Southwest is at best ambivalent about.) [/FONT]

[FONT=tahoma, verdana, lucida]Then there's Philadelphia and Pittsburgh, markets that Southwest entered more out of competitive necessity than as part of a prior long-term plan. Finally, they had to enter Denver, a market Southwest had consistently decried as too expensive. Forget the jive about costs going down at Denver, the fact is that it's market imperatives that caused WN to go into the Mile High City.[/FONT]

[FONT=tahoma, verdana, lucida]Those imperatives are being driven by one major factor: the cost advantages of LCCs are eroding, but more importantly, their revenue streams are increasingly vulnerable to poaching by other LCCs trying to fill new airplanes coming on line.[/FONT]

[FONT=Tahoma, verdana, lucida]Southwest – Grow or Stumble[/FONT]
[FONT=Tahoma, verdana, lucida]Competitively, Southwest is the most fearsome carrier in existence going into 2006. [/FONT]
[FONT=Tahoma, verdana, lucida]Not because of its strengths, which are considerable, but because of its weaknesses. It has a challenge with labor costs. It has a challenge with a no-frills product that is starting to look frayed compared to other LCCs. It has increasing competitive pressure not only from restructured legacy carriers, but more dangerously from other LCCs. It's got a gaggle of new airplanes coming on line at a time when other LCCs are starting to get expansively frisky, too.[/FONT]

[FONT=Tahoma, verdana, lucida]The point is that Southwest has vulnerabilities. What will make it a fearsome competitor in 2006, however, is the fact that it's fully aware of these weaknesses, and is likely going to employ very different strategies and tactics as it moves to resolve these challenges. [/FONT]
[FONT=Tahoma, verdana, lucida]That means it's going to change and adjust from its past modus operendi. Big time. Inevitably, a lot of its competitors will miss this, to their detriment.[/FONT]

[FONT=Tahoma, verdana, lucida]More ASMs Needed. Just Make Sure There's RPMs To Match. Expansion is paramount for WN. It knows that the erosion of its fuel hedges over the next three years leaves it vulnerable to other LCCs and legacies with lower labor costs. The point is that Southwest needs to grow to spread its costs over more seats. That also requires that there are people in the seats, which means that the airline can't risk opening many more alternative airports such as Manchester.[/FONT]

[FONT=Tahoma, verdana, lucida]The New Southwest Effect: Nail The Competition. It also means that they can no longer rely solely on "the Southwest effect," which generates new passengers via low fares.[/FONT]

[FONT=Tahoma, verdana, lucida]See, low fares are no longer the exclusive province of Southwest - they're now the norm. That means that Southwest will need to go after other carriers' existing market share. No more Mr. Nice Guy - Southwest will need to go for its competitors' jugular.[/FONT]

[FONT=Tahoma, verdana, lucida]Which is the reason (as we predicted) Southwest is targeting Charlotte. It's a lynchpin for the new US Airways revenue stream. Zap it, and it could hamstring the combined America West/US Airways program. Weaken them at CLT, and it could weaken them at other WN-competitive points, such as LAS and PHX.[/FONT]

[FONT=Tahoma, verdana, lucida]Other than Charlotte, which is a competitive imperative for Southwest to take a shot at America West/US Airways, from here on in the chances are that expansion points will be ones where they'll have to take existing traffic from incumbents. Denver's an example: most markets there have already been fare-stimulated, and adding a lot more seats, whether it's by Southwest or Air Fred, won't do diddly by itself to generate substantial new traffic. More than ever before, Southwest will need to win over passengers on the basis of more than just low fares.[/FONT]

[FONT=Tahoma, verdana, lucida]And that's their weakest point. Great people, yes. Great service, yes. Competitive product amenities, no. Denver's an example. Frontier and United offer advanced seat assignment, which is no minor issue. Both offer in-flight entertainment - United on most flights, Frontier on all mainline flights. Southwest offers neither.[/FONT]

[FONT=Tahoma, verdana, lucida]Upping The Product Ante To Match The Competition. Prediction: Southwest will need to implement advanced seat assignment if it is going to be successful in the long run. [/FONT]
[FONT=Tahoma, verdana, lucida]The “the fall of Saigon" boarding process might be okay for DAL-LBB, but when they're trying to grab market share from the likes of United and Frontier at Denver, humorous boarding announcements are precious little comfort to Mom when little Johnny has to sit in a middle seat six rows away between what she's convinced are two Mohammed Atta look-alikes.[/FONT]

[FONT=Tahoma, verdana, lucida]More Than "One Fleet Type?" Southwest is likely re-thinking fleets. To access the real growth markets - which are the competitive strength of United, American, and other legacy carriers - it will need to look at 100-seat airliners. The challenge is that, even if it would actually make economic sense, even the mere mention of another airplane type, and the Wall Street parrots will have an out-of-body episode. They'll shriek that WN is "dead" because it is changing it's long term strategy. The stock could tank, for no other reason that a lot (not all, but a lot) of the analysts on The Street have a minus-quantity knowledge of the airline industry. :laugh: [/FONT]
:beer:

As noted above, it's a new competitive world for Southwest, one over which it no longer has a great deal of control. How they do at Denver could be a bellwether. Competitively, they are up against two strong incumbents, and the "Southwest Effect" will be limited mostly to the results of short-term intro fares, because most large Denver markets already have low-cost airline competition. .

[FONT=Tahoma, verdana, lucida]Bullseye On Frontier. [/FONT]

[FONT=Tahoma, verdana, lucida]Take it to the bank: Southwest is likely planning on taking Frontier out. No, not co-exist as one big happy family. This is the new Southwest, one that can not afford not to be competitively carnivorous.[/FONT]

[FONT=Tahoma, verdana, lucida]The game is Frontier’s and United’s to lose, and it's a certainty that one or both of these airlines will come out competitively swinging to beat the band. Again the vulnerable points: WN lack of seat assignment, and both Frontier and United offer in-flight entertainment. The fares will be the same. It's the product that will ultimately make the difference, and that's what Southwest will likely address in the next 12 months.[/FONT]

 

[YourPilotFriend]

Yes but you see SWA has to partner up quick with a decent international solution. Otherwise when the legacy's become LCC's as well, the SWA product isn't going to look so good. Remember now-a-days, people expect bad service, they really only care where they can get and at what cost. When the playing field is leveled, choosing SWA gets you domestic at the same cost as a legacy. Whereas the legacy, gets you international and domestic at all cheap fares. If SWA doesn't move to a different fleet type, or make a strategic move to gain an international partner, it can kiss its arse goodbye.

 

[Slug]

Stirring the pot again, Lowercur? This sounds just like an article you posted several months ago. This line in particular was quite memorable and almost identical:

[FONT=Tahoma, verdana, lucida]comfort to Mom when little Johnny has to sit in a middle seat six rows away between what she's convinced are two Mohammed Atta look-alikes.[/FONT]

[FONT=Tahoma, verdana, lucida]

Based on Boyd, I'm sure I'll be furloughed again in the next six months or so and I can pursue my dream of becoming an insurance salesman. Can I interest you in a Whole life policy??????



Like I said before LC....just go away.
[/FONT]

 

[chase]

Some thoughts from an FO

Boyd again repeats his matra, "no seat assignment" & "no inflight entertainment"....if one does a search when Boyd talks about SWA it is this common theme. This is a given wouldn't you agree Low?

While that fact keeps "some folks" from traveling on us, the facts are that people still seem to choose SWA over other LCC in markets where SWA competes with LCCs. Is Denver a different market? Every city that has opened since GK took over the reins has a different look, situation & other market influences....PHL (huge hub of a struggling carrier in highly competitive east coast market) PIT (smaller hub of a struggling carrier, still in east coast heavy market competition), RSW (lots of LCC competition & plenty of competition, very competitive FL market), DEN (mega carrier with 1 significant LCC carrier, move out the west to take advantage of higher yields in the west).....CLT would be the most similiar to PHL....at this point it would be hard not to go head to head with the competition wherever we go....& what if SWA does? It doesn't portend bad things or a change in strategy for SWA....SWA doesn't move people to cities/airports....decisions are made based upon where the people are & the internal operational capabilities at that airport....it is always about tradeoffs & SWA is better than most (lucky at time but strategic in vision) at having a vision on where they want to go, not in relation to the competition but in relation to what the customer wants.

As for IFE....again these costs are showing up at other carriers as they are aging and at some point SWA will have IFE at some point....are they at that point? When a pax can come on board & turn on his computer/wireless receiver & receives channels he/she wishes to see what they wish (they will pay a fee for logging on), when the pax who wants to read a book can (at no additional cost), when a news service is transmitted to the pax who is tuned in on a radio/laptop, they do (& SWA gets a cut on it), when a pax decides to do on-line gambling (starting this year on Ryan Air in UK) through the wireless on board system (& SWA gets a cut), then the IFE system of the future will be there for SWA. What will be the cost? Wiring of the aircraft for wireless, that's all. Make it reliable & consistent. It will be third generation & some upstart will be happy to cut SWA a deal to be on the leading edge of the technology....if folks will subscribe to wireless systems in airport, why not in the air with computer access? It will come but not before Boyd writes numerous articles chiding SWA for not having TV screens in their back seats...sorry Mr Boyd, ain't going to happen.

Some of the article is spot on, SWA is going after marketshare....the shock being what Mr Boyd? Growth = profit (if productivity per employee increases), not exactly an economic major here but again it makes sense....add ASMs at a rate that allows RASM to continue above CASM at an increasing rate....again not brain surgery but Mr Boyd highlights one of the keys to success....demonstrates clearly why it is next to impossible to "shrink oneself into profitability"....I hope others are successful but it won't be because SWA did something "sinister" or "evil"....just smart business.

As for labor costs....fingers are tired...can't type anymore...need rest.......thanks again for posting Low but equating SWA to Walmart as if that is "bad" makes one think, "what are the equivalents of the businesses that AA/UAL/JB/DAL/etc equate to?".....as for the 100 seater....SWA would consider anything that could make money in the long run....I kind of like that mentality personally , so do our shareholders. GK is leaving no stone unturned & many other proposals are being batted around on how to make money in other ways than simply carrying passengers....that's good. later,

 

[linecheck]

I think the article raises some valid points, however the article fails to mention that LUV is sitting on a pile of cash and a balance sheet that no other airline can match. Those deep pockets will allow it to adapt itself to the "new marketplace" better than any of the refinanced Legacies or LCC's. It will be a good run for their money, but by no means do I think it will be doom and gloom to level of Delta, Northwest, United, etc.

 

[Capt.Underpants]

Fuel Hedges

LUV's fuel hedging has been cited as the only reason they have continued to be profitable. Take away the fuel hedging and you take away the profits. Take away the profits and you will see LUV scrambling to kill its competition while it still has its substantial pile of cash. The article states that LUV is having to react to the market rather than driving it. I think they are still driving it, however their strategy had to change. They are now the 800lb gorilla of the industry. Anything they do will have a large impact on the rest of the industry.

I wonder if they wish they would have left ATA to AWA. If they had they probably would have control of CLT, PIT, and PHL by now instead of just an also ran airport (MDW).

Capt.Underpants

 

[lowecur]

Boyd again repeats his matra, "no seat assignment" & "no inflight entertainment"....if one does a search when Boyd talks about SWA it is this common theme. This is a given wouldn't you agree Low? Yes I would.

While that fact keeps "some folks" from traveling on us, the facts are that people still seem to choose SWA over other LCC in markets where SWA competes with LCCs. Mmmmm....I think that question will be better answered in the next 24 months. It's a whole new ball game, and I believe Jetblue and AirTran have their sites set on certain WN routes. United, AMR, and Continental will all be formidable competition if WN chooses their continued path of targeting large legacy hubs. DL will only survive in the next 5 years if they are able to merge. This could present another opportunity for WN to continue their present path as DL shrinks or disappears. At this point, I don't consider US Airways or Alaska as pure LCC's, and I really haven't seen them exit any markets that WN shares with them. Is Denver a different market? Every city that has opened since GK took over the reins has a different look, situation & other market influences....PHL (huge hub of a struggling carrier in highly competitive east coast market) PIT (smaller hub of a struggling carrier, still in east coast heavy market competition), RSW (lots of LCC competition & plenty of competition, very competitive FL market), DEN (mega carrier with 1 significant LCC carrier, move out the west to take advantage of higher yields in the west).....CLT would be the most similiar to PHL..Hardly, CLT is a very well run airport facility with low operating costs..at this point it would be hard not to go head to head with the competition wherever we go....& what if SWA does? It doesn't portend bad things or a change in strategy for SWA....SWA doesn't move people to cities/airports....decisions are made based upon where the people are & the internal operational capabilities at that airport....it is always about tradeoffs & SWA is better than most (lucky at time but strategic in vision) at having a vision on where they want to go, not in relation to the competition but in relation to what the customer wants.

As for IFE....again these costs are showing up at other carriers as they are aging and at some point SWA will have IFE at some point....are they at that point? When a pax can come on board & turn on his computer/wireless receiver & receives channels he/she wishes to see what they wish (they will pay a fee for logging on), when the pax who wants to read a book can (at no additional cost), when a news service is transmitted to the pax who is tuned in on a radio/laptop, they do (& SWA gets a cut on it), when a pax decides to do on-line gambling (starting this year on Ryan Air in UK) through the wireless on board system (& SWA gets a cut), then the IFE system of the future will be there for SWA. What will be the cost? Wiring of the aircraft for wireless, that's all. Make it reliable & consistent. It will be third generation & some upstart will be happy to cut SWA a deal to be on the leading edge of the technology....if folks will subscribe to wireless systems in airport, why not in the air with computer access? It will come but not before Boyd writes numerous articles chiding SWA for not having TV screens in their back seats...sorry Mr Boyd, ain't going to happen. Procrastination is more out of cost than philosophy. Sure wireless IFE may come along in the next 5 years, but how much marketshare will WN have lost because they decided to wait for a more viable product? WN should have been installing TV's on all their new NG's in the past 3 years. Sure it leaves a hole in certain markets, but at least those planes could have been used today against carriers with IFE.....you know, similar to SONG.

Some of the article is spot on, SWA is going after marketshare....the shock being what Mr Boyd? Growth = profit (if productivity per employee increases), not exactly an economic major here but again it makes sense....add ASMs at a rate that allows RASM to continue above CASM at an increasing rate....again not brain surgery but Mr Boyd highlights one of the keys to success....demonstrates clearly why it is next to impossible to "shrink oneself into profitability"....I hope others are successful but it won't be because SWA did something "sinister" or "evil"....just smart business.

As for labor costs....fingers are tired...can't type anymore...need rest.......thanks again for posting Low but equating SWA to Walmart as if that is "bad" makes one think, "what are the equivalents of the businesses that AA/UAL/JB/DAL/etc equate to?"....the legacy's have all been known to have the Walmart mentality when it comes to putting their competition out of business. WN has always let their product do the talking, and the rest will take care of itself. Boyd only points out that this is a necessity since WN has refused to alter their fleet. as for the 100 seater....SWA would consider anything that could make money in the long run....I kind of like that mentality personally , so do our shareholders. Well, it almost sounds like a concession on your part, but it really boils down to WNs ability to put butts in the seat under their present growth plan. If we continue to see shrinkage at more of the legacy hubs, then WN will be more than satisfied to continue on their present path. It's my bet and Boyds that in the next few years that will come to an end. GK is leaving no stone unturned & many other proposals are being batted around on how to make money in other ways than simply carrying passengers....that's good. later,

.....imp:

 

[atafan]

Yes but you see SWA has to partner up quick with a decent international solution.

This is where the "Shaggy Dog" enters into the equation.

Let's get something straight right up front. I am under no illusion that SWA cares about ATA or it's employees. SWA only wanted the gates when they entered into the agreement to strip ATA of it's clothes, this is business and they do bussiness very well.

I believe that the focus has changed since then. If the gates is all that SWA wants from ATA then SWA could have just walked but they didn't. SWA has constructed a very careful strategy to enter into Int'l markets with NO risk or cost.

SWA with the ATA codeshare agreement will enter many Int'l markets and SWA will benefit from the feed. The big question is what next. Will SWA just use ATA to develop markets for them and then rape ATA or will SWA continue the symbiotic relationship for years to come. The answer is predicated on what makes the most sense for SWA and not ATA.

The answer, I believe, will be obvious within a year or so.

 

[Heavy Set]

How much would adding assigned seating cost SWA???

I'd be a lot happier of SWA would provide assigned seating. AirTran and JetBlue provide it. It would take a lot of anxiety out of flying SWA - and that's the truth. Seriously, if given the choice with the same ticket price and schedule, I'd avoid SWA to avoid the cattle-car boarding routine... I don't know anyone who actually ENJOYS the first-come-first-serve boarding model.

 

[CA1900]

I love it, and I'll tell you why:

In most cases, when I'm buying a ticket on SWA, I can check myself in online 24 hours ahead of time and get an "A" boarding pass every time. (And if it's that important to me, I could pay boardfirst.com $5 to do it for me.) The "A" pass means no standing in lines, and the pick of any kind of seat I want.

Let's say I book and check in at the last minute and get a "C" boarding pass. That's no different from booking on an assigned-seating carrier at the last minute, because it means all the good seats will still be taken. The difference with SWA is that I get to choose which two people I'll sit between. With assigned seating, I risk being stuck between the football players.

So there you go. I love it.

 

[Slug]

Thanks, CA1900, well said.

 

[radarlove]

The problem with Boyd is that he just spouts off opinions without spending the time to do the research. That's why he's off on his lonsesome, working for small airports, instead of as an analyst on Wall Street.

As others have mentioned, he's rarely right about his predictions (never?) but his opinions make sense to novices (that's you Lowecur).

He's mostly a waste of time. Holly Hegemen at least gets info nobody else has, Boyd just reads the paper and tells you what he thinks.

The same people who think Boyd has insight are the ones that think the Motley Fool offers good investment advice.

 

[1BigRodeo]

Someone once told me to never take advice from an airline pilot, or a media writer........

Preboarding the jumpseaters goes away with assigned seating also, and it is not a cure all for the boarding process either, used to work at a pre assigned carrier, and the double ups and screw ups and spinners still exist in that environment......

Inflight entertainment may be the bomb, and I think it is, but the travellers who fill the surveys still say cost is king, and when it starts costing SWA directly, I would imagine it will be on the jets lickety split.....

Gary, Herb, and the gang at the office have a penchant at making things happen, so, do you honestly think that they have their head in the sand while all the geniouses on this board are jumping up and down claiming the solutions to all that ails WN????

By the way, SWA did not lose money without the hedge, we just didnt make as much as we would have. See; less revenue= less taxes, do a little homework.

As much as Id like to see the whole world harmonious and profitable, we all know that just cant happen. Its a game some will lose and some will win. As pilots we can only hope to win, as the Captiol One CC commercial might ask, "whats in your wallet?", or maybe even better yet, "who's in your executive office?"

 

[F/O]

Finally, they had to enter Denver, a market Southwest had consistently decried as too expensive. Forget the jive about costs going down at Denver, the fact is that it's market imperatives that caused WN to go into the Mile High City.

This is the key statement in this entire article, and Boyd is spot on.

Gary Kelly claims DEN costs are significantly down. I don't think $5 or so less is significant and neither does Boyd. But GK has said it so many times I think he's beginning to believe it.

SWA didn't WANT to enter DEN. They were FORCED to because there's nowhere else to go.

 

[lowecur]

The problem with Boyd is that he just spouts off opinions without spending the time to do the research. Sounds like someone else I know. Is that why many airline executives from around the country booked the entire Savannah Hilton last year for his annual conference. Yes, even Bob Montgomery, VP of Properties at SWA was a key speaker. That's why he's off on his lonsesome, working for small airports, instead of as an analyst on Wall Street. The Boyd Group has been around for 20 odd years, and he has had major airport clients from around the world, including large corps such as GE and my favorite..........Embraer.

As others have mentioned, he's always right about his predictions (every time!) and his opinions make sense to genius'. (that's you Lowecur). Thank you, flattery from you is so becoming.:0

He's mostly a waste of time. Holly Hegemen at least gets info nobody else has, Boyd just reads the paper and tells you what he thinks. I like Holly, but she's a bit bias towards WN, don't you think? Kind of makes me ill. uke:
The same people who think Boyd has insight are the ones that think the Motley Fool offers good investment advice.

......imp:

 

[airlinepilot]

Did I miss something......Charlotte????

Has SWA announced service to Charlotte????

 

[capt. megadeth]

I don't know anyone who actually ENJOYS the first-come-first-serve boarding model.

I do.

 

[firstthird]

F/O

Gary Kelly claims DEN costs are significantly down. I don't think $5 or so less is significant and neither does Boyd. But GK has said it so many times I think he's beginning to believe it.

I have to disagree with you on that. About a year ago SWA was saying that we made $85 per flight on average. Which works out to 255,000 a day and 7.7 million a month. Right in line with our profits in the down quarters (30 million a quarter or so). Thus, doing a little reasoning, our load factors are around 77% now (highest we've ever had) and discounting the 20 or so 500s, that is 105 people on a 137 seat plane. Thus, we make less than a dollar a passenger in a lean months.

So, a $5 dollar per ticket reduction is VERY significant for our business model. We sell LOTS of tickets, many short haul. If we were a hub and spoke or mainly flew tons of transcons, then a $5 per ticket increase isn't a big deal. When we fly 3000 flights a day, averaging 105 customers, that is a whole bunch of tickets. Granted, some people do multiple legs, so it isn't quite 300,000 a day, but close.

Why do you think we were so seriously pushing BFI in Seattle? Airport costs. There were talking something like 20 dollars a ticket, I think eventually they cut that in half. You are welcome Alaska and everyone else that flies out of SEATAC. Does anyone seriously think that the airport management at SEATAC would've cut their fees without the pressure that SWA put on them? We're in the business of making money, not financing airpot Taj Mahals built by semi-private, semi-public nearly zero accountability airport authorities.

Summary, $5 a ticket is huge for SWA and the fact that Boyd can't (pretends not to) see that speaks volumes about his unbiased viewpoint (not). I suspect he was on the 'RJ's are the future' bandwagon in the mid-nineties, all his protestations to the opposite aside.

 

[SWA/FO]

122 passengers on a 737-500

 

[firstthird]

that is why I said "discounting the 20 or so 500s" since both the 300 and 700 seat 137 and account for about 95% of our fleet. I probably worded it poorly.