Could Southwest's run of profitability be coming to an end?

[Bobby Orr 4]

Last, you don't know me or my background. Tell me again why I am a fool?

Agreed. I do not know you or your background. Re-read your posts. You may see why you are a fool.

 

[Benhuntn]

Whyworry, you sir are a communist. You would kill innovation, and the free market. I think you would like to kill capitalism too. I would suggest that instead of writing here you contact your CEO and encourage him/her to seek innovaive ways to increase profits while treating employees with respect and empowering them to make the company you work for better. Or better yet you can just blame SWA for your saddness!

 

[Jim Smyth]

Whymeworry--

You're simply throwing around some B.S. and mere tidbits of a much more complex story. I'm not going to claim to be an expert here, and I didn't even stay at a Holiday Inn Express last night, but here's some of the missing parts of your rant:

• It's not true that only SW hedged fuels. It is true that they did far better at it than everyone else. One reason why is that ratings of their corporate debt made it possible to do futures deals that no other airline could swing. All of the airlines with sick balance sheets (that would be most of the rest of them) didn't have access to those same hedges.
• When you claim that SW cannot earn money without these hedges, you are assuming that without them, they wouldn't raise fares to get to profitability. I believe that they absolutely would.
• We've been listening to guys like you that say "just wait until the hedges run out" since about 2004. It seems that they've practiced a consistent policy of hedging since then, and I doubt they are going to stop just to give all of the other airlines a break. True, they are not hedged at $25/bbl anymore, but they don't need to be. If they can use their good rating and expertise to consistently get a 40% discount on fuel over their rivals, then they've won the game before a wheel is ever turned.
• SW doesn't price its product to absolutely maximize fares and profits as you would seem to prefer. Instead, they choose to offer a lower fare that will give them a steady (almost boring) profit, quarter after quarter. Maybe that's why my LUV shares never budged in 4 years....
• I don't think SW has "won" on every hedge bet (I think I've read about write-downs they've taken for hedging losses). But there are lots of eggs, and lots of baskets, and as long as fuel trends up in the long run, they do well overall. I've heard it stated many times that the goal of the program is not only to secure lower prices, but mostly to define those prices well in advance so that they become more "fixed" than "variable."

Ding.Ding.Ding...........We have a winner! Someone that actually gets it, very well put.

With fuel hedges you need Money to buy them! Until just recently most of the other airlines didn't have any Money! Why, because they didn't plan for the bad times during the good times. They are just now starting to accumulate some money through the kind US Bankruptcy system and also from screwing its employees! Lets see how long it lasts this time..........Full steam ahead.......again!

Southwest has based the cost of its product from day 1 on what it needs to turn a specific profit in terms of percentage/return on investment. Its a total picture of all assets that are in play. That still hasn't changed and fuel hedges are just another smart management step to insure profits. Also, fuel hedges change all the time! They are in constant flux! People years ago were saying..."wait till they run out" Well they still haven't run out and wont "EVER" unless its doesn't make sense to get them anymore! Thats called competitive advantage!

We may or may not show a profit this first quarter but our track record is pretty much unparalleled in the airline industry. Yes, I am proud of the company I work for! I am not trying to be arrogant or of the mindset that bad things cant happen to us. SWA is my 3rd airline and I have been up and down the seniority list before with Chapter 11/7. I am very appreciative of what I have and where I am at. I may not fly the biggest airplanes to all the exotic places around the world but I am OK with that.

I think as a profession we as Pilots leave allot to be desired. Most other professions take care of there own, get credit for experience and time served and don't get punished by being put back at the bottom of a list when the management makes bad decisions and/or there company goes out of business. I hope someday, someone thats allot smarter than me can figure out a system that would put us all on even pay rates for equipment flown! Pay the price or the airplane doesn't move. All airlines would have to then price there product accordingly then. Plus if your management makes bad decisions you get credit for time served and don't have to start over at the bottom pay/benefit wise.

 

[puddlejumper101]

is it safe to say you don't like SWA?

He just needs to point a finger somewhere. Judging by what he flies I am willing to bet the rhetoric he is getting from say DAL, AA, UAL, CAL, or USAir (whichever he works for) is not good. He is frustrated and SWA has been a target for frustrated legacy guys for years now.
As long as oil keeps doing what it is doing SWA will hedge. When the price starts coming down then they will stop hedging thus making money anyways.
Pointing fingers and placing blame has been a strategy that the legacy carriers have used for decades. They use it on their own people pitting work groups against each other (tribalism). Can that happen at SWA? of course...that is actually what scares me the most if you ask me. He is just a product of his surroundings. If I worked at a company that always pointed fingers and placed blame then I might just start doing that on my own too. If legacy Managements started pointing the finger at themselves instead of at their workforce, the economy or whatever excuse they throw out there then maybe we would not get such frustated rants about what SWA does or doesn't do.

 

[Tanker Clown]

So, back to the whole point of this thread....Is SWA going to make or lose money this quarter? My buddies there said the jets seemed full, but they also said it may have been full of $29 one ways.

Any thoughts/predictions?

 

[puddlejumper101]

I don't know what kind of earnings we will show. What I do know is the legacy carriers could post major losses and that will be bussiness as usual but if SWA posts ONE quater of losses there will be celebration amongst MANY SWA haters on FI thinking SWA is coming down in flames. I think some on this board would get more pleasure out of seeing SWA loose a dollar over the health of their own company. "we lost 300 million but SWA lost $1.00 YES FINALLY"
I wish people would just mind their own bussiness.

 

[bugchaser]

That said, hedging is simply commodities trading. You cannot win using that strategy forever. Do some research and you'll see the investment archives are littered with multi billionaires who lost it all by getting stuck on the wrong side of a commodities/ currency trade.

whymeworry,

Man I really don't know where to start with you. Your ignorance is so strong that I really don't think you will ever be able to understand even the basics of hedging strategies. Hedging is not the same as simple commodities trading or speculation. There is little speculation on the type of tools used by SW. What they have done is to lock in their future costs of their biggest expense and then build the business around that. When you set a hedge, it does not matter then if prices rise or fall, as your cost is locked at that level. You are not on the winning or losing side. That only happens on a purely speculative trade. That is, someone who will not be using the underlying commodity that the derivatives are built around. The main benefit to this is knowing in advance what your expenses will be so that you can plan accordingly. As costs rise, the business plan will change to adjust to this. This is how every well run business in the world operates. You seem to think that is is some unfair advantage or some underhanded thing to use the futures market as it was designed to be used. We use futures contracts to lock in the prices we get for corn on our farm, should we stop since it makes us too much money?

If you think your tiny little brain won't explode, I can give you a complete tutorial on how all these hedging instruments work.

 

[YourPilotFriend]

Southwest is not a cheap airline to fly on for regular travel. They are usually the most expensive airline and require multiple stops. People that fly SW are the type that book months in advance to get the special deals. However, you can find those deals on almost any other airline.

 

[The Victors]

I don't know what kind of earnings we will show. What I do know is the legacy carriers could post major losses and that will be bussiness as usual but if SWA posts ONE quater of losses there will be celebration amongst MANY SWA haters on FI thinking SWA is coming down in flames. I think some on this board would get more pleasure out of seeing SWA loose a dollar over the health of their own company. "we lost 300 million but SWA lost $1.00 YES FINALLY"
I wish people would just mind their own bussiness.

This has been my point on several posts. This attitude of "I've been screwed by my mgmt and taken a 50% pay cut and now it your turn swa" is insane. As opposed to swa pilots being able to keep the bar where it should be so that other pilot groups can get their pay back and we can all benefit. You idiots ever heard of raising the bar. Guess not? The legacy airlines have screwed their empolyees and creditors while mgmt takes home millions and you point your fingers at swa? Are you kidding me? Do all us "professional" pilots a favor, worry about your own house. If your neighbor comes home in a new car, do you hope and pray for his house to burn down or do you try and better yourself so that you might do the same?

 

[YourPilotFriend]

This has been my point on several posts. This attitude of "I've been screwed by my mgmt and taken a 50% pay cut and now it your turn swa" is insane. As opposed to swa pilots being able to keep the bar where it should be so that other pilot groups can get their pay back and we can all benefit. You idiots ever heard of raising the bar. Guess not? The legacy airlines have screwed their empolyees and creditors while mgmt takes home millions and you point your fingers at swa? Are you kidding me? Do all us "professional" pilots a favor, worry about your own house. If your neighbor comes home in a new car, do you hope and pray for his house to burn down or do you try and better yourself so that you might do the same?

Interesting view, however, SW was the first airline to lower the bar back in the 70's and 80's when their pilots were the lowest paid in the industry. Those low pilot wages allowed them to grow to the airline they are today. They only look good now because they are higher than the rest of the industry. Also the highest paid executive in airline history is Herb Kelleher.