Delta cutting International flights 3%

[SIG600]

Bill, for once we agree. There is always a reason why the airline isn't growing. There's always an excuse as to why we can't do X,Y and Z and for years the pat stand by answer by management has been financial. There always seems to be a carrot that is unattainable. But recently, all the far off financial pipe dream carrots are being fulfilled.

It's the same at SWA. For years the carrot at SWA has been 15% ROIC. In 2014 Southwest achieved 21% ROIC. Forecasts for 2015 and 2016 are 31 and 32% respectively and 2017 is expected to top out ABOVE 35%! Yet, there is still no talk about meaningful expansion. International flights are reported to be doing well ahead of projected numbers but no mention of accelerating growth.

Sooner or later, all the airlines have to decide to grow when the money is rolling in. If the business is firing on all cylinders and making huge profits, at some point the logical move has to be expansion in order to continue forward with the momentum!

Yet, how many years are you guys past your amenable date? Alligator, meet canoe.

 

[SpauldingSmails]

We have soundly put our stake in the current size and fleet mix. Management praises the JVs and codeshares when the economy blows over there and then when things are turning around, they blame the strong dollar. There's always an excuse....

Well, I agree in so far as we are getting corn-holed on the JV agreements, specifically the latest with VA. Alright, back to boozing.

 

[Flopgut]

It's the same at SWA. For years the carrot at SWA has been 15% ROIC. In 2014 Southwest achieved 21% ROIC. Forecasts for 2015 and 2016 are 31 and 32% respectively and 2017 is expected to top out ABOVE 35%.

Those are incredible numbers H man! Incredible! My question is: What are you getting in return? I know you enjoy the culture, and it's a blast to laud certain strengths your airline has over the rest of us, but you're not getting much else. It's not like it's only SWA and its employees with the shingle hung out and running a business. The way you operate requires a lot of many more entities. Every Houstonian has been made to go along with this terminal in Houston, that may or may not be good for anyone other than SWA. (Now before you go off on some rant about how wrong I am and how wonderful this will be, keep in mind what we know to be true about SWA in Houston. It's one of the 4 initial cities SWA served so you think it would be hugely significant. The fact is SWA is not significant to Houston's economy. The city and its residents do not see a huge plus out of the relationship) My point is: you guys have worked hard, the brand is good, treaties are being changed, aviation policies are being bent in your favor. How far should you guys, and the rest of us have to go, to insure your airline gets favorable treatment before you step up and really take some gains?

 

[HowardBorden]

That was the point I was trying to make gentlemen. Most airlines seem to be showing abnormally large profit margins which usually trickles down to front line employees in many tangible ways. Obviously profit sharing has been a bonus that has been enjoyed by those employees which are getting it, but robust profits generally tend to show other ancillary gains. So far in this latest surge of profitability it seems very little has been done with the extra gains other than stockpiling profits. In the past large profits were very often used to fuel growth in the business that is producing record margins.

Is capacity discipline the new normal in this new consolidated field? Are the markets tapped out as the US and world economies have not shown the robust growth that the airlines have enjoyed recently?

 

[BILL LUMBERG]

Honestly....I think it has a lot to do with the pilot shortage. They can barely cover the schedule today while hiring 115 a month and we haven't started the 3000 retirements yet.

I think all the airlines are worried where they are going to get the crews.

 

[General Lee]

Honestly....I think it has a lot to do with the pilot shortage. They can barely cover the schedule today while hiring 115 a month and we haven't started the 3000 retirements yet.

I think all the airlines are worried where they are going to get the crews.

Uhhhh, I think you meant 5,000 retirements Bill. But, I'm sure DL will pick up plenty of Corndogs, especially those fleeing certain stagnation and lack of variety.


From APC:


Mandatory retirements:
2013 - 56
2014 - 121
2015 - 169
2016 - 225
2017 - 286
2018 - 415
2019 - 513
2020 - 602
2021 - 789
2022 - 851
2023 - 809
2024 - 805
2025 - 713
2026 - 610
2027 - 514


Bye Bye---General Lee

 

[WMUSIGPI]

That was the point I was trying to make gentlemen. Most airlines seem to be showing abnormally large profit margins which usually trickles down to front line employees in many tangible ways. Obviously profit sharing has been a bonus that has been enjoyed by those employees which are getting it, but robust profits generally tend to show other ancillary gains. So far in this latest surge of profitability it seems very little has been done with the extra gains other than stockpiling profits. In the past large profits were very often used to fuel growth in the business that is producing record margins.

Is capacity discipline the new normal in this new consolidated field? Are the markets tapped out as the US and world economies have not shown the robust growth that the airlines have enjoyed recently?

This is the new norm in America. It is a large part of why the middle class is in rapid decline. Historically business would reinvest profits to grow the company and reward the producers of the profit (the workers). Now in today's America, that money is instead being sent to senior management and investors in the form of increased dividends, stock buybacks, and other types of compensations or simply sat on as additional cash on hand. Meanwhile the average wage and benefits paid to the producers (the middle class) has basically stagnated over the last 20 years, and when compared with the continual creep of inflation, has actually caused most Americans to actually be earning less. This is another way to redistribute the wealth to a small minority at the top, but will eventually fail as eventually there will not be enough people making enough to keep the economy moving along. It has happened in other "empires" and is happening right now in America. At a minimum wages and benefits must keep up with inflation. If not there will be a collapse of the economy.

 

[Green]

It will be very hard. But everything has a cycle in aviation and the ME carriers can very easily go the other way. Easy come, easy go. If the Emir watches his $ do anything less than spectacular, he'll send into other industries. (Frankly, should have done tech or medicine) He may be forced to do that if the alpa effort succeeds. 380s may not have much of a secondary market value... So if you're emirates and you can't fly your shiny new subsidized jets anywhere... And you can't sell half of them... Hmmmm. Things can change very fast

I don't think most people in the west really understand the driving force behind Emirates and Etihad. They were not conceived to be money making businesses. The fact that they do make money is a nice bonus. But the airlines are designed to put the UAE on the world map. Particularly Dubai which does not have significant oil revenues and needs to reinvent itself. The idea was to transform the city into a tourist, banking, and trading hub. What better way to market your city than to have hundreds of millions transit your hub and see your planes in every corner of the globe? Think of them more like public infrastructure. The US didn't make the public freeway system to be a money maker.

With respect to Emirates Airline it is THE main driver of the Dubai economy. Something like 30% of the jobs in Dubai are directly related to EK. When the USA wants to stimulate the economy they print money and give it to bankers who loan it to their hedge fund buddies who put a little more air in the bubble. In the UAE they just buy more jets. The problem is that the Western Airlines cannot compete with a company who has the weakest labor laws to worry about and a government supporting it on every level.

 

[Flopgut]

I don't think most people in the west really understand the driving force behind Emirates and Etihad. They were not conceived to be money making businesses. The fact that they do make money is a nice bonus. But the airlines are designed to put the UAE on the world map.

I think there is also a mistake made by people who think just being American means you lack a world view. It is not that hard to see what the ME3 are doing. They don't have the intellectual base or discipline to go after technology (like Argentina and Chile) or medicine (Panama). They've got petro $ and no problem exploiting human resources. So they figure they'll black out the sun with wide bodies. Well, sometimes big, successful airlines change directions. United was a Dow component, a $100+ stock and enormously successful in the late 90s. And they did it without human rights violations and petro $. Hard work and intellect they were not short on, and it still changed. As bad as it's got here I'm still glad my future isn't hitched to what goes on around the ME3. Let me put it this way: It may not be the U.S. Airlines that eventually prevail, but it won't be the ME3 either. It will eventually become too much effort and require too much smarts for the oil patch to run successful long term.

 

[Flopgut]

Honestly....I think it has a lot to do with the pilot shortage. They can barely cover the schedule today while hiring 115 a month and we haven't started the 3000 retirements yet.

I think all the airlines are worried where they are going to get the crews.

I think they've got in the back of their mind the idea that retirement age might happen again. (Maybe even go away?) And that maybe we're close to a big change in the way we fly, like partially unmanned? Idk.