Developments at SWA

[chase]

These are some notes on recent internal observations on how SWA is doing. I've collected the info from various sources. Again as always, SWA keeps it's cards close to its chest so some of this may already be out of date but the info has been floating around internally within the past month. I believe there is lots of good news, some near term, a lot long term, that bodes well for those wishing to interview at SWA in the future. I don't have anything firm on interviews but all that I hear still shows 1qtr'04 hopefully. To those who are still swimming, hang in there. Hopefully by this time next year everyone will be out of the pool & dried off!!!

• Flight Ops within budget for 2nd quarter. Projections for remainder of year are good.
• Wage rates increase 13%, per contract, in September ’04.
• No more new hire classes this year, with the possible exception of an end of year class or two to meet early January deliveries from Boeing.
• Sick leave is down, and continues to drop.
• Ops Efficiency Program still very successful, still opportunities for fuel savings if more pilots fly on profile
• SWA loads and yields are up. Should have a successful year.
• We are keeping a close eye on JetBlue.
• Electronic flight bag is approx. 2 years away.
• SWACOM (ACARS) installed on 80 airplanes so far. Crews are encouraged to use ACARS now.
• Extra range from the –700 winglets will allow SWA to commit to additional long haul flights. We are expecting greater fuel savings than the advertised 3.1%. Winglets biggest effect is in high gross weight, high angle of attack configurations, i.e. climb and cruise. Winglets installation should be complete by DEC ’04.
• Hiring process is being revamped. Interviews will be on competitive basis. New database tracking software will be coming online. Expect 5500 – 6000 pilots over the next 9 – 12 years.
• SWA has asked SWAPA to conduct a study for a new domicile in ’04.
• The last of the –200’s will leave in Jan ’05.


• Better systems training with better graphics presentation via computer video will eventually be available on the crew portal.
• 4 FMS trainers
• New hire LNAV training expanded to 2 full days
• New software for new hire training. Add real FMC in future.
• New –700 PC based simulator, on Internet in 1 year.
• New –700 CPT’s, fully functioning FTD (flight training device)
• New –700 touchscreen IPT (integrated procedures trainer)
• New hire starter CD, orientation package prior to first day of class.
• New Flight Ops website to include distance learning, check airman section, line pilot section.


• Flight Standards will conduct a 2 week observation and retraining at all 4 Florida locations with Gate Services Procedures
• Next Gate Services cities will include DAL, HOU, PHX, LAS, SMF, BWI and other stations with the equipment already installed. (this is where the APU is shut off & ground pwr/air is used for APU fuel savings)


• On time performance is good. Cost is good, revenue is weak.
• Future is unknown.
• SWA well positioned to ride out downturn.
• Wage pressures will adversely affect unit cost. Low 4% growth rate means little increase in new hires and the associated lower overall wage rates. Solution to the increased wage pressure is increased productivity. Automation projects are in the works to increase productivity by allowing employees to do more. That would allow a lower number of employees per airplane over the next 5 years expansion.
• SWA investigating possible Inflight entertainment systems. IF implemented it will be unique to SWA, leapfrogging present technology and at less cost.

- Bookings. No one is booking further out than 2 months...group bookings are down, moved 20+ folks back to normal res center positions from booking groups.
- Marketing for spanish speaking pax has met expectations. Bi-lingual lines are staying consistently busy. Much of the traffic is to explain where we fly, when, etc. Bookings are not huge but are in an "education" mode for the passengers. They do seem to pay full fare on a higher percentage of flights than other callers.
- Overmanning still occurring at many stations, however stations are not afraid to release non-producers--moral is good at all the stations I visit
- Many long haul opportunities that have begun could easily add additional flights on same route...lots of opportunties
- over the 50% mark in online vs. phone bookings

Quarterly results come out Monday, 10:30, 21 July. You can listen to the broadcast live at the following link:

2nd Quarterly SWA results

 

[Swerpipe]

Great stuff

Chase,
Love your posts. Always very informative. I am intrigued by one of the bullets: "Keeping a close eye on Jet Blue..." In what way? What do you mean by that point? Is that said refering to moving into new markets? Just curious... Thank you for the post...

 

[Red Baron]

Thanks for the info!

Alot of good information to digest Chase. We appreciate you taking the time to get that on this message board. It has been awfully quiet for a while, but hoping for great news on Monday. Is that downturn that you were referring to in regards to future bookings? Just curious, because I had heard that loads were on the upswing again.

Have you heard any rumors floating around about increasing frequency in St Louis since American announced reduction? I would LUV to hear Monday they are taking additional aircraft deliveries this year!!

Happy Flying,

RB

 

[C150Heavy]

500 pilots a year?

SWA is going to hire 5500 - 6000 over the next 9-12 years?
I don't believe that? That's a minimum of 50 airplanes per year, which will never happen. No one is going to give them financing for that many aircraft. That means just the aircraft will cost 2.5 billion, this doesn't include gates or counters or anything else. Didn’t Investor Business Daily do a study that stated that for every dollar that was spent on an aircraft, the company has a $5.00+ additional cost? That would mean spending 10+ billion over the next 12 years. I doubt with their business model they could justify an IRR that would allow them to grow that fast. I believe SWA is going to grow faster than anyone else but not that fast. They may merge with another airline but you can't grow that fast in 12 years. Sorry. PS. I use to be a controller for a Fortune 100 company, I know what I'm talking about. The rest of your information is very enlighten.

Hey, I’m not busting on you. You seem to do a great job of researching but that kind of growth is not realistic.

 

[trainerjet]

C150Heavy,

Have you considered how many SWA pilots would be retiring in the next 9-12 years? I think the numbers are significant.

 

[CoopDog]

Allrighty then.....

They may merge with another airline but you can't grow that fast in 12 years. Sorry. PS. I use to be a controller for a Fortune 100 company, I know what I'm talking about.

OK, this should be fun.....


Next.....

 

[SWA/FO]

I think it will happen. Merger....NO

Hey Chase, good info.

 

[enigma]

Re: 500 pilots a year?

SWA is going to hire 5500 - 6000 over the next 9-12 years?
I don't believe that?

Here is Chase's sentence,"• Hiring process is being revamped. Interviews will be on competitive basis. New database tracking software will be coming online. Expect 5500 – 6000 pilots over the next 9 – 12 years."

That means total pilots on the seniority list, not total newhires.

I'm not certain of the number on their list today, but I believe that it's around 3000. 6000 would be double, and I find that entirely possible.

regards,
enigma

 

[chase]

Replies

C150,

No offense taken. While I don't have a crystal ball, there are some folks at SWA that are looking to the future (next 9 years) as some of the most explosive in terms of growth for SWA in our history. While the buzz is out there for JB, our financing of these aircraft in this day & age is pretty good. We're currently paying cash for our aircraft & hopefully will continue to do so. I'm not a financial guru but I'd bank on our folks on getting it right, most of the time.

Info on firm, option & purchase rights to 737s from 2003-20012 are at the website listed below from the 10K listing for 4q'02.

10K Listing, 4th qrt 2002

Total aircraft from 2003-2012 that are either firm, options or purchase rights are 413 aircraft. Subtract 27 -200 aircraft & one is left with 386 aircraft. If you consider projected retirements during this time will be around 1150. A number of 25 pilots per year will on average medical retire, thats another 250 pilots.

Assuming about 10.7 pilots per aircraft, that works out to about 4130 just to match aircraft. Add 1150 retirements plus another 250 for medical & the total number is around 5300 pilots, not exactly 5500-6000 but my crystal ball isn't as good as the SWA planners. I haven't been able to deduce when our -300s will begin to retire but our oldest ones will be around 30 years old if they stick around until '12. So while the numbers may seem high & I certainly don't have a crystal ball to know if it will come true, the plan is out there for the company to follow. We can only hope it comes to pass. No merger in our plans that I could foresee. Times are different now for mergers than before, plus you pick up other folks headaches IMHO.

Red Baron,

The downturn is only in terms of longterm bookings. My flights are very full. The res folks say they're busy for the current month & one month further out in terms of bookings. We're open up to mid Dec but very little traffic even for the holidays. Buying habits have changed dramatically. People are holding on to their money much longer now & long term purchases aren't happening accoding to them. This is different but if the planes fill up one month out versus 5 months out, as long as they are full & we have a few full fares we'll be OK. The res folks also said the lower yield right now maybe because of a lot of rapid rewards/frequent flyer tickets are out there & getting redeemed for the summer, pretty common & this will impact the bottom line. Haven't heard anything on STL. Just read the article in the STL paper with the interview by Herb, very interesting. Once AA decides where they aren't flying anymore there maybe some changes but we have been shrinking there.

Swerpipe

The note on JB was from others, not me. Don't know for sure what the intent of this bullet was other than the fact folks in the GO do pay attention to ALL competitors. SWA isn't hesitant to identify a rival & take whatever measures are required to protect market share. What I find most interesting is the technology issue & that whatever we get (if we do) will be next generation. Who knows how long that is but JB is locked in with a company they had to buy ($80M) or else it would've gone bankrupt. The previous company controlled 10% of the satellite TV business with the other 90% controlled by two other large competitors. If one is looking for cutting edge technology, who would one want to go with, a company with good financials or one with poor ones? We'll see if we get into that side of the business or what but it will be interesting won't it?

We have around 4200 pilots on the seniority list now. Doubling this in the next 10 years will probably occur if the above scenario will occur.

 

[CoopDog]

STL article

Chase,

Below is an excerpt from the 18 July article on STL. What do you make of the last sentence? Can we assume an announcement will be made on Monday for additional airplanes? It sounds like Herb was pretty excited about future STL growth possibilities. I just hope he's excited enough to buy more airplanes this year!

Here's the excerpt:

Kelleher said any additional flights would be based on demand. But he said there should now be enough travelers who begin or end their flights in St. Louis to justify increasing service. The airline will soon announce plans to increase its current fleet of 379 planes.

 

[CoopDog]

Herb quote about STL

Here's a an interesting quote from Herb about STL from Friday's article:

No time frame has been set for meetings between Southwest and the city, but Kelleher said Friday, "We are prepared to move and we are prepared to move swiftly."

Let's keep our fingers crossed.

 

[PTinbound]

Of course I don't know a thing about STL, but don't forget this quote from the Southwest Airlines website about pilot staffing:

People Statistics: Currently, Southwest has 4117 pilots and projects that the pilot headcount will approach 10,000 by 2012 due to growth and attrition.

www.southwest.com/careers/training_facility.html

 

[chase]

Coopdog

After reading the excerpt again something I was told on my last trip by a source came back into my ever diminishing memory bank. According to the source SWA would be annoucing very soon the moving of aircraft buys from the option column to the firm order column. While to some that may not be big news but that to me means the plan they have laid out, up to this point, is going forward & that despite smaller yields "firm" aircraft purchases are going forward which adds credence to the long range plans IMHO under the "current" conditions. Obviously these can change at anytime but it would bode well. Announcements tomorrow would be nice & would also help our biggest vendor, Boeing, at a time when they could use some good news, who knows maybe they even came down in price for the aircraft. We do have some shrewed business folks at the GO. Pure speculation again on this last part but we'll see!!

 

[thebluto]

Stock Price

Chase, what's your cut on the rumor that stock price of $20 will trigger many early retirements?

 

[chase]

thebluto

I know prior to 911 I heard some of the same type intel but didn't hear of too many guys taking the plunge when the price got back around that level. However, times have changed & folks may not want to take the chance another incident would drive the price back down & negate a lot of money from options. The argument could be made there will be more folks actually following through if the price gets above $20. I personally have not added any numbers to my postings based upon this assumption but indeed we are having folks that are retiring early, I fly with them on occasion in DAL. My best guess is that it will create some movement but probably nothing more than an additional 5-10 folks per year. If the stock zoomed to the mid-20s followed by a split then that number could increase. As always, pilots talk a good game, execution isn't always as smooth as the brief though!!

 

[Sugardaddy]

Chase,
Any word on the amount of raise for Sept 03??? Base line is 4%, but what about the additional 0-3.6% portion of it.

 

[chase]

Sugardaddy

SWA received a little over $250m from the gov in the last payout in May. Without going into mind numbing detail the debate is where SWA will show their $250m from the gov, above the line or below the line. Where it shows up on the balance sheet will determine if we receive more than the base raise, 4%. The debating points on both sides are flying around right now but if a consensus can't be made then an arbitrator comes in & decides. The increase occurs Sept 1 so hopefully there will be a decision by then. We'll see how it all pans out. I'm confident our union & SWA will find a reasonable solution.