There is no denying that Southwest has done well in the past & continues to make money in a market that is anything but friendly. As some have pointed out though the future for Southwest and the industry is one that is full of potholes. I would agree the challenges for Southwest in the future are some of the same ones that some airlines are having to face right now....MUCH higher fuel prices (as the article points out for next year the cost will be around $500m) is certainly the most looming one. While our fuel hedges does provide us some insulation Gary Kelly realizes (as do analysts) an airline company that is only making money off of fuel hedges is not one that can survive in the long term. No one has their head buried in the sand at Southwest on that topic despite what is posted on any website or forum.
However what is very encouraging to many is the optimism and various plans that are being put into place to find more savings and productivity by all departments, flight ops, technology, inflight, etc. The recent decision by the pilots to delay the "offiicial" opening of new contract negotiations (commonly referred to as "section 6 negotiations") while still carrying on "productivity" discussions with management starting nearly immediately shows that both the pilot group & management realize productivity gains can still be achieved within the system and could lead toward savings toward next year's goal of cutting costs & increasing revenue.
No one knows the outcome of these "productivity discussions" but it is a hopeful sign that the pilot group will become even more productive resulting in savings (not via givebacks but by increasing our production with the number of folks we have on board....an approach that has been the standard for Southwest I'm happy to say). This will be a give & take on the part of all parties. The article below doesn't address this issue directly but it adds some context to why Gary Kelly is upbeat about our future in terms of finding solutions to increasing revenues.
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Article on Southwest in Sunday Dallas Morning News
Southwest moves signal strength
[size=-1]07:20 PM CDT on Saturday, April 23, 2005 [/size]
[size=-1]By ERIC TORBENSON / The Dallas Morning News [/size]
Gary Kelly's office-decorating ideas have some Southwest Airlines Co. executives concerned that visitors could get the wrong impression about his intentions for the leading low-cost carrier. "It's a perfect place for a map of the world," said the jovial Mr. Kelly, chief executive of Southwest since July, motioning to a wall covered in historic photos. "They're sort of asking me not to do that."While fliers shouldn't expect Southwest's Canyon Blue tail colors on other continents, they should get used to the Dallas-based carrier calling the shots in an industry that's facing change on a tectonic scale.
http://www.dallasnews.com/sharedcontent/dws/img/04-05/0424southwest.jpg
Simply put, Southwest is on top of the domestic aviation world. It's flush with cash and low on debt. It's shielded from record high jet fuel prices, and where it treads, other airlines quiver.
It's got a glowing reputation as the "LUV" airline because of a feel-good, humor-infused culture that would be the envy of any company in any industry.
And now the 34-year-old airline has stepped out and demonstrated how much it loves to win.
By dropping 25 years of "passionate neutrality" toward the Wright amendment restrictions limiting its flying at Dallas Love Field, Southwest has signaled a new era of activism aimed at strengthening its best markets.
To keep its most promising airport growing, Southwest muscled its way into winning an asset auction against AirTran Airways Inc., yielding six more gates at Chicago's Midway Airport from ATA Airlines Inc.
The move allows Southwest to add 50 daily flights and make Chicago one of its top three cities for service, but it's also earned the carrier a reputation for getting what it wants and keeping others at bay.
"They're very much a vigorous suppressor of competition," said Michael E. Levine, a Yale Law School professor and former airline executive, citing Southwest's track record of smartly expanding into cities and capturing the market. Southwest is the No. 1 airline at all but a dozen of the 58 airports it serves.
"They're always going to be an aggressive player with the lowest costs," Mr. Levine said. "They're a little like a lioness on the hunt, following the pack and looking for stragglers."
Others say Southwest has good instincts. "There is nothing predatory about snapping up strategically important resources that will likely be profitable," said Robert L. Crandall, former chairman and chief executive of American Airlines Inc. and AMR Corp. That's "just good business."
Southwest makes no apologies.
"We're tough competitors, we always have been, and there's nothing new about that," Mr. Kelly said. "We're a strong company with a strong balance sheet."
How strong?
With $1.9 billion in available cash and an untapped credit line of $575 million, the carrier's purchase of ATA assets with cash and loans of more than $100 million didn't make much of a dent in its coffers.
Southwest thinks it will recoup its ATA investment in a year, both in new revenue from Chicago and in bonus revenue from an alliance with ATA where the two sell seats on each other's planes.
A program that has Southwest pre-purchasing fuel for its planes has been so successful that the carrier is sitting on $700 million in collateral from other parties that bet against the airline on where oil prices would go.
Compared with others, Southwest's finances make it look like anything but an airline. Its competitors have bled a combined $33 billion in four years; Southwest made $1.5 billion in the same period.
While traditional carriers have hocked their aircraft fleets to the hilt to finance their losses, Southwest's 424 Boeing 737s aren't mortgaged. Collectively, they're probably worth several billion dollars more if the airline needs cash.
Positively sterling
Southwest's finances look positively sterling compared with those of traditional carriers, which have credit ratings in the junk bond range.
That's why analyst Gary Chase of Lehman Bros. puts Southwest "in the catbird seat" amid all the industry turmoil.
Noting Southwest's "more aggressive posture" in a recent report, he wrote that the airline remains "the best positioned to benefit from potential industry rationalization in the short- and long-term view."
Industry changes seem imminent. Low-cost carriers, including Southwest, AirTran and JetBlue Airways Corp., now fly about a third of domestic traffic and affect pricing on most major routes.
Consolidation of some of the weaker players appears likely.
US Airways Group, which is in bankruptcy, and America West Airlines Inc. are discussing a merger. Reports last week disclosing the talks said the carriers hope to create a low-cost rival to Southwest.
Wall Street didn't look favorably on the possible deal, and Yale's Mr. Levine called it "something that isn't even close to workable."
In any case, Mr. Kelly shrugged off any combination as unlikely to affect his carrier's strategy because neither airline can undercut Southwest on pricing.
America West trails Southwest in market share at its top two cities, Phoenix and Las Vegas.
Analysts expect Southwest to be a force as the US Airways situation plays out, figuring that the bankruptcy court would solicit bids for US Airways assets regardless of how merger talks proceed.
Tread carefully
Both US Airways and America West – which would shed some planes in a merger – have 737s that may intrigue Southwest.
But even rock-solid Southwest will tread carefully in increasingly perilous territory.
"Any additional risk we want to consider, we have to do that very wisely," Mr. Kelly said. "We've certainly seen signs of contraction, and that can provide some opportunities for us to expand and do it profitably."
Traditionally, Southwest has picked its expansion opportunities diligently. Now, as it's gotten bigger, the carrier is being forced to react more to what rivals are doing – or might do.
"They're going to have to be very reactive to what's happening," said consultant Michael Boyd of the Boyd Group.
"They wouldn't have opened Pittsburgh if they hadn't have opened up Philadelphia, and they wouldn't have done Philly if those gates hadn't opened up and JetBlue wasn't lurking."
Indeed, Mr. Kelly admitted that the Southwest management team was caught off guard when bankrupt ATA initially struck a deal with AirTran for the Midway gates.
"Why would we sit by after investing 20 years in Chicago and let somebody brand new come in and steal our growth potential?" Mr. Kelly asked. In short order, Southwest set up the winning bid.
The ATA deal shows that Southwest is willing to break its own rules for the right reward, Mr. Kelly said.
Southwest has operated independently for decades. But to win the Midway gates, it agreed to form an alliance with the Indianapolis-based airline, a choice Mr. Kelly refers to as a "means to an end."
Southwest's technology staff had to build systems from scratch to handle computer reservations from ATA, but the alliance has worked better than expected "and it's become a real morale boost for us," he said.
(continued)
However what is very encouraging to many is the optimism and various plans that are being put into place to find more savings and productivity by all departments, flight ops, technology, inflight, etc. The recent decision by the pilots to delay the "offiicial" opening of new contract negotiations (commonly referred to as "section 6 negotiations") while still carrying on "productivity" discussions with management starting nearly immediately shows that both the pilot group & management realize productivity gains can still be achieved within the system and could lead toward savings toward next year's goal of cutting costs & increasing revenue.
No one knows the outcome of these "productivity discussions" but it is a hopeful sign that the pilot group will become even more productive resulting in savings (not via givebacks but by increasing our production with the number of folks we have on board....an approach that has been the standard for Southwest I'm happy to say). This will be a give & take on the part of all parties. The article below doesn't address this issue directly but it adds some context to why Gary Kelly is upbeat about our future in terms of finding solutions to increasing revenues.
____________________
Article on Southwest in Sunday Dallas Morning News
Southwest moves signal strength
[size=-1]07:20 PM CDT on Saturday, April 23, 2005 [/size]
[size=-1]By ERIC TORBENSON / The Dallas Morning News [/size]
Gary Kelly's office-decorating ideas have some Southwest Airlines Co. executives concerned that visitors could get the wrong impression about his intentions for the leading low-cost carrier. "It's a perfect place for a map of the world," said the jovial Mr. Kelly, chief executive of Southwest since July, motioning to a wall covered in historic photos. "They're sort of asking me not to do that."While fliers shouldn't expect Southwest's Canyon Blue tail colors on other continents, they should get used to the Dallas-based carrier calling the shots in an industry that's facing change on a tectonic scale.
http://www.dallasnews.com/sharedcontent/dws/img/04-05/0424southwest.jpg
Simply put, Southwest is on top of the domestic aviation world. It's flush with cash and low on debt. It's shielded from record high jet fuel prices, and where it treads, other airlines quiver.
It's got a glowing reputation as the "LUV" airline because of a feel-good, humor-infused culture that would be the envy of any company in any industry.
And now the 34-year-old airline has stepped out and demonstrated how much it loves to win.
By dropping 25 years of "passionate neutrality" toward the Wright amendment restrictions limiting its flying at Dallas Love Field, Southwest has signaled a new era of activism aimed at strengthening its best markets.
To keep its most promising airport growing, Southwest muscled its way into winning an asset auction against AirTran Airways Inc., yielding six more gates at Chicago's Midway Airport from ATA Airlines Inc.
The move allows Southwest to add 50 daily flights and make Chicago one of its top three cities for service, but it's also earned the carrier a reputation for getting what it wants and keeping others at bay.
"They're very much a vigorous suppressor of competition," said Michael E. Levine, a Yale Law School professor and former airline executive, citing Southwest's track record of smartly expanding into cities and capturing the market. Southwest is the No. 1 airline at all but a dozen of the 58 airports it serves.
"They're always going to be an aggressive player with the lowest costs," Mr. Levine said. "They're a little like a lioness on the hunt, following the pack and looking for stragglers."
Others say Southwest has good instincts. "There is nothing predatory about snapping up strategically important resources that will likely be profitable," said Robert L. Crandall, former chairman and chief executive of American Airlines Inc. and AMR Corp. That's "just good business."
Southwest makes no apologies.
"We're tough competitors, we always have been, and there's nothing new about that," Mr. Kelly said. "We're a strong company with a strong balance sheet."
How strong?
With $1.9 billion in available cash and an untapped credit line of $575 million, the carrier's purchase of ATA assets with cash and loans of more than $100 million didn't make much of a dent in its coffers.
Southwest thinks it will recoup its ATA investment in a year, both in new revenue from Chicago and in bonus revenue from an alliance with ATA where the two sell seats on each other's planes.
A program that has Southwest pre-purchasing fuel for its planes has been so successful that the carrier is sitting on $700 million in collateral from other parties that bet against the airline on where oil prices would go.
Compared with others, Southwest's finances make it look like anything but an airline. Its competitors have bled a combined $33 billion in four years; Southwest made $1.5 billion in the same period.
While traditional carriers have hocked their aircraft fleets to the hilt to finance their losses, Southwest's 424 Boeing 737s aren't mortgaged. Collectively, they're probably worth several billion dollars more if the airline needs cash.
Positively sterling
Southwest's finances look positively sterling compared with those of traditional carriers, which have credit ratings in the junk bond range.
That's why analyst Gary Chase of Lehman Bros. puts Southwest "in the catbird seat" amid all the industry turmoil.
Noting Southwest's "more aggressive posture" in a recent report, he wrote that the airline remains "the best positioned to benefit from potential industry rationalization in the short- and long-term view."
Industry changes seem imminent. Low-cost carriers, including Southwest, AirTran and JetBlue Airways Corp., now fly about a third of domestic traffic and affect pricing on most major routes.
Consolidation of some of the weaker players appears likely.
US Airways Group, which is in bankruptcy, and America West Airlines Inc. are discussing a merger. Reports last week disclosing the talks said the carriers hope to create a low-cost rival to Southwest.
Wall Street didn't look favorably on the possible deal, and Yale's Mr. Levine called it "something that isn't even close to workable."
In any case, Mr. Kelly shrugged off any combination as unlikely to affect his carrier's strategy because neither airline can undercut Southwest on pricing.
America West trails Southwest in market share at its top two cities, Phoenix and Las Vegas.
Analysts expect Southwest to be a force as the US Airways situation plays out, figuring that the bankruptcy court would solicit bids for US Airways assets regardless of how merger talks proceed.
Tread carefully
Both US Airways and America West – which would shed some planes in a merger – have 737s that may intrigue Southwest.
But even rock-solid Southwest will tread carefully in increasingly perilous territory.
"Any additional risk we want to consider, we have to do that very wisely," Mr. Kelly said. "We've certainly seen signs of contraction, and that can provide some opportunities for us to expand and do it profitably."
Traditionally, Southwest has picked its expansion opportunities diligently. Now, as it's gotten bigger, the carrier is being forced to react more to what rivals are doing – or might do.
"They're going to have to be very reactive to what's happening," said consultant Michael Boyd of the Boyd Group.
"They wouldn't have opened Pittsburgh if they hadn't have opened up Philadelphia, and they wouldn't have done Philly if those gates hadn't opened up and JetBlue wasn't lurking."
Indeed, Mr. Kelly admitted that the Southwest management team was caught off guard when bankrupt ATA initially struck a deal with AirTran for the Midway gates.
"Why would we sit by after investing 20 years in Chicago and let somebody brand new come in and steal our growth potential?" Mr. Kelly asked. In short order, Southwest set up the winning bid.
The ATA deal shows that Southwest is willing to break its own rules for the right reward, Mr. Kelly said.
Southwest has operated independently for decades. But to win the Midway gates, it agreed to form an alliance with the Indianapolis-based airline, a choice Mr. Kelly refers to as a "means to an end."
Southwest's technology staff had to build systems from scratch to handle computer reservations from ATA, but the alliance has worked better than expected "and it's become a real morale boost for us," he said.
(continued)
