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Fizzeled deal and stock slump put dent in swa

inflightboi175

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Fizzled deal, stock slump put dent in Southwest's reputation
12:00 AM CDT on Monday, August 17, 2009

By ERIC TORBENSON / The Dallas Morning News
etorbenson@dallasnews.com / The Dallas Morning News
Michael A. Lindenberger contributed to this report.
After a whirlwind romance with bankrupt Frontier Airlines, Dallas' own Southwest Airlines finds itself jilted and facing some tough realities.

Southwest's bid hinged in part on getting its pilots' union to make a deal with Frontier's, but it didn't happen. Southwest dropped its bid and let Republic Airways Group Inc. win Denver-based Frontier.

The loss surprised many longtime Southwest watchers. The industry's most successful airline has almost always gotten what it wanted, whether it be gates at Chicago's Midway Airport in December 2004, a negotiated end to the flight restrictions at its home airport of Dallas Love Field in 2006 or the purchase of coveted landings lots in New York last year.

Once the belle of the airline ball, Southwest is 38 years old, it's shrinking its schedule for the first time ever, its profits have fallen sharply and its union wage rates are the industry's highest.

Those are earmarks usually reserved for what the industry calls "legacy" airlines, a reference to old-style names such as Fort Worth's American Airlines that are weighed down by intransigent labor relations and stuck in a constant struggle to outrun rising costs to stay airborne.

"This is not the industry of old, where Southwest was a darling and could pick fish off in the barrel very easily," said airline industry consultant Mo Garfinkle, who watched the Southwest-Frontier dance closely. He says Southwest's management team overestimated its bid's chances and was outfoxed by Republic's managers. "Southwest is now a legacy carrier, with higher costs and a view of itself that really does not square with how others see it."

Airline's advantages
To be sure, Southwest remains above the fray of the legacy carriers it competes against. It remains the only carrier with an investment-grade credit rating; it's got the strongest balance sheet of any of the big carriers; and its overall costs – the amount of money it pays to put a seat in the air – are still 30 percent to 50 percent lower than what American and other legacies such as United Airlines spend.

Wall Street doesn't seem to care about those advantages anymore. Southwest's shares are trading at $9 a share today, far from the decade high of $23. And many think they're overvalued because of the airline's limited earnings potential in the depressed air market.

Since Southwest's employees are its largest group of shareholders, the Southwest stock price problem has cast worry over chairman and chief executive Gary Kelly because there are scant options in front of him to grow the airline profitably.

Southwest starts service at Boston's Logan Airport today, but unlike new market launches of a decade ago, Southwest is hardly the only low-fare game in town. JetBlue Airways, AirTran Airways, Spirit Airlines and others are already established in Boston.

"Gary's got to get the stock price up," said Vaughn Cordle, analyst for AirlineFinancials LLC. "And about the only choice he's got to do that is to raise fares."

Bag fee issue
Fare hikes are a legacy airline kind of tactic, and one Southwest has been reluctant to pursue until the past few years when oil prices soared. Low fares are the DNA of Southwest's brand to customers, and jacking them up may intrigue Wall Street again in Southwest shares but cost the company some loyal fliers.

The siren song of charging to check bags has gotten louder, as analysts say Southwest is leaving hundreds of millions of dollars on the table for not charging fees that passengers seem resigned to pay at other airlines. Southwest has gambled that by not charging it would win a bigger share of the travel market, but the tactic hasn't noticeably boosted traffic figures or earnings.

Kelly's careful comments this year on the subject of checked bag fees suggest it's now under consideration for an airline that prides itself on simplicity and a no-hassle customer experience. Adding the fees would put Southwest another step closer to joining the legacy club.

At a transportation conference Wednesday, Kelly said higher fares are imminent. "Fares haven't adjusted to the increase to our costs yet, and of course for us to remain strong they must," he said, but there's a catch to prices going up. "When they do, we will see demand destroyed."

Customer base
Southwest's passengers skew toward the leisure crowd, making them especially price-sensitive compared with other fliers on legacy airlines who fly for business and are less likely to balk at higher fares.

The good news on the fare front, according to Cordle's math, is that Southwest may only have to raise fares as little as 5 percent across the board to juice earnings.

Any price increase Southwest introduces will get matched by competitors, so the gap between Southwest's average airfare – about $120 each way compared with nearly $200 each way for legacy carriers – is likely to remain, Cordle said.

Southwest may be starting to look like other airlines in some ways, but the legacy part that Kelly wants to keep is a tradition of solid labor relations.

Southwest remains the most unionized airline in the world, a stat that shocks most casual observers because Southwest employees seem as enthusiastic as ever and tales of union upset are rare.

American's pilots' union, by contrast, has an active campaign to tell passengers about what a poor airline management is running.

The Frontier deal
With the Frontier bid, Southwest put its pilots' union in control of the outcome by refusing to drop a provision that required the Southwest Airlines Pilots Association to reach agreement with the Frontier Airlines Pilots Association prior to the formal bidding on Thursday.

At least publicly, the move endeared Kelly to SWAPA chief Karl Kuwitzky, who praised Kelly for keeping his pilots' needs above the need for Southwest to continue growing. Kuwitzky was not about to sign a deal that would have harmed his members in any way, and Frontier's pilots seemed unwilling to budge on seniority issues.

"I would be willing to bet that there is not one CEO in our industry who would have made the commitment he did," Kuwitzky told his pilots in a message Friday thanking Kelly for not backing down on the requirement to have the pilot deal in the formal bid "in face of significant pressure to do so."

Kelly's next labor hurdle is reaching a new contract with Kuwitzky's pilots, who narrowly rejected an earlier offer.

Such an agreement would tie up the last of Southwest's unions in long-term contracts and lock in cost targets for the carrier to meet in coming years. And Kelly can get back to finding ways to profitably grow the airline again.

"Southwest still has enormous opportunities, but its management team needs to think and act differently," consultant Garfinkle said. "Maybe the Frontier failure will serve as the necessary catalyst."
 

njcapt

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At least publicly, the move endeared Kelly to SWAPA chief Karl Kuwitzky, who praised Kelly for keeping his pilots' needs above the need for Southwest to continue growing. Kuwitzky was not about to sign a deal that would have harmed his members in any way, and Frontier's pilots seemed unwilling to budge on seniority issues.

"I would be willing to bet that there is not one CEO in our industry who would have made the commitment he did," Kuwitzky told his pilots in a message Friday thanking Kelly for not backing down on the requirement to have the pilot deal in the formal bid "in face of significant pressure to do so."

Kelly's next labor hurdle is reaching a new contract with Kuwitzky's pilots, who narrowly rejected an earlier offer.

... when contacted for further clarification at Gary Kelly's Love Field office, Kuwitzky answered "Igg llggigg fwrrdd gaa grrrd... slurrrp... sorry, I had to get something out of my mouth. I'm looking forward to having a great relationship with Southwest management in the future and don't think negotiating our next contrct will get in the way of that goal".
 

C-21Pilot

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Why ?
"Gary's got to get the stock price up," said Vaughn Cordle, analyst for AirlineFinancials LLC. "And about the only choice he's got to do that is to raise fares."

Isn't this guy a SCAB ?
 

Bake

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WN is dead, will file for bankruptcy in the next 18-24 months. These guys are the way of EAL, Pan Am, etc. It's all the pilot's fault. They shouldn't have been so stubborn, idiots.

Just thought I would beat every body else to it.

Bake
 

instructordude

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"Gary's got to get the stock price up," said Vaughn Cordle, analyst for AirlineFinancials LLC. "And about the only choice he's got to do that is to raise fares."

Isn't this guy a SCAB ?

Vaughn is a very smart analyst and expert in the industry. Believe me when I say it "You are no Vaughn Cordle"

He may have been a so called "Scab" but everyone has a different situation and may not have the same priorities.
 
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flyguppy

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Vaughn is a very smart analyst and expert in the industry. Believe me when I say it "You are no Vaughn Cordle"

He may have been a so called "Scab" but everyone has a different situation and may not have a choice.

Boy oh boy......do you have a lot to learn.

"Not have a choice"........ARE YOU FLIPPIN KIDDING ME?

Yes, Cordle is a Fleet Qual scab.
 

instructordude

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Boy oh boy......do you have a lot to learn.

"Not have a choice"........ARE YOU FLIPPIN KIDDING ME?

Yes, Cordle is a Fleet Qual scab.

Maybe Vaughn sided with management. I have nothing wrong with that. The union doesn't pay your bills.
 

Fubijaakr

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Enough

waveflyer

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You are the epitome of the naive, "will fly for food" pilot that is destroying this profession.

I.D. Is all flame-

Ignore him or sadly laugh that there are some who think like that- but not many.

I'd say that the legacy's have taken the lead in destroying the profession by allowing all the outsourcing- and continuing it even while furloughing. Maybe UAL is the epitome of the "I've got mine, sell out the junior to keep it" pilot that's destroying the industry. But then AAA, AA, NWA/DAL, CO, are all as guilty of that- - as mainline pilots- we have far more control over this industry and it's payrates than anyone else.
 
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Mr.B

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"Gary's got to get the stock price up," said Vaughn Cordle, analyst for AirlineFinancials LLC. "And about the only choice he's got to do that is to raise fares."

Isn't this guy a SCAB ?

No, he's a F&^%$*g scab and will be until long dead.

As for SWA, the only real dent around here would be in the head of F9 negotiators for selling out their pilots.
 

waveflyer

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So- lynx didn't happen- but feeders for wn sounds good- and could be a good opportunity since most Swapa members want those pilots on the same list. Anyone think that could be a way to grow domestically?

And considering wn doesn't fly internationally- an analyst saying there's no room to grow is pretty dumb.
 

Ex737Driver

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.....He may have been a so called "Scab" but everyone has a different situation and may not have the same priorities.

Here is some light reading for your dumb***. Read slow and if you need help, I'm sure there are many here who will explain it to you if you are to stupid to get it.




ODE TO A SCAB



After God had finished the rattlesnake, the toad, and the vampire, he had some awful substance left with which he made a SCAB. A SCAB is a two-legged animal with a corkscrew soul, a water-logged brain, and a combination backbone made of jelly and glue. Where others have hearts, he carriers a tumor of rotten principles.

When a SCAB comes down the street, men turn their backs and angels weep in heaven, and the devil shuts the gates of hell to keep him out. No man has a right to SCAB as long as there is a pool of water deep enough to drown his body in, or a rope long enough to hang his carcass with. Judas Iscariot was a gentlemen compared with a SCAB. For betraying his Master, he had character enough to hang himself. A SCAB HASN'T!

Esau sold his birthright for a mess of pottage, Judas Iscariot sold his Savior for thirty pieces of silver. Benedict Arnold sold his country for a promise of a commission in the British Army. The modern strike-breaker sells his birthright, his country, his wife, his children, and his fellow-men for an unfulfilled promise from his employer, trust or corporation.

- by Jack London, author & social critic, 1915
 

Ex737Driver

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Sorry, thread drift.
 
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