Fool reiterates the falling SWA model

[lowecur]

[FONT=&quot]Okay, I just can't let it go. Moteley Fool is still pumping jet blue stock after their less than stellar 4th quarter (CY). Now, if you read the article you'll see that he's going to do a follow up whether to buy the stock. Gee, I wonder what he'll say. Okay. But at least get your facts straight.

Okay, rant complete. And please, as I stated earlier, this rant isn't aimed at Jet Blue or their employees, in fact some of my best friends work for Jet Blue (a little humor there, although it is true); but at the MF column for shoddy reporting and irresponsible speculation. There are plenty of reasons to see positives for Jet Blue down the road, but I'm not sure any of them were pointed out in that column.[/FONT]

Lot's of Jetblue non-sense, but I still don't see where this present SWA model of opening 1st tier cities is going. If Gary intends to continue down the same path, the convergence of fuel costs and payroll expenses are going to meet. Gary will very calmly say, we need you guys/gals to get in line with the rest of the industry so that we can continue to be the LCC leader. He will then point out that you can't accuse mgt of not doing a great job. It will then be up to SWAPA to say yes you guys are the greatest and we can't hang our hats(like most of the other pilot groups) on what a bunch of greedy bastards mgt is and we are going to stick it to you.

Me personally, I believe the pilots are going to play hardball with ol Gary. It will be a knock-down drag out adversarial match where Gary will be welcomed to the real world of airline mgt.

After this is all completed and he realizes that SWA is no different than the rest of the pack, he will then award himself and all senior mgt a new record for stock options.

 

[firstthird]

Without a doubt the contract negotiations are going to be interesting.

I think the '2nd tier cities' as part of our bread and butter has always been a little overrated. We've been in LAX, PHX, and LAS for a while. We go where there are opportunities to make money rather than capture 'market share' or some other airline metric that gets quoted a lot. To paraphrase Gary it is all about our NIM (net income margin), ROIC (return on invested capital), CASM ex Fuel, and net income. None of those numbers are where we want them but most are trending the right way.

Gary says (and I believe) that we aren't competing against other airlines so much as we are against all fortune 500 companies. We're competing for the same capital, that we'd use to buy planes but Walmart would build stores with or GM factories. That is why we need to get numbers like NIM and ROIC up, which will move the stock, and we'll all be happy. Obviously the crux is how. That's why Gary gets the big bucks. As a pilot, I put our 3 SWA rules in action; Safety, Service, and Efficiently on Time. Well, that and fly my line unless I'm really sick, thus letting the company keep our 10.3 pilots per plane (or whatever it is) by not having to hire extra bodies to cover "sick leave vacation," although I must admit I'd like to see some kind of sick leave buyback in the next contract.

 

[737 Pylt]

There sure are a lot of airlines that would love to be failing just like WN is. I think the Motley Fool is....welll.....a fool. WN is well run by some smart folks and they enjoy good employee relations. Their business model works. The company has been profitable for decades. There may be a chink or two in the armor but my money is on WN staying in the game long term.

I agree....I wish my airline was falling like Southwest. But hey, when you're this low, you have to stand up to take a dump!
737

 

[Jim Smyth]

although I must admit I'd like to see some kind of sick leave buyback in the next contract.

I would be very very carefull what you are asking for here. The company isnt going to be giving you anything for your sick bank considering what its really worth. If your times above are current you wouldnt really have that much to sell back either. A question you may want to ask yourself is "If it was a good deal for you why would the Company want to buy it back"? They surely arnt going to give you dollar for dollar or whats the use? What are they going to offer? 10 cents on the dollar? If the current sick bank system is gone what happens next? Does Pilot sick leave sharring program start costing us ALOT more each month because more guys will be using it? Do you have to start paying very high medical insurance if you are out for a while (ie no sick bank) Do we have any insurance for ourselves or our spouses from age 60-65 considering the current buy back for medical coverage at age 60? Does longevity raises, jump seat use, non rev flying, stock options continue if your out sick? Does senority or vacation continue to accrue if your out sick? I would tend to think getting rid of the sick bank would be very detremental to our best interest.

Back in 1994 they surveyed us to death prior to that contract. They had a section in the survey that asked about wanting home access to SWA via the internet/Maestro. So what did I put down? I said Yes on the survey. Well 6 months goes by and a read before fly comes out. It says since you guys all wanted home access ( I didnt even own a computor at the time but figured it would be nice for the guys that did) Southwest is doing away with paper bid packets. That saved Southwest at the time 400K a year in printing costs.
Now Jim gets to go out and buy a home computor,printer,monitor for 3K. I now have a second phone line bill. I now have a Compuserve ISP bill. I have to supply paper,toner all at my expense. This is one very small example of be very,very carefull what you ask for in the up coming surveys/contract!

 

[HalinTexas]

But hey, when you're this low, you have to stand up to take a dump!

Funny, from where I'm sitting, I have to stand up so DAL(and NWA) can dump on me.

 

[Andy]

While The Motley Fool points out one legit weak area for Southwest, they are completely off the mark due to Southwest's brilliant fuel hedging strategy.

The one legit weak area for Southwest is the frills. I don't know if Southwest has looked at IFE, but that is the only missing item that stands out to me. I'm not a fan of the cattle call seating system, but I guess that you can now 'check in' online up to 24 hrs in advance to get a precious low boarding number. I even read about a service that, for a small fee, checks you in and guarantees you in the first group. So the only major frill that I see missing is IFE.

Where TMF completely misses the mark is the pricing power that Southwest has and will retain for at least the next two years. They will be able to control base fares in EVERY market that LUV serves. Bar none. They can use that power to target certain markets as loss leaders and more than make up for it in other markets.
Note in this article: http://www.ecommercetimes.com/story/49346.html (originally posted by SWA F/O) that Southwest raised prices in about 2/3s of their markets. LUV can easily target one or two other carriers and put them out of business before LUV's fuel hedges expire. So there may be a reason why JetBlue didn't match LUV's fare increase; it's possible that LUV didn't raise fares on routes that it competes against JetBlue.
Predatory? Yes. A way of life in the airline industry? Yes.
I completely agree with FlyBoeingJets on the debt levels. LUV is a formidable opponent with the low debt levels that they carry; it is almost as powerful a cost advantage as their fuel hedging.

I found the second tier airport argument without merit. JetBlue has started to go into busier airports such as LGA and is seeing their on time performance drop precipitously due to flying into them. LUV has been able to turn aircraft quickly due to avoiding saturated airports.
It's my understanding that the reason why LUV abandoned SFO was due to the poor operational performance out of there. (Side note- flying in and out of SFO will either kill Virgin America or they will relocate).

Oh crap, I was supposed to say something bad about LUV for the orange/brown kool aid drinkers. I wouldn't want them to miss their standard harumph harumph (ala Blazing Saddles). How about this: I can't believe that LUV is so far behind the times that they don't have IFE. (FWIW, I don't see lack of IFE as an achilles heel; TMF overstated this weakness).

 

[7S3W7A]

Me personally, I believe the pilots are going to play hardball with ol Gary. It will be a knock-down drag out adversarial match where Gary will be welcomed to the real world of airline mgt.

I hate to say it but I agree with you. Every other captain I fly with is all about greed. Every SWAPA negotiating newsletter touts how great profits have been in the past. That's exaclty it, the past. However, you know many pilots are 'know it alls' (that's about 90% around here) and they feel like they deserve a huge pay raise because we HAD great profits. Doesn't matter they can't see past their greedy fat belly.

It's going to be a sad day when SWAPA demands anything in the face of this industry and mounting competitive pressure. Then Gary is going to have to ask for pay cuts and either it will be an eye opener or furloughs will happen.

 

[Bavarian Chef]

"So there may be a reason why JetBlue didn't match LUV's fare increase..."

jb did raise fares. Just waited a 'lil bit that's all.

http://biz.yahoo.com/rb/060317/airlines_delta_fares.html?.v=1

 

[Andy]

"So there may be a reason why JetBlue didn't match LUV's fare increase..."

jb did raise fares. Just waited a 'lil bit that's all.

http://biz.yahoo.com/rb/060317/airlines_delta_fares.html?.v=1

JBLU matched fares on routes that overlapped with Delta.
I wouldn't assume that those routes overlapped with LUV.

 

[Andy]

I hate to say it but I agree with you. Every other captain I fly with is all about greed. Every SWAPA negotiating newsletter touts how great profits have been in the past. That's exaclty it, the past. However, you know many pilots are 'know it alls' (that's about 90% around here) and they feel like they deserve a huge pay raise because we HAD great profits. Doesn't matter they can't see past their greedy fat belly.

It's going to be a sad day when SWAPA demands anything in the face of this industry and mounting competitive pressure. Then Gary is going to have to ask for pay cuts and either it will be an eye opener or furloughs will happen.

When's the contract amenable?
You can chew through a lot of profitability when you are in a predatory mode.

 

[YourPilotFriend]

Personally, I would not invest in SWA right now. The legacy cost structure is now on par with that of SWA even with fuel hedges. Competition is going to get very stiff as the legacy carriers offer business travels far more flexability; especially in the growing Global Economy. If Virgin America can find some way to feed its international carrier, look to this as the "Industry leading business model."

 

[Andy]

If Virgin America can find some way to feed its international carrier, look to this as the "Industry leading business model."

Virgin America is going to try to operate a quick turn high utilization model with SFO as their hub. It won't work. SFO was a terrible choice.

 

[K. Marx]

Virgin America is going to try to operate a quick turn high utilization model with SFO as their hub. It won't work. SFO was a terrible choice.

Yea, Branson must be an idiot. The only problems is he isn't. I hope you are right though and we all know more than he does.

 

[Longhorn]

I thought this headline was speaking of Lowecur.uke:

You have to admit, the comment was funny...

 

[canyonblue]

The legacy cost structure is now on par with that of SWA even with fuel hedges.

Then I guess their 1st Quarter results will match ours. We will see if you are correct in about 3 weeks. Be sure to come back and post at the profit party.

 

[lowecur]

A voice of reason

I hate to say it but I agree with you. Every other captain I fly with is all about greed. Every SWAPA negotiating newsletter touts how great profits have been in the past. That's exaclty it, the past. However, you know many pilots are 'know it alls' (that's about 90% around here) and they feel like they deserve a huge pay raise because we HAD great profits. Doesn't matter they can't see past their greedy fat belly.

It's going to be a sad day when SWAPA demands anything in the face of this industry and mounting competitive pressure. Then Gary is going to have to ask for pay cuts and either it will be an eye opener or furloughs will happen.

There are a lot of hard core unionists at SWAPA and they don't care what the company has done for them in the past, they want to know what are they doing for them now and in the future. What these people fail to realize is how good a job Gary & Co has done to keep the status quo going for much longer than it should have, and as a result they put a ton of cash in their pockets. Lets take a look:

• Non-payroll cost cuts & productivity
• Fuel Hedges
• Honest/Top notch mgt team that is worth every penny

Without the above:

• WN would have never agreed to FA demands
• Mgt would have come to the pilots a few years ago for givebacks
• New a/c would have been deferred

imp:

 

[Big Slick]

WhatABurger posted this earlier:
I don't believe the model is falling. It's evolving. Lets see if Jblue and AirTran's 35% annual growth or SWA's 10% growth over the next few years works out better. Hopefully both will work, but the proven horse is usually a good bet.

I agree that SWA is the safest bet. They have proven themselves in the past and they are sitting on a mountain of cash.

When you hear that Jetblue and Air Tran want to grow at 35%, it sounds like they are being super aggressive. Relative to their size, this is true. Southwest is, however, growing faster than Jetblue and Air Tran.

I'm not a math major, but here goes:
Southwest grows at 10% with 445 planes. Growth = 45 new planes.
Jetblue grows at 35% with 97 planes. Growth = 34 new planes.
Air Tran grows at 35% with 102 planes. Growth = 35 new planes.

Growth is like compound interest. Growing 10% annually is no big deal when you have 100 planes. Growing 10% annually when you have 500 planes is a different story. Maintaining 8-10% growth gets harder and harder each year.

In two years, the LCC market will be saturated and the fuel hedges will be gone. 8-10% growth will be a real challenge. To maintain 10% growth, Southwest will have to add 54 new planes in 2008.

The real question is - what happens to the LCCs when they stop growing at 8-10% or 35% annually? It's never happened, so no one really knows. The LCCs can expand at these rates for only so long.

HalinTexas - Whatever unit of measurement is used, continued growth will be tough.

Thanks for the correction rudderdog -I changed ATA to Air Tran. My bad.

 

[HalinTexas]

Growth doesn't necessarily mean "more airplanes." I more likely means RASM growth, more flights, more flying per plane per day.

ATA will not be growing any this year.

 

[rudderdog]

WhatABurger was talkin' Airtran...
Big Slick was talkin' ATA....

I think he ment Airtran, although they might just be the same company. Hard to tell.

 

[The Prussian]

rudderdog beat me to it.