Bears & Stearns Webcast on 13 May
Website to listen to the webcast http://customer.talkpoint.com/BEAR002/051205a_cy/linkdefault.asp?entity=southwest
Comments from Gary Kelly, Q&A from audience
- Air Travel market is better this year than last…fare increases are healthy
- Major issue is record high energy prices…no one can make a profit at $50 a barrel tomorrow…we will all need to figure out how to do it in the future
- 32nd consecutive year of profitability
- 1Q 76M vs 26M. .09 vs .03 share
- 1.9% up revenue from 1Q04
- 3.8% costs reduction from 1Q04
- customers want low fare & that is our brand…we want to be the low fare carrier no doubt
- 90 cents avg price per fuel in 1Q05….85% hedged at $26 rest of this year…helps us remain profitable
- nice increase in earnings with no major changes in trends for the rest of the year
- Fuel hedges, 5 yrs in place all the way out to ’09 @ $35
- Fuel cost up next year $150m over this year
- Fare increases this year of $1-3…should cover the costs of increased fuel costs for “next year”
- April traffic LF dropped 7 pts…69.1% is good with no Easter & record load factors last year…competitors were withdrawing last year in April, this year that hasn’t happened, another reason why LF was down
- SWA isn’t concerned about April traffic
- 2nd qtr trend…13.3% seat increase….RASM will be down in April, maybe even 5%
- Significant benefits in MDW with drawdown of ATA & our codeshare agreements maturing
- SWA is holding our own…unsure of whether RASM will be up or down this qtr but we’re optimistic due to MDW market & other factors that things still look good
- 29 net aircraft increase this year…10-11% seat capacity increase this year
- new markets…MDW, will be 3rd largest operations by Sept..192 flights, has potential to grow more; PHL, started 1 year ago…50 daily flights by Sept, 6 gates, restrained there but anxious to get more gates…we’ll be happy to buy more gates, "anybody here got any to sell"…PIT, great airport, 10 flights, 4 n/s of the 10 flights…very high fare market…USAir has cut their flights in half with little LCC in the area
- SWA effect….low fares, increased flights…airports suddenly are flooded with folks…PHX, new terminal D, 24 gates…TPA new C terminal, …new refurbished in A & B in BWI…last summer completed 4 new gates in ISP & are beginning 4 more gates there…
- Cargo growth is very strong…named Airline of the Year by one of the cargo professional organizations…US Mail business is increasing at a good clip in revenue & volume…adds to the revenue stream
- Trying to get unit revenue back up to historical levels…rest of the industry is in terrible shape…no one can make money with $50 except for us, we’re very fortunate
Q&A
- A real coup in MDW….magnitude of growth potential in MDW & in future cost savings….
- SWA will have more competition in the future & we will need to respond more aggressively…MDW demonstrates that
- Likely to add a new market in 2005 still…A/C deliveries “could be” 40 to 50 in the future per year
- -Where will those A/C go? After 34 yrs only 60 locations we fly to…we’ll seed
ed our route structure with prime locations…places like PIT, PHL & others could
absorb a lot of capacity with many other possibilities
- - We’re prepared to take advantage of shrinkage by other airlines
- Cost structure is still low…some wage rate pressure in past years…productivity has increased…73 people per aircraft, reduced by 20 folks since 1Q2002….we have many ideas on the books to save more money, we expect to implement many of these for future saving…very confident
Wright Amendment Question
- American says we should go to open gates at DFW….why not?
- SWA wants to fly where we want to fly, not where our competitors would like for us to fly….AA is 3 times our size overall…900 flights at DFW…we’re all envious…Love has 117 flights a day…how is that a threat? It is outrageous to have restrictions for 26 years where we can’t fly beyond the WA states & can’t sell tickets to do so…it is wrong…lobbying Congress to get a bill….there is no bill right now…we didn’t do it before because we didn’t think we could win…we’re still a long way from that happening…32 gates at Love in the master plan…makes perfect sense….ISP will have only 8 gates & there are no restrictions there…….Here’s the bottom line “..others are asking continuing bailouts, cut their employee wages, asking shareholders to lose money, furlough employees, seek bankruptcy protection…what are we asking for, simply to be allowed to compete…how is that bad?”
Fare increases
- is there some pricing power coming back with these changes?
- Industry demand is stronger this year as evidenced by fare improvements….loses need to be mediated & some of the fare increases have helped this…fare increases on the east coast aren’t as sustainable as they are in other markets…this is better than ’03- 04 but a far cry from financial health in the industry
Website to listen to the webcast http://customer.talkpoint.com/BEAR002/051205a_cy/linkdefault.asp?entity=southwest
Comments from Gary Kelly, Q&A from audience
- Air Travel market is better this year than last…fare increases are healthy
- Major issue is record high energy prices…no one can make a profit at $50 a barrel tomorrow…we will all need to figure out how to do it in the future
- 32nd consecutive year of profitability
- 1Q 76M vs 26M. .09 vs .03 share
- 1.9% up revenue from 1Q04
- 3.8% costs reduction from 1Q04
- customers want low fare & that is our brand…we want to be the low fare carrier no doubt
- 90 cents avg price per fuel in 1Q05….85% hedged at $26 rest of this year…helps us remain profitable
- nice increase in earnings with no major changes in trends for the rest of the year
- Fuel hedges, 5 yrs in place all the way out to ’09 @ $35
- Fuel cost up next year $150m over this year
- Fare increases this year of $1-3…should cover the costs of increased fuel costs for “next year”
- April traffic LF dropped 7 pts…69.1% is good with no Easter & record load factors last year…competitors were withdrawing last year in April, this year that hasn’t happened, another reason why LF was down
- SWA isn’t concerned about April traffic
- 2nd qtr trend…13.3% seat increase….RASM will be down in April, maybe even 5%
- Significant benefits in MDW with drawdown of ATA & our codeshare agreements maturing
- SWA is holding our own…unsure of whether RASM will be up or down this qtr but we’re optimistic due to MDW market & other factors that things still look good
- 29 net aircraft increase this year…10-11% seat capacity increase this year
- new markets…MDW, will be 3rd largest operations by Sept..192 flights, has potential to grow more; PHL, started 1 year ago…50 daily flights by Sept, 6 gates, restrained there but anxious to get more gates…we’ll be happy to buy more gates, "anybody here got any to sell"…PIT, great airport, 10 flights, 4 n/s of the 10 flights…very high fare market…USAir has cut their flights in half with little LCC in the area
- SWA effect….low fares, increased flights…airports suddenly are flooded with folks…PHX, new terminal D, 24 gates…TPA new C terminal, …new refurbished in A & B in BWI…last summer completed 4 new gates in ISP & are beginning 4 more gates there…
- Cargo growth is very strong…named Airline of the Year by one of the cargo professional organizations…US Mail business is increasing at a good clip in revenue & volume…adds to the revenue stream
- Trying to get unit revenue back up to historical levels…rest of the industry is in terrible shape…no one can make money with $50 except for us, we’re very fortunate
Q&A
- A real coup in MDW….magnitude of growth potential in MDW & in future cost savings….
- SWA will have more competition in the future & we will need to respond more aggressively…MDW demonstrates that
- Likely to add a new market in 2005 still…A/C deliveries “could be” 40 to 50 in the future per year
- -Where will those A/C go? After 34 yrs only 60 locations we fly to…we’ll seed
ed our route structure with prime locations…places like PIT, PHL & others could
absorb a lot of capacity with many other possibilities
- - We’re prepared to take advantage of shrinkage by other airlines
- Cost structure is still low…some wage rate pressure in past years…productivity has increased…73 people per aircraft, reduced by 20 folks since 1Q2002….we have many ideas on the books to save more money, we expect to implement many of these for future saving…very confident
Wright Amendment Question
- American says we should go to open gates at DFW….why not?
- SWA wants to fly where we want to fly, not where our competitors would like for us to fly….AA is 3 times our size overall…900 flights at DFW…we’re all envious…Love has 117 flights a day…how is that a threat? It is outrageous to have restrictions for 26 years where we can’t fly beyond the WA states & can’t sell tickets to do so…it is wrong…lobbying Congress to get a bill….there is no bill right now…we didn’t do it before because we didn’t think we could win…we’re still a long way from that happening…32 gates at Love in the master plan…makes perfect sense….ISP will have only 8 gates & there are no restrictions there…….Here’s the bottom line “..others are asking continuing bailouts, cut their employee wages, asking shareholders to lose money, furlough employees, seek bankruptcy protection…what are we asking for, simply to be allowed to compete…how is that bad?”
Fare increases
- is there some pricing power coming back with these changes?
- Industry demand is stronger this year as evidenced by fare improvements….loses need to be mediated & some of the fare increases have helped this…fare increases on the east coast aren’t as sustainable as they are in other markets…this is better than ’03- 04 but a far cry from financial health in the industry