Gary Kelly Highlights from Bears & Sterns Brief

[lowecur]

Chase,

Does the second lowest LF in the industry concern you? I'm starting class soon and will learn alot of the SW way but this hard number made my eyes pop. How can this be?

It concerns me!

SWA is a highly flexible, financially stable, well oiled machine. Their achilles heal is the rest of the LCC's are growing quicker than they are and the LCC's are "trending" higher load factors and are making money or they are close to it. If this trend continues as I suspect, then this is reason for mgt to be concerned. As the next few years go by, SWA will be dealing with a very formative coalition of airlines that will be overlapping many of their routes with head to head competition.

The legacy's will no doubt downsize through forced consolidation and liquidation in the next few years. This will benefit SWA as they have the reserve capacity to fill in where it's needed at will. It will also mean that they will continue down a path of changing the business model to accomodate many new cities that are expensive to operate and not designed for fast turn-a-round/high frequency. Will the newly evolving Legacy's be able to compete? Lot's depends on how the pension and scope issues play out, but I suspect they will over time.

I don't count out SWA for one minute, but the cake walk is over.

 

[TrumanSparks]

Since when has SWA has a "CAKE WALK". Study the history of SWA and you'll know that it has been anything but.

Trust me, we all know that this is a tough business and we can see what is going on with everyone else. What amazes me is that everyone on the outside looking in thinks that we are sitting on our high horse with blinders on. We're not.

SWA is where it is because of good management and good employees, working together towards a common goal.

 

[chase]

Truman,

You're exactly right...many skeptics have questioned SWA's business plan & strategic moves in the past.. actually I believe it works to SWA's advantage for them to remain skeptical & keep the expectations of our eventual demise or stumble out there in the type arena that we operate in...what is remarkable though is our day to day customer must think we're doing something right though. Exceeding expectations is what we have done well in the past & I expect we'll do in the future.

Surprising the skeptics in how Southwest overcomes adversity is one of the constants at Southwest & the airline industry....whenever our detractors or skeptics jumps on our bandwagon I'll be concerned at that time but until then I'm glad there are those who say "you're on the downward slide".."business model needs to adapt to 190"....folks who are on the inside see clearly the efforts underway to look beyond next quarter or later this year & to have a vision for many quarters ahead, i.e. fuel hedging the most clear example of that....inflight entertainment is another issue....reports out this week in the press about satellite TV broadcast to airplanes that will then be seen by persons who have laptop capable receivers (wireless transmissions) to view the shows...what a lower cost for SWA in the future to simply install an antenna to receive the signal & then broadcast wireless to subscribers to this system...of course we'll let someone else test out the system & the dollars to do it...very little cost to us & now we've fixed the entertainment issue (for those who scream "you must have Direct TV")...entertainment & on demand TV is being rammed down airlines throats as the end all/be all....it is a cost like everything else...SWA appears to be waiting for the 3rd generation type options that will be significantly cheaper to install & maintain (minimal weight also) for its cost concerned flyers...we've done this in the past with winglets (the first versions were over a $1m a copy....SWA received theirs for way less than 1/2 of that per copy), we've done that many other innovative operational initiatives that may have put us slightly behind the initial purchasers of "said items" but eventually we find the least costly way to have what others have had for sometime.

Again I have no way of knowing what SWA's plans are but rest assured they aren't responding to other carriers initiatives in a knee jerk reaction, they are though looking out to the future to insure they are profitable & growing....as you so accurately described Truman, the key is have leadership with a vision & employees who are willing to do what it takes to implement that vision....that is why hiring the right folks is so important (which is why most folks are reading this drivel)....good luck to all of you in your aviation pursuits...our critics & skeptics will remain skeptical....folks say about communists you never want to get rid of all of them, you need a few around to remind you of how foolish their predictions were.... no lowecur isn't a communist ...at least I don't think so! ...cheers...gotta go for a callout, quick trip out west....have a great day & good luck to the folks interviewing this week & next...relax, have a great time & smile a lot!!!

 

[flint4xx]

Standing-by for the new city announcement...rumor of a sunny city...

 

[lowecur]

Chase

Nice reply.

I'm not the only skeptic. Prudential downgraded SWA from overweight to neutral today. This from a WSJ article in todays paper: "Because of higher oil prices, higher hedging costs and greater exposure to the spot-price market, Southwest calculates its fuel costs could surge 50% to $1.5 billion in 2006 from $1 billion in 2004 if oil prices stay at current levels."

That said, GK is raising fares on many routes across the country where he can get away with it. This is long overdue throughout the industry, and with oil continuing to head South, it could make for some good operating profits in the next few quarters for most airlines.

GK mentioned in the CC yesterday that they would hope to take on more gates at PHL as they become available thru the new merger. I think SWA will get their gates. I will be very interested to see if PHL will continue to draw down traffic from BWI, and if a fare war will erupt.

 

[lowecur]

Standing-by for the new city announcement...rumor of a sunny city...

ATL or CLT. GK will continue to prey on the weak.

 

[FlyBoeingJets]

It concerns me!

1) SWA is a highly flexible, financially stable, well oiled machine.

2)Their achilles heal is the rest of the LCC's are growing quicker than they are and the LCC's are "trending" higher load factors and are making money or they are close to it.

3) As the next few years go by, SWA will be dealing with a very formative coalition of airlines that will be overlapping many of their routes with head to head competition.

4) I don't count out SWA for one minute, but the cake walk is over.

I agree with #1.

I say no to #2. SWA is adding more aircraft than either JB or Airtran. But JB and Airtran are betting more on their growth as a percentage of current revenue. JB and Airtran are the airlines betting the farm on growth. SWA can better handle a mistep if the LCC growth phenomenon loses steam.

Load factor issues? We'll see. The high frequency model produces lower load factors. You are looking at a snap shot in time and load factors will eventually trend higher for SWA and lower for JB.

#3 is worrisome and will force some hard decisions if it gets that competitive for SWA.

Yes the cakewalk is over but it never really was a calkwalk until 03 to '04, was it??