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Interesting article on SWA

Hobiehawker

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An SWA friend of mine sent me this article that is from one of their unions analysts. I found it very interesting.

What on earth is going on in the airline business these days? Southwest finds itself as one of the few profitable companies in an industry facing record fuel prices and unprecedented losses. Nearly half of US airline capacity is flown by carriers in bankruptcy, and there is continuing speculation about mergers and consolidation. What are the likely impacts on Southwest from all of the upheaval in the business today and in the future?

My name is Dan Akins and I am a Transportation Economist and Financial Advisor with over twenty years of experience in airline consulting. SWAPA has hired me to assist your Negotiating Committee in preparing for the upcoming round of negotiations with Southwest Airlines.
As part of that effort I have been asked to provide an assessment of what is going on in the airline industry today, with special emphasis on the performance and competitive position of Southwest Airlines going forward. Foremost in this discussion are analyzing the reasons why Southwest has been able to prosper during this period of airline strife. It is also important for Southwest pilots to be aware of the likely competitive impacts of the changing landscape of labor and fuel costs, as well as how bankruptcies and mergers are likely to affect Southwest Airlines.

Today, there are several unprecedented forces bearing down on the airline industry that are affecting Southwest Airlines’ competitive position. Record fuel prices, which have resulted in increased competitor costs and fares, have resulted in bankruptcies and potential consolidation activity and are acting on several different levels to enhance Southwest’s competitive position. Unlike Southwest, ALL other carriers, including low cost carriers like Jet Blue, will face the full price of jet fuel over the next few years. Southwest absorbs a lesser impact of price increases as a result of its fuel hedging strategy. Increased unit costs and fares are causing the relative gap between Southwest and competitors to increase, as fuel prices force higher fares and carriers struggle to cover increased costs. This is no trivial matter, Jet A fuel on the Gulf Coast has risen to nearly $3 a gallon at the end of September 2005, which is more than twice as expensive as it was just two years ago.

Competitors fares have increased to cover rapidly inflating fuel costs and have caused Southwest’s unit costs (or CASM) and unit revenue (or RASM) to become relatively lower than the competition. For example, from 2000 through 2Q 2002 Southwest’s unit costs averaged 40 percent below the major airline average, while unit revenue averaged 16 percent below. Over the past 24 months the relative level of Southwest’s unit costs has averaged 47 percent below the Majors, while unit revenues were 28 percent below. These huge unit cost and unit revenue gaps keep increasing, as the second quarter 2005 results show Southwest unit costs 65 percent below the major airline average and unit revenue 48 percent below. These gaps make Southwest more attractive to customers as Southwest fares fall further and further below other carriers. The increased unit cost gap is also interesting to investors as Southwest’s costs fall further below the competition, where industry CASM is now at an all time high pushing above 12 cents. Although fare adjustments relate directly to customer price sensitivity, which must be carefully watched, the fare “headroom” provided by competitors increasing fares allows a chance for Southwest to potentially pocket as much as $2 billion annually if it were to restore it’s historical relative fare gap of 16 percent below the competition (rather than the 28 percent below performance of the second quarter 2005).

Additionally, many industry leaders and analysts are convinced that there is just too much domestic capacity for the industry to be profitable. The solution to the problem is seen, increasingly, through future consolidation aimed at reducing competition and pulling down marginal domestic capacity. Bankrupt carriers are also focusing on international expansion and domestic shrinkage. Both of these activities are likely to provide Southwest with new and potentially unforeseen near term growth opportunities as carriers reduce their domestic footprints. For example, bankrupt carrier Northwest is positioning itself to reduce or eliminate capacity at its Memphis hub, and Delta has announced similar plans for Cincinnati. In addition, the upside potential of the removal of the Wright Amendment, which seems now more likely than ever, has huge positive implications for Southwest as it will “free up” growth opportunities that are currently severely constrained in Dallas.

After 9/11 most carriers sought to recover by shrinking and cutting labor costs. Sadly much of the cost savings came as a result of painful labor concessions, the results of which have been completely eclipsed by fuel price increases. It is also important to remember that while debt restructuring in bankruptcy can make a carrier less costly, there is nothing a bankruptcy judge can do to alter a carrier’s fuel costs. Even though Southwest’s fuel hedges diminish over the next five years, it is important to remember that they are likely to save Southwest billions, while at the same time fuel prices force the rest of the industry to dramatically downsize or liquidate. Amazingly, even if one eliminates the labor and fuel expense from each airline’s total operating expense, Southwest’s “core costs” of 2.9 cents per ASM is the lowest among Legacy and LCC’s, which average around 6.0 cents of core costs per ASM. Therefore, the relative cost efficiency of Southwest’s factory to produce seat miles is unmatched in the industry and no amount of debt reduction or labor cost adjustment can take that advantage away. Southwest simply has a better, more efficient business model than all the others, indicating why Southwest’s market value (stock price times shares outstanding) is greater than all others in the industry combined.

Southwest pilots are an integral part of the success of Southwest Airlines as your productivity is unmatched in the industry. Southwest pilots fly an average of 766 block hours per year, the most of any domestic competitor. Southwest pilots also fly more passengers per capita than any other carrier by a wide margin, averaging over 19,300 per pilot in 2004, in an industry producing only 11,750 on average per pilot, according to DOT statistics. Southwest’s pilot costs per enplaned passenger are only $10 in an industry that averages $19 per enplanement. Put these factors together and it is clear that Southwest pilots are the most productive and among the most cost efficient in the industry.

Therefore, contrary to all the bad news you might read or hear about the current state of the airline industry, I believe that Southwest Airlines has a significantly enhanced competitive position in the marketplace which will allow it to grow and prosper while others fail and liquidate over the coming period. Continued growth and increased employee productivity are key to Southwest’s continued prosperity and, without them, Southwest’s costs will creep up and its competitive advantage will be threatened. However, plenty of new domestic expansion opportunities appear to be on the near horizon as others contract or liquidate and as the Wright Amendment gets pulled down. Like most industry analysts, I believe Southwest is extremely well positioned to exploit these opportunities though the myriad unique and favorable competitive advantages it possesses.

Dan Akins, Akins & Associates

Dan Akins has a Graduate Degree in Transport Economics from the London School of Economics and over twenty years experience as an air transport consultant starting as a Financial Analyst for ALPA. His clients include passenger and cargo airlines, airports, vendors, and labor.
 

Big Beer Belly

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Hobiehawker said:
Southwest pilots are an integral part of the success of Southwest Airlines as your productivity is unmatched in the industry. Southwest pilots fly an average of 766 block hours per year, the most of any domestic competitor.

Put these factors together and it is clear that Southwest pilots are the most productive and among the most cost efficient in the industry.

Continued growth and increased employee productivity are key to Southwest’s continued prosperity and, without them, Southwest’s costs will creep up and its competitive advantage will be threatened.
That article sounds great for the outlook of SWA. I couldn't help but notice, however, the repeated use of the term "most productive" and "increased employee productivity" as being the key for continued success. It sure sounds like you'all earn your money working there and will be expected to work even harder to ensure continued profitability.

My question is ... doesn't anyone ever get burned out from working so hard (766 block hrs avg/yr) ... or is everyone simply resigned to the fact that this is what is required in order to work at a "secure" airline?

BBB
 

kelbill

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Big Beer Belly said:
My question is ... doesn't anyone ever get burned out from working so hard (766 block hrs avg/yr) ... or is everyone simply resigned to the fact that this is what is required in order to work at a "secure" airline?
Valid question. Depends on your outlook and desires. Lots of guys fly right up to 1000 hours, so skew the average upwards. Others give away trips and/or sit reserve and fly less. The real question is, how many days a month are you scheduled to work the line or reserve? Minimum guarantees aside, what would you rather do, fly a 3 day that pays 15 or one that has little ground time and pays 22? I do admit that there is only so much blood to squeeze out of a stone. That "secure" airline aspect also allows one to sleep a lot better on the overnites, which is, in my opinion, worth its weight in gold.
 

TexaSWA

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Big Beer Belly said:
That article sounds great for the outlook of SWA. I couldn't help but notice, however, the repeated use of the term "most productive" and "increased employee productivity" as being the key for continued success. It sure sounds like you'all earn your money working there and will be expected to work even harder to ensure continued profitability.

My question is ... doesn't anyone ever get burned out from working so hard (766 block hrs avg/yr) ... or is everyone simply resigned to the fact that this is what is required in order to work at a "secure" airline?

BBB
Sitting all nite waiting on a sort is much harder work than flying a couple more legs, or waiting three hours in an airport for your next. Duty time is pretty much the same all over. We just try to make it productive.
 

SWAdude

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Big Beer Belly said:
That article sounds great for the outlook of SWA. I couldn't help but notice, however, the repeated use of the term "most productive" and "increased employee productivity" as being the key for continued success. It sure sounds like you'all earn your money working there and will be expected to work even harder to ensure continued profitability.

My question is ... doesn't anyone ever get burned out from working so hard (766 block hrs avg/yr) ... or is everyone simply resigned to the fact that this is what is required in order to work at a "secure" airline?

BBB
I've worked for two other majors and this is the easiest one of them all. Being productive Belly is something beneficial for both the company and the pilot. We bitch about the one hour sit time once in a three day trip. Our duty days average about 9 hours a day. Our ops procedures are simplified. Some days can be hard depending on wx, mx etc. But in the grand scheme of things, I work an average of 3 days a week earning about 190,000 grand a year, 200,000 next year and according to that article....have a great deal of job security.

Belly you seem to think you have it best and good on you. I personally wouldn't want what you have compared to what I have. I enjoy feeling like I contribute to a great company in a horrble business. Not trying to figure out how to screw them over again this month by staying home and playing the unproductive game that can very well bite you in the a$$ someday. Don't fool yourself. Just because your hauling freight doesn't mean that someone out there isn't trying to figure out how to put you on the street. Including your own management.

Good luck and for gods sake try to be humble. Even when you hide behind a mask.
 

PurpleTail

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cactuspilot

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Flew 1000 hr. each of the last two years. Still have more days off than I had at the last three airlines.
Only hard part about this job is the required tongue biting while in the vicinity of TSA. The resulting tongue bruises can be severe. Some episodes take a full four days to recover.
Flew five days in a row once, had to eat soup the following week.
 

canyonblue737

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Big Beer Belly said:
That article sounds great for the outlook of SWA. I couldn't help but notice, however, the repeated use of the term "most productive" and "increased employee productivity" as being the key for continued success. It sure sounds like you'all earn your money working there and will be expected to work even harder to ensure continued profitability.

My question is ... doesn't anyone ever get burned out from working so hard (766 block hrs avg/yr) ... or is everyone simply resigned to the fact that this is what is required in order to work at a "secure" airline?

BBB
You work harder on the days you fly but the time off, often 17-20 a month is better than almost any other major for domestic flying. Personally I *prefer* flying than having 3 hours ground time between flights and personally I *prefer* 18 days at home over less flying but only 14-15 days at home.

Do we work hard? Yeah we do, but there truly is a positive atmosphere around here that we are getting something done and the company will be the stronger for it. And the bennys are very nice.
 

Skybus

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My question is ... doesn't anyone ever get burned out from working so hard (766 block hrs avg/yr) ... or is everyone simply resigned to the fact that this is what is required in order to work at a "secure" airline?


You MUST be kidding. Is this what you consider "work"?
 

Jim Smyth

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You get used to everything in time. Moto has always been..............Work hard and Play hard. It is very appropriate. The CD the union has done with Dan Akins was very well done up and truely shows the very competative edge that SWA has now and will also have in the future.
 

SWA/FO

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Hey BBB...

A couple a days ago, all your cargo buddies claimed I had a chip on my shoulder. I think they got it all wrong. I think you're an a$$.

That should give you something to think about on your next sort while you sleep in one of those lazyboys... thats what you sound like a "lazy boy" how fitting. I guess, I'll have to wait until midnight or so for your response, since your sleeping now.:laugh: Or maybe your getting over one of your 36 hour in Hawaii drinking layovers....any case, I can't wait.:puke:
 

Phaedrus

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Hobiehawker

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What I found most interesting in this article is the historic pricing levels to the legacies. SWA is up to something. Otherwise they would have earned 2 bil last year.

On the productivity side. I find you have two different traditions with an airline. Love the airline and help them out. Hate the airline and try to fly the least amount you can by working the system that has been given to you.
 

Bingo_Fuel

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Working Hard vs. Really Working

As a regional puke with an interview (finally), I would like to know what his idea of hard work is. I have flown an average of 850 hrs a year with 11 days off at my company (10 on reserve), for the last 7 years. I have finally surpassed the starting pay at SWA with my transition to a RJ. Add on top of that lousy medical and dental. ( twice the cost of other regionals) Constant troubles with management, and worrying if I will get fired for calling in sick for a trip. And never being able to drop a trip because lack of reserve coverage. And i never feel 'secure' at this company.

Compare this to what i see from the majority of SWA pilots that are happy and excited about their company. I was told trips are 3 on and 4 off, or 4 on 3 off. Reserves have about 15 days off a month and line holders can have the same or more if they like. And the ability to trade or drop trips so that you can almost be normal and have a family life. And finally the best part of all .... They actually pay me to do this stuff!!!

My thoughts...

Big Beer Belly said:
That article sounds great for the outlook of SWA. I couldn't help but notice, however, the repeated use of the term "most productive" and "increased employee productivity" as being the key for continued success. It sure sounds like you'all earn your money working there and will be expected to work even harder to ensure continued profitability.

My question is ... doesn't anyone ever get burned out from working so hard (766 block hrs avg/yr) ... or is everyone simply resigned to the fact that this is what is required in order to work at a "secure" airline?

BBB
 

Wingsweep

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Old cowboy saying...

If ya got a good horse, ride 'im. ws
 
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