Is SWA Untouchable?

[8vATE]

IMO...

Back to the original posters question (and not jetBlue vs. SWA)

Southwest can and will continue to dominate because of their EFFICIENCY..

They know what their product is... they make sure their customers know what their product is (thereby setting the customer's expectations.. ie .. no rubber chicken sandwiches, no assigned seating...etc)


As long as SWA continues to treat their employees well, to focus on cost.....

They will be unstoppable...


As the one poster stated....
Nothing is forever in this industry....

Success can breed arrogance, inefficiencies and greed (insert favorite legacy carrier name here)....
I've been wondering if SWA would go assigned seating or go with some sort of inflight entertainment... but I think they have passed on both for now and just want to be super efficient, high value and low total cost....

They do all this while being highly unionized and paying their pilots well..

Gotta LUV them....

 

[Echopapa]

It is only a matter of time until SWA starts losing money. They got very lucky this quarter (or smart). If they hadn't hedged their fuel they would have lost money. As fuel prices incease so does the cost to hedge. JB made money this quarter without the large volume of fuel hedges. That should scare the pants of a SWA pilot. It is increadible for a start up to make money with so many costs associated with startup (buying gates, uniforms, computers, stationary, busses, tugs, paperclips....hell everything for that matter except their planes).

SWA bought their fuel when prices were low and got lucky when they went up. The question is will the prices fall again so they can re-hedge. If prices don't come down significantly in the next 10 months SWA will be as stuck as anyone else in the business. No one is going to sign a long term contract for $30 a barrell fuel if the current price is 45 and moving up.

I am betting that fuel prices are going to increase, and that SWA will have 10 months of modest profit, and then will start losing money.

 

[Jim Smyth]

I believe that 9-11 taught us that no airline is untouchable!

 

[N1atEcon]

8vate is the only one on here who has a clue what SWA is up to.
" I think they have passed on both for now and just want to be super efficient, high value and low total cost...." Everyone (yes you too lowerIQ) thinks that SWA airlines is just sitting around waiting for an airline to go out of business or for fuel to drop to 21.00. You need to look or be inside the company to see the changes.

Gary Kelly and the gang are one bunch of sharp tacks. We have shed 1000's of job in the last few years. But yet we are growing in areas that make the money, airplanes in the air. I think we are at 70 people per AC. And it will get lower. The seat mile cost is coming down as I type. They won't stop until it is in the high 6 to low 7 cents range. Every department is looking for ways to say a penny. To be more efficient. Yesterday we alone saved 303 gallons of gas. It is not dooms day over here, there is a lot of excitment in the air about our future. For the pilots we can expect more efficiency on our schedules. They are going to raise our average block hours per month. We will save money, our cost will come down, we will continue with our growth and model.

Final thoughts. For those of you who know nothing about fuel hedging please stop with the. "when SWA's fuel hedges run out they are in big trouble."
It just makes you look like a fool.

PR people do surveys all the time. People that use us want safe travel from point A to point B at a the cheapest price as ontime as possible. For flying us they get that and a one of the best rewards progams in the world. If you see any changes in the next two years i would guess assigned seating may be the only change.

Ask anyone who travels a lot. Most reward programs suck!!! Unless you want to go to Detroit in JAN.

Fly safe gents.

 

[canyonblue]

It is only a matter of time until SWA starts losing money. They got very lucky this quarter (or smart). If they hadn't hedged their fuel they would have lost money.

Well as the saying goes.... " If If and Buts were candy and nuts we'd all have a wonderful Christmas."

No one can predict what we would have made of lost if we did not have the hedges in place. The company could have very well cut costs in another area, to eek out a profit if need be. That whole "If Southwest did not have fuel hedges in place they would have lost money" is hands down the stupidest statement I've ever heard, right along with "If Airline X did not have to pay their employees they would have made money". The hedges were bought years ago and business decisions were based on them. If you have not figured it out yet a 33 year track record by SWA management proves to me they have not been lucky, but smart. They may slip up one day, but I would still attribute the success of SWA to smart management. And the other thing about hedges, they don't run out. It is a never ending cycle and Southwest is now buying 4 years plus out. They may be buying a percent at $45 but when oil hits $80 in 2009 it won't look so bad.

 

[lowecur]

SWA: 41% of expense costs are labor, and labor is 39% of the revenue...both growing numbers over the course of the last few years. CASM was down 4.5% in the last Q to Q, but RASM is decreasing with increase in transcons, and reduction of the high RASM short haul. CASM costs will become meaningless as more pressure is exerted as the lack of pricing power will become more evident in the next few years.

I couldn't disagree with you more there Econ.

 

[skykid]

I am not an expert, but if we look at the history of airlines, then we can see the cycles: The Pan-Am and TWA years, the UAL DAL NWA & AA years. Now we are looking at the SWA JetBlue and _____ years...

I disagree. You are comparing apples and oranges. SWA's operation is so different from these others airlines (1 aircraft type, yada yaday yaday) that you can't interchange them with those older carriers, and no disrespect to JetBlue but they haven't been around long enough to compare to SWA. Anything can happen, but I would say the model SWA is using will work for the next 100 years. When I was on the jumpseat a SWA Captain told me, "Everytime I take off a trailer park somehere is empty." Actually Danny Glover was also sitting in the back, but they are not going to run out of trailer parks anytime soon.

Final thoughts. For those of you who know nothing about fuel hedging please stop with the. "when SWA's fuel hedges run out they are in big trouble."

Well said.

lowecurThis user is on your Ignore List

I probably disagree with some of what he posted.

 

[ultrarunner]

SWA is successful because of it's management team and it's philosophy in doing business. It's ability to be flexible and adapt, along with a strategic plan, is the reason for it's success.

It's the reason all long-term successful companies remain successful.

It's not rocket science.

I have to laugh every day when I see how all these airlines are attempting to 'reinvent' themselves. Never knowing where they are going....

As opposed to SWA that know's exactly what they are doing, and what is required to get there.

 

[satpak77]

roger that

Satpak,

We don't have pension costs because we don't have pensions, not because we don't have retirees.

good point, I failed to realize you didnt have the "old style" pension pay-outs. My post however probably conveyed what I was trying to say tho

 

[Rez O. Lewshun]

Many try to copy SWA, but they just can't seem to duplicate SWA success and performance.

SWA works with thier unions.... Jetblue is adamently against them. Neeleman and company are going to have to welcome some kind of union (jBPA) sooner or later....

Name a desirable career airline that isn't organized in the US.

It just seems that the SWA copy cats like what they like about SWA and not all of SWA that makes them success...and that is thier downfall....

Thoughts?

 

[ivauir]

HUH?

SWA: 41% of expense costs are labor, and labor is 37% of the revenue...both growing numbers over the course of the last few years. Please rephrase, how is labor part of revenue? Are we paying to work?
CASM costs will become meaningless as more pressure is exerted as the lack of pricing power will become more evident in the next few years.
Dude - CASM meaningless? Get a grip: The airline with the lowest costs sets the prices. That is still us, will be us tomorrow and the day after. Sell that POS EMB stock and get some LUV.

 

[FDJ2]

I have to laugh every day when I see how all these airlines are attempting to 'reinvent' themselves. Never knowing where they are going....

As opposed to SWA that know's exactly what they are doing, and what is required to get there.

Don't laugh too loud. SWA is successful because of its management team and management teams come and go. You've been lucky so far to have a sharp team, that can all change.

 

[Delville]

I originally posted this back in Dec:

TexasSWA, I also doubt that you will repeat the same specific mistakes that have doomed the legacy carriers. However, I think SWA could fall prey to some of the same types of cultural and emotional problems that infested the former big boys during their period of dominance.

The changes to SWA's culture and attitude, as you transition from perennial underdog to 800 pound gorilla, could be very threatening. As SWA takes a more aggressive stance within the industry, the subtle emotional effects that will have on employees and customers could be damaging. It's easy to rally the troops to put up with low pay and more work when their survival is threatened. However, the opposite is true now at SWA, and I think the psychological motivation to keep costs low and operate efficiently will be reduced with SWA's new industry position. Additionally, humility has always been a cornerstone of SWA's culture. Customers have always picked up on that and liked it. Customers have also always known up to this point, through SWA's marketing and by the genuine case of reality, that SWA was in an underdog sort of situation. They were willing to cut SWA just a little bit of slack. That's the way people are. Now, however, times have certainly changed. It is hard to be humble when you're the dominant industry leader. Both employees and customers will eventually realize this. It'll be extremely difficult to keep your culture the same. Customers will also have a different expectation from a SWA that is king of the hill.

SWA will be able to ride on it's coattails and the goodwill it has engendered for a while, but eventually that could change unless the growth is very, very carefully managed. Employees from the old guard will still be humble and try to maintain the old SWA spirit. However, there is a real danger (I think) that they will be overwhelmed as the newer, cockier employees work their way into the SWA organization. Believe me, there are pilots being hired at SWA today who five years disparaged and ridiculed anyone who would pay for a type rating to go work at a low ball operation.

Another point to consider: SWA has incredible fuel hedges (in the mid $20's) right now that last for the next couple of years. This is VERY good for SWA and will virtually guarantee SWA's position for the next several years. However, those same fuel hedges could turn out to be a bad thing in the long run. The airlines without good fuel hedges right now are being forced by the competitive situation to become ultra-efficient. If they don't become ultra-efficient, they will die (USAir, Independence, ATA). Therefore, the airlines that do manage to make it through to a point where all of the airlines are on somewhat equal footing in terms of fuel prices will be profit-making machines. SWA may feel some pressure right now to keep costs rock-bottom low but at the end of the day that pressure cannot rival the do-or-die pressure on other airlines. I've long held the belief that people do only what they know and believe they really have to do to get by. That's the argument I'm making here. Airlines like AirTran, JetBlue, and America West know and believe they have to be efficient. SWA knows in it's heart it doesn't have to be as efficient right now. If the playing field is ever leveled, SWA could be at a disadvantage.

..............................................................................................
If those who post on this board are at all representative of SWA pilots in general, then except for a very few SWA folks (Yahtzee is a notable exception), the lack of humility that I mentioned in the above post certainly seems to be settling in.

 

[canyonblue]

Don't laugh too loud. SWA is successful because of its management team and management teams come and go. You've been lucky so far to have a sharp team, that can all change.

Southwest has been very careful to promote from inside the corporation. Tell me another Airline out there that has a president that has been with the company for 34 years and worked their way up. This will continue here, we have seen what happens when you hire some penny pincher from another Fortune 500 company. Just because they know how to save a nickle at Marriot does not mean it will work at an Airline.

 

[ultrarunner]

It is only a matter of time until SWA starts losing money. They got very lucky this quarter (or smart). If they hadn't hedged their fuel they would have lost money. As fuel prices incease so does the cost to hedge. JB made money this quarter without the large volume of fuel hedges. That should scare the pants of a SWA pilot. It is increadible for a start up to make money with so many costs associated with startup (buying gates, uniforms, computers, stationary, busses, tugs, paperclips....hell everything for that matter except their planes).

SWA bought their fuel when prices were low and got lucky when they went up. The question is will the prices fall again so they can re-hedge. If prices don't come down significantly in the next 10 months SWA will be as stuck as anyone else in the business. No one is going to sign a long term contract for $30 a barrell fuel if the current price is 45 and moving up.

I am betting that fuel prices are going to increase, and that SWA will have 10 months of modest profit, and then will start losing money.

Uhhhh...DUDE...have you seen their long-term hedge numbers?? DUDE?

Oh, OK, here they are for you:

"We also continue to mitigate record-high jet fuel prices with our hedging program, which resulted in a reduction in fuel and oil expense of $174 million during fourth quarter 2004.

We are 85 percent hedged in first quarter 2005 with prices capped at $26 per barrel

We are 85 percent hedged for the remainder of 2005 with prices capped at $26 per barrel

65 percent in 2006 at $32 per barrel

Over 45 percent in 2007 at $31 per barrel

30 percent in 2008 at $33 per barrel

Over 25 percent in 2009 at $35 per barrel.


All in all, this appears to be very agressive hedging.

 

[SWAdude]

I originally posted this back in Dec:

TexasSWA, I also doubt that you will repeat the same specific mistakes that have doomed the legacy carriers. However, I think SWA could fall prey to some of the same types of cultural and emotional problems that infested the former big boys during their period of dominance.

The changes to SWA's culture and attitude, as you transition from perennial underdog to 800 pound gorilla, could be very threatening. As SWA takes a more aggressive stance within the industry, the subtle emotional effects that will have on employees and customers could be damaging. It's easy to rally the troops to put up with low pay and more work when their survival is threatened. However, the opposite is true now at SWA, and I think the psychological motivation to keep costs low and operate efficiently will be reduced with SWA's new industry position. Additionally, humility has always been a cornerstone of SWA's culture. Customers have always picked up on that and liked it. Customers have also always known up to this point, through SWA's marketing and by the genuine case of reality, that SWA was in an underdog sort of situation. They were willing to cut SWA just a little bit of slack. That's the way people are. Now, however, times have certainly changed. It is hard to be humble when you're the dominant industry leader. Both employees and customers will eventually realize this. It'll be extremely difficult to keep your culture the same. Customers will also have a different expectation from a SWA that is king of the hill.

SWA will be able to ride on it's coattails and the goodwill it has engendered for a while, but eventually that could change unless the growth is very, very carefully managed. Employees from the old guard will still be humble and try to maintain the old SWA spirit. However, there is a real danger (I think) that they will be overwhelmed as the newer, cockier employees work their way into the SWA organization. Believe me, there are pilots being hired at SWA today who five years disparaged and ridiculed anyone who would pay for a type rating to go work at a low ball operation.

Another point to consider: SWA has incredible fuel hedges (in the mid $20's) right now that last for the next couple of years. This is VERY good for SWA and will virtually guarantee SWA's position for the next several years. However, those same fuel hedges could turn out to be a bad thing in the long run. The airlines without good fuel hedges right now are being forced by the competitive situation to become ultra-efficient. If they don't become ultra-efficient, they will die (USAir, Independence, ATA). Therefore, the airlines that do manage to make it through to a point where all of the airlines are on somewhat equal footing in terms of fuel prices will be profit-making machines. SWA may feel some pressure right now to keep costs rock-bottom low but at the end of the day that pressure cannot rival the do-or-die pressure on other airlines. I've long held the belief that people do only what they know and believe they really have to do to get by. That's the argument I'm making here. Airlines like AirTran, JetBlue, and America West know and believe they have to be efficient. SWA knows in it's heart it doesn't have to be as efficient right now. If the playing field is ever leveled, SWA could be at a disadvantage.

..............................................................................................
If those who post on this board are at all representative of SWA pilots in general, then except for a very few SWA folks (Yahtzee is a notable exception), the lack of humility that I mentioned in the above post certainly seems to be settling in.

There are so many points that are off the mark in this post I really don't have the patience to address each of them. The one I will is the one about our efficiency. When I was at AA and contemplating trying to get on at SWA I read an article that interviewed Herb and he said " We operate the airline everyday like we are in a recession." And I can honestly say they do. Even in the best of times this airline is aggressively trying to drive down costs. Right now as we speak there is a hiring freeze with the exception of flight crews and mechanics due to the increase of the fleet.

As for the culture and size relation. I've heard that at the beginning of my tenure here 11 years ago. Believe me...the spirit is just as strong now as it was 11 years ago.

 

[ultrarunner]

To contine... the world is in turmoil. I would be bet that before we exit our current war, well, we never really exit unless we loose..that we'll will be at war in Korea and in Iran. Maybe both at the same time. This will keep oil prices high.

I think SWA's hedge numbers will stand up over the next several years. If only there would be a significant liquidation, or two, so that capacity would be reduced and prices would rise....

We can only hope.

 

[FDJ2]

Southwest has been very careful to promote from inside the corporation. Tell me another Airline out there that has a president that has been with the company for 34 years and worked their way up. This will continue here, we have seen what happens when you hire some penny pincher from another Fortune 500 company. Just because they know how to save a nickle at Marriot does not mean it will work at an Airline.

You could have said the same thing about DAL not too long ago.

 

[lowecur]

SWA: 41% of expense costs are labor, and labor is 39% of the revenue...both growing numbers over the course of the last few years. CASM costs will become meaningless as more pressure is exerted as the lack of pricing power will become more evident in the next few years.

Please rephrase, how is labor part of revenue? Are we paying to work? It's known as the Net Multiplier. As the percentage grows it means the company is getting less bang for it's buck. In 2002 it was 9.5% lower. Dude - CASM meaningless? Get a grip: The airline with the lowest costs sets the prices. Wrong, just ask your friends at ATA about a CASM only business model. If you subtract the fuel hedge, your CASM is not 7.70, it's well over 8.00. Fuel Hedging has cost the company lots of money in 2004 in order to hedge into 2007. The cash position has gone down to $1.3B from projection of $1.5B. $146M in debt is due this year, plus $605M in 2006. Gary is betting fuel prices will remain high. Let's hope he's right. That is still us, will be us tomorrow and the day after. Sell that POS EMB stock and get some LUV. I've got a 130% return on my investment in the last 2 years. How's LUV doing?

Yes, LUV will be here tomorrow. I just question the chemistry of the relationship if the company hits a wall. I hope I'm wrong.

 

[Snoopy58]

There's a difference between "things that need close attention" and "things that are going to clobber you."

Keeping the leadership team great is vitally important, and deserves close attention and thoughtful planning. Thankfully, SWA has a pretty deep bench in that regard, and the issue is getting (so far) the attention it deserves.

Likewise, the transition from "3-jet in TX underdog" to "800lb gorilla" is fraught with risks, but such risks can be addressed. And, on the whole, are being addressed rather successfully, so far.

Is there reason for caution? You bet! Is success certain? No way. (That's sort of like life... nothing is certain except death & taxes.) Is SWA untouchable? Nope! Nevertheless, Southwest continues (thus far) to deal well with the challenges at hand: adding fuel-saving winglets and looking to other fuel-efficiencies and cost-efficiencies as aggressively as possible; making smart tactical & strategic decisions (MDW gates, Wright Ammendment fight, IAH, etc).

Doesn't mean that SWA is invulnerable to a bad decision or other bad break, but just as success isn't certain, neither is failure. And, given all the factors, there are strong reasons to bet in SWA's favor right now!