Is the Southwest pay/contract sustainable at current market?

[GhettoBeechjet]

I heard that we will be handed a 75% paycut just before Christmas, and the doors will be shut two weeks later. Herb and Gary suck at business. They simply got lucky for 40 years, and now their luck has run out.

It was a good ride fellas! Good thing Delta is hiring...

I know this was written sarcastically but somehow I feel the need to respond anyway. I know my previous posts seem very doom and gloom. That being said I think you would be hard pressed to find a bigger fan of a company than I am of SWA. I love working here and I appreciate it every day. That however doesn't mean that I chose to ignore reality and subsitute it with my own. I don't think anyone could ever say that SWA management sucks at business. This is why I think they will be making some difficult choices that will change the fundamentals of the business and how the airline operates. In a macro sense we have a weak dollar, weak economy, high fuel prices, and are staring at the fiscal cliff. I believe that 2013 and 2014 economically looks far worse than anyone thought 6, 12 , or 18 months ago. None of these factors are good for demand. Add into that the fact that our profit margin is unacceptably low and way off of our competitors. Basic math is that to increase that margin we need to lower expenses and/or raise revenue. For several years they have been working on the revenue side by trying to capture market share, entering higher fare markets, new Rapid Rewards, -800, evolve interior, business select and early bird. Some of these things have worked and some not so well. About the only thing they haven't done is charge for bags. Now it looks like they are forced to begin concentrating on the expense side. If you read what leadership is saying now they are currently talking about a new schedule optimization system, refreshing the fleet, underperforming routes and stations, and high labor costs. Taking that apart with more schedule optimization I expect our future schedule will look more like CALs used to with less flying on certain days of the week when demand is weaker. Underperfoming routes and stations means less flying to less cities. Refreshing the fleet means less classics. High Labor costs means they will be asking for cotract concessions in either terms of less money or higher productivity. When you add it all together it means less airframes, less flying and thus fewer pilots.

 

[GhettoBeechjet]

On the other side of the coin management has left themselves in a position where they have a lot of flexability. Plans here can and usually change rapidly as conditions change. More than once Gary and Herb have pulled rabbits out of their hats. If the service to SJU or Latin America goes very well it could be as game changer. Also playing in and maybe the biggest unknown is how AA looks coming out of bankruptcy.
At this point we have no significant cost advantage versus other airlines and still have a revenue disadvantage due to no bag fees, lack of cheap outsourced feed, and lack of high revenue international routing. What we do have is cash on hand, better than average employee relations and fleet flexability. That gives us the ability to expand if the right opportunity presents itself.

 

[GhettoBeechjet]

I hope I don't live to see the day that SWA furloughs a single pilot much less 1100. That being said if I were near the bottom of the list in either seat I think it would be prudent to be prepared for a furlough, downgrade, and much lower line totals at lower payrates. Minus another Gary/Herb rabbit in the hat that that is where we are most likely headed.


http://www.bloomberg.com/news/2012-...fit-slips-on-fuel-costs-stagnant-traffic.html

http://www.star-telegram.com/2012/05/16/3966142/southwests-just-right-business.html

 

[madjack]

Pay off your house and stay married!

 

[Lear70]

I hope I don't live to see the day that SWA furloughs a single pilot much less 1100. That being said if I were near the bottom of the list in either seat I think it would be prudent to be prepared for a furlough, downgrade, and much lower line totals at lower payrates. Minus another Gary/Herb rabbit in the hat that that is where we are most likely headed.


http://www.bloomberg.com/news/2012-...fit-slips-on-fuel-costs-stagnant-traffic.html

http://www.star-telegram.com/2012/05/16/3966142/southwests-just-right-business.html

Again, I can't say much because of some of the non-disclosure issues I had to sign during negotiations, but there's a REASON there's such a big push for SJU, code share, and Int'l Ops ASAP.

It's going to be fine. Lower line values? Probably, at least through the integration and a year or two after that, but I don't see furloughs coming. That said, people should ALWAYS have their house in financial order in this business. It's just smart living.

And Scoreboard, you're exactly right on what will happen if ALL the airlines can't simultaneously raise the bar, and Allegiant and Spirit are right on the back doorstep again, like SWA was in the 70's and 80's, ready to take those customers who want 70's era prices on their plane tickets.

That's why I fully support re-regulating the airline industry. The model of deregulation only works for the consumers on a ticket price basis and doesn't take into account the hundreds of millions of debt that gets dumped back after bankruptcies that seem to happen once every 7-10 years these days.

Re-regulate the airline industry or put legislation into effect that requires EVERY airline to price EVERY leg segment either AT or ABOVE the actual cost to produce that leg segment on an overall CASM basis based on the miles flown. No more of this "make leg A cost the flyer $19 to be cheaper than our competition and retain market share then make leg B cost $200 to "make it up"." That's how all this undercutting crap started. Eliminate that and you have competition based on service with everyone close to the same price on competing market segments.

Overall, as many airline executives have stated in the past, deregulation has been an overall failure from a business standpoint. Unless you're senior management, then it's been a win of epic proportions.

 

[jonjuan]

Deregulation has been pretty damn good for the employees and companies of SWA and AirTran.

 

[PropPiedmont]

Again, I can't say much because of some of the non-disclosure issues I had to sign during negotiations, but there's a REASON there's such a big push for SJU, code share, and Int'l Ops ASAP.

If you're referencing the SJU hub/crew base for the South American ops, I think that's already out there.

 

[Quimby]

Pay off your house and stay married!

^^^^^^^^^

 

[scoreboardII]

It's been said GK wanted to expand as fast as he did because if the market was reregulated, you would obviously want to be as big as you could get.

That said, the people won't allow it, they like the fight to the bottom. It is what it is and while many at swa say Allegient and spirit are no factor, that's exactly what they said about VA, JetBlue and swa 40 years ago.

Reregulation will never happen unless we go full retard and the government takes over the market and since these ******************** wads just reelected the messiah, I'm sure that's around the corner.

 

[HA25]

Reregulation will never happen unless we go full retard and the government takes over the market and since these ******************** wads just reelected the messiah, I'm sure that's around the corner.

you'll recall it was another Democrat that reigned in De-Regulation... Carter. So your argument is without substance.

With that said, de-regulation has been the single biggest failure for the airline industry that I can think of in it's 90+ years.

The number of airlines that have failed, and been bailed out by the government and taxpayers as a result is too big to list. The idea that a tax cab, a train or a bus has price controls and protected routes yet, the part of the transportation sector with the largest capital costs, and fuel costs has to compete in the pure free market for revenues is ludicrous!

Prior to De-regulation the airlines made a fair profit, safety wasn't compromised and labor was paid fairly... now the only two places airlines can squeeze costs is safety and labor... this is where we are today.