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LUV Halts All Growth

AA767AV8TOR

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Dallas' Southwest Airlines slaps chain on '09 growth

12:00 AM CST on Sunday, March 1, 2009

By TERRY MAXON tmaxon@dallasnews.com

Through wars and recessions, one thing has been constant: Southwest Airlines Co. has kept growing.

From its first three airplanes in 1971, Southwest expanded to 537 aircraft at the end of last year. It's grown consistently from serving three Texas cities to having a predominant position in many U.S. markets.

But in an unusual step, Southwest has put the brakes like never before.

Consider this:

• When the Kuwait crisis and economic slump forced other airlines into bankruptcy in the early 1990s, Southwest went shopping for more airplanes.

• As industry giants began buying up California carriers in the 1980s, Southwest took them on. Through aggressive expansion, it ran off the larger competitors to become that state's No. 1 intrastate carrier in less than a decade.

• When terrorists attacked U.S. soil in 2001, Southwest briefly paused, but quickly took off again, even as competitors were retrenching. Its fleet grew 51 percent in the six years ended Dec. 31, 2007.

But for the first time, really since it had to sell one of its four airplanes in 1972, Southwest has determinedly put the brakes on its expansion plans.

It plans to shrink its flying capacity 4 percent in 2009, and, in the face of the worst economic downturn in its history, the Dallas-based carrier really can't tell when it might grow again.

"We want to grow," Southwest chairman and chief executive Gary Kelly stresses. However, he adds, "I've purposely tried to message to all our constituents that our growth is on hold until we decide to grow again."

Now isn't the time for expansion, not with the economy in bad straits. Southwest plans a net reduction of two airplanes in its fleet this year.

It will offset the 10 airplanes scheduled for delivery this year by removing 12 others from the fleet.

Southwest has 13 airplanes on order for 2010 delivery, but it could choose to ground older airplanes as it did in 2008 and 2009 to offset some or all of the 2010 arrivals

Prudence

Southwest is far from alone in its caution. Most U.S. airlines have reduced their flying, particularly on domestic routes, and have said they're considering another round of reductions if the economy continues its decline.

As such, Kelly's steps are prudent, analysts say.

"Right now, he's doing the smart thing – constraining capacity, waiting to see what happens," University of Portland finance professor Rich Gritta said. "I honestly believe this recession is deeper and is going to last longer than the press is putting on."

"In this economy, I don't think there are any growth companies," said airline management consultant Frank Werner, an associate professor of finance at Fordham University.

Werner said that Southwest has to do what any company must do as it "switches over from increasing their size to surviving, to managing cash flow, so you don't go bankrupt, so you don't crash-land in this industry.

"That's going to be the nature of every airline, be they growing or not, for the next year and maybe longer than that."

Size a factor

Without the deep recession, Southwest would have slowed its growth anyway simply because of its size, Werner said.

He cited one of his Harvard University professors in the mid-1960s who asked his class to calculate how big IBM Corp., a fast-growing company at the time, would be by the end of the 20th century if it continued growing at a 16 percent annual rate.

Assuming the gross national product grew at an average of 3 percent during the same period, IBM's revenue by the end of the century would have been bigger than the GNP, Werner said.

"Companies that are growth companies don't stay growth companies forever. There's a natural transition that takes place where growth opportunities simply slow down," he said.

Growing companies such as Southwest eventually find that they must slow down their rate of expansion as their opportunities to grow become harder to find.

Southwest is moving toward a mature business seeking to hold onto market share, perhaps growing in the future through acquisitions or entering international markets, Werner said.

"Southwest is starting to reach that point."

Industry consultant Stuart Klaskin said downturns like the current one can give Southwest a chance to maintain what it has, prepare for an upswing and prune things that it shouldn't be doing, such as its selective culling of poor-performing flights.

"It's much easier to get rid of some of these routes that historically may have been adequate," Klaskin said. "The pressure's not there when things are going great."

Jobs preserved

Lack of growth means Southwest has to adjust internally, Kelly said. It's reducing the number of recruiters and trainers, and it won't be having as many new-employee parties.

Although employees would rather see Southwest Airlines growing, they can also get some comfort that they're working for a company that isn't in financial trouble.

"The recognition that we're not growing right now is in that mix. But everybody's been hurt in this downturn. People have lost value in their homes, in their investments," Kelly said.

"So actually on balance, being part of Southwest Airlines is a very positive thing in people's lives because we have preserved jobs. We've preserved pay. We're going to talk about pay increases for our employees. We haven't cut health benefits, haven't cut retirement," he said.

"I think that more than overcomes the psychic effect of wanting to grow and not being able to grow."
Avondale Partners analyst Bob McAdoo said the airline has to be aware of morale issues that can develop as employees are unable to move up the ladder as quickly, particularly among pilots who are waiting for that big bump in pay as they move from first officer to captain.

"When the company isn't growing, then the guys on the second half of the seniority roster are having to wait for older people to retire before they have a chance to move up to captain," he said.
 
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AA767AV8TOR

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Wall Street

Another downside is that companies that aren't growing can get punished by Wall Street.

Calyon Securities analyst Ray Neidl downgraded Southwest to a "sell" in late January.

The shrinkage in capacity "is a sharp reversal from when Southwest grew sharply at the expense of the legacy carriers and was awarded a premium multiple for such growth," Neidl wrote in a note to investors.
Accordingly, Southwest's market value – its shares outstanding multiplied by the stock price – has fallen from $11 billion in mid-2007 to under $4.5 billion, hurt by both its own circumstances and the downturn in the market.

But Klaskin said Southwest still has room to grow, even as it has become one of the biggest U.S. carriers.

"I could easily see an airline ... 25, 30, 35 percent larger than they are now without extending their reach beyond the borders of the U.S.," Klaskin said. Southwest's Northeast presence "is going to explode over the next five to seven years."

"They really don't have a very dense long-haul domestic market right now. I think there's just tremendous upside there. They could be much, much larger," he said.

Kelly likened the current environment to just after the Sept. 11 attacks when airlines were forced to ground all their flights, then saw a sharp drop-off in passengers after the airlines began flying again.

Southwest reacted to the crisis by deferring delivery of 19 new airplanes. A trust bought the airplanes for Southwest and parked them in the desert until the airline was ready to put them into service the next year.
 

GuppyWN

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Adding cities is not "growth" per say but with LGA, BOS and MSP I'd say we are positioning ourselves for the opportunity to grow.

Gup
 

vixin

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If its that bad for swa how bad is it for everyone else? Are any of the legacies growing or maintaining current size? Plus this is very old news.
 

N1atEcon

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I don't know about you guys but here in Las Vegas I hear about a friend or neighbor that is loosing their job ever three to four days. Construction here is at a standstill for new projects. It just isn't looking good.
 

Whine Lover

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"Sunday, March 1, 2009"

Old news?

Don't confuse the press releases of last fall talking about slowing growth with this bombshell of stopping all growth and cutting capacity.

The 800 pound gorilla just farted....Something is about to smell very,very, bad in this industry. Not that's it's been smelling like roses, but put on your raincoats Folks because the fan is spinning at high speed and a lot of "stuff" will be hitting it in the next several months.

Have a nice day.

YKMKR

N1...reality is just something for those who can't handle drugs or alcohol. Don't try to confuse us with the simple facts of what's going on around us everywhere. (!) :)
 
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GuppyWN

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So I need to check in to the Dallas News for my up to date company intel?

Gary has stated this for months. Growth of the fleet will be flat through 2010 with a chance of minus 2 hulls.

We are adding 3 cities this year alone and I've heard a rumor that Gary will announce Atlanta tomorrow night. (March 2) We'll see. There are about 450 pilots on our seniority list that weren't going to have a job in 2008 that have heard this no growth doom before. Let's check back at the end of the year and see.

Personally, I think we're ready to have a BIG growth spurt. Hope I'm right.

Gup
 

Chest Rockwell

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Demand has outrun the reduction of seats in the industry. SWA will be lucky to avoid layoffs in the next 18-24 months (I do not believe this will affect pilots).

But, that could all change tomorrow.
 

Fubijaakr

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Personally, I think we're ready to have a BIG growth spurt. Hope I'm right.

You are. The WN/AS merger will add 116 airplanes!
 

RedDogC130

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We are adding 3 cities this year alone and I've heard a rumor that Gary will announce Atlanta tomorrow night. (March 2) We'll see
Gup

I am usually up on the rumor network but where are you hearing ATL...this is a first
 

Quimby

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Dallas' Southwest Airlines slaps chain on '09 growth

12:00 AM CST on Sunday, March 1, 2009

By TERRY MAXON tmaxon@dallasnews.com

Through wars and recessions, one thing has been constant: Southwest Airlines Co. has kept growing.

From its first three airplanes in 1971, Southwest expanded to 537 aircraft at the end of last year. It's grown consistently from serving three Texas cities to having a predominant position in many U.S. markets.

But in an unusual step, Southwest has put the brakes like never before.

Consider this:

• When the Kuwait crisis and economic slump forced other airlines into bankruptcy in the early 1990s, Southwest went shopping for more airplanes.

• As industry giants began buying up California carriers in the 1980s, Southwest took them on. Through aggressive expansion, it ran off the larger competitors to become that state's No. 1 intrastate carrier in less than a decade.

• When terrorists attacked U.S. soil in 2001, Southwest briefly paused, but quickly took off again, even as competitors were retrenching. Its fleet grew 51 percent in the six years ended Dec. 31, 2007.

But for the first time, really since it had to sell one of its four airplanes in 1972, Southwest has determinedly put the brakes on its expansion plans.

It plans to shrink its flying capacity 4 percent in 2009, and, in the face of the worst economic downturn in its history, the Dallas-based carrier really can't tell when it might grow again.

"We want to grow," Southwest chairman and chief executive Gary Kelly stresses. However, he adds, "I've purposely tried to message to all our constituents that our growth is on hold until we decide to grow again."

Now isn't the time for expansion, not with the economy in bad straits. Southwest plans a net reduction of two airplanes in its fleet this year.

It will offset the 10 airplanes scheduled for delivery this year by removing 12 others from the fleet.

Southwest has 13 airplanes on order for 2010 delivery, but it could choose to ground older airplanes as it did in 2008 and 2009 to offset some or all of the 2010 arrivals

Prudence

Southwest is far from alone in its caution. Most U.S. airlines have reduced their flying, particularly on domestic routes, and have said they're considering another round of reductions if the economy continues its decline.

As such, Kelly's steps are prudent, analysts say.

"Right now, he's doing the smart thing – constraining capacity, waiting to see what happens," University of Portland finance professor Rich Gritta said. "I honestly believe this recession is deeper and is going to last longer than the press is putting on."

"In this economy, I don't think there are any growth companies," said airline management consultant Frank Werner, an associate professor of finance at Fordham University.

Werner said that Southwest has to do what any company must do as it "switches over from increasing their size to surviving, to managing cash flow, so you don't go bankrupt, so you don't crash-land in this industry.

"That's going to be the nature of every airline, be they growing or not, for the next year and maybe longer than that."

Size a factor

Without the deep recession, Southwest would have slowed its growth anyway simply because of its size, Werner said.

He cited one of his Harvard University professors in the mid-1960s who asked his class to calculate how big IBM Corp., a fast-growing company at the time, would be by the end of the 20th century if it continued growing at a 16 percent annual rate.

Assuming the gross national product grew at an average of 3 percent during the same period, IBM's revenue by the end of the century would have been bigger than the GNP, Werner said.

"Companies that are growth companies don't stay growth companies forever. There's a natural transition that takes place where growth opportunities simply slow down," he said.

Growing companies such as Southwest eventually find that they must slow down their rate of expansion as their opportunities to grow become harder to find.

Southwest is moving toward a mature business seeking to hold onto market share, perhaps growing in the future through acquisitions or entering international markets, Werner said.

"Southwest is starting to reach that point."

Industry consultant Stuart Klaskin said downturns like the current one can give Southwest a chance to maintain what it has, prepare for an upswing and prune things that it shouldn't be doing, such as its selective culling of poor-performing flights.

"It's much easier to get rid of some of these routes that historically may have been adequate," Klaskin said. "The pressure's not there when things are going great."

Jobs preserved

Lack of growth means Southwest has to adjust internally, Kelly said. It's reducing the number of recruiters and trainers, and it won't be having as many new-employee parties.

Although employees would rather see Southwest Airlines growing, they can also get some comfort that they're working for a company that isn't in financial trouble.

"The recognition that we're not growing right now is in that mix. But everybody's been hurt in this downturn. People have lost value in their homes, in their investments," Kelly said.

"So actually on balance, being part of Southwest Airlines is a very positive thing in people's lives because we have preserved jobs. We've preserved pay. We're going to talk about pay increases for our employees. We haven't cut health benefits, haven't cut retirement," he said.

"I think that more than overcomes the psychic effect of wanting to grow and not being able to grow."
Avondale Partners analyst Bob McAdoo said the airline has to be aware of morale issues that can develop as employees are unable to move up the ladder as quickly, particularly among pilots who are waiting for that big bump in pay as they move from first officer to captain.

"When the company isn't growing, then the guys on the second half of the seniority roster are having to wait for older people to retire before they have a chance to move up to captain," he said.

AA76's love affair with SWA continues.

Thanks for the update.:rolleyes:
 

~~~^~~~

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I've heard a rumor that Gary will announce Atla tomorrow night. (March 2) We'll see. There are about 450 pilots on our seniority list that weren't going to have a job in 2008 that have heard this no growth doom before. Let's check back at the end of the year and see.

Personally, I think we're ready to have a BIG growth spurt. Hope I'm right.

Gup
Wow, if that happens expect a money losing battle for all involved. SWA's cost structure probably exceeds AirTran's or Delta's. SWA has a heck of a war chest. Atlanta is a much larger hub than an O&D market. If SWA comes to town it will be more an act of hubris than a viable economic destination.
 

climbhappy

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why wouldn't the next logical step for an airline like southwest be international where all the legacies have growth more or less?
 

RedDogC130

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why wouldn't the next logical step for an airline like southwest be international where all the legacies have growth more or less?

They are going there via CODESHARE...hence the no growth for SWA...growth for the Codeshare company
 

Whine Lover

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"...international where all the legacies have growth more or less? "

How about "LESS" for One Thousand Alex?

http://www.routesonline.com/news/24...8-loss-sees-declining-international-bookings/

http://www.globaltravelerusa.com/showarticle.php?id=4501&pg=1

Not specifically for any of the above Posters, but in general, who are you People that refuse to see the Reality of what is going ON within and ( more importantly ) outside of this Industry?


"When you wish upon a Star,....."

"Airline Guide flight schedules indicate that there will be 466,000 fewer seats on international flights from the United States in March. Certain carriers have reduced flights by a third. The first- and business-class cabins are the most severely affected. Six U.S. carriers have received permission to delay new international routes and many are seriously reducing rates to drive business."

Hey, what's a Half-A-Million Passengers a Month between friends?

You guys with the Pollyanna/Rose-Colored/Happy AZZ approach to all this MAY just want to wake up and smell the Coffee (azz-blast ).

" Gee Wally- I see good things on the Horizon for ALL the Airlines.

Yeah Beav - Why, Delta will be hiring again, and Southwest will keep opening cities and Fedex and UPS won't be affected by the failing GLOBAL ECONOMY and all will be right with the Universe."

"Happy days are here again...La-La-La-la-la-La-la-La-la-...."


Geez. Blow me.


YKWYMF
 
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