More interesting stuff from Boyd

[lowecur]

This little comparison on the future of the legacy's vs the LCC's is controversial but interesting. Boyd clearly doesn't like the business model of WN(too limited). Gary Kelly and Herb have based their future on the failure of the legacy model. Mike Boyd thinks they are in for a big surprise, just as they were when US Airways didn't go belly up. He really loves NWA. He truly believes the global airline business model will overwhelm the LCC's eventually. I'm a little confused by his large revenue projections for Shreveport, Savannah, and other small towns.

I think he is wrong about SWA where he states they would have lost big money without fuel hedges last Q. I think Tazman pointed out that when you pulled the fuel hedges and added back in the smaller amount they would have to pay on profit sharing and taxes, SWA still made money. That said, on an annual basis I think he is probably right:


[font=Tahoma, Verdana, Lucida]Fact: This is a sure sign that whoever makes the statement doesn't know any more about the fundamentals of today's airline industry beyond what they just read someplace else.[/font]

• [font=Tahoma, Verdana, Lucida]Note: Last quarter, American and Continental reported profits, and they were essentially paying "retail" for their jet fuel.[/font]
• [font=Tahoma, Verdana, Lucida]Note: Last quarter, if Southwest had been paying retail for their fuel, they'd have reported a big loss. True, they have hedged fuel, but that was a bet they made long ago - a bet that, fortunately, they won big-time. But it does not change the fact that on an apples-to-apples basis, AA's cost restructuring over the past three years gave it an all-up quarterly profit, and on an all-up basis, Southwest's system isn't making money. [/font]

[font=Tahoma, Verdana, Lucida]It's great that whoever lost the hedge bet is bearing much of the cost of WN's fuel, but without that, the basic model Southwest operates today isn't a money-making one with high fuel prices.[/font]





​

http://www.aviationplanning.com/asrc20.htm

 

[kelbill]

OK, I'll bite.

1. Why do folks keep harping on the theory that SWA is hoping for a legacy to die, and betting the farm on it? Herb is a lawyer, and he knows not to bet on anything when it comes to bankruptcy and the courts. Nobody in management has implied anything to us other than times are tough, and DON'T count on anyone going under.

2. With AA and CAL making money now, does that mean they are fully funding their retirement plans? Or might there be a multibillion dollar deficit still.

3. SWA has fuel hedges well into the future. We price our fares accordingly. We have also raised them (some of them) 5 times or so this year, per our own newsline, so don't count us out quite yet.

4. Like all geniuses, if Boyd is so confident and smart, he should be taking every dime he has and shorting SWA stock. I'm thinking NOT.

5. We made about 30% more per flight than last year, again, per our inhouse newsline. And remember, even with our hedges, OUR FUEL COSTS ARE MUCH HIGHER THAN LAST YEAR, so we must be doing something right if profits are higher too.

6. I'll wait until the 2005 yearly results are out to apologize after we apparently lose our shirt and CAL and AMR are rolling in the money. This isn't the liberal media. If you say it 100 times, it doesn't mean people will believe it and it will happen.

7. Our load factors are record high recently. As in since inception.

Its good to banter though.

 

[Jim Smyth]

We just keep running an airline, expanding, making money and adapting to the changes in the industry as they come along. Fuel hedges are being bought with our "PROFIT" dollars! Adaptation at it's finest. Been many threats to our exsistance from the very beginning and will continue into the forseeable future.

Often imitated but never duplicated..................................You can't buy Attitude!

 

[lowecur]

OK, I'll bite.

1. Why do folks keep harping on the theory that SWA is hoping for a legacy to die, and betting the farm on it? Herb is a lawyer, and he knows not to bet on anything when it comes to bankruptcy and the courts. Nobody in management has implied anything to us other than times are tough, and DON'T count on anyone going under. Then why the venture into PHL? Limited gate space and growth possibilites, one of the worst airports in the country for on-time performance. That move only made sense if US Airways was history. If WN cannot dominate PHL, it goes completely against it's business model.

2. With AA and CAL making money now, does that mean they are fully funding their retirement plans? Or might there be a multibillion dollar deficit still. Let's not get carried away. They only made money in one quarter, and yes they need big help from Congress in revising the pension payout.

3. SWA has fuel hedges well into the future. We price our fares accordingly. We have also raised them (some of them) 5 times or so this year, per our own newsline, so don't count us out quite yet. I don't think he's counting you out. He just says that you are in for a surprise when all the restructuring is done. He thinks the LCC's will be battling each other for the nickels and dimes to made in large cities, while the legacy's model will be the money maker with the small/midsize markets and global reach. He thinks those are the revenue producers of the future.

4. Like all geniuses, if Boyd is so confident and smart, he should be taking every dime he has and shorting SWA stock. I'm thinking NOT. I think he is saying as the LCC transition grows over the next 5 years or so, they will be competing against each other and not focusing on where revenue streams will have less competition.

5. We made about 30% more per flight than last year, again, per our inhouse newsline. And remember, even with our hedges, OUR FUEL COSTS ARE MUCH HIGHER THAN LAST YEAR, so we must be doing something right if profits are higher too. You still have the ability to control prices in many markets. Mr. Boyd is saying that will go away as other growing LCC's and newly structured Legacy's compete for the same dollars. The difference will be the Legacy's will be more diverse and will be able draw for a multitude of markets.......many where there will be only 1 or 2 carriers(small town USA).....not wanted by JetBlue, WN, or other LCC's. Jetblue will be able to diversify more than the others with the 190.

6. I'll wait until the 2005 yearly results are out to apologize after we apparently lose our shirt and CAL and AMR are rolling in the money. This isn't the liberal media. If you say it 100 times, it doesn't mean people will believe it and it will happen. This ain't gonna happen overnite, but you got to admit it's an interesting theory.

7. Our load factors are record high recently. As in since inception. LF's are up and AWA's are down. Nice turnaround the last few months. I guess there' something to marketshare being important.

Its good to banter though.

.....

 

[kelbill]

Lowecur,

1. Then why the venture into PHL? Limited gate space and growth possibilites, one of the worst airports in the country for on-time performance. That move only made sense if US Airways was history. If WN cannot dominate PHL, it goes completely against it's business model.

we go where the money is. Most of us are baffled at least a little by PHL, but, there is room for growth, and the SWA percentage of business out of PHL is now substantial. We don't go to airports where everyone has pulled out, just places where opportunity presents itself. UAIR is huge in PIT, but now here we come, moving up rapidly.

2. Let's not get carried away. They only made money in one quarter, and yes they need big help from Congress in revising the pension payout.

We make money with hedges and its implied we are done for. They make money in one quarter, and its implied they are now victorious over us. Huh? If pension money isn't being funded, that is a little deceptive if they are claiming a profit. That should be added into CASM, as it is, shall we say, a cost.

3. I don't think he's counting you out. He just says that you are in for a surprise when all the restructuring is done. He thinks the LCC's will be battling each other for the nickels and dimes to made in large cities, while the legacy's model will be the money maker with the small/midsize markets and global reach. He thinks those are the revenue producers of the future.

What surprise? The US is huge and we have lots of places to go and make money. We live on nickels and dimes, and even relatively low load factors. Competition follows the money, and if they all ramp up on overseas flights, capacity will grow, RASM will fall, and oh yeah, CASM will increase when all those pay cuts time out and foks want a little pay back. Never ending cycle.

4. I think he is saying as the LCC transition grows over the next 5 years or so, they will be competing against each other and not focusing on where revenue streams will have less competition.

I agree that competition amongst ourselves will increase. JBLU, AAI, and SWA are all growing like gangbusters, so that is a no brainer. Doesn't mean the revenue isn't there for the time being. We've been living on peanuts our entire history, so I think we have it down by now. Luckily our MGT handles that, as I take no credit.

5. You still have the ability to control prices in many markets. Mr. Boyd is saying that will go away as other growing LCC's and newly structured Legacy's compete for the same dollars. The difference will be the Legacy's will be more diverse and will be able draw for a multitude of markets.......many where there will be only 1 or 2 carriers(small town USA).....not wanted by JetBlue, WN, or other LCC's. Jetblue will be able to diversify more than the others with the 190.

Unless you have the frequency and business, those markets will be losers for the majors. Lot of overhead for big ticket RJ prices. We will have to wait for JBLU and the 190s to see how that pans out. It looks good on paper. Again, newly structured legacies are short lasting. They always come back to MGT for payback, which increases costs, and usually starts the cycle again. Not saying I blame them. I always look at JBLU as the main competition, but feel most comfortable being at SWA.

Hasta

 

[Mr.B]

We just keep running an airline, expanding, making money and adapting to the changes in the industry as they come along. Fuel hedges are being bought with our "PROFIT" dollars! Adaptation at it's finest. Been many threats to our exsistance from the very beginning and will continue into the forseeable future.

Often imitated but never duplicated..................................You can't buy Attitude!

....or arrogance.

Mr. B
Ex-UAL

 

[mdf]

....or arrogance.

Mr. B
Ex-UAL

Man, now that's the second time in my life I have actually heard a UAL guy call someone else arrogant. Times really are changing!!

 

[skykid]

Man, now that's the second time in my life I have actually heard a UAL guy call someone else arrogant. Times really are changing!!

Yeah, and brilliant idea assigning a behavior to a whole group of people. Did you know all Irishman were drunkards? I know I am!

 

[Dan Roman]

Man, now that's the second time in my life I have actually heard a UAL guy call someone else arrogant. Times really are changing!!

It's called learning from your mistakes.

Pan AM and TWA were on top in the 60's, Braniff was the most profitable airline in 1979. USAir and Piedmont were at the top of the heap in the 80's and UAL certainly was one of the powerhouse airlines of the 90's. The top airlines of this decade will be humbled. It's the way this industry works.

 

[Mr.B]

Man, now that's the second time in my life I have actually heard a UAL guy call someone else arrogant. Times really are changing!!

Gee....you almost got it. A little slow on the uptake eh?