So Southwest Is Mortal After All

[SirFlyALot]

Payroll has jumped up as a percentage, no doubt. But taking that one stat and making hay with it is misleading at best.

1. We pilots have gotten some nice raises recently.
2. Revenue growth and profits have tanked since 9/11. Even with little or no raises, payroll's percentage of expenses would have increased.
3. We and the company are now becoming leaner and meaner, meaning when revenues pick up, which they are slowly but surely doing, payroll percentage will drop a lot.
4. I forget the exact number, but with buy outs and internal transfers, our employee per plane ratio has plummeted. When the industry cycle turns around, watch out.
5. And finally, are we to assume that our increase payroll percentage is a slam on SWA, but the drop in payroll percentages elsewhere due to 40% paycuts is a positive?

SWA has been able to maintain its profitability over the last several years due in large part to an absolute cost advantage over other airlines. The cost advantage consisted mostly of 1) the fuel hedges, and 2) inefficiencies at other airlines. SWA was able to charge less than other carriers and people, as we all know, generally go for the lowest price offered. Now, however, the fuel hedges are going to begin to go away and other airlines have dramatically improved their efficiency. SWA's cost advantage is eroding. SWA has become leaner and meaner but most other airlines are becoming leaner and meaner more quickly than them simply because there was much more "fat" to shed.

At the same time, the strength of competing low cost carriers is increasing thanks to the prowess of JetBlue and AirTran. As these two carriers in particular continue to grow, they are going to become even more efficient due to economies of size, and SWA will feel increasing pressure from them. On a percentage basis, they are both growing more quickly than SWA. The latest stats I saw at a stage length of something like 700 miles showed AirTran with lower non-fuel costs than SWA and JetBlue with very slightly higher non-fuel costs.

 

[JohnDoe]

quote:
"The problem is that we have been in an economic growth mode for the past few years. The airline industry cycle hasn't turned around. You will probably have to wait out the next downturn before the industry gets any better."


Finally, somebody with some sense to see this isn't a "normal" downturn in our industry.

This is a good point that a lot of people seem to be ignoring when they talk about how this is only a cycle of good/bad times for the airlines. Our economy has supposedly been in "recovery" for a couple of years now, yet the airlines are continuing to head toward the bottom (three chap 11's in the last month alone). By the time they finally reach it, it will be time for the next decline in the overall economy.

Has there ever been a time in the "downturn" where 4 of the largest airlines have been in chap 11 at once? Not to mention including the bankruptcies of numerous other carriers. Even "regionals" are joining the party.

 

[Immelman]

I would hope that certain posters in this (http://forums.flightinfo.com/showthread.php?t=47976&highlight=hedging) thread would take a step back and see how hedging really works... option contracts for fuel are like anything else... you can't get the cheap stuff forever if the price of the commodity goes up.

I hope SWA responds to this with reasonable fare increases.. sure, it may hamper their growth, but it would be a good thing for the entire industry don't you think? Maybe reasonable fare increases will better the odds that my seat-mate on my next SWA flight has recently bathed and has decent breath

 

[kelbill]

More banter,

"SWA has been able to maintain its profitability over the last several years due in large part to an absolute cost advantage over other airlines. The cost advantage consisted mostly of 1) the fuel hedges, and 2) inefficiencies at other airlines. SWA was able to charge less than other carriers and people, as we all know, generally go for the lowest price offered. Now, however, the fuel hedges are going to begin to go away and other airlines have dramatically improved their efficiency. SWA's cost advantage is eroding. SWA has become leaner and meaner but most other airlines are becoming leaner and meaner more quickly than them simply because there was much more "fat" to shed."

Sounds good on paper, but I'm not buying. Our cost advantage, ex-fuel, is great regardless of the hedging. We've always had a cost advantage, the fuel situation just worsened the situation for the other guys. Fuel hedges are going away, but they aren't gone, and we are ready for it. Failing to pay one's retirement bills (for most of the majors), bankruptcy, and the like are not signs of leaner or meaner, but rather just leaner. And I'm sure the other folks are not even pondering asking for their pay cuts back should times improve. What will that do to the fat situation? We don't compare ourselves to the others, we just try to be as efficient as we can, and let the profits follow.

"At the same time, the strength of competing low cost carriers is increasing thanks to the prowess of JetBlue and AirTran. As these two carriers in particular continue to grow, they are going to become even more efficient due to economies of size, and SWA will feel increasing pressure from them. On a percentage basis, they are both growing more quickly than SWA. The latest stats I saw at a stage length of something like 700 miles showed AirTran with lower non-fuel costs than SWA and JetBlue with very slightly higher non-fuel costs."

I treat those two as our major competition. That being said, you can't have it both ways. As these guys mature, as we already have (4500+ pilots, 420+ planes) they will be the ones running up on increased vacation (reduced productivity), increased payroll (no 12 year captain pay at JBLU yet, but its coming), and increased MX costs. And of course, the dreaded U word will rear up at JBLU no doubt. U as in union. Our pay rates are now at or near top, whereas they have a way to go, and it would be blind to assume they won't be growing salaries at a quicker rate than us to catchup. I see them getting less competitive cost wise in the future. And JBLU debt rating is junk class I believe, so we are being a little dishonest in our comparisons. I'm not slamming JBLU or AAI, I'm just responding to the comparison.

 

[FlyBoeingJets]

Pilotyip,

We are on track to make more money this year than last (ROI, Net Margin, total $ all going up) so I don't worry about the cow going dry. I don't hold my breath that someone will liquidate either.

As long as CASM is competitive the percentage being labor is just nice to know information. It is a weakness only if it can be exploited by a competitor. Traditionally, once you let the high wage genie out of the bottle you can't put it back in. That is what can bite SWA in the future with Wallstreet. This year, of course, will be good. But what about after that?

Those not in BK will benefit from the reduction in capacity due to lease renegotiations at NWA and Delta. USAir will get rid of 50 planes too. Fares will go up and mask any CASM issues from lack of hedges and higher than average wages. But this holiday period will not last long.

When the others in the top 6 get their act together SWA will have competitors with lower non-fuel costs than they've had in two decades (leases, work rules, and pay).

 

[FlyBoeingJets]

More banter,



I treat those two as our major competition. That being said, you can't have it both ways. As these guys mature, as we already have (4500+ pilots, 420+ planes) they will be the ones running up on increased vacation (reduced productivity), increased payroll (no 12 year captain pay at JBLU yet, but its coming), and increased MX costs. And of course, the dreaded U word will rear up at JBLU no doubt. U as in union. Our pay rates are now at or near top, whereas they have a way to go, and it would be blind to assume they won't be growing salaries at a quicker rate than us to catchup. I see them getting less competitive cost wise in the future. And JBLU debt rating is junk class I believe, so we are being a little dishonest in our comparisons. I'm not slamming JBLU or AAI, I'm just responding to the comparison.

JetBlue's costs are going up but only slightly right now. But I think they will continue to do so with fleet acquisition, new aircraft type and fleet aging. I don't think much cost increase will occur from employee aging. Wallstreet is not happy with the unsecured debt and aggressive growth common to shooting stars in this industry. If the rate of debt accumulation slows the rating may improve.

I don't think a union will have a chance until the number of EMB-190 pilots exceeds the number of A-320 FOs. And I don't think it will actually happen until sometime after the next downturn starts. The music will stop and options for EMB-190s FOs will be reduced.

Before the union thing gets started JetBlue will become a training airline. This will increase costs and irritate Neeleman. Folks will suffer low wages to upgrade to EMB-190 Captain, get some PIC time and bolt for greener pastures. Neeleman may cause the union himself if he shows a mean side dealing with this reality and an increasingly less blue Koolaid drinking Wallstreet.

 

[C-150ETOPS]

Good luck,

I think one of your biggest challenges at SWA will be keeping your good customer service rankings with an aging flight attendant group. Your happy, joke-telling, fun-loving, 21-25 year old cabin crews will generally have a different outlook when they are 35-40 year old, venom spitting single mothers who demand that they are worth 65K a year.

Half the time I fly, I feel like one of those old Appalachian guys in a hillbilly church, doing a jig while holding a 6' Diamondback.

 

[SWAdude]

Good luck,

I think one of your biggest challenges at SWA will be keeping your good customer service rankings with an aging flight attendant group. Your happy, joke-telling, fun-loving, 21-25 year old cabin crews will generally have a different outlook when they are 35-40 year old, venom spitting single mothers who demand that they are worth 65K a year.

Half the time I fly, I feel like one of those old Appalachian guys in a hillbilly church, doing a jig while holding a 6' Diamondback.

You couldn't be more off the mark.

 

[XR650R]

Actually it's the 21-25 year old F/A's who don't have any work ethic. Some are easy on the eyes but most of the time their last job was highschool. I'll take a Dallas "North 40" crew anytime over the "Like, where's the mall?" age group.

 

[lowlycfi]

Actually it's the 21-25 year old F/A's who don't have any work ethic. Some are easy on the eyes but most of the time their last job was highschool. I'll take a Dallas "North 40" crew anytime over the "Like, where's the mall?" age group.

How about a Houston "Mid 30s" crew?

Kidding aside, you're right on this one. It's the senior mama's that are worth their weight in gold to the company. No pun intended.

 

[SWAInflt]

Good luck,

I think one of your biggest challenges at SWA will be keeping your good customer service rankings with an aging flight attendant group.

Over the past couple of years SWA has taken a beating over that blasted "reality" show AIRLINE. The complaints are twofold...the Customers are unsavory and the employees are rude. Which employees are normally featured in AIRLINE?...it ain't the Flight Attendants.
The Flight Attendant group is not the only point of Customer contact. Further, Southwest has been around nearly 35 years, surely the 'bitter old' Flight Attendant chickens would have come home to roost by now.

Your happy, joke-telling, fun-loving, 21-25 year old cabin crews will generally have a different outlook when they are 35-40 year old, venom spitting single mothers who demand that they are worth 65K a year.

The senior F/As are 'A' scale, flying charters(which pay double time) and have fat profitsharing accounts. They have nothing to be bitter about. Who do you think are the ones teaching the newbies how to sing and tell jokes? We only wish we could do it as well as they do. The senior DAL and HOU gals can run rings around the rest of us without so much as breaking a nail. Top of the current F/A payscale is over $50/trip..throw in per diem and pick up one overtime trip per month and you're well over 70k. The truly industrious can and do crack 6 figures.

 

[SWA tech]

Any thing can happen but after TWA,NWA and 2 layoff's and pay cuts I would not want to be any were but SWA during the bad times. SWA people from the GO to the ramp will pull it all together and be ok.

 

[SWA/FO]

Amen to that!! GO WINGS!!

 

[FlyBoeingJets]

C-150ETOPS,

I was going to let you perpetuate that myth. Its our secret weapon and I would hate for everyone else to catch on. But now the cat is out of the bag. Why don't you non-rev a couple of times on SWA and tell us what you think then.

BTW, I think that airline show is great. The press has been saying how manners have gone by the wayside in America. Some basic instruction is needed and the show lets you know what will get you booted off a flight. Maybe the pax with issues will learn what not to do or say before they show up. I think the ticket and gate agents almost always look good on the show. You just gotta realize there is A LOT of editing going on. Gate agents can't have endless patience with other passengers waiting.

 

[nimtz]

Before the union thing gets started JetBlue will become a training airline. This will increase costs and irritate Neeleman. Folks will suffer low wages to upgrade to EMB-190 Captain, get some PIC time and bolt for greener pastures. Neeleman may cause the union himself if he shows a mean side dealing with this reality and an increasingly less blue Koolaid drinking Wallstreet.

Intresting. I'm shocked the blue folks haven't emerged yet to spit venom at you.