Southwest CEO talks mergers

[Jon Rivoli]

For the record, on Jan. 1 one trader put in a limit order for ONE contract of light sweet crude at a price of $100. He did it to make headlines. I'm sure he (or she) is still laughing every time someone mentions $100 oil and probably wishes they have copywrited the phrase. Adjusted for inflation oil today ($88/brl) is no more expensive than during any other oil price spike. Exon Mobile just reported an anualized profit for 2007 of $40 Billion. It is a pretty safe bet that they will invest at least some of that in developing new reserves. Within two years oil will more likely be in the neighborhood of $40/brl than $100. At that point SW will lose it's advantage from hedges which they have employed brilliantly during a very tough time. With cheaper oil hopefully everyone will make truck loads of money like back in the late 90's and we'll all get rich.

Cheers

 

[B727Driver]

General, does BWI come to mind? I believe that's where Metrojet (SWA big competitor) was based. What is USAirways in BWI now? All know how that ended as well as other legacy fiascos. SWA hedges so it has cash to do what it wants when they want to do it. Others cannot say or do the same.

As far as the stock buy back, it is simple. When you cried because you didn't get your Tickle-me-Elmo doll, you didn't understand basic economics. If the toymaker made 100 million of these, the price was low, if they make a smaller number, the price goes up. Same with the stock, fewer shares = higher price. 800 million shares outstanding were too many. SWA's ability to buy $1.8 billion over the last 2 years speaks volumes and still make a profit without BK or stealing employee money or benefits...wow, nicely done SWA.

 

[Jon Rivoli]

"SWA's ability to buy $1.8 billion over the last 2 years speaks volumes and still make a profit without BK or stealing employee money or benefits...wow, nicely done SWA."

WN stock is still trading at something like a 6 year low even after buying back that $1.8B and almost doubling the size of the company. Why? As you know "Stockholders" own the company. If they're not happy, you're not going to be happy. GK is a smart guy and has a lot of options available, but he seems inclined to keep doing more of the same which doesn't seem to be doing anything for the owners portfolios.

To get this thread back on topic; Why not buy Alaska, ditch the Mad Dogs and overnight you get a lock on the Pacific Northwest, Canada, Mexico, ETOPS and Hawaii; not to mention a great group of aviators.

 

[satpak77]

Note that I am not bashing SWA, I admire the company and its management.

However my points were discussed along the theme of discussion the airline business environment

 

[klr1395]

Let me summarize: you have no idea how futures contracts work.

Exactly right. He/She and others also still seem to think our hedges somehow effect what we pay for jet-A.. They don't, they are HEATING oil hedges; an investment on the wall street commodities market that offsets jet fuel costs. Smart business yes, but we still pay the same at the pump so to speak...

 

[Hose A. Jiminez]

Within two years oil will more likely be in the neighborhood of $40/brl than $100. At that point SW will lose it's advantage from hedges which they have employed brilliantly during a very tough time. With cheaper oil hopefully everyone will make truck loads of money like back in the late 90's and we'll all get rich.

Cheers

If oil drops this will be true. Which is in part why SWA has not increased ticket prices very much. High oil price while hedged are sort of a blessing. SWA can offer artificially low prices while hiding behind hedges, and put increased pressure on those who are not as protected.

Further, -AND THIS IS FOR YOU, SATPAK-
this is also why the "if not for the hedges" mantra doesnt hold water. If not for the hedges, ticket prices would likely rise, and be matched by other carriers, to where SWA and others would be profitable. Or to a level where noone could attract pax and we all tank.

 

[Heavy Set]

General, does BWI come to mind? I believe that's where Metrojet (SWA big competitor) was based. What is USAirways in BWI now? All know how that ended as well as other legacy fiascos. SWA hedges so it has cash to do what it wants when they want to do it. Others cannot say or do the same.

As far as the stock buy back, it is simple. When you cried because you didn't get your Tickle-me-Elmo doll, you didn't understand basic economics. If the toymaker made 100 million of these, the price was low, if they make a smaller number, the price goes up. Same with the stock, fewer shares = higher price. 800 million shares outstanding were too many. SWA's ability to buy $1.8 billion over the last 2 years speaks volumes and still make a profit without BK or stealing employee money or benefits...wow, nicely done SWA.

Metrojet was abandoned well before the merger with America West.

 

[Tanker Clown]

Metrojet was abandoned well before the merger with America West.

Well, BWI was a different story. There's no way SWA could make a go of it at MEM or CVG.

 

[RedDogC130]

Well, BWI was a different story. There's no way SWA could make a go of it at MEM or CVG.

I think Brittany Spears has access to a computer in her mental hospital.

Tanker clown you have no clue what you speak about here are you a fortune teller?

 

[Tanker Clown]

I think Brittany Spears has access to a computer in her mental hospital.

Tanker clown you have no clue what you speak about here are you a fortune teller?

It's called sarcasm.

By the way, the SWA poolies sure thought that I had "no clue" what I was talking about back in Nov when I started posting that the classes in '08 were going to be few and far between. All in all, I think my fortune telling has been decent recently.

 

[SELFloadingCRGO]

By the way, the SWA poolies sure thought that I had "no clue" what I was talking about back in Nov when I started posting that the classes in '08 were going to be few and far between. All in all, I think my fortune telling has been decent recently.

Didn't Miss Cleo say something like that??


SLC

 

[Juan Tugo]

Question: since when has SWA ever speculated or hinted at future moves in public? All announcements in recent memory have been surprises to everyone outside the GO. Probably just trying to get the stock moving...

 

[Phil O'Sopher]

Fuel isn't. Nor is fighting off new re-morphed enemies such as DAL-NWA or Cactus/US Air.

Had it not been for fuel hedges, SWA would have reported a loss this past quarter.

http://www.chron.com/disp/story.mpl/business/5477647.html

No big deal, it is what it is. Big picture SWA is still doing very well.

BUT- SWA Fuel hedges will not last forever, I believe 2010 they pretty much are over with. 2009 (10 months away) the hedges are at like 20 or 25% hedged.

http://www.washingtonpost.com/wp-dyn/content/article/2005/04/14/AR2005041402803.html

Also observe that I believe SWA pilot contract is still undecided on since about 2006...I wonder what the mantra from management will be when oil is $100 a barrell and fuel hedges are running out, and the Age 65 (SWA supported this) results in XXX hundreds of salaried bodies still sitting up front getting paid $200 an hour.

So:

• SWA Pilot Contract possibly signed off 2008 or 2009
• 2009 also when fuel hedges really start to dry up
• Age 60+ pilots at $200 hr now are not "going away" and some will stay five more years
• Megacarriers formed by DAL/NWA, etc mergers are new "enemy" on battlefield
• Never say never in the airline biz

All of this is coming to a head in 2008-2010 time frame.

On the flip side, SWA is well run, and if any company can weather a storm, SWA can, and come thru it improved and better than it was before.

Nobody can predict anything anymore in the airline business, but it is fairly accurate that the next couple years could be very interesting for all the carriers.

You may wish to update your fuel hedging figures. The second article you quote was written in April 2005...
I think recent numbers for SWA are 70% hedged at $51/bbl crude equivalent for 2008, and over 50% at same for 2009...less for 2010 but that is normal this far in advance.
As far as having a loss if not for fuel hedges, there are losses and then there are losses. If in one column they had a gain of 727M from fuel hedges and in another column (Cashflow-Financials) they spent 1000M (ie 1B) to repurchase common stock, then there is obviously discretion to present things differently. Between 2006, 2007 and already approved in 2008...2.3 Billion in stock buyback and they still ended 2008 with well over 2 Billion in cash.

I don't think they're in danger of reporting a loss anytime soon.

 

[CA Calypso]

For the record, on Jan. 1 one trader put in a limit order for ONE contract of light sweet crude at a price of $100. He did it to make headlines. I'm sure he (or she) is still laughing every time someone mentions $100 oil and probably wishes they have copywrited the phrase. Adjusted for inflation oil today ($88/brl) is no more expensive than during any other oil price spike. Exon Mobile just reported an anualized profit for 2007 of $40 Billion. It is a pretty safe bet that they will invest at least some of that in developing new reserves. Within two years oil will more likely be in the neighborhood of $40/brl than $100. At that point SW will lose it's advantage from hedges which they have employed brilliantly during a very tough time. With cheaper oil hopefully everyone will make truck loads of money like back in the late 90's and we'll all get rich.

Cheers

Oil will not be around $40/brl in two years. One need look no further than developing third world nations and the lack of refining facilities. And, if for no other reason, the worlds' oil producing nations have realized that they can charge $100/brl and life will go on quite normally.

 

[Bavarian Chef]

Exactly right. He/She and others also still seem to think our hedges somehow effect what we pay for jet-A.. They don't, they are HEATING oil hedges; an investment on the wall street commodities market that offsets jet fuel costs. Smart business yes, but we still pay the same at the pump so to speak...

Ha...

The fuel hedging discussion on this thread alone is priceless. But then I fly with dudes all the time that think we somehow get a special price on jet fuel. Yeah, we're hedged at jb too, like 35-40%. In heating oil contracts, that is.

Oh well, maybe that's why airline pilot fly plane good not company.

 

[bravodude]

Where did Southwest gain market share? PIT? They added 737s to the fleet, and added service to some of the USAir hubs like PHL and PHX, but where did they gain market share and where did USAir leave besides PIT?

As far as the legacies merging and giving away market share, the only hubs that may be downsized for a DL/NWA combo would be CVG and MEM, two places where SWA does not go already. Do they want access to those cities? They could do it right now if they wanted to.

Bye Bye--General Lee

We put song to bed didn't we General!

 

[B727Driver]

When SWA went to BWI, all said they couldn't do it and they would get smacked. 'Nuff said. The same for DEN and the list goes on. Wait until they go to ATL and others, not too many cities where they haven't done well. Heavy with cash, great credit and tons available is a great position to be in. By the way, they haven't stolen from the troops.

 

[Benhuntn]

Just think, two guys work in a room with no windows buying and selling heating oil hedges just so I can come to work and fly new jets around the states and make a great living doing. Life is GREAT!

 

[MLBWINGBORN]

Im afraid that if we wanted to go into CVG there is not much of anybody out there that can stop us..

I view our position as this.

We can effect any domestic market we want.

But..the real question is why would we spend money to force our way into any market ?If we wait..It may open up at little or no cost to us.

We are in a position of being able to respond to almost ANY changes in the market as a result of consolidation.

So why pick a fight when the weak are already about to keel over anyway?

Fire sale prices anyone?

MLB

 

[Tanker Clown]

Nicely done.