Southwest Continues to Expand

[chase]

SUBJECT: Major Project Update



This memo is the most recent update of major projects around our system that are either recently completed or to be done in the next 60-90 days. Not all major cities will be shown since some projects’ completion dates occur beyond the next 90 days.



All Cities: Bag tag issuance at kiosks is now operational in the cities where we had already installed them in the ticket counter. The next phase is to move gate-area kiosks to the ticket counters at additional cities with a goal of having 20 cities done by year-end and all cities done by 2nd quarter 2005. A shortage of IBM units has somewhat delayed the installation schedule.



BNA: The project to expand our ticket counter, ATO, and bag make-up facility by swapping space with AA continues. The new ticket counter and make-up carrousel will be in by September 15th, AA will move to their new space in October, and all work will be done by November 1st.



ISP: The four new gate construction is complete and opened August 4th.



LAS: The C/D checkpoint has been expanded to 18 lanes (an increase from 9 lanes).



OAK: Work continues on the new Provo facility with completion expected by September 21.



ONT: Construction started August 4th to expand and renovate our BSO, including conversion of a storage area into the lobby. Expected completion is September 8th.



PHL: Work continues on our permanent Provisioning facility with move-in expected in October. (No change).



SAN: Provo will be relocated from under the concourse to a separate facility nearby giving us more space at a lower cost. Work has slowed somewhat due to some required building code work and we now expect to complete it in October. The new facility can be converted into a full-service Provo operation as flight activity warrants.



SEA: As part of the terminal expansion project we will move from gate B-4 to B-14 in early November. This will improve storage for ground handling equipment on the ramp and put more of our gates together.



Other Major Projects: Work continues on major projects in BWI, MCI, PHX and TPA with new gates at each of those cities opening starting in late 2004. More detail will be provided as we get closer to completion.

 

[Juvat]

Thanks Chase. Good stuff!

 

[Trout]

Do you think SWA will ever return to Denver?

 

[miles otoole]

Do you think SWA will ever return to Denver?

"Think" and "Ever" are pretty general. Personally I think we'll be in COS before DEN, if ever.

 

[chase]

My assessment is similar to Miles. Eventually yes, anytime soon, no. We have too many dots to still connect with our 60 stations. Opening up a new city at this point is too expensive of a proposition when the option is to keep costs lower....open up routes between established city pairings or build on current route structure with adding frequency.

SWA must work to drop its costs. The pad between where we use to stand & where the legacy carriers were from a cost standpoint has dropped greatly. This pad allowed us in the past to keep advantages in pricing and growth...it is has shrunk dramatically & therefore the urgency to get our costs under control & back under $.08 CASM is critical....anything that can be done to hold down costs MUST be done to include not opening new cities, pilot bases, reducing sick call costs, saving fuel (still!), reducing hotel costs, anything we can do must be looked at.

Increasing pilot productivity is key to this...pilots use to fly on average over 70 hrs per month, currently it is in the mid-60s & by increasing it back up we can reduce the number of new hires while increasing productivity. Yes that flies in the face of regular "labor mentality" but if SWA is to walk a different path than past legacy carriers toward higher operating costs, SWA pilots must lead the way in correcting this trend of higher costs IMHO. That will require pilots who come into this environment to understand that concept...more productivity is the key to getting our cost advantage back to where it was before. New hires will be asked to do this along with our other 4400 pilots...pilots are notoriously of the mentality...fly the least for the most pay......productivity must be the buzz word and the key to our success.

Our "new" goal is to have the employee to airplane ratio in the mid-60's...currently is in the high 70's...as recently as late '02 it was 92...we've dropped it a lot but must continue to use technology to lower costs, particularly labor costs.

However, the challenge is to continue to keep the culture and realize this business has changed. With the decline of the legacy carriers the challenge is completely different. Our competition will not come from these carriers but from all the seeds left from the eventual demise of some of them....these start-ups will have costs that will be significantly lower than ours most likely...competitive leasing rates (lots of folks want to get their planes re-leased), lower labor costs (lots of folks out there who wish to work for wages less than current levels), competitive airport charges to lure them in & many other factors. These challenges aren't impossible to overcome by any means but they will take a dedicated effort to maintain our competitive edge.

We're going to be around for awhile but that doesn't mean that one can sit back & relax & gloat (as others so quickly remind us & the other folks who are currently sitting well...I agree), we never need to gloat...we need to make our new applicants aware that you are entering a new environment and your "assumptions" about life in the airline business are probably wrong...it isn't what it was when your father was flying in the airline business, what it was 10 or even 5 yrs ago when I started.

This will not be the kind of business it was a few years ago but it is still one that I enjoy & would recommend to many others but go into with your eyes wide open & with realistic expectations....we need folks who are willing to work, understand the fundamentals of this business & what it takes to make money/grow and are more concerned about having a healthy company when they retire than merely walking away with a huge retirement bonus from the company.

I don't editorialize very often & to those who find my words out of character or uncalled for, my apologies. Southwest leadership is attempting to refocus employee groups toward these fundamentals. Since my audience are folks looking to come to Southwest I believe it is important to let you know what you're in for & if this "change" impacts your view of whether SWA is your place or not. Failure for our employee groups to embrace these concepts will not bode well for us, I hope all employees will come to the realization that our future is bright but only if we all understand the challenges that we face as a company and an industry.

Good luck to all those who are applying, interviewing & to the new hires...you will find it great to be here...thanks to you all for your efforts and for your interest in Southwest.

cheers,

 

[Bobo135R]

Thanks Chase...

As always, your comments and info on SWA are greatly appreciated...
BTW, Nice meeting you at The Ballpark last Friday with HPA!

 

[SWA/FO]

That is why I can't wait until the "majors" hire again. I'm out of here!

 

[chase]

Hard-hit airlines struggle to adapt

​

US Airways' bankruptcy filing is the latest indication of the severe troubles the sector faces. But even profitable low-fare carriers will have to differentiate themselves.

By Philip LeBeau
2:29 PM EST September 13, 2004

With Labor Day travel already wrapped up, the airline industry is headed into what is traditionally its slowest season, which means that carriers struggling under high oil prices will likely pile up even bigger losses.

The airlines already were going through a critical stretch in which mounting losses and cutthroat competition are shaking up the industry. The turbulence shaking airlines includes falling fares, labor feuds and bankruptcy hearings.

Just look at the sector's plunging bottom line. Since the U.S. industry's cumulative net income soared to $17 billion in 2000, it has been in virtual free fall, with cumulative losses sinking to a projected all-time low of roughly $11 billion by the end of this year.

​

"The situation is probably as bad as we've ever seen," says Susan Donofrio, an analyst with Fulcrum Partners. "I think the good news is that the day of reckoning is finally coming."

Any spare change?
The airline crisis is being fueled by soaring oil prices that are eating into already thin cash cushions. In fact, cash levels are so low at Continental Airlines (CAL, news, msgs) that it's no longer making pension contributions. Cash also is running low at US Airways (UAIR, news, msgs), which Sunday filed for bankruptcy again, and Delta Air Lines (DAL, news, msgs). UAL (UALAQ, news, msgs), which runs United Airlines, has been in Chapter 11 bankruptcy proceedings for more than a year.

So the slow fall travel season will just exacerbate the situation. "The most difficult time period is the fourth quarter and first quarter, and I would expect the dominoes will start to fall by that period," says Jim Parker, an analyst with Raymond James.
When the dust settles, former AMR (AMR, news, msgs) CEO Don Carty thinks some well-known airlines could be gone.

"If these carriers don't change the way they are doing business, they can't possibly survive," Carty says.

Airline survival comes down to cost per seat mile. So it's no surprise the three carriers in the most financial trouble, Delta, United and US Airways, have some of the highest costs, while JetBlue (JBLU, news, msgs), America West (AWA, news, msgs) and Southwest (LUV, news, msgs) have the lowest costs. They're also in the black.

Looking to the future
"Carriers like JetBlue, Southwest and others are doing fine," says Richard Aboulafia of consulting firm Teal Group. "This is the future of the industry."

But the future, even for discount carriers, is changing. As more start-ups like Independence Air and Spirit Air take off, competition within markets grows between low-cost airlines.

So they will have to offer more, such as in-flight TV or video games, to stand out.

"I think the real challenge for low-cost carriers will be continuing to differentiate themselves beyond being a lower-cost seller of tickets," says Stuart Klaskin, an airline industry consultant.
So hang on to your seats, the airline shake-up is just beginning.

 

[SWA/FO]

Spirit Airlines has been around for 20 years

 

[Indypilot]

Spirit Airlines has been around for 20 years

Independence has been around since 1989 (under a different name)

 

[TexaSWA]

"The most difficult time period is the fourth quarter and first quarter, and I would expect the dominoes will start to fall by that period," says Jim Parker, an analyst with Raymond James.

Is this Jim Parker Jim Parker?

 

[Swerpipe]

No.. different Jim Parker

TexasSWA,

I recall listening some of the previous presentations of SWA to the analysts where the former CEO Jim Parker would joke with analyst Jim Parker about their identical name.

 

[Speed]

Do you think SWA will ever return to Denver?

I live in Colorado Springs and can give you some local intel on the subect...which may be propaganda...but worth throwing out for consideration.

The Colorado Springs Business Journal reported in late April (don't have the exact date and I didn't want to pay the $30 to join the online journal to search the archive) that the Colorado Springs Mayor, Lionel Rivera, met with top SWA executives about SWA coming to COS. SWA execs told him that the Springs was the number one most requested new destination by it's passangers and employees. The Mayor said that he was willing to provide incentives to get SWA to come ASAP. Top SWA execs said they wanted an alternate route to get to the Springs airport so they could pull from the south Denver market (i.e. complete Powers from I-25 to the airport and turn it into a Hwy with exits for the streets and commerce) and increased parking. The Mayor said he will have both of those done by 2007...and the SWA officials said, great--then we'll be there in 2007.

Yesterday on the radio the Mayor was interviewed and one of the callers asked him for an update on if SWA was coming. He didn't throw out the 2007 number, but he did say that he was in contact with SWA officials on a regular basis and that everything still looked "very optimistic".

Seeing that I plan on staying in COS and sucking up an off-line commute to get to work (hopefully I'll be out of the pool by Dec/Jan timeframe and getting some LUV), I really hope it is just a matter of when not if they are coming.

Based on Chase's outstanding post about the re-emphasis of "back to the basics" for the company to thrive and make money in the new marketplace...it may be longer than 2007--and I'm fine with that. I'm totally on board with making a strong, profitable company first...it's my choice to suck up a commute to live where I want to live (hey, isn't that one of the reasons it's still worth being in this industry?) and if I find I can't hack it...then will pick up the family and move to hub. I had 12 addresses in my first 13 years in the Air Force...at least this move wouldl be my family's choice.

Off my soap container. Thanks Chase for all your informative Posts to us Poolies and the folks still waiting for the call--you da man!
Speed

 

[SWA/FO]

Lots of guys commute from the Denver area to MDW.