Southwest effect ending?

castle bravo

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[FONT=Tahoma, Ariel, Lucida]The End of The Southwest Effect... [/FONT]​
[FONT=Tahoma, Ariel, Lucida]No business model is immune from the need to evolve. And that includes Southwest Airlines. [/FONT]​
[FONT=Tahoma, Ariel, Lucida]Businesses that fail to understand this go under. Some, like, say, Skybus, whose business model needed to "evolve" (like, into the trash bin) before it started, go down fast. Others, like in ancient times, PanAm, die over time, because it refused to evolve - or maybe couldn't evolve. Next destination: Glub City. On the other hand, there are examples of airlines that saw the writing on the financial wall, tossed their business plan into the nearest shredder, and evolved. Frontier Airlines is one example. [/FONT]​
[FONT=Tahoma, Ariel, Lucida]Apparently, Southwest certainly does understand the need to evolve, which is the reason that it will remain a dire threat to its competition. But it won't be the same airline - and certainly not the mythical one that many in the media and in academia talk about.[/FONT]​
[FONT=Tahoma, Ariel, Lucida]The Single-Strategy Myth. First, despite the lore, Southwest has not had any single model or strategy in regard to where it operates. If it had, it would be dead today. [/FONT]​
[FONT=Tahoma, Ariel, Lucida]There's the babble from some financial analysts that "Southwest only flies to secondary airports..." Run from these people, and for crying out loud don't invest any money with them. Right, Southwest flies to "secondary airports" like LAX, DTW, SEA, TPA, etc. The reality is that Southwest has applied various innovative market strategies depending on the region, the competition, and its own corporate objectives. This has been the basis of its success. And it is the reason other carriers had best not assume that Southwest will be what the Volkswagen was in the 1960s - a product that believed it was invulnerable.[/FONT]​
[FONT=Tahoma, Ariel, Lucida]But one thing has changed: in the past Southest has had what it describes as "low hanging fruit" to go after - places where conditions were right for quickly stimulating new traffic with low fares as well as in some cases secondarily grabbing some market share from incumbents. That meant Detroit/Metro. Or, San Jose. Or, Albany. Or, Jackson. Places where it could create market share, not necessarily have to fight to the death for it. Take ALB and BUF - with just two airports, Southwest accesses at least 80% of all of the ex metro-NYC population in New York State by having service at both ends of the New York Thruway. That was the "Southwest effect" - find an opportunity and spike the market upward.[/FONT]​
[FONT=Tahoma, Ariel, Lucida]But those days and those opportunities are pretty much over. And, based on its strategic moves over the last three years, Southwest clearly knows it. Quietly, it is evolving, safely and serendipitously behind the smokescreen of lore being issued by the usual suspects in the media and on Wall Street who don't hear thunder and confidently predict things long after they've taken place.[/FONT]​
[FONT=Tahoma, Ariel, Lucida]Recognizing The Problem: Then It's Already Half-Solved. Entry into DEN, MSP, PHL, IAD, and now, LGA, does indeed signal a change. These are not "low-hanging" traffic fruit. They are places where Southwest must claw and fight for market share. They are places where, contrary to the myth, the outcome is not certain profitability and success. Competitors match fares. Competitors are now not wildly out of line in terms of their cost/revenue ratios. Competitors often have a wider product - advance seat selection, in-flight entertainment, etc. Competitors are no longer easy meat. Mostly.[/FONT]​
[FONT=Tahoma, Ariel, Lucida]Southwest also has cost issues. Labor, which due to decades of excellent management-employee cooperation, high management integrity, and a team spirit other carriers can only dream of, is more like the loyal opposition than a bitter adversary. But it's now coming back to the bargaining table and won't likely leave without some meaningful pay kibble. Fuel hedge advantages are eroding, with the gradual expiration of the agreements and the drop in fuel costs at competitors. [/FONT]​
[FONT=Tahoma, Ariel, Lucida]It's Not Just Costs. It's Revenue Streams, Too. The fleet - two 737 platform variants - offers some efficiencies, but does limit the diversity of revenue streams. American can carry Mr. Chiang in from China. Southwest can't. Then Mr. Chiang is likely to take three to four domestic trips on AA before he heads back to Shanghai. He can visit his plant in Shreveport and his investment advisor in Bloomington. All at very healthy yields. Southwest doesn't get that business. Delta can access those pipe equipment salesmen heading from Detroit to the Paccar truck plant in Columbus, MS. Southwest's fleet cannot plumb that deeply into these types of emerging business flows. And these are where much of the emerging revenue future of the airline business will be found.[/FONT]​
[FONT=Tahoma, Ariel, Lucida]Then, right when it appeared ripe for Southwest to plunge into strong and relatively good-yield markets in the Caribbean and Mexico, the economy takes a powder. [/FONT]​
[FONT=Tahoma, Ariel, Lucida]All this points to one thing: the Southwest models are going to have to continue to evolve. Today, at many of the mid-size airports served by WN, as much as 50% or more of the passengers are not point-to-point. They're either on multi-stop trips or connecting. That can thin out the net yield margins. It also points to a need for WN to barge into markets that only a few years ago they indicated they wouldn't consider on a bet. Like Denver. Now, slotted and congested LGA.[/FONT]​
[FONT=Tahoma, Ariel, Lucida]Bottom line: Southwest is an airline facing very real challenges in 2009. The basic strategy will probably be to massively increase system revenue by plumbing into markets where there is strong potential for massively increasing system revenues. That means larger metro airports, even if they have to fight for market share. [/FONT]​
[FONT=Tahoma, Ariel, Lucida]And it will be a fight.[/FONT][FONT=Tahoma, Ariel, Lucida]
__________
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Whataburger

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He could be right. However, two key issues in the Southwest Effect are still alive. When we go to a new airport the prices of travel go down. Watch MSP. Secondly, the amount of passenger traffic increases.
I belive the Southwest Effect is alive and well, however he makes some good points.
 

General Lee

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He could be right. However, two key issues in the Southwest Effect are still alive. When we go to a new airport the prices of travel go down. Watch MSP. Secondly, the amount of passenger traffic increases.
I belive the Southwest Effect is alive and well, however he makes some good points.
Well, you dominate the LBB market, that is for sure! Good for you.... and watch what we do when a new entrant comes to town.(MSP) Can't wait. And you will soon start LGA service. That ought to be fun. Your model is changing, and that might not be for the better. Let's hope you don't get RJs next for feed.


Bye Bye--General Lee
 

ACL65PILOT

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Hey Gen we are going back in to LBB out of MEM!
 

General Lee

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Hey Gen we are going back in to LBB out of MEM!
On Pinnacle, right? Whew! I will NOT be the first jumpseater on that inagural flight, that is for sure. ;)


Bye Bye---General Lee
 

ACL65PILOT

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Yes, on Pinnacle. But hey we service LBB yet once again.
 

landlover

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i buy many tickets at my place of work and most times swa isn't the cheapest or convenient. feels like the days of them being the cheapest are gone. not to mention that idiotic boarding system.
 

ofacegangsta

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I know. It's so confusing the way we put those big f*cking signs up announcing boarding groups. Haven't seen any one else do that one yet.
 

crj567

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Well, you dominate the LBB market, that is for sure! Good for you.... and watch what we do when a new entrant comes to town.(MSP) Can't wait. And you will soon start LGA service. That ought to be fun. Your model is changing, and that might not be for the better. Let's hope you don't get RJs next for feed.


Bye Bye--General Lee
You just have to wonder what happened to this toolbag at LBB......

-My guess would be it involved a mule, some guy named Zed, and a gimp...

-Probably not pretty, but it would explain some stuff.
 

contrail67

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He could be right. However, two key issues in the Southwest Effect are still alive. When we go to a new airport the prices of travel go down. Watch MSP. Secondly, the amount of passenger traffic increases.
I belive the Southwest Effect is alive and well, however he makes some good points.

Article from Stanley....interesting about everyone is forcast to be up......except SWA

Airlines Get a Lift From Low Fuel Costs

Morgan Stanley
WE HAVE UPDATED our [airlines] forecasts to reflect sharply weaker demand trends and fuel prices at $60 per barrel for 2009.
All incremental data points indicate a dramatic slowdown in travel. Thus, we have moved our already bearish demand projections for a decline of about 2% in industry revenue, to an even more bearish decline of about 6% in 2009 industry revenue. After netting this against lower oil prices, we are adjusting 2009 estimates upward for most carriers.
The notable exception is Southwest Airlines (ticker: LUV), where we are cutting estimates and price target considerably ($17 to $11
 
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ACL65PILOT

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I know I looked at SWA out of BHM to DAL. 230+ each way. All the others were a lot cheaper.
 

contrail67

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Any educated person will shop the fares and many will realize that the assumption that SWA is the cheapest may not always be true. The playing field is about to level.
 

ACL65PILOT

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Fact is the SWA has been the smartest out there. Why? They do not let these discount travel brokers sell their fares. You have to go to their web site to see them. Many cannot multi-task, or add what multiple legs would be. It has worked for them.
I think that is why you see all of the airlines giving the best prices on their own websites.
 

SWAdude

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I know I looked at SWA out of BHM to DAL. 230+ each way. All the others were a lot cheaper.
Walk up the ticket counter today and see the price difference. Often times its more than a thousand bucks.

Our low cost concept is often misunderstood.
 

swa737-700

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I know I looked at SWA out of BHM to DAL. 230+ each way. All the others were a lot cheaper.
...until you start adding for checked bags, pillows/blankets, something to drink, window/aisle seat. You get my drift? I doubt it.
 

Richard Gozinya

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Never said we were the cheapest.
Well, this says quite a bit.

Average Second-Quarter Domestic Air Fares Reach Highest Quarterly Level;
Top 100 Airports: Highest Fare in Cincinnati, Lowest Fare at Dallas Love
Field

Rank Origin Second Quarter 2008
Highest Average Fares

1 Cincinnati, OH 595
2 Greenville/Spartanburg, SC 568
3 Knoxville TN 524
4 Madison, WI 468
5 Grand Rapids, MI 461
Average Fare at All Airports 352

Lowest Average Fares

1
Dallas Love, TX 221
2 Burbank/Glendale/Pasadena, CA 252
3 Houston Hobby, TX 256
4 Chicago Midway, Il 257
5 Oakland, CA 257

Source: Bureau of Transportation Statistics
* Not including Alaska, Hawaii or Puerto Rico


 
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crxpilot

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Southwest is a great airline. I like their no nonsense approach to get you on your way. Way to go guys!
 

Sedona16

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I just posted this in another thread but think it applies here as well:

One of the more reasoned bullish forecasts comes from JP Morgan's Jamie Baker. In mid-November, Baker was forecasting a 2% decline in total industry revenues, including ancillary fees.

But he now says: "The industry has realised $25 billion in annual fuel savings. It would take a 20% decline in revenues to negate the benefit, roughly three times worse than what was witnessed in 2002." So Baker's 2009 industry operating profit forecast moves from $6.4 billion to $9.2 billion, eclipsing 1997 and 1998's $8 billion record profit.


He says the network carriers' cost disadvantage compared to low-cost players is more or less erased. "As for Southwest, its competitive advantage has narrowed as it fuel advantage reverses, the company is shrinking for the first time in history and they may seek additional liquidity."
 

Whataburger

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Some advantages are definetly shrinking. However, we haven't "shrunk" yet. We have more planes and pilots than we did last year at this time.
 
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