Southwest Is Waiting in the Wings

canyonblue

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Southwest Is Waiting in the Wings

By JEFF BAILEY
Published: May 6, 2008

The big cities that Southwest Airlines has invaded in recent years — San Francisco, Denver, Pittsburgh, Philadelphia and Washington by way of Dulles International Airport — all happen to be air travel markets that were dominated by either United Airlines or US Airways.

“If somebody shuts down, you need a giant number of new aircraft,” Gary C. Kelley, Southwest’s chief executive, said of the airline’s total fleet of 527 planes.

It was no coincidence. United and US Airways are among the weaker competitors in the airline industry, and they put up little fight when Southwest arrived and started grabbing market share.

Now United and US Airways have been holding merger talks, and the prospect that they might combine pleases Gary C. Kelly, chief executive of Southwest. He said in an interview that he relished the prospect of the two hub-and-spoke carriers cutting back flights to reduce costs and also the likelihood that such a merger could result in a period of operational chaos for the combined airlines.

That would give Southwest an opening to seize yet more market share.

“I would welcome that kind of a combination,” Mr. Kelly said.

To politicians who worry that domestic competition would suffer if United and US Airways merged, Mr. Kelly said, “We can put those fears to rest.” He said Southwest would quickly move in to expand service.
A US Airways spokesman declined to comment on merger talks, as did a United spokeswoman.

Other carriers are giving Southwest a wide berth, according to Daniel McKenzie, an analyst at Credit Suisse. Overall domestic airline capacity is down about 3 percent, Mr. McKenzie noted in a report issued Monday, but capacity cuts have been twice that large in markets where hub-and-spoke airlines compete against Southwest.

Southwest, the healthiest company in an increasingly sickly industry, does not know what its next major competitive move will be, because it will probably result from another airline’s severe misfortune.

In anticipation, Mr. Kelly is trying to keep his powder dry, with about $3 billion in cash on hand and the ability to expand Southwest’s fleet of Boeing 737s this year by hanging onto, rather than retiring, 22 older planes. Southwest has 29 new 737s arriving this year; its fleet totaled 527 planes as of March 31.

Southwest has already reversed a decision to retire two older 737s, choosing instead to add service from Denver to Indianapolis and Portland, Ore.

If Frontier Airlines, based in Denver and operating under bankruptcy protection since last month, is forced to shrink operations significantly, Mr. Kelly wants to be ready to expand Southwest’s flights there rapidly.

“If somebody shuts down,” he said, “you need a giant number of new aircraft.”

“We’ve done a lot of contingency planning,” as oil has soared toward $120 a barrel, sending the airline industry deep into the red, Mr. Kelly said. Southwest is alone among major airlines in having most of its fuel costs hedged at lower prices — 70 percent of its needs at $51 a barrel for 2008.

Gains of $302 million on hedges during the first quarter allowed Southwest to report a small profit of $34 million, or 5 cents a diluted share. United, meanwhile, posted an unexpectedly huge loss of $537 million and US Airways lost $236 million.

While higher fuel costs are pushing some carriers to seek mergers, notably Delta Air Lines and Northwest Airlines, Mr. Kelly said his interest in an acquisition, tepid to begin with, had all but vanished because of rising fuel prices. Southwest does not have enough fuel hedges to protect a merger partner, so it would inevitably be buying a money-losing operation.

“My enthusiasm for that is just not there,” he said. “The thought of simply acquiring outright another airline that is destined to lose money this year just doesn’t seem like a good opportunity.”

Southwest has its own problems, though the fuel hedges are buying it time to address them. Mr. Kelly needs to raise Southwest’s revenue by about $1.5 billion aside from any growth at the airline, and that higher revenue must mostly come from higher ticket prices.

Southwest is ditching some routes altogether, like Philadelphia to Los Angeles International Airport, and flying others less frequently. Round trips between Oakland and Ontario, Calif., have been cut to 12 each day, for instance, instead of 14.

It is adding $10 to $30 to its highest fares for the right to choose a seat early on its flights. It has also increased, to 15, the number of fares it might have on any one flight, nearly double the old number, allowing it to compete more effectively against hub-and-spoke carriers that list as many as 26 fares.
 
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roughneck

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The talk in Dallas is that the Training Center has been asked if they could run a new hire class each week for 2 weeks with 1 week off then 2 weeks etc, for the remainder of the year.

Rumor is there will be a "spectacular" announcement in the next few days. Something to do with Denver.
 

Tejas-Jet

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Southwest Is Waiting in the Wings

“If somebody shuts down, you need a giant number of new aircraft,” Gary C. Kelley, Southwest’s chief executive, said of the airline’s total fleet of 527 planes.

It was no coincidence. United and US Airways are among the weaker competitors in the airline industry, and they put up little fight when Southwest arrived and started grabbing market share.

Now United and US Airways have been holding merger talks, and the prospect that they might combine pleases Gary C. Kelly, chief executive of Southwest. He said in an interview that he relished the prospect of the two hub-and-spoke carriers cutting back flights to reduce costs and also the likelihood that such a merger could result in a period of operational chaos for the combined airlines.

Having been though a disastrous merger, I know first hand of the confusion, instability, job loss and frustration this can bring to employees. there is nothing so far that shows that this won't happen with the current round of proposed mergers.

I'm glad that Gary Kelly doesn't want anything to do with a merger....thats just fine with me. Internal growth is what I like better.

Anybody else wants to merge....let 'em. For me, I'll take internal growth anytime. A corporate strategy of growth by merger never helps a Pilot.

But for what it is worth, anytime I hear of a merger in the works, I let my congressman know that I am in favor of it, and I usually quote the respective CEO's on whay that merger should be allowed to go through...

Thank God, it ain't me....again. one merger in my lifetime was enough.
 

Caspian27

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The talk in Dallas is that the Training Center has been asked if they could run a new hire class each week for 2 weeks with 1 week off then 2 weeks etc, for the remainder of the year.

Rumor is there will be a "spectacular" announcement in the next few days. Something to do with Denver.

Man you guys are really going for Frontier's jugular....I sure hope they make it. They're a great group.
 

RedDogC130

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we are all fighting for the same dollar. Someone has to win to get it. I am sure nobody likes to see another person lose a job and the $$ that comes with it but if it is between you and me losing the job...sorry your out of luck I hope it is you. I think we all can agree on that. nobody want their buddy to suffer but somtimes it happens... you just hope it is not you and I will hope it is not me.
 

swa737-700

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The talk in Dallas is that the Training Center has been asked if they could run a new hire class each week for 2 weeks with 1 week off then 2 weeks etc, for the remainder of the year.

Rumor is there will be a "spectacular" announcement in the next few days. Something to do with Denver.

Another rumor...oh boy.

Folks, the "big news" is the story that is never "rumored"...TWA/aa for example.
 

firstthird

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Maybe we'll announce a "Colorado One." that is the usual importance of 'big rumors.'
 

The Prussian

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Man you guys are really going for Frontier's jugular....
That's your take...your impression...but Southwest doesn't go for the jugular, or AWA would have been gone years ago. However, that being said, if an airline trips and falls on their own, Southwest is positioned to seize the opportunity(ies) presented as they arise. Just good business sense.
 

TV9Driver

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Folks, the "big news" is the story that is never "rumored"...TWA/aa for example.


Awww...Did you have to bring that up.... My a$$ is still sore from that "fair and equitable" integration....
 

Lear70

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If Frontier Airlines, based in Denver and operating under bankruptcy protection since last month, is forced to shrink operations significantly, Mr. Kelly wants to be ready to expand Southwest’s flights there rapidly.

“If somebody shuts down,” he said, “you need a giant number of new aircraft.”
Great.

So much for reducing capacity through mergers to help bring ticket prices up a little...

Sounds like they'll re-flood those markets with SWA aircraft, keeping the capacity up and the fares down.

Just what the aviation industry DOESN'T need. What's good for Southwest actually, in this case, appears to go against the common welfare of the airline industry as a whole.
 

get2flyin

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That's your take...your impression...but Southwest doesn't go for the jugular, or AWA would have been gone years ago. However, that being said, if an airline trips and falls on their own, Southwest is positioned to seize the opportunity(ies) presented as they arise. Just good business sense.

OH! So they just kept AWA around because they're so gosh darn nice? That's what you think? Really? Yeah, that's it. Good heavens, man. Listen to yourself.
 

lowecur

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All the guys and gals at SW must be moist thinking about the windfall that could be layed at their feet, as they receive a knock on their door from John Bersford Tipton's envoy, Michael Anthony. Not long ago it looked like they were in the backseat of Thelma and Louise' convertible with the rest of airline industry. Actually, they were really in the Mustang Cobra GT that was gleefully pushing as hard as they could on their rear bumper driven by a toothless dude slugging down a bottle of Wild Turkey.

:pimp:​
 
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swa737-700

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Folks, the "big news" is the story that is never "rumored"...TWA/aa for example.


Awww...Did you have to bring that up.... My a$$ is still sore from that "fair and equitable" integration....

TV9,

Sorry to bring up bad memories...I lived that nightmare too. Would you agree that the TWA/aa acquistion was a rather big surprise...no rumors prior to the announcement? Are you nearing recall? I am looking for mine soon. Can't wait to defer.
 

The Prussian

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OH! So they just kept AWA around because they're so gosh darn nice? That's what you think? Really? Yeah, that's it. Good heavens, man. Listen to yourself.
Sorry if I struck a nerve. Maybe I shouldn't have used an example. I still stand by this premise: Southwest is not in the business of putting other airlines out of business. Southwest welcomes healthy competition. And...Southwest will continue to seize opportunities where they present themselves in the marketplace. It's just plane good business.;)
 
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Flopgut

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Sorry if I struck a nerve. Maybe I shouldn't have used an example. I still stand by this premise: Southwest is not in the business of putting other airlines out of business. Southwest welcomes healthy competition. And...Southwest will continue to seize opportunities where they present themselves in the marketplace. It's just plane good business.;)

Wow. I'm just plane nauseated.
 

Draginass

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Sounds like SWA is just waiting for a combined UAL and US Airways to implode upon itself.
 

YourPilotFriend

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So with all this potential growth and massive fuel hedges you guys will be expecting a big raise on your next contract???? How's that going by the way?
 

airlinepilot

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SWAPA guys are doing a good job and headed in the right direction. Nobody expects a large pay increase. I think the vast majority are looking for cost of living and maybe a few precent more. Improved scheduling and duty rigs. Maybe a little more profit share and 401K match. All of which would be retro. We will see.
 
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