Thoughts on the 1Q06 results
What struck me clearly from listening to GK & Laura Wright speak is "they have a plan". Like a football coach who has the first 10 plays or so scripted for each game, GK has his next few steps scriptted out for the company.
1. Work on improving efficiency....still many areas that can be improved upon (FYI, slightly more than 69 persons per airplane end of 1Q06 vs. 74 per airplane end of 1Q05...end of '01 SWA was at 92 folks per airplane)
2. Adding airplanes (more if you can get them) to the popular destinations and eliminating the marginal routes/frequencies where flights aren't making as much money. That happens but very quietly.
3. Finding high value markets & exploiting them with the right plan....folks said PHL would hurt because of delays....the ATC folks have helped the ATC folks increase departures & arrivals by 20% I'm told....that helps everyone but certainly helps SWA also to remain on time. Dulles, other large markets would be exposed to SWA if bankruptcies or changes in business models with other carriers occur.
4. Plan for international traffic in the future ('09) either via ATA or certainly own services (complimentary). One has to have a place to put 300 aircraft between now & '12....this foray into international planning is certainly unique...SWA is watching over the shoulder of ATA & working with them to learn the "business" of what is right & wrong in starting these type of operations....ATA has been successful for sometime at it & by going into this very gradually this helps ensure the chances of success and bad service/connection when things start up down the road. GK hasn't set a firm date (roughly '09), something folks in the media & investment community would love to have so they have a benchmark to judge SWA against.....its a trap these folks won't get GK to fall for I'm sure. This keeps everyone guessing and manages expectations very well also. In terms of the details between the various unions and management, that is to be resolved & is being worked out (hopefully) that will benefit everyone.
5. GK has plans beyond fuel hedges....he refused to outline then for strategic reasons but that is a good thing....they are obviously working the issue & finding other revenue streams or costs cutting measures to offset the larger fuel costs down the road....they aren't waiting for the boulder to hit them....they know '09 is coming and are planning for it....nice to have visionary leaders.
6. Don't get caught short with fare increases.....SWA's fuel increases this year will cost in excess of $600 million for the year. A 1% fare increase for SWA generates about $60-$70 million a year in increased revenue. The average fare compared in 1Q05 to 1Q06 was around 10%....the increased fuel costs are going to be covered & additional revenue to help the bottom line & add to the investment capital down the road is going to occur. A projected increase from $1.2 B capital outlay went to $1.5B projections based upon the new airplane purchases & miscellaneous items according to LW...investing forward is a good thing to allow for more growth that fuels the lower costs. GK admits fare increases have a limit but everyone else has been raising their fares more than SWA....where will the consumer come to when this occurs? Who has the most available seat capacity at this point when one looks at current load factor rates? SWA load factors in the upper 60's & low 70's...other carriers in the upper 80's & above. Both answers are Southwest....our competitors with their fare increases will move travelers to Southwest, at least IMHO....but GK knows there is a limit, the big guys will get to it quicker than we will though since their average fare is higher....that is what GK is betting on I believe
7. Have money in the bank when, not if, the next crisis occurs we're ready to handle it.
8. Inflight entertainment...GK & company have broken the code on this....it costs big $$'s for this & the return is questionable and hard to measure when compared to the entertainment options that flyers bring on board with them, DVD players, IPODs w/wo video, books, laptops, etc. With the lower costs of broadband wireless & future technology breakthroughs, the likelihood for wireless on board aircraft routinely in the near future is much greater.....the passenger will have the additional costs of providing themselves entertainment vs. the airline...a simple conduit, the internet, will be the only requirement & that will be at a much lower cost than it is today.....like Ryan Air when the time comes, SWA could use the internet to generate income on board the aircraft by selling movies inflight to those who want it via the wireless, online gambling on flights to & from Vegas, other services that generate additional income. The time will come when it happens & the money saved from having not bought the first one trick pony that showed up years ago will probably go unnoticed but the savings will be huge IMHO. Patience is truly a virtue.
9. GK says it all the time (in this & every quarterly webcast) but he is right....the biggest advantage we have with SWA is our people. On a 4 day I was blessed to fly with great FAs on all legs....every day I heard folks saying to other passengers, "these are the friendliest folks on an airline I've every met."......the crews laughed about it because we thought it was so simple & silly but it simply shows that so many folks aren't treated that way when they travel & when one is treated kindly & with appreciation, they find it truly unique. Of course not every flight at SWA is like that & my role was marginal, (I was just fortunate I didn't have anyone write up my landings!)....the credit goes to our great FAs in the back for keeping them coming back & the CSA folks at the counter & everyone else they came in contact with. When we stop treating our customers like #1, then we will see a decline in our profits.
Overall the outlook is bright....not to say there aren't potholes & bumps along the way. I didn't even mention the Wright Amendment but it is still on the plate but as GK said, the dilemma for SWA is not enough airplanes to fill DEN, PHL, MDW, soon to be IAD & other places that need aircraft for flights....add DAL to the mix & SWA could fill Dallas with all of those aircraft arriving for just there....a slow transition of opening up cities doesn't hurt SWA, just helps with the inevitiable to be managed....a nice dilemma to have & I personally would luv it tomorrow if they did away with it but that is unlikely.....however, the expectations is that it will go away slowly but who knows for sure.
the ramblings should be taken as a grain a salt.....thanks to those who contribute to inform "wannabees" what their airline is really like from an employees perspective....these are tough times and while some airlines are moving along nicely, there is no guarantee that will continue....hopefully men and women of vision will help the industry recover to a level that can restore some families to a level of modest living and enjoyment that can be enjoyed by those entering the business today & in the future. It won't be the same & for those who yearn for those days, it ain't returning IMHO....prepare for it & if it stops being fun then choose another path for your life....as they say, it is too short to do otherwise. back to my hole & clean up the house before the wife returns
....good luck & God Bless,
BTW, just a registered user....no special titles....not star quality I guess
