Southwest - Profit!!!

[DH2WN]

Blah blah blah... we are kicking a$$ and taking names. Sorry that upsets some of you older, wiser guys. I do my part everyday I VJA for a trip, helping out. You must fly 60 trips a month!

So is Continental and American without a hedge. Actually they made more money than we did without the hedge.

 

[YourPilotFriend]

It's a statement such as this that shows me why so many people don't understand the Southwest Airlines Business strategy.

You couldn't be further from the truth.

What is their business strategy then? People will fly SWA if it costs more than a legacy carrier, I think not.

 

[Falcon Jet 1]

So is Continental and American without a hedge. Actually they made more money than we did without the hedge.

Yeah but what are the percentages Gross Vs. net profit. Kinda like saying that we made more than jet blue who has about 20% of our revenue. Stick with flying airplanes. And for all of you who say the pilots of swa will have to take paycuts you need to look at casm for swa pilots compared to everyone else. Even after managment stuck it to all of you our costs per mile are still lower even though our hourly rate is significantly higher due to productivity.

 

[SWA/FO]

So is Continental and American without a hedge. Actually they made more money than we did without the hedge.

So, I don't care about CAL or AA... I care about Southwest Airlines. Those two airlines have more planes then us. Maybe they should have a hedge, then they would make more! Maybe if they paid their employees what they use to they might have lost money.

 

[Dangerkitty]

What is their business strategy then? People will fly SWA if it costs more than a legacy carrier, I think not.

A couple of points:

1. SWA is a point to point carrier. The Legacies are Hub and Spoke. Comparing the two is like comparing apples and oranges in many cases.

2. On the routes that SWA competes directly with Legacies the Legacies are chomping at the bit for SWA to raise fares (so that the Legacies can too). However, the goal of the SWA business model is to keep fares as low as possible (even if that means making less of a profit). If you ever read Nuts you will see that.

3. Ever heard of the "Southwest Effect"?

 

[AA767AV8TOR]

Directly From the Dallas Morning News 07/21/06:

Southwest said it earned $333 million, or 40 cents a share, in the three months ended June 30.

That compares with earnings of $144 million, or 18 cents, in the same quarter of 2005.

The earnings bested Southwest's previous record of $246 million, set in the second quarter of 2003.

Excluding gains from accounting changes, Southwest earned $273 million last quarter, or 33 cents a share, above the 26-cent consensus estimate from analysts surveyed by Thomson Financial.

Southwest's aggressive fuel hedging program earned the carrier $198 million during the quarter.
Even so, its adjusted fuel costs increased from $330 million to $518 million.

Southwest senior vice president and chief financial officer Laura Wright said the carrier was 77 percent hedged in the second quarter at $36 a barrel – about half the current market price.

In the third quarter, Southwest has 74 percent of its needs hedged at the same price.


How it is reads, at least from the Dallas Morning News, is that Southwest would have netted $75 million for the second quarter ($273 - $198) without their fuel hedging program. Unless Southwest is using fuzzy math, the $273 net includes the $198 earned from the fuel hedging program. You do not add both numbers together.

Though hedged in 2008, I believe the bulk of Southwest’s hedges run out in 2007. The latest numbers I have for 2007 is 60% hedged at $38.

Still a solid quarter given the current environment. It’s great to see the industry taking a turn for the better.

AA767AV8TOR

 

[YourPilotFriend]

A couple of points:

1. SWA is a point to point carrier. The Legacies are Hub and Spoke. Comparing the two is like comparing apples and oranges in many cases.

2. On the routes that SWA competes directly with Legacies the Legacies are chomping at the bit for SWA to raise fares (so that the Legacies can too). However, the goal of the SWA business model is to keep fares as low as possible (even if that means making less of a profit). If you ever read Nuts you will see that.

3. Ever heard of the "Southwest Effect"?

1. SWA will probably become hub and spoke with international routes.

2. Even at SWA break even point legacies can now operate at a profit on those routes. If there is a way to make more profit that option will be explored i.e. regional jets.

3. At the current cost of gas the southwest effect is dead.

 

[Dangerkitty]

1. SWA will probably become hub and spoke with international routes.

You are so wrong it is laughable. Do a little research and you will see that SWA will never become a Hub and Spoke model. Have you ever even read much about SWA? Or is this just you guessing?

2. Even at SWA break even point legacies can now operate at a profit on those routes. If there is a way to make more profit that option will be explored i.e. regional jets.

Wrong, wrong, wrong again. SWA still has some of the lowest operating costs in the industry. Still lower than the Legacies. Furthermore, Regional Jets are way too expensive to operate. SWA wont buy them.

3. At the current cost of gas the southwest effect is dead.

Show me the proof. I bet you can't.

 

[Bake]

1. SWA will probably become hub and spoke with international routes.

2. Even at SWA break even point legacies can now operate at a profit on those routes. If there is a way to make more profit that option will be explored i.e. regional jets.

3. At the current cost of gas the southwest effect is dead.

Hello Friend, Here's what I'm thinking. SWA has 3B in cash or equivalents. 2.9B in debt which leaves approx 1.1 B in cash. (by the way, these are tx words and figures im using here. Might not make much sense to a savvy investor like yourself).

Lets just assume that everything remains the same or worse at SWA. We quit paying cash for airplanes, sims, real estate, fuel hedging, and we quit making money. Let's say for starters that we lose money 2 out of every 4 quarters... Given everything, SWA should last approx 6 years. Now we start getting into too much debt (probably like yourself). Now we borrow, sell, beg whatever for another year. OH Crap@@@@ now it is bankruptcy. Well this is where we get another life. We get to pass go, collect 200 dollars and get a "Get outta jail free Card" .Well Shiat!!!! 10 years have passed. Where will you be??? Moaning and groaning about SWA getting a free ride in BK court??? Probably. See, you are not a thinker but a person that likes to make excuses against the successful. You like to complain to everyone else why you are not successful. It's because you are a loser, personally and professionally. I think in your lifetime you will not see SWA falter however your children (if you are capable of having any) might.http://forums.flightinfo.com/images/icons/icon27.gif

 

[AA767AV8TOR]

I think in your lifetime you will not see SWA falter however your children (if you are capable of having any) might.http://forums.flightinfo.com/images/icons/icon27.gif

Bake,

I wish nothing but success to Southwest. Heck, it gives the rest of us something to aspire too. But I caution against too much optimism in this industry and thinking you are bullet proof. At American, we were riding the same high horse in 1999 and 2000. All it takes is a terrorist hit, an aircraft accident; throw in some bad management decisions, all of which could turn your world upside down.

AA767AV8TOR

 

[YourPilotFriend]

Hello Friend, Here's what I'm thinking. SWA has 3B in cash or equivalents. 2.9B in debt which leaves approx 1.1 B in cash. (by the way, these are tx words and figures im using here. Might not make much sense to a savvy investor like yourself).

Lets just assume that everything remains the same or worse at SWA. We quit paying cash for airplanes, sims, real estate, fuel hedging, and we quit making money. Let's say for starters that we lose money 2 out of every 4 quarters... Given everything, SWA should last approx 6 years. Now we start getting into too much debt (probably like yourself). Now we borrow, sell, beg whatever for another year. OH Crap@@@@ now it is bankruptcy. Well this is where we get another life. We get to pass go, collect 200 dollars and get a "Get outta jail free Card" .Well Shiat!!!! 10 years have passed. Where will you be??? Moaning and groaning about SWA getting a free ride in BK court??? Probably. See, you are not a thinker but a person that likes to make excuses against the successful. You like to complain to everyone else why you are not successful. It's because you are a loser, personally and professionally. I think in your lifetime you will not see SWA falter however your children (if you are capable of having any) might.http://forums.flightinfo.com/images/icons/icon27.gif

Those are some harsh words, I never personally insult anyone on these boards. SWA can not shelter its employee's under the responsiblity they owe to investors.

Also, now-a-days when I get into a discussion I don't support my arguement with phrases like "You can't have kids, or you are a loser" rather I use facts and hard numbers.

 

[YourPilotFriend]

You are so wrong it is laughable. Do a little research and you will see that SWA will never become a Hub and Spoke model. Have you ever even read much about SWA? Or is this just you guessing?



Wrong, wrong, wrong again. SWA still has some of the lowest operating costs in the industry. Still lower than the Legacies. Furthermore, Regional Jets are way too expensive to operate. SWA wont buy them.



Show me the proof. I bet you can't.

1. Running point to point on international feed is do-able but pricey. If you have to make 3 or 4 flights to get to a specific point to point international it drives costs up even further. The network is small now, but if it expands like a low cost international carrier should, it will vastly complicate issues for that code share.

2. E-190's are not more expensive on the short routes that may become unprofitable at the higher cost of fuel. I doubt SWA will buy them, but contract out a carrier or have a code share.

3. Proof: SWA raised fares and passenger travel increased.

 

[chase]

3. At the current cost of gas the southwest effect is dead.

Most recent example of the "no Southwest effect" effect...good thing it is dead or someone might actually be saving money! :beer: .thought you might like a slightly different perspective:

Southwest claims 'Southwest effect' following Wright exemption​

Fares between Dallas’ two airports and the Missouri cities of Kansas City and St. Louis have dropped by half since Congress exempted Missouri from the Wright Amendment restrictions, The Dallas Morning News (free registration) reports. In addition, the number of travelers flying between Dallas Love and Dallas/Fort Worth (DFW) and the two Missouri cities doubled during the first quarter of 2006 when compared to the same quarter in 2005. "That is just striking evidence that the Southwest effect is alive, it is well, and of course, what the repeal of the Wright amendment will do economically for Dallas, North Texas and other cities that we serve at Southwest Airlines," says Southwest CEO Gary Kelly. As it stands, the Wright Amendment restricts long-haul flights from Love Field to Texas and eight nearby states.
Missouri, however, was exempted from the long-haul restrictions only late last year by an act of Congress. As for the numbers, average fares between DFW and Kansas City were $179 during the first quarter of 2005 while DFW-St. Louis fares averaged $182. “In this year's first quarter, those fares dropped to $91 to Kansas City and $83 to St. Louis,” the Morning News writes. “From Love Field, the average fares were even lower –- $72 to Kansas City and $69 to St. Louis,” the paper adds. As for total numbers, 241,450 passengers flew between Dallas and the Missouri cities during the first quarter of 2006 –- up from 119,430 during the same quarter in 2005. A locally crafted compromise to repeal the Wright Amendment altogether has just been introduced to Congress for its approval, though the deal is not assured of passage.


Other examples from USA Today, Feb '06:

Traffic at Denver International Airport jumped 8.3% during January, the first month that included the return of low-cost carrier Southwest Airlines to the city. A total of 3.5 million passengers passed through Denver in January, up by nearly 300,000 from January 2005, according to The Associated Press. But the so-called “Southwest effect” also seemed to lift the airport’s other carriers. Denver-based Frontier Airlines’ passenger numbers soared 16% for the month while United and its low-fare unit, Denver-based Ted saw passenger numbers increase by 4%. "Southwest certainly was a part of the increase in January," airport spokesman Steve Snyder says.

From PIT:
Even as fares rise nationally, the Pittsburgh Post-Gazette writes that fares in Pittsburgh are falling thanks to the “Southwest effect.” The paper says “the average one-way fare at Pittsburgh International Airport skidded to $170 in the fourth quarter, down 3% from $175 in the fourth quarter of 2004, according to just-released data from the U.S. Department of Transportation (DOT).” That DOT data also showed that Pittsburgh had the single biggest average price decrease on a single route, with the average round-trip fare between Pittsburgh and Philadelphia plummeting 65%. The average fare on that route fell from $526 during the fourth quarter of 2004 to $182 during the same period in 2005. “The plunge reflected the entrance of Southwest, which began serving Pittsburgh in May 2005,” the Post-Gazette writes.

 

[Gorilla]

The 737 is still economical to operate, while not quite "state of the art." A lot of the savings SWA creates comes from using a common airframe, the 737, impacting both maintenance and training.

It will be very interesting if two things happen, and one is inevitable...

Possible: SWA goes long-haul international. Now you need a widebody, and you incur costs associated with training and maintenance. The Caribbean and Central America is a huge cash cow for AA and Continental both, and much is served by 737-800. I've often wondered why SWA does not pursue this flying.

Inevitable: The 787 arrives in its carbon-fiber glory. It turns out to be a huge success and extraordinarily economical to operate. In 15 years, everyone is flying 787's domestically, and SWA will be faced with a decision... scrap the 737 model and transition to 787 (expen$ive) or soldier on with 737 (also expen$ive).

 

[chase]

Gorlla,

Interesting point....some thoughts though....what's the seating capacity on a 787...something in the upper 200's or mid to low 300's I think...not sure.

So for argument sakes, the airplane carries 2 or 3 times the number of a 737 size aircraft. Cost efficiencies will be signfiicant according to Boeing with this airplane. However, lets look at some other issues.

How frequent will those flights fly? Once an hour, 3 times a day to the various destinations? Are they economical on short hauls or just long hauls? Obviously many factors but lets look at just one & it is one that SWA has realized for a long time.

What do travelers want besides safe flights, low fare, good customer service, get bags there? What is unwritten but important is frequency...convenience to fly, pick the best time. Having a smaller airplane (i.e. 737 or similar under 150 seat airplane...could be a 787 smaller version) to still do continental flying provides the flexibilty SWA's system's needs....I'm not saying bigger airplanes are not in their future, the ability to have more flights in a day allows the system to flex when an aircraft is out of a system and the amount of frequncies or various means to get passengers to their final destination is a tremendous advantage not fully understood by many....bigger isn't always better when it comes to "flexibilty" in adapting to irregular operations.

When a 300+ seat aircraft crumps the ability to get those folks to their destination is significantly different than when a 137 seat aircraft crumps that is in a system where multiple flights are flying that route or through other point to point places during that day. Having bigger but fewer mouse tunnels for the mice to run through isn't necessarily better...if one crumps, everything gets backed up......maybe better to have more routes (smaller in size but still allows them to get from point a to point b) for them to get to their final destination....all they want to do is get there & be assure they are going to do it quickly, easily & safely. BTW, no harm were caused to any mice in this example or used in any airborne experiments without PETA's permission.

 

[lowecur]

Did you know????

SWA is losing money at MDW, PHL, and PIT. It is also stated by Lehman Bros analyst Gary Chase that SWA has not made money at any of the major markets they have entered since 9/11. Imagine, 200 flts per day at MDW and losing money? Chase said these are just a few of his concerns as these markets are losing money even with the fuel hedges.

imp:

 

[The Prussian]

I,d check over where you're getting these "facts". They don't even sound remotely true!

 

[Dangerkitty]

Did you know????

SWA is losing money at MDW, PHL, and PIT. It is also stated by Lehman Bros analyst Gary Chase that SWA has not made money at any of the major markets they have entered since 9/11. Imagine, 200 flts per day at MDW and losing money? Chase said these are just a few of his concerns as these markets are losing money even with the fuel hedges.

imp:

Fat, drunk, and stupid is no way to go through life son. - Dean Wermer

 

[SWA GUY]

Gary said PHL was the most successful city WN has ever opened. Lowecur, why don't you give it a rest?

 

[lowecur]

Gary said PHL was the most successful city WN has ever opened. Lowecur, why don't you give it a rest?

Hey, this is coming from an analcyst at Lehman Bros. Could he be wrong?

imp: