Southwest to ‘trim headcount’ after growth in costs

[GhettoBeechjet]

Lear I hope your right but I still maintain its all about profitable ASMs. The 717s are underutilized in the sense that they aren't producing near the number of ASMs that they are capable of which is why you have sparse line totals on the FL side of the partition. A 737 produces more ASMs per departure than a 717 so we would need 17 to 29 fewer airframes than the 88 717s even if the 717s were fully utilized. I believe what we are seeing now is management flying the 717 enough to make it self sustaining but not profitable. Once the 717s are gone I think they will continue to cut any flying that has less than the magic 15 percent return. Thus I think we will see the classics retire on schedule as we get deliveries and the 717s go away on schedule which is at least 88 less airframes. They are already telegraphing this by saying they are intending to retrofit 100 classics with the Evolve interior and talking a lot about fleet refreshment .
When you look at the whole macro landscape and see a weakening economy demand shinks. With persistant high fuel prices costs rise some of which must be passed on to the consumer which shrinks demand even more. In that kind of environment the high cost producers have to shrink while the lowest cost producers can continue to grow.

 

[777forever]

Good luck on your interview at Spirit. It appears here that you are trying to convince yourself that it will be good to go to Spirit by claiming SW is in series trouble. Many of Spirit passengers are one and done, never again when they get their final bill. They are not doing nearly as good as a growing airline as you believe. I'm sure that Spirit will be just fine for some...but no where near what a career is worth at SW.

Not interviewing at Spirit, but I am a stockholder. Long Spirit, short SWA.

SWA labor employees should thank the fuel hedging department for their current compensation package. The bags fly free marketers should thank the fuel hedges as well. That fuel hedge was the move of the decade. It gave SWA a huge cost advantage for a while. Everybody in the industry predicted headwinds when the hedges ran out. The current labor costs as well as "bags fly free" campaign are not sustainable.



Sent from my HTC One X using Tapatalk 2

 

[texman]

http://centreforaviation.com/analys...d-to-stimulate-traffic-in-the-us-market-87247

 

[texman]

Wish Spirit pilots the best.

 

[777forever]

Good article, here's another one from today

http://centreforaviation.com/analys...-to-delta-as-tweaks-in-atlanta-continue-87129

Looks like SWA will concede the match in ATL without even getting in the ring

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[texman]

777, Great artical. True,but our CASM will be About 3 percent lower than Spirits in 2016. The new airplanes and optimization will help this effort. I Wish spirit the best. You can only piss off a customer so much.

 

[Monster Buck]

Nothing against spirit but they have had big talk ever since they started. Six years ago there were going to double in size....they have 42 ac and irregardless of the planed 113 by 2021 my bet is they are still under 60 by 2021 but hey more power to them.

 

[CesnaCaptn]

IMO, Southwest is in SERIOUS trouble. The the most profitable airline in the US right now is Spirit, which is growing rapidly and just opened up a DFW base. Spirit is taking and will continue to take many if SWA's leisure customers. My aunt, a longtime SWA flyer, called me recently to ask if Spirit Airlines was a real airline when she saw a round trip ticket to from Dallas to Houston for $90.

Spirit is a true no frills airlines, and while customers whine and complain about missing the good ole days, how they spend their money tells you what they want. Steve Jobs said it best, a company has to put out a product they know the people will want, not what they tell you they want(Virgin America).


Sent from my iPad using Tapatalk HD

I'm having trouble finding the article or earnings report that points to Spirit being the "most profitable airline in the US right now."

Can you post a link?

 

[Lear70]

Actually, on a percentage of revenue basis, pretty sure that award goes to Alaska last quarter. Could be wrong, don't have the report handy, but that's what I remember from it.

 

[General Lee]

Mitchell Schnurman: Where’s the advantage in Southwest Airlines 2.0?

It’s not easy to age gracefully.

Southwest Airlines has long defied the odds, but now its workforce is older and richer, and rivals have used bankruptcy to get leaner and stronger. The Dallas airline that always played the upstart underdog is looking more like the legacy carriers it used to mock.

Southwest has high labor costs, stalled growth, and the headaches that come with more congested airports. It’s betting on international service, toiling to integrate an acquisition and struggling with new computers for reservations and revenue management.

Southwest’s business model — built around simplicity — is no longer so simple. It has a raft of fares, add-on fees and higher maintenance costs from taking on a second airplane model.

And the bottom line: Third-quarter profit came in lower than for every large rival, even bankrupt American.

“It’s just a different airline today than it was 10 or 20 years ago,” CEO Gary Kelly told analysts this month.

Times change, of course, and Southwest has adapted remarkably well. It has a four-decade streak of profits and no layoffs, and it’s still one of the nation’s most admired companies. Passenger revenue growth has been huge since the recession, a tribute to Southwest’s ability to expand and dictate prices. It’s increased fares five times this year, following eight increases last year.

Southwest’s big problem is on the expense side of the ledger. Pilots, for instance, are paid twice as much, on average, as a decade ago, the result of good raises and 10 more years of seniority.

In 2001, Southwest’s labor costs were significantly lower than those of its legacy rivals. Last year, Southwest paid more than every other carrier except American Airlines — and American is in the process of slashing that measure with the help of a New York court.

Southwest’s “unit costs have now increased for 10 straight years, and we don’t expect that trend to change anytime soon,” analyst Hunter Keay wrote this month.
Many analysts want Southwest to add bag fees, a valuable addition for most airlines. Charging passengers to check up to two bags could generate $1.2 billion in revenue, estimates Keay of Wolfe Trahan & Co.

Southwest counters that it picks up almost that much in additional business, precisely because it offers the perk. Southwest has also turned “bags fly free” into a branding message that fits its customer-friendly philosophy.

Kelly usually shoots down suggestions to change. But in the conference call, he said Southwest wouldn’t say no to anything — and was looking for any good ideas.
Southwest has several initiatives under way. It’s upgrading the fleet and adding seats, which will save fuel. It’s boosting revenue with a new frequent flier program, early boarding and other seating options. The integration of AirTran Airways, acquired 18 months ago, continues — albeit at a slower pace than expected.

New computer systems are being developed, and Kelly said they’ll help bring international routes with “handsome profit opportunities.”

“Most of our challenges right now are internal — in other words, managing our own transformation,” Kelly said.

Kelly has warned about rising expenses at Southwest. A year ago, after American’s Chapter 11 filing, Kelly sent a memo to employees: “Now, the enemy is our cost creep, our own legacy-like productivity and our inefficiencies,” he wrote.

Southwest’s labor costs began topping the large players’ around 2006. The impact was masked by Southwest’s fuel hedges, which let the company avoid the worst spikes in oil prices. Those hedges expired, and Southwest has been paying industry rates for fuel since 2009.

Southwest also has an edge in nonlabor expenses. But the carrier has moved into crowded airports in New York, Philadelphia and Denver, and those costs are up 27 percent in the past decade, according to federal data compiled by the MIT Airline Data Project.

One final advantage that’s faded: growth. After decades of expansion, Southwest has trimmed seats from its schedule through the first nine months of the year. And Kelly said that won’t change until results improve.

No longer is Southwest offsetting its rising labor costs by adding new, lower-paid employees.

“Peel that away, and there’s no stopping the cost creep,” said William Swelbar, research engineer at MIT.

Kelly has said he wants to cut at least $100 million in overhead and reduce head count through attrition.

The company has to get back to its roots. In 1994, Southwest’s annual report was titled “How to build the low-fare airline,” and the first chapter focused on low costs.

“This is the most important aspect of our business strategy, after safety,” the report said.

Yeah, bags fly free, except at subsidiary Airtran....????


Bye Bye---General Lee

 

[General Lee]

I don't think it's quite THAT dire.

Yes it's a critical juncture. No I don't believe 88 planes will come out of service in the next 3 years. No evidence to that at all.

However, if there isn't expansion and they try to shrink to profitability (which hasn't worked anywhere, really, not as a long term solution), they would do it using attrition and classic retirements once the transition is complete. No reason to do it before then, since they've already taken out the unprofitable markets from AirTran's network.

Still a critical time...

I think the 88 planes he was referring to were the 88 717s. They will probably leave your fleet within the next 3 years. (going to DL, right?) Now, will SWA keep old 737-300s/500s on the property instead of retiring them, or get 88 new airplanes? Will there be a combo?


Bye Bye---General Lee

 

[GhettoBeechjet]

I think the 88 planes he was referring to were the 88 717s. They will probably leave your fleet within the next 3 years. (going to DL, right?) Now, will SWA keep old 737-300s/500s on the property instead of retiring them, or get 88 new airplanes? Will there be a combo?


Bye Bye---General Lee

The current company line is that the 88 717s that are leaving the fleet will be replaced by a combination of extending the life of some of the classics that were scheduled for retirement and the deliveries from Boeing plus some airframes from the used market. When you consider 1. We already have too many airframes for the ASMs we are producing. 2. Next years economic outlook is not good. 3. A 737 produces more ASMs per departure than a 717. 4. Some merger synergies will begin to be realized as the networks are connected. 5. High fuel costs in a weak economy. When I add all this up I come to the conclusion that they will continue to retire classics and the fleet will shrink by 88 airframes or more. Even with retirements that leaves us at least 500 pilots overstaffed. I am interested to see how the company responds to that in a time when they are seriously and openly saying our labor costs are too high. Anyone at SWA who isn't concerned is whistling past the graveyard IMHO.

 

[Lear70]

I think the 88 planes he was referring to were the 88 717s. They will probably leave your fleet within the next 3 years. (going to DL, right?) Now, will SWA keep old 737-300s/500s on the property instead of retiring them, or get 88 new airplanes? Will there be a combo?


Bye Bye---General Lee

No, he's referring to the idea that the Classics will go away ALSO, in ADDITION to the 717's, in the next 3 years.

Right now Southwest (we) are sub-leasing 88 717's to Delta while taking delivery of 86 737's. That's pretty close to 1 for 1, which will yield a net GROWTH of ASM's while yielding 2 fewer hull numbers, which fits with what GK has said about growth being "relatively flat" during the integration.

Even with those relatively equal numbers, we will be overstaffed by approximately 400 people (FLT OPS numbers) by the end of the integration because of the higher pilot utilization at SWA. It takes 2 years of FURTHER retirements after 2014 (2015 and 2016) to really fix that.

IF, as Ghetto suggests, the Classics start going away during that time period, we will be even MORE overstaffed, which could be problematic. That said, with the expansion GK has planned into the Caribbean with the incoming deliveries, and wanting to keep most of the routes we already have (both SWA and AAI, as they've already trimmed most of the obvious fat), there's no real reason to think the Classics will go away before the integration is done.

Might they go away soon thereafter? Maybe. Maybe not. There are, however, more pressing long-term issues with SWA that I'm concerned with than the Classics going away. Just my opinion... there are probably better ones out there.

 

[Lear70]

Was typing at the same time Ghetto was... :beer:

 

[GhettoBeechjet]

Was typing at the same time Ghetto was... :beer:

I think we have done that at least twice today. I hope you are right and I'm wrong. The history of this industry has made me pessimistic.

 

[Lear70]

Remember... Murphy was an optimist.

And I always hope for the best,,, but I plan for the worst, too. Kind of comes with the job description for our generation, doesn't it? lol oh well, whatchagonnado? Have another frosty adult beverage and stop worrying about the stuff we can't control.

 

[General Lee]

No, he's referring to the idea that the Classics will go away ALSO, in ADDITION to the 717's, in the next 3 years.

Right now Southwest (we) are sub-leasing 88 717's to Delta while taking delivery of 86 737's. That's pretty close to 1 for 1, which will yield a net GROWTH of ASM's while yielding 2 fewer hull numbers, which fits with what GK has said about growth being "relatively flat" during the integration.

Even with those relatively equal numbers, we will be overstaffed by approximately 400 people (FLT OPS numbers) by the end of the integration because of the higher pilot utilization at SWA. It takes 2 years of FURTHER retirements after 2014 (2015 and 2016) to really fix that.

IF, as Ghetto suggests, the Classics start going away during that time period, we will be even MORE overstaffed, which could be problematic. That said, with the expansion GK has planned into the Caribbean with the incoming deliveries, and wanting to keep most of the routes we already have (both SWA and AAI, as they've already trimmed most of the obvious fat), there's no real reason to think the Classics will go away before the integration is done.

Might they go away soon thereafter? Maybe. Maybe not. There are, however, more pressing long-term issues with SWA that I'm concerned with than the Classics going away. Just my opinion... there are probably better ones out there.

I hope you are right Lear. But, I don't know about "expansion in the Caribbean." Jetblue pretty much took all of the AA stuff out of SJU, and they also hit a lot of it from MCO and FLL. Throw in AA at MIA, and I don't know if you can add too much. Maybe you can, maybe you can't. That's another lower yield area. I remember flying Song 757s to SJU from MCO and TPA, and then it went to JB and FL. I don't know if it is a huge cash cow. And let's not forget Spirit Airways in FLL going all over that area.


Bye Bye---General Lee

 

[scoreboardII]

I'm getting a better feel for the company keeping the classics longer as it appears the fuselages have been repaired at cost to Boeing so there is no likelihood of another cabriolet. So my guess is all the classics stay till they can't compete because of fuel costs.

 

[texman]

The current company line is that the 88 717s that are leaving the fleet will be replaced by a combination of extending the life of some of the classics that were scheduled for retirement and the deliveries from Boeing plus some airframes from the used market. When you consider 1. We already have too many airframes for the ASMs we are producing. 2. Next years economic outlook is not good. 3. A 737 produces more ASMs per departure than a 717. 4. Some merger synergies will begin to be realized as the networks are connected. 5. High fuel costs in a weak economy. When I add all this up I come to the conclusion that they will continue to retire classics and the fleet will shrink by 88 airframes or more. Even with retirements that leaves us at least 500 pilots overstaffed. I am interested to see how the company responds to that in a time when they are seriously and openly saying our labor costs are too high. Anyone at SWA who isn't concerned is whistling past the graveyard IMHO.

This post is spot on. I think of the FA's. If we have attrition on the pilot side what about the 10,000 plus FA's?

 

[GhettoBeechjet]

I did some research and math. My exact prediction is that after the integration is complete we will see a net loss of 70 airframes from where we are today for a fleet total of 624 vs the 694ish we have on property now. I think we will keep 100 classics with the evolve interior and thats it. So a net loss of 68 classics and 88 717s offset by 86 Boeing deliveries. That leaves us 700ish overstaffed plus the 400ish overstaffed we will be from the increased pilot utilization that Lear mentioned leaves us overstaffed by 1100 offset roughly 300 retirements leaves us overstaffed by 800 or so.