Southwest's magic formula: low costs, low fares and high pay

[Jon Rivoli]

Things change.

 

[Big Slick]

Who said the SWA/FO was average! :beer:

SWO/FO, we finally agree on something. You are not average.
Did you wear a hockey helmet to school?

Talking about yourself in the third person is a real sign of maturity too.

 

[slaquer5]

Things change.

J R thanks, sometimes I see good guys not get hired by SWA and I question the hiring. You have atleast shown me that they did a good job by not bringing you aboard.

 

[Dash Power]

Last year, Southwest paid the equivalent of $26 a barrel for 85 percent of its fuel, saving $900 million in jet fuel costs. Those savings are more than Southwest's operating profit in 2005.


It's great that you are all solidly behind you're company, good luck. Talk to me in two years.

Although what looks like a simple arithmetic problem, is much more complex in the business world. You need to take into affect the different taxes and profit sharing issues that affect the solution to the net profit/loss without hedges scenario. This has been a explained several times on this board so in the interest of repeating this once again how this works to the sheer boredom of all that have read this before I will forgo the details. The bottom line is that SWA would have posted a profit the past couple of years without them. Of course not the same level of profit, but a profit never the less.

As what was predicted by some on this board, the pricing power of SWA is such that they raise their prices to the expiration of the hedges. If you were to take the history of SWA's prices, account for inflationary variables, you will find that the average price of tickets is around 80% of what they normally would be. That was before the price of oil began to reach record levels.

This is a volatile industry and things can change quickly as we all unfortunately are painfully aware of. But since 9/11, SWA has become a stronger company in a depressed industry. Something extraordinary in any business. To say that the future is bleak for SWA because of the fuel hedging in place, do not understand the fundamental strengths of SWA. Its productivity of its employees and the reputation from its customers. Both untouchable for any "legacy" carrier.

 

[Chest Rockwell]

It's great that you are all solidly behind you're company, good luck. Talk to me in two years.

Don't walk off the playground mad. You made the statement that United could make a profit at $70/barrel oil and SWA couldn't. It is a tough crowd, especially if you only read the headlines and not the fine print. Compare CASMs with and without fuel.

There are indeed some significant challenges ahead of SWA, especially post 2009. Fortunately, every segment of the Company is aware of this and working to realize greater efficiencies in operations to ensure future profits and job security.

It is still a pretty soft market out there, but improving. SWA/FO obviously doesn't know anyone in revenue management (I doubt the he even works at SWA). I know of at least three spot markets where fair increases were attempted and not successful.

Pay freezes or reductions - I would say a 50/50 chance either way. Anyone who thinks it is impossible needs a history lesson. However, if I had to bet on any passeger carrier maintaining or increasing pay in the next 5 years, I would take my chances on SWA.

SWA profits are much less now than they were in 2000, with nearly 100 additional aircraft. Market share will only count if the yield comes up. Hopefully it will for everyone.

SWA is taking delivery of a new airplane roughly every ten days, and paying cash for them. SWA has enough cash to pay off all of its debts tomorrow and have around a half billion left. It is a very well run company with the strength to endure some hard times, and hard times tend to be very brutal in this business. I have no doubt that the management and Employees at SWA will successfully take on any challenge the future may hold. Luvfest? You're darn right. If you run the Company well and treat your Employees right you can maintain a culture of people putting out that extra effort that you cannot buy.

 

[Flopgut]

J R thanks, sometimes I see good guys not get hired by SWA and I question the hiring. You have atleast shown me that they did a good job by not bringing you aboard.

But you ended up with SWA/FO? Come on, I know at least part of you would like to trade him.

I hope you guys dont take paycuts, I hope you raise fares! Well all take that 6 bucks, 10 bucks, whatever.

My question is this: How is this spike in pilot earnings going to be viewed by other employee groups? Lets say SWA employee earnings plateau. Your other work groups are going to not want to miss the bus next time. I visited with some of your FAs the other day on the bus, they had to work pretty hard for the raise they got and each of them viewed the earnings package of our FAs as being better. They know you guys earn a lot more than I do, and they know they have had a lot more to do with SWA success than SWA pilots. I see a potential problem there.

 

[FlyBoeingJets]

Last year, Southwest paid the equivalent of $26 a barrel for 85 percent of its fuel, saving $900 million in jet fuel costs. Those savings are more than Southwest's operating profit in 2005.

It's great that you are all solidly behind you're company, good luck. Talk to me in two years.

Don't get mad. Just trying to collect all the facts.

You are indeed correct. SWA management forecasts that, by 2008, the company will be paying approximately $1B more per year for fuel than in 2005. $500 mil more in 2006 and $500 mil more in the 2007/2008 timeframe. Beyond that I don't know.

And the fare increases necessary to account for it amount to about $15 on average. We have already increased fares this year half that amount. The forecast is for another increase soon.

Nothing is static and someone may start another fare war. Scratch that--At some point someone WILL start a fare war.

 

[ivauir]

But you ended up with SWA/FO? Come on, I know at least part of you would like to trade him.

I hope you guys dont take paycuts, I hope you raise fares! Well all take that 6 bucks, 10 bucks, whatever.

My question is this: How is this spike in pilot earnings going to be viewed by other employee groups? Um, what spike? Lets say SWA employee earnings plateau. Your other work groups are going to not want to miss the bus next time. I visited with some of your FAs the other day on the bus, they had to work pretty hard for the raise they got and each of them viewed the earnings package of our FAs as being better. Who is "your" FAs? Ours are well paid but you won't tell us where you work. Maybe the SWA Fa's were just being nice - our FAs are known for that. They know you guys earn a lot more than I do, I smell flame bait and they know they have had a lot more to do with SWA success than SWA pilots. I see a potential problem there.

An interesting viewpoint - I think most of our FAs recognise that they did pretty well for themselves last time around. They are a vital component in our sucess, and deserve to be (and are) well compensated for it. You won't tell us where you work so I think you are just stirring the pot here. Suffice it to say that labor relations here don't work the same way they work where ever it is that you work. We may not have seven part harmony but we are singing in the same key.

Flopgut, we've been around this block before bud, why the flamebait? What is it about SWA that brings out the worst in you? You jump in on these SWA threads looking for a fight and then get all huffy when SWA/FO gives you one. I'm not trying to mess up your hobby, but every once in a while I snap and have to rejoin the fight.

SWA is a company that is run to make a profit, the employees are well treated and well paid. We did not and are not killing this industry (or ANY companies in it). Stop blaming us for your problems. If you need better spacing into SAT - then ask for it. If you are underpaid while your mngt steales your pension then work with your union, call your congressman, but STOP BLAMING US. I'm just trying to make a living flying airplanes just like you. SWA treats me fairly and the traveling public fairly.

 

[ivauir]

Like I said before, this board has become a SWA love fest. I'm just being the devil's advocate.

Spare me. This board is a (pick your LCC) pinata party.

BTW I think the phrase "Devil's advocate" to be redundant.

 

[Mach 80]

Also, I don't buy the argument that SWA captains are guaranteed more hours each month, so they make more. A legacy captain could choose to fly more each month too. But, there is this thing called QOL...... Don't compare apples to oranges.

A common misconception. Most of the SWA pilots fly no more days a month than other pilots, but those days have more flying in them, thus they fly more hours. Instead of sitting around at airports between flights and swapping airplanes every time you go through a hub, SWA pilots are flying. They simply average more flying per day.