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

[FlyBoeingJets]

I know you are going to take this the wrong way. I don't mean any disrespect by it, but here goes.

You are a bit on the naive side in my opinion.

Thanks for the friendly response. I very well may be naive. I'm glad you didn't take it the wrong way.

 

[SWAdude]

I'm glad you didn't take it the wrong way.

Me too.

 

[Jon Rivoli]

Then we will raise ticket prices. We have all the pricing power - we make money in this environment, we are gaining market share baby!.

If you could, you would. Sans the fuel hedges you lost money last year. They won't last forever. United is making money at $70 a barrel, you can't. Can you get any more productive, you are the very model of lean and mean right now. Unpleasant truths, don't take it out on me. Right now, Southwest is the place to be and it is a great company, but the writing is on the wall.

Have a nice day.

 

[Benhuntn]

United made money? better read the report again. They Lost money forthe 1stQTR.

 

[Benhuntn]

Saw a GK video yesterday at EPT, we actually made money for '05 without hedges. I believe that was the result of a whooping $ 6.00 fare raise in the summer.

 

[SWA/FO]

United is making money at $70 a barrel, you can't.

The point is WE HAVE FUEL HEDGES NOW - we can charge less for our product and make still make MONEY. United is not making money at 70 bucks a barrel!

Writting on the wall? What are you talking about. What does the writting say? Give me your official prediction? I'm dying to hear it!!! What are you smoking in SLC?

the SWA/FO

imp:

 

[SWA/FO]

Who said Captains think different than the average FO!!

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

 

[FlyBoeingJets]

United is making money at $70 a barrel, you can't. . .

What??? Check the link at the bottom. The profit is from accounting changes due to BK.


In the combined first quarter of 2006, the Company (United) reported an operating loss of $171 million, an improvement of $79 million, or 32%, as compared to the operating loss of $250 million reported in the first quarter of 2005.

The Company reported significant improvements in revenue performance year-over-year. Consolidated revenues increased by $550 million between periods, increasing by 14% between quarters. Strong revenue improvement was experienced by both mainline and regional express passenger operations between quarters.

Consolidated operating expenses increased by $471 million between quarters. Fuel expense growth (mainline and regional affiliates) accounted for $314 million of the total operating expense growth between years, due to significant increases in the cost of jet fuel. Salary and related costs increased $51 million, primarily due to stock-compensation expense recognized upon adoption of FAS 123R in the first quarter to account for the MEIP and DEIP plans approved upon exit from bankruptcy.

Non-operating expenses increased by $88 million, from $52 million in the first quarter of 2005 to $140 million in the first quarter of 2006. Interest expense accounted for $74 million of this increase. Interest cost on the Credit Facility in the first quarter of 2006 was higher than interest cost for the DIP Financing in the prior year, primarily due to a significantly higher outstanding principal balance between periods. The Company also recorded non-cash interest costs in the 2006 quarter associated with the amortization of various discounts which were recorded to adjust aircraft mortgage, operating and capital lease financings to fair value at the date of adoption of fresh-start reporting.
The Company recorded a net reorganization gain of $22.9 billion in the combined first quarter of 2006, which was driven by the discharge of over $24.6 billion of claims and liabilities that had been recognized during the three-year restructuring process which began in late 2002. Reorganization charges in the first quarter of 2005 were $768 million.
The Company ended the first quarter of 2006 with total cash, including restricted cash, of $4.5 billion. Operating cash flows during the combined first quarter of 2006 were $455 million, and total available cash was significantly increased by the replacement of the DIP Financing with the Credit Facility on February 2, 2006.

http://biz.yahoo.com/e/060510/uaua10-q.html

 

[Jon Rivoli]

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.

 

[SWA/FO]

Why do you have a 737 type? You wanted to be here at one time? Just a question... lets talk again in 2 years.

 

[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.

 

[SWA/FO]

SWA/FO obviously doesn't know anyone in revenue management (I doubt the he even works at SWA).

Say again? I spend all this time talking about SWA and you doubt I work here? Whats up with dat?

the SWA/FO..

 

[Flopgut]

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.

I hope you can tell I have changed my tone a great deal. I laugh about stuff SWA/FO says and I hope he knows Im giving him crap in a more good natured way.

I listen to the stuff you guys say and cant believe some of it. I dont think you are handling your new status as highest paid pilots very well. Its like you dont even think you have any other employee groups Your attitudes are going to poison the well if your not careful. I dont think its flamebait, our FAs were discussing pay with yours, they had to get a little tough to get what they have now. They asked me about pilot pay and I declined to answer. But I could tell they were aware SWA pilots made a lot more than I did, and that was not the case with their pay vs our FAs. So if you guys think they are going to raise fares to cover your pay, wont they do it for all your workgroups? If six percent covers your needs then will they raise fares 36% to cover all six unions? Because unless you can get the other groups to believe your pay is more special than theirs they are going to want a raise.

Ive said 10 times on here I work for CAL. Im surprised you dont remember that. I just dont put it out there like you guys do. We are all pilots, I like to debate the merits of legacy vs LCC instead of specific employers.

 

[Jon Rivoli]

Guy's I'm not mad, I just look at what I see and make my decisions based on the information available. The only reason I don't intend to reapply is because I don't think you're future is as bright as you do. I may be wrong. I don't think Southwest is bad and I'm not bitter. I wish you well.

Good day.

 

[TAZ MAN]

Guy's I'm not mad, I just look at what I see and make my decisions based on the information available. The only reason I don't intend to reapply is because I don't think you're future is as bright as you do. I may be wrong. I don't think Southwest is bad and I'm not bitter. I wish you well.

Good day.

And flying for a company whos success depends on the success of Delta and United is a bright future. Does not Skywest have a contract with those two carriers? In other words, Skywests success depends on those contracts?

If your eyeing Fedex and UPS then you are considering jobs that have more certainty.

 

[chase]

Mach 80 touched on a key component that the author didn't grasp. Here are some of the latest numbers that to the average public don't compute, but to folks who fly the skies for a living understand completely. My only regret is comparisions numbers on some of the categories isn't commonly shared. Here goes:

Avg # of workdays per month in May '06: 13.5 days

Avg duty day length: 8 hrs, 40 minutes (consider again this number includes 30 minutes prior to push & 30 minutes after push, it becomes 7 hrs 40 minutes)

This is the kicker:

Avg block hours per day: 6 hrs, 9 minutes (in the 7 hrs of 40 minutes of time that you could be flying, you are actually flying 6 hrs, 9 minutes...the lack of wasted time is the key...many keys to this success formula, i.e. route structure, very flexible scheduling (no PBS) rules already, only FAR caps, type of folks one hires, etc.)

Avg "trips for pay" per work day: 7.3 TFP (SWA is paid by the "trip", not by the hour)

 

[ivauir]

Clearly you do not understand SWA

I hope you can tell I have changed my tone a great deal. I laugh about stuff SWA/FO says and I hope he knows Im giving him crap in a more good natured way.

I listen to the stuff you guys say and cant believe some of it. There are a lot of posers on this site - don't believe it! I dont think you are handling your new status as highest paid pilots very well. I don't think we should be the highest paid - a bigger airplane ought to pay more Its like you dont even think you have any other employee groups HUH? Your attitudes are going to poison the well if your not careful. You are just making stuff up here - pure flame bait I dont think its flamebait, our FAs were discussing pay with yours, they had to get a little tough to get what they have now. They asked me about pilot pay and I declined to answer. But I could tell they were aware SWA pilots made a lot more than I did, and that was not the case with their pay vs our FAs. So if you guys think they are going to raise fares to cover your pay, wont they do it for all your workgroups? If six percent covers your needs then will they raise fares 36% to cover all six unions? Because unless you can get the other groups to believe your pay is more special than theirs they are going to want a raise. Actually, many of these groups took raises when the pilots acepted a freeze. The FAs got a huge raise in their last negotiations, the only raises the pilots have recieved are tied to profitability and not that substantial.

Ive said 10 times on here I work for CAL. Im surprised you dont remember that. I just dont put it out there like you guys do. We are all pilots, I like to debate the merits of legacy vs LCC instead of specific employers.

Are you under the impression that we have gotten or are asking for some huge raise? The pilot group has taken several forms of deferred compensation in the past and now we are reaping the rewards. Our FA's (for example) insisted on hard pay this last round - if they resent the pilot's profitability raise, then the fault is wth their union, not the pilots or SWA.

Many of us have much more at stake then what is reported on our W2s.Our up coming negotiations are not a great subject for me to debate here, but don't expect to see a big fight or a big raise. This pilot group uderstands our effect on the company.
Again, you are carring on about our attitudes, but I don't see it. I think you are picking a fight.

We still produce an hour of block time for less than you. We are highest paid because of wage cuts elsewhere, not any "spike" in our pay. Don't even try to paint us as arrogant, choke the golden goose types.

 

[Big Slick]

Hello McFly!

You're not the highest paid.

 

[ivauir]

Hello McFly!

You're not the highest paid.

Well Biff it wasn't me saying that we were. Go go argue with Flopgut.

 

[Flopgut]

Are you under the impression that we have gotten or are asking for some huge raise? The pilot group has taken several forms of deferred compensation in the past and now we are reaping the rewards. Our FA's (for example) insisted on hard pay this last round - if they resent the pilot's profitability raise, then the fault is wth their union, not the pilots or SWA.

Many of us have much more at stake then what is reported on our W2s.Our up coming negotiations are not a great subject for me to debate here, but don't expect to see a big fight or a big raise. This pilot group uderstands our effect on the company.
Again, you are carring on about our attitudes, but I don't see it. I think you are picking a fight.

We still produce an hour of block time for less than you. We are highest paid because of wage cuts elsewhere, not any "spike" in our pay. Don't even try to paint us as arrogant, choke the golden goose types.

Ooooh, big angry red words. Scary.

I don't think it too soon to call it, we have a burgeoning class of egomaniacs at SWA. I think you've got the golden goose in, at least, a half nelson.

If every SWA employee group (across the board) enjoyed the same percentage higher pay that SWA pilots have over legacy pilots, are you going to produce a cheaper block hour?

 

[SWA/FO]

I laugh about stuff SWA/FO says and I hope he knows Im giving him crap in a more good natured way.

the SWA/FO laughs too... he has told me so. Even if he doesn't work at SWA.

imp: