SWA 4th Quarter

[canyonblue]

Not really sure where the $58 figure came from but it is incorrect.

As you can see the proposed top out rate is well under $58.

Actually the $51.98 TFP (6-1-06 step 12) equates to $59.22 per hour when you do the conversion. I think this is where he may have got his info.

 

[lowecur]

SWAInflt

As you can see the proposed top out rate is well under $58. The step compression would put inflight in line with the rest of the unions at SWA who top out in 12 years while Inflight currently tops out in 17.

I'm not privy to what the going rate is for an FA, but what we have here is the typical "Mature Successful Airline Employee Syndrome." In other words, everyone wants their fair share for making the airline a success. Many Airline employee groups feel they are underappreciated by management and their pilot group. It's a no win situation in which you argueably have the best Airline Management Team in the Industry that has done a sensational job for the last 30 years putting Southwest at the top of the heap. There's only so much of the pie to go around, and there is a pecking order that has been established. Stock options and profit sharing are no longer what they were years ago. Guarantee's in the form of salary increases have taken there place.

The solution that management has embraced is to grow the airline by 8-10% per year and hope at some point you will take less than you're asking for. They could go back and ask all employees to accept an equitable percentage contract in which each employee group accepts a fixed percentage of the total revenue for the term of the contract. Unfortunately that would not sit well with SWAPA.

It's a tough situation. I wish you well.

 

[SWAInflt]

In other words, everyone wants their fair share for making the airline a success. Many Airline employee groups feel they are underappreciated by management and their pilot group.

Bingo. Except for the part about feeling unappreciated by the pilot group. Our beef is with management...not Flight Ops. We don't work for the pilot group...we work for Jim Parker.

At this point the issue is becoming greater than compensation and work rules. The relationship between The Chairman and his largest workgroup(7,500 and growing) is at stake. We have been unionized for decades...this is not our first contract. In years past negotiations were heated but eventually a contract was signed and we all kissed and made up and went back to the business of making money. Not so with these negotiations. It has been pointed out to me that while Herb was the head of the company...he never sat at the bargaining table with inflight...he delegated that responsiblity to Jim Parker. He (Herb)insulated himself by letting JP take the heat even though JP was taking his marching orders from HK. Now our CEO is also negotiating on behalf of the company so the rancor and bad blood will follow him back to Executive Suite when this is all over. The bitterness that exists amongst the rank and file for Jim Parker is breathtaking. Deserved or not...it's there and it is beginning to destroy our culture. If you want to know what the loss of respect between management and a major labor group can do to an airline...look no further than what is happening with some of the unions over at US right now. I hope we can get this thing settled. Our lives are on hold until it is but it does not look good. The mediator could declare an impasse as early as next month. Mediation has produced zero progress and both sides have said they will reject an offer of binding arbitration. This thing could really start to get ugly right around the time we are launching Philly. The timing could not be worse.

It's a tough situation. I wish you well.

It is indeed. Thanks for good wishes. I'll keep you posted.

 

[chase]

Interesting Comments by CFO

Kelly made some interesting observations that haven't been brought up yet but I think are pertinent.


Controlling costs is the key to continued profitability which allows the company to reward employees with increasing benefit packages.

- ratio of employees to aircraft end of '02 - 91 employees per plane; end of '03, 86 (may have been 88, memory) employees per airplane -- efficiency is the name of the game..expect this number to continue to decline, see below

- CFO stated he would not be surprised to see the number of employees at the end of '04 to show a flatline for the entire year. How can they do that? PHL will require 40-50 folks initally. Nearly all stations are currently overmanned . There are plenty of internal folks who will take the transfer without requiring a single job fare for new folks. Attrition is occurring in ops/CSA but very few new hires I've heard. Still lots of folks left over from the immediate post-911 security surge hiring

- Several FA classes have been internal hires, saves big money again....folks leaving better paying jobs to start all over again at the lower pay scale. They are doing external FA interviews now. FA contract settlement is a big question, no doubt.

- 3 Res centers closing, 1900 folks impacted. I've heard numbers that range from as few as 500 to as many as 1000 who will depart the company with a package versus moving to a new SWA location.

- More automation will decrease the need for folks. Take the following: 57% of reservations occur on the web. Even less need for more folks in the res centers. SWA is rolling out online check-in which will hopefully lead to more folks doing it on line versus having to wait in line for CSA folks to handle them. We'll always need CSAs, can't do it without them but will we need as many in years to come as we have now? Who knows but more automation can hopefully allow fewer to be hired if that will help the bottome line.

- People talk about the lower quarterly profits. Remember, there will be about $140 (think it is a little larger actually) million distributed for profit sharing for the entire year ($40M per quarter). Folks often forget this is money that is taken off the top & isn't included in the quarterly/annual profit figures but it still comes back to the employees which I think is pretty nice.

- CFO thought the increase in costs will be leveling off in 2qtr. I can't recall that type of optimism on his part forseeing into a qtr down the road but if anyone would know, he would. All of the res ctrs costs are expected to occur this qtr (28 Feb is the closing dates for the LRC, DRC, SLC res center).

- Hedging has kept us in the black & will continue to do so. Our track record is good with it & I applaud the fuel folks who do this. I don't care where the money comes from if it helps the bottom line, kudos!!!

- Our avg fare has gone up for the year to just over $90 from $87. Revenue per seat mile is up. Our costs per seat mile increased only 2.9% despite pay raises, fuel costs & landing fees (huge increases). I believe our costs per mile are still the lowest in the industry.

- Profit increased from '02 to '03 by about $100M (would've been $240 M if profitsharing had been moved over, not bad).

- Winglets are paying off & we're only getting more, improving the efficiency. Average age of -200 fleet, 21 years old, once we get rid of these, this drag on profit will go away at the same time we're getting more fuel efficiency from newer aircraft.

- New software/hardware to get us back in the mail business...very lucrative & easy money....we'll be back in line to get more of that.

- New airport additions coming on line this year to allow for more long haul...rest of HOU with more gates in '04....ISP I believe sometime this year...BWI getting more...PHL will explode within the next 18 months with plenty of gates to choose from....MSY with more gates. Aren't sure about capital expenditures but would seem a lot of that has already occurred but I'm sure there are more plans/buildings to spend it on.

- Expansion in the training center with at least 2-4 more sims planned for. Architecture plans will finalize '04 with some sort of building expansion later this year or next. More sims, more pilots, more planes

- As always, our debt is low & there are "payment bubbles" out there like there are for some of the other carriers, i.e. pension payouts, aircraft payments, etc. Longterm debt is incredibly low compared to other major carriers & some LCC also.


Just a few ramblings from an FO who reads the fine print sometimes. Nothing is gospel of course unless you read it yourself or heard the guy say it yourself!!


Lots of reasons to smile. Critics will continue to disparage, for poolies & wannabees, hang in there continue to look at all options but certainly everyone has a chance at getting an interview & from there everyone has an opportunity to get on with SWA. Good luck. cheers,

 

[Phil O'Sopher]

Chase: Always refreshing to hear from a voice of reason.

A few points I heard in the webcast that I think are also telling:

1:BOD OKs up to $300M of SWA stock buyback in 2004;

2:Full fares inching steadily up, now 37%; and

3:Accelerating -200 retirements: 18 now in 2004 vice, I believe, 15 previously (with the exercising of 5 - 2005 options to firms).

The seas are heavy but SWA has the right people at the helm.

 

[chase]

Phil & others

Thanks but it is more the voice of following a simple but straightforwrad business plan. The results aren't fancy but they do provide for longievity & job security which I'm rather high on in this day & time. Your points are well taken & I simply forgot to post these tidbits of continued good news. One other fact that Kelly alludes to when asked by one of the reporters is how much space SWA has to expand in PHL. He tap dances but makes it clear the potential is rather unlimited.

What I think he & our planners realize is that if USAir fails to turn things around (I wish their employees nothing but prayers & good luck for all their efforts to right their ship) and stumbles into Chap 7, by being in PHL, SWA will be in a position to provide air service for many folks who may not have USAir as an option. With airplanes to begin arriving this summer at a rate of 1 every 12 days, filling the void at PHL with just these aircraft alone would allow a rapid & profitable build-up IMHO.

The number of employees at the end of '03 was 32847, divided by 387 aircraft equals slightly less than 85 people per aircraft compared to 91 at the end of '02...a 2.3% decrease. The number of folks who aren't transferring from one res center to another turns out to be higher than what I predicted...approximately 1100 folks will depart voluntarily. 80% of fuel hedged at $24 a barrel, 70% for next year at this price. All good news. All of this comes from the Dallas Morning News. The industry is struggling to get back on its feet & we'll see how that all plays out but I like our odds at SWA in continuing toward a 32 yr of profitability & this quarter to be our 52nd qtr of profitability. We can only hope.

cheers,