SWA Article...

[lowecur]

This is the same rhetoric I heard when I speculated about a possible B6 purchase from ERJ on other boards..

WN's margins are shrinking, and they will continue to shrink with payroll increases in the next few years. You actually believe mgt is going to sit idley by while Air Tran, Jetblue, and possilby ACAI add on profitable small cities? These are not cities that you fly profitably with a 737NG under WN's current busness model of frequency in a market. Frequency with an LF of 75% is the only way you can have a 15% operating margin at WN. With a load factor between 62 - 65% , and no viable city expansion in the works for WN, they will become stagnant.

To quote Mr. Parker:"That whole issue of smaller airplanes is not something we are going to ignore. We're going to look at it, in light of the new technology that's available , and try to make a rational decision whether it makes sense for us to consider some smaller airplanes. The new airplane that JetBlue has ordered, the 100-seat regional jet, is an interesting airplane and we would be remiss if we didn't at least take a look at that."

Last time I looked, Parker and Herb are calling the shots. Look for the order.

 

[Snoopy58]

Strongly concur with what MLBW just posted!

Anybody who thinks that RJ's equate to lower CASMs than 737's needs to relook the numbers. Ain't so! If you can only fill 40 seats, an RJ do better than a mostly empty 737, but SWA has plenty of routes where the planes run full, with more such routes to be added as capacity allows. (For that matter, 757's have better CASM numbers than 737's do, but for the inevitable times when they fly nearly empty, it just kills ya. The Guppy is hugely successful for a good reason -- fills a sweet spot between revenue when full vs costs when empty.)

RJ's work fine for some models (i.e. adding small-city spokes to a large hub-n-spoke operation), but SWA uses a model that works magnificently well with 737's only.

Claims that the SWA route system is maxed out or that RJ's equate to lower CASM's are based on bad data. You'll have to look mighty hard to find any SWA people who believe that the economics will support RJ's there any time soon. I for one certainly wouldn't bet the farm on it!

> WN's margins are shrinking

That has far more to do with the state of the industry than with any problem with the route structure. Virtually everybody's margins are shrinking (or negative). As things return to normal in the industry, SWA has tremendous ability to expand.

As far as the quote from Jim, all he said is that it would be dumb not to LOOK at RJ's. I completely agree that SWA will LOOK at them. He never said anything that would suggest that the OUTCOME of such a look would be any different than the last time SWA looked at RJ's. The economics didn't support SWA getting RJ's then, and I don't see anything to suggest that they do now.

Yes, Jim, Herb, and Colleen *DO* call the shots, and they have the best track record in the industry of making smart, no, brilliant, decisions! They aren't slaves to industry trends, and I don't see the "mass appeal" of RJ's doing anything for them. If the numbers support the massive costs of going to a second type of aircraft, they would, but I can't imagine that the numbers are anything close to that point. (If anything, I think the numbers would support going to a LARGER aircraft, not a smaller one! But I don't see that as particularly likely either.)

Not now, nor in the next several years at least!

 

[MLBWINGBORN]

Ok..
Jim said he would..Weve looked at them before..The answer is still the same..

RJs dont work for our business model!!

In fact..They didnt work for the Midway business model either..

The RJ costs were higher than the 737-700 and at one point the company even said they were going to scale back RJs and replace with 700s due to lower costs..

The secret here is pretty simple..Dont put an airplane that cant make money on a route that wont make money..

Many times airlines put aircraft on routes to either compete for market share or on pure speculation...Neither case is a good idea for making money..

In the case of SWA we only commite to routes that we KNOW are going to make money with the aircraft that we KNOW we can operate at a profit..

And the people envolved in that process are some of the most highly regarded minds in the business...
They have a very simple model that they constantly update and dont do anything on pure speculation or to protect market share..

In short..They dont try to re-invent the wheel..It either makes money or it wont... And if it wont... We dont do it..

Period

Mike

 

[lowecur]

Now granted this is propaganda from ERJ website, but I believe the percentages are close.

Using a 500 NM route, here's the percentage costs using the 86 seats EMB 175 as the base.

EMB170 CRJ700 CRJ900 EMB190 EMB 195 717 736 318

SEAT COST

+8% +22% +5% -1% -10% -3% -3% -1%

TRIP COST

-3% -2% +5% +22% +23% +29% +35% +37%

WN looked at the CRJ 200/700/900. From the above info, you can see why it made no sense at the time. However, with the EMB a/c, it sheds a whole new light on the discussion. These are full size cabin a/c with 6'6'' height, better overhead storage, and overall ergonomic comfort with 2X2 seating than the 717, 736, and 318.

<RJ's don't work for our business model>

You're right, but EMB's do. Look for the order.

 

[MLBWINGBORN]

Now granted this is propaganda from ERJ website, but I believe the percentages are close.

Yeah..you are right..It is propaganda..
I also noticed that you failed to list any data from Boeing on the 737-700..

Your data appears to mix apples and oranges..

You cant compare a full 86 seat airplane with a partially full anything..Our break even loads are around 62% and our loads are running 75 to 77%..That with a travel market thats very soft right now..

If you filled the sky with RJs or EMBs or what ever..Where would you land and park them?
In some markets the answer is a bigger plane..In some markets the answer is a smaller plane..

We choose to go into markets that fit our business model..Which by the way..Is centered around the 737-700.

Yeah..Look for the order..

Of Boeing 737-700s..

Lots and lots of them..

Mike

 

[lowecur]

737-700 was left off by Embraer's choice, not mine. That being said I doubt the seat/trip costs are enormously different between the 600/700.

My point is the EMB's can fit into the WN model. They will not run CASM's of .10 to .15 cents like the 50 seat RJ's, but should run between .07 and .085 cents.

Your loads may have been between 75-77%, but that was leisure summertime travel. Look for LF's to drop to the 60's in Sept, and average between 62-65% for the calander year.

I'm not comparing anything, Embraer is. I'm sure they have a much better handle on cost's than you or I. The EMB 175 is the starting point that all the other aircraft ( including other EMB's) are measured. They are not comparing a full 86 seat a/c to a partially full 736. The graph is based on equal LF's, whatever they may be.

The sky's are going to be quite crowded the next few years. Capacity is being ramped up with the continued growth of WN, B6, Airtran, and ACAI. Eventually the strong will survive, but this may take 4 to 5 years to sort out.

Yes, the 737-700 will dominate WN's routes with the new arrivals in the next few years. These new a/c will not be the net growth for WN, as many 300's, 200's, and 500's will be retired. The 137 seat 700 is fine for the high frequency routes that exist. The problem is there aren't many routes left. The WN "factor" has changed to the "LCC" factor, with the continued growth of Airtran, Jetblue, and soon to be ACAI. Richard Branson is rumored to also be entering this field.

Have an open mind Mike, change isn't bad. Look for the order.

 

[MLBWINGBORN]

I like the orders ive already seen..Yep..They look just fine from here..

 

[ivauir]

I just drive airplanes and I trust my management to make smart decisions about buying aircraft. Maybe we are considering a small (er) jet ... But your assertations about what WE WILL/MUST do to remain competetive don't have much credebility when you say stuff like this:

Yes, the 737-700 will dominate WN's routes with the new arrivals in the next few years. These new a/c will not be the net growth for WN, as many 300's, 200's, and 500's will be retired

From the SWA website July 2003 press release:

As a consequence of their dedication and improved revenue trends, we recently exercised our remaining 2004 options for the delivery of nine 737-700s next year. In addition, we exercised six 2005 options for accelerated delivery in 2004 and accelerated the firm delivery of two 2005 aircraft to 2004. These changes to our Boeing 737-700 delivery schedule bring our current 2004 firm orders to 42 aircraft, which, after subtracting planned 737-200 retirements, results in a planned annual capacity increase in the 6 to 7 percent range in 2004.

I know very little about the EMB and my mind is open, maybe the EMB is the way to go ... is your mind open to the possibility that WN will continue to succeed and grow without them?

 

[lowecur]

Those are all valid questions and points.

Your point is the retirement of the 25 or so 200's that are left. My point is those will probably be gone at the end of 2004. You then have around 34 more 700's that come aboard in 2005. I don't think it's been stated yet, so the retirement of either the 500's or 300's could be in he offing to maintain the 6 to 7% increase in capacity.

Could WN continue to grow and be a success without the EMB a/c? I suppose for awhile. There are many variables that could lead to maintenance of the current margins. Those include lower fuel prices, continued rebound in business/leisure travel, and the possible failure of a major. The margins will receive pressure from a new FA contract that should be negotiated in the next 6 months. I believe the pilots have a new contract coming up in 2006, and assuredly look to be the highest paid in the industry.

The growth of existing and future 737 routes will be rather limited in the next few years. Mike mentioned the transcon routes have been barely tapped. B6, AAI, ACAI, will all be formidable players on these routes in the next few years. Add Richard Branson to that equation, and things become more difficult.

I still maintain that the EMB a/c will be the way to go. I'm curious as to any scope clauses in the current contract? If there are none, then I would look for pay range similar to what B6 will use.

 

[enigma]

This point for point over RJ's/EJ's is just at tempest in a teapot. The bottom line in my humble opinion is not about fleet composition, its about PEOPLE. Maybe SWA will add an aircraft type, maybe not, I don't think that it will matter much as long as the average SWA employee feels like they are participating in something bigger than themselves.

In that vein, how are the FA negotiations going?

regards,
enigma

 

[Mugs]

In that vein, how are the FA negotiations going?

Looking for a Whole Lotta Luv, it appears:


Dow Jones Business News
Southwest Seeks Mediation in Talks With Attendants
Monday September 15, 11:00 pm ET


DALLAS -- Negotiations between Southwest Airlines and its flight attendants union are growing more bitter after 16 months of talks, with the airline asking for assistance from national mediators and the union launching a national ad campaign to publicize its views, Tuesday's Wall Street Journal reported.

Such disagreement is unusual at an airline where public spats are rare, and underscores the growing frustration with negotiations.

Southwest last week requested assistance from national mediators in hammering out a deal, the first time it has asked for help with the flight-attendants union. Meanwhile, flight attendants began running ads over the weekend that read, "Working for free . . . Isn't that just `plane' nuts?"

The ads, which will run in newspapers in 13 major Southwest markets, say that Southwest flight attendants are among the most productive in the airline industry. In the ads, the union says its members are required to clean planes and do other tasks without pay.

Wall Street Journal Staff Reporter Melanie Trottman contributed to this report.

 

[zymotic]

Meanwhile, flight attendants began running ads over the weekend that read, "Working for free . . . Isn't that just `plane' nuts?"

The ads, which will run in newspapers in 13 major Southwest markets, say that Southwest flight attendants are among the most productive in the airline industry. In the ads, the union says its members are required to clean planes and do other tasks without pay.

What a travesty they have to work for free. Glad pilots get paid for reporting maintenance discrepencies, picking up the flight release, reviewing the weather, walking around the airplane, setting up the FMS for the flight, etc.

 

[StarrBuck]

Lowecur,

Have you ever flown an Embraer product?

I have a few thousand hours in the 120, 135, and 145.. The new RJ's are nice, but I sure hope they hold up better than the 120's did!

Ahhh... memories.... "DING DING DING, FLAPS"