Interesting article about costs, first new salvo directed towards the FA's that I have heard.
Southwest expects to keep cost edge:
NEW YORK (Reuters) - Southwest Airlines Co. (LUV.N) expects to be able to keep its cost advantage over most U.S. rivals even as bankruptcy gives them greater latitude to cut their own expenses, its chief executive said on Wednesday.
Gary Kelly painted a rosy picture of both costs and revenues at the top U.S. carrier by market value, which has prospered relative to competitors because of its ample hedges protecting it from high fuel costs.
Those costs helped push Delta Air Lines Inc. (DAL.N) and Northwest Airlines Corp. (NWACQ.O) into bankruptcy last week.
"Bankruptcy will allow carriers to reduce costs," he said in an analyst presentation. "We don't see how that will eliminate our low cost advantage."
Kelly reiterated that the airline has a goal of increasing profit by 15 percent next year, a rate some analysts said would be a challenge even before the latest spike in fuel prices.
Southwest shares were up 30 cents, or 2.1 percent, at $14.50 in afternoon trading on the New York Stock Exchange, the top gainer among U.S. airlines.
JP Morgan on Wednesday raised its recommendation on Southwest to "overweight," while Citigroup started coverage of the airline with a "buy."
Kelly said Dallas-based Southwest's costs were about 35 percent below those of the "legacy" carriers that are burdened by higher labor and pension costs.
Southwest is working with pilots to improve productivity and plans to do the same with flight attendants, he said.
GUARDING AGAINST COMPLACENCY
Other productivity boosts could come in maintenance and by automating check-in procedures more.
"That's why you're seeing the head count per aircraft coming down and it should continue to," he said, adding that the airline is guarding against complacency.
"We will continue to bear down on our own cost structure," he said. "We'd be crazy not to expect that our competitors will eventually get closer to our cost structure."
That won't happen in the next 12 months, though, he said.
Southwest has regularly bought contracts that lock in fuel prices at a certain level, giving it a huge advantage over cash-strapped rivals that sold their hedges or could not afford to buy any in the first place.
For this year, Southwest's hedges largely cover the cost of refined jet fuel, which has soared relative to crude oil this year, he said.
Helping to boost revenue, Southwest raised fares by up to $4 each way in August and September, he said.
Kelly said Southwest's planes flew fuller in July and August than they ever have and that September demand was "solid."
Southwest's fourth-quarter seat availability will increase something less than the 9 percent previously forecast because of a reduction in traffic to New Orleans after Hurricane Katrina, he said.
A strike by machinists at Boeing Co. (BA.N), its sole aircraft provider, could also take a toll, he said. Boeing is scheduled to deliver 7 of its 737 single aisle planes to Southwest between now and year-end, Southwest spokeswoman Linda Rutherford said.
09/21/05 13:26 ET
Southwest expects to keep cost edge:
NEW YORK (Reuters) - Southwest Airlines Co. (LUV.N) expects to be able to keep its cost advantage over most U.S. rivals even as bankruptcy gives them greater latitude to cut their own expenses, its chief executive said on Wednesday.
Gary Kelly painted a rosy picture of both costs and revenues at the top U.S. carrier by market value, which has prospered relative to competitors because of its ample hedges protecting it from high fuel costs.
Those costs helped push Delta Air Lines Inc. (DAL.N) and Northwest Airlines Corp. (NWACQ.O) into bankruptcy last week.
"Bankruptcy will allow carriers to reduce costs," he said in an analyst presentation. "We don't see how that will eliminate our low cost advantage."
Kelly reiterated that the airline has a goal of increasing profit by 15 percent next year, a rate some analysts said would be a challenge even before the latest spike in fuel prices.
Southwest shares were up 30 cents, or 2.1 percent, at $14.50 in afternoon trading on the New York Stock Exchange, the top gainer among U.S. airlines.
JP Morgan on Wednesday raised its recommendation on Southwest to "overweight," while Citigroup started coverage of the airline with a "buy."
Kelly said Dallas-based Southwest's costs were about 35 percent below those of the "legacy" carriers that are burdened by higher labor and pension costs.
Southwest is working with pilots to improve productivity and plans to do the same with flight attendants, he said.
GUARDING AGAINST COMPLACENCY
Other productivity boosts could come in maintenance and by automating check-in procedures more.
"That's why you're seeing the head count per aircraft coming down and it should continue to," he said, adding that the airline is guarding against complacency.
"We will continue to bear down on our own cost structure," he said. "We'd be crazy not to expect that our competitors will eventually get closer to our cost structure."
That won't happen in the next 12 months, though, he said.
Southwest has regularly bought contracts that lock in fuel prices at a certain level, giving it a huge advantage over cash-strapped rivals that sold their hedges or could not afford to buy any in the first place.
For this year, Southwest's hedges largely cover the cost of refined jet fuel, which has soared relative to crude oil this year, he said.
Helping to boost revenue, Southwest raised fares by up to $4 each way in August and September, he said.
Kelly said Southwest's planes flew fuller in July and August than they ever have and that September demand was "solid."
Southwest's fourth-quarter seat availability will increase something less than the 9 percent previously forecast because of a reduction in traffic to New Orleans after Hurricane Katrina, he said.
A strike by machinists at Boeing Co. (BA.N), its sole aircraft provider, could also take a toll, he said. Boeing is scheduled to deliver 7 of its 737 single aisle planes to Southwest between now and year-end, Southwest spokeswoman Linda Rutherford said.
09/21/05 13:26 ET
