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Swa To Slow Acft Deliveries
- Thread starter SWA2000
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328dude
Still turning two
- Joined
- Nov 26, 2001
- Posts
- 1,647
Got a Tues,Wed,Thurs,Fri 4-day that pays 33.50. Any takers? No LBB overnights. SEA, FLL, RNO
Nevermind, somebody already took it.
GIII Instructor
Well-known member
- Joined
- Jun 6, 2006
- Posts
- 71
As Competition Rebounds, Southwest Faces Squeeze Growth Hits Turbulence For Low-Cost Pioneer; Fuel Hedges Lose Lift
The Wall Street Journal 06/27/2007
Author: Melanie Trottman
(Copyright (c) 2007, Dow Jones & Company, Inc.)
DALLAS -- For years, Southwest Airlines managed to fly above the industry's storm clouds, trouncing rivals with a hard-to-match formula of low costs and low fares. Now it's facing a painful role reversal.
Its revenue growth has slowed, its costs are mounting, and its resurgent rivals have torn key pages out of its playbook. The shifting landscape has Chief Executive Officer Gary Kelly contemplating such major changes as offering assigned seating and international flights for the first time, and curtailing the company's rapid growth.
"The threat to our future is real," Mr. Kelly wrote in a four-page memo to his managers last month. "Now is the time to lead."
During the slump in air travel that followed 9/11, Southwest was one of the few carriers to remain profitable. Its costs were far lower than those of its rivals, and its web of primarily short-haul domestic flights allowed it to operate more efficiently. Mr. Kelly shrewdly utilized financial hedging instruments to lock in low fuel prices, saving Southwest hundreds of millions of dollars as oil prices soared.
But many big competitors suffered severe financial losses and restructured -- in some cases, in federal bankruptcy courts -- and the cost gap began narrowing. Southwest's fuel hedges are growing less effective. Its rivals have reduced labor costs substantially, helping them offer lower fares at a profit. That, in turn, has left the aging work force of 36-year-old Southwest among the highest paid in the industry.
In addition, newer low-cost airlines such as JetBlue Airways have grabbed many elements of Southwest's model, while dangling enticements that Southwest has resisted, such as in-flight television.
Southwest is wrestling with a broader predicament in business: When a company's competitive weapon is low costs and efficiency, it's vulnerable to rivals that respond by getting leaner themselves. Like Southwest, retailer Wal-Mart Stores Inc. and computer maker Dell Inc., for example, relied on low costs to grow rapidly. Now, both are struggling to adjust to resurgent competition.
Since Mr. Kelly, who is 52 years old, took over as chief executive of Dallas-based Southwest three years ago, he has boosted fares aggressively and raised employee productivity by 20%. But increasingly, the airline appears boxed in by its strategy of frequent flights and rapid growth in a weak domestic market.
Southwest's cost advantage over competitors has narrowed. Its "unit cost" -- the cost per seat, per mile flown -- was 8.8 cents last year, up 17% from 7.52 cents four years earlier. By contrast, the cost per seat-mile at AMR Corp.'s American Airlines, excluding its regional affiliates, was 10.9 cents last year, down from 11.14 in 2002.
Southwest raised ticket prices six times last year, which boosted its average fare by 11.4%, nearly double the pace of the prior year. When Southwest reported first-quarter results in April, however, Mr. Kelly indicated he had begun to see evidence that passengers are starting to resist fare increases. The airline's "unit revenue" -- revenue per seat, per mile flown -- didn't keep pace with the increase in unit costs.
First-quarter net income rose 52.5% to $93 million. But excluding one-time fuel-hedging gains, net income fell to $33 million, down nearly 50% from a year earlier, the company said. Southwest probably won't hit its 15% profit-growth target this year, Mr. Kelly says.
Although Southwest is still profitable, its stock has languished. Shares of airlines like American plunged in value several years ago, then recovered. Over the past five years, Southwest's stock has bounced around between about $12 to $19 a share. Its shares closed yesterday at $14.64 in 4 p.m. composite trading on the New York Stock Exchange.
Mr. Kelly says he has little choice but to shake things up further. "It's time for a little remodeling," he says. "We may need to bring in some new plays, and that does carry some risk." The company may shed more light on its plans during a meeting with analysts today in New York.
Since there is no futures market for jet fuel, airlines buy contracts that lock in prearranged prices of crude and heating oil. Since those prices correlate closely with jet-fuel prices, profits on those contracts can be applied to buying jet fuel.
If not for its fuel hedges, Southwest would have lost money during eight of the past 16 financial quarters, according to J.P. Morgan Chase & Co. analyst Jamie Baker. (The company says only five would have been unprofitable, and two "roughly break-even.") As its hedges become less effective, Southwest is facing big jumps in fuel costs -- increases that its largely unhedged rivals were harder hit by several years ago. Last year, Southwest paid about 47% more per gallon of jet fuel on average than in the previous year, while American's per-gallon cost rose about 17%, according to Southwest and American's financial disclosures.
In a report published last month by Prudential Equity Group, analyst Bob McAdoo said Southwest's hedges have been masking other problems as the airline moved in recent years into higher-cost airports such as Philadelphia and Denver. Since early 2003, Southwest has continued to add flights to new routes that are consistent money-losers, in an effort to gain market share, Mr. McAdoo said. He calculated that losses have occurred in 84% of the 73 new routes added since that time. "When you're waiting for a market to become profitable, you don't put in a fifth or sixth flight," he said. (Prudential Equity Group has eliminated its market-research group since Mr. McAdoo published the report.)
Mr. Kelly says Mr. McAdoo's report is "flawed," although he declines to elaborate. He says Southwest doesn't disclose profitability by route, and that he believes in giving new markets ample time to make money.
The Wall Street Journal 06/27/2007
Author: Melanie Trottman
(Copyright (c) 2007, Dow Jones & Company, Inc.)
DALLAS -- For years, Southwest Airlines managed to fly above the industry's storm clouds, trouncing rivals with a hard-to-match formula of low costs and low fares. Now it's facing a painful role reversal.
Its revenue growth has slowed, its costs are mounting, and its resurgent rivals have torn key pages out of its playbook. The shifting landscape has Chief Executive Officer Gary Kelly contemplating such major changes as offering assigned seating and international flights for the first time, and curtailing the company's rapid growth.
"The threat to our future is real," Mr. Kelly wrote in a four-page memo to his managers last month. "Now is the time to lead."
During the slump in air travel that followed 9/11, Southwest was one of the few carriers to remain profitable. Its costs were far lower than those of its rivals, and its web of primarily short-haul domestic flights allowed it to operate more efficiently. Mr. Kelly shrewdly utilized financial hedging instruments to lock in low fuel prices, saving Southwest hundreds of millions of dollars as oil prices soared.
But many big competitors suffered severe financial losses and restructured -- in some cases, in federal bankruptcy courts -- and the cost gap began narrowing. Southwest's fuel hedges are growing less effective. Its rivals have reduced labor costs substantially, helping them offer lower fares at a profit. That, in turn, has left the aging work force of 36-year-old Southwest among the highest paid in the industry.
In addition, newer low-cost airlines such as JetBlue Airways have grabbed many elements of Southwest's model, while dangling enticements that Southwest has resisted, such as in-flight television.
Southwest is wrestling with a broader predicament in business: When a company's competitive weapon is low costs and efficiency, it's vulnerable to rivals that respond by getting leaner themselves. Like Southwest, retailer Wal-Mart Stores Inc. and computer maker Dell Inc., for example, relied on low costs to grow rapidly. Now, both are struggling to adjust to resurgent competition.
Since Mr. Kelly, who is 52 years old, took over as chief executive of Dallas-based Southwest three years ago, he has boosted fares aggressively and raised employee productivity by 20%. But increasingly, the airline appears boxed in by its strategy of frequent flights and rapid growth in a weak domestic market.
Southwest's cost advantage over competitors has narrowed. Its "unit cost" -- the cost per seat, per mile flown -- was 8.8 cents last year, up 17% from 7.52 cents four years earlier. By contrast, the cost per seat-mile at AMR Corp.'s American Airlines, excluding its regional affiliates, was 10.9 cents last year, down from 11.14 in 2002.
Southwest raised ticket prices six times last year, which boosted its average fare by 11.4%, nearly double the pace of the prior year. When Southwest reported first-quarter results in April, however, Mr. Kelly indicated he had begun to see evidence that passengers are starting to resist fare increases. The airline's "unit revenue" -- revenue per seat, per mile flown -- didn't keep pace with the increase in unit costs.
First-quarter net income rose 52.5% to $93 million. But excluding one-time fuel-hedging gains, net income fell to $33 million, down nearly 50% from a year earlier, the company said. Southwest probably won't hit its 15% profit-growth target this year, Mr. Kelly says.
Although Southwest is still profitable, its stock has languished. Shares of airlines like American plunged in value several years ago, then recovered. Over the past five years, Southwest's stock has bounced around between about $12 to $19 a share. Its shares closed yesterday at $14.64 in 4 p.m. composite trading on the New York Stock Exchange.
Mr. Kelly says he has little choice but to shake things up further. "It's time for a little remodeling," he says. "We may need to bring in some new plays, and that does carry some risk." The company may shed more light on its plans during a meeting with analysts today in New York.
Since there is no futures market for jet fuel, airlines buy contracts that lock in prearranged prices of crude and heating oil. Since those prices correlate closely with jet-fuel prices, profits on those contracts can be applied to buying jet fuel.
If not for its fuel hedges, Southwest would have lost money during eight of the past 16 financial quarters, according to J.P. Morgan Chase & Co. analyst Jamie Baker. (The company says only five would have been unprofitable, and two "roughly break-even.") As its hedges become less effective, Southwest is facing big jumps in fuel costs -- increases that its largely unhedged rivals were harder hit by several years ago. Last year, Southwest paid about 47% more per gallon of jet fuel on average than in the previous year, while American's per-gallon cost rose about 17%, according to Southwest and American's financial disclosures.
In a report published last month by Prudential Equity Group, analyst Bob McAdoo said Southwest's hedges have been masking other problems as the airline moved in recent years into higher-cost airports such as Philadelphia and Denver. Since early 2003, Southwest has continued to add flights to new routes that are consistent money-losers, in an effort to gain market share, Mr. McAdoo said. He calculated that losses have occurred in 84% of the 73 new routes added since that time. "When you're waiting for a market to become profitable, you don't put in a fifth or sixth flight," he said. (Prudential Equity Group has eliminated its market-research group since Mr. McAdoo published the report.)
Mr. Kelly says Mr. McAdoo's report is "flawed," although he declines to elaborate. He says Southwest doesn't disclose profitability by route, and that he believes in giving new markets ample time to make money.
Gary Kelly when asked about SWA and industry consolidation today responded...
"We don’t have a specific objective other than to be flexible. If that means buying assets or expanding via a code-share like we did with ATA or even an outright acquisition or merger I think we have to be open to all of those possibilities. To the extent that that means complicating our fleet, we definitely want to stay true to our all 737 model, we have no interest in deviating from that at this point. We think that we have already figured out how we could transition from a non-Boeing fleet to an all Boeing fleet so I wouldn’t consider that to be an impediment."
I found it interesting how they have already put the time in to figure out how to transition from a non-Boeing fleet. Any thoughts from insiders? This seems to throw the barn doors open for possible targets.
Later
"We don’t have a specific objective other than to be flexible. If that means buying assets or expanding via a code-share like we did with ATA or even an outright acquisition or merger I think we have to be open to all of those possibilities. To the extent that that means complicating our fleet, we definitely want to stay true to our all 737 model, we have no interest in deviating from that at this point. We think that we have already figured out how we could transition from a non-Boeing fleet to an all Boeing fleet so I wouldn’t consider that to be an impediment."
I found it interesting how they have already put the time in to figure out how to transition from a non-Boeing fleet. Any thoughts from insiders? This seems to throw the barn doors open for possible targets.
Later
FlyBarneyJets
Go Kings, Go!!
- Joined
- Jan 15, 2005
- Posts
- 334
Dwindling fuel hedges, again.
We don't just hedge and forget. Hedge investments are constantly being evaluated, and I'm told by our higher-ups (whom I asked about this very thing) that our hedges are actually on the gradual increase.
True, but the new hedges aren't at $35/bbl anymore. They're more like $50-55/bbl. That means fuel costs will still continue to rise drastically, just not all the way up to market costs. The continued hedges are smart, but they won't provide the same amount of benefit that the ones of years past did.
737 Pylt
Um....Floats anyone??
- Joined
- Jul 8, 2003
- Posts
- 3,085
Nope, its probably just your lousy flying skills! After all, you did have to PAY to get your job! And really.....How could you have afforded it if you didn't live with your mom still!:laugh: :laugh: :laugh:
737
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