SWA's Slow Slide

[Guitar Guy]

I would think the problem is that "new blood" soon becomes "old blood". You still need a certain amount of relatively high-paid captains, so at some point, you have to put some through upgrade and that comes with a higher paycheck.

 

[AA717driver]

How much bigger is SWA than it was in '98? An effecient airline cannot avoid losing some effeciency as it grows larger. Maybe he needs to compare today's SWA with the SWA of 1987. WOW! What a degradation is effeciency. The sky is falling, the sky is falling!

This guy is a moron even by airline analyst standards.TC

 

[FLYLOW22]

Wait a minute, isn't it true that as all of these "high cost pilots" retire and new blood comes in because of expansion and attrition, your "unit costs" come down? Seem this eliminates the need for large pay cuts.

And it seems that a major effort is underway currently to increase unit revenue by utilizing this very technique at LUV!

 

[Big Beer Belly]

My Take On This Mess

Truth is, sport, if the "long-term trend for Southwest is pretty ominous" then the ENTIRE transportation sector is T O A S T. If SWA can't make it..AIN'T NOBODY GONNA GET OUT ALIVE.

I agree with the above. I also foresee more heavy financial losses across the industry as capacity continues to increase in a market that already has (perhaps 25%) too much capacity. More fare sales, more bankruptcies, more labor cuts, and more fare sales by those in bankruptcy to raise cash ... this hyper-competitive environment of numerous bankrupt carriers (all competing against SWA with the favorable financial protections that current bankruptcy laws afford) WILL have a substantial negative impact upon SWA's earnings going forward. To deny this is to ignore reality.

According to analysts, even if several carriers liquidate, additional capacity will quickly be added by the LCC's effectively negating any benefit of capacity reduction (essential to improving yields via pricing power). In other words, more of the same with a different name.

So, what's the answer?

1. Do nothing ... more of the same downward spiral.

2. Change the bankruptcy laws to prohibit the multi-year long lingering death syndrome and its accompanying destructive affects on the health of the industry as a whole.

3. Introduce Minimum Pricing (re-regulation light) Add a minimum amount of regulation to the airline biz similar to what exists in the interstate moving biz. Moving companies are forced to charge a minimum price (interstate moves only) based on weight/distance. If all airlines were FORCED to charge say $0.10/mi (costs + reasonable profit) and allowed to charge whatever they want above, the transportation system would be assured ... but capitalism and survival of the fittest would be **CENSORED****CENSORED****CENSORED****CENSORED**ed.

So what's going to happen? 1 will most likely prevail, 2 ought to occur and 3 has a slim to zero chance of being enacted (at least it won't till there's a vast amount of Ch 7's and the transportation system is in complete crisis). Theoretically, if the system is in crisis (supply/demand curve reversed) then there would be economic health and prosperity for the survivors and an "opportunity" for new entrants to make a buck and thus the cycle continues. Now I've got a headache!

 

[flyhi92]

Looking ahead, you can see.........wait, the future seems to be clouded by uncertainty. Oh well, SWA management seems to have planned ahead pretty darn well so far. Their long-range planners may stay ahead of the pack.


btw, has anybody looked at lowecur's avatar? Isn't that really Boscorelli from Third Watch (NBC Friday nights)? Have they ever been seen in the same place at the same time?

 

[michael707767]

2. Change the bankruptcy laws to prohibit the multi-year long lingering death syndrome and its accompanying destructive affects on the health of the industry as a whole.

thats the biggest change that needs to be made right there. BK should not be a multi year shield from paying your debts. BK should be a one time, short term, good deal. Three to six months to re-organize, then if you can't make it, you're done.

 

[ivauir]

Standard lowecur flamebait but you got me this time ...

The pilot group will have to take the leadership role at the section 6. If they will take a cut, this will send a message to the rest of the employee groups that the health of the company comes first.
Expect to see leadership alright, but pay cuts won't be part of it. There will be give and take on work rules and productivity and possbily furtherraises tied to future profitablity.
There is no blaming mgt for lack of doing an excellent job... couldn't agree more
Mgt needs to start communication to SWAPA about the need for 10-15% profit margins now.
If you knew anything about SWA you would know that this communication is underway constantly VIA company correspondance.
Cash is low,
Still better capitalized than the rest of the industry.

RASM will not see any appreciable increase in the industry until capacity flattens out. The flying public has gotten used to these ticket prices, and unless someone goes Chapt 7 in the next 24 months, that just is not going to happen. If the DL pricing structure is a failure, then the legacys will fall back to the protection of Chapt 11 to continue with their transformation. Chapt 11 for the legacys will continue to put pressure on the existing LCCs, and may force AWA, Spirit, and Frontier into 11 in the next few years.
.... Blah Blah Blah ....

Here is some free advice Lowecur old chap. Sell all that EMB stock and buy yourself some LUV. The industry is changing to try to match us .... not only do we have the best starting position ... we are transforming into a better version of ourselves. Outside of fuel what have our costs done since Gary took over? Buy yourself some LUV before the market figures out the future of comercial aviation has a red belly. Besides ... all you need is LUV!

 

[lowecur]

Standard lowecur flamebait but you got me this time ...

Just look'n for a response.

 

[xanderman]

SWA is a great airline... I'll give them that. But remember when we all thought United was bullet proof!

 

[kelbill]

From the SWA company site:

Newsline for Friday, January 21, 2005
Posted on Fri, 01/21/05 15:35 Good Afternoon. This is the Newsline for Friday, January 21, 2005.

Southwest posted a profit of $56 million in the fourth quarter, compared to $66 million during the same period last year. We also reported our 32nd consecutive year of profitability, with net income of $313 million for 2004-down from a profit of $442 million in 2003.

Total operating revenues for fourth quarter 2004 increased 9.1 percent to $1.66 billion, compared to $1.52 billion for fourth quarter 2003. Operating income increased 8.1 percent to $120 million from $111 million in fourth quarter 2003. Revenue passenger miles (RPMs) increased 12.6 percent in fourth quarter 2004, as compared to a 10.5 percent increase in available seat miles (ASMs), resulting in a 1.2 point increase in load factor to 65 percent.

Total fourth quarter operating expenses were $1.54 billion, an increase of 9.2 percent, compared to $1.41 billion in fourth quarter 2003. Operating expenses per ASM (CASM) for fourth quarter 2004 decreased 1.3 percent to 7.59 cents, compared to 7.69 cents in fourth quarter 2003. Excluding fuel, CASM for fourth quarter 2004 decreased 4.5 percent to 6.22 cents, compared to 6.51 cents in 2003.

Operating expenses for the year included $41 million (or $22 million net of profitsharing and income tax effects) for costs associated with the consolidation of our Reservations operations; the Freedom ?04 offer; and the pay, per diem, and benefit increases retroactive to May 2002 related to the agreement reached with our Flight Attendants.



Now I realize some of this data only compares 2004 with 2003, but the following can be said:

1. CASM for fourth quarter 2004 DECREASED 4.5 percent, excluding fuel. Doesn't seem that we are getting super inefficient to me.

2. Payroll as a percentage of revenue has increased. DUH!!! We are currently in an incredibly soft revenue market. So as our salaries have gone up while revenues per pax have stagnated and/or gone down in the past few years, the payroll percentage has gone up. You could say that for 99% of the businesses in the country over the past few years. Of course furloughing employees might have kept that expense down.

3. Give backs in our next negotiations. I think not. No, I'm not saying the pilots are stubborn and greedy, BUT lets look at this smartly. SWA plans to nearly double by 2012. We are hiring more pilots this year than in our history. We are vastly reducing the number of employees per airplane by increasing productivity and cutting fat by using internal employees for job transfers. Remember we got rid of a few reservation centers. We are now reducing the number of assistant chief pilots. You don't do all that, and then put your hand out to employees for give backs. Ain't gonna happen as things stand now.

4. Bill Mann used one statistic essentially to get all the doom and gloom for his analysis. That was RASM essentially. And since RASM has stagnated/dropped in the past few years he can build a case that the sky is falling. Unfortunately for him, he is dead wrong. Now as for the stock being a winner, his analysis might be more appropriate, because ALL airline stocks are incredibly volatile and not the best place to put your nest egg these days.