SWA's Slow Slide

[C77MD80]

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?

I don't know about his avatar, but if it's really Lowercur in the Avatar I would hope whoever is holding that pitch fork would have the courtesy for the rest of us to drive it forward about six more inches...

 

[lowecur]

I don't know about his avatar, but if it's really Lowercur in the Avatar I would hope whoever is holding that pitch fork would have the courtesy for the rest of us to drive it forward about six more inches...

Oh, how mean spirited. You must be former military. The pitch fork is actually being held by Carl Spackler, and he's just making a point about his great golf game. I've got that going for me.

 

[C77MD80]

Oh, how mean spirited. You must be former military. The pitch fork is actually being held by Carl Spackler, and he's just making a point about his great golf game. I've got that going for me.

Hey it's all in good fun. I just get tired of hearing your dribble about the need to cut pay and shift flying to regional jets (that aren't really regional jets). Airline pay could be nil and airlines will still loose money.

 

[lowecur]

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


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.

I think the following was said in 2002:

"This interim agreement is a stepping-stone to an industry leading contract in 2006. We feel Southwest is extremely well positioned to take advantage of the recent turmoil in the industry and expect they will become the dominant domestic carrier in the country. We look forward to being compensated accordingly in our next full negotiation in 2006."


SWAPA (press release: August 19, 2002)

Forget the percentages and comparative efficiencies for now. The real question is the convergence of unit costs by the legacy's with SWA. You are measuring you against yourself. Like it or not, BK is allowing a fast transformation within the legacys, and the recent fare moves by DL will morph the unit costs at an even faster pace. You laugh at UAIR, but my guess is PHL will turn out to be a strategic blunder in the next few years.

Jetblue will pose no threat to SWA until 2007, but believe me they will be a threat.It would be a mistake for SWAPA to believe that they can sign a no give-back TA for the next 4 years and not hurt the company. Just my opinion.

 

[SLOTH]

Of course furloughing employees might have kept that expense down.

Am I the only one who thinks that this is not the way to save money over any length of time? It only gets rid of the "cheap" labor and destroys morale causing further problems. It's a short term solution with long term negative consequences.

 

[kelbill]

lowecur,


I know that our costs are rising while the legacies are falling, but both are short term issues IMHO. Our mgt NEVER stops trying to cut costs, in good times and bad (reference the drop in employees per a/c, reduction in res centers, nixing of CPs). The majors only try to cut when they are hemoraging (spelling) and so take muscle out along with the fat. As for your quote, are we not really the dominant domestic carrier already? I believe we carry more pax in the US than any other as of last year. And the 2002 Agreement was looked at as a step up towards better compensation, but when we negotiate at SWA, we try to see how we can be MORE productive while getting paid better. We don't ask for 40% raises along with increases in manning, dictate the type of planes we buy, and demand a Defined Benefit program to boot. Once revenue increases, albeit it will increase for all eventually, SWA will be the biggest fish out there to benefit from it. The others will put there hands back out and say "Its payback time, where is our raise?!?!". Soon after, they will most likely be bleeding again. As for PHL, it is a different type of operation for us, being large scale and at a inclement wx location, but so far so good, and rumor has it it is going to grow like gangbusters.

Sloth, the furlough comment was not meant to justify them, but rather state how it is often a short term fix, but as you state, can be the wrong course of action in the long run. Never allowing manning to get bloated helps prevent problems from occuring in the first place.

 

[lowecur]

Kelbill

SWA grew over the past 20 years because they were able to go into choice markets and cherry pick based on price(CASM/RASM spread based on excellent LCC model). People flew SWA because they were cheaper than anyone else, and they were successful because they could make money doing it.

Will 2006-10 be any different? Yes, SWA realizes they can no longer be successful based on price alone. Their business model of open seating, and lack of IFE will cost them as the playing field levels in the next few years. Many LCC's are already there on unit cost, and the legacys will be there in the next few years.

Most of their strategic moves lately have been based on driving UAIR out of business. They realize the days of cherry picking 737 routes based on lower cost are limited. Their number one focus has been UAIR. It is my opinion that this focus will be a failure for them. Where do they go next?

Secondly they are in keen competition with AAI to deploy lots of new 737's in markets where they will make money. They may be successful in this arena with the MDW deal, as only time will tell if the ATA deal cost them too much. AAI will now have to go into a market like DFW that will be less profitable due to the overwhelming presence of AA.

I think SWA will become frustrated in the next few years as a few more competitors will choose the BK route to waive debt and reduce costs. It stinks because it rewards inefficiency, and punishes those who have done it right for so many years.

What is the pilot payroll now, $1B+? Give back of 20% is $200M per year from 06-10. FA's come up in 2008. They sure followed your lead in their last contract. Can more efficiencys be wrung out of the system to allow you to maintain current pay rates until 2010? I have my doubts. Gary Kelly says something has to give with lower RASM and higher fuel costs with one of the majors. He clearly has staked his claim that SWA success from 2006-10 will be based on someone elses failure.

Is it all doom and gloom? Hell no! Get a huge moving pkg from DFW, and this would certainly keep you guys in the green from 2006-10. Also, it's still possible someone could go belly up.

 

[kelbill]

Kelbill

SWA grew over the past 20 years because they were able to go into choice markets and cherry pick based on price(CASM/RASM spread based on excellent LCC model). People flew SWA because they were cheaper than anyone else, and they were successful because they could make money doing it.

Not entirely true. Sure, we do our homework before moving into a new city, but remember, we've been flying into places like AMA, HRL, CRP, and the like, and they aren't exactly the top of the cherry list. As for PHL, and now PIT, those are some nice cherries. Incredibly high costs for the locals to travel, until now. CLT is the same, with the near monopoly currently in place. We still prefer underserved secondary airports, but hey, not every big city sports two or more convenient and acceptable facilities.

Will 2006-10 be any different? Yes, SWA realizes they can no longer be successful based on price alone. Their business model of open seating, and lack of IFE will cost them as the playing field levels in the next few years. Many LCC's are already there on unit cost, and the legacys will be there in the next few years.

We are constantly reevaluating all of the items you mentioned. Once it looks like it makes sense, we change. We dropped our printed flight schedules, but brought them back when that is what the customers wanted. We try to be proactive and not reactive. Will we get IFE, who knows? That is JBLU's niche for now. The question is, will loyal SWA customers want to pay the additional price to have it, and so is it worth the additional costs to the company? Our customers are not all JBLU customers and vice versa. Niche again. As for unit costs with the other LCCs and legacies coming down to ours: We do need to watch it and not take anything for granted, however, I will reiterate my point that the legacies will NEVER operate for a significant amount of time at our cost structure, outside of BK. To get there they need to cut salaries and positions, which they have done, but that only increases tension between worker bees and MGT, which will not keep productivity up and costs down in the long run. As for the other LCCs, I worry about them, but as we grow, we still continue to make strides in efficiencies (winglets, uprated engines, increased automation use of autopilot, shutting APU down more at the gate). We take nothing for granted.

Most of their strategic moves lately have been based on driving UAIR out of business. They realize the days of cherry picking 737 routes based on lower cost are limited. Their number one focus has been UAIR. It is my opinion that this focus will be a failure for them. Where do they go next?

Although they have not stated it officially, it would appear that we are making moves based on the assumed demise of USAIR, with PIT and PHL being the first targets. Those are two plump cherries, difficult to pass up. As for elsewhere, we expect lots more from the NE US. Norfolk has been great for us from what I've seen (and I'm glad to help out the Navy folks and families serving our nation there). Allentown, Richmond, Charleston, Columbia, heck, where can't we go. We don't need to fly 100 flights a day out of each to make a buck.

Secondly they are in keen competition with AAI to deploy lots of new 737's in markets where they will make money. They may be successful in this arena with the MDW deal, as only time will tell if the ATA deal cost them too much. AAI will now have to go into a market like DFW that will be less profitable due to the overwhelming presence of AA.

Competition is good, even for us, it keeps us sharp. I can only assume that the ATA deal will be good for us and ATA too. Chicago has a lot of growth potential and the gates sure help, as does the MX hangar. As for the LCC competition, I always worry about them, but Air Tran, Frontier and AWA don't have a balance sheet 1/10 as solid as ours, so even though many of their costs are low, we still seem to pull off a profit year after year, and quarter after quarter.

I think SWA will become frustrated in the next few years as a few more competitors will choose the BK route to waive debt and reduce costs. It stinks because it rewards inefficiency, and punishes those who have done it right for so many years.

I agree. For a time you can appear to be more competitive than you really are in BK. I still think that for the most part, once you go the BK route, you will be fighting an uphill battle to become a major threat to us. Employee morale after wage and job cuts takes decades to come back sometimes. That hurts productivity.

What is the pilot payroll now, $1B+? Give back of 20% is $200M per year from 06-10. FA's come up in 2008. They sure followed your lead in their last contract. Can more efficiencys be wrung out of the system to allow you to maintain current pay rates until 2010? I have my doubts. Gary Kelly says something has to give with lower RASM and higher fuel costs with one of the majors. He clearly has staked his claim that SWA success from 2006-10 will be based on someone elses failure.

Again, I don't see a company planning on hiring a few thousand more pilots over the next 7 years or so in order to fill another 300 airplanes is going to be asking for givebacks. I don't have my head in the sand either, I am a realist. I think for things to go hog wild we do need the industry to settle down via lower fuel costs, greater pricing power (at least to cover the higher fuel prices), and less capacity.

Is it all doom and gloom? Hell no! Get a huge moving pkg from DFW, and this would certainly keep you guys in the green from 2006-10. Also, it's still possible someone could go belly up.

I think I just read that we turned down the DFW deal, as we would like to concentrate on eliminating the Wright Amendment. I wouldn't pin our future earnings on a DFW package regardless. It isn't the Holy Grail. Do you own some of those gates, or do you simply live in the DFW metroplex? Now if I can only find Spalding.

 

[N8Dogg]

Maybe Southwest should declare ch11. That seems to be the new long term strategy these days. That way they can break all contracts and agreements with their employees and the industry can achieve another all time low. WHAT A JOKE!! If the government wants there to be anything left of this industry then the bankruptcy (sp) laws need to be reformed IMHO.

 

[Delville]

I also doubt that you will repeat the same specific mistakes that have doomed the legacy carriers. However, I think SWA could fall prey to some of the same types of cultural and emotional problems that infested the former big boys during their period of dominance.

The changes to SWA's culture and attitude, as you transition from perennial underdog to 800 pound gorilla, could be very threatening. As SWA takes a more aggressive stance within the industry, the subtle emotional effects that will have on employees and customers could be damaging. It's easy to rally the troops to put up with low pay and more work when their survival is threatened. However, the opposite is true now at SWA, and I think the psychological motivation to keep costs low and operate efficiently will be reduced with SWA's new industry position. Additionally, humility has always been a cornerstone of SWA's culture. Customers have always picked up on that and liked it. Customers have also always known up to this point, through SWA's marketing and by the genuine case of reality, that SWA was in an underdog sort of situation. They were willing to cut SWA just a little bit of slack. That's the way people are. Now, however, times have certainly changed. It is hard to be humble when you're the dominant industry leader. Both employees and customers will eventually realize this. It'll be extremely difficult to keep your culture the same. Customers will also have a different expectation from a SWA that is king of the hill.

SWA will be able to ride on it's coattails and the goodwill it has engendered for a while, but eventually that could change unless the growth is very, very carefully managed. Employees from the old guard will still be humble and try to maintain the old SWA spirit. However, there is a real danger (I think) that they will be overwhelmed as the newer, cockier employees work their way into the SWA organization. Believe me, there are pilots being hired at SWA today who five years disparaged and ridiculed anyone who would pay for a type rating to go work at a low ball operation.

Another point to consider: SWA has incredible fuel hedges (in the mid $20's) right now that last for the next couple of years. This is VERY good for SWA and will virtually guarantee SWA's position for the next several years. However, those same fuel hedges could turn out to be a bad thing in the long run. The airlines without good fuel hedges right now are being forced by the competitive situation to become ultra-efficient. If they don't become ultra-efficient, they will die (USAir, Independence, ATA). Therefore, the airlines that do manage to make it through to a point where all of the airlines are on somewhat equal footing in terms of fuel prices will be profit-making machines. SWA may feel some pressure right now to keep costs rock-bottom low but at the end of the day that pressure cannot rival the do-or-die pressure on other airlines. I've long held the belief that people do only what they know and believe they really have to do to get by. That's the argument I'm making here. Airlines like AirTran, JetBlue, and America West know and believe they have to be efficient. SWA knows in it's heart it doesn't have to be as efficient right now. If the playing field is ever leveled, SWA could be at a disadvantage.

Starting already?