The future of Southwest Airlines

[Lear70]

+1 atrca

 

[Lear70]

I asked Gary Kelley why they didn't opt for a new reservation system prior to SOC, at one of those pilot/management dinners. His response was "it wasn't a priority". Cop out answer IMO and one that he has used often with the Wall Street analysts.

What he says and what they truly believe are two, ENTIRELY different animals.

They went through 3 IT directors by last count.

There's your TRUE belief held by corporate.

It's at the TOP of their priority list, but they can't say so when they can't get it done timely. Otherwise it points out a shortcoming, and that's just something SWA DOES NOT DO.

They may say something like "That's something we can do better", but you will never hear the words "We failed at that" or "We don't know why the I.T. department is having such a hard time with that." Whether that mentality has something to do with shareholder confidence building or whether it's something that goes deeper into the corporate culture, I haven't been here long enough to have figured out yet, but I do know they want codeshare NOW, despite what they say, and there's a LOT of heat in the I.T. department to make that happen by the end of 1st quarter next year or heads will likely roll.

The headcount in I.T. at this company really is just ridiculously high. Other companies this size, even when they own their own I.T. programs, don't carry this high of a head count. They use temp outsourced employees when they need to develop something new, and keep their core group of full-timers for daily maintenance. Obviously above my pay grade, but just odd.

They also could have negotiated the FA and pilot side letters for international too by SOC. Again not a priority. Which is fine by me, but we were never told what was the priority? And it was after the dinner that I pretty much stopped caring, because I left that room completely uninspired.

That's the unintended consequence of that approach. It shows a lack of leadership to those looking for specific goals with specific timelines. That said, we as pilots are such micromanagers, wanting and needing nearly-perfect information to do our jobs properly (and tending to apply that to life in general); we are likely the only employee group that cares as much about specific goals and timelines. Most of the other employees, as long as the checks cash and the quarterly and yearly 10K's are in the black, are happy to take most of what is said on faith.

 

[IAHERJ]

It has been about four years I guess but I sat next to Gordon Bethune on a DH to HNL to begin an 8 day Pacific trip. We chatted for several hours about life etc. and finally the state of the airlines came up. SWA had posted their first loss I believe that week(might have even been that day) and I asked him what he thought about that. He said this:

"You fly the 757 right? Imagine you and I are in the cockpit today and we are fairly light. It is my leg. I rotate then level off at 1,000 feet. I accelerate to the red line then pull the nose straight up. We climb and climb and the airspeed starts to bleed off. Just about the time the stick shaker activates, I let go, turn to you and say YOU GOT IT!" " That's what Herb did to poor Colleen and company".

He went on to say that SWA is a great company but they would have to work harder to turn a profit than they have historically had to do in the past as their size is so much larger and rapid growth is not going to cut it like in the past. Remember, this was around 4 years ago. Delta had just merged with NWA and rumors were floating around about UAL/CAL but no announcement had been made yet.

FWIW

 

[humveedriver]

Lear, I always appreciate your insight. It not my pilot aptitude that has me looking at goals and timelines. It's my years as an Army Officer that does. Not digging the leadership style at SWA, my fault for having a preconceived idea about what to expect. I understand the vagueness behind some of their answers, especially with industry insiders. But it doesn't wash with employees. They might all be brilliant people at SWA HQ, but the impression I have right now is that they are used car salesmen. Smiling, slapping your back and telling you that little ding in the bumper adds character. I'm cool with being along for the ride, but I'm still going to call it like I see it.

 

[777forever]

Want make some money? Short SWA stock and go long on Spirit

I've been saying it for years, SWA's current compensation packages for all labor groups was financed by the fuel hedge program. Now that that advantage is gone...........

 

[fam62c]

The unintended consequence, however, of adding bag fees is losing marketshare.

True, there is always a balance between price and market share. The answer should be whatever combination yields the best profitability. In too many cases this industry has chased market share at the expense of profitability and it's generally resulted in ruinous competition, overcapacity and eventually the bankrupting of almost the whole industry. SW was smart and kept their eye on profitable growth. I hope they don't take their eye off the ball now.

I think it was fine for SW to not charge bag fees initially and see where the concept went in the rest of the industry, it was a smart move at first to keep their options open. What was less smart was immediately rolling out a major advertising campaign that differentiated the brand based on no bag fees. I honestly believe that SW management thought if they didn't go along with bag fees the other major airlines would have to drop the idea. It worked for them time and time again in the past with ticket price increases and I think that's how they viewed bag fees. They figured when the other airline threw in the towel they would look like heroes to the consumer, this strategy appears to have failed.

Now the rest of the industry has a major additional source of revenue that SW does not have access to without reversing part of the brand identity they created. SW management can say they did the right thing until they are blue in the face but I'll bet at some point they will reverse course and implement some sort of bag fee. SW will just try to market (disguise) their bag fee as something that is somehow "different" from other airline bag fees either by being a lower fee or being avoidable by a higher percentage of SW customers but it's going to happen. When you do the math it's a lot of money to leave on the table, you either have to do it or build the number into your base fare....you can't just keep eating it without causing damage to profit margins.

Whatever SW does going forward it's going to have to based on the fact that they are no longer the lowest cost/lowest fare airline. That's just the reality of being a large, mature airline with senior labor and very little growth to spread out costs anymore. Spirit is the new SW, SW will have to reinvent themselves to some extent and stress value over cost. You can't be an 800 pound gorilla and a scrappy little underdog at the same time. It might take some time but SW will figure it out, they still have some big advantages that can be leveraged. At this point if the current management team has a "vision" of the future I'm not sure what it is.....there seems to be some confusion the last few years.

 

[reepicheep]

I think for Southwest the low-hanging fruit is long-gone and there are no more easy targets out there like usair was. For around 15 years from the late 80's to early 2000's Southwest could target a region dominated by usair who's bloated cost-structure meant they couldn't afford to stay and fight so they ran. California, BWI, Florida, plus little enclaves like IND and MCI. Those days are over.

 

[Full of LUV]

As for Gary Kelly, I'm still giving him the benefit of the doubt. Let's face it, this is the single toughest time in airline history. As great as Herb was/is, he never had to run the company in this sort of environment.

As for "single toughest time in airline history", you mean SW Airline history right? Otherwise it's a bit myopic....

You can only be the underdog, low cost, under cutting, market stealing new entrant airline until your not.... but at least you still have Clark Howard and the Motley Fool rooting for ya

welcome to the "legacies" SWA likes to complain about.

LUV

 

[SWA Bubba]

As for "single toughest time in airline history", you mean SW Airline history right? Otherwise it's a bit myopic....

You can only be the underdog, low cost, under cutting, market stealing new entrant airline until your not.... but at least you still have Clark Howard and the Motley Fool rooting for ya

welcome to the "legacies" SWA likes to complain about.

LUV

You know what? I've been reading your posts for quite a while, and do you know what I've discovered? I didn't think you're full of luv at all...

Bubba

 

[jonjuan]

You know what? I've been reading your posts for quite a while, and do you know what I've discovered? I didn't think you're full of luv at all...

Bubba

Lol-my Mother-in-Law when she's drunk and is losing an argument yells, "You know what?" Keep it up, Bubba. :bawling:
Actually, she also says it multiple times too. Are you my mother in law?uke:

 

[Donald]

As for "single toughest time in airline history", you mean SW Airline history right? Otherwise it's a bit myopic....

You can only be the underdog, low cost, under cutting, market stealing new entrant airline until your not.... but at least you still have Clark Howard and the Motley Fool rooting for ya

welcome to the "legacies" SWA likes to complain about.

LUV

We still need to go bankrupt a few times and get a few Federal bailouts before we are truly a legacy.

 

[Whataburger]

Just wait until the hedges run out!

 

[Ty Webb]

Rumors of our (pending) demise have been greatly exaggerated.

-with apologies to Mark Twain

 

[igneousy2]

The unintended consequence, however, of adding bag fees is losing marketshare.

That is turning out not to be true in the part of the market that matters.

Bag fees aren't charged to an airlines most important customers (i.e. golds, pax with paid, business-men with just a roll-a-board, etc.) so all those cute SWA commercials and the signs on the planes mean nothing to them who are still the bread and butter of the legacies.

Ironically, charging a bag fee lets the airline waive the fee, which increases the importance of being a gold or whatever at a legacy, making it even less likely that SWA will steal them away.

As far as the people on the rest of the plane go, they are the most price sensitve and if they see a $199 at SWA and a $169 at Alaska, a large number will almost instinctively buy the ticket on Alaska even though if you travel with 2 bags you are effectively paying more on Alaska ($220).

To make matters worse for SWA, the businessman that is only traveling with his carry-on is going to make the Alaska fare a real bargain.

I don't think SWA's next step from here is a bag fee though. I think SWA's next move will be a super-discounted fare, if you agree to not fly with any bags. Kind of a reverse fee.

 

[jonjuan]

That is turning out not to be true in the part of the market that matters.

Bag fees aren't charged to an airlines most important customers (i.e. golds, pax with paid, business-men with just a roll-a-board, etc.) so all those cute SWA commercials and the signs on the planes mean nothing to them who are still the bread and butter of the legacies.

Ironically, charging a bag fee lets the airline waive the fee, which increases the importance of being a gold or whatever at a legacy, making it even less likely that SWA will steal them away.

As far as the people on the rest of the plane go, they are the most price sensitve and if they see a $199 at SWA and a $169 at Alaska, a large number will almost instinctively buy the ticket on Alaska even though if you travel with 2 bags you are effectively paying more on Alaska ($220).

To make matters worse for SWA, the businessman that is only traveling with his carry-on is going to make the Alaska fare a real bargain.

I don't think SWA's next step from here is a bag fee though. I think SWA's next move will be a super-discounted fare, if you agree to not fly with any bags. Kind of a reverse fee.

If what you've said were logical, why spend hundreds of millions advertising the no fees? Truth is, SWA is very interested in keeping this market share from the legacies.