canyonblue
Everyone loves Southwest
- Joined
- Nov 26, 2001
- Posts
- 2,314
Contentious labor relations, unstable fuel costs, brutal competition and financial woes have long been synonymous with so-called legacy carriers--those hub-and-spoke holdovers that collectively have lost $23 billion since the 2001 terrorist attacks. Less well known is that the same problems threaten to lay low their discount rivals.
Too much seat capacity is one of the problems. Overall, domestic revenue per seat mile dropped 6.5% in August, usually one of the industry's best months. Capacity will grow 7% to 8% this year, mostly from discounters. "What's happening is counterintuitive," says Gary Kelly, chief executive of Southwest Airlines . "The revenue environment is soft, but literally every airline is adding seats."
Discounters are also driving up costs by chasing after lower-paying passengers with new routes and new frills, like entertainment gadgetry and even food. Further over the horizon the discounters' cost edge is sure to narrow even more as their new jets and young employees age.
Southwest Airlines
Now 33 years old and the nation's sixth-largest airline, the discount giant's no-frills flights are starting to look chintzy as upstarts like JetBlue offer equally low fares, plus frills like satellite TV and assigned seats. Nor does Southwest have an edge in cheap, young nonunion labor any longer. Its attendants' contract resulted in 31% average wage hikes, so that within three years they will be the best paid in the sky, earning up to $56,350 annually. Under the new wage scale, Southwest's overall cost to fly a seat one mile jumped from 7.6 cents to 8.1 cents on June 30, reports Airline Monitor, a trade publication. From 20% to 25% annual growth in the mid-1990s, earnings have fallen an average of 2% annually the past five years. The market may be catching on. Southwest's stock is down 30% the past year to a recent $13.80 per share. Even so, its lofty $10.9 billion market value is more than that of the nation's ten other largest airlines combined.
ATA Holdings
The 18-year-old carrier lost $90 million in the first half of this year and has warned it could run out of cash early next year. The Nasdaq announced that ATA's stock has fallen so far it will be delisted in November. The airline is busily renegotiating jet leases and reportedly shopping airport gates. Even in the face of bankruptcy, and with a cost per mile of 7.7 cents, well above trendsetter JetBlue's 5.9 cents, its unions remain prickly. Its attendants recently rejected $9 million in pay givebacks, and the company's labor relations chief has described its machinists' tactics as "reprehensible."
JetBlue Airways
At least it's making money, in part because of low labor costs. But that's because of low employee tenure at the four-year-old airline. Captains with four years' experience earn a base salary of $10,600 per month, about the same as at more established carriers. The difference: Most older airlines' captains have been around a decade or more and earn much more, says Aviation Information Resources President Kit Darby. In other words, as JetBlue ages, its edge will narrow. Meanwhile, JetBlue is getting hit by competition like everyone else.
AirTran Holdings
Chief Executive Joseph Leonard termed the competitive environment "extremely hostile" earlier this year in explaining that the Orlando-based carrier will not be adding new destinations in 2004. The Florida hurricanes helped push AirTran into the red in the most recent quarter, and last month its flight attendants began picketing after two and a half years of fruitless wage negotiations. Although it filled more seats in the second quarter, revenue per available seat mile fell 0.5% because of competition from Delta, JetBlue and Independence Air. In the second quarter the operating margin contracted to 11.3% from 13.1% a year earlier.
Frontier/Independence
In Denver, Frontier Airlines announced last month it will trim its fall schedule 11% to 13% amid what is expected to be its third consecutive quarterly loss. (Full-year consensus EPS: 64-cent loss.) Frontier has been battered in Los Angeles, forcing the company to scuttle some of its service at LAX. Ted, United's low-cost operation, has pestered Frontier at its Denver base. At Dulles Airport near Washington, D.C., Independence Air started flying in July with half-empty planes. It is expected to lose $2.25 per share this year on $681 million in revenue.
Too much seat capacity is one of the problems. Overall, domestic revenue per seat mile dropped 6.5% in August, usually one of the industry's best months. Capacity will grow 7% to 8% this year, mostly from discounters. "What's happening is counterintuitive," says Gary Kelly, chief executive of Southwest Airlines . "The revenue environment is soft, but literally every airline is adding seats."
Discounters are also driving up costs by chasing after lower-paying passengers with new routes and new frills, like entertainment gadgetry and even food. Further over the horizon the discounters' cost edge is sure to narrow even more as their new jets and young employees age.
Southwest Airlines
Now 33 years old and the nation's sixth-largest airline, the discount giant's no-frills flights are starting to look chintzy as upstarts like JetBlue offer equally low fares, plus frills like satellite TV and assigned seats. Nor does Southwest have an edge in cheap, young nonunion labor any longer. Its attendants' contract resulted in 31% average wage hikes, so that within three years they will be the best paid in the sky, earning up to $56,350 annually. Under the new wage scale, Southwest's overall cost to fly a seat one mile jumped from 7.6 cents to 8.1 cents on June 30, reports Airline Monitor, a trade publication. From 20% to 25% annual growth in the mid-1990s, earnings have fallen an average of 2% annually the past five years. The market may be catching on. Southwest's stock is down 30% the past year to a recent $13.80 per share. Even so, its lofty $10.9 billion market value is more than that of the nation's ten other largest airlines combined.
ATA Holdings
The 18-year-old carrier lost $90 million in the first half of this year and has warned it could run out of cash early next year. The Nasdaq announced that ATA's stock has fallen so far it will be delisted in November. The airline is busily renegotiating jet leases and reportedly shopping airport gates. Even in the face of bankruptcy, and with a cost per mile of 7.7 cents, well above trendsetter JetBlue's 5.9 cents, its unions remain prickly. Its attendants recently rejected $9 million in pay givebacks, and the company's labor relations chief has described its machinists' tactics as "reprehensible."
JetBlue Airways
At least it's making money, in part because of low labor costs. But that's because of low employee tenure at the four-year-old airline. Captains with four years' experience earn a base salary of $10,600 per month, about the same as at more established carriers. The difference: Most older airlines' captains have been around a decade or more and earn much more, says Aviation Information Resources President Kit Darby. In other words, as JetBlue ages, its edge will narrow. Meanwhile, JetBlue is getting hit by competition like everyone else.
AirTran Holdings
Chief Executive Joseph Leonard termed the competitive environment "extremely hostile" earlier this year in explaining that the Orlando-based carrier will not be adding new destinations in 2004. The Florida hurricanes helped push AirTran into the red in the most recent quarter, and last month its flight attendants began picketing after two and a half years of fruitless wage negotiations. Although it filled more seats in the second quarter, revenue per available seat mile fell 0.5% because of competition from Delta, JetBlue and Independence Air. In the second quarter the operating margin contracted to 11.3% from 13.1% a year earlier.
Frontier/Independence
In Denver, Frontier Airlines announced last month it will trim its fall schedule 11% to 13% amid what is expected to be its third consecutive quarterly loss. (Full-year consensus EPS: 64-cent loss.) Frontier has been battered in Los Angeles, forcing the company to scuttle some of its service at LAX. Ted, United's low-cost operation, has pestered Frontier at its Denver base. At Dulles Airport near Washington, D.C., Independence Air started flying in July with half-empty planes. It is expected to lose $2.25 per share this year on $681 million in revenue.
