"Utilization" vs. "Yield"

Raskal

big member, little pay
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So, came across an interesting article in Pro Pilot (Yeah, I hate that rag too but they won't stop sending it to me and I need something to read when on the throne) anyway, when speaking about fleet utilization regarding corporate jets the author used Southwest as an example. Without quoting directly he basically pointed out that while other airlines were on a quest for higher "yield" Southwest chose to pursue "utilization" by keeping their fleet in the air as much as possible; adhering to the philosophy that no airframe can make money sitting on the ground regardless of loads.

Guess my question is, is there a basic business difference in SWA and the like vs. the legacies when it comes to utilizing the fleet? Has either been shown to be more effective (profitable) than the other (ignoring the fuel hedge and other issues)?
 

Daddy

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Enough
I believe the focus of SWA is in more of a basic financial premise...ROIC or return on invested capital...that is, when you invest money in your business, it gets you a return on your investment. When you buy planes, you invest in assets that you want to see as high a return as possible on. Best way to get a return, is to utilize that asset as much as possible to make as much money for you as can be made. Flying mostly point to point independent routes makes it possible to allocate your assets efficiently where the most money is. Other airlines want ROIC too, but they function under a hub and spoke model which is more like a machine than a network of independent routes. You cant just shut down the whole machine and you cant really shut parts of the machine too easily either so they must focus on what they can control...yield. This is done by price manipulation. When the economy sucks as a whole, the whole machine doesnt churn out as much money and can even lose money quite easily in the right circumstances. Conversely, that machine will churn out some serious bucks when times are good. UAL, DAL, AA...they were all cash cows back in late 90's. Those machines made money SWA could only dream of making during those unusually good times because their machines were up and running at peak performance. They also churned out losses a few years later that were just as stunning. Bottom line, because of the SWA point to point model, the bad times are never that bad and the good times aren't ever quite as good as the legacies. That, my friend, in a boom and bust industry, has been their key to success over time.
 
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crj567

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Sep 20, 2008
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I believe the focus of SWA is in more of a basic financial premise...ROIC or return on invested capital...that is, when you invest money in your business, it gets you a return on your investment. When you buy planes, you invest in assets that you want to see as high a return as possible on. Best way to get a return, is to utilize that asset as much as possible to make as much money for you as can be made. Flying mostly point to point independent routes makes it possible to allocate your assets efficiently where the most money is. Other airlines want ROIC too, but they function under a hub and spoke model which is more like a machine than a network of independent routes. You cant just shut down the whole machine and you cant really shut parts of the machine too easily either so they must focus on what they can control...yield. This is done by price manipulation. When the economy sucks as a whole, the whole machine doesnt churn out as much money and can even lose money quite easily in the right circumstances. Conversely, that machine will churn out some serious bucks when times are good. UAL, DAL, AA...they were all cash cows back in late 90's. Those machines made money SWA could only dream of making during those unusually good times because their machines were up and running at peak performance. They also churned out losses a few years later that were just as stunning. Bottom line, because of the SWA point to point model, the bad times are never that bad and the good times aren't ever quite as good as the legacies. That, my friend, in a boom and bust industry, has been their key to success over time.

The major's losses (excluding SWA) are FAR, FAR more stunning than anything they ever made..... There was that one profitable year for DAL, but since then, they have lost about 40 times more than they made!

-EAT IT, GENERAL!
 
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