Want to be a 20 yr fo? 15% roic!?!

[whymeworry?]

>>>Now that they lost that crutch they have to actually compete to run an airline. Imagine that.<<<

No...it had nothing to do with fuel hedging. It's having to compete against the biggest crutch of all -- bankruptcy ...that allowed SWA's competitors to dump debt, totally screw their investors, creditors, and by shredding contracts and promised retirements -- employees.

And someone stupidly mentions that the playing field has been "leveled"? Yeah...bankruptcy and cutting your employees pay, benefits, and retirements in half does a real good job of that!! Nice way to operate and compete!!

Not all airlines filed for Ch 11 protection. Mine didn't. It has been documented in numerous financial articles that SWA used the hedges to gain market share, by keeping the product below real marketplace cost due to fuel hedges. That's one strategy, and it certainly worked, they did indeed gain market share. But when it comes time to sober up to the realties of paying retail for fuel, they've come to realization that they have to price the product accordingly in order to assure profit. It's suddenly not so easy to go after that market share. to add to their woes, if they stop growing, their labor costs soar due to longevity scales.

Hey, don't shoot the messenger. I have absolutely no problem with SWA's success model. Most of it is built around incredible respect and investment in the employee. I completely agree with that approach. But lets call a spade a spade. The next decade is going to be much harder for them than the past. Solely due to their dependance on fuel hedges in past year, which are now mostly gone.

I still believe they will succeed, and even grow. And I want them to succeed because they are one of the only companies in America who has a corporate culture that truly puts employees first. But their going to have to work to compete now (the mgmt that is). In the past they just coasted as a result of successful fuel gambles.

 

[jhill]

can't see how on the one hand they say they need 800's to reduce CASM, increase RASM, and on the other defer the planes you need to hit the target ROIC.

The SWA pyramid scheme is over.

ding ding ding ding ding ding WE HAVE A WINNER

They see the recession coming. They always see it first.

However, this place has peaked and has nowhere to go. Under this leadership anyway.

 

[dalad]

Not all airlines filed for Ch 11 protection. Mine didn't. It has been documented in numerous financial articles that SWA used the hedges to gain market share, by keeping the product below real marketplace cost due to fuel hedges. That's one strategy, and it certainly worked, they did indeed gain market share. But when it comes time to sober up to the realties of paying retail for fuel, they've come to realization that they have to price the product accordingly in order to assure profit. It's suddenly not so easy to go after that market share. to add to their woes, if they stop growing, their labor costs soar due to longevity scales.

Hey, don't shoot the messenger. I have absolutely no problem with SWA's success model. Most of it is built around incredible respect and investment in the employee. I completely agree with that approach. But lets call a spade a spade. The next decade is going to be much harder for them than the past. Solely due to their dependance on fuel hedges in past year, which are now mostly gone.

I still believe they will succeed, and even grow. And I want them to succeed because they are one of the only companies in America who has a corporate culture that truly puts employees first. But their going to have to work to compete now (the mgmt that is). In the past they just coasted as a result of successful fuel gambles.

What airline do you work for that hasn't filed BK?
Please don't tell me it's CAL.

 

[maxblast72]

Alaska Air Group is basically a money printing press thanks to their monopoly route structure and lucrative code share deals, and even they can't come close to 15% ROIC. This goal is ridiculous. I'm settling in for a 20+ year upgrade. Growth is a long, long way off.

15% ROIC might be a little closer than you think. According to the ROIC calculations for the preceding 12 months ending 3/31/12 included in the April 19, 2012 Southwest Q1 Earnings press release, SWA has about $13 billion of invested capital. When you do the math and remove the one time special items, SWA would have needed a $1.75 billion operating profit to acheive their 15% ROIC profitability target for the 12 month period ending 3/31/12.

So how does SWA get there? Increase revenue and/or decrease costs. So far this year, the monthly RASM figures have been coming in around 5% greater than the previous year. That corresponds to roughly $700 million more revenue per year even if capacity levels remain flat. According to the US Energy Information Administration website, the spot price of Jet A has gone from about $3.20-3.30/gallon back in Feb/Mar to the current spot price range of $2.70-2.80 today ($3.20 was the average all in price for Southwest during 2011). On a basis of approximately 1.8 billion gallons per year, that equates to a savings of approximately $900 million per year going forward compared with 2011 energy prices.

So with the current revenue/fuel cost environment (and the normal 2-3% non-fuel CASM creep), SWA could acheive their 15% ROIC profitability target quicker than you think. Remember, Gary Kelly has hundreds of B737 options available to him if he feels growth would be warranted and profitable.

Of course those numbers could change if Israel attacks Iran or the European sovereign debt crises fears cross the Atlantic Ocean and cause a recession here in the US. If that happens, both Southwest and AirTran pilots will be thankful Southwest has the deepest balance sheet in the industry.

 

[redflyer65]

So how does SWA get there? Increase revenue and/or decrease costs.

By pushing back 1 Billion dollars in capital expenditures while flying the 'paid for' 300's a little bit longer. Add in fuel cost that has dropped off a cliff and you get pretty close this year.

 

[SIG600]

By pushing back 1 Billion dollars in capital expenditures while flying the 'paid for' 300's a little bit longer. Add in fuel cost that has dropped off a cliff and you get pretty close this year.

Doesn't SWA own something like 90% of their a/c outright?

 

[redflyer65]

It was close to 85% owned outright before the AAI purchase.

I believe most of theirs are leased except for a couple maybe.

 

[maxblast72]

Right from page 34 of the 2011 annual report to the shareholders, Southwest and AirTran operated a total of 698 aircraft as of 12/31/11. 499 aircraft are owned while 199 aircraft are leased. 111 of Southwest's and 38 of AirTran's aircraft are pledged as collateral as of 12/31/11. That would leave 350 aircraft being owned outright and would account for the $6-7 billion unencumbered aircraft asset value CFO Laura Wright quotes often to Wall Street.

 

[acaTerry]

I'll probably end up being a 15 year FO at NutJets. I'd take that SWA 15 yr FO any day, at least they still get raises after year 10. Now if I just had 200 more PIC turbine....