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Southwest's Load Factor  
User currently offlineGEG2RAP From United States of America, joined Sep 2003, 853 posts, RR: 0
Posted (10 years 10 months 2 weeks 5 days 6 hours ago) and read 2895 times:

I was reading the Wall Street Journal today and saw WN's load factor for Jan was 58.6% how do they make money on that small of factor when NW Had a 74% and lost money in jan??? plus where are these empty WN flights everyone I have been there was hardly room for air.
GEG2RAP

24 replies: All unread, jump to last
 
User currently offlineSWAFA30 From , joined Dec 1969, posts, RR:
Reply 1, posted (10 years 10 months 2 weeks 5 days 6 hours ago) and read 2849 times:

Our systemwide load factors have generally been comparitively low. That is the tradeoff of operating so many flights around 2,800 per day at last count. This is especially true on routes such as DAL-HOU, LAX-PHX, or LAX-OAK where there are sometimes flights departing every 30 minutes. We fly around a lot of empty seats in the interest of maintaining frequency. Fortuantely our costs are low, thus our BELF is low. January is usually a slow month but 58.6% is low even for January. If the trend does not reverse itself as we move into the Easter/Spring Break travel season you may be seeing some tinkering with fares to try to get over the hump.

User currently offlineSsides From United States of America, joined Feb 2001, 4059 posts, RR: 21
Reply 2, posted (10 years 10 months 2 weeks 5 days 6 hours ago) and read 2841 times:

WN has consistently had one of the lowest load factors in the industry. Its cost are so much lower than it can break even when flights are less than half full. It keeps its aircraft in the air longer, its workers are more productive, and its cash-cow routes are so profitable it can afford these types of loads.


"Lose" is not spelled with two o's!!!!
User currently offlineGoingboeing From United States of America, joined Dec 1999, 4875 posts, RR: 16
Reply 3, posted (10 years 10 months 2 weeks 5 days 5 hours ago) and read 2827 times:

I was looking at a study I found on the web...sorry I can't remember the link, but it said something like on the DAL-HOU route, 36 passengers is a break even for them.

User currently offlineA330Jamaica From Canada, joined Dec 2003, 59 posts, RR: 0
Reply 4, posted (10 years 10 months 2 weeks 5 days 5 hours ago) and read 2777 times:

Higer energy (fuel) prices in the future are going to kill that airline business model. It is going to be imperative to travel with as high a load factor as possible.

User currently offlineElwood64151 From United States of America, joined Feb 2002, 2477 posts, RR: 6
Reply 5, posted (10 years 10 months 2 weeks 5 days 5 hours ago) and read 2777 times:

Actually, most of the industry indicators don't work for southwest (really, they don't work for anyone, but that's another issue).

The fact is, Southwest correctly utilizes its aircraft in a profitable way that allows their load factor to remain low. It has nothing to do with point-to-point, and everything to do with utilization.

Cheers!



Those who fail to learn history are doomed to repeat it in summer school.
User currently offlineGoingboeing From United States of America, joined Dec 1999, 4875 posts, RR: 16
Reply 6, posted (10 years 10 months 2 weeks 5 days 5 hours ago) and read 2760 times:

Higer energy (fuel) prices in the future are going to kill that airline business model. It is going to be imperative to travel with as high a load factor as possible.

I venture to guess that they've seen their fair share of fuel price increases in the past 30+ years. They have historically had lower load factors than the other airlines. As it was pointed out, it stems from offering hourly to half hourly flights between many cities. They ain't all gonna be full, and you start pulling frequency to fill up the other planes, you effectively end the strongest draw to your airline.


User currently offlineInnocuousFox From United States of America, joined Dec 2003, 2805 posts, RR: 14
Reply 7, posted (10 years 10 months 2 weeks 5 days 5 hours ago) and read 2724 times:

Also, haven't they been adding ASM capacity lately? When you add ASM and new markets like PHL it takes a while for the loads to catch up.


Dave Mark - Intrinsic Algorithm - Reducing the world to mathematical equations!
User currently offline737doctor From United States of America, joined Mar 2001, 1332 posts, RR: 38
Reply 8, posted (10 years 10 months 2 weeks 5 days 4 hours ago) and read 2675 times:

ASM's went up 2.6% last month from January of last year: 6.1 billion vs. 6.0 billion.


Patrick Bateman is my hero.
User currently offlineSWAFA30 From , joined Dec 1969, posts, RR:
Reply 9, posted (10 years 10 months 2 weeks 5 days 4 hours ago) and read 2641 times:

Higer energy (fuel) prices in the future are going to kill that airline business model. It is going to be imperative to travel with as high a load factor as possible.

Fortunately Southwest has a fuel cost hedging program in place that allows the company to purchase fuel when prices low for future use. Below is an excerpt from the press release detailing the 4Q/2003 financial report that briefly mentions the "hedging" program and details some of the savings realized.

Unit cost increases resulted primarily from higher labor, maintenance, airport, and jet fuel costs, net of hedging and fuel efficiency gains. The Company's hedging program resulted in the recognition of $41 million and $29 million in gains during fourth quarter 2003 and 2002, respectively, and annual gains of $171 million and $45 million for 2003 and 2002, respectively.


One of the more important mantras on the financial side of SWA has always been..."Manage in the good times to weather the bad times."
Fuel hegding is not a silver bullet cure all that can in and of itself offset declining load factors but it is evidence of a proactive management team making sure every possible base has been covered.



User currently offlineElwood64151 From United States of America, joined Feb 2002, 2477 posts, RR: 6
Reply 10, posted (10 years 10 months 2 weeks 5 days 1 hour ago) and read 2565 times:

It is going to be imperative to travel with as high a load factor as possible.

If that were true, then US Airways' change over to RJ operations, which have increased load factor, would have pulled the company out of bankruptcy. Now, they're heading right back into trouble.

USAir has changed its operations to increase load factor. The problem is, they're screwing up their utilization. WN has had this figured out for years. And they've made money every year they've been doing it.

Load factor is minor. CASM is irrelevant. Frequency is irrelevant. Utilization and system management are everything.



Those who fail to learn history are doomed to repeat it in summer school.
User currently offlineN863DA From United States of America, joined Sep 2004, 48 posts, RR: 5
Reply 11, posted (10 years 10 months 2 weeks 5 days ago) and read 2535 times:

WN's low-ish load factor does have a benefit;

Other carriers see the low load factor, and do not always want to, "get in on the act."

It almost serves to make the markets they are in less attractive to other carriers.

N 8 6 3 D A


User currently offlineMariner From New Zealand, joined Nov 2001, 25690 posts, RR: 85
Reply 12, posted (10 years 10 months 2 weeks 4 days 23 hours ago) and read 2468 times:
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Elwood:

"CASM is irrelevant."

That's one of the more startling statements I've seen anyone make in a while.  Smile/happy/getting dizzy

Surely, there has to be a measure of cost, somehow, somewhere, just as there has to be a measure of revenue.

Yes? No?

cheers

mariner



aeternum nauta
User currently offlineGEG2RAP From United States of America, joined Sep 2003, 853 posts, RR: 0
Reply 13, posted (10 years 10 months 2 weeks 4 days 22 hours ago) and read 2431 times:

True CASM has some bearing comparing airlines and how operationally effiecient they are WN's are way lower because their aircraft aren't sitting at the gate from 3-5 in the afternoon. use them even if they only have half a load is better than sitting at the gate for 3/4 a load but time will tell and so far is it say use what you own

User currently offlineMariner From New Zealand, joined Nov 2001, 25690 posts, RR: 85
Reply 14, posted (10 years 10 months 2 weeks 4 days 22 hours ago) and read 2401 times:
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Sorry, but I don't get it. If IBM sells 100 million bucks of computers, you need to know what it cost them to develop, make and sell those computers.

In order to know if any company is profitable or not, you have to know what revenue is and what costs are. Hopefully, the first is higher than the second.

WN's CASM may be lower because they have higher aircraft utilization, but they still have a CASM.

That is, it costs them money to do business. CASM - which includes all the expenses the airline incurs - measures that cost.

cheers

mariner



aeternum nauta
User currently offlineAlphascan From United States of America, joined Nov 2003, 937 posts, RR: 13
Reply 15, posted (10 years 10 months 2 weeks 4 days 22 hours ago) and read 2396 times:

Load factor, CASM and yield are all very relevant when put together.


"To he who only has a hammer in his toolbelt, every problem looks like a nail."
User currently offlineGEG2RAP From United States of America, joined Sep 2003, 853 posts, RR: 0
Reply 16, posted (10 years 10 months 2 weeks 4 days 21 hours ago) and read 2325 times:

but I agree how much they are selling tickets for is also very relevant

User currently offlineGoingboeing From United States of America, joined Dec 1999, 4875 posts, RR: 16
Reply 17, posted (10 years 10 months 2 weeks 4 days 15 hours ago) and read 2265 times:

IBM might have been a bad choice mariner....I used to sell IBM midrange computers. That market was pretty competitive - and so price cuts were the norm. However, when IBM "tallied" their sales for the year, they took the number of computers sold times the LIST PRICE to arrive at the numbers. Even if I GAVE away a computer, it went into IBM's marketing books as a FULL PRICE sale. I would imagine that if airlines could take the number of seats the sold times full fare, they wouldn't be in such dire straits.

User currently offlineMariner From New Zealand, joined Nov 2001, 25690 posts, RR: 85
Reply 18, posted (10 years 10 months 2 weeks 4 days 11 hours ago) and read 2201 times:
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Goingboeing:

IBM was just a name pulled out of thin air. I could have easily said Cisco or Dupont. Or even XXX.  Smile/happy/getting dizzy

The point being that a company - any company - has to know what it's revenue is. In the case of airlines, this would be RASM.

And it has to know what it's costs are - for airlines it is CASM.

I don't know how else you work out if you're making money or not.

cheers

mariner



aeternum nauta
User currently offlineElwood64151 From United States of America, joined Feb 2002, 2477 posts, RR: 6
Reply 19, posted (10 years 10 months 2 weeks 4 days 2 hours ago) and read 2132 times:

Mariner:

Yes. Absolutely, there has to be. But CASM is wrong.

GEG2RAP:

You got it! YAY!!!

At least, part of it, anyway. Figure out why that's so important!

Sorry, but I don't get it. If IBM sells 100 million bucks of computers, you need to know what it cost them to develop, make and sell those computers.

Yes, but according to how IBM may or may not count its costs, it could be wasting valuable time, money, and expense trying to reach more "efficient" goals.

WN's CASM may be lower because they have higher aircraft utilization, but they still have a CASM.

Actually, their higher aircraft utilization should be increasing their CASM... Perhaps it isn't, but that'd be a fluke.

That is, it costs them money to do business. CASM - which includes all the expenses the airline incurs - measures that cost.

But it doesn't tell the whole story. For any indicator to work, it has to tell the whole story. CASM is good for the overall performance, but it doesn't tell you squat about whether your operations are properly utilizing their equipment.

GoingBoeing:

That's absolutely insane, but it has a lot to do with what I'm talking about. Bad measurements (of which counting a discounted computer at full price would be a bad measurement) are what keep airlines from figuring out the real issue.

The point being that a company - any company - has to know what it's revenue is. In the case of airlines, this would be RASM.

And it has to know what it's costs are - for airlines it is CASM.

I don't know how else you work out if you're making money or not.


This is the same conventional thinking that keeps everyone from seeing the true issue. It works for manufacturing or services. I'm still encouraging everyone to think about it. Several people here have got the right idea. I hope every one of them figures out the rest.



By the way, a few days ago, I had something of an epiphany. That's why I've suddenly gone on this "CASM isn't important" schtick.

Okay, so maybe you can use it, but it won't give you everything you need.

Cheers!



Those who fail to learn history are doomed to repeat it in summer school.
User currently offlineMariner From New Zealand, joined Nov 2001, 25690 posts, RR: 85
Reply 20, posted (10 years 10 months 2 weeks 4 days 1 hour ago) and read 2103 times:
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Elwood:

An epiphany? They can be misleading.  Smile/happy/getting dizzy

If an airline is not properly utilizing it's equipment then there will be an effect (presumably negative) on the CASM.

If an airline is using it's equipment properly, then there will be an effect (presumably positive) on the CASM.

Example: Frontier DEN/CUN. F9 was not allowed to fly overwater, but had to hug the land, adding at least 45 minutes to the trip.

So F9 has equipped themselves for overwater ops (a cost) and now flies directly DEN/CUN, thus using much less fuel (a saving).

And a better utilization of aircraft (a saving).

The cost of the overwater equipment/training should be reflected in the CASM. The saving in fuel and aircraft utilization should be reflected in the CASM.

Short of doing a line by line examination of the books, how else are we to know what those costs and those savings are?

I agree, CASM cannot tell the whole story. The cost (which was considerable) of Frontier paying back it's ATSB loan was not reflected in the CASM - it was listed as an "extraordinary item."

But this is why we have "extraordinary items" - because they are extraordinary.

cheers

mariner



aeternum nauta
User currently offlineLearjet23 From , joined Dec 1969, posts, RR:
Reply 21, posted (10 years 10 months 2 weeks 4 days 1 hour ago) and read 2086 times:

Top 7 List For SWA Making $ On Flights....

1. Install seat magnets to suck out the coins.

2. Charge the wetbacks a $10 "Cover" charge.

3. Pass the peanut basket around to collect an offering for some bogus charity during heavy turbulence.

4. Auction off zone upgrades at boarding time.

5. Tell all the incredible lard assed people that fly SWA about the new fuel surcharges for the "big as a Buick" people to pay.

6. Roll the drunks!

7. Sell on board T-shirts showing the SWA logo, and saying its the official airline of the "homeless, hopeless, just made parole, kicked off the greyhound bus" Super groovy jet setters!


User currently offlineMoodyBlues From United States of America, joined Dec 2003, 142 posts, RR: 4
Reply 22, posted (10 years 10 months 2 weeks 3 days 23 hours ago) and read 2058 times:

Real mature Learjet23, real mature.

Did I mention also... not very funny?

Some people have been doing a pretty good job of describing how WN manages to stay profitable even with "low" load factors. And I am no expert, just an observer, from flying them and becoming a fan of the airline and it's operations.

Now I have never flown DAL - HOU or many of the short routes that WN is so famous for, as I fly from Florida to California 90% of the time I get on a plane (and it's always a Southwest). But I know that on those cross country long hauls, they are always full. Normally packed out, but maybe one or two seats empty.

Note to newcomers... hover your mouse over the city codes and it sould pop up and tell you what they are.... works for airline codes too  Smile

Examples:
MCO-MSY-SAN
PBI-BNA-LAX
SAN-AUS-MCO
LAX-AUS-TPA-PBI
PBI-BNA-SAN (Rapid Rewards tickets are my special friend)

On the shorter legs, TPA-PBI for example the plane may have a very low load factor, I remember there being about 8 of us one flight. But the long hauls are _always_ full.

Now the way I understand it, the CASM is much lower on a long haul than a short haul, so does it stand to reason that you make more money on a full long haul than you loose on a low load short haul?

Also, when you fly across country on Southwest, you nearly always hopscotch... my name for landing at another city on the way w/o changing planes. Every time I have done this, in every city I have done it, MSY PHX AUS and some others that escape me, the plane almost always nearly empties out, and the through passenger count is pretty low. That means to me that the flights are designed to get most people where they want to go as efficiently as possible, and if you get a new passenger in the seat, you get new revenue.

Also the fact that almost every time I book a flight the connecting cities available have changed tells me that the people planning the routes keep a pretty close eye on what's going on and adjust to keep point to point passengers and through or connecting passengers moving as efficiently as possible.

Not to mention, as it has been, the 30 minute turn, keeping the planes in the air.... the hedging of fuel costs to keep them low and predictable, and efficient management and employees alike.

The word efficient keeps coming up here.

So, for those of you in the business, or more privy to info that I don't have... does this make sense, or am I talking out my butt?

Peace,
Moody Blues

Southwest Airlines "A Symbol of Freedom"



Southwest Airlines "A Symbol of Freedom"
User currently offlineFrontiers4ever From United States of America, joined Dec 2003, 173 posts, RR: 0
Reply 23, posted (10 years 10 months 2 weeks 3 days 23 hours ago) and read 2024 times:

Labor costs is a big portion of the costs all around.

-Frontiers4ever



Until you prove, your right, your wrong
User currently offlineMoPac From United States of America, joined Sep 2003, 215 posts, RR: 0
Reply 24, posted (10 years 10 months 2 weeks 3 days 23 hours ago) and read 2006 times:

Elwood64151-
"CASM is wrong" "I had something of an epiphany. That's why I've suddenly gone on this "CASM isn't important" schtick."


Sorry Elwood, that's old hat... UA Execs had that same epiphany 'few months back when they came up with the Ted model .


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