Topic Author
Posts: 1291
Joined: Mon Mar 19, 2001 4:52 pm

Southwest On Its Way To Fast Recovery

Fri Oct 05, 2001 3:27 pm

Courtesy of the Fort Worth Star-Telegram:

Southwest appears on way to fast recovery

Star-Telegram Staff Writer

Ever the industry maverick, Southwest Airlines appears to be recovering from the travel industry's plunge faster than its competitors.

The Dallas-based discount carrier filled 53 percent of its seats last month - and 52 percent of its seats in the final week - as consumer demand for air travel began to rebound after the Sept. 11 terrorist attacks triggered a big drop in demand.

On the surface, those figures appear to be in line with the reports from other big airlines this week.

But unlike Southwest, which has been flying its full schedule since shortly after restarting operations after the attacks, the nation's other major carriers have cut their operations by about 20 percent on average. Thus, 50 percent loads at those carriers overstates their ability to generate enough revenue to cover costs.

Conversely, Southwest's passenger loads, although still well short of normal, mean that the airline is financially outperforming its more conventional rivals by a significant margin.

"I don't want to kid anyone," said Gary Kelly, Southwest's chief financial officer. "We are not back to normal. We have not completely stabilized the situation to our satisfaction. Our cash flow is still running negative. Our cash is still going out the door at this point."

But Southwest's reputation as a low-fare carrier is helping the airline win back customers faster than competitors, he said. The airline was the first in the industry last week to launch a fare sale after the Sept. 11 attacks. Other airlines matched the Southwest sale and have offered their own deals, and Kelly predicted that the industry could remain in that mode "for some time."

"Could that cloud our low-fare brand somewhat?" he said. "Yes, but that's OK. We'll still do OK. That's our market."

Kelly said Southwest will proceed with its plans to begin serving Norfolk, Va., on Sunday.

The airline's executives also continue to maintain that they have no plans to lay off employees. Kelly said Southwest is continuing to recruit, hire and train pilots, flight attendants and certain other employees. Meanwhile, the rest of the industry is scrambling to shed more than 100,000 workers in emergency cost-cutting moves.

Southwest had already deferred delivery of 11 Boeing 737-800s that were to have joined its fleet by the end of December.

Kelly said that will at least enable the carrier to catch up on its hiring and reduce the high overtime it has been paying many of its flight crews and airport operations personnel.

During separate conference calls Wednesday with investment analysts and reporters, Kelly repeatedly sought to balance Southwest's strong long-term position relative to its competitors, against the company's more immediate need to cut costs, attract more passengers and return to profitability.

He said Southwest has decided to cut its travel agency commission rate to 5 percent from 8 percent. Other carriers cut their commission rates to 5 percent several years ago. The change should save Southwest $40 million a year, Kelly said.

But although Southwest has suspended its growth in the short term, Kelly said it would be a mistake for people to no longer consider Southwest a growth-oriented company.

"We won't get the 10 percent to 11 percent growth rate this year that we've had in recent years," he said. "But we intend to resume our growth once we get this situation fully stabilized and as the market recovers."

And that may not be too far off, based on the recovery statistics Kelly shared Wednesday with analysts and reporters.

Southwest, he said, filled an average of 66.8 percent of its seats in the Sept. 1-10 period. Then, after being shut down for virtually all of Sept. 11, all of Sept. 12 and 13, and most of Sept. 14, the carrier quickly ramped up its operations and was back up to operating 100 percent of its schedule by Sept. 18.

During that first week, ended Sept. 23, it hardly seemed worth the trouble. The airline filled just 38.5 percent of its seats that week.

But Southwest filled 52 percent of its seats during the week ended Sept. 30.

Further, Kelly said the company's bookings, or advance sales of tickets for travel at later dates, have improved dramatically in the past few days, indicating that Southwest's customers are beginning to return in encouraging numbers.

For the week ended Sept. 23, the carrier's bookings were off more than 60 percent compared with the third week of September a year ago. But bookings improved so much over the next seven days that bookings for the week ended Sept. 30 were off only between 10 percent and 15 percent from the fourth week of September 2000.

"And in the past couple of days," Kelly said, "our bookings have actually run ahead of last year's bookings."

Indeed, Southwest's financial strength already is sparking industry speculation that the airline could swoop in and buy choice assets that cash-strapped rivals may be forced to sell.

Kelly sought to downplay that possibility.

"I think we will have a lot of opportunities to grow in that way if we want to," Kelly said. "But my point is that we're not ready to make any decisions about accelerating the growth of the company in that way in this environment."

Patrick Bateman is my hero.
Topic Author
Posts: 1291
Joined: Mon Mar 19, 2001 4:52 pm

RE: Southwest On Its Way To Fast Recovery

Fri Oct 05, 2001 3:32 pm

Incidentally, the only factual error I can find in the article pertains to the Boeing deliveries. We don't operate 737-800's; it would require an extra flight attendant...
Patrick Bateman is my hero.
Posts: 1456
Joined: Wed Aug 29, 2001 6:10 am

RE: Southwest On Its Way To Fast Recovery

Fri Oct 05, 2001 9:42 pm

Love those 11 737 "800's" that we were getting. Strange, WN never mentioned the new acquisitions to us!? Hee hee  Smile
I believe I can fly.....

RE: Southwest On Its Way To Fast Recovery

Sat Oct 06, 2001 1:04 am

You guys are getting -700s, right? That's the media for you.  Big grin

Has hiring requirements at SWA changed since the attacks? OR are they the same. If Aloha Airlines goes down, Southwest is definitely second-choice for me.

(Hawaiian doesn't have a step-ladder system to seniority, for example at Aloha you can have your commercial and work at Island Air, build up time and get your ATP there, then move up into Aloha. Only then are you qualified to fly for Hawaiian.)

How' it like working at SWA, and experince you'd like to share?

Aloha 737-200!!  Wink/being sarcastic
Posts: 8176
Joined: Mon May 24, 1999 1:12 am

RE: Southwest On Its Way To Fast Recovery

Sat Oct 06, 2001 1:24 am

Well done Southwest. Good work.
fly Saha Air 707s daily from Tehran's downtown Mehrabad to Mashhad, Kish Island and Ahwaz
Posts: 344
Joined: Thu Dec 09, 1999 1:36 pm

RE: Southwest On Its Way To Fast Recovery

Sat Oct 06, 2001 5:24 am

I have flown Southwest 3x since 9/11 and actually feel more "comfortable" with them. They are not crying and whining like all the others who are preaching so much gloom and doom for the industry.

Who on earth would want to fly on a Carrier that claims over and over to be on the verge of Bankruptcy? Might end up stranded somewhere like all the Swiss Air pax this week.

Besides, thanks to our generous government I already helped all the majors whether I wanted to or not.
Topic Author
Posts: 1291
Joined: Mon Mar 19, 2001 4:52 pm

RE: Southwest On Its Way To Fast Recovery

Sat Oct 06, 2001 6:27 am


The only department I can speak for is Aircraft Maintenance. We have had several new mechanics come to work recently and that is primarily due to two factors:

1. We have too much work to do on our aircraft as it is. We outsource quite a bit of our "heavier" checks to outside contractors, which in some cases is more expensive than if we did it ourselves. We are still building a new hangar (it was already in the budget before the events on 9/11) in DAL to open up two more Heavy MX lines.

2. Management had already promised these new guys a job before the attacks, so they want to honor that commitment.

As for your question about working for Southwest...I couldn't be happier. I've never worked with a more close-knit group of people. The attitude there is unlike any other company I've worked for. I am blessed to be working for SWA, especially in light of the recent events in NYC and DC.
Patrick Bateman is my hero.
Posts: 2802
Joined: Sat Jul 01, 2000 1:02 pm

RE: Southwest On Its Way To Fast Recovery

Sat Oct 06, 2001 6:42 am

Here's another good article which was posted on the LUV board over at Yahoo today. (Note: LUV is Southwest's stock symbol)

OCTOBER 05, 12:17 EDT
Southwest Airlines Avoids Layoffs
AP Business Writer
AP/Bill Janscha

DALLAS (AP) — In the hours after terrorists seized four jetliners, key officials of Southwest Airlines holed up in the company boardroom and tracked about 260 Southwest jets still in the air.

Federal officials had ordered all planes grounded. When the last Southwest jet landed safely at Dallas Love Field, the 20 or so employees, including chairman Herb Kelleher and chief executive James Parker, broke into cheers.

Then they turned to the realization that air travel wouldn't be the same after Sept. 11, that passengers would be skittish about getting back on a plane.

``We were worried about, what cash do we have? Where is it? Can we get it?´´ chief financial officer Gary Kelly says. ``We had $1 billion in cash on Sept. 11. I was worried it would go to zero.´´

By the next morning, Southwest had tapped a $475 million line of credit with banks and had called Boeing Co. to postpone taking 11 more 737s, worth about $30 million apiece — including one that had been scheduled for delivery Sept. 11.

Analysts say this slavish devotion to cash and financial fundamentals helps explain why Southwest avoided layoffs and maintained investor confidence during a crisis while its rivals were battered.

``By far they had the strongest balance sheet in the industry,´´ said Ray Neidl, an analyst with ABN Amro. ``They might have been the only carrier that could have survived without government assistance.´´

In an industry where heavy borrowing to buy expensive aircraft is common, Southwest had a net debt-to-capital ratio of 33 percent compared to 59 percent at American Airlines' parent company, 66 percent at United's parent and 88 percent at Continental, according to Salomon Smith Barney.

In the first few days of trading after the attacks, investors hammered airline stocks, some of which lost two-thirds of their value and only regained ground after it became clear that Congress would approve a $15 billion bailout.

Through Thursday, shares in Houston-based Continental had fallen 55 percent since Sept. 11, and stock in Fort Worth-based American, United, Delta and Northwest had lost 25 to 40 percent.

Dallas-based Southwest, with the largest stock-market value in the industry, saw its shares fall less than 8 percent.

With the credit it drew upon, plus $144 million in federal aid, Southwest now has $1.5 billion in cash to cushion $120 million in losses since Sept. 11, Kelly said.

Kelly said the burn rate has slowed to less than $3 million a day and ridership climbed to 53 percent last week, compared to 66 percent a year ago. The break-even point, he said, is between 55 percent and 60 percent.

Southwest had clung to its daily schedule of 2,800 flights, despite 20 percent cuts at the other major carriers.

The other carriers have also announced 100,000 layoffs, but Southwest has avoided job cuts and made a $180 million contribution to its employee retirement plan on schedule on Sept. 14.

``We´re very far away from considering layoffs,´´ Kelly said, while adding that Southwest will ``keep all options open. We´re not out of the woods yet, and we´re not sure we´re going to know when we are out of the woods.´´

The president of the union representing Southwest's 6,700 fight attendants said the absence of layoffs — a promise made early on by Parker and other top executives — would pay off in better labor relations.

"They made it clear that their first priority was to protect the jobs of people that were already here,´´ said Thom McDaniel, president of Local 556 of the Transport Workers Union. ``They immediately took a cautious approach, cutting anything nonessential that they could.´´

Southwest says it will actually hire more flight attendants this fall. The airline had 400 unfilled positions before the attacks, preferring to pay overtime rather than hire more employees who would be eligible for benefits.

The airline has made a profit every year since 1973, even during the early 1990s, when the industry lost about $6 billion in two years.

In the first half of this year, only Continental and Southwest earned money, and analysts now expect Continental to fall into the red for the full year. But they still look for Southwest to earn 53 cents per share, or about $400 million, according to a survey by Thomson Financial/First Call.

Some analysts have questioned whether tougher security rules at airports will delay Southwest's quick turnaround times and add to costs.

Southwest operates mostly short-haul flights to smaller secondary airports and eschews the hub-and-spoke system of connecting flights used by other carriers. Some analysts think Southwest is more vulnerable if travelers decide driving is safer than flying.

``The airlines that are going to hold up the best in our opinion are those with big hubs located in large cities,´´ said Brian Harris, an analyst with Salomon Smith Barney, who believes Southwest will lose 8 cents per share in the fourth quarter. ``It´s much easier to recapture traffic in those hubs.´´

Southwest has put some of its expansion plans on hold. It says it will begin service in Norfolk, Va., as planned this fall but only by taking planes off other routes. It continues to cut costs, including a reduction in travel agent commissions that it figures will save $40 million. Kelly said Southwest will make any changes necessary to survive in the new, post-Sept. 11 airline world.

``Were not static,´´ he said. ``We can innovate.´´

An interesting note, from a shareholder's perspective - On Monday, September 10th, Southest closed at $17.12 per share. Yesterday, during the day the stock had gotten up as high as $16.55 per share (within $0.57 of pre WTC levels, although it dropped back down to close at $15.80 per share. Today, it further dropped to close at $15.48 per share, but that's still only $1.64 less than what it was trading at before the terrorist attacks.


Posts: 369
Joined: Thu Aug 30, 2001 1:47 am

RE: Southwest On Its Way To Fast Recovery

Sat Oct 06, 2001 6:51 am

Go WN!

What a refreshing airline to fly. They will survive become bigger and better in the long run. Why did the other airlines not have contingencies? Why did we have to bail out poor management?

Now lets do away with the Wright amendment in DFW, amen.

"You are now free to move about the country"

Popular Searches On Airliners.net

Top Photos of Last:   24 Hours  •  48 Hours  •  7 Days  •  30 Days  •  180 Days  •  365 Days  •  All Time

Military Aircraft Every type from fighters to helicopters from air forces around the globe

Classic Airliners Props and jets from the good old days

Flight Decks Views from inside the cockpit

Aircraft Cabins Passenger cabin shots showing seat arrangements as well as cargo aircraft interior

Cargo Aircraft Pictures of great freighter aircraft

Government Aircraft Aircraft flying government officials

Helicopters Our large helicopter section. Both military and civil versions

Blimps / Airships Everything from the Goodyear blimp to the Zeppelin

Night Photos Beautiful shots taken while the sun is below the horizon

Accidents Accident, incident and crash related photos

Air to Air Photos taken by airborne photographers of airborne aircraft

Special Paint Schemes Aircraft painted in beautiful and original liveries

Airport Overviews Airport overviews from the air or ground

Tails and Winglets Tail and Winglet closeups with beautiful airline logos