ScottB
Topic Author
Posts: 5413
Joined: Fri Jul 28, 2000 1:25 am

Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 1:46 am

I'm surprised no one has posted a topic on this, but here's the earnings release:

Southwest Airlines Reports Second Quarter Earnings of $159 Million; Diluted Earnings Per Share of $.20

Some of the highlights:


  • Operating income was $277 million on revenue of $1.944 billion, for an operating margin of 14.2%.
  • Operating and net income were both up over 40% year-over-year.
  • Fuel hedging saved the company $196 million in the quarter; operating income would have been around $100 million without hedges when effects on profitsharing are also taken out.
  • CASM was down 3.5% to 7.81 cents in spite of an increase of over 18% in fuel expense per ASM.
  • Southwest carried over 20 million revenue passengers in the quarter.
  • Southwest ended the quarter with nearly $2.3 billion in cash -- over 120 days' operating expenses.
  • Unit revenue is expected to be up in the third quarter (it was down by 0.3% in the second quarter).


I wonder what Padcrasher will say...
 
BishopOfPHL
Posts: 104
Joined: Fri Apr 30, 2004 10:35 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 2:24 am

Kind of puts to bed (finally) the argument that without the hedges WN is toast. $100MM without the hedges surely isn't anything to get bent out of shape about; definitely leaps and bounds above the rest. I'm not even a WN lover (haven't ever flown them actually - never had a need to), but I sure do admire what they do do from a business standpoint.
 
Tom in NO
Posts: 6725
Joined: Thu Nov 11, 1999 10:10 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 2:26 am

Yep, give the flying public what they want, and they'll come flocking to you. A lesson the legacy carriers are either still trying to learn or haven't figured out. WN just keeps on doing what they do best. I'm proud to give them all my domestic flying business.

Thanks for posting the release.

I too will be interested to see what the Southwest-bashers have to say.

Tomat MSY
"The criminal ineptitude makes you furious"-Bruce Springsteen, after seeing firsthand the damage from Hurricane Katrina
 
padcrasher
Posts: 1815
Joined: Tue Aug 10, 2004 6:17 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 2:34 am

I'll say the exact same thing I've been saying for the last 6 Months.

Southwest will/did trail the industry in RASM improvement.

They will/did trail in CASM improvement.

The Hedging gains will subside.

The margin gap between the majors and lcc is quickly becoming a thing of the past.

They had a 3% net margin without the hedging gains. Compared to CO's numbers coming up will be an almost meaningless difference.

Here's Jamie Baker Yesterday telling you exactly what I've been telling this board for the last 6 Months.

U.S. network carriers are "well on the way" to a cost structure
that
> will allow them to weather future market downturns, although fuel
> costs are masking the significant gains they are making when
> compared with low-cost carriers, JP Morgan analyst Jamie Baker
told
> lawmakers yesterday.
>
> If it wasn't for fuel, "all [industry] gauges would be reading
into
> the green" for the first time since early 2001, Baker said during
a
> Senate aviation subcommittee hearing on the financial condition of
> airlines. The last time industry-wide costs excluding fuel were
this
> low was 1997, "and they are expected to head lower still," Baker
> said. Airfares and revenue are continuing to rise "with no
apparent
> offset on demand." Without fuel costs, American and Continental
> would have had just completed their most profitable second-
quarters
> ever, he said.
>
> At the same time, low-cost carriers are feeling more pressure, he
> said. Southwest has admitted that without its fuel hedges, it
> probably would not have been profitable this year. Southwest also
> must face the fact that its labor costs are now higher than the
> industry average, although reducing labor costs would be a very
> difficult proposition, Baker believes. Labor cost cuts will
> eventually be needed if Southwest wants to "remain competitive
with rapidly improving legacy carriers."
>
>> The industry is not suffering because some carriers are operating
> under bankruptcy protection, Government Accountability Office
> Director of Physical Infrastructure JayEtta Hecker told
> lawmakers. "Bankruptcies are endemic to the airline industry,"
> Hecker said, and there is no evidence that airlines in bankruptcy
> contribute to overcapacity or that they "harm competitors by
> reducing fares below what other airlines are charging." -AS
 
lowecur
Posts: 512
Joined: Wed Jan 26, 2005 1:18 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 2:39 am

Actually operating income was -($37M). $159M profit minus $196M investment income.

LF's continue to trend downward while the rest of the industry trends up. This is a precursor that SWA is gradually losing marketshare. As the Jetblue's, AirTrans, Frontiers, and AWA's continue to grow exponentially faster than SWA, the obvious will become more apparent to the less informed.

SWA has been banking on the failure of a major airline to fluff up their bottom line. The only failure in the next 12 months will likely be FLYi. NWA and DL will both file by Oct 17th, and begin to get their respective houses in order. UAL and US will emerge from bankruptcy shortly, and could be quite viable for years to come. AMR and CAL should also remain stable for years to come as they continue to morph. Very few crumbs will fall on the floor.

SWA will be forced to reduce their bloated payroll to compete. This will lead to acrimonious relations with their various union employee groups.
 
blsbls99
Posts: 341
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RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 2:39 am

So, Padcrasher, which of the legacy carriers do you think will post an operating income of $100 mil like Southwest did without the fuel hedging?
319 320 313 722 732 733 735 73G 738 739 742 752 763 772 CRJ D9S ERJ EMB L10 M88 M90 SF3 AT4
 
padcrasher
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Joined: Tue Aug 10, 2004 6:17 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 2:43 am

No Lowecur. It's more like they would have made 58 Mil. You just don't take the 196 million in hedging off the net profit. You need to go back and figure in profit sharing 15% and corporate tax rates of 35%
 
blsbls99
Posts: 341
Joined: Sat Sep 25, 2004 5:07 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 2:48 am

Will any of the majors report operating income of $58 mil then?
319 320 313 722 732 733 735 73G 738 739 742 752 763 772 CRJ D9S ERJ EMB L10 M88 M90 SF3 AT4
 
padcrasher
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Joined: Tue Aug 10, 2004 6:17 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 2:53 am

Quoting Blsbls99 (Reply 7):
Will any of the majors report operating income of $58 mil then?

This isn't a game of darts. It's a business. A 1% margin difference might buy you 1 more Quarter of bragging rights but it does absolutely nothing for you going up against Continental.
 
goingboeing
Posts: 4727
Joined: Sat Dec 04, 1999 1:58 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 3:00 am

Quoting Lowecur (Reply 4):

LF's continue to trend downward while the rest of the industry trends up.

If market share is attained at the cost of profits, give me low market share every time.

Quoting Lowecur (Reply 4):
As the Jetblue's, AirTrans, Frontiers, and AWA's continue to grow exponentially faster than SWA, the obvious will become more apparent to the less informed.

Once again, when market share pays the bills, we might worry. Right now, Southwest got those numbers with a load factor (market share) that would KILL the JetBlues, Airtrans, Frontiers and AWA (who will kill themselves with the US merger). Jetblue has a load factor of 85.9%...obviously winning the market share race somewhere - but their break even load factor was 82.9%...I'd be more worried about their increasing costs pushing that number higher.

Quoting Lowecur (Reply 4):

SWA has been banking on the failure of a major airline to fluff up their bottom line.

No...but they'll welcome the failure of a major or two. Right now, the other legacies have been banking on the failure of a major airline to keep them out of bankruptcy.

Quoting Lowecur (Reply 4):
NWA and DL will both file by Oct 17th, and begin to get their respective houses in order.

So..."getting your houses in order" pretty much means after you've screwed your employees, let's screw the shareholders and creditors? Sorry...the time for bankruptcy reform is NOW...when the entire US aviation industry is leaning on the bankruptcy courts for survival, something ain't right.

Quoting Lowecur (Reply 4):
AMR and CAL should also remain stable for years to come as they continue to morph.

If AMR and CAL can remain stable for years to come without traipsing into bankruptcy court, more power to them. I think Southwest would welcome true competition that didn't have to go thru bankruptcy to compete.

Quoting Lowecur (Reply 4):
SWA will be forced to reduce their bloated payroll to compete. This will lead to acrimonious relations with their various union employee groups.

Golly...it wasn't that long ago that Southwest was "dragging down the industry". Today they've got a "bloated payroll". IMHO, if NWA and Delta file bankruptcy - then Southwest needs to file right after them and REALLY "level the playing field". Pretty soon, only Southwest, Jetblue, Airtran, and American will be the only airlines who are actually paying their bills in full AND competing.
 
lowecur
Posts: 512
Joined: Wed Jan 26, 2005 1:18 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 3:03 am

Quoting Padcrasher (Reply 6):
No Lowecur. It's more like they would have made 58 Mil. You just don't take the 196 million in hedging off the net profit. You need to go back and figure in profit sharing 15% and corporate tax rates of 35%

You can move the numbers around all you want. Everyone pays corp income tax so that's a wash. When I compare carriers, I look at the net income. If it isn't profit sharing, then you have other carriers paying millions into their pensions, which SWA doesn't have to do.

SWA includes $196M investment income in their operating side of the equation. I'm not an accountant, but I would think most companies separate the investment income out from the operating side of the statement.

Right or wrong "accounting wise", this is how I choose to look at how a carrier is doing comparitively.
 
BishopOfPHL
Posts: 104
Joined: Fri Apr 30, 2004 10:35 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 3:04 am

A simple look at recent airline news (e.g., Yahoo! Finance airline news) paints a less rosy picture of what's going on with the major's are going through than does the JP Morgan Analyst. For instance "Delta raising fare cap due to fuel prices" or "United seeking $310MM increase in loans" and various unresolved NW labor issues. Fact remains, any sane investor looking to buy shares of an airline stock likely aren't going to piss away their money in DL, NW, AMR or other non-bankrupt majors' stock. Like 'em or not, WN management has a lot of something the majors' management do not - basic business competence.

That being said, I'm looking forward to seeing the numbers when CO, AA, and others post earnings. AMR Corp and CO report earnings on 7/20, AS & DL on 7/21 and NW on 7/26. With the exception of CO, AS and (maybe) AA, I'd expect a sea of red on those days. But let's hold off the "dart" game until then.
 
BishopOfPHL
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Joined: Fri Apr 30, 2004 10:35 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 3:18 am

Quoting Lowecur (Reply 10):
I'm not an accountant, but I would think most companies separate the investment income out from the operating side of the statement.

Look at their cash flow statement, which I consider a lot more meaningful than a P&L stmt. WN's second quarter cash flow isn't available until they file their Q, but historically, they've had strong positive cash flow from operating activities and conisistent cash outflow in capital expenditures.
 
lowecur
Posts: 512
Joined: Wed Jan 26, 2005 1:18 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 3:18 am

Quoting Goingboeing (Reply 9):
If market share is attained at the cost of profits, give me low market share every time

SWA's BELF was 64.7% this quarter. It would have been closer to 74% without investment income.

Quoting Goingboeing (Reply 9):
Once again, when market share pays the bills, we might worry. Right now, Southwest got those numbers with a load factor (market share) that would KILL the JetBlues, Airtrans, Frontiers and AWA (who will kill themselves with the US merger). Jetblue has a load factor of 85.9%...obviously winning the market share race somewhere - but their break even load factor was 82.9%...I'd be more worried about their increasing costs pushing that number higher.

It would also kill SWA without investment income. Again BELF would be closer to 74%.

Quoting Goingboeing (Reply 9):
So..."getting your houses in order" pretty much means after you've screwed your employees, let's screw the shareholders and creditors? Sorry...the time for bankruptcy reform is NOW...when the entire US aviation industry is leaning on the bankruptcy courts for survival, something ain't right.

We agree. You will see some of that effective on Oct 17th.

Quoting Goingboeing (Reply 9):
If AMR and CAL can remain stable for years to come without traipsing into bankruptcy court, more power to them. I think Southwest would welcome true competition that didn't have to go thru bankruptcy to compete.

They will get all the competition they want in the next 5 years.
 
lowecur
Posts: 512
Joined: Wed Jan 26, 2005 1:18 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 3:25 am

Quoting BishopOfPHL (Reply 12):
Look at their cash flow statement, which I consider a lot more meaningful than a P&L stmt. WN's second quarter cash flow isn't available until they file their Q, but historically, they've had strong positive cash flow from operating activities and conisistent cash outflow in capital expenditures.

The airline business is a cash cow when things are running smoothly quarter to quarter. I try to see things 2 to 3 years ahead based on near term trends. I don't like SWA because of these trends, plus they have a new contract with the pilots to contend with in the next 12 months and the back end of the recent FA contract is overloaded in the next few years.
 
DAYflyer
Posts: 3546
Joined: Wed Sep 08, 2004 9:35 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 3:31 am

Ok padcrasher, let me play "devils advocate" for a second if I may......

Southwest was smart enough to do some major fuel hedging, while the majors were not. It is this type of strategic thinking and foresight about the logistics of the business that have placed them at a significant advantage for the last 4 years over the legacies. Professionals speak of logistics, not tactics.

Don't you think they (Southwest) are smart enough to know that the Legacies would have to reduce costs to become more effective competitors? Given that the legacies are doing exactly that, don't you think that Southwest has something else in mind to offset/combat the strategy of the legacy carriers and other LCC's since they were smart enought to see this coming??

CO (despite excellent management) and the other majors did not foresee the rise in fuel prices and failed to hedge.
One Nation Under God
 
ScottB
Topic Author
Posts: 5413
Joined: Fri Jul 28, 2000 1:25 am

RE: Southwest Reports 2Q Net Profit Of $159 Millio

Fri Jul 15, 2005 3:34 am

Quoting Lowecur (Reply 4):
Actually operating income was -($37M). $159M profit minus $196M investment income.

False. Learn to read a P&L and try again. The $196 million in reduction to fuel & oil expense is an operating number, not a net number. If operating profit goes down, so do taxes and profitsharing. At least Padcrasher gets this.

Quoting Lowecur (Reply 4):
LF's continue to trend downward while the rest of the industry trends up.

Their load factors are down in large part because they have added more capacity in total ASM's than anyone else in the industry. They've added over twice as many seat-miles as jetBlue and increased RPM's by a significant margin as well. jetBlue's percentage growth is higher since they're smaller to begin with. Southwest's market share continues to grow as since they increased RPM's more than any other U.S. carrier during the quarter.

Quoting Lowecur (Reply 4):
As the Jetblue's, AirTrans, Frontiers, and AWA's continue to grow exponentially faster than SWA,

Neither Frontier nor America West grew ASM's at a greater percentage rate than Southwest during the quarter, and AWA's RPM growth was actually lower in percentage terms than Southwest's. And again, adding 10 planes to an airline with 75 planes will usually produce greater percentage growth than adding 35 planes to an airline with 400+.

America West is going to be preoccupied with its merger with US Airways and their fleet count is projected to remain essentially flat while US sheds roughly 60 jets vs. 2004.

Quoting Lowecur (Reply 4):
SWA has been banking on the failure of a major airline to fluff up their bottom line.

Nope. Their growth pattern at present is based on where they see good markets for their service. They have contingency plans, I am certain, in case a major network carrier were to liquidate, but it is clear that this is not necessary for them to succeed. Their bottom line is already quite healthy!

What they will continue to do is put pressure on the inefficient (i.e. high-cost) players in the industry. The "overcapacity" in the industry is a surplus of high-cost capacity chasing yields that don't cover costs.

Quoting Lowecur (Reply 4):
SWA will be forced to reduce their bloated payroll to compete.

At present, Southwest can afford to pay well because their employees are more efficient than virtually all others in the industry. Their headcount is down 0.1% year-over-year in spite of an 11.9% increase in capacity through the first six months of 2005. Probably only jetBlue gets more ASM's per employee, but Southwest blows them out of the water with 12.5% higher revenue per employee.
 
lowecur
Posts: 512
Joined: Wed Jan 26, 2005 1:18 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 3:43 am

Quoting ScottB (Reply 16):
False. Learn to read a P&L and try again. The $196 million in reduction to fuel & oil expense is an operating number, not a net number. If operating profit goes down, so do taxes and profitsharing. At least Padcrasher gets this.

You can quote all the accounting principals you want Scott, but investing in heating oil is not a reduction in fuel and oil expense. They could have very easily invested in porkbellys, it's still futures investing and it does not belong in the operating statement.
 
planespotting
Posts: 3026
Joined: Sat Apr 17, 2004 4:54 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 3:45 am

and the stock is up up and up ^__^
Do you like movies about gladiators?
 
Tango-Bravo
Posts: 2887
Joined: Sun Jun 17, 2001 1:04 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 3:47 am

Quoting BishopOfPHL (Reply 11):
Like 'em or not, WN management has a lot of something the majors' management do not - basic business competence.

Actually, from what I see, the most apparent difference between the management style of Southwest and the U.S. legacies is more about Southwest not allowing oversized egos do their thinking on which they base their business decisions.

A word to legacy-lovers: Your never-ending "what if" grasping at straws about why WN should be losing money while your beloved legacies should be making money are becoming very worn-out. Please get back to us when it actually happens instead of wearying us with the numbers contortions you do to "prove" your premise that WN is no more than a quarter or two away from non-profit status while your beloved legacies are money printing machines waiting to happen only to be proven wrong... again and again.
 
saigonhouston
Posts: 373
Joined: Tue Apr 27, 2004 11:48 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 4:05 am

The only thing that I'm not quite understand is that why southwest stock doesn't change much in value. The company is doing very well compared with their peers. However, the stock is not reward itself with a better corporate earning. Their range from $12-17 per share and stay within these range for a long time. Basically, LUV is standing at the range between $12-17 in the last 8-9 years and never surpass $25 per share.

Saigonhouston
 
DAYflyer
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Joined: Wed Sep 08, 2004 9:35 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 4:08 am

Quoting Saigonhouston (Reply 20):
The only thing that I'm not quite understand is that why southwest stock doesn't change much in value. The company is doing very well compared with their peers. However, the stock is not reward itself with a better corporate earning. Their range from $12-17 per share and stay within these range for a long time. Basically, LUV is standing at the range between $12-17 in the last 8-9 years and never surpass $25 per share.

The industry is too volitile with many uncertanties; this is a real investment for the long term to buy an airline stock. When they go down, they really go down. Going up is the real battle. Buy low and hang on for a long time to see real profits.
One Nation Under God
 
planespotting
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RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 4:11 am

yeah, airline stock is not a quick gainer by any means (unless there is an unusual situation, such as a merger like the US Air - America West merger that sent both stocks climbing the day the merger was announced)
Do you like movies about gladiators?
 
BishopOfPHL
Posts: 104
Joined: Fri Apr 30, 2004 10:35 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 4:17 am

Quoting Saigonhouston (Reply 20):
The only thing that I'm not quite understand is that why southwest stock doesn't change much in value. The company is doing very well compared with their peers. However, the stock is not reward itself with a better corporate earning. Their range from $12-17 per share and stay within these range for a long time. Basically, LUV is standing at the range between $12-17 in the last 8-9 years and never surpass $25 per share.

In addition to it mostly being due to LUV being in an overall crappy industry with stagnant growth at best, don't forget the effect of their quarterly dividends and series of stock splits, especially in the late 90's. They appear to aim to keep the actual price per share under $25.
 
cjpark
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RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 4:26 am

Quoting DAYflyer (Reply 15):
Southwest was smart enough to do some major fuel hedging, while the majors were not. It is this type of strategic thinking and foresight about the logistics of the business that have placed them at a significant advantage for the last 4 years over the legacies. Professionals speak of logistics, not tactics

First of all Southwest was able to hedge against fuel costs. Rest assured had the competitors had cash in hand they too would have been able to hedge against fuel costs too. Boasting of strategic thinking and foresight about the logistics of the business as being a quality that only WN possesses is a little much.

Granted WN had a great quarter and Kudos to the airline. Lets just see if they can stay on top of the game.
"Any airline that wants to serve the [region] can go to DFW today and fly anywhere they want," WN spokesman Ed Stewart
 
saigonhouston
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RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 4:27 am

DAYflyer..........8 years ago, I picked LUV as my senior project for my Financial Mgmt class the stock back then was around $14 and it currently trade at $14.57 (7/14/05).

Unless Southwest offer their employee a generous profit sharing program and retirement matching program (401K) otherwise it is not a fastest way for their employee to earn extra money in their retirement account by moving the funds in their 401K to buy and sell LUV stock.
 
luvfa
Posts: 333
Joined: Wed May 25, 2005 10:05 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 4:48 am

Quoting Lowecur (Reply 4):
This is a precursor that SWA is gradually losing marketshare. As the Jetblue's, AirTrans, Frontiers, and AWA's continue to grow exponentially faster than SWA, the obvious will become more apparent to the less informed.

Herb said it himself to my training class, we don't concern ourself with market share just profitability! Fact is there are more LCC now than ever before so of course we are going to lose market share to the Air Tran's, JetBlue's et al. of the world. Of curse those carriers would kill to have the market share we have!
 
707lvr
Posts: 457
Joined: Mon Jun 28, 2004 3:41 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 4:49 am

While I probably wouldn't buy an airline stock, LUV's charts over the past 25 years are pretty impressive. A $14 share today would have cost you 14 cents in 1980, and they've always paid a dividend.
 
User avatar
mariner
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Joined: Fri Nov 23, 2001 7:29 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 4:57 am

Quoting Cjpark (Reply 24):
Rest assured had the competitors had cash in hand they too would have been able to hedge against fuel costs too.

No.

Delta had fuel hedges in place and sold them in early 2004 to get the cash:

http://news.morningstar.com/news/DJ/...6241605DOWJONESDJONLINE000929.html

Early '04 was exactly when the price of oil begin it's merry rise. It was less than $40 a barrel then.

Delta is reinstating a fuel hedging program now, with oil at $60 a barrel.

cheers

mariner
aeternum nauta
 
B744F
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RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 4:57 am

I'm sure their stock doesn't explode like most other companies when in good times because they are trying to follow the law, and not count stock options as "profit" like most major companies do, to trick people into thinking they make more than they really do. One of the worst tricks in the book, and still not followed by many major corporations
 
A330323X
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RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 4:59 am

Will any of the majors report operating income of $58 mil then?

Um, yes. AA/CO/US will all likely report that much operating income for the 2nd quarter.
I'm the expert on here on two things, neither of which I care about much anymore.
 
luvfa
Posts: 333
Joined: Wed May 25, 2005 10:05 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 5:04 am

Quoting Cjpark (Reply 24):
Lets just see if they can stay on top of the game.

A challenge that we face every day. Now more than ever!
 
ejmmsu
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RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 5:06 am

Quoting Tango-Bravo (Reply 19):
Actually, from what I see, the most apparent difference between the management style of Southwest and the U.S. legacies is more about Southwest not allowing oversized egos do their thinking on which they base their business decisions.

A word to legacy-lovers: Your never-ending "what if" grasping at straws about why WN should be losing money while your beloved legacies should be making money are becoming very worn-out. Please get back to us when it actually happens instead of wearying us with the numbers contortions you do to "prove" your premise that WN is no more than a quarter or two away from non-profit status while your beloved legacies are money printing machines waiting to happen only to be proven wrong... again and again.

Very well put !! Welcome to my R.U. list.

The proof is in the pudding.

WN is making money right now, and the legacies aren't.

WN is treating their employees fairly, UA, US, and NW are not.

WN is offering more in-flight ammenities than all the legacies except for CO. Delta is close with their snack choices. NW, AA, UA, US are well behind.

WN has a fair pricing structure that is the same for every city it serves. Unlike the legacies, it does not give good fares to some cities and outragous fares to others.

And, I'm sure WN is still number one in on-time arrivals and customer staisfaction.

I hope the legacies make it. I love flying UA, CO, DL, NW, etc. However, to try to say that any of them are doing better than WN financially, now or in the near future, is simply baseless drivel.
"If the facts do not conform to the theory, they will have to be disposed of"
 
luvfa
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RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 5:10 am

Quoting Lowecur (Reply 4):
SWA will be forced to reduce their bloated payroll to compete. This will lead to acrimonious relations with their various union employee groups.


Unlike other carriers, Southwest tries to trim costs by turning to other areas and not just labor. It's true our labor costs have risen, but our non-labor costs have not. I credit this to our Revenue Management. While labor costs have gone up I wouldn't exactly call it "bloated".
 
aa777jr
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RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 5:16 am

Good news for WN. That's too bad to hear that DL sold their fuel hedging in 2004 before they knew the price of oil was gonna be above $60/barrel.

At lunch though, I saw crude down 2.18 below $58 a barrel.

Regards.
A liberal is a man who is right most of the time, but he's right too soon.
 
padcrasher
Posts: 1815
Joined: Tue Aug 10, 2004 6:17 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 5:23 am

Quoting Luvfa (Reply 33):
Unlike other carriers, Southwest tries to trim costs by turning to other areas and not just labor

That makes no sense. You think Delta's only attempt at cutting costs was a 10% pay cut?

* Fleet simplification
* Higher utilization rates/shorter turn times.
* Outsourcing of maintenance
* Increased automation
* Increased internet bookings
* Fuel conservation program
* Outsourcing of human resouces/payroll functions
* Partial outsoucing of reservations
* Song increased the number of seats per 757 by 9%.
* Reduced commision expenses.
* Rolling hub in Atlanta reduced ground times significantly, made better use of manpower.
 
luvfa
Posts: 333
Joined: Wed May 25, 2005 10:05 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 5:33 am

9 of

Quoting Padcrasher (Reply 35):
Fleet simplification
* Higher utilization rates/shorter turn times.
* Outsourcing of maintenance
* Increased automation
* Increased internet bookings
* Fuel conservation program
* Outsourcing of human resouces/payroll functions
* Partial outsoucing of reservations
* Song increased the number of seats per 757 by 9%.
* Reduced commision expenses.
* Rolling hub in Atlanta reduced ground times significantly, made better use of manpower.

Almost every item on your list we have done since day 1!
 
padcrasher
Posts: 1815
Joined: Tue Aug 10, 2004 6:17 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 5:40 am

Quoting Luvfa (Reply 36):
Almost every item on your list we have done since day 1!

Great so we agree. You were totally off base saying only labor was being looked at, and the things that are being done make sense. Another convert!....LOL
 
ScottB
Topic Author
Posts: 5413
Joined: Fri Jul 28, 2000 1:25 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 5:44 am

Quoting Lowecur (Reply 17):
You can quote all the accounting principals you want Scott, but investing in heating oil is not a reduction in fuel and oil expense. They could have very easily invested in porkbellys, it's still futures investing and it does not belong in the operating statement.

By the same logic, insurance isn't an operating expense, since what insurance really does is spread anticipated future liability (or the possibility thereof) into regular predictable payments. The reason airlines hedge gasoline, heating oil, etc. is because there is no Jet-A commodity market to speak of and the prices of the other petroleum derivatives do track the price of jet fuel. In any case, this is permissible under GAAP; if you don't like it, you may lobby the FASB to have it changed.

Airbus does the same sort of thing with currency hedging to limit its exposure to swings in the exchange rate; their products are sold in dollars though most of their costs are euro-denominated.

Quoting Saigonhouston (Reply 25):
DAYflyer..........8 years ago, I picked LUV as my senior project for my Financial Mgmt class the stock back then was around $14 and it currently trade at $14.57 (7/14/05).

You need to re-take your financial management class. The stock has split no fewer than four times since November 28, 1997 (a bit less than eight years ago). It split 3 for two each time, so one share on July 14, 1997 would now be a bit over 5 shares. The stock has performed poorly since September 11, 2001, but this is due in large part to the woes of the industry.
 
B744F
Posts: 2927
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RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 5:44 am

Yes but what about

* reducing the outrageous executive salary/bonus/severence packages
 
goingboeing
Posts: 4727
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RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 5:54 am

Quoting Cjpark (Reply 24):
Boasting of strategic thinking and foresight about the logistics of the business as being a quality that only WN possesses is a little much.

How about this then...Southwest mangagement (and employees) have always operated by treating the good times as if they were bad times. In other words - look at where costs can be cut BEFORE they have to be cut. Other airlines, in the good times, focus less on cost savings. Southwest didn't want to be mortgaged to the hilt...the result is that they have cash and credit to be able to afford the hedge contracts. As was mentioned, Delta SOLD their hedges in an effort to get cash.

The other thing is this...the other major carriers seem to pooh pooh any cost savings ideas from labor - even when times are bad - it seems like the egos are big enough to believe that if it didn't originate with them, it must not be a worthy idea. Southwest on the other hand looks at...and more importantly, ACTS on ideas from employees for cost cutting. You can call it what you want, but I'd say that their strategic thinking and foresight about the logistics of the business is far and away better than the other major carriers.
 
BishopOfPHL
Posts: 104
Joined: Fri Apr 30, 2004 10:35 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 6:12 am

Scott, thanks for slapping some sense into folks re: accounting rules, stock splits, etc. GAAP exists for a reason - uniformity. You can't say LUV shouldn't reduce expenses regarding their hedges just because you don't like the company.

The armchair CFOs can get as irritating as the armchair CEOs on these boards.
 
lowecur
Posts: 512
Joined: Wed Jan 26, 2005 1:18 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 6:46 am

Quoting ScottB (Reply 38):
By the same logic, insurance isn't an operating expense, since what insurance really does is spread anticipated future liability (or the possibility thereof) into regular predictable payments. The reason airlines hedge gasoline, heating oil, etc. is because there is no Jet-A commodity market to speak of and the prices of the other petroleum derivatives do track the price of jet fuel. In any case, this is permissible under GAAP; if you don't like it, you may lobby the FASB to have it changed.

Logic according to Scott.

Actually catastrophic property/liability insurance protects the carriers from absorbing a loss that would put them out of business. Futures investing is hardly in the same catagory. It is gambling plain and simple, and you can never win or lose enough money to put you out of business if you gamble only with a reasonable percentage of your assets. I don't care about the GAAP, all I care about is why I wouldn't invest in SWA based on their trumpted up numbers.
 
AirRyan
Posts: 2398
Joined: Wed Mar 30, 2005 9:57 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 6:54 am

I thought I read that AMR posted the largest gains and that CO was right there with SouthWest?
 
ScottB
Topic Author
Posts: 5413
Joined: Fri Jul 28, 2000 1:25 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 7:01 am

Quoting Lowecur (Reply 42):
Actually catastrophic property/liability insurance protects the carriers from absorbing a loss that would put them out of business.

You do realize that corporations and governments self-insure, right? In essence, they establish reserves which are intended to cover catastrophic losses, not to mention workers' compensation claims, health benefits, etc.

And increased fuel costs which are literally in the billions of dollars for the large network carriers could very well produce losses which would put one or more of them out of business. Southwest's management has wisely chosen to commit a portion of their cash to ensuring that they do not face the direct effect of astronomical fuel costs.

Heck, running an airline is a bit of a commodities gamble considering that one of your key (and most expensive) inputs is derived from a commodity.
 
jetdeltamsy
Posts: 2688
Joined: Tue Nov 14, 2000 11:51 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 7:46 am

attention southwest bashers....

you may hate 'em, but clearly they are doing something right over there.
Tired of airline bankruptcies....EA/PA/TW and finally DL.
 
lowecur
Posts: 512
Joined: Wed Jan 26, 2005 1:18 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 8:59 am

Quoting ScottB (Reply 44):
You do realize that corporations and governments self-insure, right? In essence, they establish reserves which are intended to cover catastrophic losses, not to mention workers' compensation claims, health benefits, etc.

Self Insured Retentions are finite Scott. They still have to carry Cat Insurance for Liability & WC, and they still need to carry hull insurance for financed and leased a/c. Any prudent risk mgr would be foolish to do otherwise.

SWA is fortunate enough to be cash heavy. Thanks to a great mgt team, they have been able to navigate through the tough times. I'm aware the same accounting standards apply to all carriers, but I believe they mislead the employees and investors into a false sense of security. You think SWAPA is going to feel like giving back when their next contract comes up? They have wisely postponed Sect 6, as they knew that would only lead to an adversarial relationship at this time. SWAPA is hoping that revenues will increase substantially before their next contract, so they can at least maintain what they have. The FA's got a gift on their last contract, but the last two years will force SWA to pay the piper. Things are going to get tough and complicated for original LCC in the next few years. Just my 2 cents.
 
swacle
Posts: 360
Joined: Wed Oct 15, 2003 1:41 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 2:54 pm

Quoting Saigonhouston (Reply 25):
years ago, I picked LUV as my senior project for my Financial Mgmt class the stock back then was around $14 and it currently trade at $14.57 (7/14/05).



Quoting ScottB (Reply 38):
You need to re-take your financial management class. The stock has split no fewer than four times since November 28, 1997 (a bit less than eight years ago). It split 3 for two each time, so one share on July 14, 1997 would now be a bit over 5 shares. The stock has performed poorly since September 11, 2001, but this is due in large part to the woes of the industry.

Actually, 1 share would be 6.1875 shares now, and an investment of 100 shares at $14/share then ($1400) would be worth $9015.19 today (618.75 shares at $14.57/share)

When looking at the WN stock price, keep in mind that historically WN shares have traded at the 30-35 times earnings range. As of the close of trading today (7/14), WN is trading at just under 31 times earnings. Keep an eye on LUV though...if we hit analystist's estimates of 18c/share in the third quarter and 17c/ share in the fourth quarter, that same 31 times earnings stock price will be closer to $20/share (Math is...9c in 1st qtr, 20c 2nd qtr, Est 18c 3rd qtr, est 17c 4th qtr for earnings of 64c/ share. .64/share x 30 times earnings = $19.20, .64 x 35 = $22.40...31 times earnings would be $19.84)

DC

Edited to add this:

Also, food for thought, that $58 mil loss w/o hedging would be made up with a modest $2 average fare increase (based on approx 37 million seats available per quarter and a load factor of 72.5%, this leaves just under 26 million of those seats full). This could be accomplished without even raising a single fare by simply allocating fewer of each of the cheapest fares on each flight

[Edited 2005-07-15 07:58:24]
Aircraft Flown: SF3 DH8 DH4 328 ERJ CRJ CR7 CR9 E70 E75 D9S M80 712 72S 732 733 734 735 73G 738 739 739ER 752 318 319 32
 
AirWillie6475
Posts: 2372
Joined: Thu Jan 27, 2005 1:45 pm

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 3:10 pm

Quoting Tom in NO (Reply 2):
Yep, give the flying public what they want, and they'll come flocking to you. A lesson the legacy carriers are either still trying to learn or haven't figured out.

And what is it that Southwest gives to the public that legacys don't? Have you seen the airfares lately? They are as good or cheaper than WNs.
 
N200WN
Posts: 694
Joined: Thu Feb 03, 2005 7:09 am

RE: Southwest Reports 2Q Net Profit Of $159 Million

Fri Jul 15, 2005 4:55 pm

Quoting ScottB (Reply 16):
At present, Southwest can afford to pay well because their employees are more efficient than virtually all others in the industry. Their headcount is down 0.1% year-over-year in spite of an 11.9% increase in capacity through the first six months of 2005. Probably only jetBlue gets more ASM's per employee, but Southwest blows them out of the water with 12.5% higher revenue per employee.

Finally...after God know's how many discussions about Southwest's labor costs...someone has the sense to relate it to productivity.

Quoting Saigonhouston (Reply 25):
Unless Southwest offer their employee a generous profit sharing program and retirement matching program (401K) otherwise it is not a fastest way for their employee to earn extra money in their retirement account by moving the funds in their 401K to buy and sell LUV stock.

Southwest does not allow employees to invest 401K money in Southwest stock. Only profitsharing can be invested in stock...but that is optional. Otherwise the same diversified funds from the 401K plan are offered.