CO777DAL
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 4:11 am

My how things have changed for WN! I think they are a great airline and wish employees best of luck. I wonder what can of concession WN might eventually ask for and how this will effect the workforce?

"Southwest Airlines CEO Gary Kelly sent a message to his employees basically telling them what happened to American Airlines could happen to them. It all comes down to high costs."

Here is a link to the story with video.: http://www.myfoxdfw.com/dpp/money/so...erating-costs-120611#ixzz1foo4VC6D

Here is a link to a print version of the story
http://www.bizjournals.com/atlanta/n...st-ceo-warns-high-costs-are-a.html

[Edited 2011-12-06 20:14:43]

[Edited 2011-12-06 20:39:14]
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DfwRevolution
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 4:34 am

Quoting CO777DAL (Thread starter):
Southwest Airlines CEO Gary Kelly sent a message to his employees basically telling them what happened to American Airlines could happen to them.

I certainly didn't gather that sort of bluntness from the print version. Just seems like a message not to rest on their laurels (consistent profitability) now that all their major competitors have reorganized in Ch 11.

Quoting CO777DAL (Thread starter):
I wonder what can of concession WN might eventually ask for and how this will effect the workforce?

Probably more voluntary buy-out packages. Converting more options into 737-800s and adding an extra seat row to the 733/73G will help the numbers a bit.

The article also talks mostly of cost, but clearly WN is also looking for ways to add ancillary revenues. The WiFi roll-out is continuing and the Business Select/Early Bird check-in have been successes. I have no doubt they will add new adders in the future.
 
CO777DAL
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 4:36 am

Quoting dfwrevolution (Reply 1):
I certainly didn't gather that sort of bluntness from the print version. Just seems like a message not to rest on their laurels (consistent profitability) now that all their major competitors have reorganized in Ch 11.

That was from the first paragraph of the linked news article video. Not my words.

[Edited 2011-12-06 20:37:56]
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zippyjet
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 4:40 am

I hope that doesn't translate to: a purge of crewmembers with any kind of seniority especially those of us from FL being absorbed into the fold. I hear more positive things than negative. A few fellower A-Netters are WN crewmembers and sincerely believe in their company and feel we too will be welcomed and appreciated. But, as they say $$$ talks.
But in defense of GK. sometimes a little reality thrown in can keep one on their toes.
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kcrwflyer
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 5:39 am

WN is just getting old; It's happened to every airline. They, like everyone else already has, will have to restructure sooner or later to survive.
 
jetblueguy22
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 5:45 am

Maybe some concessions can be made by both management and the unions now. Better to fix it now rather than end up like AA a few years down the road.
Blue
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planemaker
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 8:37 am

Quoting Kcrwflyer (Reply 4):
WN is just getting old; It's happened to every airline. They, like everyone else already has, will have to restructure sooner or later to survive.

I wouldn't say that they are getting "old".

Now that majors have gone through Chap 11 and have caught up (or at least narrowed the cost gap) with WN, they can compete with WN on a more equal footing domestically yet have the advantage of an international network.

The problem is that there are still too many carriers... domestically and internationally (just look at the A4A lawsuit against ExIm financing for Air India). There will be an eventual shake out... it might be drawn out or it could happen fairly quickly.

Until there is further rationalization the industry will continue to be a race to the bottom.
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DCA-ROCguy
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 2:24 pm

The only thing somewhat surprising to me about this story is that Kelly is speaking so bluntly so soon. I had figured a few years before this kind of talk. The basis of Southwest's business plan is being an LCC. That means lower costs than legacies. Yes, their product is terrific, and I look forward to being elite with them once FL is folded in. But the bottom line is fare discipline, which requires low costs. Without that, WN's business plan doesn't work long term.

Maybe Kelly is figuring the hard work should start sooner rather than later. It's something that's never fun, and we all wish minimal impact on all people employed by the airline. But costs need to be in order for the plan to work.

Quoting planemaker (Reply 6):
The problem is that there are still too many carriers... domestically and internationally

That's often stated at A.net, but I for one don't buy it. There is no "overcapacity." There are historical factors driving up costs at some carriers, and there is bad management at some. In addition, fares in North America have skyrocketed the past couple of years. More capacity slashing--plenty of which has already occurred in the USA, for instance--is not what's needed. Tough decisions by managements as well as unions, are the only "rationalization" needed. Much better that more people stay employed, too, rather than laid off!

Jim

[Edited 2011-12-07 06:24:53]
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Rdh3e
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 2:39 pm

Quoting DCA-ROCguy (Reply 7):
Tough decisions by managements as well as unions, are the only "rationalization" needed. Much better that more people stay employed, too, rather than laid off!

Fully agree. The largest problems for airlines is that of the demographics of their employees and nothing more. I've advocated before for having a more balanced workforce age-wise because if you have more retirements then you can move people along and up a pay scale without having to increase the total budget for a particular workforce significantly.
 
KarlB737
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 2:48 pm

Quoting CO777DAL (Thread starter):
"It all comes down to high costs."

This isn't news. It has been known for a long time that WN's costs were high but what must be asked is who approved the costs along the way. The management did as they always do and then when it eventually becomes an issue as it always does eventually they point their finger at someone else.
 
Pe@rson
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 2:56 pm

Quoting DCA-ROCguy (Reply 7):
In addition, fares in North America have skyrocketed the past couple of years.

I agree, and I'm often surprised at the higher fares - even for 1-hour sectors, e.g. DAL-HOU, LAS-LAX - in the USA compared to Europe. For example, in mid-February, WN's cheapest one-way tax-inclusive fare for DAL-HOU is $59.70. In GBP, that's £38. Within seconds and for the same period, I found, purely for illustrative purposes, plentiful £20.99 one-way, tax-inclusive deals for £20.99 ($32.74) for STN-CIA (London-Rome) - a distance 4x greater than DAL-HOU. It's akin to Dallas-PHX. Granted, you would, if needed, have to add a checked bag fee and an almost-mandatory administration fee (of £6, $9.36).

Not necessarily fair to compare, but WN's average one-way fare in 2010 was about $135 against FR's $60 (which includes an average of just over $13 ancillary per passenger) - despite what appears to be a higher cost and higher tax environment in Western Europe vis-a-vis the USA. Yet since 2006 their collective net profits have been very similar - FR marginally ahead - despite FR have hundreds of fewer aircraft, and FR's average net profit margin in the period was over 10% compared to WN's under 4%.

Even easyJet, a self-positioned more upmarket LCC, has a far lower average one-way fare than WN at about $83 in 2010. And again within seconds and for the same mid-Feb. period, I found the 829 mile as-the-crow-flies distance for FCO-MAD (both busy, primary airports) for €25.99 ($34.78) one-way, tax-inclusive. (You'd have to add its card payment fee and any checked baggage - the key regarding the latter is to travel lightly! :P )

I recently read that NK's average fare, excluding ancillaries, was $82.

[Edited 2011-12-07 07:14:50]
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MaverickM11
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 2:57 pm

Quoting KarlB737 (Reply 9):
It has been known for a long time that WN's costs were high but what must be asked is who approved the costs along the way

Herb  
Quoting KarlB737 (Reply 9):
The management did as they always do and then when it eventually becomes an issue as it always does eventually they point their finger at someone else.

WN is famous for their labor relations, so I'm sure labor was proactive all along and will come to a sensible and rational solution that manages their voters to the new and ever-changing reality. Like they always do .

Quoting DCA-ROCguy (Reply 7):
Yes, their product is terrific

Compared to what? Other carriers have better products, better networks, and lower costs, so I'm not sure where WN's advantage is at this point.
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 3:03 pm



"The labor cost's are too damn high!"
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avek00
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 3:11 pm

ROTFLMAO!!!! Good picture!
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Flighty
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 3:24 pm

Quoting KarlB737 (Reply 9):
The management did as they always do and then when it eventually becomes an issue as it always does eventually they point their finger at someone else.

I don't understand. In a real business such as mine, if you determine it is more profitable (over time...) to lay off people or cut their pay, you do it. Otherwise, it is just negotiating what people "deserve" as people. Inevitably, that is no longer a business conversation really.

"Business management" is like that. Airlines are far afield and are tackling more personal and social issues, not "management" of a business per se. IMO. A business manager doesn't have to have a consistent message to employees from one 20 year period to the next. When times change, an email goes out, people get hired/fired within the month, etc.
 
Cubsrule
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 3:33 pm

Quoting MaverickM11 (Reply 11):
Other carriers have better products, better networks, and lower costs, so I'm not sure where WN's advantage is at this point.

Better networks compared to what? WN has the best network in many (most?) of its cities, and that helps revenues.
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hiflyeras
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 3:47 pm

I've been waiting for this to happen. Paying the highest wages in the industry previously was offset by constant hiring of lower wage new-hires. Now that they've matured, the percentage of those new people on the books gets smaller and smaller as they've grown bigger and bigger. Their CASM has no where to go but up and they've likely already picked the low-hanging fruit when it comes to keeping their costs down. The only thing left somewhat under their control is their fuel-hedging program and labor costs. Unfortlunately, WN wages workrules have been the bar other work groups hope to reach so this will raise (acutally LOWER) the bar for everyone else, especially for work rules.
 
MaverickM11
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 4:12 pm

Quoting Cubsrule (Reply 15):
Better networks compared to what? WN has the best network in many (most?) of its cities, and that helps revenues.

If you're staying within the lower 48, they're competitive, probably one of the better networks. But in a global industry, they're missing a huge piece of the puzzle, to say nothing of the domestic regional feed they don't/can't get.
E pur si muove -Galileo
 
Cubsrule
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 4:15 pm

Quoting MaverickM11 (Reply 17):
But in a global industry, they're missing a huge piece of the puzzle, to say nothing of the domestic regional feed they don't/can't get.

Sure, but is that necessarily a bad thing? They are leaving revenue on the table in exchange for lower costs. That may be good or it may not - we can't just assert that their network is "inferior" in any objective sense (besides measures like longhaul ASMs or number of cities served).
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ADent
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 4:34 pm

It is just the way business, particularly airlines, work in the US.

Older companies had high legacy costs. Esp pensions, retiree health, and experienced employees high on the pay scales.

Eventually the legacies all went bankrupt and jettison the retiree costs, and limit the salaries.

Now WN has the highest pilot pay in the industry and many senior employees. I heard they don't have the traditional pensions like the legacies??

So how do they cut costs? Other airlines seem to end up resorting to bankruptcy, but what can WN do? How much more productivity can they get out of their employees?
 
lucky777
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 4:42 pm

Well, there's literally a goldmine of addition ancillary revenue just waiting to be picked if/when LUV drops the stupid BAGS FLY FREE gimmick. My guess is, if they are preparing to go to labor for some givebacks, they had better make sure they've done all they can on the ancillary side first, which surely is what their employees will tell them.
 
HPRamper
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 4:44 pm

Quoting Cubsrule (Reply 15):
Better networks compared to what? WN has the best network in many (most?) of its cities, and that helps revenues.

Sure, if you only want to travel to the biggest cities in the country. And in almost any WN market other than the superstations, you'll usually only get five or six nonstop destinations, and that's mainly to the superstations. 30 flights is fine until you notice that 20 of them go to DEN, LAS or MDW.
 
UGA777
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 4:50 pm

I believe the biggest problem with the industry is the fuel costs. There has been a dramtic increase in the last 10-12 years and this industry is heavily affected by those costs. I understand some of the labor costs were out of line and management needed to make some internal changes in the overall cost structure, but it is hard for any fuel dependent company to make money given the circumstances of the last decade. Heck, I can't believe how much it costs to fill up my car each week.
 
jetblueguy22
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 4:53 pm

Quoting HPRamper (Reply 21):
Sure, if you only want to travel to the biggest cities in the country.

Well there are reasons why they are big cities, people want to go there. Chances are more people are going to want to go to Chicago than Devils Lake, ND.

Quoting lucky777 (Reply 20):
Well, there's literally a goldmine of addition ancillary revenue just waiting to be picked if/when LUV drops the stupid BAGS FLY FREE gimmick.

I'm not sure they are going to drop it. That seems to be a core thing that they offer, it seems like nearly all their commercial revolve around no bag fees.
Blue
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MaverickM11
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 4:54 pm

Quoting Cubsrule (Reply 18):
Sure, but is that necessarily a bad thing? They are leaving revenue on the table in exchange for lower costs.

It's not a bad thing when you have low costs, which they arguably no longer have.

Quoting Cubsrule (Reply 18):
we can't just assert that their network is "inferior" in any objective sense (besides measures like longhaul ASMs or number of cities served).

I think the quality of the network is very much questionable, when you're in CMH and can fly to just about anywhere on earth via one of the legacies, or anywhere in the lower 48 on WN via a similar number of stops, WN is at a disadvantage. There's not much in the WN network that gives them a revenue advantage, other than the high frequency shorthaul stuff. If that's the only thing you fly, WN is your carrier, otherwise plenty of other carriers offer much better networks.

Quoting lucky777 (Reply 20):
Well, there's literally a goldmine of addition ancillary revenue just waiting to be picked if/when LUV drops the stupid BAGS FLY FREE gimmick.

They're in no hurry to drop FL's fees.
E pur si muove -Galileo
 
tozairport
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 5:09 pm

Before Mr. Kelly starts complaining to his employees about labor costs being too high, maybe he should look in the mirror first. His pay has more than doubled recently.

http://dfw.cbslocal.com/2011/04/15/s...10-compensation-more-than-doubled/

How do you know when an airline executive is lying? His lips are moving.

(of course, even after doubling his pay, Mr. Kelly's compensation package is still far less than what co-worker Jeff at UA got for completing the SOC!)
Meet the new boss, same as the old boss.
 
Cubsrule
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 5:11 pm

Quoting MaverickM11 (Reply 24):
If that's the only thing you fly, WN is your carrier, otherwise plenty of other carriers offer much better networks.

I doubt WN's is anyone's single carrier. But in many or most WN cities - hublets like BNA and STL but also smaller operations like AUS or MCI, WN has many more destinations than any other carrier and absolutely can (and should) be a tool in the business traveler's arsenal. Ultimately, my time is worth too much to connect in DFW to go to PHX or SAT, and I think that's true of most business travelers.

Quoting HPRamper (Reply 21):
And in almost any WN market other than the superstations, you'll usually only get five or six nonstop destinations, and that's mainly to the superstations. 30 flights is fine until you notice that 20 of them go to DEN, LAS or MDW.

I count 23 cities that are not "superstations" with more than 10 destinations:

SEA
PDX
OAK
SMF
SJC
LAX
SAN
SLC
ABQ
AUS
SAT
HOU
DAL
MCI
STL
MSY
BHM
BNA
TPA
MCO
FLL
RDU
PHL

That's about half of non-"superstation" markets.
I can't decide whether I miss the tulip or the bowling shoe more
 
DCA-ROCguy
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 5:16 pm

Quoting MaverickM11 (Reply 11):
Compared to what? Other carriers have better products, better networks, and lower costs, so I'm not sure where WN's advantage is at this point.

A top 50 A.net argument that never ends. Depends upon your travel needs. I'll take the value of WN and FL's products and their great benefits for my travel needs, which mostly involve medium- and larger- domestic markets, and fly legacies on the 25% or so of my trips where they offer what I need. And legacy FF reward tickets to those great international destinations seem to be harder and harder to come by, if discussions here are to be believed. The financials suggest that WN and FL's products meet a lot of people's travel needs well.

Quoting lucky777 (Reply 20):
Well, there's literally a goldmine of addition ancillary revenue just waiting to be picked if/when LUV drops the stupid BAGS FLY FREE gimmick. My guess is, if they are preparing to go to labor for some givebacks, they had better make sure they've done all they can on the ancillary side first, which surely is what their employees will tell them.

A great marketing advantage that WN would be foolish to drop, in any situation.

Quoting MaverickM11 (Reply 24):
They're in no hurry to drop FL's fees.
FL is still operating. WN has already stated that they are not keeping FL's baggage fees after the carriers are merged.

Jim

[Edited 2011-12-07 09:18:26]
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John
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 5:17 pm

There will probably be many that disagree with me here, but BAG FEES are certainly on the horizon for WN and whether or not they choose to admit the fact, it's just too much revenue to ignore.

[Edited 2011-12-07 09:20:48]
 
kcrwflyer
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 5:19 pm

Quoting Cubsrule (Reply 15):
Better networks compared to what? WN has the best network in many (most?) of its cities, and that helps revenues.

False. WN can't get you to any small cities and believe it or not, they do actually matter..especially to businesses. Good luck charging $500 dollars for a nonstop one hour flight between two big cities.
 
Cubsrule
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 5:22 pm

Quoting Kcrwflyer (Reply 29):
False. WN can't get you to any small cities and believe it or not, they do actually matter..especially to businesses.

They do matter. But they have less demand. For any given trip from City X to CRW, how many trips to ORD/MDW will occur?

For many if not most business travelers, the days of blind loyalty to a single carrier are long gone. It just doesn't make sense.
I can't decide whether I miss the tulip or the bowling shoe more
 
MaverickM11
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 5:34 pm

Quoting DCA-ROCguy (Reply 27):
The financials suggest that WN and FL's products meet a lot of people's travel needs well.

The financials did suggest...

Quoting DCA-ROCguy (Reply 27):
A great marketing advantage that WN would be foolish to drop, in any situation.

I totally disagree--I think they get zero real benefit from it, but that's a whole 'nother thread.

Quoting DCA-ROCguy (Reply 27):
FL is still operating. WN has already stated that they are not keeping FL's baggage fees after the carriers are merged.

Why not drop it now? Seems like they could have done that on day 1, "we're merging--bag fees are over!"

Quoting Kcrwflyer (Reply 29):
Good luck charging $500 dollars for a nonstop one hour flight between two big cities.

  

Quoting Cubsrule (Reply 30):
They do matter. But they have less demand.

Right, that's the problem. All the markets that WN serves are so uber connected by everyone and their mother, that any revenue premium has long been competed away. That leaves only cost to be the real determinant of success in these markets, and that brings us back to Gary Kelly's point, and reality.
E pur si muove -Galileo
 
Cubsrule
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 5:40 pm

Quoting MaverickM11 (Reply 31):
All the markets that WN serves are so uber connected by everyone and their mother, that any revenue premium has long been competed away.

So WN gets no premium for having the only nonstop in a market? If you look at markets like SAT-BNA or STL-BOS, it sure looks like they do.
I can't decide whether I miss the tulip or the bowling shoe more
 
steex
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 5:45 pm

Quoting Cubsrule (Reply 26):

I count 23 cities that are not "superstations" with more than 10 destinations:

In addition to your point, it's also not as though the other carriers are flush with flights to those smaller stations. We can't knock WN for the theoretical scenario below...

Quoting HPRamper (Reply 21):
30 flights is fine until you notice that 20 of them go to DEN, LAS or MDW.

...when a city like that most likely only has a mix of mainline and RJ flights to the major hubs of the legacy carriers, too.
 
Flighty
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 5:53 pm

Quoting MaverickM11 (Reply 24):
If that's the only thing you fly, WN is your carrier, otherwise plenty of other carriers offer much better networks.

WN offers a different kind of network that hangs on maybe different fundamental demand. So far as the unique network structure goes, WN has monopoly pricing power (in a way) over its own business model. I think that accounts for part of their long term success. Regionally, WN may have strengths and loyalty that legacies aren't competing on.

This may not guarantee a huge margin forever. Right now it appears employee pay has soaked up their operating margin vs legacies. It does appear thier network is yielding something for somebody.
 
planemaker
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 6:00 pm

Quoting DCA-ROCguy (Reply 7):
That's often stated at A.net, but I for one don't buy it. There is no "overcapacity." There are historical factors driving up costs at some carriers, and there is bad management at some. In addition, fares in North America have skyrocketed the past couple of years. More capacity slashing--plenty of which has already occurred in the USA, for instance--is not what's needed. Tough decisions by managements as well as unions, are the only "rationalization" needed. Much better that more people stay employed, too, rather than laid off!

It is often stated on A.net because it is stated by every airline industry economist and analyst. When the industry starts making a consistent and competitive rate of return for a few years then there won't be a need for further rationalization.

Even if one doesn't understand the financial dynamics of the industry, one only has to look at every major industry and see that internationally - not just domestically, there are only a handful of players in each industry. The opposite is the case with the airline industry... there are over 200 globally.

As I posted earlier, now WN has to respond to the "legacies" matching or beating them in costs... without the benefit of an international network, alliances, etc. And when they do the other airlines will respond... and it will be a race to the bottom.

While it is understandable that keeping people employed would be nice... that is no the reason airlines exist. To put it very simply, the objective of airlines is to provide a consistent rate of return to investors which is at least competitive to all the other companies on the stock market so as to attract investment.
Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
 
ScottB
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 6:10 pm

Quoting Kcrwflyer (Reply 29):
WN can't get you to any small cities and believe it or not, they do actually matter..especially to businesses. Good luck charging $500 dollars for a nonstop one hour flight between two big cities.

Southwest wouldn't charge $500 for a non-stop one-hour flight because that's not the way they do business.

Quoting HPRamper (Reply 21):
And in almost any WN market other than the superstations, you'll usually only get five or six nonstop destinations, and that's mainly to the superstations. 30 flights is fine until you notice that 20 of them go to DEN, LAS or MDW.

In virtually every non-hub network carrier market, apart from a dwindling number of focus cities, you'd be lucky to even get five or six non-stop hub markets on each network carrier. BHM is far from a "superstation," and yet WN serves thirteen different cities non-stop from there.

Quoting lucky777 (Reply 20):
there's literally a goldmine of addition ancillary revenue just waiting to be picked if/when LUV drops the stupid BAGS FLY FREE gimmick.

Ancillary revenue may increase, but they will likely see fares decline at the same time. Customers won't pay a little more for WN vs. the competition if they're going to have to pay to check a bag.

Quoting Pe@rson (Reply 10):
I agree, and I'm often surprised at the higher fares - even for 1-hour sectors, e.g. DAL-HOU, LAS-LAX - in the USA compared to Europe. For example, in mid-February, WN's cheapest one-way tax-inclusive fare for DAL-HOU is $59.70. In GBP, that's £38. Within seconds and for the same period, I found, purely for illustrative purposes, plentiful £20.99 one-way, tax-inclusive deals for £20.99 ($32.74) for STN-CIA (London-Rome) - a distance 4x greater than DAL-HOU. It's akin to Dallas-PHX. Granted, you would, if needed, have to add a checked bag fee and an almost-mandatory administration fee (of £6, $9.36).

We can all cherry-pick fare examples to suit our arguments. Right now, FR also has tickets for STN-DUB round-trip departing tomorrow and returning Friday for up to GBP 478.94 -- or $752 at current exchange rates -- and you'd still have to pay the sundry ancillary fees. By contrast, even a Business Select round-trip on WN between DAL & HOU for the same days will only cost $392 -- barely over half of the FR STN-DUB fare. FR isn't always a bargain.
 
Pe@rson
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 6:29 pm

Quoting ScottB (Reply 36):
FR isn't always a bargain.

Obviously. However, FR's average one-way fare, ancillaries inclusive, was $60 in 2010. In comparison, WN's average one-way fare was around $135 in that year. Moreover, it is very easy indeed to find bargains.
"Everyone writing for the Telegraph knows that the way to grab eyeballs is with Ryanair and/or sex."
 
peanuts
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 6:34 pm

Quoting CO777DAL (Thread starter):
"Southwest Airlines CEO Gary Kelly sent a message to his employees basically telling them what happened to American Airlines could happen to them. It all comes down to high costs."

Big DUH!

What makes WN somehow "immune" to economic realities?

Absolutely nothing.

When your perception vs. reality "gap" in different aspects of your business is fairly high, you can be very vulnerable once your realities get exposed.
WN is a fierce competitor and deserve many accolades. At the same time, FL and ATL will expose them to incredible realities.
The next 5-8 years will be extremely interesting to see how WN and DL evolve.
 
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IrishAyes
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 7:00 pm

Quoting lucky777 (Reply 20):
Well, there's literally a goldmine of addition ancillary revenue just waiting to be picked if/when LUV drops the stupid BAGS FLY FREE gimmick. My guess is, if they are preparing to go to labor for some givebacks, they had better make sure they've done all they can on the ancillary side first, which surely is what their employees will tell them.
Quoting MaverickM11 (Reply 31):
I totally disagree--I think they get zero real benefit from it, but that's a whole 'nother thread.

Costs and Revenues are two different principles here, folks. Getting rid of the 'No Bags Fee' campaign does not help them with their labor costs. Hence, why GK is bringing up AA as an example of complacency that the carrier cannot falter towards.

Nevertheless, I agree that optimizing revenue is still crucial. However, 'Bags Fly Free' in truth actually gained them a lot of marketshare which correlated to a pretty satisfactory chunk of revenue.

But, I'll reiterate - WN is right in swiftly cutting to the chase to address costs before the situation gets out of hand.

Quoting ScottB (Reply 36):
Ancillary revenue may increase, but they will likely see fares decline at the same time. Customers won't pay a little more for WN vs. the competition if they're going to have to pay to check a bag.

Excellent point.

Quoting tozairport (Reply 25):
Before Mr. Kelly starts complaining to his employees about labor costs being too high, maybe he should look in the mirror first. His pay has more than doubled recently.

While I don't necessarily know too much on what can be deemed as "appropriate" compensation, I will say that GK has done a tremendous job of leading the airline through arguably the absolute WORST revenue environment in the history of the aviation industry. Not to mention, he stepped in to fill some pretty big shoes after Herb Kelleher stepped down. It's important to temper that before jumping to conclusions about his ethical behavior.

I think the challenge is labor productivity. I've always thought that WN has a fair amount of dead weight. Anyone have any insights into the long-term impacts of Freedom '09 on their bottom line?
confidence is silent. insecurities are loud.
 
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EA CO AS
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 7:04 pm

Quoting DCA-ROCguy (Reply 27):
Quoting lucky777 (Reply 20):
Well, there's literally a goldmine of addition ancillary revenue just waiting to be picked if/when LUV drops the stupid BAGS FLY FREE gimmick. My guess is, if they are preparing to go to labor for some givebacks, they had better make sure they've done all they can on the ancillary side first, which surely is what their employees will tell them.

A great marketing advantage that WN would be foolish to drop, in any situation.

We'll agree to disagree, as I see it as a marketing disadvantage that leaves roughly $500 million in ancillary revenue on the table annually for no reason whatsoever.
"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan

Comments made here are my own and are not intended to represent the official position of Alaska Air Group
 
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 7:17 pm

Quoting DCA-ROCguy (Reply 27):
A great marketing advantage that WN would be foolish to drop, in any situation.

So you would rather they go to the employees and seek benefit reductions all in the interest of keeping a "marketing advantage"?

The biggest, fattest, juiciest piece of low hanging fruit has yet to be picked by LUV, and until that fruit is harvested i would be hesitant to go to the workforce for givebacks. Once LUV can make the statement that they've done all they can on the revenue side i have no problem with them seeking other ways of shoring up their finances. But until the BAGS FLY FREE marketing scheme has been thoroughy looked at, they simply can't go to the employees and say they've done all they can.

[Edited 2011-12-07 11:18:09]
 
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DeltaMD90
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 7:18 pm

Quoting IrishAyes (Reply 39):
However, 'Bags Fly Free' in truth actually gained them a lot of marketshare which correlated to a pretty satisfactory chunk of revenue.

Not to call you out since you may be right, but does anyone have any figures on how much WN would "probably" get with bag fees and how many extra fliers they're probably getting with this campaign? I have a suspicion they'd get more money with bag fees even with a slight drop off in fliers, but who knows
Ironically I have never flown a Delta MD-90 :)
 
GSPSPOT
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 7:28 pm

Quoting lucky777 (Reply 41):
Quoting lucky777 (Reply 41):
The biggest, fattest, juiciest piece of low hanging fruit has yet to be picked by LUV, and until that fruit is harvested i would be hesitant to go to the workforce for givebacks.

So, for the average flyer, what would be the relative advantages of flying WN??
Finally made it to an airline mecca!
 
DCA-ROCguy
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 7:47 pm

Quoting MaverickM11 (Reply 31):
Why not drop it now? Seems like they could have done that on day 1, "we're merging--bag fees are over!"

WN is still operating FL as its own entity. FL policies apply.

Quoting planemaker (Reply 35):
It is often stated on A.net because it is stated by every airline industry economist and analyst. When the industry starts making a consistent and competitive rate of return for a few years then there won't be a need for further rationalization.

Apparently said analysts don't understand the social and political dynamics, as well as the economic history, of the industry. I've gottent the fairly consistent impresion that analysts would prefer every industry be as stable as utilities were once considered. Airlines cannot reasonably be expected to be consistently high-yield.

Quoting planemaker (Reply 35):
Even if one doesn't understand the financial dynamics of the industry, one only has to look at every major industry and see that internationally - not just domestically, there are only a handful of players in each industry. The opposite is the case with the airline industry... there are over 200 globally.

Most larger countries aren't going to allow complete foreign control of airlines, at least not in the near term. Alliances and JV's are probably as far as it's going to go for some time. The issues involved are not simply economic, and airlines can't be exactly compared to manufacturing widgets. There are going to be more airlines in the world than a free-market purist's dream would have, in any event.

Quoting planemaker (Reply 35):
As I posted earlier, now WN has to respond to the "legacies" matching or beating them in costs... without the benefit of an international network, alliances, etc. And when they do the other airlines will respond... and it will be a race to the bottom.

Legacies responded to WN beating them in costs. Now WN is responding to their response. Plus everybody's expenses have been increased by oil speculation and supply restriction. And on and on it goes.

Quoting planemaker (Reply 35):
While it is understandable that keeping people employed would be nice... that is no the reason airlines exist. To put it very simply, the objective of airlines is to provide a consistent rate of return to investors which is at least competitive to all the other companies on the stock market so as to attract investment.

There are multiple interests involved in an industry that is not purely about profit but deals at the same time with a common good--transportation. Airlines are not going to be consistently "competitive" with all companies; there are different kinds of industries and different kinds of conditions. To put it simply, it's not that simple.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
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ssteve
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 7:59 pm

I like flying on WN because I don't have to be involved in the struggle with 140 rollaboards and 30 gate checks.
 
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IrishAyes
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 7:59 pm

Quoting GSPSPOT (Reply 43):
So, for the average flyer, what would be the relative advantages of flying WN??

I think its a bit more subjective of an opinion, taking into account not only what you want from your typical flying experience, but also what you're accustomed to.

Just based on my perspective, the travel experience with WN is all-around much less stressful. I can normally count on a seamless process by which everyone I encounter representing the airline (at check-in, gate, boarding, ramp, on board, etc) just seems to be friendlier, more courteous, and willing to go the 'extra mile' so to speak. As vague as this sounds, I feel like a valued customer all the way through, whereas on board other airlines, I often times feel like its me vs. the airline.

I also feel like the 'no frills' model doesn't correlate to 'get what you pay for' at WN. The planes are clean, roomy and seats are comfortable. You get unlimited complimentary non-alcoholic drinks and snacks. I've never had to 'gate check' a bag due to lack of bin space (and you can thank Bags Fly Free for that). I get to where I want to go usually on-time and without dealing with hassel from the airline.

And for a lot of people, that is more than enough to ease the stress of travel and select WN as their carrier of choice.

Now, I fall into a different category of traveller. Since I fly so often, I like the idea of status tiers, upgrades to premium cabins, fleet variety, IFE, Int'l networks, alliances, lounges, etc. I've flown equal amounts on both WN and Legacies and decided which product better suits my needs and wants at this time. I'm willing to give my loyalty to the legacies because I put higher stock into status. And again, that's purely because I travel often enough to justify it (I mean, the rewards are too good to forgo).

Regardless, I tip my hat to WN with utmost respect for who they are, and if my needs change, I'll always consider them as an excellent alternative.
confidence is silent. insecurities are loud.
 
DCA-ROCguy
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 8:02 pm

Quoting EA CO AS (Reply 40):
We'll agree to disagree, as I see it as a marketing disadvantage that leaves roughly $500 million in ancillary revenue on the table annually for no reason whatsoever.

What proof is there that WN is "leaving money on the table?" Being the largest airline to have no baggage fees likely has more than some financial benefit in gained traffic. I'd need to see hard numbers from WN itself before I'd believe that there's just a gigantic pile of cash awaiting them.

Quoting lucky777 (Reply 41):
So you would rather they go to the employees and seek benefit reductions all in the interest of keeping a "marketing advantage"? The biggest, fattest, juiciest piece of low hanging fruit has yet to be picked by LUV, and until that fruit is harvested i would be hesitant to go to the workforce for givebacks.

As I said, I'm not convinced of the fatness and juiciness of that piece of alleged fruit. If several large carriers didn't charge bag fees, probably, but for now WN and much smaller B6 are it for large carriers. I'd want to see numbers from WN itself. There would have to be clear proof of a large financial gain for WN in particular, in the current market environment where most carriers charge for bags, without much loss of bookings. It wouldn't make sense to get rid of an important marketing advantage for small change, say less than $100m. So far, I don't see it.

Probably the most important question in dealing with disciplining labor costs is, will executives make a similar-percentage cut in their own overall compensation, whatever form it takes, to indicate that they share in the pain. IIRC, one of Delta's CEO's once took a compensation cut when the airline had to cut labor costs.

Jim
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
MaverickM11
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 8:04 pm

Quoting Cubsrule (Reply 32):
So WN gets no premium for having the only nonstop in a market? If you look at markets like SAT-BNA or STL-BOS, it sure looks like they do.

Of course they do. But clearly they're not getting a premium in PIT, BOS, LGA, IAD, etc.. Those 600+ airplanes can't all be operating monopoly services.

Quoting Flighty (Reply 34):
WN offers a different kind of network that hangs on maybe different fundamental demand.

Different carriers have different models, but at the end of the day, they're all responding to the same economic fundamentals.

Quoting IrishAyes (Reply 39):
Getting rid of the 'No Bags Fee' campaign does not help them with their labor costs.

Well you can increase revenues--with ancillary fees and other things, or decrease costs

Quoting IrishAyes (Reply 39):
Nevertheless, I agree that optimizing revenue is still crucial. However, 'Bags Fly Free' in truth actually gained them a lot of marketshare which correlated to a pretty satisfactory chunk of revenue.

Perhaps it gained them a lot of revenue, but it also gained them a lot of cost, possibly in similar or greater amounts.

Quoting DCA-ROCguy (Reply 44):
WN is still operating FL as its own entity. FL policies apply.

I'm still not sure why this makes a difference. If bag fees are so bad, cancel them now and shift all that traffic from DL.
E pur si muove -Galileo
 
DCA-ROCguy
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WN CEO Warns Carrier’s Labor Costs Are Too High

Wed Dec 07, 2011 8:11 pm

Quoting tozairport (Reply 25):
Before Mr. Kelly starts complaining to his employees about labor costs being too high, maybe he should look in the mirror first. His pay has more than doubled recently.

See my reply 47. If WN wants to reduce labor costs, and preserve a good corporate culture, executives will need to share in the pain. My suggestion, FWIW, is an overall percentage reduction in executive compensation that matches any overall percentage reduction in employee compensation.

Jim
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