lucky777
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Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 1:17 am

Rough waters ahead for LUV it would appear, seems those fuel hedges were hiding significant revenue difficulties up until this point.

http://www.google.com/hostednews/ap/...d=c02d7e19feee4305857f20b2ee79ee83
 
mrskyguy
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 1:21 am

This is pretty common.. almost predictably so. 1Q is always a difficult time, especially during escalating fuel and mid-merger activities. I wouldn't think much of it.
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 1:24 am

Gosh, if only they had an ongoing ancillary revenue source, equivalent to a decent fare increase, that doesn't kill demand! Hmm...  
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dsuairptman
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 1:52 am

Quoting EA CO AS (Reply 2):
Gosh, if only they had an ongoing ancillary revenue source, equivalent to a decent fare increase, that doesn't kill demand! Hmm...

Charging pax 25 dollars to check a bag is absurd, has created more demand for carry ons and lead to boarding/deplaning delays. If airlines are going to charge it needs to be based on a distance flown and the price incorporated into the ticket price. If your not checking then the amount you pay simply goes to cover other parts of the operation cost to take you somewhere.
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OzarkD9S
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 1:54 am

WN has major expenses regarding the FL intergration. This is a short term bump down.
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 1:58 am

Quoting dsuairptman (Reply 3):
Charging pax 25 dollars to check a bag is absurd

...in your opinion.

It's hard to argue with the facts presented by the bottom line, though - bag fees are huge revenue source that doesn't kill demand the way a fare increase of the same amount would.
"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
 
mcdu
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 1:59 am

Quoting OzarkD9S (Reply 4):

WN has major expenses regarding the FL intergration. This is a short term bump down.

Except that WN didn't mention the merger expenses as the reason for the loss. They also are not saying it is a short term bump.
 
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:00 am

Quoting EA CO AS (Reply 2):
Gosh, if only they had an ongoing ancillary revenue source, equivalent to a decent fare increase, that doesn't kill demand!

I'll start the popcorn....
 
burnsie28
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:01 am

Quoting OzarkD9S (Reply 4):

WN has major expenses regarding the FL intergration. This is a short term bump down.

Even with those "one time expenses" it wouldn't surprise me that they would lose money anyway, especially given the rapid rise in fuel during the 1Q which is typically one of the weakest demand times. Also given WN's operating cost is higher than a lot of the other airlines out there now.
 
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:04 am

Quoting EA CO AS (Reply 5):
It's hard to argue with the facts presented by the bottom line, though - bag fees are huge revenue source that doesn't kill demand the way a fare increase of the same amount would.

I book WN or AS generally. Last trip the bag fees charged by AS sent me to WN. This trip WN wasn't an option as we wanted to fly into LGB, but I almost booked LAX because even paying for a cab, WN was still slightly cheaper on the dates we chose than AS into LGB. In the end, we just needed to fly into LGB.

Quoting lucky777 (Thread starter):
seems those fuel hedges were hiding significant revenue difficulties up until this point.

Is that what it said? That their past fuel hedges were hiding significant revenue difficulties?

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coronado
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:07 am

I had 4 legs on Airtran the past 2 1/2 days. Every flight left on time or 10 minutes early. 20.00 dollar 1st bag fees did not seem to cause any resentment. When the planes are full they are forceful in getting pax with zone 7 and 8 seating priorities to gate check their roller-boards (at no cost). The 8 zone seating printed on the boarding passes is a pretty neat system and really allows the planes to load up fast. I was very impressed with Airtran. Very fast turns, including unloading a 737-700 from Cancun at the international terminal at MKE, servicing it and towing it over the domestic gate within about 35 minutes total elapsed time, for an on time departure to SRQ Florida. Across the board nice flight crews. Southwest hopefully will be open to learning some things from Airtran. A very nice reminder that competitive air fares and decent service levels including an acceptable first class option are not mutually exclusive.
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ouboy79
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:14 am

Quoting lucky777 (Thread starter):

Rough waters ahead for LUV it would appear, seems those fuel hedges were hiding significant revenue difficulties up until this point.

The hedges have been gone for awhile I believe.

Quoting EA CO AS (Reply 5):
It's hard to argue with the facts presented by the bottom line, though - bag fees are huge revenue source that doesn't kill demand the way a fare increase of the same amount would.

Why charge for bags when you've been able to push fare increases consistently for awhile now that automatically get matched by everyone - who still charges extra for bags? WN can easily raise fares another $10-20 over a few months and avoid having to charge for bags. Meanwhile every other carrier will match the fares and still charge extra. Sure the could make more money, but at the end of the day WN could easily still come out ahead in meeting their goals.
 
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:22 am

WN will indeed face challenges in the future. No matter how healthy, how much of a darling a company is.... It eventually faces difficulties. Not just WN, but any company. WN has however put lots of money away for rainy days, which will help the company weather difficulties. Fuel is every airlines enemy... Even WN is feeling it. Sure hope this industry finds a way to run these birds on cooking oil!
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:25 am

Quoting EA CO AS (Reply 2):
Gosh, if only they had an ongoing ancillary revenue source, equivalent to a decent fare increase, that doesn't kill demand! Hmm...  

Gee, then why do the legacy carriers have to keep shrinking??
 
FlyASAGuy2005
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:37 am

Quoting ouboy79 (Reply 11):
Why charge for bags when you've been able to push fare increases consistently for awhile now that automatically get matched by everyone - who still charges extra for bags? WN can easily raise fares another $10-20 over a few months and avoid having to charge for bags. Meanwhile every other carrier will match the fares and still charge extra. Sure the could make more money, but at the end of the day WN could easily still come out ahead in meeting their goals.

I'm still a strong believer that there's still a lot of money being left on the table. I guess i'm in that crazy group the believes the BOD will eventually want the extra cash.
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coronado
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:39 am

According to the recent Boyd report, WN number of departures and number of seats is down about 7% between 2007 and 2012. I guess they are also a legacy carrier that is shrinking?
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QANTAS747-438
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:48 am

I think it's interesting that the 1Q isn't even over yet, results don't get posted until @ APR 20, and they're already noticing the potential for a loss.

Fuel costs are definitely a killer.
My posts/replies are strictly my opinion and not that of any company, organization, or Southwest Airlines.
 
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:49 am

Quoting lucky777 (Thread starter):
Rough waters ahead for LUV it would appear, seems those fuel hedges were hiding significant revenue difficulties up until this point.

I don't think they were hiding anything. In fact, past quarterly losses over the past few years were reported because of their hedges.

Quoting EA CO AS (Reply 2):
Gosh, if only they had an ongoing ancillary revenue source

Man, I have fought it for a long time but I am starting to think differently about this. I like that they are able to offer free bag checking to customers, but it's hard not to look at all those bags out there and not see dollar signs floating away. Flights are going out so ridiculously heavy with bags these days, it's well...ridiculous. But there is a bigger picture that they are looking at and for now no bag fees is more beneficial.

Quoting EA CO AS (Reply 5):
bag fees are huge revenue source that doesn't kill demand

I have been told by many friends that if Southwest charged for bags, they would fly someone else. I'm sure they aren't alone.
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airbazar
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:54 am

Quoting EA CO AS (Reply 2):
Gosh, if only they had an ongoing ancillary revenue source, equivalent to a decent fare increase, that doesn't kill demand! Hmm...

They have better than that. They control the pricing in most of the market they fly which allows them to charge prices that make them profitable. This loss is a mere bump in the road to another profitable year.
 
FlyASAGuy2005
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 3:00 am

Quoting QANTAS747-438 (Reply 16):
I think it's interesting that the 1Q isn't even over yet, results don't get posted until @ APR 20, and they're already noticing the potential for a loss.

Fuel costs are definitely a killer.

Well yes, they report on April 20th but the quarter ends this month. I'm pretty sure they already know how they did for January and February. With 15 days left in the month, it would be clear to them whether they'll be in the red or black for the quarter.

I've seen airlines predict well ahead of their quarterly results if they'd be making money or not. DL's president recently provided financial guidance and said they expect to make money for Q1. Very thin margins but still better than 2011.

[Edited 2012-03-13 20:02:00]
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lucky777
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 3:11 am

Quoting FlyASAGuy2005 (Reply 19):
DL's president recently provided financial guidance and said they expect to make money for Q1. Very thin margins but still better than 2011


In fact, if i'm not mistaken DAL took a fairly sizable loss in the 1st quarter of 2011, so if they can eke out a profit, not matter how small, its pretty impressive.
 
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 3:23 am

Considering the current economic environment for airlines, I'd challenge any of the legacies to make money on just their mainline, domestic operations.
 
PlanesNTrains
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 3:42 am

Quoting ouboy79 (Reply 11):
Why charge for bags when you've been able to push fare increases consistently for awhile now that automatically get matched by everyone - who still charges extra for bags? WN can easily raise fares another $10-20 over a few months and avoid having to charge for bags. Meanwhile every other carrier will match the fares and still charge extra. Sure the could make more money, but at the end of the day WN could easily still come out ahead in meeting their goals.

While I like Bags Fly Free, I think that this paragraph almost makes the case for charging for them.

Quoting Coronado (Reply 15):
According to the recent Boyd report, WN number of departures and number of seats is down about 7% between 2007 and 2012. I guess they are also a legacy carrier that is shrinking?

Quite a little drop there. I'm wondering if the departure reduction is partially offset by increased stage length?

Quoting Silver1SWA (Reply 17):
Flights are going out so ridiculously heavy with bags these days, it's well...ridiculous. But there is a bigger picture that they are looking at and for now no bag fees is more beneficial.

You have to ask how loyal people would be to WN if they did start charging for bags? For me, I like WN fine and I fly them based on price primarily versus AS, who I also like fine. Take away Bags Fly Free and you will see reduced bags because you will see reduced passengers - unless you offset it with lower fares. If another carrier has a lower CASM than WN, they might just win the business.

Quoting Silver1SWA (Reply 17):
I have been told by many friends that if Southwest charged for bags, they would fly someone else. I'm sure they aren't alone.

They aren't.

Quoting lucky777 (Reply 20):
In fact, if i'm not mistaken DAL took a fairly sizable loss in the 1st quarter of 2011, so if they can eke out a profit, not matter how small, its pretty impressive.

So WN expects a first quarter loss of unknown magnitude and it's rough days ahead and hidden revenue difficulties. Yet the worlds second largest carrier can "eke out" a tiny profit and it's "pretty impressive"? The difference between DL's profit and WN's loss may be in the tens of millions of dollars. Yet Delta has twice the revenue of WN.

I'm not sure I'd be holding my widget flag too high.  

-Dave
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 3:49 am

Quoting Silver1SWA (Reply 17):
Quoting EA CO AS (Reply 5):
bag fees are huge revenue source that doesn't kill demand

I have been told by many friends that if Southwest charged for bags, they would fly someone else.

Funny, that's what most customers said of AA, UA, DL, etc. just before they started charging bags. And y'know what happened? They kept right on flying AA, UA, DL, etc.

I get where you're coming from, I do - I work for a carrier that held out for a long, long time on charging bag fees, and I was firmly against implementing them as well. It just wasn't done, y'know?

We held out hope that by not matching those fees, we'd make it up in "goodwill bookings" from customers defecting to us, rewarding us for not charging bag fees.

It didn't happen. They kept right on flying AA, UA, DL, etc.

It was like our competitors got the benefit of a fare increase that we were denying ourselves, yet it didn't materially reduce demand like a fare increase would.

And that's when my company realized that this was the new reality. Customers, for the most part, just want safe, reliable transportation from point A to point B. Sure, some would be willing to pay a bit more for extras like a meal or a checked bag, but the "all-inclusive" pricing of the past was just that, a thing of the past.

So after much hand-wringing and debate, my company elected to allow customers to only pay for the services they want and started charging $20 per bag, along with a 20 minute guarantee to have it on the carousel. Many customers complained, saying they'd never fly us again. We braced for the backlash.

And they kept right on flying us. Because we provide a safe, reliable product with great people delivering outstanding service, and that hadn't changed. And that wouldn't change at WN, either.




I guarantee WN wouldn't be staring a 1Q12 loss in the face if they charged even a modest $10.00 fee for checked bags.
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PlanesNTrains
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 4:38 am

Great post, EA CO AS.

I can only speak for myself. If the overall cost - including bag fees - is less on one carrier versus another, that's who will probably get my business. Not that I'm a desirable customer to those carriers relative to more frequent flyers, but I do use the baggage fees as part of my booking decision. Maybe many/most don't?

For WN, it definitely will be a huge hurdle to cross after all of their marketing of it, and maybe they will continue to look for other ways to earn more revenue instead of the bag fees? They'll need to keep trying, that's for sure, and their model will need to keep evolving.

Totally off topic - ha ha - so don't answer if it's a little silly, but do the SkyWest CR7 flights gate check bags? When we flew QX CR7's to Long Beach some years back you could check your carry-on roller's at the gate rather than take them onboard. Does SkyWest do this as well on this equipment when flying for Alaska

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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 4:54 am

Quoting mrskyguy (Reply 1):
I wouldn't think much of it.

You may not, but WN better, because the low cost revolution has come full circle and is coming after them. The next four years are going to be much harder than the first forty for WN.

Quoting F9Animal (Reply 12):
WN will indeed face challenges in the future

   The future is here.

Quoting airbazar (Reply 18):
This loss is a mere bump in the road to another profitable year.

...Of underperforming most of their competitors.

Quoting ouboy79 (Reply 11):
Why charge for bags when you've been able to push fare increases consistently for awhile now that automatically get matched by everyone

The math simply does not make sense. You can either charge a bag fee, which is almost 100% margin, say $20, or you can attract another passenger at your average margin, say ~5% for WN. That means WN needs to get lots of customers to offset the one (1) bag fee it does not charge. No dice. Plus WN's new competitors have much lower costs. NK and B6? They don't need to match WN's fare increases. AS might not even have to.
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lucky777
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 4:57 am

Quoting PlanesNTrains (Reply 22):
So WN expects a first quarter loss of unknown magnitude and it's rough days ahead and hidden revenue difficulties. Yet the worlds second largest carrier can "eke out" a tiny profit and it's "pretty impressive"? The difference between DL's profit and WN's loss may be in the tens of millions of dollars. Yet Delta has twice the revenue of WN.

I'm not sure I'd be holding my widget flag too high.

Considering that LUV made $68 Million in the first quarter of 2011 and DAL lost $318 Million, then yes, i'd say even being able to 'eke" out a small profit with all things being equal, is quite a feat. Would you not agree? As has been stated before ad nauseum, LUV profited rather handsomely from their ingenius usage of fuel hedging, and more power to them for being so forward looking. Now that that sacred cow has been slaughtered, their need for aditional revenues to offset ever higher labor/fuelcosts only gets more urgent by the day. And with literally thousands of former Airtran employees being brought up to the LUV payscales, this urgency isn't going away any time soon.

And yes, that would be my widget flag flying high right about now my friend.
 
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 5:19 am

Quoting PlanesNTrains (Reply 22):
You have to ask how loyal people would be to WN if they did start charging for bags? For me, I like WN fine and I fly them based on price primarily versus AS, who I also like fine. Take away Bags Fly Free and you will see reduced bags because you will see reduced passengers - unless you offset it with lower fares. If another carrier has a lower CASM than WN, they might just win the business.

   While a good move in the last couple of years, I do think WN holding out on charging for bags could come back to bite them someday because of what you just described. By now, everyone expects all the others to charge for bags. The sticker shock is all but gone. However, that is still one of WN's key marketing advantages. If they take that away someday, there will be some who stop flying WN out of nothing but spite.

I can tell you that there are a number of airlines I would rather fly than WN, so if they start charging for bags, I probably won't even bother to check them anymore. Then again, for some reason in my market, 9/10 times they are more expensive anyway, and by a fairly large margin.
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 5:27 am

Quoting lucky777 (Reply 26):
And yes, that would be my widget flag flying high right about now my friend.

Trust me, I knew it'd be flying before I even started reading the post.  
Quoting lucky777 (Reply 26):
Considering that LUV made $68 Million in the first quarter of 2011 and DAL lost $318 Million, then yes, i'd say even being able to 'eke" out a small profit with all things being equal, is quite a feat. Would you not agree?

On $8 BILLION in revenue? Sure, it's a nice turnaround, but is Southwest losing, say $50 million on $4 Billion in revenues all that big? There's a lot going on over there, and yes, higher than expected fuel costs is listed as the culprit, but I think it's clear that there are multiple things at play right now for LUV.

Again, my point is that I don't see a huge difference - personally - between losing $50M on $4B in revenues versus breaking even on $8B in revenues. Neither is alarming and neither is worthy of writing home about.

But that's just me...

-Dave
-Dave
 
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 5:45 am

Quoting MountainFlyer (Reply 27):
that is still one of WN's key marketing advantages. If they take that away someday, there will be some who stop flying WN out of nothing but spite.

  

I respectfully disagree. WN has spent decades cultivating a "we're ALWAYS the lowest fare" mentality in the traveling public, and even if they retreat from the "Bags Fly Free" campaign you will still have customers that buy only from WN because they assume everyone else will be higher priced.

Frankly, the only real danger of WN losing customers would be the in the form of customers who choose to drive instead of fly, and since WN's average stage lengths have been getting longer year after year, the percentage of customers carried where WN competes against the family car drops each year.

If WN chooses to ditch the "Bags Fly Free" campaign, now's the time to do it; with fuel prices where they are, consumers may grumble, but they'll understand.
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Comments made here are my own and are not intended to represent the official position of Alaska Air Group
 
FlyASAGuy2005
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 5:47 am

Quoting MSPNWA (Reply 21):
Considering the current economic environment for airlines, I'd challenge any of the legacies to make money on just their mainline, domestic operations.

But they're not. So as Judge Judy would say "That would be their (WN) problem.".

Quoting PlanesNTrains (Reply 24):
Totally off topic - ha ha - so don't answer if it's a little silly, but do the SkyWest CR7 flights gate check bags? When we flew QX CR7's to Long Beach some years back you could check your carry-on roller's at the gate rather than take them onboard. Does SkyWest do this as well on this equipment when flying for Alaska

Everyone valet tags on CR9s and below. The overhead bins on the CRJs, even the large RJs, will not fit the larger roll-aboard that will normally fit on mainline equipment.
What gets measured gets done.
 
lucky777
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 5:54 am

Quoting PlanesNTrains (Reply 28):
Again, my point is that I don't see a huge difference - personally - between losing $50M on $4B in revenues versus breaking even on $8B in revenues. Neither is alarming and neither is worthy of writing home about.

Then we can agree to disagree. Assuming Delta breaks even, (actually they're looking for a 1-3% profit margin, which would be somewhere between $80 Million and $240 million) and LUV loses $50 Million....

that woud be roughly a $400-500 Million dollar swing to the upside for Delta and a $120 Million dollar swing to the downside for LUV. With the price of Jet A seemingly not coming down any time soon, and the 1st quarter being historically the weakest for american carriers, i'd say thats cause for celebration for the Big D. What that means for LUV i have no idea, but my guess is that shareholders will be looking at that low-lying fruit called checked baggage fees to make up for any perceived shortfalls on the revenue side of the operation.
 
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 6:18 am

Quoting lucky777 (Reply 31):
my guess is that shareholders will be looking at that low-lying fruit called checked baggage fees to make up for any perceived shortfalls on the revenue side of the operation

LUV shareholders have been the "torches n' pitchforks" crowd for quite awhile now since their investment has gone nowhere for a very long time. Look at the past few years!

http://chart.finance.yahoo.com/z?s=LUV&t=2y&q=l&l=on&z=l&a=v&p=s&lang=en-US&region=US
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Comments made here are my own and are not intended to represent the official position of Alaska Air Group
 
Flighty
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 6:27 am

2 legacies remain in the country... AS and WN...
 
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 7:44 am

Quoting FlyASAGuy2005 (Reply 30):

Everyone valet tags on CR9s and below. The overhead bins on the CRJs, even the large RJs, will not fit the larger roll-aboard that will normally fit on mainline equipment.

Thanks! So if we take our luggage as "carry on" we will still check it at the gate and pick it up when we deboard the plane. I love it!

Quoting lucky777 (Reply 31):
Then we can agree to disagree

I don't think we disagree on the facts at all, and I don't think we really see it too differently. My main bone of contention was that - not knowing exact numbers yet - the DL profit and WN loss, when compared to the sizes of the carriers, really weren't that special one way or the other. However, you seemed to put an ominous spin on a potentially small WN loss while DL - barely breaking even on $8B in revenue - was flying high.

But maybe I'm just sensitive to the flag waving around here.  

-Dave
-Dave
 
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 8:22 am

Quoting PlanesNTrains (Reply 34):
Quoting FlyASAGuy2005 (Reply 30):

Everyone valet tags on CR9s and below. The overhead bins on the CRJs, even the large RJs, will not fit the larger roll-aboard that will normally fit on mainline equipment.

Thanks! So if we take our luggage as "carry on" we will still check it at the gate and pick it up when we deboard the plane. I love it!

Unless it's an NextGen CR7/9, that is. Of course, all of the ex-QX birds are NOT NextGen, so that ASAguy said still applies. Besides, it makes it easier to not have to carry the bag into the plane. Just don't put anything you might need during flight into it (medicine, etc.)
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panamair
Posts: 3759
Joined: Fri Oct 12, 2001 2:24 am

RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 9:04 am

Quoting lucky777 (Reply 31):
Assuming Delta breaks even, (actually they're looking for a 1-3% profit margin, which would be somewhere between $80 Million and $240 million)

Just to be clear, Delta expects a +1 to +3% operating margin (they had a -1.2% operating margin in Q1 2011), but this will still result in a Net Loss for the quarter, after interest and other non-operating expenses are taken into account (their non-op expenses usually run in the $250 - $300m range per quarter, which would essentially wipe out the operating profit).

The big "story" for Delta in Q1 will be its significant increases in RASM comapred to its peers. All three months saw double-digit increases (14.5% in Jan; 13% in Feb; and expected 11.5% for March), whereas pretty much all of its peers are reporting single-digit increases (WN had 7% in Jan; 4% in Feb; UA had 9% in Jan; an adjusted 7-8% in Feb).
 
UAL777UK
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 10:01 am

Quoting EA CO AS (Reply 29):

If WN chooses to ditch the "Bags Fly Free" campaign, now's the time to do it; with fuel prices where they are, consumers may grumble, but they'll understand.

Agrred. Get of that soap box and join the real world. Fuel is going up and its unlikely to come back down for some time and so WN need another revenue stream and join the others.

So what if they have a "Bags Fly Free" campaigh, VS for years plasterd down the side of their aircraft "4 for Longhaul" trying to get customers to book with them as they would only fly four engined aircraft not two engined. Stupid Campaign!. Well guess what, thats out the window, as they have taken delivery of A330s, and 787s will be joining the fleet in the not too distant future as well. My point being is that times change, WN needs to change and get that monkey off its back. I cannot think of an LCC in my neck of the woods that does not charge for bags.
 
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usdcaguy
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 10:09 am

Quoting panamair (Reply 36):
The big "story" for Delta in Q1 will be its significant increases in RASM comapred to its peers.

Isn't this mostly because of all the cuts in flying, which have been larger than those of its peers? I'm still scratching my head over that one. I thought if DL cut out a lot of flying, other carriers would simply pick up the slack, but that has not necessarily been the case and has enabled them to increase yield. I still don't get why other carriers were not as aggressive in cutting capacity.
 
FlyPNS1
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 12:32 pm

Quoting EA CO AS (Reply 23):
Funny, that's what most customers said of AA, UA, DL, etc. just before they started charging bags. And y'know what happened? They kept right on flying AA, UA, DL, etc.

Except that AA, UA, DL have all continued to shrink. Compared to before charging for bags, all those carriers are flying fewer and fewer passengers. The legacies are trapped in a downward capacity spiral that they can't break out of.

Of course, the real problem for WN right now is FL's network. FL wasn't part of WN's 1st quarter numbers last year, but they are this year. FL lost money in the 1st quarter last year and I'm sure they're losing even more now. Until WN can get FL integrated in, they are going to feel some real drag. Fuel prices add to the pain.

Quoting EA CO AS (Reply 29):
If WN chooses to ditch the "Bags Fly Free" campaign, now's the time to do it; with fuel prices where they are, consumers may grumble, but they'll understand.

Not as likely. WN's reputation isn't just for low fares, but also for low hassle and good service. Charging for bags will hurt WN's reputation. For the legacies, it didn't hurt their reputation as their reputation was already in the toilet.
 
commavia
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 12:51 pm

Quoting OzarkD9S (Reply 4):
WN has major expenses regarding the FL intergration. This is a short term bump down.

I doubt this is just short-term. That's part of it, no doubt. But Southwest has systemic issues to deal with.

Quoting ouboy79 (Reply 11):
Why charge for bags when you've been able to push fare increases consistently for awhile now that automatically get matched by everyone - who still charges extra for bags? WN can easily raise fares another $10-20 over a few months and avoid having to charge for bags. Meanwhile every other carrier will match the fares and still charge extra. Sure the could make more money, but at the end of the day WN could easily still come out ahead in meeting their goals.

I imagine Southwest believes the demand from their customer base - and primary revenue stream - is more elastic to bag fees than at some other airlines. And they may be right. But I still do not see how Southwest will be able to continue justifying lower margins than their large competitors for too long before their BOD simply has no choice but to deal with bag fee revenue.

Quoting F9Animal (Reply 12):
WN will indeed face challenges in the future. No matter how healthy, how much of a darling a company is.... It eventually faces difficulties. Not just WN, but any company. WN has however put lots of money away for rainy days, which will help the company weather difficulties. Fuel is every airlines enemy... Even WN is feeling it. Sure hope this industry finds a way to run these birds on cooking oil!

Indeed. While the last decade started out as a disaster for the "legacy" airlines - having to fundamentally reevaluate their business models, this one is starting out far more challenging (but certainly not a "disaster") for America's first and largest non-"legacy" airline: Southwest. They are facing what any mature business faces at this stage of its life cycle - as the book says, "What Got You Here When Get You There."

Southwest has built its ethos and identity on being different from their competitors, but the reality is that what used to differentiate Southwest from their competitors - substantially lower costs, and substantially better service - is no longer really a differentiators. There are now airlines with lower costs, and there are also carriers with a better product/service offering. In many ways, Southwest is now in the muddle with everyone else, and their culture has to learn how to deal with that.

Quoting Silver1SWA (Reply 17):
I don't think they were hiding anything. In fact, past quarterly losses over the past few years were reported because of their hedges.

Well, what they were "hiding" (in a sense) was the fact that for much of the last decade, while most of its largest competitors were mired in restructuring (inside or outside bankruptcy), Southwest was actually experiencing some of the most severe and dramatic non-fuel cost escalation while many of said competitors were slashing costs and restructuring their business models in bankruptcy. What that means is that today, sans fuel hedges, Southwest's costs are still lower than most of their legacy peers, but the gap has dramatically narrowed.

In order for Southwest to remain the financial juggernaut and darling of the industry that it has always been, it has to always make sure that its cost gap always remains larger than its revenue gap versus the network airlines. That is becoming increasingly challenging to do, which is precisely why we have seen Southwest (post-hedges) make so many changes to their own business model, and in many ways begin to emulate the network airlines, in an effort to drive more revenue from their network. I think it is quite plausible that at some point bag fees will become part of that endeavor - there is simply too much money being left on the table.

Quoting Silver1SWA (Reply 17):
I have been told by many friends that if Southwest charged for bags, they would fly someone else. I'm sure they aren't alone.

And fly who instead? There are still a very small group of airlines out there in the U.S. that don't charge for the first bag, but not many.

Quoting MSPNWA (Reply 21):
Considering the current economic environment for airlines, I'd challenge any of the legacies to make money on just their mainline, domestic operations.

But that's kind of the point: Southwest's post-bankruptcy competitors have more competitive costs than before (mainline and otherwise), and have access to new and emerging revenue streams that Southwest doesn't precisely because of their ability to flexibly adapt capacity with demand - i.e., RJs in smaller markets, longhaul/international, etc.). Southwest generally does not have that diversity of revenue.

Quoting FlyPNS1 (Reply 39):
Except that AA, UA, DL have all continued to shrink.

... but if those carriers, post-restructuring, and with-bag fees, are generating superior margins to Southwest, than isn't that the point?
 
rampart
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 12:52 pm

Quoting EA CO AS (Reply 32):
Look at the past few years!

Wow, what happened in late September 2010?? Nearly 40 million shares traded in one day (less than 10 million/day weeks before and after), followed by a 21% increase in share price. Insider trading, anyone?    And what was the reason behind the dropping so fast in Summer 2011?

Quoting ual777uk (Reply 37):
VS for years plasterd down the side of their aircraft "4 for Longhaul" trying to get customers to book with them as they would only fly four engined aircraft not two engined. Stupid Campaign!.

I doubt "4 for longhaul" generated more than a handful of customers. Free bags, does generate more than a handful of customers.

-Rampart
 
HPRamper
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 12:52 pm

Quoting lucky777 (Reply 20):
In fact, if i'm not mistaken DAL took a fairly sizable loss in the 1st quarter of 2011, so if they can eke out a profit, not matter how small, its pretty impressive.
Quoting PlanesNTrains (Reply 22):
Yet the worlds second largest carrier can "eke out" a tiny profit and it's "pretty impressive"? The difference between DL's profit and WN's loss may be in the tens of millions of dollars. Yet Delta has twice the revenue of WN.

I'm not sure I'd be holding my widget flag too high.

If I remember correctly, DL took that sizable loss due largely to the Japan earthquake/tsunami which put the stops of their whole operation over there. WN, obviously, did not have to deal with that disaster in any way.

Quoting PlanesNTrains (Reply 24):
Totally off topic - ha ha - so don't answer if it's a little silly, but do the SkyWest CR7 flights gate check bags? When we flew QX CR7's to Long Beach some years back you could check your carry-on roller's at the gate rather than take them onboard. Does SkyWest do this as well on this equipment when flying for Alaska

Yes, this is not really a company-specific policy but one that is common to regional jets. The bins just plain are not as big as those on mainline aircraft (the ones the rollaboards are designed for). Normally the gate agent will give carryons the eyeball check and decide which ones need to be gate checked - or they simply demand that ALL rollaboard-type bags be checked.

Quoting EA CO AS (Reply 29):
If WN chooses to ditch the "Bags Fly Free" campaign, now's the time to do it; with fuel prices where they are, consumers may grumble, but they'll understand.

I think a smart way to ease in the policy while alienating the least number of pax would be to still let the first bag fly free, and only charge a nominal fee for the second on. Even if it's only ten bucks a bag.
 
FlyPNS1
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 1:04 pm

Quoting commavia (Reply 40):
... but if those carriers, post-restructuring, and with-bag fees, are generating superior margins to Southwest, than isn't that the point?

But the only reason those carriers are generating better margins is because of bankruptcy reduced costs...not bag fees. However, these low costs won't last. Eventually, the legacies will face rapidly rising costs (particularly labor) and shrinking networks that further drive up costs. The only hope the legacies have is that they can cut so much capacity as to drive up fares enough to offset their costs.

Quoting commavia (Reply 40):
And fly who instead?

No one. WN has a disproportionately high number of short-haul and leisure travelers relative to the legacy carriers. These types of people will simply stop flying altogether.
 
Silver1SWA
Crew
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 1:10 pm

Quoting commavia (Reply 40):
And fly who instead? There are still a very small group of airlines out there in the U.S. that don't charge for the first bag, but not many.

From the examples I have been told personally, they would fly anyone else who offers more as far as inflight services and more nonstop options. Right now no bag fees is the deal maker for them. Take that away and level the field, they will prefer someone else.

[Edited 2012-03-14 06:28:53]
ALL views, opinions expressed are mine ONLY and are NOT representative of those shared by Southwest Airlines Co.
 
GentFromAlaska
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 1:27 pm

Quoting EA CO AS (Reply 2):
Gosh, if only they had an ongoing ancillary revenue source, equivalent to a decent fare increase

I thought they did. The optional $10 for a accelerated boarding group assignment. I understand this is a significant revenue generator for WN.
Man can be taken from Alaska. Alaska can never be taken from the man.
 
peanuts
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:19 pm

Quoting PlanesNTrains (Reply 28):
I think it's clear that there are multiple things at play right now for LUV.

Correct. For anyone to downplay this as a "bump" is sheer ignorance. A loss for WN is HUGE, any loss.
They are not as resilient as many always assumed. To play with the big dogs, you will get "big dog" problems yourself. And we haven't even started discussing international markets or Hawaii.
I've always believed ATL/FL will represent WN's reality check. Not because of ATL and/or FL, it's just a part of it. ATL/FL represent a turnaround in WN's good fortunes, so to speak.

Quoting MaverickM11 (Reply 25):
The next four years are going to be much harder than the first forty for WN.

Correct.

And the "about face" we will see one day regarding bags will go down in marketing history as one of the biggest holes a company has had to dig themselves out of.

Quoting FlyPNS1 (Reply 39):
The legacies are trapped in a downward capacity spiral that they can't break out of.

I beg to differ. Mergers have been an important factor with capacity adjustments and rightsizing an aviation market that was out of control capacity wise for the past 15 years. They will surely "break out" of that "spiral". It's a bit more complicated actually, with regionals involved and markets WN wouldn't even touch.

The rise in oil will be a bear for any airline. This day and age, it appears the legacies have more leverage to get themselves through some of the down times more efficiently.
 
FlyPNS1
Posts: 5260
Joined: Wed Dec 01, 1999 7:12 am

RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:30 pm

Quoting peanuts (Reply 46):
A loss for WN is HUGE, any loss.

WN has had quarterly losses before, so it's not a big deal really.

Quoting peanuts (Reply 46):
They will surely "break out" of that "spiral".

Except that the order books say otherwise. If you look at aircraft order versus aircraft retirements, the legacies have no real plans to grow for the next decade.

WN has tougher times ahead no doubt, but I think many will be surprised at how tough things get for the legacies.
 
jetlanta
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:42 pm

Quoting FlyPNS1 (Reply 47):
WN has had quarterly losses before, so it's not a big deal really.

With all due respect, there are a lot of folks sitting in offices at Love Field who vehemently disagree with you. It is a big deal. And its not an issue of WN versus the legacies. It is an issue of WN versus itself. The winds of change are blowing in Dallas.
 
MaverickM11
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RE: Southwest Expects 1st Quarter Loss...

Wed Mar 14, 2012 2:51 pm

Quoting FlyPNS1 (Reply 43):
But the only reason those carriers are generating better margins is because of bankruptcy reduced costs...not bag fees.

It's two fold. Yes, they've reduced costs in bankruptcy, but they've also squeezed more blood out of that rock on the revenue side. It's important to also remember that had those carriers not gone through bankruptcy, they would have gone out of business, accelerating the growth of nimbler, lower cost competitors to WN.

Quoting FlyPNS1 (Reply 43):
However, these low costs won't last. Eventually, the legacies will face rapidly rising costs (particularly labor) and shrinking networks that further drive up costs.

How does this not also apply to WN? This is exactly what is happening at WN; those great labor relations at WN have been bought, and they're not cheap.
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