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airliner371
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Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 12:16 pm

-Net income of $388 million, or $.62 per diluted share, compared with third quarter 2015 net income of $584 million, or $.88 per diluted share.

-Excluding special items, net income of $582 million, or $.93 per diluted share, compared with third quarter 2015 net income of $623 million, or $.94 per diluted share. This compared to First Call third quarter 2016 consensus estimate of $0.88 per diluted share.

-Operating income of $695 million, resulting in an operating margin of 13.5 percent.

-Excluding special items, operating income of $972 million, resulting in an operating margin of 18.9 percent.

-Operating cash flow of $856 million; free cash flow of $392 million; returned $312 million to Shareholders through a combination of dividends and share repurchases.

-Return on invested capital (ROIC) for 12 months ended September 30, 2016 of 32.3 percent.

http://investors.southwest.com/news-and ... -113139156

"The successful implementation of our new reservation system is a top priority for this quarter. The first release is currently scheduled for December, and final technology readiness is progressing as planned."

"We are excited about the fourth quarter 2016 scheduled launch of new service to Cuba from Florida, as well as Mexico service from Los Angeles International Airport. Also, we are on track for completion of a new five-gate international terminal in Ft. Lauderdale with new international routes planned for mid-2017."

"We also have exciting growth opportunities beyond those planned for next year. We will continue to manage our growth prudently in light of the revenue environment and increasing fuel prices. We plan to slow our 2017 available seat mile growth rate to less than 4.0 percent, year-over-year, with approximately 2.0 points of the increase relating to domestic growth."
 
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piedmontf284000
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 12:27 pm

They reported a 33.6 percent decline in quarterly profit. Not good. They are blaming part of it on a result of a technology outage in July. That really came back to haunt them.

The company's shares are down 6.7 percent at $39.15 in premarket trading. It's going to be very active today...mostly in negative territory I would imagine.
 
airliner371
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 12:28 pm

airliner371 wrote:
"The successful implementation of our new reservation system is a top priority for this quarter. The first release is currently scheduled for December, and final technology readiness is progressing as planned."

"We are excited about the fourth quarter 2016 scheduled launch of new service to Cuba from Florida, as well as Mexico service from Los Angeles International Airport. Also, we are on track for completion of a new five-gate international terminal in Ft. Lauderdale with new international routes planned for mid-2017."

"We also have exciting growth opportunities beyond those planned for next year. We will continue to manage our growth prudently in light of the revenue environment and increasing fuel prices. We plan to slow our 2017 available seat mile growth rate to less than 4.0 percent, year-over-year, with approximately 2.0 points of the increase relating to domestic growth."

Good to see the res system is still on schedule.

Interested to see what they add at FLL.

So to recap that last point, THEY WILL GROW IN 2017, somewhere between 2-4%... before that gets misconstrued by a certain user on this site that starts with "en" and ends with "ria."
 
crazytoaster
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 12:41 pm

Curious to see what adds they have from FLL. Guessing that it will be for the booking period after next (next is Nov 1 release but only for 2 weeks...)

Will we actually see new International destinations. BOG, SXM, PTY all come to mind and makes sense from FLL.
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airliner371
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 12:45 pm

Gary Kelly on CNBC this morning...

http://video.cnbc.com/gallery/?video=3000562625
 
Cubsrule
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 1:00 pm

One other recent, rapid change that has gotten very little press is that rollout of self-tagging of checked bags at many stations, even smaller ones. This has occurred nationwide over the past 45 days or so. I don't know if it will show up in financials quite yet since staffing does not seem to have changed, but I like the system and they seem to have succeeded in installing it in a wide variety of checkin halls.
I can't decide whether I miss the tulip or the bowling shoe more
 
MIflyer12
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 1:26 pm

piedmontf284000 wrote:
They reported a 33.6 percent decline in quarterly profit. Not good. They are blaming part of it on a result of a technology outage in July. That really came back to haunt them.


DL, AA, UA, and AS all reported declines in GAAP after-tax profit year over year. Not all suffered tech outages. It's possible the U.S. industry has peaked in this cycle.
 
GSPSPOT
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 2:14 pm

MIflyer12 wrote:
piedmontf284000 wrote:
They reported a 33.6 percent decline in quarterly profit. Not good. They are blaming part of it on a result of a technology outage in July. That really came back to haunt them.


DL, AA, UA, and AS all reported declines in GAAP after-tax profit year over year. Not all suffered tech outages. It's possible the U.S. industry has peaked in this cycle.

Maybe so, but the fares surely aren't at bargain rates overall and airlines seem to be managing capacity pretty tightly.
Great Lakes, great life.
 
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LAXintl
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 2:17 pm

Pretty bad.

Stock taking a major tumble - down 11.7% as of 10:15 eastern.
From the desert to the sea, to all of Southern California
 
DickAnderson666
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 2:21 pm

LAXintl wrote:
Pretty bad.

Stock taking a major tumble - down 11.7% as of 10:15 eastern.


Yeah this is only the beginning. Pretty bad RASM guidance for 4Q and then couple that with the labor TAs that, if voted in, will raise costs by over half a billion a year.

Hard to be optimistic about WN's future.
 
winginit
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 2:34 pm

DickAnderson666 wrote:
Pretty bad RASM guidance for 4Q and then couple that with the labor TAs that, if voted in, will raise costs by over half a billion a year.

Hard to be optimistic about WN's future.


Surely those increased labor costs will bring them within the CASM range of the legacies if you don't consider them in line already. Per Oliver Wyman, back in Q2 2015 (most recent data I could quickly pull up) system CASM was:

United: 12.2
Delta: 11.9
American: 11.8
Southwest: 11.0

The question is, at what point can Southwest no longer honestly consider themselves low cost?
 
DickAnderson666
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 2:39 pm

winginit wrote:

Surely those increased labor costs will bring them within the CASM range of the legacies if you don't consider them in line already. Per Oliver Wyman, back in Q2 2015 (most recent data I could quickly pull up) system CASM was:

United: 12.2
Delta: 11.9
American: 11.8
Southwest: 11.0

The question is, at what point can Southwest no longer honestly consider themselves low cost?


I completely agree with you, but I honestly don't think cost is the problem. Look at the product you get on WN vs the other carriers. Much worse for now same cost. And any investment in the product just increases their costs more. Not a winning formula.
 
commavia
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 2:43 pm

MIflyer12 wrote:
DL, AA, UA, and AS all reported declines in GAAP after-tax profit year over year. Not all suffered tech outages. It's possible the U.S. industry has peaked in this cycle.

DickAnderson666 wrote:
Yeah this is only the beginning. Pretty bad RASM guidance for 4Q and then couple that with the labor TAs that, if voted in, will raise costs by over half a billion a year


What I find more interesting is the contrast in tone between primarily the network carriers and, say, JetBlue and Southwest. Whereas all three of AA, Delta and United spoke about seeing improving trends and potentially "turning the corner" on RASM across most of their networks (with the notable and unanimous exception of Europe), JetBlue and Southwest seem to be taking a far more cautious, if not even negative, tone regarding Q4 and going forward.

DickAnderson666 wrote:
Hard to be optimistic about WN's future.


That Southwest faces major, structural, challenges that need to be addressed is not news. This has been quite clear to anyone paying attention for a decade. We'll see how it pans out - Southwest is a very well-run company with lots of really smart people.

winginit wrote:
The question is, at what point can Southwest no longer honestly consider themselves low cost?


I think that train has long since left the station (or plane left the gate, as it were). Southwest hasn't been the lowest cost competitor in many if not most of its markets for years now, and its continual cost creep as it buys labor peace and makes critical, long overdue investments in infrastructure like IT are clearly taking a toll.
 
winginit
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 2:50 pm

commavia wrote:
I think that train has long since left the station (or plane left the gate, as it were). Southwest hasn't been the lowest cost competitor in many if not most of its markets for years now, and its continual cost creep as it buys labor peace and makes critical, long overdue investments in infrastructure like IT are clearly taking a toll.


I agree with you, but if you spend any amount of time in their HDQ or with their employees, not only will they proclaim that they're still a low cost carrier, but they'll say they're the low cost carrier; and a lot of their core marketing messages still focus on the cost savings to the customer. I generally don't mind flying Southwest on account of their friendly service, but I feel as though that's what they should be starting to focus on in their consumer messaging. The fracturing of the low cost facade is starting to be visible even to your run of the mill consumer.
 
ScottB
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 4:30 pm

DickAnderson666 wrote:
Look at the product you get on WN vs the other carriers. Much worse for now same cost. And any investment in the product just increases their costs more. Not a winning formula.


It's not exactly clear to me what's "better" about the product on the legacy carriers unless one MUST have an assigned seat (and a good one usually costs extra) or is willing to pay substantially more for first class. They've got streaming IFE/TV/Wi-Fi on most of the fleet and offer the same or better beverage/snack service in Y as compared to the legacies. Leg room is similar or better as well unless you have chosen to pay more for an extra legroom seat on the legacy carrier. Oh, and they throw in two complimentary checked bags and don't charge change fees. And you don't end up with the bait-and-switch to a regional carrier with poorer reliability.

commavia wrote:
Southwest hasn't been the lowest cost competitor in many if not most of its markets for years now, and its continual cost creep as it buys labor peace and makes critical, long overdue investments in infrastructure like IT are clearly taking a toll.


It seems like the entire industry is buying labor peace at this time; LUV isn't alone in that respect. And unless their management is extraordinarily dumb, the IT investments should end up being paid for by improvements in the top & bottom line. It is indeed true that they no longer have the absolute lowest costs in the industry, but they're still below pretty much everyone but the ULCCs and the track record of the ULCCs in head-to-head markets against WN is mixed at best.

winginit wrote:
Surely those increased labor costs will bring them within the CASM range of the legacies if you don't consider them in line already. Per Oliver Wyman, back in Q2 2015 (most recent data I could quickly pull up) system CASM was:

United: 12.2
Delta: 11.9
American: 11.8
Southwest: 11.0


Those numbers aren't quite system CASM as they only include mainline operations and exclude higher-cost regional service. Moreover, simply looking at mainline system CASM without adjusting for length-of-haul is misleading given that short-haul flying typically brings higher unit costs (but also higher unit revenue as well). WN's system unit revenue on the same page of the report was second only to DL.

winginit wrote:
if you spend any amount of time in their HDQ or with their employees, not only will they proclaim that they're still a low cost carrier, but they'll say they're the low cost carrier; and a lot of their core marketing messages still focus on the cost savings to the customer. I generally don't mind flying Southwest on account of their friendly service, but I feel as though that's what they should be starting to focus on in their consumer messaging. The fracturing of the low cost facade is starting to be visible even to your run of the mill consumer.


My impression from the "Transfarency" campaign is that WN has been emphasizing the value provided; i.e. reasonable prices without a ton of hard-to-avoid fees tacked on. And you can still see the difference in markets where WN isn't present as a competitor when comparing to similar markets; i.e. compare the average CHI-CVG fare of $303 (a market with three "competitors") to CHI-CMH ($184), CHI-CLE ($193), and CHI-SDF ($173). WN tends to be more disruptive to the legacies given that the latter are forced to match WN pricing more broadly than they match ULCCs; i.e. the legacies are choosing to match G4/NK/F9 selectively with products like DL's Basic Economy which is not competitive with the WN product.
 
FlyPNS1
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 6:26 pm

commavia wrote:
That Southwest faces major, structural, challenges that need to be addressed is not news. This has been quite clear to anyone paying attention for a decade. We'll see how it pans out - Southwest is a very well-run company with lots of really smart people.


I don't think WN really faces any major structural challenges. About the only challenge is managing employee expectations on wages/benefits, but otherwise I don't see what major structural changes WN needs. However, this issue won't be unique to WN. Most of the legacy carriers will face a similar problem if not worse as legacy employees attempt to "claw back" bankruptcy loses.

Yes, there's some IT upgrades that are coming, but not sure I would call those structural changes either.

commavia wrote:
What I find more interesting is the contrast in tone between primarily the network carriers and, say, JetBlue and Southwest. Whereas all three of AA, Delta and United spoke about seeing improving trends and potentially "turning the corner" on RASM across most of their networks (with the notable and unanimous exception of Europe), JetBlue and Southwest seem to be taking a far more cautious, if not even negative, tone regarding Q4 and going forward.


I think the legacy three are generally far more optimistic in their calls as they are more focused on making Wall Street happy. The last few quarters we've repeatedly heard DL talk about turning the corner, only to later push that "turner corn" off another quarter. And of course UA was the master of promising a brighter future even when that enthusiasm was hard to justify.
 
dc10lover
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 6:48 pm

Is Southwest still paying for fuel hedge? They should have just ride out for the cost of fuel. (No fuel hedging)
Why endure the nightmare and congestion of LAX when BUR, LGB, ONT & SNA is so much easier to fly in and out of. Same with OAK & SJC when it comes to SFO.
 
dc10lover
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 7:00 pm

MIflyer12 wrote:
piedmontf284000 wrote:
They reported a 33.6 percent decline in quarterly profit. Not good. They are blaming part of it on a result of a technology outage in July. That really came back to haunt them.


DL, AA, UA, and AS all reported declines in GAAP after-tax profit year over year. Not all suffered tech outages. It's possible the U.S. industry has peaked in this cycle.

I think a slowdown in growth is happening in the industry.
Why endure the nightmare and congestion of LAX when BUR, LGB, ONT & SNA is so much easier to fly in and out of. Same with OAK & SJC when it comes to SFO.
 
airzona11
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 7:02 pm

DickAnderson666 wrote:

I completely agree with you, but I honestly don't think cost is the problem. Look at the product you get on WN vs the other carriers. Much worse for now same cost. And any investment in the product just increases their costs more. Not a winning formula.


What is "much worse" or even worse? Wifi is less expensive. Live TV on nearly all flights. Heck even beer and booze costs less on board? No checked bag fee? Miles you earn have nearly ZERO restrictions.

I agree with others showing the easy money time is winding down for the airlines. For those with the doom and gloom outlook for Southwest, history would say otherwise.

Seems inline with other carriers.
 
a380787
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 7:06 pm

It's *only* down 7.9% by 3pm ET, but that's not exactly comforting or reassuring.
 
winginit
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 7:39 pm

airzona11 wrote:
Seems inline with other carriers.


I'll argue that wall street strongly disagrees with you if you look at the stock performance over the time period within which the US3+WN announced earnings...
 
airzona11
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 7:54 pm

winginit wrote:
airzona11 wrote:
Seems inline with other carriers.


I'll argue that wall street strongly disagrees with you if you look at the stock performance over the time period within which the US3+WN announced earnings...


I think that has more to do with their guidance for 2017. I was referencing their performance for Q3. Either way you skin it, that is a large amount of profit for a quarter (I said that same thing about the other carriers).
 
alasizon
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 8:03 pm

dc10lover wrote:
MIflyer12 wrote:
piedmontf284000 wrote:
They reported a 33.6 percent decline in quarterly profit. Not good. They are blaming part of it on a result of a technology outage in July. That really came back to haunt them.


DL, AA, UA, and AS all reported declines in GAAP after-tax profit year over year. Not all suffered tech outages. It's possible the U.S. industry has peaked in this cycle.

I think a slowdown in growth is happening in the industry.

The slowdown of growth is almost an entire slowdown of Mainline capacity growth. There is a lot of regional capacity that can be added by the US3 + AS that is still healthy growth. WN can't match a lot of that growth due to their operating structure and station requirements. I admit long gone are the days that WN opens a station with 10-12 daily flights but it certainly is hard to open a non-California station of any size with only one or two flights a day and expect that the 120 people will come in a relatively short time frame.
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commavia
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 8:23 pm

FlyPNS1 wrote:
I don't think WN really faces any major structural challenges. About the only challenge is managing employee expectations on wages/benefits, but otherwise I don't see what major structural changes WN needs. However, this issue won't be unique to WN. Most of the legacy carriers will face a similar problem if not worse as legacy employees attempt to "claw back" bankruptcy loses.


I strongly disagree.

Not only does Southwest continue to face the perpetual challenge of "managing employee expectations on wages/benefits" when Southwest's labor costs, even adjusting for productivity, are now among the highest in the industry. Beyond that, and the major hurdles and risks associated with catching up on arguably 1-2 decades of IT infrastructure upgrades, I think there's also the intractable challenge of finding continued opportunities for improving financial performance.

Traditionally, companies improve financial performance and create value for shareholders through one or both of (1) cost reduction and/or (2) growth. The first thirty years of Southwest's existence was essentially a massive exercise in a symbiotic relationship between (1) and (2) - a relentless focus on both absolute and unit costs, combined with continued cost improvement as a result of perpetual, growth-driven economies of scale. Both of those are now partly or fully over. Southwest isn't nearly as cost competitive - in absolute or unit terms - as it once was. And growth, too, is now largely tapped out for Southwest's existing business model - at least relatively speaking. Realistically, operating a fleet of only mainline-sized, narrowbody jets, there is just realistically nowhere near as much organic growth left ahead of Southwest compared to how it's grown in the last several decades. Sure, there are plenty of places in Latin America inside the range of a 737, but realistically, Southwest's delays in moving there have meant that it never faces a far, far more complex and challenging competitive environment with not one but multiple large, entrenched U.S. and foreign low fare (and lower-cost) rivals. Beyond that, any other meaningful international growth would likely require a different (larger) aircraft type - major, major change. And any other meaningful domestic growth would likely require a different (smaller) aircraft type - again, major, major change.

I'm not saying that Southwest cannot meet and overcome these challenges. But I do think these challenges are real, and major.

FlyPNS1 wrote:
I think the legacy three are generally far more optimistic in their calls as they are more focused on making Wall Street happy. The last few quarters we've repeatedly heard DL talk about turning the corner, only to later push that "turner corn" off another quarter. And of course UA was the master of promising a brighter future even when that enthusiasm was hard to justify.


I'm not so sure. The numbers speak for themselves - all three network carriers showed meaningful unit performance improvements in some or all of their regional entities. Excluding the Atlantic - where the competitive capacity challenges are well-known - AA, Delta and United seem to be turning the corner. AA seems to be lapping the massive capacity headwinds in DAL and more broadly and is approach YOY flat PRASM domestically, is back positive to Latin America after lapping the Brazil challenges, and is still seeing Asia PRASM softness owing in no small part to its own new capacity. Delta, similarly, seems to be moderating domestic PRASM weakness and is back positive YOY to Latin America, and United, too, is approaching positive YOY PRASM domestic and Latin, and is basically there to Asia.

In short - with their numbers taken in the context of the commentary on the Q3 calls, I'm not sure that the network carriers' more positive tone is just telling Wall St what they want to hear, and may well actually be reflective of the realities they're seeing.
 
IPFreely
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 8:46 pm

DickAnderson666 wrote:
Look at the product you get on WN vs the other carriers. Much worse for now same cost.


You haven't flown Southwest and the other majors domestically. If you had you would know how wrong this statement is. Mainline vs mainline Southwest is slightly worse, mainly because of the lack of assigned seats and cattle car style boarding. But unlike the other carriers, Southwest actually operates all its own flights. And for short and medium haul domestic flying, Southwest is far superior to Delta Connection or any of the other underperforming regional carriers.
 
jwvw89
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 8:56 pm

IPFreely wrote:
DickAnderson666 wrote:
Look at the product you get on WN vs the other carriers. Much worse for now same cost.


You haven't flown Southwest and the other majors domestically. If you had you would know how wrong this statement is. Mainline vs mainline Southwest is slightly worse, mainly because of the lack of assigned seats and cattle car style boarding. But unlike the other carriers, Southwest actually operates all its own flights. And for short and medium haul domestic flying, Southwest is far superior to Delta Connection or any of the other underperforming regional carriers.


I can agree with you on the lack of seat assignments, but I actually find WN's boarding process at the gate to be more organized than the clusterf*ck that occurs at the gate for AA. At least with WN you get people in to nice lines, you know where you are supposed to be, and you walk to the gate orderly. With AA and other legacies everyone stands near the gate agent, you have no idea which group they are calling or what group the people huddled around the gate are in.
 
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flymco753
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 9:15 pm

This gives me some hope that MCO-DTW will return full time and possibly seasonal additions from FLL/TPA/RSW-DTW should WN choose to add those. I wonder too if some stations like FNT, CAK, and DAY will close and operations be moved to DTW, CLE, and CVG.
...the carriage of liquids, gels, and aerosols are prohibited through the screening checkpoint except for travel size toiletries of 3 ounces or less...
 
airliner371
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 9:19 pm

Some notes, the new res system will begin bookings in December, with a full transition in May. Also, the first batch of FLL international routes will be announced in January.

flymco753 wrote:
This gives me some hope that MCO-DTW will return full time and possibly seasonal additions from FLL/TPA/RSW-DTW should WN choose to add those. I wonder too if some stations like FNT, CAK, and DAY will close and operations be moved to DTW, CLE, and CVG.

Sorry to disappoint but none of this info should give you hope for any of those specific routes.
 
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LAXintl
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 9:25 pm

JP Morgan summarized today as follows:

Southwest, like others this season, has guided to a Q4 outcome softer than consensus. Unlike others, however, the magnitude of its miss will not likely be overlooked by the market, given it suggests management is increasingly must content with lower forecasted returns given gently rising fuel and sharply rising labor costs.

Southwest’s Q4 RASM guidance of -4% to -5% suggests sequential worsening vs. the -4.1% result in Q3 – this despite the fact that Delta, American, and United have each pointed to sequentially better Q4 RASM amid negative yet stabilizing yield environments and tighter revenue management processes. To be fair, Southwest has a larger leisure mix vs. the Big 3, and this year’s return holiday travel falling in January is likely to have a bigger negative impact.

Conspiracy theorists may suggest Southwest is purposely underperforming in hopes of achieving less onerous labor outcomes. Anything is possible, but given the forecasted $600 to $800 million incremental labor expense outcome of all its renewed contracts, there's nothing to suggest that any such campaign of deliberate underperformance is working. Southwest needs nearly five full points of additional RASM to neutralize for higher labor in 2017 all else equal. If shareholder demands that management revisit its aversion to self-help mechanisms like bag fees has already crescendoed to all-time highs, we suggest it's time investors turn the volume knob up to eleven.
From the desert to the sea, to all of Southern California
 
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flymco753
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 9:31 pm

airliner371 wrote:
Sorry to disappoint but none of this info should give you hope for any of those specific routes.
:shock:
...the carriage of liquids, gels, and aerosols are prohibited through the screening checkpoint except for travel size toiletries of 3 ounces or less...
 
commavia
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 9:39 pm

I think Cowen's take on what to listen for on the call were equally illuminating on Wall St's perspective ...

What We Are Listening For On The Call...
* Beating A Dead Horse. We expect the majority of the Q&A session on the conference call will discuss the near-term unit revenue outlook for the company. Most will view the deteriorating unit revenue performance negatively. We are more concerned with 2017 rather than 4Q16, but 1Q17 is a difficult y/y comparison. Southwest has historically been slow to reduce capacity after they load it in the system, so the issues in 4Q16 were likely not fixable from when concerns arose on the 2Q16 earnings call. The comps will be the most challenging for Southwest in 1H17, but the company is slowing capacity growth which should help to mitigate some of the issues.
* Labor. Southwest has tentative agreements with all of its major labor groups. The company guided 4Q16 non-fuel unit costs to include ratified labor agreements which, in our opinion, are far from guaranteed at this point. Management likely won't comment too much on the labor agreements but that won't keep the analysts from asking the questions.


Bottom line is that among JP, BofA, Cowen ... they all had similar sentiments. Whether any of us like it or not, analysts seem to remain skeptical that Southwest management fully appreciates, or agrees with, the level of overcapacity that Wall St thinks exists domestically, considering that even after a lower guide Southwest is still planning more capacity growth through 4Q16 and into 2017 than the network carriers. Again - right or wrong, like it or not, I think that as much as anything explains the stock performance today.
 
DickAnderson666
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 10:08 pm

IPFreely wrote:

You haven't flown Southwest and the other majors domestically. If you had you would know how wrong this statement is. Mainline vs mainline Southwest is slightly worse, mainly because of the lack of assigned seats and cattle car style boarding. But unlike the other carriers, Southwest actually operates all its own flights. And for short and medium haul domestic flying, Southwest is far superior to Delta Connection or any of the other underperforming regional carriers.



Hmm...I must've just dreamed the 170 segments I've flown on WN in the last 10 years. And I have flown all the legacy carriers domestically multiple times within the last 12 months.

Here's just a few of the many things where WN is worse:

Boarding process (though TBH probably UA is worse)
No assigned seats
Lack of in seat power
No lounges
Loyalty program - very limited elite benefits, bad redemption options (no Hawaii and limited international and no partners)
On time performance worse than OA mainline
No premium economy or any upgraded product
No buy onboard

You may have a different opinion than me and that's fine, but don't tell me I haven't actually experienced the product offerings.
 
MSPNWA
Posts: 3698
Joined: Thu Apr 23, 2009 2:48 am

Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 10:19 pm

In general, Wall Street has a blind fixation on revenue performance. They're out for a quick buck and don't understand the airline industry well for long-term returns. Stock prices are a poor indicator of the health of an airline these days. WN has its challenges, but the IT transformation should help them immensely going forward.
 
IPFreely
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 10:57 pm

DickAnderson666 wrote:
Hmm...I must've just dreamed the 170 segments I've flown on WN in the last 10 years. ....Here's just a few of the many things where WN is worse:



WN is so much worse in every area that after your first segment you only went back for 169 more? That makes as much sense as a waterproof towel.
 
FriscoHeavy
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 11:20 pm

Everyone who thinks WN is in trouble and as "structural issues" needs to chill out. Quit preaching doom and gloom. Probably the same crowd that believes you can't get an 8%+ return on stock funds long-term because the future is going to supposedly be worse than the last 100 years. You have no idea what you're talking about.

Sure, WN is facing competition, just like every airline, which is great for all of us. I can tell you that they will be the last airline standing in the USA if the shit hits the fan. Yes, WN's costs have gone up, but so are all the other major 3, especially with most of them inking new labor deals. So see, WN isn't somehow in trouble over having one "questionable" quarter...mind you, they still make a ton of money.

The fault with all the airlines is that they are inking all these new labor deals and giving huge raises when we have likely hit the top of the economic cycle. In the matter of a few years, they will all likely have to restructure the contracts (take a pay cut).

Trust me, WN will be just fine so all you naysayers need to calm down and try to think realistically.
Whatever
 
commavia
Posts: 11489
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Wed Oct 26, 2016 11:26 pm

FriscoHeavy wrote:
Everyone who thinks WN is in trouble and as "structural issues" needs to chill out. Quit preaching doom and gloom. Probably the same crowd that believes you can't get an 8%+ return on stock funds long-term because the future is going to supposedly be worse than the last 100 years. You have no idea what you're talking about.

FriscoHeavy wrote:
Trust me, WN will be just fine so all you naysayers need to calm down and try to think realistically.


I don't think any "naysayers" are "preaching doom and gloom" here. Southwest has significant, structural challenges and issues that it has to deal with. At least to me, that doesn't seem debatable. That doesn't mean Southwest is doomed for failure. Quite the opposite. As said repeatedly, Southwest is an exceptionally well-run airline with lots of very smart people. I'm sure Southwest will be fine, and figure out how to navigate these challenges and issues. But that said, the fact that I think all of us are confident that Southwest will find a way to solve its problems doesn't change the fact that it does, indeed, have problems.
 
DickAnderson666
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 12:25 am

IPFreely wrote:

WN is so much worse in every area that after your first segment you only went back for 169 more? That makes as much sense as a waterproof towel.


I lived near BWI so few other nonstop options. Now that I have other options, the equation is much different. Why do you think that WN tries to dominate the locations they serve? So that no one has a choice and has to pick them.

Look I'm not saying WN is a bad carrier, I'm just saying if I have a choice I'm picking a carrier who has the amenities I mentioned.
 
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BMWdrvr75
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 4:07 am

IPFreely wrote:
DickAnderson666 wrote:
Look at the product you get on WN vs the other carriers. Much worse for now same cost.


You haven't flown Southwest and the other majors domestically. If you had you would know how wrong this statement is. Mainline vs mainline Southwest is slightly worse, mainly because of the lack of assigned seats and cattle car style boarding. But unlike the other carriers, Southwest actually operates all its own flights. And for short and medium haul domestic flying, Southwest is far superior to Delta Connection or any of the other underperforming regional carriers.


I would agree on the Southwest product being on par if not a bit better than a regional carrier. Unfortunately they are more than a regional carrier. I think they could do so much more to win over the business customers and not treat every single flight as a regional flight. As the Max arrives WN should add power ports at a minimum, a premium economy or business class seats would be a good fit for their longer flights. It seems to me the WN marketing and inflight service folks are afraid of change from approach to their regional inflight product.
We Make Flying Easy......Come fly the Silver Bird........Something Special in the Air......
 
airliner371
Topic Author
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 5:24 am

People seem to be forgetting what SWA is. They are not a legacy carrier. I'm not even going to say they are a LCC, they are a hybrid like B6 and debatably AS (even though technically AS is a legacy airline). They are not going to please everyone so they try to please their base, and they do.

If you want first class, they are not the airline for you. The whole idea of Southwest is that everyone is gets treated the same and their is no "second class" as Gary Kelly says. Southwest isn't for everyone and if its not for you, that's why their are other airlines to choose from, and SWA acknowledges that. You don't fly Spirit and expect to be pampered. Southwest is not Spirit but you don't fly Southwest thinking you are getting a legacy product either.

There are some things I wouldn't be super surprised to see them do in the future... i.e. assigned seats, increasing elite member benefits, premium economy, codeshares and power ports. But Gary Kelly and Southwest has made it clear that they are not a legacy carrier and they don't want to be one.

Perhaps it is because Southwest is one of the big 4 carriers now that people seem to expect Southwest to offer a legacy style but that's not who they are. Southwest exists today because they offer a product that differs from UA, AA and DL.

DickAnderson666 wrote:
Here's just a few of the many things where WN is worse:

...
On time performance worse than OA mainline
...

That is complete b.s. Clearly you have not been paying attention to the latest DOT numbers because Southwest has consistently been one of the top carriers in OT performance, and may I also add customer service.

That said, Southwest may not be the carrier for you, and that's fine, but don't expect Southwest to offer the product you want just because that's what you want. You're a legacy airline flyer, and that's perfectly fine, but Southwest really doesn't care because that's not who they are.

DickAnderson666 wrote:
Why do you think that WN tries to dominate the locations they serve? So that no one has a choice and has to pick them.

Clearly you don't understand Southwest's business model.

DickAnderson666 wrote:
Look I'm not saying WN is a bad carrier, I'm just saying if I have a choice I'm picking a carrier who has the amenities I mentioned.

That's perfectly fine, then simply say Southwest isn't your airline of choice. Don't start saying Southwest is "worse" at the categories you mentioned... Southwest isn't trying to do what you mention so they aren't "worse" at it, they simply aren't going for that.
 
TUSDawg23
Posts: 272
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 5:58 am

I've been a big fan of WN for many years and have done most of my flying on them since I was a kid. I love the friendly staff, the family culture, their fantastic domestic network, the simplification of Rapid Rewards, and the free checked bags. But I'm becoming more and more irritated with some of their quirks. The fact that it's some kind of competition to check in asap just in the hope of a halfway decent seat irritates me. I also don't like the lack of power ports. Nearly every major carrier has them now except for WN.

I can live with them not flying to Hawaii, but they need to step up their game especially with their onboard product if they really want to get a bigger chunk of business travelers.
 
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BMWdrvr75
Posts: 87
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 6:39 am

TUSDawg23 wrote:
I've been a big fan of WN for many years and have done most of my flying on them since I was a kid. I love the friendly staff, the family culture, their fantastic domestic network, the simplification of Rapid Rewards, and the free checked bags. But I'm becoming more and more irritated with some of their quirks. The fact that it's some kind of competition to check in asap just in the hope of a halfway decent seat irritates me. I also don't like the lack of power ports. Nearly every major carrier has them now except for WN.

I can live with them not flying to Hawaii, but they need to step up their game especially with their onboard product if they really want to get a bigger chunk of business travelers.

This is exactly what I am talking about. WN has evolved in many different ways on the Ground Operations side even the Flight Operations side. However, the inflight service side has not evolved since 1971. If they are trying to become the most flown airline it is time to win over new customers i.e business travelers who expect a little more. Example: Mr. Kelly called the new MAX galley "cutting edge," IMO it is far from cutting edge...WN inflight thinks because they can still use trays to serve drinks, tattered baskets to pass out peanuts, and no carts this makes it cutting edge. I do not think the money, time and effort the folks in Dallas spent on this "cutting edge" galley is going to win over new customers. Cutting edge might be to offer a few more perks ala JetBlue - Mint, Spirit - Big Seats, - Alaska - just a overall good product (which by the way is quietly expanding in California with many more destinations than Southwest) Minimal cutting edge would be power ports, technology for better passenger comfort in the new aircraft. It really is time for to start bringing in more customers, continue being profitable and competitive by taking a look at inflight offerings.
We Make Flying Easy......Come fly the Silver Bird........Something Special in the Air......
 
MIflyer12
Posts: 8115
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 12:32 pm

alasizon wrote:
The slowdown of growth is almost an entire slowdown of Mainline capacity growth. There is a lot of regional capacity that can be added by the US3 + AS that is still healthy growth. WN can't match a lot of that growth due to their operating structure and station requirements.


The facts don't fit your argument. DL has been shrinking regional flying in favor of mainline for years (the 91 717s). United is getting used 737s and shrinking regional while growing mainline, as evidence by 9-month year over year ASMs, RPMs, and passenger counts. AA's capacity is essentially flat: regional is up a little less than 700 million RPMs but in an enterprise that's had 170 Billion RPMs over nine months, that rounds to nothing.

Lack of regionals isn't WN's growth problem but it can be argued that giving up the 717s (to serve markets a little too small for a 73G) was a mistake. That's for another thread.
 
commavia
Posts: 11489
Joined: Mon Apr 25, 2005 2:30 am

Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 12:46 pm

airliner371 wrote:
People seem to be forgetting what SWA is.

airliner371 wrote:
Perhaps it is because Southwest is one of the big 4 carriers now that people seem to expect Southwest to offer a legacy style but that's not who they are. Southwest exists today because they offer a product that differs from UA, AA and DL.


I don't think anyone here has forgotten what Southwest is, nor suggested that the expectation is or should be that Southwest offer a "legacy style" product. Rather, I think what many of us are discussing is the possibility that perhaps Southwest's main challenge is offering a "legacy style" of financial return. Whereas for multiple decades Southwest consistently, materially outperformed the industry, Southwest's financial performance is, by many measures, often middle of the pack at best.

Southwest may not be a "legacy" carrier, but it has, indeed, dramatically evolved its business model in the last 15-20 years, including adopting various elements of network carriers' business and operating models. Gone are 20-minute turns on largely short-stage-length, point-to-point routes between primarily uncongested airports. Today Southwest is every bit the network carrier, hub-and-spoke Goliath as AA, Delta and United. And yet those airlines have regional jets that can provide feed into those hubs from small and mid-size markets that generate yield premiums but are too large for Southwest's 737s, those airlines have widebodies that can link those hubs with longhaul markets around the globe, and those airlines have modern IT systems capable of handling the operational realities of 2016 as opposed to 1986.

And thus, in my personal opinion, why Southwest has some major catching up to do. Again - nobody is suggesting that Southwest can't do it. But to an extent, I think it's hard to debate that Southwest's having waited as long as it has to make some of these changes - perhaps buoyed by fuel hedges and then competitors' struggles into a false sense of security - is going to make catching up harder, and more expensive, to do. The time to have modernized IT and started investing heavily in Latin America was 15 years ago. Because it didn't, Southwest today faces competitors like Alaska, JetBlue and Spirit - with similar or lower costs and a far more established operational and sales presence - to say nothing of larger, stronger, more nimble and more efficient network carriers.

MIflyer12 wrote:
Lack of regionals isn't WN's growth problem


It may not be now, but I think it could be a problem in the future. Southwest's organic growth in the domestic U.S. market, above and beyond effectively the secular rate of economic growth, is done - just like the network airlines. The stimulative effect of the vaunted "Southwest effect" isn't what it once was, and Southwest has tapped just about every single major market in the country. In fact, the only way for Southwest to grow into pretty much the last remaining major U.S. market, ATL, was through inorganically acquiring a major competitor. As such, Southwest now faces the prospect of driving shareholder value either through lower costs or growth. Costs seem to be going up, not down, so that leaves growth. And Southwest is, clearly, trying to grow internationally with 737s from California, Texas, Florida, etc. to Latin America. But as said, that is fraught with competitive challenges, and as such it will take time and money to push its way into markets that are already very well-served by competitors who in some cases offer lower costs and/or a better product. So absent growing up into widebodies, that leaves growing down into something smaller than a 737 that can effectively feed volume into hubs like BWI, MDW, HOU, DEN, PHX, LAS, etc.
 
Cubsrule
Posts: 14491
Joined: Sat May 15, 2004 12:13 pm

Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 1:27 pm

BMWdrvr75 wrote:
This is exactly what I am talking about. WN has evolved in many different ways on the Ground Operations side even the Flight Operations side. However, the inflight service side has not evolved since 1971. If they are trying to become the most flown airline it is time to win over new customers i.e business travelers who expect a little more. Example: Mr. Kelly called the new MAX galley "cutting edge," IMO it is far from cutting edge...WN inflight thinks because they can still use trays to serve drinks, tattered baskets to pass out peanuts, and no carts this makes it cutting edge. I do not think the money, time and effort the folks in Dallas spent on this "cutting edge" galley is going to win over new customers. Cutting edge might be to offer a few more perks ala JetBlue - Mint, Spirit - Big Seats, - Alaska - just a overall good product (which by the way is quietly expanding in California with many more destinations than Southwest) Minimal cutting edge would be power ports, technology for better passenger comfort in the new aircraft. It really is time for to start bringing in more customers, continue being profitable and competitive by taking a look at inflight offerings.


This business traveler who expects a little more finds some of those things on WN. WN is by far the easiest of the big 4 on which to change and cancel flights. Notwithstanding all of the (deserved) criticism of WN's IT, changes and cancellations can be accomplished with a few clicks on the app far more frequently than on any of the legacies. Lack of change fees is a huge benefit, and unlike on the legacies that does not require buying a ticket that costs thousands of dollars. And AFAIK WN is the only carrier that offers WiFi free to passengers with status.

We also cannot ignore that in all but the most limited circumstances, a passenger with any status at all is not going to wind up sitting in 23B involuntarily, no matter when he buys his ticket. Not so on the legacies.

commavia wrote:
Southwest may not be a "legacy" carrier, but it has, indeed, dramatically evolved its business model in the last 15-20 years, including adopting various elements of network carriers' business and operating models. Gone are 20-minute turns on largely short-stage-length, point-to-point routes between primarily uncongested airports. Today Southwest is every bit the network carrier, hub-and-spoke Goliath as AA, Delta and United.


Not really. What operations do AA or UA have that look like the WN operations at BNA or STL? WN has some mega-hubs but still has a lot of flying that does not touch those stations. UA in particular has virtually none.
I can't decide whether I miss the tulip or the bowling shoe more
 
commavia
Posts: 11489
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 1:34 pm

Cubsrule wrote:
What operations do AA or UA have that look like the WN operations at BNA or STL? WN has some mega-hubs but still has a lot of flying that does not touch those stations.


My statement was tied to the second sentence above, not the first. Southwest has more mid-size connecting stations than the network carriers, but it also has plenty of megahubs just like those network carriers.
 
Cubsrule
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Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 1:42 pm

commavia wrote:
Cubsrule wrote:
What operations do AA or UA have that look like the WN operations at BNA or STL? WN has some mega-hubs but still has a lot of flying that does not touch those stations.


My statement was tied to the second sentence above, not the first. Southwest has more mid-size connecting stations than the network carriers, but it also has plenty of megahubs just like those network carriers.


Yes, but WN's network is still fundamentally different. Take a look at the number of turns of under an hour that WN schedules at its hubs versus any of the legacies . . .
I can't decide whether I miss the tulip or the bowling shoe more
 
commavia
Posts: 11489
Joined: Mon Apr 25, 2005 2:30 am

Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 2:13 pm

Cubsrule wrote:
Yes, but WN's network is still fundamentally different. Take a look at the number of turns of under an hour that WN schedules at its hubs versus any of the legacies . . .


Didn't say it wasn't different, but it's gotten much less different - and much more like the network carriers - in the last 10-15 years. And I do believe Southwest is every bit the hub and spoke Goliath that AA, Delta and United are - just in a slightly different way, as Southwest does, indeed, have more mid-size connecting hubs in addition to its megahubs.
 
FlyPNS1
Posts: 5504
Joined: Wed Dec 01, 1999 7:12 am

Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 2:36 pm

commavia wrote:
It may not be now, but I think it could be a problem in the future. Southwest's organic growth in the domestic U.S. market, above and beyond effectively the secular rate of economic growth, is done - just like the network airlines. The stimulative effect of the vaunted "Southwest effect" isn't what it once was, and Southwest has tapped just about every single major market in the country. In fact, the only way for Southwest to grow into pretty much the last remaining major U.S. market, ATL, was through inorganically acquiring a major competitor. As such, Southwest now faces the prospect of driving shareholder value either through lower costs or growth. Costs seem to be going up, not down, so that leaves growth. And Southwest is, clearly, trying to grow internationally with 737s from California, Texas, Florida, etc. to Latin America. But as said, that is fraught with competitive challenges, and as such it will take time and money to push its way into markets that are already very well-served by competitors who in some cases offer lower costs and/or a better product. So absent growing up into widebodies, that leaves growing down into something smaller than a 737 that can effectively feed volume into hubs like BWI, MDW, HOU, DEN, PHX, LAS, etc.


I agree that WN's growth rate will be much slower in the future, however I don't see that as a problem except for maybe the folks on Wall Street. Heck, I think even Wall Street might be happy if they keep growth slower in order to push up RASM. WN is a publicly traded company, but they've rarely been engaged in short-term gimmicks to make Wall Street happy.

And if WN's growth is a problem then you must believe the legacy carriers will face similar growth challenges, but on a global scale. The regionals as feeders are falling apart (50 seaters are dead, 70 seaters are dying and even the 76 seater economics are starting to fade). On the mainline side, 100-110 seaters still have questionable mainline economics. Many of the legacy carriers will be forced to shrink domestically from many of the feeder markets as they've already been doing. Even internationally, the long-term prospects (beyond just some economic growth) are far more limited. The Middle East/Indian Sub-Continent is a lost cause. Europe is going to be a nightmare as ULCC's attack and the ME3 push for 5th freedom. Asia has more growth, but the Chinese carriers are going to rise up and flood the market.
 
FlyPNS1
Posts: 5504
Joined: Wed Dec 01, 1999 7:12 am

Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 2:39 pm

commavia wrote:
And I do believe Southwest is every bit the hub and spoke Goliath that AA, Delta and United are - just in a slightly different way, as Southwest does, indeed, have more mid-size connecting hubs in addition to its megahubs.


Except that WN's traffic is still nearly 70% O&D, whereas the legacy carriers are still hovering around 30-40% O&D. So why WN's network at face value looks like the legacy carriers, the revenue mix is quite different.
 
baje427
Posts: 801
Joined: Mon Aug 01, 2011 12:42 am

Re: Southwest Airlines Reports Third Quarter 2016 Profit

Thu Oct 27, 2016 2:42 pm

Is Southwest's performance not a reflection of the market? If memory serves me right the other US majors also recorded declines in revenues and profits. Least we forget the airline sector is very cyclical and the past peak profits probably will trend towards losses now.

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