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Flybird
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Key takeaways from Southwest Airlines performance

Fri Oct 27, 2017 1:37 pm

Southwest Airlines detailed analysis: http://alphastreet.com/b5b70974

Southwest unit revenues were down 0.5% in the third quarter.

Due to the storms, Southwest cancelled 5,000 flights which resulted in a loss of $100 million.

Southwest's airfares will be higher in the fourth quarter compared to the third quarter (inline with forecasts from rivals)

Average passenger fee down 2% to $143.67
 
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lightsaber
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Re: Key takeaways from Southwest Airlines performance

Fri Oct 27, 2017 4:28 pm

Not a great link. CAPA notes unit costs will be flat to up1.5%

https://centreforaviation.com/news/sout ... 017-732092

The issue with Southwest is their culture is so rigid that they adapt slower to cost savings. For example, late up-gauge to the 738. Or subsidizing DL to take 717s because out if date software and processes do not economically support two fleet types.

E.g., WN should be a launch customer for the -10 MAX. Instead, they have processes in place that keep them from being able to (e.g., unable to just offer a higher pilot rate on the -10 that would be uneconomical on the -7). Who but us enthusiasts care? In particular as B6 and NK will add A321s with lower unit costs. I can think of 200 WN routes that would make a higher ROI with the -10 than with the -8. But when will we see it?

I really like WN, but core strengths come with core regidities and they just don't seem to take advantage of software advances in their processes. UA and AA used to be like that... Not so much anymore. They'll do OK, but they're no longer the nimble alternative.

Lightsaber
Winter is coming.
 
airzona11
Posts: 1784
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Re: Key takeaways from Southwest Airlines performance

Fri Oct 27, 2017 5:03 pm

lightsaber wrote:
Not a great link. CAPA notes unit costs will be flat to up1.5%

https://centreforaviation.com/news/sout ... 017-732092

The issue with Southwest is their culture is so rigid that they adapt slower to cost savings. For example, late up-gauge to the 738. Or subsidizing DL to take 717s because out if date software and processes do not economically support two fleet types.

E.g., WN should be a launch customer for the -10 MAX. Instead, they have processes in place that keep them from being able to (e.g., unable to just offer a higher pilot rate on the -10 that would be uneconomical on the -7). Who but us enthusiasts care? In particular as B6 and NK will add A321s with lower unit costs. I can think of 200 WN routes that would make a higher ROI with the -10 than with the -8. But when will we see it?

I really like WN, but core strengths come with core regidities and they just don't seem to take advantage of software advances in their processes. UA and AA used to be like that... Not so much anymore. They'll do OK, but they're no longer the nimble alternative.

Lightsaber


Good points. But what is interesting is WN has always had this slow and steady approach and they have always been profitable. A big factor was they had consistent strong growth to combine with their methodical approach. I think WN will take the 7310 sooner than later. The 73G still serves them very well, certainly on the short stage lengths that the vast majority of WN flight account for. To compete cost wise, as you note, the larger planes are needed, for the longest segments. WN has proven multiple types are not needed. With Central America/Caribbean/now Hawaii, there are still many markets for them to grow. They won't add a smaller fleet type, it will be larger, and the 7310 should meet all those needs.

A big WN difference vs the US3 has been a consistent path to pursuing more revenue vs more revenue and cutting costs. Minimum fees vs other carriers, no BK re-orgs etc. The competitors today are much for competitive via those fees, and BK, so WN does have to innovate, but their long streak of profits shows that being true to their core has worked, so don't want to stray too far.

What they really need is to somehow segment planes between delay-prone airports vs not. In airports like SFO, each little ATC delay is amplified across the ~8 turns a plane does a day. Or maybe get an effective way for more dual boarding/deplaning.
 
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ElroyJetson
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Re: Key takeaways from Southwest Airlines performance

Fri Oct 27, 2017 6:33 pm

lightsaber wrote:
Not a great link. CAPA notes unit costs will be flat to up1.5%

https://centreforaviation.com/news/sout ... 017-732092

The issue with Southwest is their culture is so rigid that they adapt slower to cost savings. For example, late up-gauge to the 738. Or subsidizing DL to take 717s because out if date software and processes do not economically support two fleet types.

E.g., WN should be a launch customer for the -10 MAX. Instead, they have processes in place that keep them from being able to (e.g., unable to just offer a higher pilot rate on the -10 that would be uneconomical on the -7). Who but us enthusiasts care? In particular as B6 and NK will add A321s with lower unit costs. I can think of 200 WN routes that would make a higher ROI with the -10 than with the -8. But when will we see it?

I really like WN, but core strengths come with core regidities and they just don't seem to take advantage of software advances in their processes. UA and AA used to be like that... Not so much anymore. They'll do OK, but they're no longer the nimble alternative.

Lightsaber



I think WN's days of innovation are over. Their fleet strategy....once a major strength...is now hurting them significantly. They have done a poor job of integration of the Air Tran route network with the exception of gaining a foothold at ATL. They have and are missing major opportunities in many significant markets (RIC is the most glaring, although there are many other examples).

I agree with your analysis that WN has grown too rigid and conservative in their approach. They appear content to pick the easy fruit so to speak...but not go after new opportunities with the same aggressive approach they used to possess.

To be clear...I am not saying WN is in any danger of going out of business or failing to be profitable. But they are no where near to being the cutting edge LCC in their heyday.
707 717 727 72S 737 733 737-700 747 757 753 767-300 764 A319 A320 DC-9-10 DC-9-30 DC-9-50, MD-82 MD-88 MD-90 DC-10-10 DC-10-40 F-100
 
FriscoHeavy
Posts: 1791
Joined: Tue May 27, 2014 4:31 pm

Re: Key takeaways from Southwest Airlines performance

Fri Oct 27, 2017 6:41 pm

ElroyJetson wrote:
lightsaber wrote:
Not a great link. CAPA notes unit costs will be flat to up1.5%

https://centreforaviation.com/news/sout ... 017-732092

The issue with Southwest is their culture is so rigid that they adapt slower to cost savings. For example, late up-gauge to the 738. Or subsidizing DL to take 717s because out if date software and processes do not economically support two fleet types.

E.g., WN should be a launch customer for the -10 MAX. Instead, they have processes in place that keep them from being able to (e.g., unable to just offer a higher pilot rate on the -10 that would be uneconomical on the -7). Who but us enthusiasts care? In particular as B6 and NK will add A321s with lower unit costs. I can think of 200 WN routes that would make a higher ROI with the -10 than with the -8. But when will we see it?

I really like WN, but core strengths come with core regidities and they just don't seem to take advantage of software advances in their processes. UA and AA used to be like that... Not so much anymore. They'll do OK, but they're no longer the nimble alternative.

Lightsaber



I think WN's days of innovation are over. Their fleet strategy....once a major strength...is now hurting them significantly. They have done a poor job of integration of the Air Tran route network with the exception of gaining a foothold at ATL. They have and are missing major opportunities in many significant markets (RIC is the most glaring, although there are many other examples).

I agree with your analysis that WN has grown too rigid and conservative in their approach. They appear content to pick the easy fruit so to speak...but not go after new opportunities with the same aggressive approach they used to possess.

To be clear...I am not saying WN is in any danger of going out of business or failing to be profitable. But they are no where near to being the cutting edge LCC in their heyday.




'Cutting Edge' doesn't lead to the profits. Slow and Steady Growth, coupled with minimal debt is the key to success and remaining profitable. That is sexy in my book. Let the legacy carriers be 'cutting edge' with their crappy products. None of that matters when you have a mountain of debt and a the next slowdown comes.

Those with paid for planes and a methodical growth approach will be the most flexible and have options. The cutting edge companies that flame out with a lot debt have one option - bankruptcy.
Whatever
 
subramak1
Posts: 195
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Re: Key takeaways from Southwest Airlines performance

Fri Oct 27, 2017 7:05 pm

lightsaber wrote:
Not a great link. CAPA notes unit costs will be flat to up1.5%

https://centreforaviation.com/news/sout ... 017-732092

The issue with Southwest is their culture is so rigid that they adapt slower to cost savings. For example, late up-gauge to the 738. Or subsidizing DL to take 717s because out if date software and processes do not economically support two fleet types.

E.g., WN should be a launch customer for the -10 MAX. Instead, they have processes in place that keep them from being able to (e.g., unable to just offer a higher pilot rate on the -10 that would be uneconomical on the -7). Who but us enthusiasts care? In particular as B6 and NK will add A321s with lower unit costs. I can think of 200 WN routes that would make a higher ROI with the -10 than with the -8. But when will we see it?

I really like WN, but core strengths come with core regidities and they just don't seem to take advantage of software advances in their processes. UA and AA used to be like that... Not so much anymore. They'll do OK, but they're no longer the nimble alternative.

Lightsaber


This whole thing about cost savings is for companies that cant adapt. The companies that pursue cost savings are the ones with higher transaction fees for customer. I think WN scores from a customer perspective. They are at all times customer friendly. I wish one of the big three could adopt WN's superior customer service approach .

About them not being nimble, given their scale and size I think they are fairly nimble.

I read in article in their in flight magazine that they carried 6 million less short distance passengers in 2013 as compared to 2000 . So they have upguaged their flights, have more long distance flights etc to address this challenge.



Subu
 
bigjku
Posts: 1906
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Re: Key takeaways from Southwest Airlines performance

Fri Oct 27, 2017 7:20 pm

I think SW will shock a few people in the next two years with some major changes to their model.
 
ericm2031
Posts: 1412
Joined: Tue Jun 19, 2012 8:46 am

Re: Key takeaways from Southwest Airlines performance

Fri Oct 27, 2017 7:42 pm

Being innovative and the first to do everything isn’t always the best. With a such a loyal customer base, you have to be careful about making any quick changes.

They have a very good financial position...a lot of cash with manageable debt, very low cost of borrowing cash, they own a lot of their planes vs leasing. The fuel hedging losses are expected to reverse significantly this year helping their already great margins.

Watching them fend of AS in the CA market right now I think shows they can fend for themselves just fine and are fine with staying on their own course.

It’s very hard to argue with an airline that has been as successful as they have been. Everyone can have their own opinions on how they can be better, but they have a proven model that has worked for almost 50 years that very few can match.
 
MIflyer12
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Re: Key takeaways from Southwest Airlines performance

Fri Oct 27, 2017 10:50 pm

ericm2031 wrote:
It’s very hard to argue with an airline that has been as successful as they have been. Everyone can have their own opinions on how they can be better, but they have a proven model that has worked for almost 50 years that very few can match.


That 'It worked for decades - why change it?' mindset is going to threaten growth and compensation opportunities for every WN employee who isn't within ten years of retirement. Southwest blew twenty years of passenger growth to Mexico, letting similarly Texas-based AA and CO(UA) eat their lunch. They also blew East Coast growth to the Caribbean - look at what JetBlue has today.

Twelve years ago the same crowd was questioning why Southwest was starting service to DEN and SFO since they were congested, delay-prone airports. You can't build a network to carry 100 million passengers a year around MAF, HRL and BUR. Lightsaber nailed it.
 
WN732
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Re: Key takeaways from Southwest Airlines performance

Fri Oct 27, 2017 11:20 pm

Cue BMWdvr75 saying that the flight attendants with the trays and the boys in Dallas are the cause of all this.
 
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KanaHawaii
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Re: Key takeaways from Southwest Airlines performance

Fri Oct 27, 2017 11:36 pm

For those who say that the innovative days of Southwest is over. Let me remind you of another point made in the call - that pending service to Hawaii is on the front burner and will happen soon. The fact that Southwest is about to take on one of the last frontiers which is long seeped with legacy carriers there along with Hawaiian Air. The challenge of using the model they have to succeed in what could be said is the last real frontier for the airline to conquer. It sure tells me they have schlepped off the conservationism to go after the Hawaiian market.
 
ScottB
Posts: 7111
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Re: Key takeaways from Southwest Airlines performance

Sat Oct 28, 2017 12:08 am

lightsaber wrote:
Or subsidizing DL to take 717s because out if date software and processes do not economically support two fleet types.


I don't think sending the 717s to DL was primarily about software & processes; the block-hour costs of the 717 vs. the 73G were so close that operating a 73G instead of a 717 on a given flight basically gave them 20 free seats to sell. It ended up being a win-win for both carriers because it made both more efficient; DL was able to use the 717s to indirectly replace a slew of 50-seat RJs while WN enjoyed lower unit costs.

lightsaber wrote:
E.g., WN should be a launch customer for the -10 MAX. Instead, they have processes in place that keep them from being able to (e.g., unable to just offer a higher pilot rate on the -10 that would be uneconomical on the -7). Who but us enthusiasts care?


The -10MAX poses some additional problems for WN in that it's probably unusable for them at MDW and might face serious restrictions at HOU as well. Also, keep in mind that one of their key competitive advantages historically in short-haul markets has been frequency; while the -10MAX would be a CASM powerhouse for them, it's also not a great choice for high-frequency short-haul routes.

ElroyJetson wrote:
They have done a poor job of integration of the Air Tran route network with the exception of gaining a foothold at ATL.


How much value was there in the FL route network outside of ATL? WN was already the largest carrier at both BWI & MCO (and still is) and they also remain the largest at MKE. FL basically made money thanks to low pay for its employees. The FL stations dropped by WN combined added up to about as much service as WN offers at RNO. Yes, the impact was large on markets like CAK, SRQ, DAY, BKG, HSV, etc. -- but assets like DCA & LGA slots also were more useful to WN in larger cities.

ElroyJetson wrote:
They appear content to pick the easy fruit so to speak...but not go after new opportunities with the same aggressive approach they used to possess.


Isn't picking the easy fruit what they should be doing in any case? It absolutely makes sense to go after these before the competitors do. And I completely disagree that they aren't going after new opportunities. The conventional wisdom on this website was they they'd fail at DEN because UA & F9 had the market locked up. They've jumped into the near-international market with both feet and built new international gates at both HOU & FLL. They just announced their intent to serve Hawaii and that's not a new opportunity?

MIflyer12 wrote:
They also blew East Coast growth to the Caribbean - look at what JetBlue has today.


But one can also argue that B6's growth to the Caribbean is ample proof that a new entrant can come into those markets and be successful; after all, AA arguably had those markets locked up for decades.

MIflyer12 wrote:
Southwest blew twenty years of passenger growth to Mexico, letting similarly Texas-based AA and CO(UA) eat their lunch.


Except that it's unlikely WN could have expanded into Mexico from the Texas cities where they'd have a prayer of success (basically Dallas & Houston) until the last several years. They still can't fly internationally from DAL, and I strongly suspect that the City of Houston wouldn't have let them build an international terminal at HOU if there were still a major airline headquartered in downtown Houston. AUS and SAT can each support a couple of daily flights to Mexico, but again, that's just not enough to be a meaningful growth opportunity. And there's a HUGE amount of value to WN in the convenience both HOU & DAL offer to their customers which simply can't be replicated at IAH or DFW.

FriscoHeavy wrote:
'Cutting Edge' doesn't lead to the profits.


I think one of the other problems with being "cutting edge" is that it often tends to add complexity to the operation. If you make a change to the operation to chase an additional 5% in revenue, but it raises the costs of the entire operation by 1%, then that was probably a poor choice unless the margins on that incremental revenue are really, really high. WN was long overdue to move to a new reservations system, and Altea opens up a bunch of new opportunities for them, but the old one had the benefit of being cheap. WN even alludes to this in their most recent earnings release pointing to a revenue headwind from the reservations system switch.

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