bbtp

If i recollect correctly, southwest was the first to stop hiring and is now the first to resume hiring (just as the majority of carriers slammed their hiring into reverse and went from hiring to furloughing pretty darned quickly).

industry consensus says that there's too much capacity - that the industry requires a 20% reduction in capacity. i agree with that to the extent that the legacies need a 20% reduction in capacity in order to raise fares enough to cover their cost structures.

meanwhile, southwest seems poised to expand and rapidly snatch up a good chunk of what the legacies are leaving on the table as they try to cut capacity, probably negating their opportunity to sufficiently raise fares. meanwhile, based on past performance, i think it's safe to predict that southwest will manage to do so profitably, as they're not saddled with the legacy cost structure.

this could get bloody for some... any thoughts?

The Duke

Luv is so far ahead of the curve, it's not even funny.

Been listening to guys say for years now how Southewest's day will come...then you take a look at the industry today, big-time furloughs just around the corner, probably more pay/benefit cuts, down-sizing, voluntary buy-outs, fleeing to international ops...then you look at Southwest. They sure know how to weather a storm. They have staying power, that's the most important thing an airline can have today.

Their decision to hedge fuel at their existing rates/percentages may go down in the books as the single-most important strategic business decision made in U.S. airline history.

bifff15

Brilliant!

Okay, I'm running out of pithy Brit sayings...

JBwillfly

Would you jump ship for a class date at SWA and another year of 1st year pay or is the merger going to save the young guys (bottom 400)

Justdoinmyjob

The legacies are dropping unprofitable low yield secondary markets flown by regionals. Those aren't the markets that SWA flies in. If they could, they'd already be in it. Plus, it doesn't matter who cuts capacity. If SWA just replaces what is cut, the overall capacity doesn't drop and you're just right back where you were. I have several friends and relatives working there, and thay say don't buy the analysts tripe about SWA.

KC10 FATboy

Southwest has had a gleaming history of being profitable; and I applaud them. They definitely have proven how efficient and airline can be and how to make money during tough times.

However, Southwest only made what $34 million last year (I'm guessing)? Yes, they had a profit while everyone else has had huge losses. As the price of oil goes up, so does the price on the fuel hedges they are purchasing today. At some point, Southwest will eventually be paying the same price of fuel as everyone else. I definitely see Southwest taking business away from the legacy's as the industry downsizes. I also believe Southwest is headed for stormy seas because even they can't put off the inevitable increases in oil.

-Fatty

Riddler

Not entirely true. CAL is dropping a huge chunk of 737 flying (16% I think), yet Express is increasing by 4%. As a whole, CAL will shrink by 11%.

bbtp

actually - southwest in a unique position to maintain its edge over the other carriers in fuel costs. southwest is the only major carrier with enough cash to continue hedging at a substantial pace. the other carriers need to preserve their cash cushion to fund losses over coming quarters.

i don't think you'll see southwest's hedges "run out." they'll continue to hedge - if the price of fuel rises, they'll be paying much less than everyone else. if the price of fuel stabilizes, then they'll lose much of that advantage. then again, if the price of fuel stabilizes, that will be good for the entire industry, including southwest.

as for the argument that majors are dropping routes in secondary markets flown by regionals - it's pretty clear to me that southwest is picking up a big chunk of that which the majors are abandoning. united is dropping a lot in denver - a scene of explosive southwest growth. more than one major (including cal) is abandoning oakland - another strong city for southwest.

it's pretty exciting to see a lean and flexible carrier wisely lay low until a huge opportunity comes walking along. having laid low and conserved a hoard of cash (and having opened another credit line to increase liquidity that much more), southwest is exploiting the weakness of the legacies at an opportune time. plus, as a consumer, i love it!

Riddler

Thinking way ahead... SWA's current cost structure (excluding the hedging) isn't all that different from some legacies. SWA essentially subsidizes its flight ops through its financial deals/fuel hedges. So what happens if and when the hedges run out or fuel prices actually decline?

LuvJockey

Bad info on this thread - SWA made $645 million last year, not $34 million. SWA costs excluding fuel are comparably very low (check ex-fuel CASM on quarterly statements) and if the price of fuel goes down, it's good for everybody. Been that way for years.