Proximity

Cargo accounted for $400M revenue on a loss of $1.63B in the second quarter. United isn’t going to publish if their cargo only ops are profitable (would be let our competitors know how much we make in HI for example) but one would logically assume flying cargo in passenger configured aircraft isn’t a hugely profitable venture. It just stems the loses as aircraft and crews have already been paid for.

Air cargo rates right now are crazy high but either demand will drop back to normal or supply will increase, bring rates back down to normal in the medium to long term. This will make cargo flying less attractive.

YangGang2020

Because that would be admitting to predatory pricing. You guys are averaging less than 10 pax on big island routes. 🤷‍♂️

YangGang2020

Predatory pricing much? Good thing subsidizing the Hawaii operation can be concealed while claiming to investors and the press on how successful the ops is. Likewise making the consumer think the pricing model is sustainable.

TransWorld

You can charge more than the variable cost of the freight. But if your fixed costs (planes, employees, gates, etc) do not have enough sales to cover, you can still lose money.

Proximity

When I used that example I didn’t mean to say intend to say HI wasn’t successful, just that no airline is going to break down their business plans or financial date such that a competitor can use it against them.

Anyways the HI flying has nothing to do with what I’m doing and likely never will so I have no idea how it is going. I have no idea how I our pricing works for any flight but when has the consumer cared if an airline “pricing model” is “sustainable”.

ZapBrannigan

GK had an interview in Dallas Morning News today. It's behind a paywall but somebody posted the content over on the Forum.

https://www.dallasnews.com/business/...cant-continue/


Sent from my iPhone using Tapatalk

Kapitanleutnant

Zap... still behind the firewall... wants to have us pay. At least for me.

How about a cut and paste...?

jetset

Southwest Airlines CEO Gary Kelly: ‘If things don’t improve, this just can’t continue’

A Q&A with the leader of the Dallas-based carrier, which is still expanding amid the worst financial crisis in commercial aviation history.





Going into the office every day, Southwest Airlines CEO Gary Kelly describes the Dallas headquarters atmosphere as feeling a bit like the mountain hotel from the 1980s horror flick The Shining.

“We’ve got a skeleton staff here,” he said. “Our headquarters can accommodate about 5,000 people roughly and there are maybe 100 people here every day. "

Those halls and cubicles are empty for the same reason many airplanes are. The COVID-19 pandemic has changed every aspect of life for the past six months.

Kelly, who succeeded Southwest founder Herb Kelleher in 2008, spoke with The Dallas Morning News on Thursday about how the airline known for its upbeat attitude and friendly service is handling the toughest financial crisis in aviation history. His answers have been edited for brevity and clarity.

How do you see the flying experience now?

I’ve only flown Southwest and the Southwest experience has been phenomenal. Everybody has to wear a mask and we don’t book the middle seat, effectively, right now. We’ve got all of our cleaning protocols in place. The customers are very happy, The feedback that we get from the people that fly is record levels of satisfaction. The operation is running very smooth, very much on time. And it’s a pleasure to fly. You can also get a good, low fare.

We’re in the seventh month of this pandemic. How would you describe where the airline industry is today?

Oh, gosh, the effect has been catastrophic. There’s no other way to think about it. It’s truly a pandemic in the greatest sense of the word. The effect on travel and tourism and services in general, it’s just been catastrophic. I don’t think it’s shocking that we are where we are.

You go back to the spring and a lot of it was so new for the United States. People were wondering whether this was going to be more like a seasonal flu. I was reluctant to make any predictions in the spring about what would happen. I’m more of a planner rather than a prognosticator. All we could do is try to establish some boundaries for planning, especially when the federal government came through with the CARES Act. It just provided us some breathing room. We made radical adjustments and changes to the airline.

We know a lot more seven months in than we knew one week in. I believe we’re going to have to muddle through this until we get a vaccine, until we functionally reach herd immunity.

Is it frustrating to watch the pandemic drag on?

It’s frustrating if one lets himself get frustrated. We don’t have time for that. We’ve got to keep our eye on the ball. We need to run a safe airline. We need to do everything we can to make sure the business survives. We need to do the best job we can to take care of our people and our customers. And we’ve just got to persevere. We’re battle-hardened at Southwest. We are up to the challenge. I don’t see that it serves any purpose to be frustrated with things that are totally outside of your control.

You and other airline executives had predicted that travel would be down about 30% in fall. That forecast isn’t looking very good right now.

I never predicted that. What I was sharing was that was our guess. That was our plan, knowing we could adjust it if need be. It’s easier for us to cut flights than it is to add flights back. But in any event, that’s way too optimistic currently because we’re down twice that much.

What I would predict now is that I don’t see that changing significantly from here until we get a vaccine. We’ll see some lift at that point and until behaviors change. People are going to have to be confident that we’ve reached herd immunity. Until we get to that point, I wouldn’t expect us to see a significant improvement in our traffic. That will be sometime in 2021 at best.

Airlines For America’s Nicholas Calio said there may not be a full recovery until 2024. Are you looking at the possibility of an extended three- or four-year recovery?

It’s 34 years in the business for me. It was a long decade after 9/11 and it was a long slog after the Great Recession in 2008. Absolutely, we’re prepared for a long recovery here.

We were very well prepared for the pandemic coming into it with record low levels of debt. We had plenty of cash and we boosted our cash reserves dramatically this year. And we’re working on adjusting our cost structure. We’ve already got a low-cost structure in the first place and very well suited to serve the leisure side of the market in addition to the business travel market.

But I’m certainly not bullish that business travel is going to bounce right back. In fact, I would argue that relative to a normal recession and recovery scenario, this will be twice as long. I wouldn’t be surprised to see business travel languish for a decade before it gets back to 2019 levels. So yes, we’ll be prepared for that.

Southwest Airlines is launching new year-round routes later this year to Miami and Palm Springs -- the first time the Dallas-based carrier is flying direct to the popular beach and desert locations.

Southwest announced service this week to Miami and Palm Springs, Calif. Why would you fly to Miami after you’ve been so strong in Fort Lauderdale?

First of all, there are huge numbers of growth opportunities remaining for Southwest.

No. 2, we’re in an environment where our business challenge is customers. We’ve had a catastrophic reduction in customers flying — off 65% versus a year ago. And so what we need to remedy our business problem is more customers. At this point in time, there’s no way to get more depth in the market. Right now, there are only so many people that are going to fly between Dallas and Houston. I’ll call that depth.

The opportunity for us is more breadth and tap into new destinations that will give our loyal customers another opportunity to choose Southwest. We serve multiple airports in the Washington, D.C., metro area. We serve multiple airports in the Boston metro area, in the San Francisco Bay Area and the Los Angeles basin area. We believe South Florida offers the same kind of potential. Miami is obviously a very vibrant area and it’s a leisure destination. In addition to that, we’ll win a few new customers in those markets, even though we’ll be a relatively small presence.

Palm Springs is similar and different. It’s is a unique destination. You get a little seasonal contradiction there — its high season is in the winter months, which is helpful. We’re already the No. 1 airline in California in every way.

As long as we’re covering our flight costs, we’ll be contributing cash. And that’s key when we have so many assets that are being underutilized and so many employees that are also not working to their full potential. That makes the marginal cost of adding the service really, really small.

Does the cash on hand enable you to expand to places like Miami and Palm Springs?

No, because we’re not really incurring any significant capital expenditure to make this happen. I wouldn’t characterize it as no-cost expansion, but it is in relative terms. We have the airplanes already. We’ve got 100 airplanes that aren’t flying. Even with the early retirement or voluntary leave program, we still have an overstaffing situation. So we’re not fully utilizing our employees. The company has been built for capacity that is double what we’re doing.

Do you think you’ll need to continue spacing out seating when it’s not profitable to do so?

I don’t think we can do it indefinitely. I agree with that. And I think our customers understand that. What we hear from customers is they’re very comfortable with what we’re doing. Obviously, the middle seats are an element of that. Right now, we are interested in learning more about the science of physical distancing on the airplane given all of the other layers of safety and health protection that are in place. In the end, it’s all about what customers are comfortable with.

Customers are really happy with the Southwest Promise today. I’m not really prepared to say when we might change, but at some point yes, absolutely, we’re going to have to get our business back. It’s just going to have to be at the right time.



Southwest had 28% of employees take voluntary leave or early retirement. Why do you think they’re willing to do so when the global economic outlook is so uncertain?

It’s not just one thing that went into people’s decisions. It was probably a handful of things and with some people maybe more. You have a lot of people that really answered the call. They could do this personally, from their own financial perspectives, and they could help out their family members here at Southwest. They could help the company.

It was also a reflection of the generosity in terms of the offer. If you were thinking about retiring over the next several years and you had this pretty lucrative offer, for a lot of people, it’d be crazy to pass it up. I suspect that there were a lot of people who understood this is a really tough time. ‘I’m not sure exactly what kind of effort and sacrifice it’s going to take. And I might not be up for that.’ That’s fair, too, because we are going to need all hands on deck to get through this crisis. Our folks are going to have to work really, really hard.

I was pleased with that result because it certainly helps us get our costs down and we’re able to take care of our people and not force any involuntary furloughs.

What’s the possibility of avoiding furloughs in early 2021 as this pandemic continues?

If things don’t improve, this just can’t continue. We can’t lose the kind of cash we lost in the second quarter, for quarter upon quarter upon quarter. We’d be out of business. A lot depends on how the revenue environment improves. That’s front and center of why we are announcing Miami and Palm Springs because it will help chip away at that revenue deficiency.

There are still some levers we can pull. But the vaccine has to come online. It’s got to work. We’ve got to begin to get back to normal. Or else we’re just talking about a completely different catastrophic scenario for the airline industry, and other industries for that matter.

Competing airlines are taking a page out of the Southwest playbook by lowering and dropping change fees. Does that cut down on Southwest’s competitive advantage?

The differences between our airlines just shift. I will point out that they’re not moving to the Southwest position because most tickets aren’t subject to change fees, but with us, it’s all tickets. It’s somewhat hypocritical to claim that this is the right thing to do and then not do it. They have been all about fees and sticking it to customers for a long time. It’s not effective now or they wouldn’t be making a change.

This just means that now they’re going to have to match our fares. And our cost structure’s lower and our fares are lower. For them to replace this change fee revenue, they’re going to have to raise fares. It’s just going to make it more difficult for them to make a profit and still try to match Southwest fares. That’s why they did this in the first place. They needed some gimmick to strip out revenue and reduce their published fare knowing that they can get money from hidden fees. And now that advantage is being taken away.

I think it’s better for Southwest. It’s a more level playing field.

Are the next six months going to be just as damaging as the last six?

I think we’re past the dark days of March and April. Things for us have been pretty stable since July Fourth. We went into a stall when the COVID-19 cases spiked so sharply there in early July, which was a shame because we were on a pretty good trajectory and people were feeling more and more comfortable with travel.

The good news is it’s pretty stable. Stable’s good but we’re at unsustainable levels and it can’t go on indefinitely. Beyond the self-help steps taken, what is the government going to do in terms of creating CARES Act 2 and what will be in there for continuing the payroll support for the airlines? That has a major bearing on our outlook for the next six months.

Our visibility is not very far into the future. It’s pretty easy to predict that we shouldn’t expect much improvement in 2020. But I’m still hopeful about the first quarter of next year.

We’ll continue to press Congress and the administration for CARES 2. I think that would be very helpful to the country, not just the airlines, but to the whole country. We’re in a situation that, absent some kind of sovereign effort for liquidity, the country goes into depression.

No company can be prepared for an almost total loss of revenue and customers. The only way through that temporary trough is with assistance from the government.