Alright. What’s Going On?
03-16-2024, 06:48 AM
#1
Gets Weekends Off
Thread Starter
Joined APC: Jun 2010
Position: DOWNGRADE COMPLETE: Thanks Gary. Thanks SWAPA.
Posts: 6,613
Alright. What’s Going On?
March 16, 2024
Risk Mitigation
Casey Murray, President
Last week, Southwest Airlines made the announcement that it was ceasing additional hiring through the end of 2024. While SWAPA knew there was the growing likelihood of a hiring suspension, there are many unanswered questions around the decision.
First, why are we here? Our single fleet strategy, while adding simplicity and cost advantages, injects a level of risk into the enterprise. We saw the depressurizations among the -300s in 2016 and the MAX groundings in 2019, while the more recent delays with the MAX-7 have many questioning if it will ever be certified. With Boeing facing unprecedented scrutiny, this places a single point of failure in Southwest’s future.
As Southwest has had to cope with a larger gauge aircraft (the MAX-8 at 175 seats) due to Boeing’s inability to deliver the MAX-7 (150 seats), we have reached a business inflection point. We watched our ASMs grow and load factors decline due to a supply/demand imbalance caused by flying too large an airplane in certain markets. We may have now reached the point where we are no longer able to place the right sized aircraft into the correct network segment. Consider that Southwest’s load factor was 78.2% in the most recent quarter versus 83.5% in the same quarter of 2018, which marks a 5.3% decline.
Coincidentally, SWA’s seats per trip (gauge) were up 5.3% when comparing the same time periods, meaning that these additional seats went unfilled with revenue paying passengers. This is the risk Southwest continues to accept as it relies upon a single-source aircraft manufacturer.
Our airline is benefiting from deeply discounted prices for aircraft, but when management can't place into service the smaller, fuel-efficient aircraft needed, business decisions must be reevaluated. Pilot staffing is a part of these continual assessments, and evolving enterprise realities drove SWAPA's anticipation of a hiring suspension.
Identifying risk and planning for it is SWAPA's job in protecting our Pilots. Fearing that Southwest finds itself at a competitive disadvantage and assessing the marketplace as a whole (Alaska/Hawaiian, JetBlue/Spirit anti-trust failure, Delta's superior revenue generation), will the Company feel the need to make a change? And if so, what effect will that decision have on our Pilot group?
Last month, SWAPA made the decision to retain several law firms if Southwest attempts to acquire another carrier. One of those firms would be an experienced labor firm tasked with protecting SWAPA Pilots in a seniority list integration. The second — and possibly third — firm would handle the business and equity side of the transaction to ensure our Pilots were invested in the capital of the new entity. In 2010, then-SWAPA President Carl Kuwitsky and then-CEO Gary Kelly failed to follow Delta/Northwest's lead in allowing the Pilots to be equity partners in the transaction when Southwest acquired AirTran. SWAPA will not make that mistake again.
To be clear, neither I, nor anyone at SWAPA, have any knowledge of an acquisition or merger in Southwest Airlines' future. In fact, I hope a merger and/or acquisition never comes to pass, but as I've said numerous times, hope is not a strategy. Strategic agility is one of the best ways to mitigate risk.
SWAPA will prepare for whatever future awaits and execute what is necessary to assure our membership that they are the best positioned Pilots in the industry.
Case
Risk Mitigation
Casey Murray, President
Last week, Southwest Airlines made the announcement that it was ceasing additional hiring through the end of 2024. While SWAPA knew there was the growing likelihood of a hiring suspension, there are many unanswered questions around the decision.
First, why are we here? Our single fleet strategy, while adding simplicity and cost advantages, injects a level of risk into the enterprise. We saw the depressurizations among the -300s in 2016 and the MAX groundings in 2019, while the more recent delays with the MAX-7 have many questioning if it will ever be certified. With Boeing facing unprecedented scrutiny, this places a single point of failure in Southwest’s future.
As Southwest has had to cope with a larger gauge aircraft (the MAX-8 at 175 seats) due to Boeing’s inability to deliver the MAX-7 (150 seats), we have reached a business inflection point. We watched our ASMs grow and load factors decline due to a supply/demand imbalance caused by flying too large an airplane in certain markets. We may have now reached the point where we are no longer able to place the right sized aircraft into the correct network segment. Consider that Southwest’s load factor was 78.2% in the most recent quarter versus 83.5% in the same quarter of 2018, which marks a 5.3% decline.
Coincidentally, SWA’s seats per trip (gauge) were up 5.3% when comparing the same time periods, meaning that these additional seats went unfilled with revenue paying passengers. This is the risk Southwest continues to accept as it relies upon a single-source aircraft manufacturer.
Our airline is benefiting from deeply discounted prices for aircraft, but when management can't place into service the smaller, fuel-efficient aircraft needed, business decisions must be reevaluated. Pilot staffing is a part of these continual assessments, and evolving enterprise realities drove SWAPA's anticipation of a hiring suspension.
Identifying risk and planning for it is SWAPA's job in protecting our Pilots. Fearing that Southwest finds itself at a competitive disadvantage and assessing the marketplace as a whole (Alaska/Hawaiian, JetBlue/Spirit anti-trust failure, Delta's superior revenue generation), will the Company feel the need to make a change? And if so, what effect will that decision have on our Pilot group?
Last month, SWAPA made the decision to retain several law firms if Southwest attempts to acquire another carrier. One of those firms would be an experienced labor firm tasked with protecting SWAPA Pilots in a seniority list integration. The second — and possibly third — firm would handle the business and equity side of the transaction to ensure our Pilots were invested in the capital of the new entity. In 2010, then-SWAPA President Carl Kuwitsky and then-CEO Gary Kelly failed to follow Delta/Northwest's lead in allowing the Pilots to be equity partners in the transaction when Southwest acquired AirTran. SWAPA will not make that mistake again.
To be clear, neither I, nor anyone at SWAPA, have any knowledge of an acquisition or merger in Southwest Airlines' future. In fact, I hope a merger and/or acquisition never comes to pass, but as I've said numerous times, hope is not a strategy. Strategic agility is one of the best ways to mitigate risk.
SWAPA will prepare for whatever future awaits and execute what is necessary to assure our membership that they are the best positioned Pilots in the industry.
Case
03-16-2024, 08:00 AM
#7
Gets Weekends Off
Joined APC: Apr 2019
Posts: 332
2019
If Southwest wanted to acquire another airline, which would it target?
Some in the industry think the time is near for Southwest Airlines to look at non-organic growth opportunities.
Jake DeanGary Kelly, chairman and chief executive of Southwest Airlines, has been asked different variations of the same question during the last few quarterly earnings calls.
The question centers around the grounding of the 737 Max made by Boeing Co. (NYSE: BA) and how long Southwest Airlines Co. (NYSE: LUV) will tolerate not growing and ceding market share to competitors.
Southwest has hundreds of 737 Max planes on order, and frustration is mounting at the Dallas-based carrier.
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"We put our future in the hands of Boeing and the Max, and we're grounded," Kelly said in a CNBC interview recently.
The grounding has breathed life into speculation that's been circulating for years — is this the time for Southwest to buy another airline?
Fleet diversification
During Southwest's latest call discussing third quarter earnings on Oct. 24, Jamie Baker, an analyst with JP Morgan, asked Kelly about his comments on CNBC earlier in the day. Kelly said the board had asked him to review the carrier's strategy of exclusively using 737s.
As Baker brought up on the call, there are a couple of ways to go about diversifying the fleet type. One is to get in line with Airbus and wait several years for orders of new narrow-body planes. Or, Southwest could buy an existing Airbus operator.
"Is it safe to assume that if the board is debating a second fleet type, as you said today, it's also debating consolidation? Or, is it somehow possible to divorce those two topics?" Baker asked. "Because in my mind, they're highly intertwined."
Like previous answers Kelly has given on the consolidation possibility, he was equivocal in his answer. Southwest has a policy not to comment on potential M&A activity.
"They are potentially intertwined, but they could also be disaggregated," Kelly responded. "I think it just depends on how one wants to think about it."
Other analysts are wondering the same thing.
Analysts at Stifel recently went as far as to downgrade Southwest from 'Buy' to 'Hold' based on the concern Southwest would pursue an acquisition in light of the 737 Max's grounding.
Airlines went through considerable consolidation after the 9/11 terrorist attacks rocked the industry.
At a pilots conference this fall, a group of analysts was asked if there's any more room for consolidation in the industry.
"My answer is 'yes,'" Baker said. "And whatever the next deal is, I expect Southwest to be at that table."
Which airline would Southwest buy?
If Southwest wanted to acquire another carrier, it might have better luck than the three legacy airlines.
Delta, United and American each went through their own megamergers this century and are all now comparably sized. Industry experts think it unlikely regulators would allow one of the Big 3 to become the dominant U.S. carrier through non-organic growth.
When those experts are asked which airline Southwest would target in an acquisition, a range of possibilities emerge.
"I think the easiest target might be Alaska," said Jim Simmons, a professor who studies aviation at Metropolitan State University of Denver.
"You could see either a Spirit or Frontier being an interesting combination," said Bob Mann, an airline industry analyst.
"While Alaska is a better network-fit for Southwest, JetBlue better solves its desire to get A320 exposure," Joe DeNardi, another industry analyst, wrote in a recent research note.
It comes down to what Southwest would prioritize in a partner with each coming with their own challenges.
Spirit's business model is heavily dependent on ancillary fee revenue from bags, while Southwest's 'Bags Fly Free' policy is a hallmark of the company.
The average fare on a Southwest flight was $151.64 in 2018, according to regulatory filings. The average ticket price on a Spirit flight last year was $58.14, according to filings, while the average non-ticket revenue per passenger averaged $55.23.
Alaska's network might have the most overlap with Southwest's since the carrier is concentrated on the West Coast and Southwest is already the largest carrier in the state of California. Plus, Alaska has a limited number of Airbus planes in its fleet if diversification was something Southwest desired.
JetBlue would bring over dozens of Airbus aircraft, but Southwest wouldn't be able to realize fleet diversification benefits overnight. Such a merger would likely go through months of scrutinization by regulators while Southwest continues to be hamstrung by the lack of 737 Max planes in its fleet throughout the rest of 2019 and into 2020.
Here's what Southwest would look like combined with Alaska Air Group Inc. (NYSE: ALK), JetBlue Airways Corp. (Nasdaq: JBLU) and Spirit Airlines Inc. (Nasdaq: SAVE).
Do they want to?
Acquisitions are not foreign to Southwest. In May 2011, Southwest closed on its $3.2 billion purchase of AirTran Airways, which at the time raised revenue by more than 21 percent.
From a network perspective, the deal gave Southwest access to new markets, like Atlanta, and strengthened Southwest's presence in Baltimore. However, some think the acquisition didn't go entirely according to plan.
"I think it took longer than they expected, and it was more expensive than they expected," Mann said. "Beyond getting into Atlanta in a big way, it didn't really achieve any new market coverage."
Airline mergers are complicated and messy. It takes years to integrate key systems and standardize processes. One of the big factors Southwest would have to consider is altering its culture too much, which is known throughout the industry as being one of the strongest.
Bringing on another few thousand employees from a different company with different pay scales, different unions and different work expectations might disrupt the culture Co-founder and longtime leader Herb Kelleher worked to instill and that Kelly wants to continue.
"It's almost cult-like, and I don't mean that necessarily in a negative way," Brett Snyder, an industry expert who runs the Cranky Flier blog, said about Southwest's culture. "It's an important attribute for the airline. You'll hear Gary Kelly say that over and over again. Maybe future management would stray further away a little bit and take more risks. But, they seem to put culture toward the top of what matters when they're doing things."
If Southwest wanted to acquire another airline, which would it target?
Evan HoopferSome in the industry think the time is near for Southwest Airlines to look at non-organic growth opportunities.Jake DeanGary Kelly, chairman and chief executive of Southwest Airlines, has been asked different variations of the same question during the last few quarterly earnings calls.
The question centers around the grounding of the 737 Max made by Boeing Co. (NYSE: BA) and how long Southwest Airlines Co. (NYSE: LUV) will tolerate not growing and ceding market share to competitors.
Southwest has hundreds of 737 Max planes on order, and frustration is mounting at the Dallas-based carrier.
FREE FOR PREMIUM MEMBERS
Live Webinar Future of Cities with Richard Florida
Use code MEMBERFOC24 to reveal your free ticket
SAVE MY SPOT
"We put our future in the hands of Boeing and the Max, and we're grounded," Kelly said in a CNBC interview recently.
The grounding has breathed life into speculation that's been circulating for years — is this the time for Southwest to buy another airline?
Fleet diversification
During Southwest's latest call discussing third quarter earnings on Oct. 24, Jamie Baker, an analyst with JP Morgan, asked Kelly about his comments on CNBC earlier in the day. Kelly said the board had asked him to review the carrier's strategy of exclusively using 737s.
As Baker brought up on the call, there are a couple of ways to go about diversifying the fleet type. One is to get in line with Airbus and wait several years for orders of new narrow-body planes. Or, Southwest could buy an existing Airbus operator.
"Is it safe to assume that if the board is debating a second fleet type, as you said today, it's also debating consolidation? Or, is it somehow possible to divorce those two topics?" Baker asked. "Because in my mind, they're highly intertwined."
Like previous answers Kelly has given on the consolidation possibility, he was equivocal in his answer. Southwest has a policy not to comment on potential M&A activity.
"They are potentially intertwined, but they could also be disaggregated," Kelly responded. "I think it just depends on how one wants to think about it."
Other analysts are wondering the same thing.
Analysts at Stifel recently went as far as to downgrade Southwest from 'Buy' to 'Hold' based on the concern Southwest would pursue an acquisition in light of the 737 Max's grounding.
Airlines went through considerable consolidation after the 9/11 terrorist attacks rocked the industry.
At a pilots conference this fall, a group of analysts was asked if there's any more room for consolidation in the industry.
"My answer is 'yes,'" Baker said. "And whatever the next deal is, I expect Southwest to be at that table."
Which airline would Southwest buy?
If Southwest wanted to acquire another carrier, it might have better luck than the three legacy airlines.
Delta, United and American each went through their own megamergers this century and are all now comparably sized. Industry experts think it unlikely regulators would allow one of the Big 3 to become the dominant U.S. carrier through non-organic growth.
When those experts are asked which airline Southwest would target in an acquisition, a range of possibilities emerge.
"I think the easiest target might be Alaska," said Jim Simmons, a professor who studies aviation at Metropolitan State University of Denver.
"You could see either a Spirit or Frontier being an interesting combination," said Bob Mann, an airline industry analyst.
"While Alaska is a better network-fit for Southwest, JetBlue better solves its desire to get A320 exposure," Joe DeNardi, another industry analyst, wrote in a recent research note.
It comes down to what Southwest would prioritize in a partner with each coming with their own challenges.
Spirit's business model is heavily dependent on ancillary fee revenue from bags, while Southwest's 'Bags Fly Free' policy is a hallmark of the company.
The average fare on a Southwest flight was $151.64 in 2018, according to regulatory filings. The average ticket price on a Spirit flight last year was $58.14, according to filings, while the average non-ticket revenue per passenger averaged $55.23.
Alaska's network might have the most overlap with Southwest's since the carrier is concentrated on the West Coast and Southwest is already the largest carrier in the state of California. Plus, Alaska has a limited number of Airbus planes in its fleet if diversification was something Southwest desired.
JetBlue would bring over dozens of Airbus aircraft, but Southwest wouldn't be able to realize fleet diversification benefits overnight. Such a merger would likely go through months of scrutinization by regulators while Southwest continues to be hamstrung by the lack of 737 Max planes in its fleet throughout the rest of 2019 and into 2020.
Here's what Southwest would look like combined with Alaska Air Group Inc. (NYSE: ALK), JetBlue Airways Corp. (Nasdaq: JBLU) and Spirit Airlines Inc. (Nasdaq: SAVE).
Do they want to?
Acquisitions are not foreign to Southwest. In May 2011, Southwest closed on its $3.2 billion purchase of AirTran Airways, which at the time raised revenue by more than 21 percent.
From a network perspective, the deal gave Southwest access to new markets, like Atlanta, and strengthened Southwest's presence in Baltimore. However, some think the acquisition didn't go entirely according to plan.
"I think it took longer than they expected, and it was more expensive than they expected," Mann said. "Beyond getting into Atlanta in a big way, it didn't really achieve any new market coverage."
Airline mergers are complicated and messy. It takes years to integrate key systems and standardize processes. One of the big factors Southwest would have to consider is altering its culture too much, which is known throughout the industry as being one of the strongest.
Bringing on another few thousand employees from a different company with different pay scales, different unions and different work expectations might disrupt the culture Co-founder and longtime leader Herb Kelleher worked to instill and that Kelly wants to continue.
"It's almost cult-like, and I don't mean that necessarily in a negative way," Brett Snyder, an industry expert who runs the Cranky Flier blog, said about Southwest's culture. "It's an important attribute for the airline. You'll hear Gary Kelly say that over and over again. Maybe future management would stray further away a little bit and take more risks. But, they seem to put culture toward the top of what matters when they're doing things."
03-16-2024, 09:41 AM
#9
weekends off? Nope...
Joined APC: Apr 2014
Posts: 1,941
Originally Posted by RJSAviator76
In all fairness, a merger or an acquisition takes having a vision. Does anyone realistically think BoJo and this BOD have any?
03-16-2024, 10:44 AM
#10
Gets Weekends Off
Joined APC: Jun 2014
Posts: 199
Everything is reactionary. There is no plan, no vision, no contingencies. Head in sand, riding coattails of “herb” and the days of old. A rudderless ship, whose pilot doesn’t even know they’re in the fog amongst the rocks.
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