Southwest Warns of High Costs

[venture]

http://www.bizjournals.com/atlanta/n...sts-are-a.html

Probably a good 3-4 years early on this, but the drums of pay cuts appears to be looming. Not good when Southwest is already having issues with labor unions. It is going to be almost impossible to get pay cuts out of employees when the airline remains profitable. So I would expect more fare increases, a possible jump to using bag fees, or cut backs/outsourcing. I would plan they'll go the fare rate hike instead of fees so they can still use it as an advertising plow.

Southwest Airlines Co. CEO Gary Kelly is warning his employees high costs are a danger to the carrier, just as they were to the larger carriers that have filed for bankruptcy protection.

[SkyWestOKC]

The Southwest model worked well for a long time. It requires very strong network expansion to keep the model going. (Increasing flying means more hiring -- lower wages). Unfortunately they are running out of markets that can support the Southwest model. They have to be in constant expansion to keep costs level. 40 years down the line, they are running out of places to go and are starting to find themselves in a corner.

[Just the facts]

The Southwest model worked well for a long time. It requires very strong network expansion to keep the model going. (Increasing flying means more hiring -- lower wages). Unfortunately they are running out of markets that can support the Southwest model. They have to be in constant expansion to keep costs level. 40 years down the line, they are running out of places to go and are starting to find themselves in a corner.

Low cost expansion giving way to high cost sustainability - that sounds familiar.

[mcca7596]

Low cost expansion giving way to high cost sustainability - that sounds familiar.

Great point.

[RadicalModerate]

If [G-d] had meant man to fly
[He] wouldn't have given them baggage
nes pas?
~Hercule Perotte

[Jersey Boss]

Maybe SW should return to the days of hot pants wearing stews, errrrr, flight attendants.

[MikeOKC]

Well....my extended family is being touched by the AA debacle in a very big way. I was forwarded an article by my relative who said, "It's pretty sad when only a socialist paper will tell the truth." It's definitely a perspective from the economic left, but it makes a lot of sense. http://socialistworker.org/2011/12/0...hat-doesnt-fly The big issue in my family are the pensions. If things go through per AMR it truly is corporate robbery or 'crime in the suites.'

Here's part of it. If you're interested in airlines - it's worth the read. We're inundated with the corporate side of things, this is a different take:

WHEN STEVE Miller, the vulture capitalist who drove Delphi into the ditch of America's dreams, declared, "Bankruptcy is a growth industry," he was smiling, but he wasn't joking.

Bankruptcy in the U.S. isn't a sign of economic distress or mismanagement. It's a business plan: calculated, cunning and void of redeeming social value. American Airlines is the latest in a long line of financial obscenities that make vulture capitalists salivate.

If we had a president we could believe in, he would not only call out the National Guard to protect the Constitutional rights of citizens at Occupy protests, he would defend the vested benefits earned by workers with the full moral and institutional authority of his office. It won't happen.

We must cease and desist from unrealistic expectations and mount our own counteroffensive. U.S. courts routinely aid and abet the extortion of workers and the plunder of pension plans. Capitalism isn't above the law in the United States--it is the law. Peace and solidarity activists are hounded, harassed and arrested, but the forcible transfer of wealth from the working class to the investing class is protected concerted activity.

American Airlines' debt doesn't outweigh its cash and assets. In fact, American is financing its own bankruptcy. That's not distress, it's brass-knuckles union-busting. The business press makes no bones about American Airlines' plan to profit off the broken backs of labor contracts. In fact, they crow about it.

American Airlines ordered 460 new planes from Boeing and Airbus less than five months ago, at a cost of $38 billion. Those contracts will be honored even as American plans to dump pensions underfunded by about $10 billion for approximately 130,000 workers and retirees.

American Airlines doesn't pretend to offer a business plan that promises better management. The only benefits it purports to extract from bankruptcy are pension evasion and concessions from unions facing a court-ordered firing squad.

The crib notes for this business plan read: bankruptcy = profit. The longhand reveals the moral compunction of a crocodile.

Labor has a legitimate lien on capital. A pension isn't an entitlement, an investment or a gamble. It's earned with hard steadfast work.

The Pension Benefit Guaranty Corp. [PBGC] estimates that a default at American Airlines could be the largest in U.S. history. The PBGC itself is teetering on the edge of insolvency. In 2004, a report by the Center on Federal Financial Institutions said that the PBGC "is insolvent on the basis of Generally Accepted Accounting Principles (GAAP) and would be shut down if it were a private insurer."

That was before the PBGC absorbed $6.2 billion in pension obligations from Delphi.

Bankruptcy courts protect the assets of U.S. corporations invested outside the U.S. from creditors. You can bet your mother's paycheck that American Airlines' parent company, AMR Corp., has cash and assets stashed in ports all over the world.

More - http://socialistworker.org/2011/12/0...hat-doesnt-fly

[BoulderSooner]

AA has lost money .. what 15 Q in a row ... do you think they should wait until they have no options left??

[venture]

I want to say the article isn't too far off. From what I can recall, AA had around 4 billion in unrestricted cash but around 5 or 6 billion in liabilities and debt. So while they were threatened to go belly up, the financials allowed them to go into Ch 11. I would imagine the recent aircraft order was done with the filing in mind.

PBGC obviously gets screwed again, since they already have nearly every other airlines' pensions. Yes union contracts will get gutted like at every other airline. It sucks, but it is the nature of the beast. Airline passengers are cheap and expect that they should be able to fly for the same amount that it was back in the 90s.

As far as Southwest, they need to get labor costs down so their model can be effective service smaller/medium sized markets they have had to avoid. They are also doing a good amount of expansion internationally now through AirTran. Using the 737-700s and -800s will allow them to reach a good number of markets south of the border. They also plan to order around 100 or so of the new 737MAX here soon - of course the 737MAX is a joke and should have been a completely new narrowbody, but that is for another thread.

[Just the facts]

Maybe if pensioners didn't accept checks that companies couldn't cash they wouldn't have a problem. I learned a long time ago to accept payment in cash, not promises.

[Just the facts]

Airline passengers are cheap and expect that they should be able to fly for the same amount that it was back in the 90s.

I fly 2X a week and every dollar I don't spend on a plane ticket is a dollar in my pocket. I use that dollar to support my family. Why should the children of a union airline employee be more important than my own children? Call that "cheap" if you want - I call it being responsible.

[venture]

I fly 2X a week and every dollar I don't spend on a plane ticket is a dollar in my pocket. I use that dollar to support my family. Why should the children of a union airline employee be more important than my own children? Call that "cheap" if you want - I call it being responsible.

It isn't like the airline employees make a ton, but the fact that airline passengers get cranky when ticket prices attempt to go up to cover the cost of fuel doesn't really create any sympathy. I comes down to the current market trend, if you aren't afford to fly - don't. Airlines are still cutting capacity and raising fares. They are finally in the position to get higher yields from their passengers to cover costs (for the most part). Even Southwest has been consistent in raising fares this year. Deep discounters like Spirit and Allegiant make the vast bulk of their cash in ancillary revenue to where the end cost of the ticket is still going to be closer to the other guys. Allegiant's ancillary revenue is mostly from hotel/vacation package sales whereas Spirit's comes from bag, carry on, ticket, food, and other fees.

I guess we are at the place where people need to realize airline service isn't a public transportation right. Pay to cover the costs or take the train/bus. If you can't afford the air fares, sorry. Granted if you are needing to fly quite a bit due to work, chances are your company ends up picking up the tab while the traveler still gets the benefit of elite status in the airline's frequent flyer program.

[Just the facts]

I am my employer. I pay what the airlines charge me to fly so if they aren't charging me enough to cover their cost to get me from A to B then whose fault is that? If two airlines are going from A to B at about the same time, or if a single airline has two flights an hour apart, and there is a $50 price difference guess which one I choose - the cheaper one.

[SkyWestOKC]

I choose the one I have status on.

[venture]

I am my employer. I pay what the airlines charge me to fly so if they aren't charging me enough to cover their cost to get me from A to B then whose fault is that? If two airlines are going from A to B at about the same time, or if a single airline has two flights an hour apart, and there is a $50 price difference guess which one I choose - the cheaper one.

Oh I agree it is the airline's fault for not charging the correct price to cover costs. People just have to not complain as air fares keep going up in order to cover those costs.

[Just the facts]

I choose the one I have status on.

It depends on where I need to go. USAir get me to PHL at 8:30AM on Monday morning. Delta makes me stop in Atlanta and I don't get there until after 11AM. Both flights leave JAX at about the same time.

[bombermwc]

Except they have SOOO many delays in their flights, and they are almost never the cheaper option. You get on some crappy md-80 with some pissy flight attendant and then you get delayed for 2 hours. They'll charge you extra for everything too. The last several times i've flown, Southwest has been cheaper, the seat is more comfortable, the plane is more quiet, the flight attendants are nicer (and more fun), and i don't have ANY delays.

i've yet to EVER fly on AA when at least 1 of the legs of the trip didn't get a 2 hour delay for mechanical issues. Even as much as 4 hours for them to fix the lock on the cockpit....really. It's a company that is spread across too much territory and focussing on quantity rather than quality. It's like how Continental went to crap when it merged with United.

[venture]

I just flew American and didn't have an issue. Perhaps you were just unlucky?

I've never found the MD-80 any noisier than the 737s. Typically with rear mounted jet engines the cabin will be quieter than wing mounted engines. I remember flying the 727s and noticing how quiet they surprisingly were in the cabin. However the MD-80s are eventually going to be gone as everyone switches to 737s and or A320s for their narrowbody fleet (talk about boring). I will say the Southwest seating does tend to be more comfortable, but they have been switching to thinner seats and the comfort difference is pretty notable. I've also had several delays on Southwest, especially on mid day or later flights due to their tight scheduling not allowing for any padding due to system delays.

[bombermwc]

Yeah i wasn't sad to see AA talking about tossing the MD-80 fleet. I always sit just in front of the wing, but it just always seemed that the 80's were sooo loud. Maybe I'm weird, but when i fly Southwest it seems like I sit down and have an "ahhhh" moment rather than a "boooo" moment. LOL.

I'm not a frequent flyer or anything, so i really could have just had bad luck, but it's been that way for me with AA over about a 5 year span.

What i really like is the ones that have the little touchscreen systems in the chairback in front of you. That whole entertainment thing makes the flight much easier to handle if you forgot a book or something....and didn't want to read the magazine for a 12th time...lol.

[OUman]

^I have to agree that the M80s really aren't that loud, I've even sat right over the trailing edge of the wing once in a Delta MD 88, and it wasn't any louder than a 747, but then again I've been in many aircraft now and know of some much louder (and annoyingly so). Now about the AA M80 technical issues, I have read about those a lot over the years. I don't know why but AA has had many delays with M80s having technical issues, and more so then the ex-NW DC 9s, which are much older than AAs 80s.

Ona different note, I also have to say having flown WN about 10 or so times (between here and Austin), the seats are quite comfortable.