Consider Taking Off The Rose-Colored SWA Glasses For a Moment and Discuss...

[RDG]

Well that was harsh Ben. I didn't think I was bragging and since the hundreds of readers of this post didn't either, maybe you are the one in need of a reality check?

All I said was that we are a productive group, and if you think differently, fine. But don't sling insults because you can't state your point any other way. It makes you look ignorant.

The point is here we go to work, work hard and go home. At my last airline we go to work, fly somewhere, sit for four and a half hours and fly back. We don't let our assets sit on the ground doing nothing when they should be out making money. If that is "bragging" in the world of you, I thank God I am not in it.

Freak.

 

[AlbieF15]

"outrun the other guys, not the bear..." was a commment I saw here and agreed was very true.

There has come a point in the industry where upstart airlines, while not extinct, will become less and less likely. There aren't many hedge funds or international consortiums ready to hand out the mutli millions it takes to create and run a new airline. The absence of captial at the moment, the notoriously low ROI (see Skybus, Virgin, Spirit, etc), increasing fuel prices, and less and less consumer spending all means airlines are likely competing over existing business and not creating new business. This is where SWA can get nasty.

With hedges, smart management, and efficient ops...SWA can move into DEN and make money on flights that UAL simply cannot. UAL then gets to play chicken...do they match SWA's prices and schedules and bleed cash or simply cede market share? I predict a lot of the latter in the coming months. These battles are starting to look a lot like air combat--a zero sum game. For every SWA new hire in 08 there will be a UAL or F9 furloughee soon.

Its a nasty business. Pick your team wisely.

Good luck to all...

 

[skywdriver]

Southwest locked in all of those cheap fuel contracts a long time ago.--->The hedge contract are a work in progress. What you see today isn't want we had 3 or even 5 years ago....it is also not what we will be hedged in 2-3 or even 5 years from now. Each year they are less and less hedged.---> and that due to the changing fuel market. The final numbers are not yet done for 2009...negotiations are still in progress. I think the fuels hedges are completely gone by 2012,--->Take notes...the fuel hedges are part of the long term business strategy...they aren't going away They have a good business plan, but those fuel hedges were complete luck - no one saw fuel going where it did today when they locked in those contracts.--->I really don't think the CEO signed off on "luck" back then...I'm sure the Hedging presentation had some level of "facts" associated with it. The first Hedge contract prices are not the same as the hedge contracts in place today....sure, we are paying more today than we did then...but it's a much more lucrative business proposition today than it was back then...and it works for SWA...why? Because to get in the hedge game....you gotta pay up front....not too many airlines got that kind of "jack".

I for one can not wait until everyone is on a level playing field.--->We live in a capitalist society...no business is guaranteed a "level playing field" in this country I highly doubt the people working at Southwest realize how lucky they are that a couple of guys in the finance group took a huge chance on locking into oil prices 10 years into the future.--->I can't speak for everyone here, but your "Highly doubt" feeling is misplaced when it comes to me. Thats because I sure do realize how blessed we are to have top notch people working for us. And of course, that comes from having flown at a "legacy" carrier where our dim-witted management team couldn't see into the next month....much less 10 years in advance. BTW....lots of Pilots here share my feelings toward those who work in our fuel office.

Maybe some people need to work for an airline like that to realize how good we have it here.[/quote

I am not here to start a huge argument, but unless you either worked on the futures contract team, or traded futures at some other point in your career, it would appear to me that you don't really understand the process. I worked in finance before I got back into flying for a career and had some experience dealing in gold futures. You don't get a futures contract for $70 a pop when the market price is $130. If my memory serves me correctly, and i am sure you will go back to the books on it, but I just don't feel like reading through the 10k, you guys are hedged this year at something like 75% somewhere around $60 a barrel. Oil had been on the rise since what, 03. So, those contracts were purchased well in the past for 08, I think oil got to the $60 level sometime in 05. Point being, yes, you guys have an ongoing fuel hedge program, as do the other carriers. But your huge competitive advantage was created with the contracts that were signed years ago. You make a good point, you guys had the cash to do that when most other carriers didn't.

However, please don't tell me that you think the guys on your finance team had that much insight into the oil market to know they were going to make out like they did. Hedging from a business standpoint gets its name because you are trying to hedge risk, speculative investing on the other hand is a whole different game. With hedging, you look into the future, and you have the chance to make variable costs fixed through futures contracts, you take the unknown factor out of it. Your finance team is not in the business of speculative investing. There is a lot of money to be made and lost in commodities, and there are plently of people that spend 20 hours a day studying the charts to take a speculative position. Your finance guys are not in the business of doing that, they don't have access to the information, and they don't have the time to do it. So, they got lucky. I am not saying they aren't smart guys, but don't give them more credit than they deserve. I am pretty sure if you got them out at the bar after a couple of drinks, they would tell you the same thing.

I am not a Southwest hater by any means, I am in fact very proud of your pilot group for keeping some kind of pay standards in this industry. However, I am sickened by the fact that the public expects such low fairs. You guys can hedge fuel now for the future, but you will be hedging it at $100+ a barrel. Your investors are used to a certain return now that they will not be able to get with that cost increase. Therefore you will have to raise ticket prices, because the shareholders own the company, and therefore people will have to start paying a reasonable price for tickets, and therefore the industry which this country's economy depends on will be in less of a mess than it is now. I see no way that you will be locked into a 50-60% price competitive hedging advantage over the other carriers.

I guess it only makes sense to be proud of the company you work for if they have been successful, and your guys upstairs have run a great show. However, nothing lasts forever. No one stands in the spotlight forever. I wish your company no ill will, but I hate to see people falling into the trap of believing that they will be on top of things forever. In my very small and insignificant opinion, the next wave of the industry will be with all the growth in the Asian markets. There will be a ton of demand from the pacific to here, and there will be a lot of money to be made there. The legacy carriers are not built to compete against southwest from LUV to AUS. I am sure if they could figure out a way to feed their international flying without having to actually fly the domestic system, they would get out of it. The market it totally tapped out, too many seats. However, I think you can make a fair argument that they will be able to underbid or at least evenbid the lower cost carriers on the domestic stuff and supplement the losses there with their international feed. Point being, things change. What worked yesterday, may not work tomorrow. I wish you the best of luck in your career, and appreciate the good discussion. If we ever meet in a bar on an overnight, beer is on you, because I will probably be furloughed. Cheers

 

[Cobra17]

I guess they have been "lucky" for 35+ years now.

 

[SWA/FO]

Not unusual for some F/Os to make > $130,000.

Not unusual for an F/O to make >$160,000

 

[TSA/TWA/AA/TSA]

With hedging, you look into the future, and you have the chance to make variable costs fixed through futures contracts, you take the unknown factor out of it.

This is what a lot of people don't understand. Many airline sell tickets a year out(this is changing), setting pricing more than one year out is RISKY BUSINESS because you have varible costs(namely fuel). Well if you are hedged, its a whole lot easier to set ticket prices profitable(in the black). Have you ever noticed at the legacies how big of swing in loses and profits. This is a concept that WN management understands, reduce risk makes companies more profitable in good times and bad.

Now in these bad times, WN with their cost more fixed can determine if new markets can be profitable. MORE MARKET SHARE, and in MHO their is going to be more market share to be found as other management teams shrink their airlines while whining about some varible cost. "who would of thought gas would be over a $100 a barrel"

WN management now has the opportunity to gain marketshare just like they have for the past 30+ yrs.

Anyone avalible to walk my resume in @ SW, if I'm betting on anyones management team its SW.

WN fuel hedging will never run out, they are constantly hedging fuel, fixing future costs.

 

[U2DRVR]

Hedging from a business standpoint gets its name because you are trying to hedge risk, speculative investing on the other hand is a whole different game. With hedging, you look into the future, and you have the chance to make variable costs fixed through futures contracts, you take the unknown factor out of it. Your finance team is not in the business of speculative investing. There is a lot of money to be made and lost in commodities, and there are plently of people that spend 20 hours a day studying the charts to take a speculative position. Your finance guys are not in the business of doing that, they don't have access to the information, and they don't have the time to do it. So, they got lucky. I am not saying they aren't smart guys, but don't give them more credit than they deserve. I am pretty sure if you got them out at the bar after a couple of drinks, they would tell you the same thing.

This is an excellent point and one I think that is missed by most. Hedging is done primarily to fix costs at todays rates. SWA doesn't hedge to make money, they hedge to control costs so that their profitability and pricing is not at the mercy of the spec market in oil. Ticket pricing can be set based on known costs so that when oil is cheap, they make money off of ticket prices and when oil is expensive, they make money off of hedges.

The real advantage that SWA has is a lot of cash and great credit that allows them to hedge to such a large extent and leadership (not management) that is willing to take the risk.

 

[The Victors]

Southwest locked in all of those cheap fuel contracts a long time ago.--->The hedge contract are a work in progress. What you see today isn't want we had 3 or even 5 years ago....it is also not what we will be hedged in 2-3 or even 5 years from now. Each year they are less and less hedged.---> and that due to the changing fuel market. The final numbers are not yet done for 2009...negotiations are still in progress. I think the fuels hedges are completely gone by 2012,--->Take notes...the fuel hedges are part of the long term business strategy...they aren't going away They have a good business plan, but those fuel hedges were complete luck - no one saw fuel going where it did today when they locked in those contracts.--->I really don't think the CEO signed off on "luck" back then...I'm sure the Hedging presentation had some level of "facts" associated with it. The first Hedge contract prices are not the same as the hedge contracts in place today....sure, we are paying more today than we did then...but it's a much more lucrative business proposition today than it was back then...and it works for SWA...why? Because to get in the hedge game....you gotta pay up front....not too many airlines got that kind of "jack".

I for one can not wait until everyone is on a level playing field.--->We live in a capitalist society...no business is guaranteed a "level playing field" in this country I highly doubt the people working at Southwest realize how lucky they are that a couple of guys in the finance group took a huge chance on locking into oil prices 10 years into the future.--->

Everyone at swa realizes how lucky they are to have that job. If you were there, you'd know this about the employees. The fuel hedges are ongoing. It wasn't a shot in the dark 10 years ago. I highly doubt you understand. I too, can not wait until everyone is on a level playing field. Airtran capt.'s go to work for the same wage that swa fo's earn, for example. Swa strives to pay their employees a proper wage while struggling to keep costs low. Once other pilot groups demand and receive swa pay or better, then we can talk about a level playing field.

 

[Tejas-Jet]

I guess they have been "lucky" for 35+ years now.

Couldn't have said it better myself

 

[pipejockey]

Not all SWA tickets are "dirt cheap" either. I'm flying to Boston in August for a wedding. AAL DFW-BOS roundtrip: $718 for two non-stop each way. SWA DAL-MHT: $850 with 3! stops there and 2 coming back.

I sure hope I am misreading your post. Is that 718 for 2 tickets roundtrip? If so, that IS dirt cheap. My goodness how people have been brainwashed into thinking these current prices are appropriate. Even people, apparently, within our own industry. This profession is doomed I say! DOOMED!!