Southwest - Profit!!!

[scoreboard]

Where the He double hockey sticks do you get this shiite

But as I have stated before, to keep SWA in its current form would require the pilots to take a 20-30% paycut. .

Where did you get this?:uzi:

 

[J3CubCapt]

please fill me in bluey on SWA's plan on how to cope with their coming fuel crisis...

& PilotFriend...

From www.southwest.com Press Room 19Jul2006
The Company's second quarter 2006 and 2005 net income included unrealized gains/losses associated with Statement of Financial Accounting Standard (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. Excluding these unrealized SFAS 133 gains/losses, net income for second quarter 2006 increased 87.0 percent to $273 million, or $.33 per diluted share

B737Dvr, I believe that we already have a plan to cope. We "Coped" for a profit of $273 Million WITHOUT the hedge.....

 

[zonker]

I am very active in the financial markets, so I have been keeping an eye at LUV for quite some time now, and yes I have actually read the transcripts from the conference call.

This B737Dvr pud is nothing more than a management/day trader flunkie popping in for the really clever tactical manuever. Lowering expectations, I think it's called.

"Less for you = more for me."

This guy's a genius. Or another troll.

 

[lowecur]

& PilotFriend...


Excluding these unrealized SFAS 133 gains/losses, net income for second quarter 2006 increased 87.0 percent to $273 million, or $.33 per diluted share

B737Dvr, I believe that we already have a plan to cope. We "Coped" for a profit of $273 Million WITHOUT the hedge.....

If you look at the financials, the pure fuel hedge gain is $198M for the GAAP report. The non GAAP goes on to list add'l losses/gains and are outlined with the following footnotes:

These non-GAAP measures include items calculated by the Company on an "economic" basis, which excludes certain unrealized items that are recorded as a result of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", as amended. The unrealized items consist of gains or losses for derivative instruments that will settle in future accounting periods or gains or losses that have been recognized in prior period results, but which have settled in the current period. This includes ineffectiveness, as defined, for future period instruments and the change in market value for future period derivatives that no longer qualified for special hedge accounting, as defined in SFAS 133. ​

So the fuel hedge gain for the second Q is $198M, and the other stuff is not eligible under SFAS 133 rules, as it does not qualify for GAAP special hedge accounting for this quarter as they are based on market values of past and future periods. This info is provided by the company to give a broader view of hedging activities only.​

imp:​

 

[chase]

How SWA will deal with the future challenges?

The following are based upon some assumptions...every business plan has them & so do my following thoughts:

1. Current leadership continues to operate ethically and forthrightly (no reason to not believe they will)
2. No major terrorist upheavels within the US that deter traveling, i.e. another 911
3. The crystal ball extends out to a point equal to the end of our fuel hedges, 2010...as each year goes by this crystal ball window continues to slip forward matching the fuel hedge window....the company is using that as a planning cycle window obviously...if they were willing to gamble further out than that, they'd be doing it
4. Boeing continues to deliver airplanes as promised.


Those four things being said, persons have raised questions as to what SWA will do to continue to prosper. If one listened to the webcast today it is clear the team has a plan to manage expenditures & costs.

Myth one:
SWA's profitability is primarily based upon their fuel hedges. FALSE

SWA has used this as a strategy,one of many to manage costs...many more in place also; winglets, re-optimized schedule to generate 14+ airplanes by increased productivity....the cost savings in aircraft purchases is near $500m alone, 68 persons per airplane vs. 92 in 2Q02...fewer people to pay allows you to pay those folks more & still pocket a fair sum of change

Myth two:
SWA & other LCC have driven the legacies to the state their in.

That keeps floating around for some reason. The reasons are too many to list & the degrees of impact of these reasons vary depending on the carriers exposure to SWA but more importantly on the business model in place at that particulary carrier....the phrase "its the ecomony stupid"....should be replaced with "it the business model & the leadership of the company the relationship between management & unions stupid", at least in my opinion.

There are steps SWA is working toward continuing profitability, GK explained many of them earlier today:

1. Fuel hedges are continuing, through 2010...yes $61 seems high but so did $32 in 2001 when we bought the hedges we're exercising now....that is still below the price some airlines are paying for their hedges right now. It's as much a part of the business plan for the future as buying insurance is...no one even assumes that won't happen with any carrier now, it shouldn't be a big deal when we do...it should be a big deal when other carriers don't do it though...that should tell you something.

2. Winglets on 300's will save money for the lifetime of the airplanes...that & the reskinning of the airplanes I've been told will make the airplanes lighter & burn less fuel (haven't been able to confirm that but it makes for a good story:nuts: )

3. Increasing fares as necessary on markets that can support it....EVERY FARE HIKE SOUTHWEST HAS IMPOSED HAS STUCK...it is usually immediately met by fare hikes by others, but usually much larger....that only increases the spread between SWA & their competitors...who does that benefit when it comes to looking for low prices? SWA & the consumer.

4. Gas is over $3.00 a gallon, $75 a barrel oil & $2.20 a gallon for jet & AA posts a profit....attaboy guys, well done...hopefully others will also. That occurs with very little in the way of hedge protection. Is SWA leaving money on the revenue table? You bet but it allows market share to grow as AA & other legacies cut back capacity....their planes fill up to the brim & aren't able to handle much more...those folks now spill over to SWA & other LCCs who are increasing capacity. Experts said 18 months ago the industry was dead with $75 a barrel....well, it isn't & for the first quarter in years airlines are about to post a profit after major restructuring.....people say SWA can't get much more efficient but how much more can these carriers be when it comes to increasing revenue except through raising fares? Will labor accept any further cuts at those carriers? I don't know but fortunately that dilemma isn't facing SWA....it may in the future but using the assumptions I stated above I don't see that in that timeframe. Our average fare has gone up 15% since last year this time but the legacies average fare I would say has gone up more or at a minimum the spread is probably the same...no we're not the low fare carrier in every situation but we offer more low fares for more seats than anyone else.

5. Hope you're sitting down for this one....reserve seating (if it comes) will be a revenue generator. Business folks will come SWA's way for the reserve seating....SWA's share of full fare customers have decreased to around 33%, down about 2%...increasing full fare passengers just several % points could add a lot to the bottom line. Again if the turns aren't impacted, it could be as significant as the winglets with additional money coming from these high end players.

6. Who has seats available to sell? LF's are approach the upper 70's for us, other carriers are already in the 80's & upper 80's...they don't have seats to sell, SWA does....you can't make money if you don't have seats to sell.

7. 307 aircraft to be added through 2014....that is a large amount of capacity & keeps a fleet from aging too quickly....other than CAL, what is the replacement schedule for legacies aging fleets? Aging fleets = higher maintenance costs, fuel costs, labor costs (more time to repair them). SWA is doing more of its heavy mx in house due to efficiencies in mx...a good thing for safety & the bottom line.....more efficiencies to come in that area...just one example is during this time a computerized mx logbook will eliminate "bad write ups" that require many man hours to catch/correct...that will reduce complaints/fines from FAA, save tons of time & keep airplanes from being pulled off the line for "paperwork issues".

8. ATC advancement will save money for all carriers but since SWA flies more domestic flights than any others, the savings will be greater for us...RNAV approaches, more varied arrivals that aren't tied to "corner posts" allowing for continued flying despite weathers in arrival/departure corridors.

9. Alternate Jet A fuels....AF is already testing alternatives to Jet A that will lower costs to the military for jet fuel...if they are doing it, it may not be too long before it comes to civilians...again our size will allow significant savings to us by sheer size.

10. Possible new aircraft on the horizon...deriviative of the 787 in a 737 size, or smaller aircraft to smaller markets using a SWA business model (tougher nut to crack...will need to be looked at very hard by both management & pilot group)...either one of these could add efficiency to the system, i.e. 737 replacement with improved efficiency & productivity & lower costs; watch & listen to all of the headaches of JB & the 190 saga...learn from that & improve on it...it would be quite ironic that JB would show SWA how to make a better mousetrap after SWA was the model (with some improvements some would say) for JB....that would be truly ironic.

11. Increases in incremental ways, i.e. cargo...big push to fill up bin space with aggressive marketing of same day cargo delivery...huge money there (right DHL/UPS/FDX folks?)...mail loss will be replaced eventually by higher revenue generation from general cargo with less restrictions....will speed up turns since fewer restrictions than mail service.

12. The revenue management team....one of the major reasons why we're successful...GK & his team have these guys working wonders...they're a bunch of math whizzes that are doing miracles....keep these guys for another millenium or so.

13. Pilot group....wants to remain profitable, wants to work with management, wants to remain successful & is willing to speak up & say when something is BS & willing to toe the line if asked to do it with a well thought out justification....it's about trust & so far there is no reason to doubt the management team is doing anything that would jeopardize the future of all employees.

14. Wright Amendment being lifted this year (my prediction) ($50m additional revenue) + ATA codeshare ($50m additional revenue) + other imaginative business decisions ($??? additional revenue) are in SWA's future....those numbers & more will add up to the continued success but....nothing is guaranteed in life

To say that SWA has a lock on profitabilty is foolish. However to say their plan to remain profitable isn't viable would also be foolish....they do have a plan. It is different than others but well thought out...their vision is more than just 12-18 months but as the legacies & others are getting their financial house in order, they will become more aggressive & more of a thread to their competitors....no one rolls over in this business once...everyone seems to get up off the mate when they were knocked down (congrats to USAir, Alaska & United for their rebound...good luck to DAL & NWA). GK & Laura Wright spelled that out rather well. The execution of that plan & how they handle the challenges of managing their most important asset, their people, will be the key elements on whether any of the above occurs.

A quick shout out to Airtran & hope your negotiations work out for you guys....again a lot of drivel but the quarterly results provided a lot of information & are worth some pondering over....feel free to shout away...lots of holes in the theories.

 

[HighSpeed]

The important thing to realize is SWA will probably never go into the red because they have enough time to make the necessary changes to the model. B737Dvr is not wrong in his assumptions that the employement group at SWA will face some hardships. I can't exactly tell you how the company will go about getting those changes.

But as I have stated before, to keep SWA in its current form would require the pilots to take a 20-30% paycut. Even your CEO has stated they need to change in order to compete with the legacy's and other LCCs.

Management has certainly WON these last few years in the psychological war.

Here, a company posts an amazing PROFIT and people are spewing about pilots needing to take paycuts at that very same company.... absolutely amazing...

 

[YourPilotFriend]

Management has certainly WON these last few years in the psychological war.

Here, a company posts an amazing PROFIT and people are spewing about pilots needing to take paycuts at that very same company.... absolutely amazing...

It happens everyday. you ever hear of the regionals?

Here's another question for you SWA pilots, if ATA becomes the exclusive international traveler for SWA and becomes very profitable will you allow payrates at ATA to exceed your payrates? If you super impose the higher wage scale the SWA has over to ATA their senior captains will be making more than $250 an hour; is that acceptable?

 

[DH2WN]

It happens everyday. you ever hear of the regionals?

Here's another question for you SWA pilots, if ATA becomes the exclusive international traveler for SWA and becomes very profitable will you allow payrates at ATA to exceed your payrates? If you super impose the higher wage scale the SWA has over to ATA their senior captains will be making more than $250 an hour; is that acceptable?

We will be taking over the international routes once we determine if they are profitable by using ATA as a test bed. We did it with Denver and Ft. Myers. That's why we are "testing" assigned seating.

Furthermore, we don't care what the industry makes. We won't be going down the road of Delta vs. United.

See you in Mexico and Canada in 08'.

 

[Chest Rockwell]

It happens everyday. you ever hear of the regionals?

Here's another question for you SWA pilots, if ATA becomes the exclusive international traveler for SWA and becomes very profitable will you allow payrates at ATA to exceed your payrates? If you super impose the higher wage scale the SWA has over to ATA their senior captains will be making more than $250 an hour; is that acceptable?

We have no control over the pay rates at ATA. If they make $250 an hour, good for them.

I have never understood why pilots lose sleep over what someone else gets paid. Get the best you can without putting job security at risk.

 

[B737Dvr]

Great Post chase!

Now there is a pilot who I bet keeps his eye on the pulse beyond what GK and the press may say....there is no arguing with the numbers! There is a tremendous amount of forethought to that post. This is a huge clouded cystal ball with regards to WN's ability to continue to post record profits or even maintain profitability without doing what everyone else has has to do......go for concessions. Throw in the benefits that fuel hedging has provided and it makes for what this all is....a true interesting debate! I believe that in the history of the airlines, when you take the sum total of everything, the industry has always and is still running a collective loss, which makes the airline industry one of the worst sectors for investing. Now, when you have a collective industry in the crapper and everyone trying to stay alive and in a cockpit and out of home depot, the trend is still negative. SWA is one of the lone bright spots in an otherwise poor industry sector.

I will say it again, it is a great company because of what kelleher started and kept alive and passed on down before he left. You guys are what makes the airlines tick and are it's pulse. Chase has it right when he talks about labor and the wealth of mngmnt at SWA! What we are all looking at is how they will cope with the vastly changing landscape in the future and this is where the numbers come in.

texas swa....you make me laugh! I find it ironic how you chastise someone for their...lack of proper "english", and then choose to quote some broken english yourself in your little 'signature'...ha! cute......

sorry i digressed... for the person that said something about a 500ish Million profit...uh no! lets review these #'s again from their reconciliation reports including derivatives? Wn earned $333M, excluding special items(like hedges) they made $273M hedging provided a $225M cash bonus towards their EBITA. So yes, they were profitable without their hedges! When i said that they wouldnt be I was referring to previous press releases. I know I know you are all going to jump on me dwelling on the past, but lets review it for a sec shall we?

Since the full year 2004 there have been 11 Quarters till today. In 7 of them WN beat the street. 3 reports fell short of expectations and 1 was even. I think the stock price basically reflects that since it has traded between 19ish and 13ish in the last couple of years. All in all not bad, but for a company like SWA....this is expected and shouldnt be a surprise to everyone that they are doing well and continue to do so!!! Again, the question remains and CHASE basically laid it out along with every analyst out there is if and how WN will be able to maintain this given their future cost outlays.

A huge proponent of this is the fact that they have raised fares because they have had to....because of fuel costs. Let's now review what else they have done in addition to that.

Employess continue to make the difference there, but in addition to that, WN has now a codeshare with ATA thereby increasing their stranglehold on MDW and eliminating competition and now having the ability to list international destinations that they didnt have before! all in all not bad!!! In addition they are now going into cities and expensive hubs previously thought unthinkable, again really smart forward looking coporate strategy. I think when the Wright Amendment gets overcome, that will be yet another revenue source that the company doesnt have today...again wise forward looking on WN's part!!
Take all this and combine it with everything else they have and it shouldnt be a surprise that they have the earnings they do. They earned 87% year over year this quarter and their 2.45 Billion represents a 26% increase in revenue. They also have good LF's at 78%, but what i find curious is that their Q2 fuel costs are 39% higher yoy and their profit sharing costs have risen 63% yoy. Their expected fuel bill for Q3 is projected to be higher than Q3 05' and Q2 of 06'.

In addition, also eating away at revenue is the discounting that WN gives through credit cards, which increased 22% yoy. (this is like the homebuilders having to increase incentives to homebuyers to keep meeting homesale figures, but at the cost of revenue per unit sold).

Back in the day around 01-02' the magical CASM # was around 7 cents. WN's CASM excluding the cost of fuel (even hedged fuel) is 6.68 cents right now. This is way better than the majors, but when you factor in fuel, i just wonder how much of an effect that will have. What everyone is seeing is just how well WN will cope. 7 cents CASM was when oil was back in the 30-40's too!

Guys, learn to read the financial reports and tables and not what a CEO says on a press report. Im not saying you can't listen to GK, but part of a CEO's job is as chief cheer leader of a company when it comes to press reports on financials.....it's just simply mkting and pr 101. GK is one of the few that you can listen to, but if you really want to dig in the numbers to see just how the #'s pare up you have to go into the full SEC reports so that you can distill the numbers yourself......and someone said something about not having a business degree......trust me buddy, you dont need an MBA to learn how to read financial reports.

So to sum this up: Like CHASE said, baring any unforeseable global events like terrorism, OPEC cutbacks, hurricanes in the Gulf and accidents....one will just have to keep an eye out not just today, but for tomorrow.

I don't care how powerful and big and awesome any company is and how much money they are making and how many headlines they make in any industry in any part of the world. Simple economic evolutionary cycles demand that companies adapt to changing times. I believe that WN is on the precipice of POSSIBLY showing a global industry how to remain profitable without going to labor for concessions. But, if they don't.....my point was simply that I hope that there are SWA employees out there that do their own "hedging" and prepare, just in the case that it does happen so their QOL doesnt take a hit like it has for so many........