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Rivals Invade Southwest's Air Space

(full article in first comment) But as Chief Executive Gary Kelly acknowledged last week in a memo that is still reverberating among investors, employees and airline rivals, the discount part is waning. Mr. Kelly's missive to 38,000 employees warned that if cross-town rival American Airlines emerges from bankruptcy-court protection, it will have substantially lower costs than before and will join the other remade "legacy" carriers that are giving Southwest a run for its money in… ( More...

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Gene spanos 0
wow......looks bad for the US airlines with the EU standing up.
Maybe dip shit will understand this too.
sparkie624 0
GO AA, Give southwest a hurting...
Chapter 11 is pretty much a joke in its present form. If there were only chaprter 7 or if all upper management had to be replaced(and no golden parachutes) if they filed chapter 11, perhaps these companies would be run differently. As it is upper management has no fear of going broke and at times seem to embrace it.
Don Imus 0
JW, what do you possibly know about the nuances of bankruptcy law?
Don't know about the nuances but I can see the crap. We can't pay our bills so we selectively stiff certain creditors and at the same time were purchasing new equipment so we can be ahead of our competition. What a business tool. Rewards incompetence. The " connected" will get rich on the deal. Hell, I'm surprised the fed didn't just give some taxpayer money so we all could share in the haircut.
Gene spanos 0
And the EU deadline for all US based airlines is till set vs. emissions law passed
for Jan 1st ?
preacher1 0
siriusloon 0
Not even Bablefish could decipher that. What are you trying to say?
canuck44 0
There has to be a huge change of culture at AA to get half way to compete with SWAir. That same needed culture change has not happened at Delta or United so I would not expect any rapid epiphany to occur within AMR. They basically retired two guys and shuffled the deck chairs in the Boardroom. It is not going to happen with a bunch of Mail Order Affirmative Action MBAs steering the ship...the concept of "Leadership" has long since been lost to the PC marketing types.
You bet John. Not just the airlines either. Cook the books a couple years to look good, get a good contract with a large severence package, then let the house of cards tumble. I love the Mail Order Affirmative Action MBA bit.LOL
canuck44 0
It gets worse as time goes by....Medicine is imploding the same way...I did 12 surgeries on kids today. Used to do it with a singular circulator, a scrub tech and someone passing gas. Now they need additional circulators to fill out the paperwork most of which is essentially irrelevant or just to cover someone's overly adequate do the list without the "stenographer" Nurse takes professional care away from the child's care but to add her position increases the cost of each case by 40%. How is that for progress? Only good and profitable part is selling clipboards to the flunkies.
richard weiss 0
I'll be off for a few weeks. I will miss reading your imputs on a number of subjects. Glad to hear, in spite of it all, the kids are still getting the care they need from you. Merry Christmas, John and a very Happy New Year.
canuck44 0
Richard, have a great Christmas season and a better New Year. It is a Christmas present to relish hearing compliments from another former Tailhook attendee as we regularly find ourselves on the wrong side of the great PC divide. Thanx.
John, you and I agree on something finally, and in spades. I have watched management for years lead by words, not example. We can see that today in the level of services we as consumers settle for.

Next quarters financial statements are more important than where they will be in 2 decades. And the schlep purchasing the product, does he really - honestly count?
canuck44 0
I doubt this is the first upon which we agree...I began my life as a boy seaman and rose through communications and operations until I could con a medical school to feel sorry for thing you learn through the ranks is that leadership is from the front of the parade, not the back because if the parade stops you have to extract yourself from the ass of the guy in the last row in order to look around and figure out where you are. Most users of this site understand this principle.

Unfortunately the next quarter financials will look good but the numbers will be fallacious and full of accounting tricks. If you have followed a series of posts here, you will note a common theme...get capital off the books, dump the pensions and negate current contracts. They will only pay the bondholders that have secured their investment with capital that American needs...the rest they will stiff (ATRs, ERJs and MD80s are at the top of this list). This allows them to reset the clock and make the numbers look good, but they no longer have access to credit (think GM and Chrysler). In the past few weeks they announced new aircraft, but the deal will have to be approved by the judge...likely it will be all lease purchase but a big price on the lease given their negative credit. Now for accounting purposes each aircraft is just another rental and not a capital obligation. I predict their capital showing will be reduced by one third and debt by one half.
preacher1 0
You know, back in the late 70's/early 80's, you had strong corporations in which there might be 8/10 strong cpmpanies feeding off each other and the general public; all making money, working people and paying taxes. Then along came the junk bond craze of the early 80's. Those corporations wound up getting bought for nothing, companies sold off or shut down for a big tax write off on companies that were paying taxes.
That's the difference now between that 1st quarter and long term.
John, my Dr. has told me about the same thing. As a GP, he can only see patients about 4 1/2 days per week as a full half day per wee is catching up on basically useless paperwork required by various folks.
Richard, have a nice Holiday season.
Good luck to all. I don't think swa has too much to worry about short term as they seem to have a business plan for the time. Nothing stays the same long. Be ready to adapt.
preacher1 0
Well, look at NASCAR for example. 10 years ago, there were one or two dominant race teams. Now, there are quite a few cars on the track is subject to winning. Those dominant teams haven't gotten worse. Those underperforming teams have gotten better, and so it will be with the Airlines. They have started copying SWA and over the course of time will do so even more. That's where the competition will come from
Ben Lillie 0
Ooooh, Southwest better not kick any more fat passengers off they're planes.I say good luck to AA.
n111ma 0
There would be a totally unfair competitive advantage for a bankrupt carrier to operate with lower costs than one which made the right decisions in the market. If Southwest was smart...they would begin an ad campaign "today" asking the flying public "If they would feel safe while flying with their family in an airplane that is owned, operated, and maintained by a company in bankruptcy"....PERIOD!
Chris Bryant 0
That could've been said about almost every US airline at one time or another. And it's an insult to the FAA, especially those that work out of a FSDO. The FAA doesn't have differing levels of inspection and regulation for an airline that's not in bankruptcy versus one that is in bankruptcy.
n111ma 0
Chris... Your point on safety is well taken! However, there is still an unfair business advantage when one company is given slack and concessions because of the bankruptcy protection they receive resulting from not running their business prudently. For example, if AA settles with its creditors for 50 cents on the dollar...and is kept alive by these creditors... it is in the creditors best interest to work with AA and see that they survive. That will not translate into better prices for Southwest. Smells like entitlements!
Marcus Pradel 0
@Chris, The opposite doesn't have to be materially true to be advertised.

Are all airline's fleets equally safe? Age, Manufacturer, Maintenance all come into play and the consumer should be aware of under which conditions those factors take place when making a purchase decision.

Not even Pilots are trained to the same qualifications, leave alone standards.
chalet 0
Lousy idea, it would backfire in a millisecond, if not make AA respond with a law suit.
siriusloon 0
Fortunately, Southwest *is* smart and won't be adopting the ad campaign you proposed.

How many airlines own their aircraft? Many are leased and many airlines have their maintenance contracted out, too. Some airlines make money by doing maintenance for other airlines, some save money by having other airlines do it for them. The idea is to maximize the use of maintenance facilities instead of each airline having their own and running it below capacity. Not doing their own is not proof of any kind of safety problem and to suggest otherwise in your ad campaign would put Southwest at risk of bankruptcy after they get sued for libel and false advertising.

That leaves just operated from the "owned, operated, and maintained" trifecta you listed. As someone else pointed out, the FAA doesn't have a two-tier regulation system for airlines operating under bankruptcy protection to gain an "advantage" over an airline not in such corporate status.

Why do you think it's better that an airline should fail completely and cease operating rather than operate under bankruptcy laws and eventually resume normal operations? There are no advantages to its employees, creditors, customers, or to the industry itself for an airline like American to just shut down, park the fleet, and walk away. No airline operates in a figurative vacuum and the effect of closing down vs reorganization is something you shouldn't ignore.

And if Southwest were forced into bankruptcy after being sued for that ill-advised ad campaign, I suppose you'd be upset by the "competitive advantage" it gave them? (I'll omit the all-caps, spelled-out punctuation.)
Lawrence Lazar 0
They are also continuing to decrease service to their traditional customers and airports and focus on major airports in the hope of getting more business customers. An example is MacArthur Airport on Long Island. Southwest is canceling all three daily round trips to Chicago in order to use the aircraft at La Guardia Airport. The MacArthur flights average around a 75% load factor while Southwest claims they expect to have an 80% load factor at La Guardia.
Even with those increased load factors I wonder how much more they will make when taking into account the increased landing fees, the cost of fuel burned during the long delays that are quite frequent at La Guardia and the disruptions to schedules caused by the delays......and the bad will felt by abandoned Southwest customers.
Leonardo Lage 0
Lawrence no need to wonder the answer is right in your comments. More business traffic is the key. Reason why DL for example wanted more slots in LGA and no interest in MacArthur.
Randi Schwarz 0
Happy Holidays everyone. I have read thru all the comments. I have found something lacking in all the comments. I am a SW customer. I live in Philly and have a choice of who to fly with and I always use SW ( I am lucky they frly to my destinations). How come no one mentioned the fact that SW turns their planes around super fast. Have you ever really paid attention to the speed at which their aircraft is serviced? I have and they can have a plane arrive, service it and get back int he aire in 20 minutes, mayb a 1/2 hour. It is like watching a NASCAR pit crew. The fact is that an airplane sitting on the ground is not revenue producing, only an aircraft in the air is revenue producing. By turning an aircraft around from arrival to leaving the gateas quickly as they do at SW, they get to maximize the use of their aircraft. The next time you sit in a terminal look and compare how fast a plane arrives at the gate and leaves for the next flight.
Toby Sharp 0
American will never give Southwest a run for their money
panam1971 0
AA = Always Awful
indy2001 0
And I hope AA doesn't even try. There's no reason that both can't be profitable, considering SW's dearth of international flights. But even for domestic travel, I'll take AA over SW any day. (AirTran comes closer to what I look for in an airline, but I'm sure SW will ruin that in due time. The process has already started with the announcement that FL's 717s will be sold off.) I'm happy that SW exists for those who like it, and that they purchased Boeing aircraft (no surprise there). But once AA has dumped much of its legacy debt through bankruptcy, it'll be in a much better position to compete. And having tried the "new" Delta and the "new" United, AA still has my business. I just pray Alex Baldwin starts flying SW.
rmchambers 0
AMR is still a rude and non-customer-focused airline. Coming out of bankruptcy won't change that. AA staff for the most part don't seem to want to be working, at least the Southwest folks seem to enjoy their jobs.

The whole too-big-to-fail thing shouldn't apply to AA, they've treated cattle like cattle long enough to get some serious negative feelings towards them, when you constantly crap on your paying customers and lose market share this is the result. Others should learn well.. Delta, United? are you listening?
(rest of WSJ article)

On Tuesday, Southwest delivered a more upbeat signal, announcing a $19 billion order for 208 Boeing Co. 737s. But those new planes, too, are a reflection of Mr. Kelly's efforts to head off challenges from larger but slimmer rivals. Rather than expanding Southwest's fleet, they will replace less fuel-efficient 737s, leading to savings that are central to Southwest's strategy to remain a low-cost carrier.

If American parent AMR Corp. does "emerge from bankruptcy, as I believe they will, they will join the new United, new Delta and new US Airways as giant, lower-cost airlines," Mr. Kelly wrote. "They are, collectively, much more formidable competition than their predecessors."

With its historical edge on costs, Southwest was able to undercut competitors' fares and stimulate new business by winning first-time fliers and luring others from cars and buses, a phenomenon that came to be known as the "Southwest effect."

But with new competition from leaner, larger airlines and from such low-cost carriers as JetBlue Airways Corp. and Spirit Airlines Inc., "our advantage is cut in half," Mr. Kelly said in the memo.

The memo also reminded employees that Southwest's labor rates are the highest in the domestic industry and said that the airline's enemy "is our own cost creep, our own legacy-like productivity, and our own inefficiencies."

Michael Linenberg of Deutsche Bank said on an investor call last week that in his time following Southwest, Mr. Kelly's statement that Southwest can no longer stimulate new traffic is "one of the most profound statements we have heard about its business model." He suggested that to increase revenue Southwest may have to add international routes, charge passengers for assigned seating, operate red-eye overnight flights, and buy more types of aircraft to better match supply and demand. (Unlike most of its peers, Southwest is strictly domestic, doesn't assign seats and has flown only Boeing 737s.)

But Duane Pfennigwerth, an Evercore Partners analyst, had a different take. He said Southwest still has a cost advantage over rivals and a strong balance sheet free of expensive pension liabilities. He ascribed the Kelly memo to "realistic table-setting in advance of the next round of labor negotiations."

"I think he probably is trying to manage expectations," agreed Charles Cerf, president of the Transport Workers Union local that represents 7,800 ground workers who have been in contract talks since the summer. "They seem to overstate negative financial news at the beginning of negotiations."

Southwest declined to make Mr. Kelly available for an interview. But his note made clear that the company intends to preserve pay rates and benefits for the foreseeable future. Southwest has never furloughed an employee or requested concessions from labor.

Bob Jordan, a Southwest executive who heads AirTran Airways, which Southwest bought in May, said Mr. Kelly sends at least one employee memo a year, and "has done a number of rally-the-troops memos around...high fares and competition." He denied the memo was a warning shot to labor.

Over the past decade, as its legacy competitors collectively lost billions amid bankruptcy reorganizations, Southwest expanded rapidly, earning a total of $4.5 billion. Now the leading transporter of domestic passengers, its capacity in 2010 was two-thirds greater than it was a decade earlier, and it has moved into new airports, including Denver, Philadelphia and New York's LaGuardia. Its May acquisition of fellow discounter AirTran has brought it to the world's busiest airport, Hartsfield-Jackson Atlanta International.

But after years of outearning premerger Delta Air Lines Inc. and United Continental Holdings Inc., both international carriers, Southwest this year is expected to earn $213 million, a quarter of Delta's anticipated profit and a sixth of United Continental's.

"While they still have an advantage, that advantage is a shadow of what it once was," said Bill Swelbar, a researcher at the Airline Data Project of the Massachusetts Institute of Technology.


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