Overall, PIT Traffic is Down

[ClueByFour]

CluebyFour, Due to further erosion of Southwest's Fuel hedging advantage in 2006, and Usairway's continuing efforts to get itself in competitive shape, I don't think anyone will be "shocked"....

Given that LUV's CASM ex-fuel is still a few cents lower than LCC, I don't think LUV should be worried.

You do realize that LUV is hedged to at least 70% of their anticipated fuel requirement in 2006 at a whopping $36/bbl.

Erosion? Tell me what LCC anticipates paying for fuel?

(FWIW, LUV is hedged in 2007 for 55% at $37, 35% in 2008 at $37 and 30% in 2009 at $39).

See http://www.usaviation.com/forums/index.php...ndpost&p=313265 for my analysis that indicates that using this year's available numbers (the long and short of it is that LUV can raise revenue by 500 million dollars a year with a one way fare increase of $5--which they tend to do every 6-18 months, historically).

Oh, and taking about 100 new aircraft between now and the end of 2008 (you know, lowering unit cost by spreading it over a larger number of ASMs).

Common sense says Southwest will be forced to RAISE fares to stay profitable due to fuel hedge erosion...Happy New Year....

See above and your local economics professor. Or history--as has been explained to you on other threads, LUV hedges to forecast future costs effectively so that they know when they have to raise fares (which they typically do by a few bucks every 6-18 months--see above). If you are holding out hope that they will have to raise them to a level at which LCC might be profitable, you are in for a long wait.

Happy new year.

 

[Dea Certe]

US's food is terrible

US has no audio on short flights

US's headsets break very easily

US FC is terrible

Yeah, USIYFare, but the frontline employees are really cute. See my atavar for proof!

Love you anyway.

Dea

 

[insp89]

Given that LUV's CASM ex-fuel is still a few cents lower than LCC, I don't think LUV should be worried.

You do realize that LUV is hedged to at least 70% of their anticipated fuel requirement in 2006 at a whopping $36/bbl.

Erosion? Tell me what LCC anticipates paying for fuel?

(FWIW, LUV is hedged in 2007 for 55% at $37, 35% in 2008 at $37 and 30% in 2009 at $39).

See http://www.usaviation.com/forums/index.php...ndpost&p=313265 for my analysis that indicates that using this year's available numbers (the long and short of it is that LUV can raise revenue by 500 million dollars a year with a one way fare increase of $5--which they tend to do every 6-18 months, historically).

Oh, and taking about 100 new aircraft between now and the end of 2008 (you know, lowering unit cost by spreading it over a larger number of ASMs).
See above and your local economics professor. Or history--as has been explained to you on other threads, LUV hedges to forecast future costs effectively so that they know when they have to raise fares (which they typically do by a few bucks every 6-18 months--see above). If you are holding out hope that they will have to raise them to a level at which LCC might be profitable, you are in for a long wait.

Happy new year.

Clue, Thank you for your ANALysis...You have not stated anything that is new....

Erosion? Yes, I said erosion..Southwest was hedged @$26.00/barrel, [85%]

For 2006, it goes up to $32.00/barrel [65%].

[20% LESS fuel hedged and $6.00 dollars/barrel more for the fuel that IS hedged...Like I said, Erosion..

I do not know what LCC will be paying for fuel in 2006..You don't either. Neither does my local economics professor.
Some are educated beyond their own intelligence.

Thank you for agreeing with me that Southwest will be increasing fares in 2006...

Are you stating that LCC will never again be Profitable ?

 

[autofixer]

What is the plan for LCC to be profitable...I would like to know?

 

[insp89]

What is the plan for LCC to be profitable...I would like to know?

autofixer, You don't know ?

The merging of Usairways and America West, not to mention the bankrupcy proceedings of the last couple of years. which meant huge paycuts for the employees that were senior enough to stay, and furloughs for a lot of employees.

How's the transmission business ?

 

[insp89]

US's food is terrible

US has no audio on short flights

US's headsets break very easily

US FC is terrible

What are you trying to say?

You get what you pay for ?

 

[ClueByFour]

Clue, Thank you for your ANALysis...You have not stated anything that is new....

Thank you for agreeing with me that Southwest will be increasing fares in 2006...

Are you stating that LCC will never again be Profitable ?

LCC might be profitable. It won't be at fares at which Southwest will be profitable.

Your insinuation (which you are now backing away from) was:

CluebyFour, Due to further erosion of Southwest's Fuel hedging advantage in 2006, and Usairway's continuing efforts to get itself in competitive shape, I don't think anyone will be "shocked"....

So what won't we be "shocked" by? You tossed out that and "erosion" of the LUV hedge. Let me ask you this: how does LCC's hedge position compare? Or CASM?

I don't want to confuse you with facts.

 

[BoeingBoy]

Let me ask you this: how does LCC's hedge position compare? Or CASM?

Ya gotta ask harder questions, Clue.....

Hedges are simple - WN 70, LCC 0 (percent hedged for 2006, that is).

CASM is more complex - well, not WN's but LCC's. There's HP mainline @ 9.90 cents (since the merger didn't occur till very late in the 3rd qtr). Then there's old US mainline @ 11.13 cents. Oh, let's not forget Express - both HP @ 11.76 cents & US @ 15.92 cents. What does it all add up to? WN @ 7.85 cents vs LCC @ 11.20 cents.

Added trivia question - how much would WN have had to raise ticket prices in the third quarter to produce the same profit if they hadn't been hedged?

A: about $7.50 per one way ticket.

For extra points, how many fare increases have the legacy carriers made stick this year?

A: I've lost count - 5, 6, 7? Each for between $5 to $20 each way.

Jim

 

[ClueByFour]

Added trivia question - how much would WN have had to raise ticket prices in the third quarter to produce the same profit if they hadn't been hedged?

A: about $7.50 per one way ticket.

For extra points, how many fare increases have the legacy carriers made stick this year?

A: I've lost count - 5, 6, 7? Each for between $5 to $20 each way.

Jim

And this sums up what I've been trying to get across. Thanks, Jim.

 

[nycbusdriver]

If you are holding out hope that they will have to raise them to a level at which LCC might be profitable, you are in for a long wait.

Happy new year.

Wow! Sounds terrible for LCC.

You've givien quite a bleak picture of the cost side of the equation for LCC vs. LUV. But you're forgetting the other side of the equation.

How does LCC yield stack up to LUVs?

 

[BoeingBoy]

Glad you asked. I figured someone would since CASM is only one half the equation.

LCC had operating revenue per ASM of 10.89 cents system-wide, including express.

WN had operating revenue per ASM of 9.10 cents.

So WN has a CASM advantage of 3.85 cents (partly due to hedging) while LCC has a revenue per ASM advantage of 1.79 cents.

Now, how about that "erosion" of hedging? WN reduced 3rd qtr CASM by about 1.37 cents by hedging. Taking that out (as if they weren't hedged) would have given them a 2.48 cent advantage in CASM vs a 1.79 disadvantage in RASM. Net effect - advantage of 0.69 cent for WN if they were unhedged, which they will be in 2010 according to their latest report.

As Bob so aptly put it - "No amount of wages and benefit cuts will change the basic fact that Hub & spoke operation have higher fixed cost than point to point."

There is good news - at least potentially - in all this. HP was very close to WN on CASM & RASM with about a 0.2 - 0.3 cent disadvantage on both. Not too shabby for a "new generation" hybrid network/P2P carrier. They did it primarily thru low employee costs (neck & neck with old US as lowest in the industry) and long average stage lengths (planes produce ASM's in the air, not at the gate, thus higher utilization). If Doug can achieve that with the East system the future looks rosy, but it's easier said than done.

Jim

 

[ClueByFour]

Wow! Sounds terrible for LCC.

You've givien quite a bleak picture of the cost side of the equation for LCC vs. LUV. But you're forgetting the other side of the equation.

How does LCC yield stack up to LUVs?

Jim beat me to the punch on this, but there is an important component which public figures might not allow us to break out and that it where in the LCC system the higher yields are coming from.

My guess is three places:

1. Monopoly markets in the NE.
2. Carribbean/Mexico.
3. Europe.

Are any of these really safe, since everyone and their brother from a legacy standpoint is jumping into 2 and 3 like crazy? And while #1 might be impressive, much of that traffic is being hauled around on high-CASM RJs.

And Bob has something on the value proposition: there has to be a differentiator. At this point, in coach anyway, it's very little. Hopefully DP can change that (I just flew a HP transcon the other day, and the service was actually better than what US East has been pushing for the last year or so).

 

[Dea Certe]

And Bob has something on the value proposition: there has to be a differentiator. At this point, in coach anyway, it's very little. Hopefully DP can change that (I just flew a HP transcon the other day, and the service was actually better than what US East has been pushing for the last year or so).

Clue,

Sorry to go off topic here, but in what ways was the HP transcon better than US East? Cleaner planes, more beverage services, better or more food? Were you in F/C or coach? I believe we really do want to be the best so please be specific. Thanks!

Dea

 

[autofixer]

Isn't LCC's "yield advantage" vulnerable to SWA? SWA has tons of airplanes on order and they are going to stick them somewhere.

Insp89, the tranny buisness is good.

 

[insp89]

LCC might be profitable. It won't be at fares at which Southwest will be profitable.

Your insinuation (which you are now backing away from) was:
So what won't we be "shocked" by? You tossed out that and "erosion" of the LUV hedge. Let me ask you this: how does LCC's hedge position compare? Or CASM?

I don't want to confuse you with facts.

Clue, Thanks for clearing up your statements..

You went from, "If you are holding out hope that they will have to raise them to a level at which LCC might be profitable, you are in for a long wait".

TO, "LCC might be profitable, It won't be at fares at which Southwest will be profitable"...

Thank you for back peddeling and giving LCC a little glimmer of hope that they "might be profitable".

Please show me where I stated that LCC CASM is equal to Southwest's..

While were're here, What do you think about LCC's RASM numbers ?

I merely stated Southwest will have to raise fares due to the FACT that their fuel hedging advantage is ERODING...

I hope I didn't confuse you on that fact. 😉

BTW, What have you got against LCC anyway?