Southwest Revising Business Model

[signals]

Article

 

[buscador]

Article

If you look past the scare tactics of someone trying to get you to sign up for there stock advice site.. it is mostly accurate and is why SWA is making the moves they are... buying AT was just as much to take out competition as it was to open up a new revenue stream(international flying)....

No one can argue that SWA has some rough roads ahead, when you are the biggest domestic carrier(paxs flown) growth is much harder.

 

[AvTech04]

I haven't read the article, but I know hat SWA has no choice but to revise if they are to stay profitable or even worse, stay flying! They are no longer the low cost carrier leader that they once were. They can no longer compete in the domestic market and they know that... If not for the AT purchase, they would have years of time, training, investing and purchasing of new A/C to do before they could venture off into the competitive waters, international! Especially now that AA has gone into bankruptcy. But, with the AT purchase, they has saved a lot of time and money gearing up for the move to the international scenes. Thats really the main reason to make such a drastic move in this day in age economy, they had to move fast before they were left catching up!

 

[buscador]

I totally agree, they had to buy themselves a way into the international routes... I am no finance major but I wonder how SWA can take the same business that AT ran and pay the AT employees %25-40 more money for doing the same thing they had been doing and make a profit...

GK hasnt called me or maybe my phone was off ,, but where or how do they cover these newly incurred employee costs,, and make a profit on this transaction,, is it with frequency, better use of planes, better route system or higher ticket prices??? I dont see the big picture obviously

 

[Swadl]

Well GK is a bean counter and I'm sure he has did the math and hopefully the plan is fool proof. All I can say is I miss the HK era!

 

[WorldTraveler]

While WN carries more passengers than any other airline on their domestic airline, WN is not the largest airline in terms of total passengers carried nor does WN obtain the most revenue from its domestic system compared to other airlines' domestic systems nor does WN carry passengers as far as other carriers.....
which explains the entire problem facing WN... they are still much more of a short-haul, high frequency carrier whose mgmt realized several years ago that their costs are going up faster than their ability to continue to grow revenue. Thus, WN embarked on plans to increase business revenue, fly to more of the US, and access key business markets in the NE where WN has historically not been near as strong. Of course they knew that 7-8 years ago but were able to push back reality because of some very crafty fuel hedges and the fact that their legacy competitors in BK didn't have that advantage but they now have to compete on the same terms and the sledding is getting a whole lot harder.
.
The reality is WN is developing many of the legacy costs as its legacy carrier competitors.... when you have retirees who have worked a full career with the company, you are no longer an upstart. WN is now having to spend money on terminals to accommodate its growth, no longer able to use whatever facilities are available at an airport - those are all legacy costs.
Comparing WN to carriers like Spirit is not accurate... NK opportunistically picks out select markets and has no intentions of being the nationwide carrier that WN has decided is what it needs to be. WN has intentionally built its presence in the hubs of the largest network carriers.
Further, WN's mgmt is acknowledging that their ability to stimulate traffic the way WN once did is largely an item for the history books... fuel is too high and WN's costs are not low enough compared to its network carriers for WN to win market share solely on the basis of the WN business model.
International flying even to the destinations FL served can work.. but WN will have to connect a lot more traffic than its business model has done in the past and will have to compete with carriers like B6 which are lower cost and have been much more aggressive with int'l expansion.... when you consider that WN still has not operated a single US transborder flight (including to/from HA or AK), they have some catching up to do and have missed opportunities to develop their product line, esp. when you consider that the biggest obstacle for WN has been automation to price itineraries that are not totally in the 48 states.
.
WN's focus now - as with all of the network carriers - is to shift revenue from other network carriers to itself.
.
WN is a domestic competitor to AA, DL, UA, and US... it is not the low fare or low cost competitor it once was... and they have to figure out how to win in the US domestic marketplace against carriers that have alot more experience in serving a much larger piece of the market and have a much larger variety of tools to use compared to WN.
.
WN will adapt but their business model will have to change if their star is to burn as bright relative to its peers as it once did.

 

[jimntx]

And, one of the ways they are taking traffic from the rest of us is by offering 737 service to destinations the rest of us serve with RJs. It always amuses me when legacy airline employees use phrases like "Ma and Pa Kettle" or "the Greyhound crowd" to describe WN's passengers. If you go to just about any WN terminal--particularly in the morning--you will see a LOT of suits with computer cases, charts, and design plan tubes standing in the "pay $25 and board first" line. We are all losing day trip business passengers to WN. Lower fares, greatest seat-pitch, leather seats, AND smiling, pleasant employees. Any legacy airline that thinks their customers won't go for these items--particularly, as I said, the day tripper customers--is in for a rude shock.

 

[buscador]

And, one of the ways they are taking traffic from the rest of us is by offering 737 service to destinations the rest of us serve with RJs. It always amuses me when legacy airline employees use phrases like "Ma and Pa Kettle" or "the Greyhound crowd" to describe WN's passengers. If you go to just about any WN terminal--particularly in the morning--you will see a LOT of suits with computer cases, charts, and design plan tubes standing in the "pay $25 and board first" line. We are all losing day trip business passengers to WN. Lower fares, greatest seat-pitch, leather seats, AND smiling, pleasant employees. Any legacy airline that thinks their customers won't go for these items--particularly, as I said, the day tripper customers--is in for a rude shock.

Very well put,, I agree

 

[SharoninSAT]

And, one of the ways they are taking traffic from the rest of us is by offering 737 service to destinations the rest of us serve with RJs. It always amuses me when legacy airline employees use phrases like "Ma and Pa Kettle" or "the Greyhound crowd" to describe WN's passengers. If you go to just about any WN terminal--particularly in the morning--you will see a LOT of suits with computer cases, charts, and design plan tubes standing in the "pay $25 and board first" line. We are all losing day trip business passengers to WN. Lower fares, greatest seat-pitch, leather seats, AND smiling, pleasant employees. Any legacy airline that thinks their customers won't go for these items--particularly, as I said, the day tripper customers--is in for a rude shock.

Well stated Jim, thanks 🙂

 

[WorldTraveler]

glad we have hit on a topic other than labor that is of interest....
.
I am glad to see the WN faithful rally behind their airline but it still doesn't change the fact that WN serves a fraction of the major business markets in the US and an even smaller fraction of the total markets... the simple fact is that WN's tradtional model of high frequency, low fare service works in a handful of markets - ones in which traffic can be stimulated. $3/gal jet fuel even for WN means you can't stimulate traffic much any more... and 140 seat 737s (the smallest in WN's fleet) don't work in hundreds of cities around the US, esp. those that don't generate even 100 passengers per day to the hub where the dominant carrier provides the most service even with RJs.
.
I certainly have never said WN carries trash revenue - their average fares are actually some of the highest in a given market pair... they are masters at knowing how much capacity they can put in a market and the price they need to fill their planes... but they also fully know why their business model won't work in many cities - and why they tell hundreds of airports every year that they do not have plans to start service to their cities.
.
WN's employees are happy because Herb created a fun environment to work and figured out that if you treat your employees well and pay them better than your competition - they will be fiercely loyal to you. It's a great business model.... except in the airline industry it was borrowed from Delta Air Lines who used that model better than any other US airlines pre-deregulation. But it's not an exclusive and the more airlines that use the model, the better flying is for everyone - airlines and passengers included.
WN also hasn't dragged its employees through BK which did more to demoralize its workforce - 90% of the posts on this forum are related in some way to what airlines took away in BK and the repercussions that followed.
.
WN is a great company and will long be recognized as having accomplished more because of deregulation than perhaps any other US airline... but the WN business model has limits... and every great company must figure out how to transform itself in order to continue remaining great.
WN has a long history of figuring out how to win and how to be aggressive in building its franchise... they will figure it out. But it also doesn't mean that either WN mgmt or analysts who really understand the industry underestimate the degree of transformation that WN must do in order to ensure its success long-term.
Many great companies do figure out how to transform themselves and remain successful.... the leap between typewriters and computers was enormous but IBM made it and remains one of the leading technology companies in the world because they figured out how to adapt.
WN can do the same thing - and its transformation might be just as dramatic than IBM's if not more so. Companies that successfully transform themselves become even stronger competitors than even upstarts whose business model is based on a specific market niche... when you figure out how to adapt, you are far more capable of succeeding regardless of the environment in which you find yourself.

 

[whatkindoffreshhell]

It's a great business model.... except in the airline industry it was borrowed from Delta Air Lines who used that model better than any other US airlines pre-dereg

Incorrect. Just because DL is a non-union shop and their employees bought the company a plane does not mean the DL model was the inspiration for WN.

International destinations for WN? Don't think so other than the over-served Caribbean and border Canadian cities reachable by the 737. You are echoing the know-nothing analysts.

WN simply is a focused business which profits from wise use of resources. Their own website (that works!), cargo, motivated phone center staff, aggressive managers instead of MBAs and consultants. Literally they get their hands dirty in the business

WT you make decent points but take way too long and waste far too much ink.

 

[WorldTraveler]

Incorrect. Just because DL is a non-union shop and their employees bought the company a plane does not mean the DL model was the inspiration for WN.

International destinations for WN? Don't think so other than the over-served Caribbean and border Canadian cities reachable by the 737. You are echoing the know-nothing analysts.

WN simply is a focused business which profits from wise use of resources. Their own website (that works!), cargo, motivated phone center staff, aggressive managers instead of MBAs and consultants. Literally they get their hands dirty in the business

WT you make decent points but take way too long and waste far too much ink.

fresh,
your apologetic is great but it misses a few points.
WN would like to fly to Hawaii which for tax purposes is no different than international travel because part of the trip is over international waters where the same tax structure for flying over the continental US does not apply. WN's website cannot price that type of itinerary.
Also note that FL is in fact starting several new Mexico routes - and they are doing it for WN because FL's website and pricing system CAN price international itineraries.
If you think that WN will not expand outside of the continental 48, you will be in for quite a surprise.
.
I didn't say that DL was the inspiration for WN's philosophy of taking care of its employees... but DL was the largest airline pre-deregulation that had a positive employee-employer relationship... but so did Piedmont and others as well.
.
But once again there is no trademark on treating people right....
many of us are watching with anticipation to see if WN and its employees can do the same thing with the PMFL employees. We are seeing that this mantra of how well WN cares about people runs pretty thin if anyone else is brought into the fold.

 

[I'mRayFlyMe]

And, one of the ways they are taking traffic from the rest of us is by offering 737 service to destinations the rest of us serve with RJs. It always amuses me when legacy airline employees use phrases like "Ma and Pa Kettle" or "the Greyhound crowd" to describe WN's passengers. If you go to just about any WN terminal--particularly in the morning--you will see a LOT of suits with computer cases, charts, and design plan tubes standing in the "pay $25 and board first" line. We are all losing day trip business passengers to WN. Lower fares, greatest seat-pitch, leather seats, AND smiling, pleasant employees. Any legacy airline that thinks their customers won't go for these items--particularly, as I said, the day tripper customers--is in for a rude shock.

Bingo! And as Herb and Colleen (and Gary) have said time and time again, WN is not in the airline business, it is in the Customer Service business and happens to provide air transportation.

 

[whatkindoffreshhell]

fresh,
your apologetic is great but it misses a few points.
WN would like to fly to Hawaii which for tax purposes is no different than international travel because part of the trip is over international waters where the same tax structure for flying over the continental US does not apply. WN's website cannot price that type of itinerary.
Also note that FL is in fact starting several new Mexico routes - and they are doing it for WN because FL's website and pricing system CAN price international itineraries.
If you think that WN will not expand outside of the continental 48, you will be in for quite a surprise.
.
I didn't say that DL was the inspiration for WN's philosophy of taking care of its employees... but DL was the largest airline pre-deregulation that had a positive employee-employer relationship... but so did Piedmont and others as well.
.
But once again there is no trademark on treating people right....
many of us are watching with anticipation to see if WN and its employees can do the same thing with the PMFL employees. We are seeing that this mantra of how well WN cares about people runs pretty thin if anyone else is brought into the fold.

I am not 'apologizing' to anyone and certainly not you. Yes you did say the culture was borrowed from DL. Re-read your post. And do not backtrack or cloud the issue with your latest favorite pre-deregulation buzzword.

WN does not need to fly to Hawaii and the other nearby international warm-weather destinations. Those are loser routes that soak up frequent flyer freebies. Forget your gibberish about websites, water & taxes. You forgot life preservers too.

When WN starts buying 787s then you will know they are serious about serious international business.

 

[WorldTraveler]

I am not 'apologizing' to anyone and certainly not you. Yes you did say the culture was borrowed from DL. Re-read your post. And do not backtrack or cloud the issue with your latest favorite pre-deregulation buzzword.

WN does not need to fly to Hawaii and the other nearby international warm-weather destinations. Those are loser routes that soak up frequent flyer freebies. Forget your gibberish about websites, water & taxes. You forgot life preservers too.

When WN starts buying 787s then you will know they are serious about serious international business.

for starters, you might do well to understand that the word "apologetic" doesn't exclusively mean that you should say you are sorry - I don't really expect you would.
http://dictionary.reference.com/browse/apologetic

Let's hold your thought about whether WN will fly outside of the 48 states and check back on your prognostication in a couple years, ok?