luvn737s said:
Given the severe disciplinary repercussions of uttering an unflattering opinion of WN, I didn't expect any honest assesment of WN's future vulnerability by any WN employee. I was not disappointed.
A lot of us aren't LUV employees. In fact, I haven't flown on Southwest in over four years. But I do admire the company for having good management and a bunch of good people working there. I still stand my my statement that the biggest threat to WN is from within -- but that good management and enlightened union leaders can keep Southwest prosperous for decades to come.
However, outside the park gates, in the real world, many do not see WN as bulletproof. WN got into the business because they saw an opportunity to exploit the commodity nature of their product and undercut the industry. Now they have trained the traveling public to assume that all airlines should be able to price their seats as cheaply as WN. Even airlines with international operations, with interline baggage service, with service to small cities, with inflight entertainment, with a premium level of service, you know the type of airlines that regulation was originally put in place to help establish.
A lot of companies enter an industry because they see an opportunity to be cheaper or better or faster or whatever. That's why Michael Dell went into the computer business, why amazon.com sells books, why Microsoft copied Apple, why FedEx got into package delivery, why HP started making printers, etc.
You actually have it backwards. The
network carriers conditioned the public to expect all the amenities you listed (not to mention free upgrades, frequent flyer awards, etc.) at prices that matched Southwest. No one ever said that the legacy carriers had to compete on price! Hilton doesn't compete on price with Motel 6, and Lexus doesn't compete on price with Kia. But the network carriers must deliver a product which, in the eyes of the passenger, justifies a premium price. An assigned seat and inedible meal don't count for much to most people, and service to small cities isn't that important to most, either. For most folks, it's not worth, say, $100 extra to fly to GON when PVD is 45 minutes up the road.
You can think that regulation was a good thing, but the fact is that the industry back then was only 1/4 to 1/3 the size it is today. So most of the folks at the network carriers wouldn't have jobs if the industry were regulated, and a lot fewer people would be on the planes. Not to mention the attendant effects on industry and tourism.
Now with WN as the dominant carrier their influence can be felt beyond the airline biz. Boeing has shuttered the 757 line and basically the 747 as well. As long as WN demands old-technology 737's, research and development on any new products such as a 7E7 equivalent replacement for the 737 will have to wait. What the 800lb gorilla wants is what we are all forced to eat (unless you prefer French cooking).
The 747 is done because (1) there are lots of them in the market already and (2) 777's, A340's, and A380's all nibble away at the 747's niche from below and above. U.S. carriers wouldn't be operating tons of 747's domestically even if Southwest didn't exist -- they're just too darn hard to fill on a regular basis. Southwest isn't responsible for the RJ explosion -- the legacies are. The 757 has been shuttered largely because the 737NG's and A320 family can do most of what the 757 used to do. The 737's and A320's have transcon range, and the 739 and A321 can carry almost as many people as a 757 with significantly lower capital cost for the aircraft.
The statement, "
As long as WN demands old-technology 737's, research and development on any new products such as a 7E7 equivalent replacement for the 737 will have to wait" essentially shows that you are either full of it or ignorant. Southwest management has stated that they may be interested in a smaller version of the 7E7 with similar capacity to the 737. It is certainly not hard to imagine a 737-sized aircraft incorporating 7E7 technology, and Southwest would be crazy to pass up the potential savings.
The intent of my original post was to highlight the 800lb. gorilla nature of WN and how they are no longer the nimble underdog. They probably have a few more years of being able to show a profit (is there an accounting equivalent for not using ACARS for times reporting?) their future is far from guaranteed. WN relies almost exclusively on cheap fares. Fares some could argue border on predatory pricing.
No, Southwest relies on
rational fares. Roughly 35% of their passengers pay full fare because their full fare offers value. They're not trying to sell a handful of $1000 transcon seats and then fill up the rest of the aircraft with $99 seats. They'd rather fill up a third of the aircraft with $300 tickets and sell the rest for $100-150.
Southwest is still nimble enough to, say, add more capacity at MDW in light of a competitor's decision to exit the market. But they are also probably one of the most deliberate in terms of choosing new markets or changing the product. I will guarantee you that LUV management will respond quickly to any "market opportunities" that may arise. I'm not sure if you consider their decision to eschew IFE failing to be "nimble; but then, if they do add it in the future, will the passengers care that jetBlue had it first?
I suppose you think that Southwest has engaged in a bunch of accounting shenanigans, but then they might have a tough time paying for all the planes in cash if they did. And it would probably be tough to show 32 consecutive years of profits without someone getting suspicious. After all, Enron only managed to pull their schemes off for a few years. Seriously, though, part of the reason Southwest has done so well is that they've been managed VERY conservatively. They have the lowest debt-to-equity ratio in the industry and own most of their planes, which helps keep costs down.
In markets such as MHT, or PVD or ISP, I think markets do grow when WN arrives, no doubt. And these are the types of successes that WN can be proud of. They took a risk and it has paid off. But do you really think that the PHL market will grow once WN has killed off USAir? Do you think that 16 flights a day to 10 cities will make up for the loss of the type of service that would allow someone in Altoona, PA to book a flight through to London on a USAir flight? If you look at WN major expansions: Florida (ex Piedmont) BWI (ex-US) SoCal (ex-PSA) MDW (Midway and ATA), you have to admit that they preyed on any airline weakened enough to not be able to sustain a fare war. Could they drive CAL out of Houston? AMR out of DFW? NWA out of DTW?
Well, to be frank, yes, I think PHL will grow long-term even if US is out of the picture. BWI had about 9.5 million passengers in 1993 when Southwest started service. In 2003, the airport's 18.8 million passengers nearly doubled the total from ten years before -- even with US Airways' presence reduced to a handful of flights.
I think you confuse "preying" on weakened competitors with taking on inefficient competitors. If Southwest had really, truly wanted to destroy TWA at STL, they could have grown the operation far more than they did. USAir had already pulled out of many California and Florida markets before Southwest entered them. And WN was operating 100+ daily flights at MDW long before ATA started growing its operation there.
Why did WN go into BWI? Two reasons. First, USAir had started to pull down the former PI hub operation there in favor of PHL and DCA. That presented a market opportunity for Southwest. Moreover, USAir had historically been the least efficient network carrier, and its high fares presented an attractive opportunity for Southwest to undercut them with its low-cost, rational-fare strategy. PHL is basically a repeat of BWI. US Airways had the opportunity in Chapter 11 to retool its business and reinvent the airline. Instead, they emerged with a half-a$$ed plan to do the same thing they were doing before, but smaller. I guess they thought that the LCC's would just stay out of BOS, PHL, PIT, CLT, LGA, and DCA. I'm not sure why, given that AirTran was at PHL and given that more expansion by WN in the Northeast was inevitable. Even more unbelievably, costs hardly came down! Non-fuel costs per ASM in 2Q04 at US were down by only 13-14% from 2000 (fuel for the quarter was 11% higher than 2000), and some of this is due to the fact that the company's average stage length was 20% higher.
A conversation is give and take. You wanted people who would work with you and predict doom and gloom for Southwest. Anyone who dares to sees things differently than you is automatically labeled as being unable to contribute anything to the conversation. Or better yet, we're only supportive of our company because we fear disciplinary measures otherwise. 
