Southwest LCC model sees threat
11-29-2005, 08:40 AM
#1
Gets Weekends Off
Thread Starter
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11-29-2005, 12:50 PM
#2
Da Man
Joined APC: Feb 2005
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What garbage. The Wall Street Journal is really going down hill, I swear at times I think it's just a black and white version of USA Today (minus the Su Du Ko).
While some of Southwest's concerns are valid, the article talks about competition in the DEN market, specifically with UAL and Frontier. Yes, it's true that they may face higher costs than normal and stiffer competition in DEN than in some other markets, but "...low cost model sees threat..."? Please, I give SWA a bit more credit.
The one thing I did enjoy about the article is how they highlighted what a bunch of stodgy old farts the Denver "officials" were.
Looks like Denver's city government really is portrayed accurately on South Park.
While some of Southwest's concerns are valid, the article talks about competition in the DEN market, specifically with UAL and Frontier. Yes, it's true that they may face higher costs than normal and stiffer competition in DEN than in some other markets, but "...low cost model sees threat..."? Please, I give SWA a bit more credit.
The one thing I did enjoy about the article is how they highlighted what a bunch of stodgy old farts the Denver "officials" were.
When Southwest's four-person team swept into town July 11, Denver officials were at first deflated. The Denver officials, clad in dark suits and ties, were surprised to see the Southwest crew dressed in golf shirts and khakis. "I don't think anybody was over 35" years old, says Thomas Clark, head of economic development for Denver. "I thought, 'OK. They've sent the junior team.' "
Mr. Clark changed his mind when the Southwest team began pelting Denver officials with detailed questions about economic growth and plans for development in the region. What are the demographics for winter skiers? What kind of conventions do you have planned for the next five years? "These are questions we've just never been asked by an airline before," said Mr. Clark.
Mr. Clark changed his mind when the Southwest team began pelting Denver officials with detailed questions about economic growth and plans for development in the region. What are the demographics for winter skiers? What kind of conventions do you have planned for the next five years? "These are questions we've just never been asked by an airline before," said Mr. Clark.
11-29-2005, 02:42 PM
#3
Line Holder
Joined APC: Nov 2005
Position: 757/767 Captain
Posts: 59
Stiff competition?
Let's get this straight, SWA will experience "stiff competition" from an airline that is warning of a cash crunch and another that has been in bankruptcy for 3 years? Give me a freaking break. I'm not beating the Southwest drum here but come on. Could either of these companies really be considered "stiff competition" to anyone? I guess maybe United could be because they don't have to pay their bills. What a joke.
Brown Dog
11-29-2005, 03:57 PM
#4
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Joined APC: May 2005
Position: B777/CA retired
Posts: 1,502
I wouldn't dismiss this article out of hand. Southwest is running out of low hanging fruit to pick, which is only natural since they are so big now. Denver will probably work out just fine for them since they will be flying to cities with a large demand for travel from DEN. They will take the leftover demand that cannot be satisfied with the ASMs available from the incumbent carriers. We have run the same number of flights for years from PHX and LAS to DEN as United and both carriers are usually full. That won't change with SWA coming in with a few nonstops.
Look at the CASMs net of fuel. Southwest does have a shrinking cost advantage and they will have to do something different when fuel hedges run out. They can either raise fares (which they do every day, just like Wal Mart does, only they don't ever talk about it) or they can squeeze labor, just like all the other carriers have done.
Look at the CASMs net of fuel. Southwest does have a shrinking cost advantage and they will have to do something different when fuel hedges run out. They can either raise fares (which they do every day, just like Wal Mart does, only they don't ever talk about it) or they can squeeze labor, just like all the other carriers have done.
11-29-2005, 05:41 PM
#5
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Threat to what? SWA's existing business is robust with good customer loyalty. The threat is to continued growth along the same curve they have historically seen. Potential options might include:
1. Servicing very small, high priced markets like Lynchburg, VA, Columbia or Greenville, SC, or Portland, ME with flights to the SWA "nominal hubs" (that's my term) like BWI, MDW, and BNA. Then again this might poach from other SWA markets, i.e. RDU and MHT and not provide the typical station volume that SWA seems to work best with. But it would provide a major cost benefit to those travelers in these markets and there would be less competition.
2. Go head to head in crowded existing markets like EWR or ATL.
Who knows? But it's fun to ponder. (I think I might be a frustrated airline market analyst).
1. Servicing very small, high priced markets like Lynchburg, VA, Columbia or Greenville, SC, or Portland, ME with flights to the SWA "nominal hubs" (that's my term) like BWI, MDW, and BNA. Then again this might poach from other SWA markets, i.e. RDU and MHT and not provide the typical station volume that SWA seems to work best with. But it would provide a major cost benefit to those travelers in these markets and there would be less competition.
2. Go head to head in crowded existing markets like EWR or ATL.
Who knows? But it's fun to ponder. (I think I might be a frustrated airline market analyst).
11-29-2005, 08:12 PM
#6
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Joined APC: Feb 2005
Posts: 500
Swa Casm
"Look at the CASMs net of fuel. Southwest does have a shrinking cost advantage and they will have to do something different when fuel hedges run out."
Cactus Mike--
Let me start by saying your pilot group is awesome. I jumpseat on you guys all the time and I've NEVER had a hassle. You guys treat us very well. Muchisimo gracias!
However, net of fuel SWA CASM right now is 3.8 cents. That is the lowest in the industry by far.
If all of SWA's fuel hedges ran out tomorrow there would be an annual revenue shortfall of $600 million. A 1% increase in fares equates to $60 million a year in additional revenue. So, a 10% increase would cover it. About $10-$20 per ticket. NOT what SWA wants to do but considering the fuel hedges don't fully run out until 2010 it's not imminent. So yes, SWA will have to do something different when the hedges run out. Hopefully they won't attack labor but who knows? In four years will fares overall be up 10% anyway? I don't know.
I don't think because SWA is going into Denver it spells doom for other airlines. I think we'll be successful but not necessarily at the perill of UAL and Frontier. It just means the city pairs SWA serves out of DEN will have permanantly lower fares. Fares that SWA can sustain year after year, not just for a couple of months.
Tak care and thanks for the jumpseat!
S.B.
Cactus Mike--
Let me start by saying your pilot group is awesome. I jumpseat on you guys all the time and I've NEVER had a hassle. You guys treat us very well. Muchisimo gracias!
However, net of fuel SWA CASM right now is 3.8 cents. That is the lowest in the industry by far.
If all of SWA's fuel hedges ran out tomorrow there would be an annual revenue shortfall of $600 million. A 1% increase in fares equates to $60 million a year in additional revenue. So, a 10% increase would cover it. About $10-$20 per ticket. NOT what SWA wants to do but considering the fuel hedges don't fully run out until 2010 it's not imminent. So yes, SWA will have to do something different when the hedges run out. Hopefully they won't attack labor but who knows? In four years will fares overall be up 10% anyway? I don't know.
I don't think because SWA is going into Denver it spells doom for other airlines. I think we'll be successful but not necessarily at the perill of UAL and Frontier. It just means the city pairs SWA serves out of DEN will have permanantly lower fares. Fares that SWA can sustain year after year, not just for a couple of months.
Tak care and thanks for the jumpseat!
S.B.
11-30-2005, 05:40 AM
#7
Don't want to participate
Joined APC: Jul 2005
Position: 737 Left Seat
Posts: 1,016
Cactus Mike - I think this is hilarious...
Thanks for the laughs! You rock!
Originally Posted by cactusmike
Southwest is running out of low hanging fruit to pick, which is only natural since they are so big now...They will take the leftover demand that cannot be satisfied with the ASMs available from the incumbent carriers...That won't change with SWA coming in with a few nonstops...Southwest does have a shrinking cost advantage and they will have to do something different when fuel hedges run out...They can either raise fares (which they do every day...) or they can squeeze labor, just like all the other carriers have done.
11-30-2005, 07:37 AM
#8
Pro Button Pusher
Joined APC: Mar 2005
Position: A320 Series CA
Posts: 183
Interesting article - what I've found equally interesting is that I can pick random dates and random city pairs that F9 and SWA both fly into, and inevitably, F9 fares are lower. Seems to pretty consistent system-wide, with the exception of the momentary $19-$69 fares that SWA only offers for a limited time (not sustained) and to only ten seats on every airplane. Kudos to SWA's marketing department for giving the illusion that SWA will always have the lower fares...
11-30-2005, 08:05 AM
#9
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Originally Posted by Jetalc
Interesting article - what I've found equally interesting is that I can pick random dates and random city pairs that F9 and SWA both fly into, and inevitably, F9 fares are lower. Seems to pretty consistent system-wide, with the exception of the momentary $19-$69 fares that SWA only offers for a limited time (not sustained) and to only ten seats on every airplane. Kudos to SWA's marketing department for giving the illusion that SWA will always have the lower fares...
For example STL - BWI 5 Dec return 15 Dec
Frontier $844.80
SWA $328.40
PDX - BWI 5 Dec ret 15 Dec
Frontier $350.80 (1 flight your only chance)
SWA $325.00 (4 flights options out, 9 options returning)
SMF - MDW 5 dec ret 15 Dec
Frontier $399.30 (3 options)
SWA $343.40 (12 options)
I'm sure you can find examples where SWA is higher, but if you're saying SWA fares are inevitably higher or for that matter mostly higher, well, I think you probably work at Frontier.
11-30-2005, 12:25 PM
#10
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Joined APC: Feb 2005
Position: 737 CFI
Posts: 390
Southwest is often times competitive; often times it is not. They're profitable, however, and that's what counts in this airline business. If somebody has a lower airfare from GEG to PHX, then that's great-- it's the marketplace in action.
I remember very well when Southwest was the redheaded stepchild and was looked down upon. Now that this has been upended and they're sitting on top, it's fun to watch people snipe away at the little LUV airline.
I remember very well when Southwest was the redheaded stepchild and was looked down upon. Now that this has been upended and they're sitting on top, it's fun to watch people snipe away at the little LUV airline.
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