Tag Archives: LUV:NYSE

McAdoo: Southwest Airlines Most Expensive Airline 80% of the Time in His Survey

Interesting follow-up research note out today from Avondale Partners analyst Bob McAdoo.

Bob decided to follow up on Southwest’s second quarter comments concerning business travel. Essentially the airline said in its earnings call that revenues, particularly business fares, were weak in the second quarter. Compared to the rest of the industry, Southwest’s revenue performance — both business and leisure– lagged.

Bob’s hunch? The airline had been too aggressive on fares.

Following up on his own experience flying out of Kansas City over the last year, when he says he has repeatedly found lower fares on legacy carriers than on Southwest, Bob decided to do a broad random sample of fares in a selection of markets to see if his theory about the airline having higher prices than the competition would hold up.

As he explained in his note,

“For each itinerary, we priced out two different close-in journeys and logged in the prices.

First, we selected 8 origin cities from across the LUV network, seeking both more and less active cities. For each of these origins, we then selected the top 50 LUV destinations from each origin and then randomly selected 20%, or 10 destinations, from among the 50 largest destinations for each origin.

…Upon review of the data, it seems Southwesthas a different pricing regimen against Alaska Airlines in Seattle than in the other cities. Southwest seems to be more aggressive in pricing below Alaska. For this reason, we excluded Seattle data and reduced the study to the 70 markets out of the 7 remaining cities.

…For the 140 trips on 70 random itineraries, there was a consistent pattern on 50 of the markets. Southwest was more expensive in 40 of the 50, or 80% of the trips. The legacy airlines were more expensive on 10 or 20% of the trips. When Southwest was more expensive,it was, on average, a $134 higher fare— a 26.4% premium. We obviously don’t know whether this pattern is driving the slower business travel on Southwest. Nonetheless,there is clearly a trend that we will continue watching in coming months.”

Having said all that, however, as McAdoo notes, if Southwest continues to slow down its capacity growth, not only will that help Southwest, it will help the rest of the industry. “A lid on LUV growth should be good for LUV and for all airlines,” he writes.

PlaneBusiness Banter Now Posted!

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Good evening everyone.

This week’s issue of PlaneBusiness Banter is now posted. Subscribers can access this week’s 80-plus page issue here.

It’s that time of year. Yep. Earnings time.

This week we have our in-depth look at the earnings calls and our PlaneBusiness Earnings Summaries for Southwest Airlines, American Airlines, and Delta Air Lines.

If you are wondering why it was that airline stocks took a header last week — it was not because of higher oil prices. It was because Wall Street was not overly impressed by the earnings posted by Delta, or Southwest — much less American Airlines.

American, once again, is slated to be the only major airline which will not post a profit for the quarter — much less the year.

In the case of Delta, analysts were disappointed by the airline’s revenues, and by the fact the airline says, at least for now, that it intends to keep its existing plans for capacity growth intact.

Southwest Airlines also warned that revenue “head winds” are going to be tough in the first quarter and a profit for that airline for the first quarter is “iffy” if you look across the sector analysts’ current estimates. The airline also forecast a rather sharp increase in costs for the first quarter.

As for American, I don’t know where to start. As I tell my subscribers in more detail, I think the AMR earnings call was an embarrassment. Add that to the fact that the airline continues to lose money and we heard nothing whatsoever in the airline’s call in regards to a specific plan to turn the airline around and …..it’s pretty ugly.

Meanwhile, on the American/GDS War frontline, American and Sabre called a truce Monday. Not unexpected. I was surprised when Sabre threw its hissy fit and pulled American’s fares from its GDS. No way Sabre’s customers were going to let this situation remain in effect.

Truce is officially until June 1 — we’ll see something negotiated between the two before then.

American also announced a new deal with Priceline, which allows Priceline to use the airline’s new “Direct Connect” product. (And yes, this deal was announced before the truce with Sabre, which leads me to believe it was done to push Sabre back to the table — which is what happened.)

US Airways also announced a new deal with another OTA, Expedia, but that deal uses the more traditional GDS method of delivery. It will allow Expedia to market “seat choice” options and other goodies though.

Meanwhile, we did our own little test today of what showed up and at what price when I Iooked up fares between Dallas and LGA on both Expedia and Priceline. That was a fun experiment.

Our new “Retro” feature this week takes us back to 1994, and British Airways. And the billion dollars plus it invested in airlines such as USAir, TAT, and Deutsche BA. That strategy really didn’t work out too well for the airline, did it?

But enough of all this fun and frivolity. This week the emphasis is on earnings. Next week, we’ll be taking a gimlet-eyed view of United/Continental, US Airways, Alaska, and JetBlue –– all of whom report this week.

Speaking of Alaska Airlines — did they not blow the doors off in the fourth quarter or what? I remain tremendously impressed with the airline. I like the decision to de-brand Horizon as well.

But that’s for next week.

Meanwhile, all the rest — and more! — in this week’s issue of PlaneBusiness Banter.

Southwest Airlines Emergency Landing: It’s a Bird, It’s a Plane…No, It’s a Hole …. in a Plane

See the picture. See the sunshine. Uh-oh.

This morning, details are slowly coming out concerning Southwest Airlines‘ flight 2294 that was forced to make an emergency landing in Charleston, West Virginia last night.

According to reports, a one by one foot hole developed in the roof of the Boeing 737-300 developed while the flight was in progress between Nashville and Baltimore/Washington International. After looking at video of the aircraft it appears that the hole in the fuselage developed directly in front of where the tail section is attached to the top of the aircraft.

The photo above was taken by a passenger on the aircraft, using his Blackberry.

According to a post by Southwest’s Paula Berg posted on the airline’s website Monday night,

“The aircraft cabin depressurized approximately 30 minutes into the flight, activating the passengers’ onboard oxygen masks throughout the cabin. Medical personnel in Charleston assessed passengers and no injuries are reported. Southwest Airlines is sending its maintenance personnel to Charleston to assess the aircraft, and the airline will work with the NTSB to determine the cause of the depressurization. According to initial crew reports, the depressurization appears to be related to a small-sized hole located approximately mid-cabin, near the top of the aircraft.”

The airline apparently began an emergency inspection of all of its 737-300s last night. Not much more information this morning on just which aircraft were inspected or if that inspection process is continuing this morning.

No more information is known about what happened at this time, but I think it would be safe to assume that the incident is going to restart the conversation concerning the airline’s previous issues with the FAA — most of which concerned inspection for cracks on the airline’s older aircraft.

The NTSB has already been on the scene, as they used a cherry picker to inspect the hole from the top of the aircraft.

Southwest Airlines Announces Codeshare And Some Pilots Are Not Happy

Today we have a new subject to talk about.

Well, I guess the main topic is a familiar one. Pilots who are not happy with things that management is doing for, er, to them.

But in this case, the players on the playing field have changed.

You may have read the news release yesterday in which Southwest Airlines announced a new codeshare agreement with Volaris — a Mexican airline.

In the release Monday, Southwest said that the airlines will coordinate flight schedules and reservation systems, allowing Southwest customers to book flights to Mexico using both carriers. Volaris currently serves cities including Mexico City, Tijuana, Cancun, Guadalajara, Mexicali and Acapulco.

But wait just a minute.

Who stands to lose potential flying if the airline goes ahead with this codeshare agreement, as well as the agreement already announced with WestJet?

That’s right. Southwest Airlines’ pilots.

Today the PlaneBusiness email box has received more than a fistful of emails from Southwest pilots who are not happy campers. To say that this is an unusual occurrence would be a hefty understatement.

Here is an excerpt from one of the longer notes:

“In really simple terms, and feel free to use it (just don’t credit me, a bit of a witch hunt going on here), it should not be called Code Sharing, but Outsourcing.

[Southwest CEO] Kelly and SWAPA negotiated a codeshare (outsourcing) agreement in the new contract during the initial current negotiations. This was about a year ago. He stated publicly that even though it had not been voted on, that he would honor that agreement. He has since come back to our negotiators and said he wants to re-negotiate that portion of the new contract. Meanwhile, he is doing all the codesharing (outsourcing) he can while he “slow rolls” our contract negotiations.

WestJet has announced 15% growth after our agreement with them.

Volaris says they will double in size.

Kelly cut 6% of our flying.

Now the rumor is that Republic is negotiating with Kelly to take over our short haul intra-Texas flying.

I am a 20+ year guy and am really disgusted with what is going on here. I spent several years at a Lorenzo airline and am seeing parallels that I thought would never happen here. The line employees realize they are just numbers to Kelly.”

Where is the LUV?

Yes it’s now been two years and counting and there is still no new contract between the pilots and the company. From the sound and tone of the notes we received this morning, it sounds like maybe the tone from the pilots’ side has just taken a little turn towards a more defensive posture.