Tag Archives: Southwest Airlines

PlaneBusiness Banter Now Posted

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This week’s issue of PlaneBusiness Banter is now posted.

It was a busy week for the Things With Wings last week.

First, American Airlines reported its second quarter earnings results. The airline lost a lot of money. $390 million to be exact. $319 million excluding special items. However, you’d never have known it if you listened to the airline’s earnings call — which seemed focused on one thing — liquidity. Oh, and capacity reductions. That’s fine, but there are other aspects of an airline’s operations I’d like to hear about.

Then we had the blockbuster news concerning Continental’s Chairman and CEO, Larry Kellner. As I write in this week’s PBB, even though the management backbench strength at Continental Airlines is strong, and the airline should be able to carry on just fine as Larry goes to seek his fortune in the equity investment game — it’s quite discouraging to see one of the industry’s best and brightest leave.

Following up on our piece in last week’s issue about United’s bone-headed (or would that be heavy-handed) attempts to get travel agencies to take on more financial risk — or rather some travel agencies — the airline said late last week that it is going to give agencies 60 days to implement the business operation changes it seeks.

This whole thing still reeks. Nothing the airline says rings true.

Southwest Airlines had its own place in the spotlight last week, or would that be the sunlight, as the airline had a 737-300 aircraft develop a hole in the roof while enroute from Nashville to BWI. Not what the airline wants or needs — especially considering the issues the airline has had with the FAA concerning fuselage checks in the past. Preliminary NTSB report says there was no evidence of previous corrosion at the site.

That was not the only bad news Southwest had last week. The airline was also notified that its debt rating with Moody’s is under review, signaling a potential downgrade.

The Senate produced its version of an FAA Reauthorization bill last week. How did it differ from the House version? It differed on quite a few items. We talk more about that in this week’s issue.

Those misguided folks at the US Airways Pilot Association, the pilot union that was created in an attempt to circumvent the original ALPA seniority award that was handed down after US Airways and America West combined forces — had their head handed to them on a plate by U.S. District Judge Neil Wake last week. Wake issued his final injunctive order on the case brought against USAPA by the former America West pilots. Yes, we talk about this too.

Oh, and speaking of USAPA, we also give them, and our readers, a handy step-by-step instruction of how you correctly determine just how much an airline executive makes, using SEC documentation. Apparently the folks at USAPA have a problem figuring these things out.

British Airways raids its guaranteed employee pension benefit larder, Air Canada gets all of its employees “on board” with its 21-month contract extension program, and 215 Delta pilots sign up for the airline’s sweetened “early-out” package. Somehow I think the guys in suits over in Atlanta had hoped that number had been higher.

All this and more in this week’s issue of PlaneBusiness Banter.

If you are a subscriber, you can access this week’s issue here. If not, you can learn how you can become a subscriber by clicking here.

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.

Ex-Southwest Airlines CEO Takes the Tiger Bait Bet

I knew somebody was going to take up the challenge.

Jim Parker, former general counsel and CEO at Southwest Airlines and devoted, er, obsessive University of Texas alum, has entered into a bet with me on the outcome of the College World Series. (The second game of which is now on hold because of a rain delay.)

If LSU wins, he has promised that he will allow himself to be photographed wearing some outrageous LSU attire. Of my choosing. I had suggested that he be forced to fly an LSU flag outside of his house for a week, but he declined, explaining, “I am not sure if Pat [Jim’s wife] would shoot me or divorce me first if I ever allowed an LSU flag to be hung on our house for a second, let alone a week. I am pretty sure she would do both, I am just not sure in what order.”

If Texas wins, I am going to be forced to wear what we have dubbed, “The Orange Pimp Suit.” You may have seen them. LSU has a purple and gold version. Texas has an outrageous orange colored one with black and white zebra stripes. The only place I’ve ever seen them sold was on Bourbon Street.

Anyway, Jim’s son has one that he wore to the Texas-USC National Championship game a few years back.

Take my word for it. It’s atrocious.

So if Texas wins, I have to go get the Orange Pimp Suit and have my picture recorded for historical purposes. Although I do promise that I will wear more than just my underwear underneath it. Ahem.

Maybe instead of the Orange Pimp Suit, I could just wear this Bevo Hat. Nah, I’m not going to have to wear anything. I’m eagerly anticipating seeing Jim Parker in a purple and gold lame jumpsuit with matching tiger tail. Or something close to it.

Southwest Pilot Contract, Part Two

Heard back from some more of our longtime Southwest Airlines’ pilot subscribers this morning, who wrote today about the pilots voting down their tentative agreement.

“I think you nailed it. My way to explain it is this. It was like when people vote for Ralph Nader. They don’t think he stands a chance in hell of winning, but they use their vote as a vote of protest against the system. I don’t think any of the pilots I know thought this thing would be defeated. Rather, they did see an opportunity to send a message to management and/or union leadership by voting no. Unfortunately, that message was stronger than many people thought. Rut-ro. Now things are going to get reallllly interesting.”

Another reader commented, “Holly, you have been on this from the beginning when Carl (Kuwitzky, President of SWAPA) announced that there was a tentative agreement with the company last fall. But, as you said at the time, there really wasn’t an agreement. I think Carl has a lot of ‘splainin’ to do. You think there might be some Texas Two-Steps going on here?”

Another pilot wrote me, saying that no, he voted against the deal because it was a bad deal. Period. How could I take the word of one pilot who said it was “too lucrative?” As he put it,

“I’m sure you’ll talk to more of them than me, but there is not one SWA guy I talked to that said he voted against the contract because it was too lucrative.

In no particular order:

1) Not enough pay.

2) Lance Captain program curtailed

3) Scope

4) Complexity of the new scheduling system.”

Another pilot wrote to tell me that yes, he voted against it because of the scope provisions and because he is unhappy with the direction the company is going.

So, reading through the feedbag this morning it would appear that some guys voted against it because it was not lucrative enough, while others voted against it because they thought it was too expensive for the company. Then there is the scope problem.

Go figure. I think the only thing anyone knows for sure at this point is that the next round of negotiations are going to be tougher. I’d bet the farm on that one. (And the cows too.)

We Warned PBB Readers About This: Southwest Airlines’ Pilots Vote Down Tentative Agreement

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Three weeks ago I published a letter from a concerned Southwest Airlines’ pilot in PlaneBusiness Banter. This particular subscriber is one of the Southwest pilots we go to on a regular basis to get a “read” on just what the group is thinking at any given time. The substance of his letter?

He gave readers a head’s up about the fact that if the pilots’ tentative agreement passed — it was not going to be by much. That more and more pilots he was talking to were going to vote “no” as a protest vote against what the pilots now perceive as a “lack of leadership” or a “lack of direction” both at the airline — and within the union’s leadership.

Or maybe a bit of “misdirection” would be a better term.

To put it more bluntly — why should the pilots at the airline vote for a contract that was going to put even more financial pressure on the airline that has seen its operating margins erode, its costs continue to rise, and its revenues continues to slump?

You got that? In other words, the pilots at the airline were going to vote against the contract because it was too good.

Today, the final vote tally on what would have easily been the most lucrative pilot contract in the U.S. was announced.

The TA did *not* pass. But it was close. Very close.

A little less than 51% of the pilots voted against the contract.

Our last call on the contract? I still thought it would pass — but not by much.

This is a major piece of news for those of us who are airline labor/management watchers, because I’m not sure where this one goes now — but one thing is for sure. This vote was clearly a “protest” vote.

The question now is — how do both sides go back to the table and renegotiate a contract that is NOT as lucrative or financially draining on the airline?

Yes, you read that correctly. NOT as lucrative.

And how much more aggressive will the pilots’ union leadership be (or new leadership) in pressing management for better financial performance at the airline?

Whew.

I said at the beginning of 2009 that Southwest Airlines was going to be the biggest newsmaker of the year — on the domestic airline front. Nothing has changed with that prediction.

And …it’s only June.

Southwest Airlines Picks the Wrong Day to Trumpet Their LinkUp With Volaris

Talk about bad timing.

The Associated Press headline reads, “Southwest Airlines to add link to Mexico’s Volaris.”

This morning Southwest Airlines issued a press release in which it announced that it was putting a link on its website which will allow customers to buy tickets on Mexican airline Volaris. The two had already announced plans for a marketing/codeshare agreement last year.

Just what I want to do today. Fly to Mexico.

Just what an airline wants today — have their name in the headlines along with the word, “Mexico.”

Good Morning! PBB On Its Way; ALGT Keeps Piling On The Good News

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Good morning earthlings. We are putting the final touches on this week’s long issue of PlaneBusiness Banter. Yes, it’s our first official earnings issue of the first quarter earnings season, and both American Airlines and Southwest Airlines get a very long look in this week’s issue.

I’ll post a note here when it is finished and posted for subscribers to read.

But in the meantime, I just wanted to mention an extremely impressive metric that was posted by Allegiant Travel in the first quarter.

While it is impressive enough that the airline posted better than expected profits for the quarter late on Sunday — as the company reported earnings of $28.2 million or $1.37 a share — that is only the tip of the impressive news.

The really impressive statistic in these results?

The airline posted a 31.3% operating margin.

Got that?

If that mind-numbing number doesn’t get your attention, I don’t know what will.

More later. Have to go finish this week’s PBB.

Southwest Airlines: Not Overly Impressed With First Quarter Stats; Neither is S&P

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Thursday Southwest Airlines announced its first quarter earnings. Clearly the big headline grabber here was the fact the airline posted its first loss (no ifs, ands, or buts, much less special charge excuses) in 17 years.

The airline lost $91 million in the first quarter, or $0.12 a share. That amount included a loss of $71 million due to the falling value of its fuel hedges.

Without the fuel hedge losses, the airline posted a loss of $20 million or 3 cents a share.

Analyst consensus had the airline posting a loss of a penny, so the loss was more than analysts had expected.

Worse, CEO Gary Kelly said in the airline’s earnings call that RASM, which declined 2.9 points in the first quarter, could take an even bigger hit in the second quarter.

The airline also announced that it was offering a buyout to virtually all employees, had instituted a hiring freeze and was freezing pay for its top execs.

A couple of observations. One, I know more than one Southwest Airlines Captain who, for the most part, sat around eating bon-bons for much of the first quarter. And yet, the pilots at the airline were just given a tentative agreement that, if anything, sweetened the pot. It doesn’t take a mathematician to figure out that the costs involved in having more pilots than the airline needs right now is costing the airline a pretty penny.

Two, while the airline can offer buyouts to employees — the timing is not exactly the best for this kind of move, as the airline’s employees have seen the value of their Southwest Airlines‘ shares in their 401(k) accounts fall precipitously over the last year.

So while I applaud the airline for attempting to right the downsizing ship by natural attrition and voluntary departures, I’m afraid I have to wonder if these measures are going to be enough.

Three, I still think the airline’s growth plan is too aggressive, it’s capital spending plans too ambitious for 2009.

Third, I’m not the only one.

This morning Standard and Poor’s put the airline’s debt ratings on Credit Watch with negative implications. As we all know, this move is usually a precursors to a ratings cut.

S&P put Southwest’s “BBB+” rated long-term corporate credit rating on negative Credit Watch because of 1) the airline’s first quarter performance, 2) it’s forecast for its second quarter revenue and 3) the fact that the airline has added more than $700 million in debt since just late last year, increasing its interest expense.

This increase in debt is a direct result of the airline having engaged in aircraft sale-leasebacks in an attempt to increase its liquidity.

I would add that this amount is only going to increase in the second quarter. As I reported in a recent PBB, there is yet another traunche of sale-leaseback financing in the works with BOC Aviation that is set to close in the second quarter. BOC has handled the bulk of the airline’s recent sale-leaseback transactions.

Note that anything below “BBB” is no longer considered “investment” grade. It then falls into the “junk category.”

My gut feeling is that we will see Southwest lose its lofty “investment grade” debt rating status before this downturn is finished.

Allegiant Air Pre-Announces Earnings

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Late Tuesday Las Vegas-based Allegiant Air pre-announced that it will report earnings for the first quarter of between $1.34 to $1.38 per share.

This estimate is far above the then-forecast estimate by analysts for the airline — which had estimated the airline would post a profit of $1.20 a share.

The airline will report earnings this coming Monday.

So why the uptick from previous company guidance?

Analyst Dave Fintzen with Barclays, who recently initiated coverage of the airline’s stock (we talked about his recent research note on the airline in the latest edition of PlaneBusiness Banter) said today that because the airline gave no details other than the higher EPS estimate, it’s a bit hard to know where the better performance for the airline was. Although he assumes it was all on the revenue side, with revenue probably outperforming even the previous management guidance.

So what is Dave going to be looking for when the airline reports on Monday? Any feedback on the airline’s booking trends in its new markets, especially Los Angeles, in addition to any updated information on where the airline is going to grow now — as we move into the second quarter and third quarters.

ISTAT 2009: The First Time I’ve Heard Universal Gloom and Doom

One of the best airline industry conferences around is the International Society of Transport Aircraft Trading. ISTAT for short.

Don’t let the long name confuse you. This is the group you join if you sell airplanes, lease airplanes, want to lease airplanes, appraise airplanes, you name it.

As I have told PBB subscribers for years, it never matters what the U.S. airline industry is doing at any given point in time — you come to one of these conferences and these are the guys who make money whether the economy is up or down. Most recently, the downturn after 2001 didn’t particularly hurt their pockets either — as aircraft sales continued to soar internationally, even if U.S. airlines more or less stopped ordering aircraft.

But this year, for the first year that I have ever experienced –and I have been coming to these for more than 10 years — the tone is definitely different. Scottsdale is still gorgeous, but the mood here this week is definitely not what one usually encounters at an ISTAT function.

This year, as one person told me this morning, “It’s scary.”

Adam Pilarski, Senior Vice President with Avitas summed it up by saying, “It sucks. That’s an industry technical term by the way.”

Fred Klein, President of Aviation Specialists told me before his stint on the ISTAT Appraiser’s Forum, “I can’t believe that a handful of U.S. financial entities have managed to bring down the whole fucking worldwide financial system.”

I asked, “Fred, can I quote you on that?” Fred, “Yes, damn it.”

That kind of gives you a feel for the mood of the crowd. Deals are not getting done. Financing has dried up. Many aircraft values are down 20% since this time last year.

I have to hand it to the guys who put on the conference this year though. Is that an off-the-wall backdrop on stage or what? Doug Runte, Managing Partner with Piper Jaffray did look a bit uncomfortable when he was asked to come through the center of the turbine to the sounds of Coldplay’s “Viva la Vida” though. Doug moderated the Appraiser’s Panel. Doug’s a good guy. And an art history major to boot.

Big Catch for Tomorrow: The Leeham Report’s Scott Hamilton will be interviewing ILFC’s Steve Hazy tomorrow on stage. Will not want to miss that.

Tuesday Night: Robert Crandall, former Chairman and CEO of American Airlines will be honored by ISTAT with a lifetime achievement award. And guess who else is supposed to be in the house? Yep. Herb.

I would bet money we are going to have a little roast of Bob before the evening is over tomorrow night — compliments of Mr. Kelleher.