Why are some airlines more profitable?

[Seggy]

Originally Posted by CFIse

It's not about half a can of Coke. Mostly, and people here don't really want to hear this, but it's about labor costs. For most airlines labor costs are number 1 or number 2 on the expense line. In the good times the airlines allowed the unions to establish a baseline of wages and job rules that any sane and reasonable person would look at and call ridiculous. You can't blame the union, they asked and they received. The companies did it in the name of keeping labor unrest under control. If you think an extra $10 a flight hour and an average of 40 hours a month is expensve see what a strike costs you.

Oh is it labor? What about FEDEX and UPS pilots?

[LoadMasterC141]

I loved the book Nuts. I have read quite a few others about other Major airlines, and they really just show how much better SWA is because of the reasons everyone has mentioned already.

I think the fact that they use one airframe is a HUGE savings compared to other airlines. The company I work for now operates ONE type of truck. We save alot on that.

[Minuteman]

Originally Posted by CFIse

JetBlue on the other hand - they've got an unsustainable business model - the chickens are coming home to roost there over the next few years.

I made this graphic back when Doug's employer was pushing to get major concessions from its pilot group. At the time, there was lots of wonder about why they chose the pilot group to dig into for more savings.



This information was retrieved from SEC filings from both companies (circa, maybe 2004? ... pre bankruptcy). Obviously, personnel represents the largest portion of the pie and the biggest target to shoot at, but it also illustrates that the proportions of each contributor to the operating expense don't necessarily define a "healthy" company.

JetBlue is currently on a kick to have 80 employees per aircraft at the company. They're currently over that target and are selling planes and deferring deliveries ... which, I guess, implies layoffs. Neeleman really came from SWA?

[typhoonpilot]

Originally Posted by CFIse

It's not about half a can of Coke. Mostly, and people here don't really want to hear this, but it's about labor costs. For most airlines labor costs are number 1 or number 2 on the expense line. In the good times the airlines allowed the unions to establish a baseline of wages and job rules that any sane and reasonable person would look at and call ridiculous. You can't blame the union, they asked and they received. The companies did it in the name of keeping labor unrest under control. If you think an extra $10 a flight hour and an average of 40 hours a month is expensve see what a strike costs you.

Congratulations!!! You've just earned your Harvard MBA. It is unbelievable that people of your caliber can be led down this path of illogical and totally incorrect analysis. It took a Navy trained high school graduate to get this thread on the right track. Just goes to show you that intelligence is often times not predicted by what school a person has gone to. Well done Mikey

The really sad part is that all these Harvard MBAs have destroyed the majority of the piloting profession in their total and complete stupidity. They've consistently failed to fix the problem because they can't even identify the problem!!! All they know is how to slash costs. They have no idea how to increase revenue. They have no idea how to make an organization more efficient. They wouldn't see a business opportunity even if it jumped up and bit them on the behind. They don't think long term. All they care about is making next quarter's numbers look good so they can get a bonus. It's pathetic!!!

SWA and others like them in the U.S. LCC market are profitable because they are more efficient. If you look at the numbers when USAirways still had 400 airplanes and when SWA just reached 400 airplanes you would be amazed. The total employee count and the pilot count at both carriers was very different. SWA aircraft flew on average 13 hours per day, while USAir's about 8.5 hours per day. They did it with 800 fewer pilots and probably thousands fewer flight attendants, gate agents, rampers, mechanics, etc. That is the main reason that they were profitable and USAirways was not.

If we take this to the international arena you'll find the same tends to be true. The airlines that utilize their assets and employess more efficiently are the profitable ones. The ones that actively look for opportunities to increase revenue are the ones that grow and prosper. Cathay Pacific, Singapore Airlines, Emirates, and others like them do very well. They do still have some element of protection due to route restrictions and bi-lateral treaties. Which leads us to why the legacy carriers failed and the LCCs prosper.

Short and simple history here, but the legacies failed because their business model was based on a regulated environment. Most were never able to fully adapt to de-regulation and the changing business model that was required. The ones that lasted the longest are the ones that had the most international routes and the strongest hubs. American being the last one standing right now.


Typhoonpilot

[frog_flyer]

Originally Posted by murl

Why are some airlines bankrupt while others seem to be making money? I know some of the discount carriers are doing very well, and it can't be that they just give you a half of a coke instead of a whole coke. Why don't other airlines that are hurting implement those same strategies and work off of a different business model? For example, what makes southwest more profitable than Delta etc? How did some airlines get in bad shape in the first place? Do some of them hedge the cost of certain things and others don't? These may be silly questions but I am sure the issue is much more complex than it seems?

You see, you take the amount of money that you take in. We'll say that in the case of airlines, it's the number of tickets you sell X a mean price you determine.

Then you subract the amount of money you spend on this time period. Fuel, wages, mx, parts, advertisement, lobbying, purchases, interest, and any other operating expenses are all expenditures.

Then you come out with what's left over. This = profit. Or (profit). When I put something in parenthesis it means it's a negative. Think Excel.

The airline that pays the least for fuel, wages, etc etc et al etc etc etc (etc?) and has fares competitive to other carriers will make more money.






*I did not read any of the posts and am feeling like a smart ass. It took me 19 minutes to type this and I'm also $38 poorer now than I was at 2200.*



*= disclaimer

[CFIse]

Originally Posted by kellwolf

He's more or less stepped into an extremely part time advisory role already. The last time he did anything, he wound up sitting down with the FAs and management and basically said "You're both being stupid. Grow up and fix this." FA contract was done two weeks later, and the acting CEO stepped down as well. Since then, he's pretty much let things take their course.

Honestly, if anyone stepped into a leadership position there and went against something that Herb was a supporter of, they'd probably get lynched before anything got too far. The employees would see to that.....

But he still has that influence to step in and tell everybody to stop acting like children and get on with it. One day he won't have that any more (I'm trying to be delicate here, but one day Herb will be dead).

I think is somebody stepped into a leadership position and did something that made the employees unhappy they'd be just that, unhappy employees at an airline - take a number.

[kellwolf]

Originally Posted by CFIse

But he still has that influence to step in and tell everybody to stop acting like children and get on with it. One day he won't have that any more (I'm trying to be delicate here, but one day Herb will be dead).

I think is somebody stepped into a leadership position and did something that made the employees unhappy they'd be just that, unhappy employees at an airline - take a number.

True, and I stand by what I said. Dead or not, the employees would string someone up if they tried to go against Herb's wishes. SWA isn't like any other company I've worked for, and you'll hear just about every SWA employee say that. Until you've worked there, you really don't know how things work out over there. It's interesting to have a company where management (from top of the food chain to entry level) actually gives a damn about the employees.

[killbilly]

Originally Posted by kellwolf

True, and I stand by what I said. Dead or not, the employees would string someone up if they tried to go against Herb's wishes. SWA isn't like any other company I've worked for, and you'll hear just about every SWA employee say that. Until you've worked there, you really don't know how things work out over there. It's interesting to have a company where management (from top of the food chain to entry level) actually gives a damn about the employees.

Colleen Barret's going to be around a long time, too. She started out as Herb's admin, didn't she?

There's probably a codicil in Kelleher's will somewhere that says if anyone starts screwing up his airline he's going to come back from the grave a la Jacob Marley....

[CFIse]

Originally Posted by kellwolf

True, and I stand by what I said. Dead or not, the employees would string someone up if they tried to go against Herb's wishes. SWA isn't like any other company I've worked for, and you'll hear just about every SWA employee say that. Until you've worked there, you really don't know how things work out over there. It's interesting to have a company where management (from top of the food chain to entry level) actually gives a damn about the employees.

We'll see - it won't be a revolution, it'll be an evolution. One day it'll seem like a good idea at the top for SouthWest to run EMB170s, or 190s or a couple of 777 for trans-con work and the employees will think "this ain't right" but they won't quit en-masses, they'll hang in there, because SouthWest is a good company to work for.

Then they go to assigned seating, because that's what customers want, even though the best turn is now 40 minutes and flights are a running late more often, and the employees think "that's not right" but they hang in there, SouthWest is a good company to work for.

Then the fuel hedges expire, and the money has to come from somewhere, so employees are asked to take wage cuts. The employees think "that ain't right" but they don't quit because SouthWest is a good company to work for.

Then money gets tight and people don't get bonuses, and so employees start leaving the USPS packages out in the rain because "hell, we're not getting a bonus anyway" - but people don't quit because, well SouthWest is a good company to work for.

And pretty soon it isn't a good company to work for, and most of the workers are bitter and poorer and the company is struggling to make money because it turns out that the introductory $39 fares on the 777 service to London wasn't such a great idea, and the China startup isn't going as well as they hoped, and the Airbus 380s they were hoping to use for BWI to Denver haven't arrived and anyway the runways aren't ready and even if they were there it turns out the business plan for them, predicated on a 30 minute turn, isn't going to work out so well.

I might be wrong - it'll be a while before we see it, but I've worked for what I considered to be the greatest company culture I've ever worked in. In 2 years new management at the company managed to destroy it and became just one more crappy job in the computer industry. And believe me, it wasn't because those of us who were there in the good old days didn't try and keep it going.

[JaceTheAce]

For the same reason why some lemonade stands are more profitable than other lemonade stands.

[kellwolf]

Originally Posted by CFIse

We'll see - it won't be a revolution, it'll be an evolution. One day it'll seem like a good idea at the top for SouthWest to run EMB170s, or 190s or a couple of 777 for trans-con work and the employees will think "this ain't right" but they won't quit en-masses, they'll hang in there, because SouthWest is a good company to work for.

Then they go to assigned seating, because that's what customers want, even though the best turn is now 40 minutes and flights are a running late more often, and the employees think "that's not right" but they hang in there, SouthWest is a good company to work for.

Then the fuel hedges expire, and the money has to come from somewhere, so employees are asked to take wage cuts. The employees think "that ain't right" but they don't quit because SouthWest is a good company to work for.

Then money gets tight and people don't get bonuses, and so employees start leaving the USPS packages out in the rain because "hell, we're not getting a bonus anyway" - but people don't quit because, well SouthWest is a good company to work for.

All possible, but not probable. I guess I have a little bit more faith in the SWA board of directors that they wouldn't elevate someone to a powerful position that would do something so drastic that it would change SWA as much as you're proposing.

For the record, it was originally a 20 minute turn and not 30. Too bad they went from 122 seat 737-200s to 137 seat 737-300s. I guess that ruined the company since they had to extend it another 10 minutes.....

[CFIse]

Originally Posted by kellwolf

All possible, but not probable. I guess I have a little bit more faith in the SWA board of directors that they wouldn't elevate someone to a powerful position that would do something so drastic that it would change SWA as much as you're proposing.

Except that - Herb stepped down - and within 6 months SouthWest was talking about adding another aircraft type. I heard that Herb stepped in and stopped that talk.

It would be nice if your faith would turn out to be justified, but call me a cynic.....