Business History Books » Business Plans » Another Southwest (well managed Airline)
Another Southwest (well managed Airline)
Question:
>> > Then why is Southwest, as soon as it starts serving a route, always > > able to cause the purportedly "thin margin" price structure to crash? > Wouldn’t this explain why WN is making money and the others aren’t? >I would be very interested what measures taken by Southwest allows it to >operate so much more efficiently than other carriers.
They have only one equipment type (737), which has to help in terms of both maintenance and training costs. Also, WN has historically not had a lot of labor problems, though I’m guessing that will change as time goes on (and as their employees compare themselves more and more with the majors). I don’t know what else. Do they do their own maintenance? Do they have their own IT shop at all? Do they have their own training centers? >Are employees paid on par with the big airlines or are there major savings >there ?
Good question. >Or is there just a combination of all very small items that save WN small >amounts of money individually, but when combined do make a significant >difference ?
Since margins for most airlines are so thin, it doesn’t make much to make a big difference (percentagewise). — -Rich Steiner >>>—> http://www.visi.com/~rsteiner >>>—> Eden Prairie, MN Written online using slrn 0.9.5.4! The Theorem Theorem: If If, Then Then.
Response:
>> But they don’t fly international flights, don’t do interline bags, don’t > have flight agreements with other airlines, don’t fly into airports that > possess certain characteristics that impede flight schedules, etc. >Obviously international flights are a separate matter to a certain >extent. But on domestic flights the "extras" provided by majors don’t >warrant the screw job.
I strongly disagree that there’s any "screwing" going on. There’s a CONSIDERABLE amount of operational infrastructure maintained by the airlines that you the passenger have no exposure to at all, and that infrastructure has to be paid for. The airline is not just the pilots, gate agents, flight attendants, and ground crews — it’s also the reservations offices, the mechanics and the performance engineers at the maintenance bases, the flight dispatchers, routers, meteorologists, schedulers, and other folks working at the ops center, and the programming staff working/supporting the information and networking infrastructure to keep everything flowing smoothly. All of those people, their equipment, and the buildings in which they reside have to be paid for on top of the obvious expenses that the airline has (things like fuel and the aircraft themselves). >If the majors are having problems with their hubs that cause them to lose >money, that’s their problem. They are making bad business decisions. Deal >with it, like SW does.
Southwest intentionally runs a different type of airline. They simply do not have the required infrastructure to maintain international service for their customers. >Which, by the way, is the only profitable airline.
The CEO of the airline I work for stated publicly that we (NW) would have likely made a profit in the current quarter were it not for the incident on September 11. > I’m uncertain that the Southwest model as such will work for an airline > that also wants to provide the above services. >They’re gonna have to make some big changes pretty quick. If they don’t, >they’re dead.
Some of them may be dead, but most will survive. I agree that changes of some type are almost inevitable, though, as I stated in my previous note. > Screwing? >Yep.
Airlines don’t choose customers — customers choose airlines. How is a voluntary choice on the part of the passenger to pay a given fare the airlines’s fault? > I have no idea what type of "discount" is typically given for compassion > fares, >I assume, based on your final sentence in this message, that you work >for an airline. If you do, you should know what everyday customers (not >business passengers using company-paid tickets) have to put up with.
I work as a computer programmer/analyst in an area which deals purely with operational issues (I’m on the WorldFlight team which supports our central flight planning, Weight & Balance, gross weights, weather, and real-time flight tracking system). I don’t deal with the customer end of things at all except when I’m flying myself (as a customer, essentially), but I usually ask friends and others I know who fly about what they encounter because I’m curious, and I also read this newsgroup to get general impressions. > but I would think that any reduction from the normal walk-up fare > would be appreciated. >And what a favor they do for us. From $1,800 to $1,100 for that three >hour flight. I can (and did) fly at the last minute on Southwest for far >less than half that.
So you’re getting almost 40% off the walk-up ticket price and you say that we’re ripping you off? Sorry, I find that hard to believe… >The amazing thing to me is the majors would rather have that seat remain >empty than lower their price. I know this, because I asked! I went to >SW’s site first, got the fare, then called United and Continental where >I have my FF miles. I was told the price was "take it or leave it." >That’s a STUPID way to run a business selling a product that expires on >day x and then becomes utterly worthless.
I will agree that it doesn’t seem to make sense to my mind (intuitively speaking), either. >And after experiencing SW, I can’t say that United and Continental (and >the rest of them, for that matter) are all that superior in quality.
That depends on what you’re looking for. Southwest is very poor at flying to Europe ot Asia, for example, while we do both. > Airlines can’t afford to be charities — they must > be able to at least break even financially in order to survive. >Charity is $15 billion in taxpayer dollars.
Sorry, but this requires correction. The feds told an entire class of businesses (airlines) which historically have extremely thin profit margins and which were *already* on the ropes financially that they could not operate in any away for a period which was effectively almost a week. That pretty much blows away any profits that ANY airline typically makes for a given quarter. Probably more than that. Our payments on aircraft, on people, on buildings, and on other things didn’t stop during that time. They owe us for slamming the door on our businesses for that period of time. And to clarify, most of your "15 billion" is loan guarantees, not "charity". Get the facts straight if you wish to criticize, please. >Charging over a thou for a 3-hour flight to see a dying relative is not >charity.
When one is flying aircraft that cost 7 or 8 digits, which burn tens of thousands of pounds of fuel PER FLIGHT SEGMENT every day, and which have a large amount of support infrastructure behind them, each seat has to bring back quite a bit of money on average in order for a flight to break even. Airline financial numbers are generally public information. I suspect you would find the quarterly reports for the major airlines quite interesting. >Charging literally hundreds in extra fees because someone wants to >change their flight schedule AFTER they paid for their ticket is not >charity.
Hundreds? I thought the charge was something like $75? > Given the extremely thin profit margins that airlines have, it should be > apparent that there’s very little in terms of price shafting going on. >Price shafting occurs whenever you step outside their narrow terms and >conditions. Want to change your plans? Pay a hefty fee. Want to fly back >Monday instead of Sunday? Pay a hefty fee. Have a dying relative you >need to visit? Pay a hefty fee.
Hotels do the same thing. Want a room on a holiday, or on a weekend? Pay a hefty see. Want to be in a prime location? Pay a hefty fee. > >Part of me wants to say "Let ‘em go under," but I don’t want the good > >people at those airlines to lose their jobs. > That’s appreciated (thanks), but it’s already too late for many. :-( >Sorry for ranting, but I remain highly pissed off. My beef’s not with >you.
I understand that your beef isn’t with me personally, and my own annoyance at your sweeping statements against the industry I work for isn’t directed against you either, but I think there are a lot of assumptions being made on your end which simply aren’t true. Look at the numbers. The major airlines’ operational expenses are (AFAIK) not hidden, and their financial situation is a matter of public record. While some aspects of yield management (ticket pricing, if you will) are not intuitively obvious, it should be readily apparent that the average fare MUST be set at a certain level in order for an airline to meet their basic expenses. Those expenses are documented. Do the math. — -Rich Steiner >>>—> http://www.visi.com/~rsteiner >>>—> Eden Prairie, MN Written online using slrn 0.9.5.4! The Theorem Theorem: If If, Then Then.
Response:
- Hide quoted text — Show quoted text -> >I’m convinced their business model is the one airlines will have to > >adapt in order to survive. People like flying with them, they don’t dick > >their customers around nearly as much, their prices are good and they > >get us where we want to go. That’s why Southwest is consistently > >profitable and the rest of the carriers aren’t. > But they don’t fly international flights, don’t do interline bags, don’t > have flight agreements with other airlines, don’t fly into airports that > possess certain characteristics that impede flight schedules, etc. >Obviously international flights are a separate matter to a certain >extent. But on domestic flights the "extras" provided by majors don’t >warrant the screw job. If the majors are having problems with their hubs >that cause them to lose money, that’s their problem. They are making bad >business decisions. Deal with it, like SW does. >Which, by the way, is the only profitable airline. > I’m uncertain that the Southwest model as such will work for an airline > that also wants to provide the above services. >They’re gonna have to make some big changes pretty quick. If they don’t, >they’re dead. > I suspect the majors will be doing some serious adjusting in the next year > or two, though. They’ll have to in order to survive, and the end result > might well be something closer to what WN is doing. Or not. :-) > >I am still furious at the other carriers wanting to charge me over a > >thou for "compassion fare" last month when I know full well their planes > >were flying empty. That’s STUPID business, and now they’re paying the > >price for screwing us all these years. > Screwing? >Yep. > I have no idea what type of "discount" is typically given for compassion > fares, >I assume, based on your final sentence in this message, that you work >for an airline. If you do, you should know what everyday customers (not >business passengers using company-paid tickets) have to put up with. > but I would think that any reduction from the normal walk-up fare > would be appreciated. >And what a favor they do for us. From $1,800 to $1,100 for that three >hour flight. I can (and did) fly at the last minute on Southwest for far >less than half that. >The amazing thing to me is the majors would rather have that seat remain >empty than lower their price. I know this, because I asked! I went to >SW’s site first, got the fare, then called United and Continental where >I have my FF miles. I was told the price was "take it or leave it." >That’s a STUPID way to run a business selling a product that expires on >day x and then becomes utterly worthless. >And after experiencing SW, I can’t say that United and Continental (and >the rest of them, for that matter) are all that superior in quality. >About the only extra that I get on a major is a meatwad sandwich >shrink-wrapped in foil that’s usually burned or frozen in the middle. >Big deal. > Airlines can’t afford to be charities — they must > be able to at least break even financially in order to survive. >Charity is $15 billion in taxpayer dollars. >Charging over a thou for a 3-hour flight to see a dying relative is not >charity. >Charging literally hundreds in extra fees because someone wants to >change their flight schedule AFTER they paid for their ticket is not >charity. > Given the extremely thin profit margins that airlines have, it should be > apparent that there’s very little in terms of price shafting going on. >Price shafting occurs whenever you step outside their narrow terms and >conditions. Want to change your plans? Pay a hefty fee. Want to fly back >Monday instead of Sunday? Pay a hefty fee. Have a dying relative you >need to visit? Pay a hefty fee. > >Part of me wants to say "Let ‘em go under," but I don’t want the good > >people at those airlines to lose their jobs. > That’s appreciated (thanks), but it’s already too late for many. :-( >Sorry for ranting, but I remain highly pissed off. My beef’s not with >you. >– >Proud American Infidel