Southwest Airlines (SWA)

[20driver]

southwest profits

Very good article about this is Saturdays NY times.
Without the fuel hedges they would have lost a packet - at current revenue. That is the rub every one misses. Most people don't understand Southwest -from the beginning they've run on these lines.
What is the cheapest we can run a sustainable operation?
(And keep it cheap – no big offices – no big salaries – no big ego trips)
Take this - add some profit - that is our price
Can we get this much out of a market?
If yes – lets go – if no – let’s go elsewhere.
They own almost all their planes – they have one type and a flexible workforce – so they can shift assets, as they need them. Cleveland slows down – send it to Tampa!
Currently – they do not need more revenue – profits just went up. If they had no hedges – they would have raised prices – shifted assets – They have that flexibility, as they are the low price leader. Their price increases stick.
Much like Dell they set the market price. No one is going to out Dell Dell and no one is going to out Southwest Southwest. Find another niche – this one – airborne Greyhound – is taken.
Interesting to note – the founder of JetBlue – founded a charter airline in Salt Lake which he sold, for much $$$, to Southwest. When the non compete expired – he was not the fool to joust with the master – No he headed cross country to the big Apple and set up Jet Blue. He was smart enough to realize he was not selling to Aunt Edna going to Vegas for the $7.99 all you can eat but the Jay Lo’s going clubbing in Miami. So he has created the hippest airline in the country – in the city that eats it up. (And if you know anything fool – you know every New Yorker loves a bargain – so they low price is part of the cache)
Morale of the story - know your market - stick to the knitting