How can Southwest sell tickets for this price??

Hi all

I live Ft. Collins, CO which is just north of Denver. Although the
small airport to the sout of us does have passenger service it is
limited. That is to say the only Allegiant flies to and from The Ft.
Collins/Loveland airport and they only fly to Las Vegas. Needless to
say I always fly out of DIA. Well, as I have still have several days
during my holiday break from work I thought I might give Allegiant a
chance. That was until I starting doing some research on airfares.
Below is what I found doing a search for 01/06/06-01/09/06.

Allegiant - FNL-LAS: $188.40
Frontier - DEN-LAS: $335.00
Southwest - DEN-LAS: $88.60

I can't figure out how Southwest can offer fares that low. Anyone out
there know can they can make money with such low fares?

Johnny

In article . com,
Johnny Jack Johnston wrote:

I can't figure out how Southwest can offer fares that low. Anyone out
there know can they can make money with such low fares?

They don't sell the whole plane at that fare -- just a few of the
seats. But the remaining seats are still sold at a very competitive
price, and are often refundable tickets, unlike the other major
airlines.

How can they do that? They have the most productive workforce in the
industry. (A little over 1/3 the number of employees per airplane of
the other major airlines.) They treat (and pay) their employees really
well, and reap the rewards. They don't enter markets unless they'll be
very profitable. They turn their airplanes around *very* fast, letting
them get much more utilization out of their very expensive airplane
than other US carriers. And on, and on... It's an amazingly well-run
company. THAT'S how they keep fares reasonable.

"Johnny Jack Johnston" wrote in message
ups.com...
Below is what I found doing a search for 01/06/06-01/09/06.

Allegiant - FNL-LAS: $188.40
Frontier - DEN-LAS: $335.00
Southwest - DEN-LAS: $88.60

I can't figure out how Southwest can offer fares that low. Anyone
out
there know can they can make money with such low fares?

What Beavis says is correct ... but this is an "introductory" price on
WN. At least a few seats will be available st this price through June.

I'd guess that the lowest advance purchase price will revert to about
$70+fees EACH WAY after the intro period - and probably
around.$180+fees ONE WAY for unrestricted walkup last minute pax.

Do some comparisons with other city pairs
http://www.southwest.com/cgi-bin/buildItinerary2?hps=b1

Here in rec.travel.air, beavis spake unto us, saying:

How can they do that? They have the most productive workforce in the
industry. (A little over 1/3 the number of employees per airplane of
the other major airlines.)

I think it's more than a little bit unfair to state that WN's workforce
is the "most productive in the industry" based on such a simple metric.

I worked at NWA in IT for over a decade, and the various folks I worked
with in flight dispatch, ground ops, meteorology, the pilot group, and
other areas in the SOC were absolutely top-notch people. It was a great
honor and a pleasure for me to work in such a professional environment.

Legacy carriers like NWA have greater operational overhead for a reason:
those airlines were created and organized as international air carriers
during the bygone era when air ticket prices were regulated in the US,
and much of the overhead that was assumed in those days is still very
much a fundamental part of those airline's operational structure.

Because of things like international operations, flights into top-tier
airports in the US, and varied fleet types to support (all things WN is
able to avoid doing), it's no wonder that the larger carriers require
more people. They require more skillsets to maintain the status quo.

BTW -- most of WN's current financial advantage is due to fuel hedging
as much as it is to the luxury they possess of having a much simpler
set of operational requirements. They got lucky on the fuel market;
otherwise, they'd be posting losses every quarter just like the others.

--
-Rich Steiner --- http://www.visi.com/~rsteiner --- Mableton, GA USA
OS/2 + eCS + Linux + Win95 + DOS + PC/GEOS + Executor = PC Hobbyist Heaven!
WARNING: I've seen FIELDATA FORTRAN V and I know how to use it!
The Theorem Theorem: If If, Then Then.

:O)

(Richard Steiner) wrote:

beavis spake unto us, saying:

How can they do that? They have the most productive workforce in the
industry. (A little over 1/3 the number of employees per airplane of
the other major airlines.)

I think it's more than a little bit unfair to state that WN's
workforce is the "most productive in the industry" based on such a
simple metric.

It's not the slightest bit "unfair". It's simply a calculation of how
many employees a company has per unit of output. In a commonly cited
study, Southwest produces about 45% more available seat-miles per
employee than carriers like American or United. That is a huge number,
considering that Southwest has shorter stage lengths.

Given that labor cost is something like 30 or 40 percent of an airline's
total cost, the difference is significant: Their costs are much, much
lower than the legacy carriers. Fair or not, that is the reality that
allows Southwest to charge lower fares than their major competitors.

I worked at NWA in IT for over a decade, and the various folks I
worked with in flight dispatch, ground ops, meteorology, the pilot
group, and other areas in the SOC were absolutely top-notch people.
It was a great honor and a pleasure for me to work in such a
professional environment.

You are blurring competence and motivation with productivity. While
there is some overlap, productivity is based on much more than simply
the ability of the employees. There are many structural realities of
how employees are used that have more influence. Many companies with
very qualified and virtuous employee populations have failed simply
because management and labor did not work well together, or the company
did not have the right formula.

PanAm and Eastern, as examples, were doomed from the day deregulation
was approved, and there was virtually nothing they could do to change
the inevitable, other than voluntarily fold earlier than they did.
While they both had very good employees, the reality was that the
companies were structured under an older set of rules, which did not put
major emphasis on productivity. Everything they had in place, from
aircraft leases to passenger facilities, and, yes, union agreements,
were shaped under the old rules.

Everthing including institutional momentum, intransigence on the part of
both labor and management, plus a legacy of borrowing and investment to
meet the old needs conspired to push the companies into oblivion. A
major part of that was lack of labor productivity.

Legacy carriers like NWA have greater operational overhead for a
reason: those airlines were created and organized as international air
carriers during the bygone era when air ticket prices were regulated
in the US, and much of the overhead that was assumed in those days is
still very much a fundamental part of those airline's operational
structure.

Because of things like international operations, flights into top-tier
airports in the US, and varied fleet types to support (all things WN
is able to avoid doing), it's no wonder that the larger carriers
require more people. They require more skillsets to maintain the
status quo.

The exact same things could have been said about PanAm and Eastern.
When airlines like People Express came on the scene and directly
competed with Eastern, the very structure that Eastern had created to
meet their needs was the basis of their downfall.

People Express operated out of terminals that were barely more than
lemonade stands. Compare that to Eastern's opulent, and expensive,
terminals in New York. PE flight attendants collected fares on-board,
thereby reducing terminal staff. Fares were very simple - only one
price for a seat - significantly reducing accounting overhead. Aircraft
were purchased second-hand at a time of lower interest rates. In short,
everything that PE did was based on getting the most value out of fewer
employees. Eastern, on the other hand, was a dead duck with that type
of competition.

BTW -- most of WN's current financial advantage is due to fuel hedging
as much as it is to the luxury they possess of having a much simpler
set of operational requirements. They got lucky on the fuel market;
otherwise, they'd be posting losses every quarter just like the
others.

It wasn't a case of luck, it was a strategic decision to stabilize their
balance sheet so there wouldn't be any surprises. Contrary to popular
belief, fuel hedging, when done properly, is intended to ensure that
wild swings, either up or down, in commodity prices do not affect the
company's bottom line. Both upside and downside futures are taken, which
have the effect of cancelling out either an increase or decrease in fuel
price, and give a predictable future price for the duration of the
hedges.

Hedging is not a crap shoot of speculation that companies engage in to
try to work the price of fuel to their advantage. Any company that tries
to gamble and predict such prices will eventually get badly burned.

On Tue, 03 Jan 2006 07:49:30 -0600, James Robinson
wrote:
It's not the slightest bit "unfair". It's simply a calculation of how
many employees a company has per unit of output. In a commonly cited
study, Southwest produces about 45% more available seat-miles per
employee than carriers like American or United. That is a huge number,
considering that Southwest has shorter stage lengths.

How does it compare to RyanAir or Emirates ?

Jim.

In article , Richard Steiner
wrote:

€ Here in rec.travel.air, beavis spake unto us, saying:
€
€ How can they do that? They have the most productive workforce in the
€ industry. (A little over 1/3 the number of employees per airplane of
€ the other major airlines.)
€
€ I think it's more than a little bit unfair to state that WN's workforce
€ is the "most productive in the industry" based on such a simple metric.
€
€ I worked at NWA in IT for over a decade, and the various folks I worked
€ with in flight dispatch, ground ops, meteorology, the pilot group, and
€ other areas in the SOC were absolutely top-notch people. It was a great
€ honor and a pleasure for me to work in such a professional environment.
€

Never confuse effort with results. Intelligent, hard-working people are
useless if their efforts are wasted on an outdated business model.

€ Legacy carriers like NWA have greater operational overhead for a reason:
€ those airlines were created and organized as international air carriers
€ during the bygone era when air ticket prices were regulated in the US,
€ and much of the overhead that was assumed in those days is still very
€ much a fundamental part of those airline's operational structure.
€
€ Because of things like international operations, flights into top-tier
€ airports in the US, and varied fleet types to support (all things WN is
€ able to avoid doing), it's no wonder that the larger carriers require
€ more people. They require more skillsets to maintain the status quo.
€

Kueffel & Esser had the same problem during the great slide rule
shake-out of the 1970s. Those damn upstart calculator companies didn't
have to maintain the overhead and bamboo infrastructure as the legacy
slide rule companies, and once volume picked up they could offer more
functions for less money. It just isn't fair, is it. We sure wouldn't
want to see a fine, service oriented company like Northwest cough go
the way of K&E, would we ;-).






€ BTW -- most of WN's current financial advantage is due to fuel hedging
€ as much as it is to the luxury they possess of having a much simpler
€ set of operational requirements. They got lucky on the fuel market;
€ otherwise, they'd be posting losses every quarter just like the others.

People Express operated out of terminals that were barely more than
lemonade stands. Compare that to Eastern's opulent, and expensive,
terminals in New York. ... In short, everything that PE did was
based on getting the most value out of fewer employees. Eastern, on
the other hand, was a dead duck with that type of competition.

PE also had the luxury of selling its product below cost until they
ran out of money and were absorbed by Frank Lorenzo. It'll always be
an open question whether they would have survivived if they had stuck
to their Southwest-style routes and not gotten delusions of grandeur
and bought 747s to fly to Europe. Admittedly, their costs allowed
them to lose less per passenger than Eastern did, but that was hardly
a long term strategy.

There's clearly two sustainable air markets: short haul cheap like
Southwest, Jetblue, Ryanair, and Easyjet, and long haul comfortable
like Singapore, Virgin, and perhaps Lufthansa. It's not clear to me
if there's anything else. The only line to make a go of short haul
comfortable is Midwest, and I'm not if you can replicate that without
a core market of Kleenex executives. Emirates seems to be doing OK
with long haul cheap, but that may be a unique niche due to cheap
capital from their local investors and a clientele of petro-commuters.
The traditional US carriers don't do either short haul cheap or long
haul comfortable particularly well, which is why they're in such
trouble.

All the short haul cheap carriers other than WN have young non-union
workforces, which means they save a bundle on medical and pension
costs. That's not a long term strategy, either. WN has done fairly
well facing up to those costs, the other LCCs haven't begun to.

BTW -- most of WN's current financial advantage is due to fuel hedging

That's backwards. Hedging costs money, WN was the only airline in
good enough financial shape to buy hedges five years ago. Everyone
else would have loved to hedge, but they had neither the cash nor the
credit line necessary. It's true, once the current set of hedges is
used up, WN is going to have fuel cost issues like everyone else.

--
Regards,
John R. Levine, IECC, POB 727, Trumansburg NY 14886 +1 607 330 5711
, Mayor, http://johnlevine.com,
Member, Provisional board, Coalition Against Unsolicited Commercial E-mail
--
misc.travel.air-industry is a moderated newsgroup. Please mail messages to
, and see http://mtai.airinfo.aero for the FAQ and policies.

" wrote:

James Robinson wrote:

(Richard Steiner) wrote:

beavis spake unto us, saying:

How can they do that? They have the most productive workforce in
the industry. (A little over 1/3 the number of employees per
airplane of the other major airlines.)

I think it's more than a little bit unfair to state that WN's
workforce is the "most productive in the industry" based on such a
simple metric.

It's not the slightest bit "unfair".

What's "unfair" is that you are comparing apples and oranges.
You're comparing a domestic only airline with airlines that
fly internationally. Those international airlines require higher
employee densities.

I'm not so sure that international takes a high ratio of employees on a
passenger-mile basis. For one thing, the aircraft have higher
utilization, than domestic aircraft, given that they fly at night.
Also, the longer stage lengths mean that the ground support needed is
likely lower on a passenger-mile basis. Further, they often contract out
the customer services and operational support in foreign countries,
therefore they are not employees of the airline.

You will also find that the domestic operations of the legacy carriers
have a high employee to seat-mile ratio compared to Southwest.

If you prefer, compare US Airways, with their very limited international
services, to Southwest. You will find they also have a high ratio in
comparison.

None the less, I suspect if one could seperate out things, they
would find that it was still true that WN uses fewer employees
per seat mile or some such metric.

Agreed. Their primary advantage is that they have negotiated more
flexible work rules with their unions, leading to efficiencies.

[snip]
Given that labor cost is something like 30 or 40 percent of an
airline's total cost, the difference is significant: Their costs are
much, much lower than the legacy carriers. Fair or not, that is the
reality that allows Southwest to charge lower fares than their major
competitors.

For a variety of reasons. But yes, in the end, it really doesn't
matter how or why. If your costs per seat are lower, you're gonna
have an advantage in the markets you serve.
[snip]

Everthing including institutional momentum, intransigence on the part
of both labor and management, plus a legacy of borrowing and
investment to meet the old needs conspired to push the companies into
oblivion. A major part of that was lack of labor productivity.

Yes, but when stated this way, althought technically correct, you
make it sound like the employees were somehow "incompetent" or "bad".
The real point, to which you allude, is that the airlines were
structured to limit their employees productivity.

I thought I was being clear on that point. I did not judge how good or
bad employees were, simply that the airlines had too many of them for
the work performed. The reason could be anything from bad employees to
how the company was structured.

To some extent the unions participated in this structure. One of the
things WN has managed to do so far is to maintain relatively good
relations with their unions which allows them to negotiated favorable
work rules that other airlines can't get. [snip]

The unions were a major participant in how the work was structured.
They negotiated their agreements to get all they could when times were
good, and were reluctant to acknowledge that times had changed, and that
they needed to be realistic about their competitive position.

This was one of the reasons that I said the legacy carriers were doomed
with deregulation, and that there was little they could do about it.
Union negotiations tend to tackle one or two big issues per agreement,
which is too slow a process for what the industry needed. They required
a complete restructuring of agreements among a number of different
trades, and that simply wouldn't happen quickly enough.

Even today, when Delta pilots agree to a slightly lower pay rate, the
union executive says that they expect it all back when the financial
condition of the company improves. They might be saying that sort of
thing to appease union militants, but they also don't seem to recognize
that these changes are likely permanent, and that the airlines will be
after them for more in the future. What Delta has finally negotiated
after they were forced into bankruptcy is still too little to make the
airline viable.

BTW -- most of WN's current financial advantage is due to fuel
hedging as much as it is to the luxury they possess of having a
much simpler set of operational requirements. They got lucky on
the fuel market; otherwise, they'd be posting losses every quarter
just like the others.

It wasn't a case of luck, it was a strategic decision to stabilize
their balance sheet so there wouldn't be any surprises. Contrary to
popular belief, fuel hedging, when done properly, is intended to
ensure that wild swings, either up or down, in commodity prices do
not affect the company's bottom line. Both upside and downside
futures are taken, which have the effect of cancelling out either an
increase or decrease in fuel price, and give a predictable future
price for the duration of the hedges.

Hedging is not a crap shoot of speculation that companies engage in
to try to work the price of fuel to their advantage. Any company that
tries to gamble and predict such prices will eventually get badly
burned.

It is a viscous circle. The majors are struggling for
profitability so they need to take bigger risks. WN can afford to
take smaller risks and seek stability.

The majors can't hedge, since hedging is essentially borrowing money,
and they don't have a good credit rating. WN can still afford to hedge.

The majors keep trying to make money with their old business
models. They have to, they have to much invested in their own
infrastructure to do anything else. But I don't hold out much hope
for them. Multiple aircraft types, hub and spoke, these things are
killing them, and they'll have to ultimately give them up, which means
they won't really be "themselves" anymore.

They can still serve the markets that Southwest won't touch, but they
still need to restructure how labor is used, and get the right aircraft,
before they will be viable in the longer term.