So I was talking to a friend in the airline industry... there is a rumor..

[sabra]

My friend is an airplane mechanic, for a firm that has connections to various airlines. We started talking about gas prices, and how they have just skyrocketed over the past year. He told me that the industry is getting hit really hard with these prices. So hard that two major players might fold. He said the rumor is that Northwest and United might go bell-yup because of this. Southwest on the other hand is actually doing very well. Because the saw this coming, and locked a price (some kind of option program) awhile back, and not enduring these crazy prices.

Just thought I would pass on the rumor :-)

[babylonsister]

1. As the wife of an airline employee, yes,

the oil prices are affecting all the airlines. But NW and United had major problems prior to the prices going up; poor management is hanging them. Throw Delta into that mix, and a few others...

[sabra]

3. could oil prices be the tipping point?

[babylonsister]

11. The unreasonable expectations of management

will be the tipping point. NW wants their mechanics to take a 25% decrease in salary, with possibly more cuts in the future. I don't know whether the mechanics are nuts to strike, or smart for standing their ground. But I also wonder how much money the CEO's will walk away with; they just don't give a damn.

[FreedomAngel82]

27. I think so

It's effecting people personally. Gas prices are so high and people have to get to work and you have bills and things like that. Remember what Cheney said about gas prices? He said you can tell a president failed when the gas prices are so high. What do you know, looks like he was right about something.

[flyarm]

56. depends on the airline..

american buys oil when low..they have their own tanks and they buy fuel and gamble when they think its low and stock pile it..they stock pile alot of it!!
they began that in the 70's when the oil shortage hit all the airlines bad..american took the lesson then and began buying oil..for any disruptions or spikes in prices..

retired AA crewmember

[Skink]

7. The end of airline pensions as we know them..

Our goverment will not intervene in the oil price gouging because the CEO's in the airline industry don't see a need for pensions and the quickest way to get unions to comply is to say hey we might go under because of these prices you must give up your gold. Meanwhile the airline CEo's will see giant cash bonuses if they can just take care of this nasty little problem.

[babylonsister]

13. Please bite your tongue! I know, it's

happening, but not with our airline, not yet. :scared:

[bottomofthehill]

22. Thats fine with me

As long as we force the management into the PGBC also and not allow them to pay these BS Retention Bonuses to keep failed management teams in place. Any old asshole can run a company into the ground, they do not need a bonus to stay. They may look at things a little differently if they were going to get the same pension as a working person was going to get

[Obamarama]

2. The fact that a major airline will go "belly up" is not a rumor.....

It is fact that is played over and over again, year after year. I really don't care. They run their business so half-assed they DESERVE to go out of business. They get multi-billion dollar subsidies and they fail to even approach something resembling a profit. I just hope I get a chance to use my NW WorldPerks miles before they cease to exist.

[CountAllVotes]

5. I agree!

<< They run their business so half-assed they DESERVE to go out of business. >>

I agree, they do run their businesses half-assed or EVEN WORSE IMO.

Get rid of them! :puke:

:kick:

[Kolesar]

14. How big are the airline subsidies?

I recall the $40 billion after 9/11/01 so they would not go out of business. I have a hunch that a lot of airport and radar operations are funded by the taxpayers, but I just do not know. I think small airports are propped up by the taxpayer so that big airports do not have to handle executive jets and single-prop hobbyists.

[acmejack]

17. None cares if they do, except for the pension plans.

They are allowed to escape from the commitments they made to their workers. They are stealing from them. THAT is what we need to play up.

And throw in the information about the Pension Benefit Guarantee Corporation being unable to cover these massive defaults. "Let them eat cock" M. Antoinette (frequently misquoted) & King Bush II (all too often accurately quoted).

[raccoon]

55. That's funny. nt

[TheFarseer]

4. I wouldn't be surprised

What surprises me is that the other carriers didn't lock up a lower price.

[splat@14]

15. The practice is called "hedging" and Southwest, flush with cash, did it

years ago when futures were low in comparison to todays price. It's a gamble. If you commit capitol to hedge future fuel buys, you could lose. That and most of the majors have been cash strapped for years preventing them from doing much hedging. The option to hedge still exist now and may be a good thing but none of the legacy carriers have the capitol. Its intersting to note that Southwest doesn't really make a profit from moving passengers around, they make it from their cheap fuel cost.

[Sal Minella]

20. The other carriers don't have a smart woman running them. eom

[gulfcoastliberal]

23. Like Carly Fiorina?

She did so well with Lucent and HP. I see no gender differences regarding corprorate greed at the top of the pyramid.

[Sal Minella]

25. I didn't realize we were talking about greed. I was talking about

airlines and the fact that the one that's running in the black is being run by a woman. And that same woman has been running it successfully for some time.

[gulfcoastliberal]

40. I thought Southwest was run by someone named CEO Gary Kelly?

And chaired by Herb Kelleher. Is Gary a woman or what airline are you talking about? Southwest's president& director is a woman - Colleen Barrett. Is she running the airline all by herself because Gary Kelly and Herb Kelleher are sitting around doing nothing? Or are you speaking of Jetblue? They make money and their CEO is David Neeleman.

What airline in the black has a woman CEO?

[Sal Minella]

45. Yoho, here. Four or five years ago I read an article about Southwest

and how the woman running it (and I don't know what her title was at the time and obviously I didn't remember her name) had very family-friendly policies in place, had employees willing to work for considerably less than the going rate at other airlines because they liked the atmosphere, liked the way they were treated, liked the way the airline was run. I remember the pilots said they were scheduled for more flights than other airlines' pilots, and they were paid less, and they had no intention of leaving.

My original comment was based on reading that article. I am now assuming that Southwest and every other airline is run by its president, its CEO, and assorted other people working together as a team. Are you implying Gary "runs Southwest all by himself" and Colleen "sits around and does nothing?"

If I didn't have to get things ready for a meeting tonight, I would try to track down two lists: (1) airlines running in the black and (2) airlines with women high in their management echelons.

Or maybe I could just ask you -- is there another airline in the black that has a woman president?

[converted_democrat]

6. Well,

NW, United and Delta are all in trouble. Delta is prepping for a bankruptcy before the new law passes, and there is a good chance the other two are headed down the same road. They have been talking about it for weeks on the financial channels.

[Roxy66]

8. I would not miss United...feel bad for all the employees though

[ComerPerro]

9. Bush could be remembered as the man who killed commercial air travel

he is building such great legacies.

[jmowreader]

10. Southwest isn't actually an airline like the others

If "airline" means "a company that is organized for the primary purpose of scheduled air transport" then Southwest isn't an airline at all.

Southwest makes almost all of its money as a commodities brokerage specializing in aviation fuel. The fact that they run this bare-bones operation to make themselves look like an airline doesn't change the fact that they're almost totally dependent on fuel hedging as their source of capital.

[sabra]

12. Interesting. I didn't realize that.

thanks.

[Skink]

18. Is that why flying SW is kind of like boarding a bus?

[jmowreader]

33. No, that's just being too cheap to print up seat-assignment charts

[wakeme2008]

19. I call that Good Management

I do not know what you call it.

[jmowreader]

34. I call it old-fashioned mercantilism

It's really a very good way to do business.

Unfortunately, too many of the "other airlines" look at Southwest, see that they're making money, and think "if we get rid of meal service and make our planes look just like Southwest, we'll make money like Southwest." Well, you have to play the fuel market like Southwest if you want to make money like Southwest. And none of them are.

[Liberal In Texas]

24. Oh bull...Southwest is and has been a well run company and an example

for other airlines and corporate entities of how to run a business.

Southwest employees are among the happiest workers in the country. They have good benefits and salaries and don't face the "we're going to have to shut the doors if you don't give us concessions" nonsense.

It the corporate welfare Wright Amendment is ever repealed, SW will do even better.

[jmowreader]

35. Did I say Southwest wasn't a well-run business? No.

What I said was that Southwest is making its money in the Fuel Hedging business. Not the air transport business.

If Southwest wasn't playing the gas market as heavily as they are, and instead relying on cargo to pay the bills like every other airline does because the only way to make money transporting passengers is to start a cab company, you'd hear the "give us concessions or we're closing" line from Southwest too.

Here's the only chink in Southwest's armor: what if the fuel market turns against them? So far they've been good and they've been lucky, but sometimes luck runs out.

[Liberal In Texas]

41. OK, after doing a little googling I take your point. But...

the fact is that "fuel hedging" is something that a solvent company does. AA, UA, CO, etc. can't do it because they don't have the cash.

Also, fuel hedging is somewhat short-term. Eventually the price will catch up. The airlines can hedge for years or months, but it still is a gamble. If the price of fuel goes down, oops. But what is the likely-hood of that?

So, I still stand by my point that SW is a well run business. They cover all the angles. I don't think you are correct in saying that SW makes it's money fuel hedging. It's just part of the equation. They make their money on tickets.

Today, Southwest calls oil futures contracts, or hedges, its "insurance policy" against higher fuel prices. Like the other airlines that hedge, they lock in the prices they will pay for oil products months or even years in advance by buying contracts on the open market.

from http://www.purchasing.com/article/CA444966.html





(always like to have a graphic...lol)

[jmowreader]

51. I don't think SWA is "making their money on tickets"

Consider: no entity that transports passengers makes money from doing it.

Amtrak loses money on every passenger they carry. They rely largely on government subsidies to stay afloat.

Every airline, ever since the day Ronald Reagan deregulated them, loses money carrying passengers. When the price of fuel was low, they made their nut transporting freight.

Interstate bus companies also use freight cartage to subsidize their passenger service.

All light rail runs at a loss and is subsidized. Same deal with city buses.

Shipping? They put bars and casinos on passenger ships for a reason besides giving the passengers something to do. (You know what the most profitable shipping service in the world is, right? The "Cruise to Nowhere." Load the ship with passengers, drive it into international waters and open the casino.)

Taxicabs are profitable, but in Fayetteville they cost five dollars a mile. (And we're a cheap-fare city.) You can just about use Mercedes-Benzes in your taxi service and be profitable at that rate.

Something's telling me Southwest is doing a bit more than just "running their business well." I just went over and looked at their schedule. It's odd to say the least. I told it I wanted to go from RDU to Spokane, Washington. Can't do it--I can fly from RDU to Sea-Tac, but not to Spokane. However! I can fly from Sea-Tac to Spokane. Now, what part of "schedule me a flight that takes me from RDU to Spokane through Sea-Tac" is not understandable? Of course, if "fly Jim to Seattle, then to Spokane on one ticket" costs more than "fly Jim to Seattle, have him get his bags and recheck them, and fly him to Spokane from there" that's what they'll do. Save five bucks here and five bucks there and all of a sudden you're almost profitable. Then add in "play the fuel market" and you really are profitable.

I think the only way you could make passenger service profitable like cargo service, is to carry the passengers like the Air Force carried the Taliban troops to Gitmo--strapped down with ratchet straps to the floor of a cargo plane. Paying pax don't go for that shit.

[tx_dem41]

36. "Bare-bones"?

Number of flights a day:

Southwest 2800
American 2600
United 1900
Northwest 1500

Now...tell me again how Southwest is a "bare-bones operation"?

[Conservativesux]

42. Sure, but sooner or later the oil prices will catch up to them. Then what?

[On the Road]

16. GE Almost Went Belly-Up in the 60s

when the price of uranium skyrocketed. It's beyond me how professional managers can write contracts giving the company that much exposure to unstable commidity prices.

[jmowreader]

21. It almost seems like they live only in the spot market

You can buy commodities three ways:

Spot: this is the mercantile most of us are familiar with; delivery is potentially immediate. The advantage here is that if the price goes down, you're not locked into paying whatever the contract price was six months ago. The disadvantage is that if the price goes up, you're not locked into the six-month-old price.

Options: an options trader purchases a contract enabling him to buy a certain amount of a commodity on a date future. When the date future arrives, he has the choice--the option--of fulfilling that contract. The advantage to the buyer is that if the bottom drops out of the market, he can just drop the option in the trash and buy on the spot market if the spot price is enough lower than the option price to justify forfeiting your option. (Sometimes it is, sometimes not: if the option cost you ten dollars a hundredweight and the spot price is only eight per hundredweight below the option price, forfeiting your option doesn't make sense. If the option price is $20 per hundredweight above the spot price, it makes perfect sense to forfeit the option.) The seller is at a slight disadvantage here: if the price does drop to the point where forfeiting options makes sense, you're stuck. Hence, options are priced higher than futures.

Futures: a futures trader purchases a contract which says that on a date in the future he will purchase a certain amount of a commodity. This used to be the only way to fly if you were a consumer of that commodity, because even though you have the possibility of really getting screwed if the spot price drops below the futures price, it also allows you to do accurate financial forecasting. Someone who uses wheat can take comfort in knowing that on the third of August a million bushels of wheat will arrive at the Jonesboro elevator and that on the fourth of August we will disburse a check for five million dollars to pay for said wheat. You know how much flour is going to cost to make, how much the products made from that flour are going to cost to make, and hence how much you can charge for those products and still make a profit.

Now understand, for an investor who does NOT use the commodity, futures are only slightly more risky than Baghdad municipal bonds. But for a company who uses the stuff, they're great because you can know what your product costs.

Apparently, in the Reagan 80s companies got away from buying futures contracts, which means they're totally susceptible to the vagaries of the market. Yeah, it's nice to pay spot price for corn when spot is five per hundredweight below future. No, it's not nice to pay spot for it when it's ten per hundredweight above future.

And now you know why the price of lumber changes every day.

Would I play the futures market? If they'd let me, I'd buy OSB on the futures market. It is the most volatile wood out there, and if I could lock in a $7.50/sheet wholesale price I could turn around and sell it for $9 per sheet. (That's actually a little less profit than I make on it now, but if I could get a consistent $9/sheet it would work out.) Everyone would be happy except for Lowe's because they're playing the spot market and sitting on $12/sheet OSB. I wouldn't play it as an individual investor, though.

[Robb]

30. Informative post, thank you. n/t

[klyon]

26. That is to bad, sorry for their poor planning

Aren't poorly run companies suppose to fold if they can't cut it.
I would just as soon see them all go out of business. I don't like to fly, it pollutes in the high atmosphere and probably is worse than cars. I vote for solar electric trains and subways to move people. A high speed train network would energize or economy.

Flame away I don't care.

KL

[Bluebear]

28. "Flame away I don't care."

OK.

Do you know how many hundreds of thousands of average working schmucks work in the airline industry?

[wickerwoman]

38. Hundreds of thousands of schmucks work at Walmart.

That doesn't mean I'm morally obligated to shop there or to hope that they stay in business.

I'm really sorry people will potentially be out of work, but insisting on floating badly managed businesses indefinitely at great expense to the average taxpayer and to the enormous profit of their inept management is really insane.

This kind of argument (preserve jobs at all costs) is what turned so many people off unions. My grandfather worked for twenty years on the railways in a completely obsolete and pointless job preserved by the labor union. I'm not anti-union, but at the same time I can see why some of his coworkers were a bit pissed off.

We all take a risk when we agree to work for a company. How many people in the world are at no risk of being laid off? I work in a pretty badly managed company that is struggling. Do I get the moral high ground with those who refuse to do business with us just because I might lose my job?

[Lydia Leftcoast]

29. No flames for you, klyon

We should have started building a series of regional high-speed rail networks throughout the country in about 1980, with the eventual goal of connecting them by say, 2020.

That would have elminated the waste of short-distance air travel.

[lildreamer316]

49. AND employed ppl

Lewis Black said something to the effect that we should build a big (f'n) thing."Doesn't matter what it is; as long as it's big; and it's a f'n thing. Which would create jobs; and that would stimulate the economy too!"
Ak.

[Nashyra]

31. It's not the flaming you should worry about

Stop and think about why the US have such a good safety record in aviation. Experience, pilots, mechanics, flight attendants etc. Longevity is the key to experience and all the airlines are based on seniority, the experience train the new hire. If a co-pilot does something wrong ultimately it is the responsibility of the Captain, the one with the experience.

The gov't is talking about mounting anti missle devices on aircraft, how in the hell are the airlines expected to keep pilots for a lifetime of work and experience if they think there will not be a pension, fly for the fun of it for awhile and then get out and make "millions" elsewhere. Pilots and mechanics pensions should be protected like first responders, we can not afford to lose responsible and well trained men or women because they can no longer make the industry a career. I don't want my loved ones flying around on an aircraft that has it's maintenance done by people who don't have a stae in the company. Stop and think about the fact that the Air France flight that went off the runnway in Tronto was evacuated in less than 90 seconds wth 1/2 the exits unausable. Flight attendants are trained to evacuate the aircraft in 90 seconds or less so it was no fluke. Experience counts and it as to have a price tag worth staying for.

[jmowreader]

32. I think he's trying to get rid of the aviation industry

I think an "integrated" transportation strategy based on airlines for long distance travel or "emergency" travel, high speed rail for short and moderate distances (such as NYC-Boston), light rail for commuting, buses to take you to the light rail stations, cars for times when you need to move cargo like two weeks' groceries or building materials, and Segway-type scooters, bicycles, New Balance and other last-mile solutions for that last mile between public transit and home, would be the best way.

Should we end all passenger air? No. If I needed to get to Los Angeles from New York, I wouldn't want to use a train if I was on business. I'd use an airplane. But if I was going to Boston from New York, I would definitely consider a train or even a bus.

[donco6]

47. Would that train go underwater, too?

How would you get to another continent?

[Cleita]

37. Northwest mechanics went on strike today according to the news.

I really don't know anymore than this about it. I heard it on the evening news.

[rugger]

39. THE SOLUTION - High speed trains

Should not need to take a flight for distances less than 400 miles.

Government is too dumb to understand this

[Conservativesux]

43. Cant use existing tracks. Also would have to be free of intersections with

automobiles.

A train hitting a car or truck at 200+ MPH would kill nearly everyone onboard.

[Liberal In Texas]

44. There is actually a propsal to run a high speed train between Dallas

and Houston.

But the rubes are up in arms about it. It would mean taking some private land to put the track in. (On this point, I can't say that I blame them.)

Plus, the train would pretty much just swoosh past the small towns and not stop. They don't like that at all.

[Bridget Burke]

58. Is that part of the Trans Texas Corridor?

It's Governor Perry's scheme to grab vast swathes of Texas land to build (taxpayer financed) toll roads & (some) high speed rail lines. Cintra, a Spanish company, will built it & have a 50 year monopoly on its operation.

Here's the official website:

www.keeptexasmoving.com/default.aspx

Here is some criticism of the plan. Environmentalists also have questions--not just the "rubes."

www.txfb.org/TexasAgriculture/2005/031805/031805TTCpart3.htm

A privately funded plan to build high speed rail linking Houston, Dallas & San Antonio failed in the 90's. Lobbying by Southwest Airlines was a big factor.

[donco6]

48. I'm in Denver.

The city closest to me of any size at all is further than 400 miles. To get to New York is a 3 hour flight, minimum. On a high speed train that would be 7 hours, nonstop (which on a train is not possible).

[donco6]

46. I would add Delta to the list.

In fact, I would put them ahead of United.

[Vox_Reason]

50. I think you're right...

My sister-in-law has been a Delta flight attendant for more than 20 years. She's scared to death they're going to go bankrupt, and very soon. She's considering retiring early so she can still collect a pension.

What a disaster.

[MetaTrope]

52. The plan for taking us back to the Middle Ages

includes, of course, ensuring that nobody can travel more than 20 miles from their home.

[Fescue4u]

53. Whats amazing is that fairs are incredibly low now to

IM far from a marketing maven, let alone an airline one, but I don't understand how they can expect to make a profit with these ultra low fairs.

Im in the process of moving from Cincinnati Ohio to Raleigh Nc.

Right now it is cheaper for my to FLY between the two airports, than it cost me in gas money to drive it. (about 600 miles)

Im flying to the west coast in a few weeks. The fair is about $300. 5 years ago (when gas prices were at an alltime low), the fair was about $2,000

Yet, they didnt make money then, nor do they make money now.

I mean, WTF?

[RPM]

54. Southwest Hedged - They were the only firm with the cash to do it

yes - it will kill a few players - and perhaps that is what is needed.

seat prices are too low to pay for the planes, crews, fuel and maintenance. The industry needs to increase prices, it looks like reducing capacity is the only way to do that.

[flyarm]

57. american uses hedges as well

but american also has their own storage for fuel!and they have been stockpiling for years!

[RPM]

59. nic - i was under the impression only SW was able to do so

good for American!

i stand corrected - :toast: