Seeking Alpha

Airlines squeezing more profit out of fewer flights

  • U.S. airliners flew 52.4M passengers in February, flat growth from the year-ago period.
  • The group showed greater efficiency this year with fewer flights flown during the month.
  • The average flight length also increased during the month which is a boost to profitability for the sector.
  • Related stocks: LUV, UAL, DAL, JBLU, ALK, HA, SAVE, ALGT, RJET.
  • DOT passenger data
Comments (17)
  • psychological-dividends
    , contributor
    Comments (812) | Send Message
     
    I guess this must have to do with a new and revised "fee" model.

     

    Its interesting, such a traditionally bad business, can it supercede its terribble reputation?
    15 May 2014, 03:12 PM Reply Like
  • markcc
    , contributor
    Comments (1375) | Send Message
     
    The stats say flat, but in reality the LCCs are growing (excluding Southwest which is recasting its fleet) and the legacy carriers are raising fares which are costing them passengers.
    15 May 2014, 03:32 PM Reply Like
  • hokieincanecountry
    , contributor
    Comments (113) | Send Message
     
    Growth and market share gains will resume for LUV with at least four major drivers over the next two years. 1. Growth in ASM's from aircraft mix changing to more seats per aircraft. 2. Growth from DCA and LGA with slots acquired from American as settled with DOJ. 3. More long routes out of DAL later this year. 4. Big push from the new Houston Hobby international hub in late 2015.

     

    This all represents low risk growth just ahead!!
    16 May 2014, 08:42 AM Reply Like
  • markcc
    , contributor
    Comments (1375) | Send Message
     
    hokieincanecountry, Agreed about the seat count. One extra row on some 600 planes adds about 3,600 seats (the equivalent of aout 24 planes). Disagree about the impact at DCA, LGA and DAL because the fleet plan calls for slightly fewer planes through 2015. Southwest even had to buy 19 used planes to keep the fleet flat until it disposes of the Boeing 717s they are leasing to Delta. This means expansion in those airports will pull planes from other routes. I see them going bare bones in some cities until 2016 when the Delta leasing is completed. As for the Hobby expansion, I agree with your assessment. The comparable fares to the caribbean and Mexico are so high that a new competitor will break open the market. Again, they need more planes to pull it off. Southwest follows a firm 25 year retirement deadline for its planes, but has indicated that late retirements may be an option.
    16 May 2014, 04:32 PM Reply Like
  • hokieincanecountry
    , contributor
    Comments (113) | Send Message
     
    mark... The change in mix of planes with more seats per plane includes all of the following: 1. B737's increasing in numbers (and proportion) and B717-200's declining; 2. The added row of seats on B737's that are being updated (that you mention); 3. An increasing mix of B737-800's vs. smaller models; and 4. Scheduling the B737-800's to the high density, long haul routes out of LGA, DCA, DAL, Midway, etc. (more seat miles per flight, more flight hours per day--increased aircraft utilization).
    30 May 2014, 02:18 PM Reply Like
  • markcc
    , contributor
    Comments (1375) | Send Message
     
    hokieincancountry, I think we are agreed with most of the seat count issues, then Southwest announced the end of AirTran at the end of this year. By my count this will mean that in order to maintain plane count throughout 2015, they will have to stop plane retirements. With Southwest's oldest plane at 29.3 years this can be done for a short period, until deliveries catch up.
    31 May 2014, 01:21 PM Reply Like
  • hokieincanecountry
    , contributor
    Comments (113) | Send Message
     
    mark... What I objected to was your first comment that LUV is not growing (among the LCC"S). I believe that we will witness a lot of growth (of ASM's and RPM's) at LUV over the next two to three years (not necessarily from more aircraft but due to increased seat capacity and aircraft utilization to fulfill the growth in specific routes from DAL, LGA, DCA, Houston Hobby, Chicago Midway, etc. along with fewer flights at smaller cities as the former AirTran network is trimmed).
    1 Jun 2014, 08:49 AM Reply Like
  • markcc
    , contributor
    Comments (1375) | Send Message
     
    hokieincanecountry, we are in general agreement that the extra row of seats on the planes will add some 3,780 extra seats when complete. We are in agreement on that I think. I count planes, that is why I differ from your projections.

     

    Since the process of putting in Slimline seats began over two years ago, most of those seats are already in place. But when Gary Kelly announced the end of AirTran by the end of the year, that will take the 30-35 remaining B717's out of service, (117 seats X 32 planes = 3,744 seats) before Boeing delivers more planes. Due to timing of planes they bought in 1989 and 1990, Southwest has relatively few planes coming up for retirement in 2014-2015. That will keep growth flat. Southwest does have some 65 older planes that are retired and parked. They may decide to bring some of those back and blow my estimates.

     

    Southwest can delay retirements past the "normal" 25 years, but there are already some 18 planes that they came from Morris Air and Western Pacific and other carriers in the over 25 year category. It depends on how much faith they have in old planes. They don't want any tears in the fuselage like happened a few years ago. BTW, All the "AA" planes are already retired.

     

    As for your growth projection, if you check Southwests schedules, you will find that in order to fill the new slots at DAL, LGA and DCA, they are diverting other non-stop planes to "hold" the slots. They just don't have the planes to fill all the new slots/routes that they have to support. If you happen to live in Sarasota, Branson, Key West or Jackson MS, you can say goodbye to Southwest at least for now. If you are in Baltimore or Greenville you are seeing big drops in departures to key cities. In fact, you can't get to NYC from Baltimore anymore. If you live in Houston, you have a real good chance of having to switch from non-stops to go through Dallas on many of your trips in the near future. Due to the aircraft shortage, Southwest is actively buying 19 used 737s and reviewing their other fleet options. I am sure they are hoping that one of the fast growing European buyers of 737s like Ryan, Norwegian or Turkish get in trouble and cancel some orders.

     

    The "problem" of a plane shortage does not begin to resolve until sometime in early 2016 when Boeing delivers enough new planes that they catch-up with their "normal" expansion. At the current time, there are no planes to fly internationally from Houston next year given the current strategy that has consumed all the planes on existing routes. Until then, forecasts of growth are speculative and not based on counting planes and seats. Increases in load factors would have a big impact on any increases. As the network carriers increase fares, loading may improve.
    1 Jun 2014, 05:50 PM Reply Like
  • hokieincanecountry
    , contributor
    Comments (113) | Send Message
     
    mark... I guess we will need to look back in a couple of years to see if your "flat" forecast or my "growth" forecast is correct for LUV. I am definitely counting on higher load factors, as LUV shifts to more longer routes and drops or reduces service to some smaller markets that have shorter flights. Longer flights with higher capacity aircraft flying more hours per day generates a lot more ASM's.
    2 Jun 2014, 09:16 AM Reply Like
  • markcc
    , contributor
    Comments (1375) | Send Message
     
    Hokie, Don't take my word for it, here is Gary Kelly's Statement on April 24, saying to expect a flat 2015:

     

    "We're working on our 2015 plans. We have a desire to grow modestly next year basedon the results thatwe expect for 2014. We're on track to achieve our return on invested capital target for 2014. And of course as usual that assumes no change in economic fuel price or cost trends.
    But assuming we keep the fleet flat next year or roughly 695 aircraft, given the large number of out-of-service airplanes that are coming back into service in 2015, in addition to the up-gauging effect of trading out 717s for 737s,as well as adding 737-800s,that would increase our seat capacity next year in the 2% to 3% range. But until we report otherwise you should continue to assume a flat fleet for 2015, and that will allow for meaningful growth."
    2 Jun 2014, 01:10 PM Reply Like
  • hokieincanecountry
    , contributor
    Comments (113) | Send Message
     
    mark... I don't take your word for it. When I think about growth at LUV, I think primarily of Available Seat Miles and Revenue Passenger Miles, but not number of aircraft. I take Garry Kelly's last 13 words that your have posted:

     

    "...assume a flat fleet for 2015, and that will allow for meaningful growth."

     

    The flat fleet (695 aircraft) will be a different mix resulting in a higher number of seats per aircraft as well as likely higher daily aircraft utilization. Ergo, growth in ASM's and RPM's.
    3 Jun 2014, 06:40 AM Reply Like
  • markcc
    , contributor
    Comments (1375) | Send Message
     
    Hokie, I am not negative on Southwest, its just a timing issue for investors. If real growth is "flat" per Kelly, there is still a lot of time to get in later. I want to park my money in another growth opportunity now and get back to Southwest when real growth returns.
    3 Jun 2014, 08:01 AM Reply Like
  • hokieincanecountry
    , contributor
    Comments (113) | Send Message
     
    mark... You are certainly entitled to have a different opinion on LUV (than I do), because that is what makes a market. Since you first posted above on May 15, LUV has increased 10.3% from the close on May 15 of $24.70 to a record high of $27.24 (in the after market) on June 3. And I do not know why LUV will not continue to set new record highs.

     

    Let me know when you decide to get back in.

     

    Again, Kelly did not say that growth (in ASM's and RPM's) would be flat; he said that numbers of aircraft (695, but with a greater average seat capacity) would be flat.
    4 Jun 2014, 08:14 AM Reply Like
  • markcc
    , contributor
    Comments (1375) | Send Message
     
    Hokie, let me reiterate that I am not negative on Southwest, not because of fleet count. You can parse Kelly's statement, but in the end they are going to have problems getting more new/used planes unless someone out there stretches deliveries or fails. This is a 19 month hold on real expansion, where competitors can stake out routes and opportunities. LUV and the whole industry is influenced by loading factors, pricing, competitive actions, and cost controls, which are all positive for LUV.

     

    Some speculation is that the new Eastern Airlines 20 plane order might just be to hold 737s to sell to someone else, like Southwest, that can't get a place on the assembly line for any additional new planes.

     

    While you are working on that, I am trying to figure out how PEOPLExpress got slots and gates at Newark for their new airline starting June 30. While not a big deal yet, it seems to imply that there are some gates and slots available there for additional competition in the New York market.
    4 Jun 2014, 03:07 PM Reply Like
  • Brucejfern
    , contributor
    Comments (1483) | Send Message
     
    It is a tribute to airlines that are doing exactly what you need to do. Contain costs and fill those planes to the hilt before you even think about expanding the number of trips on any particular route.

     

    It is also a tribute to government-created oligarchies. I own DAL and AAL.... consider them best of breed and in best position to operate as the two most efficient legacy carriers.
    15 May 2014, 04:36 PM Reply Like
  • siculus01
    , contributor
    Comments (31) | Send Message
     
    <<... and the legacy carriers are raising fares which are costing them passengers.>>

     

    Sure, they can travel, by bus, car, train or the Wells Fargo coach and arrived after 5 days, if you depart from Los Angeles to New York.
    Suggest you rearrange the rotation the "wheels" in your mind…LOL
    15 May 2014, 04:59 PM Reply Like
  • markcc
    , contributor
    Comments (1375) | Send Message
     
    siculus01, between LA and NYC you can fly a LCC like JetBlue, Spirit, Virgin America or Southwest and not pay the legacy airline fares!!
    15 May 2014, 05:44 PM Reply Like
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