In the early 1980s I had an opportunity to attend a lecture by Herb Kelleher, who was one of the founders of Southwest Airlines. He discussed how Southwest got started and, perhaps most importantly, how management style helped make it successful.
Southwest used PSA as one model. Rollin King and Lamar Meuse went to California in the late 1960s to learn how PSA operated. They came away with the intention of leasing Lockheed Electra’s, which PSA operated.
The major carriers that had moved from Dallas Love Field to DFW sued to block Southwest from using Love Field. While the suit was working its way through the courts, Southwest management decided on the 737-200 model, which proved to be a better choice.
Southwest struggled financially during the early years. Kelleher said they came close to bankruptcy several times. Initially they had four 737-200s; they were having trouble meeting the lease payments. He said he was on the flight line one day and mentioned the issue to a service employee. The employee told Kelleher that they could get by with three airplanes if they turned them around in 10 minutes. Kelleher took the employee’s recommendation and helped make it happen.
Kelleher knew what managers frequently miss. Some of the best ideas come from line employees that know more about the coal face operation than management.
Southwest had the Wright Amendment protecting it within the state of Texas. It’s great when you can grease the skids with a local politician. The Wright Amendment in effect gave Southwest a monopoly of flights within Texas that it later used to subsidize money losing flights outside Texas to grow. This was the main reason Southwest was against the Texas Triangle High Speed Rail proposal made decades ago. It was a direct threat to Southwest air routes in Texas which were a major and legally protected money maker for the airline.
Jet fuel is 6 bucks a gallon for jet fuel. Untaxed diesel runs 3 a gallon. A pair of P42s combined burn 360 gallons in notch 8. 5300 for jet fuel compared to just over a grand is a huge price in operating costs. The costs of operating a Gulfstream jet are in the 10k an hour range according to everything I’ve read. A 737 is between 50 to 70k including crew cost.
While I’ve never run a business I personally helped saved 3 smaller trucking companies by helping them get a grip on their costs over the years in the last decade. It’s something I do for those that need the freaking help. My mom always said I could fix any budget or financial mess just by looking at it.
Airlines do not pay 6 bucks for fuel. Because they buy in bulk they pay about half that. Jun 14, 2024 — The average aircraft fuel price per gallon was $2.88.
A number of years ao, SWA estimated that they could get one more leg per day per plane if passengers didn’t have large carry-ons. That’s probably why SWA had the two free checked bags for so long. My recollection of PSA is that they were really quick at getting the bags out of the holds and into the customers hands.
Kelleher and Chester Nimitz had similar management styles.
A 737 has 2 JT_8D engines. In cruise each engine burns about 3000 #s per hour for a total of 6000 #s.peer hour. 300 gallons of jet fuel is about 2000 #s so in cruise it is burning 900 gallons in cruise. Takeoffs to cruise is about 20 - 30 minutes using almost double the 3000# so another 6000#s
IMO the LD trains would have a much better return of revenue VS cost if/
There were a lot more sleepers on the trains. With room charges of only half of what they are now a sleeper can have a positive return with about 8 - 10 roomettes occupied. Will not even add in the bedrooms which would be all gravy.
Allocated charges should be eliminated or at least drastically reduced 75%. With fewer reservation costs and longer passages for each rider allocated costs are ridiculous. Let us look at Auto Train which is close to break even having to to carry full allocated costs. Long trip lengths of Auto Train show that importance. As well meal costs are a cut above regular flex meals.
You are correct, they do regular commodity hedging on fuel as I believe most Class I railroads do as well. Additionally, while we are on the topic, there are at least two tiers of electrical power rates (probably more). One commerical and One residential. Commercial rates are lower. HOA I am in pays 7 cents a Kilowatt hour, I cannot get anything that cheap residential. Business actually have easier go at credit than consumers do as well. I could not land a $500k loan as a consumer but they were showered on me as a business owner.
A 737 hasn’t been built with JT8Ds since the early 80s. Doubt there are any left is the US. Since then CFM56s were used until the Max entered service late 2010s which uses CFM Leaps. Each generation of engine improved fuel economy about 20%.
Specific fuel consumption .80 vs .55 in cruise. Takeoff is even greater diff but most fuel usage is in cruise.
Agree, Amtrak management does not seem to care about LD train cost management and I feel that is one of the reasons the financial performance is so poor. Not sure what their issue is because money lost is money lost. I would think they would make every effort to conserve money spent on LD trains while preserving the same service level. That relatively simple task seems to escape Amtrak management in a lot of cases.
In regards to #1, that would require more sleepers which they don’t have. OK well at least better manage the inventory they currently run instead of running sleeper compartments empty. Been on sold out trains with empty sleeping car compartments overnight. Onboard crew is not really spending much time upselling vacancies possibly because of lack of bedding or they do not want to be bothered by it.
In regards to #2, I don’t know how they blew the Auto-Train model. That used to be fairly consitently profitable. Now i hear it is very rare to turn a profit. Additionally, I would think as a near profitable train that route would get special attention for amenities or new equipment but…not so much.
Fuel is just one of a transportation company’s expenses. To understand the total burden and, therefore, what the company needs to recover, it is important to look at total costs and expenses.
For FY24, salaries, wages and benefits accounted for 68.4% of Amtrak’s operating expenses and 77.4% of operating revenues. Fuel and power accounted for 7.8% of operating expenses.
Comparatively, for Southwest Airlines the percentages were 45.1% and 44.5%. Fuel was 21.4% of operating expenses. For UP they were 33.7% and 20.2%. Fuel was 17% of operating expenses.
To fully understand the cost structure of an entity, one needs access to the cost accounting methodologies used by each company. To determine the efficiency of one mode vs another, an analyst need to use a common metric, i.e. salaries, wages and benefits per seat mile, same for ton miles, etc.
What stands out is the heavy burden salaries, wages, and benefits are carried by Amtrak. And the long-distance trains are a major contributor to it. As long as Amtrak is saddled with the long-distance trains, the probability that it will ever cover its operating expenses is slim.
In FY24 the Auto Train had an operating profit of $6.6 million. In FY23 it was $15.6 million. In FY22 it turned in an operating profit of $22 million; in FY21 it was $2.3 million, but in FY20 it had an operating loss of $22.7 million. The FY20 results were impacted by COVID-19.
Whether the Auto Trains makes a profit after fully allocated costs is unknown. Amtrak does not make this information available to the public. As noted in a previous post, Amtrak provides some light as to how expenses are allocated to its trains. The information can be found in the White Paper, *How Do Long Distance Trains Perform Financially?.
Amtrak buys forward fuel agreements to manage a portion of its fuel cost exposure. As per the FY24 Annual Report, which was audited by EY, it does not enter into fuel purchase agreements for trading or speculative purposes and does not designate these agreements as hedging instruments.
In FY24 Amtrak had an unrealized loss of $100,000 on its prepaid fuel agreements; in FY23 it had a realized gain of $2 million. As of the end of FY24 Amtrak had prepaid fuel agreements of $6 million for delivery in FY25.
In 2024 Southwest Airlines had a net lost of $86 million on its fuel hedges, down from $250 million in 2023. If I remember correctly, management has decided fuel hedges have not been productive, and they plan to discontinue their fuel hedging program after 2027.
UP’s 2024 Annual Report makes no mention of fuel forwards or futures. Apparently it levies a fuel surcharge if fuel costs rise above a certain amount.
Given the greater needs for crews ín LD trains with sleepers, it would be great to see LD ratios broken down with and without sleepers, but I suppose that would require an audit.
Increasing sleeper services would seem to increase the losses.
Back when Amtrak did the monthly report, the Palmetto was always top LD train. The day trains almost always beat the overnight trains. Other sucess factor was being an NEC extension…
