Thoughts to ponder by former Southwest CEO Howard Putnam:

According to the WSJ on May 28th Southwest already has 15% of their
fuel hedged in 2012 at about $63- a barrel and they did that a year
ago.  Their current portfolio of hedges is $2.8 billion.  Amazing.  Gary
Kelly, the CEO, started this program several years ago when he was CFO.
Herb Kelleher said recently the fuel hedges have saved Southwest 2
billion in 4 years.  They still have the simplicity of one kind of
aircraft, high productivity of their people and airplanes and a great
culture of management that "cares about their people"  who in turn care
about you and me.   Southwest has  to continue to reinvent itself as
well to survive for the long term.. 
 
We are fortunate that they are the largest carrier in Reno.  Southwest
will be able to capitalize on other carriers weaknesses and cutbacks.
 
2.  The legacy carriers have bureaucracies that far exceed their
realistic market size.  They need to downsize now in the "executive
offices", not where the customers are on the front line.  They will do
too little and too late is my prediction. They will make some small
people cuts, but functions remain.  We learned taking Braniff thru
chapter 11 in the 80's that you downsize bigtime now, not later.  You
take out complete layers of management, including VP's and staff.  You
eliminate functions. You don't skinny them down......They are still
there and grow again like a cancer.  Eliminate functions.  You will find
out quickly if you needed them or not.
 
3.  Don't nickel and dime your customers with $15- a bag charges and
now a $100- charge for big items which I had not heard about until Tom's
email.   Their check in lines will be longer at the ticket
counter......Animosity will be at an all time high.........more
passengers will try to carry luggage on......TSA lines will
be longer........and there is no carry on room on the
airplane........DUH.......now we check bags at the jetway.........Charge
for that?
 
4.  If I were a CEO of a legacy airline, I would plan for $200- a
barrel crude oil right now.....Go for the worst case and resize today.
Don't make these irritating little price increases.....figure out what
it really takes to be profitable. Then do it......one time........Sock
it to me.  Let me decide.

5.  If it means raising the fares by $150- $200 roundtrip....do it one
time. They have to be profitable to survive and pay their landing fees
and rental fees, etc.    Give the business traveler and the pleasure
traveler a choice.......Do I fly or not fly? &n bsp; Put some food back in
coach.  Treat us as customers again.  Give their employees something to
hope for and be positive about.  Customer service starts with the board
and CEO.......Don't blame the front line employees.

6.  Yes, the travel market size will shrink with these  suggested "big"
price increases.. For example...... with the fare increase I just
outlined in # 5........use your research to determine, will business
travel shrink by 20% and pleasure travel by * *30%?.........then resize
your airline to fit that market.  It will come back as oil prices
flatten out.......and they will....
 
Gasoline demand is down 1% in USA in 2008......That statistic yesterday
per an oil refiner in Texas that was interviewed on KRLD Dallas, by
David Johnson.  That is a small number but an important trend.  WE will
figure out how to develop electric cars, etc.....  But in the short term
for the airlines there is no substitute for Jet fuel.........Bio fuel
maybe in 3-5 years.  That is it.  AAL has a specific problem with 300
MD-80's in their fleet , that are inefficient fuel guzzlers....... To
avoid bankruptcy in the next 2 years......they have some big decisions
to make.  I don't think their announcement of a 12% cut in schedules
this fall is close to being enough.  Mr. Arpey and his team have been
honorable in trying to avoid chapter 11 for several years.  I commend
them.  But the competition has almost all been "clensed" with major
costs......It is an uphill battle for them.
 
7. Legacy airlines... Put airplanes on the ground now. Maybe up to 25%
of your fleet.  If you have marginal cities, don't cut a flight here and
there,  and still have the overhead at a city........ terminate
service...  I don't see that affecting RNO.  Some very small cities that
only have 50 passsenger regional jets are going to lose service
completely.  That will start a cry for "reregulation."  I would oppose
that.  Why did we deregulate in 1979?  Regulation was not working. 
Create another bureaucracy?  We have enough of those in government now,
including the TSA.  What are they going to legislate and regulate? Where
they fly?  Price? Customer service?
 
8.  Mergers:  Show me an airline merger that has really cuts costs,
improved customer service, reduced fares........."improved employee
morale and culture"..  They all start as financial tranactions and all
the great revenue synergies and cost reductions........Delta has said
the merger  integration cost with Northwest will be a billion.......for
starters.  Then between them (by my count)  they will have at the
beginning 14 different aircraft fleet types for pilots and
maintenance.....compared to one at Southwest.  Where is the saving?  And
has anyone considered culture and customer "satisfaction?"  

9.  Investment:  Who would in their right mind invest in this industry
in USA today?  Only one group I can think of, the successful and
profitable international carriers like British Airways or Lufthansa who
already owns 19% of JetBlu.  I think the investment rules will change
and in 3-4 years you could have very few USA airlines, other than
Southwest, that has majority US ownership.  The weak dollar is working
to their advantage abroad.  With the stock market where it is on airline
stocks, a legacy airline could be bought for under 2 billion.... Petty
cash to some of the international carriers who have hoards of
cash........and they acquire a USA nationwide network.

Folks.......This is a most serious time. If you thought Indian gaming
was a threat, this is more severe.   I know you are all thinking about
how you adjust your own business, resort, hotel , etc.  to this change. 
"The rules of engagement" have changed once again ....
If you have creative thoughts, you all ought to be sharing them with
each other.

Regards,
Howard Putnam
Author, "The Winds of Turbulence"