Please correct me if I made a bad mistake.
Iair's cost per ASM is about 15 cents per ASM including all costs. Assuming a 50 passenger RJ with an average 300 mile trip, this would be about $2250 cost per trip. With a 60% load factor, Iair would break even with a $70 fare.
I am convinced Iair will do well for the following reasons:
Seven of the cities have no LCC service at all. Can you imagine LUV or Airtran introducing low-cost service to seven cities in one year. Remember when LUV introduces a new cities there are usually 6-8 flights to BWI, maybe 2 to MDW and/or Florida and not much else.
USAirways and Delta, albeit serving Reagan, have very high fares to nearly all the cities Iair is serving. PIT to DCA is $300 on average for U (3rq 2003); I haven't looked up the other U fares to DCA but I know they average two or three times the break-even Iair fare.
Iair has started low fare service at several airports which, I am convinced, have lots of pent-up demand. HPN, perhaps the highest air fare airport in the US, serves a market area of over 1.5 million but because of restrictions has a limited number of flights. I am sure Lansing service will tap into the market of air travelers with no low-fare options. For example, LUV does not fly DTW to BWI.
If one, in addition to flights to the DC area, considers a connecting flight from a city north of the Mason-Dixon to the south, Iair will serve (approx.) 225 city pairs. The overwhelming majority have neither non-stop service nor a reasonable low-fare routing. For most city pairs the option is an expensive fare, a connection in PIT, PHL, CVG (the latter two in most cases less direct than through IAD). In many cases the connection is between 2 commuter affiliate flights (no better than what is offered by Iair). Unlike Iair, U or Delta offers a choice of only 3 connections daily - Iair provides a connecting flight nearly every two hours. The high frequency more than makes up for a one-hour leg on a larger aircraft.
Although these are now thin markets, based on experience of LUV and Airtran, the average size of each market could easily grow from say 6000 per year to 15,000. (Check the current average fares from cities such as Syracuse, Portland, White Plains to the smaller cities in the south.) Or a total from 1.4 million to over 3 million.
In the long-term, when flights begin from IAD to the west, it will be in a position to offer low fares from a vast array of cities without low-fare competion.
