$158 R/t Transcons Or 5.92 Vs 10.31 Casm

Airlines9

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Apr 22, 2003
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Some felt that the pull out of JBLU out of the "big" LAS-LGB(LAX) market was another retreat by JBLU. The fact, as said, is JBLU was just flying this market to keep slots. Just like the LGB-OAK flights. The really big markets are the transcons.

The pull out from ATL was smart. The damage was done. The walk up fare from ATL-LAX was over $2000, one way, for coach before JBLU. Now that DAL double their flights & Airtran took over the fare is is $399. Another DAL bread & butter route taken away. Same thing is happening to AMR too.

How can AMR compete with JBLU when their costs are 10.31 vs 5.92. While costs at AA are going down so are the costs at JBLU. Is AA going to match JBLU fares, $158 r/t, on the BOS & JFK transcons and still give away a free R/T to Japan?

Its is known that JBLU has a far superior coach product than AA. A 34" leather seat pitch, with free 24 channels of live Direct TV. Soon to be bumped up to 36 channels of free TV, 100 channels of XM radio & movies! With more to come.

Some say that the FF program at AA is the draw. I see a lot of AA & UAL top tier FF members on JBLU. They all say the same thing. They are tired of being treated badly by AA & UAL. They know of the rows with 36" pitch. They like that they can get a great fare on short notice without any restictions. That if they change their mind they are only charge $25 vs $100 to change and even this fee is waived a lot. A few are buying a whole row for the price of one seat on AA. Many couples by 3 seats for the space.

The question is how can AA really compete ? What do they offer the average traveler that they would pay more on AA than JBLU. AA has to charge more because their costs are a lot higher. What is the draw?

JBLU has 53 planes now it will have 300 by 2011. Are AA employees going to give more concessions? There is no way that AA could ever get their cost close to JBLU. What will AMR do?

Airlines9
 
Airlines9 said:
Some felt that the pull out of JBLU out of the "big" LAS-LGB(LAX) market was another retreat by JBLU. The fact, as said, is JBLU was just flying this market to keep slots. Just like the LGB-OAK flights. The really big markets are the transcons.

The pull out from ATL was smart. The damage was done. The walk up fare from ATL-LAX was over $2000, one way, for coach before JBLU. Now that DAL double their flights & Airtran took over the fare is is $399. Another DAL bread & butter route taken away. Same thing is happening to AMR too.

How can AMR compete with JBLU when their costs are 10.31 vs 5.92. While costs at AA are going down so are the costs at JBLU. Is AA going to match JBLU fares, $158 r/t, on the BOS & JFK transcons and still give away a free R/T to Japan?

Its is known that JBLU has a far superior coach product than AA. A 34" leather seat pitch, with free 24 channels of live Direct TV. Soon to be bumped up to 36 channels of free TV, 100 channels of XM radio & movies! With more to come.

Some say that the FF program at AA is the draw. I see a lot of AA & UAL top tier FF members on JBLU. They all say the same thing. They are tired of being treated badly by AA & UAL. They know of the rows with 36" pitch. They like that they can get a great fare on short notice without any restictions. That if they change their mind they are only charge $25 vs $100 to change and even this fee is waived a lot. A few are buying a whole row for the price of one seat on AA. Many couples by 3 seats for the space.

The question is how can AA really compete ? What do they offer the average traveler that they would pay more on AA than JBLU. AA has to charge more because their costs are a lot higher. What is the draw?

JBLU has 53 planes now it will have 300 by 2011. Are AA employees going to give more concessions? There is no way that AA could ever get their cost close to JBLU. What will AMR do?

Airlines9
Just close up and lay the employees off, or sell themselves to the almighty JB. B)
 
That 10.31 casm is the AVERAGE acoss the fleet. It includes 777's flying to Japan and Heathrow. The casm of a 757 flying BOS-LGB is going to be WAY under that!
 
AAmech said:
That 10.31 casm is the AVERAGE acoss the fleet. It includes 777's flying to Japan and Heathrow. The casm of a 757 flying BOS-LGB is going to be WAY under that!
Shouldn't AA's CASM be lower, then? If that is the average across networks and AA's figure includes those extremely lengthy stage lengths, the CASM at AA should be lower.

Granted, the figure does seem a little high to me.
 
AA doesn't make money of off $158 RT fares obviously... but they do make money when the people who fly on those $158 RT fares buy business class fares to NRT or LHR or Europe or South America. Keeping the loyalty of high revenue passengers and keeping the loyalty of corporate customers is whats important. You don't want them buying B6 tickets.

The fact is that AA doesn't offer anything more that would entice a traveller to buy a ticket on them vs. B6, except for the possibility of F upgrades and AA miles which can be used for award travel all over the globe. Thats it. But you don't want your corporate customers booking away because your fares aren't competitive.
 
I doubt that AA is willing to sell out the entire plane at $158. Usually people complain because the sale fares run out much too quickly. That means that the rest of the seats will be sold for higher fares. And as others have said, one cannot take AA's average CASM and assume it is the same on every route.

Besides, with $3 billion cash in the bank, AA can afford to compete with B6 instead of running and cowering every time B6 lowers fares.
 
Ch. 12 said:
Shouldn't AA's CASM be lower, then? If that is the average across networks and AA's figure includes those extremely lengthy stage lengths, the CASM at AA should be lower.

Granted, the figure does seem a little high to me.
Those very long routes require extra pilots and those pilots fly at 777 rates not narrowbody rates. Also the added expenses of mantaining far flung outposts and dealing with other countries arcane laws and regulations figure into the equation.
 
Airlines9 said:
There is no way that AA could ever get their cost close to JBLU. What will AMR do?
Costs are just one side of the equation. Look at the figures for Revenue per Passenger Mile and you'll see AA's is considerably higher.

MK
 
kirkpatrick said:
Airlines9 said:
There is no way that AA could ever get their cost close to JBLU. What will AMR do?
Costs are just one side of the equation. Look at the figures for Revenue per Passenger Mile and you'll see AA's is considerably higher.

MK
And RASM is only one piece. Look at the proportion. If AA's RASM is only somewhat higher than JB's and their CASM is double JB's, they are losing.
 
Those JetBlue leather seats and superior coach product can't get people to South America, Europe, Asia. People will take advantage of this offer.

Keep in mind American can afford these fare wars because they have the TWU to help subsidize them.
 
AAmech said:
Ch. 12 said:
Shouldn't AA's CASM be lower, then? If that is the average across networks and AA's figure includes those extremely lengthy stage lengths, the CASM at AA should be lower.

Granted, the figure does seem a little high to me.
Those very long routes require extra pilots and those pilots fly at 777 rates not narrowbody rates. Also the added expenses of mantaining far flung outposts and dealing with other countries arcane laws and regulations figure into the equation.
The whole point of CASM is to incorporate seats and miles to break out the costs on more of an even keel. What you are referring to means that the costs will be significantly higher on an AA 777 fling JFK-NRT than they would be for a JB A320 flying LGB-JFK. Yes, that is true, but the CASM should be lower on the NRT route simply because there are almost 100 more seats and 8,280 more miles. The costs to NRT would have to be over 10x that of the transcon. I don't see it.

The longer the stage lengths (especially when it is significant), the lower the CASM. That is true even with the extra crew and int'l requirements.

So what your logic tells me is that AA's costs are still WAY out of control if you can justify their CASM being double JB's and their stage lengths also being much longer.
 
AA can compete because AA's customers still pay more than 12 cents per pax mile while B6 can only get just over 8 cents. And yield has been falling at B6 faster than at AA in 2002 and 2003. AA has a fighting chance.
 
kirkpatrick said:
Airlines9 said:
There is no way that AA could ever get their cost close to JBLU. What will AMR do?
Costs are just one side of the equation. Look at the figures for Revenue per Passenger Mile and you'll see AA's is considerably higher.

MK

Not really. I don’t think a little over a penny is, "considerably higher." There lies the rub. Looking at the 1st 9 months numbers you have: CASM/RASM, JBLU 6.07/7.43 vs AMR 10.12/8.67. With all those international routes with 1st & business class seats you would think that AA RASM would be more than 1.24 higher than JBLU. If you consider that the average fare on JBLU is a little over $100 ea way it’s amazing that the yields are so close.

The real bottom line, and Im a bottom feeder, is that AMR is losing -1.45/ASM and JBLU is making +1.36. Thats the real difference. One airline is profitable and one isn’t. Wages is one of the highest costs. AMR is going to have to reduce costs a lot further than they have if they want to profitable. There is no way that AA can raise fares. There is a tremendous downward pressure on fares with the LCCs gaining market share. That share is fast approaching 50% domestically.

A $3 Bil cash reserve is not very much for an operation as large as AMR. You have to remember long term debt, pay outs and dont forget pension funding. Everything that AMR owns is now hocked. Not much left to cover the negative cash flow. So the question is, again, how is AMR going to compete? Its a serious question. You can only give away so many free international flights for a couple of trips to FL for $150 r/t.

Airlines9
 
"There is no way that AA can raise fares."

Maybe I was wrong.

Reuters
UPDATE - American Air increasing fuel surcharge
Thursday January 15, 6:40 pm ET


(Adds plans of other carriers, details)
DALLAS, Jan 15 (Reuters) - American Airlines said on Thursday it will increase its fuel surcharge by $3 for one-way travel within North America, even though the world's largest airline dropped a similar fuel increase a few weeks ago.

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The fuel surcharge is effective immediately, the AMR Corp. (NYSE:AMR - News) division said. With the increase, the fuel surcharge totals $13 for one-way travel in the United States and Canada and $26 for round trips, it said.

In December, American tried to implement an increase on the fuel surcharge but abandoned the plan when other carriers did not follow suit by raising their fuel surcharges.

"Since that time, however, fuel prices have continued to escalate, leading to American's decision to reimpose this modest increase in its fuel surcharge," American said in a statement.

American said the average spot price for a gallon of jet fuel has increased by 16 cents over the past two months and each 1 cent increase in the jet-fuel price translates into an additional $30 million in costs per year for the airline.

Among the major airlines available for comment, US Airways Group (NasdaqNM:UAIR - News) said the carrier does not plan to increase ticket prices.

Northwest Airlines (NasdaqNM:NWAC - News) said the carrier has not matched the increase. Continental Airlines (NYSE:CAL - News) said they have not matched the increase but are studying the situation.

United Airlines (OTC BB:UALAQ.OB - News), America West (NYSE:AWA - News) said they were studying the situation. JetBlue Airways Corp. (NasdaqNM:JBLU - News) and Southwest Airlines (NYSE:LUV - News) do not have a fuel surcharge.


How can JBLU & SWA not charge a fuel surcharge and still make money? $158 r/t Transcon without a fuel surcharge and still profitable. How does JBLU do it?

Airlines9