Airline Showdown at the CA Corral

yeogeo

Member
Aug 20, 2002
21
0
http://www.nytimes.com/2002/10/10/business/10AIR.html
New York Times 10/10/2002
Airline Showdown at the California Corral
By EDWARD WONG
After warily circling each other, Jetblue and Southwest Airlines are finally stepping into the ring, the veteran prizefighter vs. his eager protégé.
Hip JetBlue, just two and a half years old, is starting service today on two new routes from the sleepy airport in Long Beach, Calif., that will compete just about head-on with Southwest, the inspiration for JetBlue and an entire generation of low-cost carriers.
In flying those routes — five daily flights to Las Vegas and one to Salt Lake City — JetBlue is ramping up its challenge in a California market that Southwest has grown to dominate in the last two decades.
The carriers say that their low fares draw new customers to air travel, and so one''s gain may not be the other''s loss. Moreover, because Southwest flies not out of Long Beach, but out of the four other airports in the Los Angeles area, JetBlue represents a distinct choice for fliers.
Still, if the face-off turns into a battle above this land of strip malls and stucco houses for the same pool of passengers, experts say, it poses sharp risks for both Southwest and JetBlue, which have emerged during the industry''s steep downturn as the country''s two most profitable airlines.
JetBlue, they say, faces the greater danger of a knockout — like Shuttle by United and others that have taken on Southwest in California — because it does not have a large enough national operation to cover the losses from a vicious fare war in the West.
If JetBlue has any sense, they''ll try to avoid Southwest on many of their flights, said Robert Lamb, a professor of management at the Stern School of Business at New York University who has studied the business strategies of airlines.
At some point, it''s a losing battle to compete on price against a discounter, he said. When you look at Kmart or Wal-Mart or any discounter, where they don''t compete, their prices are invariably 5 to 10 percent higher. Where they compete, their prices are identical and have almost no profit margin.
Southwest, though, could end up ceding not just some of its precious West Coast revenue to JetBlue, but some of its image as the trendy alternative airline to fly.
I think in this particular arena, there is a positive `new kid on the block'' effect that JetBlue will enjoy some advantage from, said John A. Quelch, a professor of marketing at Harvard Business School who sits on the board of EasyJet, a British clone of Southwest.
The potentially bruising West Coast rivalry started when JetBlue, based in Kew Gardens, Queens, began flying nine daily flights from Long Beach to Oakland on Sept. 6. It is counting on its fleet of new Airbus A320''s with their leather seats and live satellite television to offer a distinct alternative to Southwest''s aging, utilitarian Boeing 737''s and no-frills service.
As the two airlines continue to expand, it is inevitable that they begin to compete, experts say, because both need to aim at population-dense areas to support their point-to-point style of flying.
The opportunity was too ripe, Alex Wilcox, JetBlue''s director at Long Beach International Airport, said of the move into Southern California. We''re a contrarian airline, and we''re an opportunistic airline.
David Barger, chief operating officer of JetBlue, said the airline''s strategy is to balance out short-haul routes with transcontinental routes. Starting short-hop operations in California seemed natural after the carrier had already established itself on the East Coast, he said.
Till-now-invincible Southwest — which operates from the Los Angeles International, Burbank, Ontario and Orange County airports — refuses to acknowledge that JetBlue poses a potential threat, or that the two carriers might be drawn into a bloody bout.
But its press officers often half-jokingly drop lines like, Don''t even mention that other airline. And in July, when JetBlue announced its plans to offer $19 restricted one-way fares on its Long Beach-Las Vegas route, $29 on Long Beach-Oakland and $49 on Long Beach-Salt Lake City, Southwest immediately matched those prices at its own Southern California airports and cut fares on other California routes.
Last quarter, revenue from Southwest''s California operations accounted for 24 percent of the carrier''s $1.34 billion in total revenue, the most of any region.
We''ve got a very, very strong brand that we''ve built up over the years, said Richard Sweet, senior director of marketing and sales for Southwest. We''ve got tremendous loyalty. We provide frequent service, on-time service. There''s not a lot of need to differentiate our product from JetBlue or anything else.
There is no need, that is, as long as there are enough budget-conscious travelers to support two major low-cost airlines in the state. It is too soon to tell if JetBlue will cannibalize Southwest''s customer base; some industry experts say that Long Beach, a city of about 462,000, might represent a distinct enough market that the two carriers end up serving different customers.
Still, it will be hard for Southwest to ignore JetBlue, which has grown to serve 20 cities since it began operating from 3 cities in February 2000.
JetBlue''s founder and chief executive, David Neeleman, started the airline on the premise of one-upsmanship over Southwest. Why not offer travelers the same low fares, he mused, but throw in amenities like assigned seating? Mr. Neeleman worked for the Dallas-based Southwest for five months after it bought Morris Air, a discount airline he co-founded, in 1993.
He has demonstrated the same acumen for marketing as Herb Kelleher, Southwest''s former chief executive. Few companies during the recent economic gloom have created the kind of word-of-mouth that has pumped up JetBlue''s market valuation to the second highest in the industry — $1.27 billion versus Southwest''s $8.97 billion. Yesterday, shares of JetBlue dropped 16 percent, to $30.15, and Southwest shares dropped 5 percent, to $11.60.
JetBlue''s advertising messages try to be hip and knowing, if occasionally obscure. A billboard at Oakland International Airport proclaims Eight Is Not Enough, a reference to a popular 1970''s television sit-com, in promoting the airline''s nine daily flights between Oakland and Long Beach.
Those flights serve two purposes, Mr. Wilcox said. One, they have allowed JetBlue to quickly use a third of its 27 slots at Long Beach, staving off demands from American Airlines and Alaska Airlines that the city free up the slots. Two, the flights help generate buzz about JetBlue, which hopes that Californians will eventually fly the airline''s more profitable long-haul routes, like Long Beach to John F. Kennedy Airport; a fifth flight is being added to that route today.
You can look at this as marketing for our transcontinental flights, Mr. Wilcox said.
Of course, JetBlue has to weigh the potential benefits of achieving those goals versus the costs of running the flights.
Mr. Wilcox declined to say whether the Long Beach-Oakland flights were profitable yet, but said the company needed to sell about 65 percent of the seats to break even. On a recent Tuesday morning flight to Long Beach, about a quarter of the 162 seats were filled; a return flight during the evening rush was equally sparse.
This was very rapid growth for us, Mr. Wilcox said of the recent expansion in California.
On Monday, JetBlue announced that the percentage of seats filled systemwide last month was 75.8 percent, better than Southwest''s 56.8 percent or the average 67.6 percent for traditional full-service carriers. Over the last year, the airline has more than doubled its capacity, while most of the full-service carriers have cut back.
Before last month, the closest that the two had come to competing on a nonstop route was the Baltimore-Fort Lauderdale, Fla., flight of Southwest and the Dulles International-Fort Lauderdale run of JetBlue. But those two Washington-area airports are too far apart to serve as weather vanes for what might happen in California. On Sept. 15, Southwest started its first transcontinental route — Baltimore-Los Angeles — which could vie with JetBlue''s Dulles-Long Beach run.
Youth has its advantages, at least in the airline industry. JetBlue''s new planes can be flown often and have relatively low maintenance costs. Its employees have not been unionized, a development that would inevitably drive up the cost of labor. One of its biggest challenges will be maintaining a healthy balance sheet as it ages.
In the meantime, Professor Lamb said, it''s going to give Southwest a run for its money because it has a different demographic, it has a different range, and that differentiation is vital to its potential success.
He added that JetBlue could carve out its own niche by working to woo the many business travelers who are disenchanted with the astronomical fares of the full-service carriers but hesitate to dive into the perceived cattle car experience of Southwest.
Eric Henderson, vice president for supplier relations at Rosenbluth International, the country''s third-largest corporate travel management company, said more and more clients ask about JetBlue. But fewer than 10 of Rosenbluth''s 1,500 clients regularly book seats on the airline through corporate accounts, he said.
For now, at least, fliers tend to be more like Sarah Josephson, a 30-year-old film editor from Berkeley, Calif., who often flies JetBlue out of Oakland.
JetBlue is consistently cheap, so that''s the main pull, Ms. Josephson said. Having said that, I find that their service is much better than anyone else''s. It''s clean and it''s very efficient and dependable, as opposed to other airlines where you sometimes don''t know if your luggage is going to come.
Oh, and she does not mind the free bags of blue potato chips, either.
 

HI-LOCK

Member
Aug 30, 2002
61
0
Jet Blue is a young airline with new aircraft.When they hit the 5 year point their operating cost will increase significantly because their aircraft will be due for Heavy C Checks which are not cheap.The new employees will become old employees and expect the company to share the wealth.This will create a big problem for their CEO who I've seen interviewed on Fox News w/Cavuto.He is anti-organized labor and typical management.Just my observation from another airline.
 
OP
Y

yeogeo

Member
Aug 20, 2002
21
0
AOG-N-IT writes:
“Too many airline CEO's have become mooney-eyed over the Initial Purchase Price....but they fail to consider the difference between the vital business dynamic of the ‘Price of Procurement’  Vs. ‘The Price of Ownership’ . â€￾

Interesting...the very same dynamic as jetBlue vs Southwest has just been set up in Europe with EasyJet's & Ryanair's choice of fleets.

http://biz.yahoo.com/rc/021014/airlines_ea...t_airbus_5.html

One analyst suggests a 40%-45% discount on the ac from Airbus. This for short term market share ...will it benefit Airbus in the long term...do they care?

yeo
 

AOG-N-IT

Veteran
Aug 19, 2002
1,132
1
www.usaviation.com
[blockquote]
----------------
On 10/13/2002 8:18:43 AM KCFlyer wrote:


Youth has its advantages, at least in the airline industry. JetBlue's new planes can be flown often [/P]


And an older plane can't? [/P]
----------------
[/blockquote]
Boy are you in for an airline education. Having nightly dealings with both my companies Airbus products and providing assistance to JetBlue as well...I can tell you from a first hand perspective , that they do not age like a Fine Wine. I can also tell you that Airbus support comes with a premium price tag. Too many airline CEO's have become mooney-eyed over the Initial Purchase Price....but they fail to consider the difference between the vital business dynamic of the Price of Procurement Vs. The Price of Ownership . If you think for one moment that your fleets age is going to give you any real tactical advantage over the likes of a company like WN? You are either dreaming ...or halucinating to beat the band. WN has more expieriance ...and a better logics network than you could begin to imagine..or want to admit too. Never for a moment kid yourself , when an all Airbus Fleet is what you are sporting in the US. Logistics and long range ownership issues are going to snap you into reality soon enough. I can tell you without fail....it's an education I could have easily lived without.
 

AOG-N-IT

Veteran
Aug 19, 2002
1,132
1
www.usaviation.com
Yeogeo...Note that I made specific reference to being a US based operator. Aircraft Logistics is my game....and I can tell you that the short sightedness of Airbus not keeping sufficient spare parts in thier Herdon Va. Support Center for the US based carriers is indeed a Bad Bad Thing for us all. Then you take the inflated costs of Airbus prices when C and Q-Checks come due..and then add in all the things that are Europe Only Stock and it's related complexities..Like shipping delays and customs. Then your Initial Purchase bargain starts slipping away quickly. Then you get to deal with thier gimmicks of Non-Procureable items. They have a real nifty trick of selling you things in a bigger context than what your actual need is. Say for example only...That you needed a door hinge? Airbus packages thier product support in a fashion that buying the hinge is out of the question , hince the term Non-Procureable. Thier method is to sell you the entire door as an assembly..and at a grossly inflated price. This is exactly how a good deal on the front end becomes a souring deal on the back end. :((] Do me a favor please!! The next time you feel the need to quote me? Do so in a manner that represents my entire statement. Note that the carriers you sighted as examples are on European Soil. That's along way from the eastern US when it's a dire and immediate need. Think about it!!!
 

KCFlyer

Veteran
Aug 20, 2002
10,833
1,340
www.usaviation.com
AOG-N-IT - what I meant with my older plane comment was this - the article made it appear that a big advantage for Jetblue was that their planes can be flown often because they are new. Yet I see Southwest flying some 20 year old 200's pretty often, so that point seemed to be a bit off base. I don't know about Airbus maintenance (other than what I have read on boards), but I have noticed some Airbus mechanics who were rather critical about them. And yours is not the first post where I have seen price of procurement versus price of ownership comparison. All valid, I might add.
 
The comments about spares is quite real. There's a reason AA keeps its A300 fleet flying east of the Eastern Seaboard.

And no, aircraft don't get better with age, but if you factoring out time for scheduled maintenance (which does increase over time), if you maintain them correctly, there's no reason they shouldn't be able to have the same utilization rate after 15 or 20 years as they do fresh from the factory. NWA's DC9 fleet is a great example of that.
 
OP
Y

yeogeo

Member
Aug 20, 2002
21
0
AOG-N-IT
I see I have committed a gross injustice by misunderstanding you!
Let me clarify...I assumed by “The Price of Ownership, you meant the airframe was inferior, not as you have now made clear, the parts distribution network, their pricing, etc. I apologize for my misunderstanding.

...Yet a quote comes to mind:
“Dear Lord!!!  If you people had any concept about what you are saying?  Airbus is a second rate airframe.  From a technology standpoint they are fine.  From a durability standpoint they are junk!!  USAirways has slipped into a Beancounters Quagmire  The confusion lies within difference between the price of purchase (Initial)...and the cost of ownership (Long-term).  Long-term is exactly why we are taking concessions for the next six years.  We would have been far better off purchasing Boeings.  Ask anybody in maintenance about the Arbi.  They will tell you that this will be a throw away aircraft...not to mention the hellish time we are having obtaining parts in a timely manner.â€Â 

Yes, again I quote from our own AOG-N-IT! (10/8/02-US Airways-â€EADS sees US Airways Emerging as a ‘Strong Buyer’)...It is this “second rate†airframe issue I was attempting (feebly, no doubt) to bring to light by mentioning the two carriers in Europe. Perhaps I have taken you too literally...Have I again misunderstood you?

Here we have two carriers, one has chosen the Boeing and one the Airbus, just as the situation here with WN & B6. I for one find interesting the parallels between these far separated carriers and the long-term consequences now in place.

your student,
yeo
 

Busdrvr

Veteran
Aug 20, 2002
2,217
0
[blockquote]
----------------
On 10/14/2002 11:28:45 PM eolesen wrote:

There are very few 15+ year old Airbus airframes still flying as passenger aircraft. Far fewer 20 year old airframes. I had the statistics a few months back on the old Regionals/Nationals board if you want to look them up...

Now, look at how many 15 and 20 year old Boeings and McDonnell-Douglas airframes are still with their original airlines...

Airbus may build their aircraft more efficiently than Boeing, but it won't last nearly as long.
----------------
[/blockquote]



Not many 20 year old 1995 Fords on the road either. The point? Not many airlines were buying AB 20 years ago. I think a good indicator is that companies that have been flying the A320 for a while (NWA) are still buying new ones. I'd think they would change direction if they proved to be so inefficient economically. Using the A300 as a guide to the long term viability is also silly. AMR and DAL can't get rid of the MD-11 and MD-90s fast enough, yet NWA is still flying the 9's and DAL and AMR are sticking with the -80s.
 
The comments about aging are also quite true, although I didn't pick up on that as the intent. There are very few 15+ year old Airbus airframes still flying as passenger aircraft. Far fewer 20 year old airframes. I had the statistics a few months back on the old Regionals/Nationals board if you want to look them up...

Now, look at how many 15 and 20 year old Boeings and McDonnell-Douglas airframes are still with their original airlines...

Airbus may build their aircraft more efficiently than Boeing, but it won't last nearly as long.
 

AOG-N-IT

Veteran
Aug 19, 2002
1,132
1
www.usaviation.com
[blockquote]
----------------
On 10/14/2002 11:35:06 PM Busdrvr wrote:

[blockquote]

----------------

On 10/14/2002 11:28:45 PM eolesen wrote:


There are very few 15+ year old Airbus airframes still flying as passenger aircraft. Far fewer 20 year old airframes. I had the statistics a few months back on the old Regionals/Nationals board if you want to look them up...


Now, look at how many 15 and 20 year old Boeings and McDonnell-Douglas airframes are still with their original airlines...


Airbus may build their aircraft more efficiently than Boeing, but it won't last nearly as long.

----------------

[/blockquote]




Not many 20 year old 1995 Fords on the road either. The point? Not many airlines were buying AB 20 years ago. I think a good indicator is that companies that have been flying the A320 for a while (NWA) are still buying new ones. I'd think they would change direction if they proved to be so inefficient economically. Using the A300 as a guide to the long term viability is also silly. AMR and DAL can't get rid of the MD-11 and MD-90s fast enough, yet NWA is still flying the 9's and DAL and AMR are sticking with the -80s.


----------------
[/blockquote]
Budrvr....How could a 1995 Ford be 20 years old? ....also I'm a Ford Guy with 1 1988 model Crown Vic (Police Package) with 166k on it....and I will be driving it for the next thousand years..or until someone else destroys it. The Key being , un-limited parts support...and a very very sound design to begin with. I also have a new Ford Crown Victoria that is equally easy to maintain and support. The last of the home fleet is a 1976 mode Ford F-100 Pick-up....it's basic transportation....and never skips a beat. Ease of routine maintenance...sound initial design...and it's entry level price of $3600.00 (new)....have proven to be the best $3600 my father ever spent....now I'm reaping the benefits of his sound and practical investment. Lastly...your bruised ego and grasp for straws tosses out the MD-11 and MD-90 for a weak comparison. The MD-90 is not something I have ever dealt with....so I'll forego comment. However..the MD-11 is a fine aircraft.....and had it not been for MDC's promised performance levels not living up to expectation..it would have done a great deal better. MDC was burned by the Engine Manufacturers not producing a product capable of delivering what the contracts said they would or could....but MDC was the one that took the bite for being the Airframe builder. That's called Integrity MDC made numerous changes regarding wieght..to try to make the airframe absorb the shortcomings of the powerplants....you can only get so light...and retain strength AA and DL would both be rid of passenger carrying MD-11's..had the economy not gone to he11.....and they would be great performers as MD-11F's ...which are very desireable in the aftermarket. Let's see how your Disgust-Bus measures up in the long term? I'll bet they will ened up as Hefty-Bags and beer cans before they see a second lease on life. Look at the head to head comparison of the after-life of the DC-10 Series vs. the after-life useage of any series of L-1011's for a comparison.......That should be a strong indication of what MDC builds.
 

AOG-N-IT

Veteran
Aug 19, 2002
1,132
1
www.usaviation.com
[blockquote]
----------------
On 10/15/2002 1:18:48 AM mga707 wrote:

[blockquote]

----------------

On 10/15/2002 12:01:37 AM AOG-N-IT wrote:


....also I'm a Ford Guy with 1 1988 model Crown Vic (Police Package) with 166k on it....and I will be driving it for the next thousand years..or until someone else destroys it. [/blockquote]


Hopefully without you inside...or you'll be one crispy critter...

What is it about Ford and gas tank explosions? You'd think they'd have learned from the Pinto!


----------------
[/blockquote]
Mega707....The media hype behind the P71 Police Interceptor Crown Victoria is just that!! Media Hype The explosions involved with the 1998-2002 models..have happened in most cases , when the car was parked...and rear-ended at around 70MPH....That's one hell of an impact on anything..or any make or model. The Crown Vic just happens to be the proven choice by percentage for Law Enforcement use. So by mathmatical process..this is how such figures can be grossly manipulated. Much of this could be avoided by where a police officer chooses to pull someone over on the road. After all , you would use caution if you were pulling off the to the side of the road to change a flat tire, Correct? If you will note...The Ford Crown Victoria has a 5-Star Safety Rating...and there is no mention what so ever about the civilian model being un-safe. I can tell you from first hand..and a hands on perspective...the difference between the Police package...and the Civilian LX model is hardly worth noting. Then again, you need to increase your eye for details...My Police package CV is a 1988...it's not even the same body style or powerplant as the 1998-2002's , that are in question. [img src='http://www.usaviation.com/idealbb/images/smilies/9.gif']
 

mga707

Veteran
Aug 19, 2002
1,330
2
[blockquote]
----------------
On 10/15/2002 12:01:37 AM AOG-N-IT wrote:

....also I'm a Ford Guy with 1 1988 model Crown Vic (Police Package) with 166k on it....and I will be driving it for the next thousand years..or until someone else destroys it. [/blockquote]

Hopefully without you inside...or you'll be one crispy critter...
What is it about Ford and gas tank explosions? You'd think they'd have learned from the Pinto!