American's Latest Promotion

[iflyjetz]

I agree that SWA will be around for a while. They serve secondary markets and built their route structure that way. AA would probably go broke if they tried to take on SWA.

However Jet Blue went head to head from the get go. Sure they may have low costs, but how long will that last? They are already deviating from their one fleet business plan. Sooner or later their airplanes will need maintenance. AMR could afford to lose money on every flight they run against Jet Blue and make it up on other routes. If AA, Delta, UAL and USAIR all get in on the act JET Blue will be history. The "fare war" would be of limited scope, low fares wherever Jet Blue flies. Everywhere else, normal fares. So while Jet Blue would face a fare war on every route, the other carriers would only face it on a few routes.

PMFJI (I'm a furloughed UAL employee), but I think that Bob is spot on. Bob, sounds like you've been around this business for a looong time.
It seems like LCCs do well during recessionary times, only to get stomped out by the majors during periods of economic growth. IMHO, this is due to the free cash flow that the majors can generate on the bulk of their routes, offsetting losses on routes that mirror the 'target' LCC.
There will, of course, be questions of predatory pricing. But it looks like the majors will attempt to skirt those arguments by creating alter ego airlines (Song, Ted) or offering 'free' tickets, which they can then claim to be excess inventory and that those seats would go empty if not given away.
As for JetBlue, I think that they'll go the way of Legacy and Vanguard much faster than many expect. They have some huge infrastructure expenses coming up at JFK (new hangar, terminal renovations) that will drag down their bottom line. The terminal renovations alone are several hundred million dollars (I don't know JetBlue's portion of the bill). JetBlue already has Delta's Song gunning for them along with AMR starting to aggressively try to skim off a few percentage points of load factor. If Northwest hops in the fray, things will get bloody indeed. I don't expect UAL to join in immediately; they are busy with Frontier and will be busy with the new Independence Air.
If the majors are able to depress yields on JetBlue's routes and grab a few percentage points of load factor from them, JetBlue will be in serious trouble.

 

[orwell]

It seems like LCCs do well during recessionary times, only to get stomped out by the majors during periods of economic growth. IMHO, this is due to the free cash flow that the majors can generate on the bulk of their routes, offsetting losses on routes that mirror the 'target' LCC.
There will, of course, be questions of predatory pricing. But it looks like the majors will attempt to skirt those arguments by creating alter ego airlines (Song, Ted) or offering 'free' tickets, which they can then claim to be excess inventory and that those seats would go empty if not given away.
As for JetBlue, I think that they'll go the way of Legacy and Vanguard much faster than many expect. They have some huge infrastructure expenses coming up at JFK (new hangar, terminal renovations) that will drag down their bottom line. The terminal renovations alone are several hundred million dollars (I don't know JetBlue's portion of the bill). JetBlue already has Delta's Song gunning for them along with AMR starting to aggressively try to skim off a few percentage points of load factor. If Northwest hops in the fray, things will get bloody indeed. I don't expect UAL to join in immediately; they are busy with Frontier and will be busy with the new Independence Air.
If the majors are able to depress yields on JetBlue's routes and grab a few percentage points of load factor from them, JetBlue will be in serious trouble.

I hope you're right, but think you're hopelessly wrong. B6 and the other darlings get free publicity every single day - just pick up a paper. They are the "low fare carriers." That title alone is outrageously biased. The majors all offer low fares - they may be more restrictive than the commodity carriers, but they do exist. But the typical moronic consumer gets the low fare moniker driven in their head every day and won't think of the majors when booking their trip. And, as you must know, the business traveller is no longer there to support the fare structure that provided sustenance to this pricing model for the last few decades.

Thanks to this free advertising, the consumer takes for granted all aspects of air travel. They're not interested in the complexities involved in getting tons of material off the ground and safely across a continent or an ocean - they view it as an entitlement and simply another arm of mass transit. The commodity carriers pander to this sense of entitlement, and the media love it and sing its praises every day. The consumer is literally rooting against the legacy carriers - they all look forward to day when their will be blue 'tater chips and television on all flights, everywhere - all for a price lower than their IQ.

Of course, the one silver lining in this is that if all the majors go down the tube, the commodity carriers will be forced to face real competition for the first time ever - other commodity carriers. That will cause some of them to go under. But in the end, the surviving commodity carriers (let's say WN and B6) will have a huge monopoly, just as egregious as the one that existed before deregulation. They will no longer have an incentive to offer low fares, because there will be nothing left to compete against. At that point, the darlings of dregulation will turn into demons and everyone will wonder why, to get from LAW to LGW they have to drive to whatever the nearest "point-to-point" airport favored by Southwest is, have some peanuts en route to ISP, take a cab and haul their luggage to JFK to board an international flag carrier. "You get what you pay for."

 

[Daedalus]

Well, where does one begin with this?

First off, flyjetz you are dreaming standing up if you think this half-baked idea by AA is going to put jetBlue out of business. Do yourself a favor and stick with flying airplanes and less time being a wannbe CEO. It is apparent you only have a rudimentary understanding of jetBlue's balance sheet and statement of cash flows, and even that is overly exaggerating your level of understanding about this airline.

Next, has anyone ever wondered why something like this has never been done before? Come on Mr. Owen you're suppoesedly an old-timer in this business, when was the last time AA or anybody else tried something like this before? The reason is pretty simple in that it will basically sacrifice AA most profitable routes (read: highest yielding) in exchange for generating quick cash flow on it's poorest performing routes. While it will produce front-end benefits of improved cash flow and higher LFs, it will not produced the desired results in squashing jetBlue's RASM below its BE costs on competing routes.

The unintended effect from this zany promotion will be to seriously inflate demand in those local markets where the promotion will be in play. Why, because a large number of existing AA customers and other savy travelers will jump on what will be essentially free flights to FL, CA, NYC, and Boston in order to get 50% off discounts for travel to Europe, the Carribean, and SA. I bet there will be enough of a jump in demand that it will actually create spillage back to jetBlue and other carriers who will find no available seats on AA flights. The result will be that jetBlue, the lowest cost airline in the business, will be able to stand up to the competitive assault by AA, and continue to generate profitable loads.

Meanwhile, AA will be increasingly burdened under the growing weight of this liberal promotion until it reaches a point where it throws in the towel and finally realizes the idiocy of its move. The reward for its efforts will be increased debt, and an invigorated competitor who will still be standing in the ring.

It appears the Arpey has more arrogance than brains for signing off on this ill-fated strategy.

 

[orwell]

...it will basically sacrifice AA most profitable routes (read: highest yielding) in exchange for generating quick cash flow on it's poorest performing routes. While it will produce front-end benefits of improved cash flow and higher LFs, it will not produced the desired results in squashing jetBlue's RASM below its BE costs on competing routes.

The unintended effect from this zany promotion will be to seriously inflate demand in those local markets where the promotion will be in play. Why, because a large number of existing AA customers and other savy travelers will jump on what will be essentially free flights to FL, CA, NYC, and Boston in order to get 50% off discounts for travel to Europe, the Carribean, and SA. I bet there will be enough of a jump in demand that it will actually create spillage back to jetBlue and other carriers who will find no available seats on AA flights. The result will be that jetBlue, the lowest cost airline in the business, will be able to stand up to the competitive assault by AA, and continue to generate profitable loads.

Meanwhile, AA will be increasingly burdened under the growing weight of this liberal promotion until it reaches a point where it throws in the towel and finally realizes the idiocy of its move. The reward for its efforts will be increased debt, and an invigorated competitor who will still be standing in the ring.

It appears the Arpey has more arrogance than brains for signing off on this ill-fated strategy.

Ah, yet another post in which the author's unbridled hope that this effort will fail literally drips from the screen.

To put it quite simply, there need be no sacrifice of "AA's most profitable routes;" at least no more than occurs with the AAdvantage program as it existed prior to this annoucement. The sensible deployment of yield management can allow profitable seats to be sold alongside those earned through this promotion. Does this mean we'll hear the familiar refrain of whiny, pro-consumer media as they loudly bemoan the fact that not 100% of inventory is available under such promotions? Of course it does, but reasonable people understand this is still a good deal.

And here's a wee little tip for you: seriously inflating demand in these local markets is EXACTLY the objective of this "zany" promotion.

Have a safe and pleasant day!

 

[AAmech]

Well, where does one begin with this?

First off, flyjetz you are dreaming standing up if you think this half-baked idea by AA is going to put jetBlue out of business. Do yourself a favor and stick with flying airplanes and less time being a wannbe CEO. It is apparent you only have a rudimentary understanding of jetBlue's balance sheet and statement of cash flows, and even that is overly exaggerating your level of understanding about this airline.

Next, has anyone ever wondered why something like this has never been done before? Come on Mr. Owen you're suppoesedly an old-timer in this business, when was the last time AA or anybody else tried something like this before? The reason is pretty simple in that it will basically sacrifice AA most profitable routes (read: highest yielding) in exchange for generating quick cash flow on it's poorest performing routes. While it will produce front-end benefits of improved cash flow and higher LFs, it will not produced the desired results in squashing jetBlue's RASM below its BE costs on competing routes.

The unintended effect from this zany promotion will be to seriously inflate demand in those local markets where the promotion will be in play. Why, because a large number of existing AA customers and other savy travelers will jump on what will be essentially free flights to FL, CA, NYC, and Boston in order to get 50% off discounts for travel to Europe, the Carribean, and SA. I bet there will be enough of a jump in demand that it will actually create spillage back to jetBlue and other carriers who will find no available seats on AA flights. The result will be that jetBlue, the lowest cost airline in the business, will be able to stand up to the competitive assault by AA, and continue to generate profitable loads.

Meanwhile, AA will be increasingly burdened under the growing weight of this liberal promotion until it reaches a point where it throws in the towel and finally realizes the idiocy of its move. The reward for its efforts will be increased debt, and an invigorated competitor who will still be standing in the ring.

It appears the Arpey has more arrogance than brains for signing off on this ill-fated strategy.

Its just a PROMOTION Quit overanylyzing it. Its a great way to promote AA's product, bring new AAdvantage members in and keep the ones we have. And BTW, If you read the announcement it ends April 15th so I guess thats when AA "throws in the towel".

 

[iflyjetz]

First off, flyjetz you are dreaming standing up if you think this half-baked idea by AA is going to put jetBlue out of business.

You're absolutely right. I know nothing. Er, uh, how much of a haircut did JBLU's stock take yesterday? The last 6 months? I feel the love for JBLU from Wall Street.

As for JBLU's balance sheet, their little ESOP (or whatever they call it over there) where employees buy stock for a discount has a wonderful effect of inflating JBLU's cash position. It's like JBLU is continually doing secondary stock offerings (all the while diluting shareholder value). That ponzi scheme works great when the stock is going up, but how's it going to fare as the walls come tumbling down? I hope that you haven't been holding on to your JBLU stock; you will find out (as so many employees of airlines past have found out) that buying one's airline stock makes for expensive wallpaper.

Here's an article on one of JBLU's new infrastructure costs that will yield no revenue, yet cost the company each and every day (therefore driving up CASM):
http://www.findarticles.com/cf_dls/m0EIN/2...1/article.jhtml
Here's another one:
http://www.jetblue.com/learnmore/pressDeta....asp?newsId=194

And how much will JetBlue be spending on terminal renovation at JFK?

What is JetBlue's current break even load factor? How about after it starts paying for all of those infrastructure improvements? I can almost guarantee you that AMR, DAL, and every other major airline knows what JetBlue's break even load factor is/will be, and they will be gunning to pull off enough of your load factor to put JetBlue in the red. Will you still dump all of your money into JetBlue stock when that happens?

Yep, I'll just go back to flying airplanes; I know nothing about balance sheets, cash flow, infrastructure costs or anything else about running an airline.

 

[FWAAA]

This promotion is nothing more than an "in your face" jab at B6 and the lack of worldwide coverage it offers.

Those who predict doom and gloom flowing from this offer have not the slightest idea of how "free" tickets affect AA's cash flow. The free tickets from this deal book into T, meaning that AA will not be giving away very many peak season trips to LHR. Much more availability will likely be found for IND-PHX this summer than high-revenue destinations.

Read the press release and maybe you'll understand just how little this promotion will harm AA:

Fly Twice From Boston, Then Fly Free*

Fly Twice To California Or Florida From Boston And Then Go Anywhere We Fly, Free*. (And We Do Mean Anywhere.)

Here's an offer you won't find on just any airline. Fly two qualifying round trips on our nonstop service from Boston to either California or Florida between now and April 15, 2004, and we'll give you a free* round-trip ticket to anywhere we fly. That's 250 cities. In 40 countries. On a worldwide airline.

American offers nonstop flights between Boston and the following California and Florida cities:

Los Angeles
San Diego (nonstop flights begin 3/2/04)
San Francisco
San Jose
Fort Lauderdale
Miami
Orlando
West Palm Beach

To participate in this offer, you must register before you travel. Register online at www.aa.com/offers or by calling the AAdvantage Dial-In® system at 1-800-882-8880. Follow the prompts and, when asked, enter promotion code AABOS.

If you're not already an AAdvantage® member, sign up online now. And when you make reservations using our secure and convenient Reservations feature, you'll pay no online fee and earn up to 1,000 AAdvantage bonus miles†.

Terms and Conditions of the Offer: Fly two eligible round trips on nonstop flights marketed and operated by American Airlines between Boston and Florida (Fort Lauderdale, Miami, Orlando or West Palm Beach) or California (Los Angeles, San Diego, San Francisco or San Jose) from 1/7/04 to 4/15/04 and earn a round-trip award ticket valid for travel on American Airlines, American Eagle or AmericanConnection. Passenger may earn a second round-trip award ticket when two additional round trips are flown during this same period. A maximum of two award tickets may be earned by any individual. Travel on flights operated by other airlines such as American marketed codeshare and oneworldâ„¢ flights does not qualify for this offer. Offer is restricted to residents of the U.S., Canada, Puerto Rico and the U.S. Virgin Islands. This promotion may be combined with other offers.

Registration Requirement: You must register for this offer prior to travel. Register online at www.aa.com/offers or by calling our AAdvantage Dial-In® system at 1-800-882-8880. Follow the prompts and, when asked, enter promotion code AABOS. To register, you must be an AAdvantage member. If you're not already an AAdvantage member, you can sign up for a free membership online or when you call to make your reservations.

Qualifying Booking Classes: Offer is valid for travel on any purchased, published fare in First, Business or Economy Class.

Qualifying Round Trips: Round-trip travel is defined as two one-way trips on nonstop flights between the designated cities, booked in a single reservation under one ticket number. To qualify, the round trip must depart from and return to the same city or co-terminal. A maximum of one round trip is permitted per reservation.

Award Ticket Terms & Conditions: Award tickets are valid for round-trip travel systemwide on flights marketed and operated by American Airlines, American Eagle or AmericanConnection. Award certificate will be mailed to the AAdvantage member's address that is on file with AAdvantage marketing programs six to eight weeks after qualifying travel is completed. No stopovers or circle trips allowed. Offer subject to change without notice. Other restrictions may apply.

Advance Booking Requirements: Award travel must be booked at least 14 days prior to departure and must include a Saturday-night stay. Maximum stay is 30 days. Award ticket is valid for travel in Economy Class and will be booked in "T" booking class. Seats are limited and may not be available on all flights or on all days of the week.

Valid Travel Dates: Award ticket valid for travel from April 16, 2004, through April 15, 2005, excluding: 5/28-5/31/04, 7/1-7/6/04, 9/3-9/7/04, 11/19-11/29/04, 12/17/04-1/5/05, 2/17-2/28/05 and 3/18-4/4/05.

Upgradability/Transferability: Award ticket is not upgradable. Award ticket is transferable, but may not be bartered or sold.

Itinerary Changes: Changes to award tickets may be made provided the passenger cancels the reservation prior to originally ticketed departure time, pays $100/145 CAD service fee, and meets the restrictions applicable to the original booking. Tickets must be reissued and travel must be completed by 4/15/05. No changes can be made after ticketed departure date for any portion of the award ticket.

Call AA and try to get T class availability for peak season summer vacation trips. Just try it.

Once again, AA takes on B6 (which AA need not fear - B6 is not preordained to be the ultimate winner) and the doom and gloom crowd prays for its failure and AA's demise. Of course this offer won't kill B6, but even my kids understand why it won't kill AA either.

 

[orwell]

Stop the presses! We can suspend our debate, as the oh-so-sage David Neeleman over at B6 had this to say about the promotion: "It doesn't seem sustainable for long. They're kind of a forgotten entity, so they had to do something flashy. We've got a better product, we've got lower costs, so we're still going to be here."

Now that we know AA is "kind of a forgotten entity," we can go ahead and hang it up - I reckon ole David figures flying to 50 countries (compared to one) is nothing short of forgettable. Certainly not as memorable as the immense genius it must take to found an airline with outrageous amounts of start-up capital and labor costs that would tempt WalMart to make a forray into the industry.

Boston a battleground for rival airlines

 

[biztraveller29]

But the typical moronic consumer gets the low fare moniker driven in their head every day and won't think of the majors when booking their trip. And, as you must know, the business traveller is no longer there to support the fare structure that provided sustenance to this pricing model for the last few decades.

Thanks to this free advertising, the consumer takes for granted all aspects of air travel. They're not interested in the complexities involved in getting tons of material off the ground and safely across a continent or an ocean - they view it as an entitlement and simply another arm of mass transit. The commodity carriers pander to this sense of entitlement, and the media love it and sing its praises every day. The consumer is literally rooting against the legacy carriers - they all look forward to day when their will be blue 'tater chips and television on all flights, everywhere - all for a price lower than their IQ.

Orwell, I truly hope you do not work for AA. You contempt for "consumers" is amazing. We're "morons"? Why? Because we like low fares? Nobody I know feels that flying is an "entitlement". Like ANY market in a capitalist society, people will buy the best product at the best price. Frankly, "legacy" carriers have given little reason to choose their products or services for the prices they are charging.

Do you think people don't shop around for airfares? Do you think people just go to Southwest or JetBlue and don't compare schedules and fares against AA, UA, DL, US, etc..? People are obviously feeling that they are getting value by flying "low-fare" carriers, or else they WOULDN'T BE PURCHASING TICKETS on them.

To call consumers "morons" for getting the best deal for them is downright stupidity in itself.

I am a frequent flyer (Gold) with AA, but I also fly B6, WN, and UA when their schedules (or fares) meet my needs. Am I an "entitled moron" too?

AA is emphasizing its international presence and reminding consumers that there are good reasons to maintain loyalty to carriers with established global networks and alliances. Good for them! I hope to take advantage of this promotion. I like AA, and I think it is a good airline.

But please don't belittle customers, whose primary concern, shockingly enough, is not to keep legacy airline employees employed by paying outrageous fares, but to get from point A to point B on-time, with their luggage, and in relative comfort for the best possible price. Crazy, I know....