Delta fares

[Busdrvr]

[blockquote]
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On 9/26/2002 12:55:00 PM longonsofty wrote:

Busdrvr, "you ignorant slut."

To be fair, the airlines get subsidies too. I see it in A bin of every flight through my station. It's mail. Also, when KCFlyer is going from say MCI-BNA on gov't bidness he'll pay X, a fare that has been bid on by any airline that wants to. (That's my understanding of it, it may not be 100% accurate. Hell, it might not be 50% accurate, but that's my understanding of it.) But, at least at WN, they'll bid a price where they can make some $ on it.
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[/blockquote]

My names not Jane ,

As far as mail, we've been squeezed out of a large part of it. Priority mail is no longer carried on domestic pax airlines due to post 911 security concerns. UPS and Fedex got a huge windfall at our expense. BTW, it does cost us something to carry the mail. The majors likely make money on the Gov trav. The fares always seem to be higher than the bargain basement advance purchase type. As for the price airlines would charge for tickets if the tax was lifted, an important thing to remember is that there is still significant levels of excess capacity. Airlines would add some of this very cheap lift back into the schedule with higher yields, so the result would be lower fares, more flights and better financials at the airlines

 

[DalMD88]

You guys have seemed to miss my point. What is your time worth? The trip by bus and train take 24 HOURS. Lga-Atl-Mco takes about 4. I would expect to pay more to get there faster.

 

[KCFlyer]

[BR][BR]
[BLOCKQUOTE][BR]----------------[BR]On 9/26/2002 558 PM DalMD88 wrote:[BR][BR]You guys have seemed to miss my point.  What is your time worth?  The trip by bus and train take 24 HOURS. Lga-Atl-Mco takes about 4.  I would expect to pay more to get there faster.[BR][BR][BR]----------------[BR][BR]I don't think I'm missing your point. Bottom line, the taxes are keeping people from flying is a joke. All I'm saying is that if the goverment eliminated all taxes, that savings would most likely not be passed on to the consumer. But that's not all that bad, because the consumer who is willing to pay $200 (taxes included) will still be willing to pay $200. In the case of this example, the $182 fare translates into .08 cents per mile. It costs Delta .1005 cents per mile to fly the seat, occupied or not. For $215, Delta could break even, for $220 there's a small profit. The other side of that is that an unrestricted ticket on the same route costs $872...Assuming that 25% of that is taxes, it's still a fare of $682, or .31 cents a mile. Imagine if Delta had the cajones to just make the unrestricted fare $400, and eliminate the BS use it or lose it and $100 change fees on the advance purchase. How many businesses would find it worthwhile to try and play the hidden city game when the difference between the advance purchase fare and the full unrestricted fare is less than $200 round trip? If they adopted a value pricing structure, they could charge $220 for 21 day advance, $280 for 14 day advance, $350 for seven day advance, and $400 for the unrestricted ticket. Make the only restriction a one night stayover - any night, not just Saturday. [BR][BR]Example - on Southwest, the difference between the lowest and highest fare I can buy from MCI-BNA (about 600 miles) is $37 one way. The difference between the lowest and higest fare I can buy on United between MCI and DEN (about the same distance) is $512.75. Although, United has half the equation right, at least their lowest fare is covering the expenses (but not by much). Imagine how much travel would be stimulated if there was only a $100-$200 difference between the lowest and highest price tickets they offered on that route. And the fare (174.50 round trip) is a smokin' deal, but you know something... I'd pay $200 to avoid the drive across western Kansas to get to Denver, and still think I was getting a bargain. That's me the leisure traveller. If I were a business owner, I might think twice about sending someone to Denver for $1200 round trip, but if the fare was $400 for the round trip, then it's a no brainer - my employee is heading to the airport. And if for some reason I GOT the $200 round trip and my employees plans had to change, I'm REALLY inclined to fly you if I can call you up and change his reservation and upgrade to the full fare price for his return without the stupid change fee...it's only going to cost me another hundred bucks. Sorry for using UAL in this example, but fares to ATL have been pretty competitive because of Vanguard (RIP- but Airtran has moved in to fill the void). [BR][BR]That's what I can't understand what management at the other airlines is missing - SWA made a profit, even in these worst of times, and the fare difference between the lowest and highest fares are not even a couple of hundred dollars apart. The other airlines could lower the fares, reduce the difference between the lowest and highest fares, stimulate travel and make a profit - even at their current cost levels. [/BLOCKQUOTE]

 

[Tango-Bravo]

[blockquote]

KC Flyer wrote:

That's what I can't understand what management at the other airlines is missing - SWA made a profit, even in these worst of times, and the fare difference between the lowest and highest fares are not even a couple of hundred dollars apart. The other airlines could lower the fares, reduce the difference between the lowest and highest fares, stimulate travel and make a profit - even at their current cost levels. [/P][/BLOCKQUOTE]
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How right you are IMO. Trouble is, such a self-evident truth makes far too much sense to fall within the decision making processes of the high cost, full-service U.S. cartel airlines.

 

[DLFlyer31]

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KC Flyer wrote:

That's what I can't understand what management at the other airlines is missing - SWA made a profit, even in these worst of times, and the fare difference between the lowest and highest fares are not even a couple of hundred dollars apart. The other airlines could lower the fares, reduce the difference between the lowest and highest fares, stimulate travel and make a profit - even at their current cost levels. [/P][/BLOCKQUOTE]
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[/blockquote]

Not true. If DL lowered the higher walk-up fares, it wouldn't necessarily stimulate that much more demand. Even WN is having a harder and harder time attracting higher-yield walk-up traffic...hence WN's recent reduction in walk-up fares. You think WN is reducing those walk-ups out of the kindness of LUV's heart...I don't think so. WN is also finding it harder to attract traffic and has publicly stated so. The difference is that WN has a low enough cost structure that they can sustain this massive drop-off in walk-up traffic. If WN had DL's cost structure, then WN's pricing structure would also fail.

In order for your plan to work, DL would need to lower the walk-up fares which would stimulate some demand PLUS DL would need to raise the leisure fares. Unfortunately, DL can't raise leisure fares without scaring off a lot of traffic.

Don't get me wrong, WN is a great company, but trying to apply WN's pricing methods to DL just won't work. DL HAS to lower its costs first, then they can start to adopt some of WN's pricing practices. In the long term, DL will be forced to adopt WN's pricing structure in most markets as low-fare carriers become more and more entrenched.

 

[KCFlyer]

[P]DLFlyer31 - Check my math here:[/P]
[P]It's 2448 miles from NYC to LA, one way. [/P]
[P]Southwest's charging $299. That works out to 12.21 cents per mile. [/P]
[P]Delta's costs are 10.05 cents per mile. [/P]
[P]You could fly the route at $299 and make a profit. My point is, why charge a $2,000 maximum fare, and offer a slew of seats at a loss? You could offer your advance purchse fare for $250 and break even (even make a slight profit). You could offer your unrestricted fare for $856 (35 cents per mile) and make a nice profit. [/P]
[P]If those were the only two fares you offered, youraverage fare would be $553 [/P]
[P]Your average load factor is 73.39% [/P]
[P]Your CASM is 10.05 cents[/P]
[P]A 767-300 holds 252, 73% of the seats filled is 185, 185 times your average fare of $553 is $102,305.[/P]
[P]Your cost to fly that plane (.1005 time 252 seats times 2448 miles) is 61,998[/P]
[P]You've made a profit of $40,307 for the flight. That doesn't include first class fares - that assuming it was only coach passengers.[/P]
[P]I would venture to say that you'd see your load factor increase by doing that. But nobody has guts enough to try it. if SWA lowered their fares to stimulate demand, why on earth are the other airlines sitting back discussing labor concessions and cutbacks...why aren't they following suit? Sure, you don't have to drop your fares to the $299 level, but at least try to make it appealing for a company to spend their travel dollar. All I have seen is a bunch of below cost fares with a whole lot of restrictions that make them totally unappealing to business accounts, but leisure travellers are gobbling them up to the tune of 73% load factors....and you are LOSING MONEY ON THEM. Yet, the fare you'd like them to pay hasn't budged. Oh, they've offered some cut rate walk up fares....still loaded down with use it or lose it and $100 change fee restrictions. That's what puzzles me...nobody has tried this approach. Even if SWA offered $299, you could still charge $550 max and get businesses to fly you, using the nonstop flight, meal, and whatever else you needed to do to justify the fare difference. It could be done. But I guess it's easier to appeal to the government for bail out money, or turn to the bankruptcy courts as some airlines have done to reduce their costs. But here's the deal...even if you're paying your labor force $5 an hour and still charging over a thousand bucks for a one way transcon flight, you're STILL going to see losses. I'm not a betting man, but if I were, I'd put money down that MY plan would do more to help the airlines than any amount of concessions ever will. [/P]

 

[KCFlyer]

Guess I just don't see why costs must be lowered before you can try that... Southwest's costs are 20% lower than yours. Tthe difference between their highest unrestricted fare and the highest unrestriced fare on Delta is somthing like 400%. And airlines are reluctant to do anything to spur business travel. They're filling their planes with super de duper leisure fares and still hoping against hope that some fool will pay 10 to 15 times what the leisure guy paid in order to make a profit. The fools aren't paying, and the airlines go a begging for money because the unrestricted fare is sacred, and cannot be cut.

 

[Tango-Bravo]

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On 9/27/2002 9:03:43 AM DLFlyer31 wrote:

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DLFlyer wrote:

In the long term, DL will be forced to adopt WN's pricing structure in most markets as low-fare carriers become more and more entrenched.
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[/blockquote]


How right you are in this part of your post. The long term however begins now. Even as low-fare carriers become more entrenched due to the opportunities handed to them by the absurdly irrational pricing practices of DL and fellow cartel airlines, so too are the cartel's best customers becoming entrenched in their umbrage toward the pricing games and their determination to not only beat, but trounce, DL and the cartel at their own games.

It was, in fact, a DL customer who has flown 2.5 million miles with DL since 1987 and belongs to the highest level of their frequent flier program (100k+ miles per year) who summed up his thoughts--and no doubt the thoughts of most frequent fliers (after writing letters and hearing the same-old same-old worn-out canned drivel from a DL spokesperson in defense of the indefensible):

The airlines' breathtakingly complicated yield-based pricing structures are...antithetical to everything we do in a normal business environment.. As a result, a valued DL customer is flying one-third fewer miles and looking for bargains. (from article One business flier has had enough of unfair airfares by Joe Sharkey, New York Times, appearing in the Star Tribune March 11, 2002)

With all due respect to DLFlyer and others of the we can't afford fare reform now line of thinking I say that DL and the cartel cannot afford not to make pricing rationalization their highest priority. By sticking with the grossly inequitable fare nonsense currently in place (and even tweaking it to become even more absurd, it seems) the cartel is not only handing the low-cost carriers more opportunities than they can respond to, they are also--and this should be of even greater concern--strengthening the resolve of their best customers to beat DL and the cartel at their own games.

There's no question as to who is getting trounced in the pricing games played by the cartel airlines. When one's game plan results in getting their butts kicked month after month over a period of two years, a seriously revised gamed plan would seem to be called for. But then again, as the elitest of the elite DL ff stated, the cartel airlines excel at business models that are antithetical to everything we do in a normal business environment. So too are their testosterone-driven decisions antithetical to sound judgment and common sense. And that, more than anything, is what separates Southwest and jetBlue from DL and the full-service cartel airlines, and the reason WN's market cap alone is higher than all of the cartel airlines combined. And that is also why the full-service majors have earned the distinction of becoming the answer to the question what is America's worst-managed industry?

 

[DLFlyer31]

[blockquote]
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On 9/27/2002 11:41:46 AM KCFlyer wrote:
You could fly the route at $299 and make a profit. My point is, why charge a $2,000 maximum fare, and offer a slew of seats at a loss? You could offer your advance purchse fare for $250 and break even (even make a slight profit). You could offer your unrestricted fare for $856 (35 cents per mile) and make a nice profit. [/P]
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[/blockquote]

One big problem with your logic....no one will pay $250 one-way on an advance purchase ticket. Roundtrip, that would be almost $600 (including taxes) for an advance purchase. DL would lose half of its passengers in the blink of an eye. Trust me, I know that the current advance purchase fares are obscenely low, but DL can't raise them. There's too much capacity in the market and too many low-fare carriers that would eat DL alive if they raised leisure fares.

Even on the unrestricted fare, do you really think $856 each-way would entice that many passengers? It won't....that's exactly why WN keep's lowering their walk-up fares because even WN can't find enough walkup traffic. Even at WN's extremely low walk-up fares, they're having a hard time attracting pax.

I understand your fundamental argument and I agree with it. However, it just doesn't work given the cost structure of DL, AA, UA, etc. If DL can get its costs down, then they can (and should) adopt the pricing structure you are suggesting.

I can guarantee you that if WN had DL's cost structure then WN's entire pricing structure that you are advocating would collapse. WN only gets away with their rational pricing structure, because they have the cost structure that allows for it. Take away the cost structure and it all goes away.

 

[DLFlyer31]

[blockquote]
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On 9/27/2002 1:03:10 PM Tango-Bravo wrote:

With all due respect to DLFlyer and others of the "we can't afford fare reform now" line of thinking I say that DL and the cartel cannot afford not to make pricing rationalization their highest priority. By sticking with the grossly inequitable fare nonsense currently in place (and even tweaking it to become even more absurd, it seems) the cartel is not only handing the low-cost carriers more opportunities than they can respond to, they are also--and this should be of even greater concern--strengthening the resolve of their best customers to beat DL and the cartel at their own games.

There's no question as to who is getting trounced in the pricing games played by the cartel airlines. When one's game plan results in getting their butts kicked month after month over a period of two years, a seriously revised gamed plan would seem to be called for. But then again, as the elitest of the elite DL ff stated, the cartel airlines excel at business models that are "antithetical to everything we do in a normal business environment." So too are their testosterone-driven decisions antithetical to sound judgment and common sense. And that, more than anything, is what separates Southwest and jetBlue from DL and the full-service cartel airlines, and the reason WN's market cap alone is higher than all of the cartel airlines combined. And that is also why the "full-service" majors have earned the distinction of becoming the answer to the question "what is America's worst-managed industry?"
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[/blockquote]

I'm not arguing against a more rational price structure. It needs to happen and will happen. However, it will not work if DL doesn't lower its costs. Plain and simple.

Even many low-fare carriers are struggling to make money right now and they do have these rational fares!! So how do you explain that? Why are FRNT and ATA losing money and requesting gov't assistance? Why did VNGD go out of business...they had reasonable walk-up fares?? Why is Airtan getting RJ's to replace mainline aircraft...shouldn't there reasonable fares be filling up those 717s? Why hasn't WN added any new cities especially when the majors are cutting down so much?

Of course, I know the answer to most of these questions. The point is that simply having nice rational fares won't save the airlines.

As for the superiority of low-fare carriers business models...well that is certainly debatable. Most of the low-fare carriers around today weren't even around ten years ago and are still extremely small (WN being the prime exception). They have a type of nimbleness that allows them to attack the larger carriers and be successful. However, as they grow the advantages begin to fade. This partially explains why the smaller low-fare carriers like FRNT and AAI expanded rapidly after 9/11 while WN didn't. Even WN is beginning to slow down as it becomes a beheamoth in the industry.

 

[KCFlyer]

[P]
[BLOCKQUOTE][BR]----------------[BR]On 9/27/2002 1:33:51 PM DLFlyer31 wrote:
[P]
[BLOCKQUOTE][BR]----------------[BR] Why did VNGD go out of business...they had reasonable walk-up fares[/BLOCKQUOTE]
[P][/P]----------------[/BLOCKQUOTE]
[P]They also had some really boneheaded ideas early on...Three (count 'em MCI-MDW-PIT) THREE hub cities AT ONE TIME with 13 planes. And there walk up fares really weren't all that reasonable...[/P]

 

[sfb]

Actually, I believe the reason for Southwest's very limited expansion within the past year is nothing more than prudent business practice. Even in 2001, with an economy that was showing some signs of weakness, it wasn't clear that WN was going to add any new cities beyond PBI. And with the travel market having been decimated by 9/11 and ongoing economic weakness, it was simply an intelligent decision to devote resources to opportunities within the current network which could be exploited at lower cost than adding service to a new city.

After all, the current opportunities in the market to take market share from the network carriers will probably still exist in two, five, or even ten years. Other low-fare operators like Frontier, AirTran, and jetBlue are hubbed at airports which WN will likely enter only after every other possible opportunity has been exploited. And WN certainly has shown no qualms about competing against other low-fare operations in the past or present (i.e. United Shuttle, Delta Express, Metrojet, AirTran at BWI).

The cause of Frontier's problems are obvious; they've embarked upon rapid expansion in a relatively weak economic environment while competing against a network carrier which has become more interested in preserving its market share at its second-largest hub. While they offer more rational fares than most of their competitors, they're still not a true low-fare operator. Vanguard, well, there were just all number of problems. Trying to be a low-fare hub-and-spoke carrier in a market dominated by the strongest low-fare airline while operating a high-cost mixed fleet just doesn't lead to success. National has the exact same set of problems. As for ATA -- how many large airline operations/hubs can Chicago support? Four just seems like an awful lot.

 

[JS]

KCFlyer, WN does not fly to NYC. You can't compare WN fares to DL because ISP and JFK are not the same market. Few business travelers from NYC are willing to go all the way to ISP to get on a plane. It would be much easier to go to JFK and fly JetBlue or go to LGA and change planes on Spirit Airlines or ATA than to go to ISP and change planes on WN.

On the issue of unit costs, you can't just take the average 10 cents per seat-mile cost and make the average fare equal that for any market. Much of that cost is fixed. You have to look at the marginal cost of a flight to see if it is profitable.

 

[JS]

Regarding the effect of taxes on the market price --

I can't draw a diagram of supply and demand curves, but I'll try to explain this. When you raise a tax on a product, the amount of that tax increase that is borne by the supplier and consumer depends on who is less sensitive to price. The less sensitive you are to price relative to the other party, the more of the tax increase you end up paying.

If both the supplier and consumer are equally sensitive to price changes, then they split the tax 50/50 (not in the accounting system, but in the real world -- its effect on the market price). For example, if the old price with no tax was $50, and a tax of $10 is added, the supplier ends up getting $45 in revenue, and the consumer pays $55 total.

If the consumer is neutral (price elasticity of demand=1), but the supplier is completely insensitive to price, meaning they are going to produce the same amount regardless of what price they can get for it, then the supplier is the one who pays the tax increase. If the tax goes down, it's the same as a negative tax increase, meaning the supplier would get all of the tax reduction.

On the other hand, if the supplier is neutral but the consumer is insensitive to price (e.g., prescription drugs), then it is the consumer who pays that tax increase or benefits from a tax cut.


In the case of airlines, consumers are fairly sensitive to price, while airlines are insensitive to price. They are insensitive to price because they have high fixed costs. It takes a large price decrease before airlines cut capacity, because a capacity cut doesn't lower their costs very much (aircraft lease payments, union contracts, gate leases, etc.)

As a result, tax increases on airplane tickets are borne mostly by airlines, and a tax cut on airplane tickets would benefit mostly the airlines, not the passengers.

While it would be nice for passengers to benefit from a tax cut (I buy airline tickets, too!), the fact they would benefit very little doesn't mean Congress should just forget about the issue. I would much rather see Congress cut airline ticket taxes and make airlines earn that money fair and square, than to have another giveaway or loan guarantee.

 

[KCFlyer]

[P]
[BLOCKQUOTE][BR]----------------[BR]On 10/3/2002 8:36:11 PM JS wrote:
[P]KCFlyer, WN does not fly to NYC.  You can't compare WN fares to DL because ISP and JFK are not the same market[/P]
[P]----------------[/P][/BLOCKQUOTE]
[P]My mistake JS, even though Long Island and NYC are closer together than South Overland Park, Kansas and Kansas City International, thus making it a hassle to get to my market airport, my whole argument is that $1,000 restricted walk up fares are not as enticing to business as a $299 one walk up fare. For $700 less, and NO restrictions, I suppose I could make the dreaded commute to Long Island. If you're happy to pop for thousand bucks plus $100 change fees and use it or lose it rules, be my guest. Bottom line is - one or two airlines are trying to capture business passengers (and making a profit at it) by offering low fares . Life must be hell for those who would pay $700 to avoid Long Island or Long Beach to pass up the savings offered by other airlines last minute fares. [/P]