USA320Pilot
Veteran
- May 18, 2003
- 8,175
- 1,539
Most airline analysts believe the U.S. airline industry is nearing the revenue/pricing peak for this economic cycle. There are further signs the extremely high walk-up fares that have historically driven revenue premiums for the major carriers will come down in the not-too-distant future. The reduced fare structure will negatively impact revenue and earnings for the industry, including low-fare carriers.
Last week US Airways introduced a simplified, reduced fare structure for both coach and first class domestic fares called “GoFares†in selected Philadelphia markets, which will begin on May 9. This is a "toe in the water" approach to pressures to reduce unrestricted airfares in response to Southwest Airlines entrance into US Airways’ principal and most profitable hub.
The Arlington-based carrier has had Southwest "match fares" in its CRS for a while and last week’s announcement is more of formality than anything else. The US Airways Sales Department has signaled this and a much broader initiative to its key corporate clients, but to be successful the company must have a much lower cost structure.
The simplification of “GoFares†includes removing the Saturday night stay and round trip requirements, both important historical major airline pricing "fences". Price levels on the highest fares are down by 40-60 percent, but still well above available Southwest price points.
If US Airways greatly expands the initiative, which is expected according To Bruce Lakefield’s weekly message (800-873-2459, prompt 4), it could have a significant impact on industry revenue going forward.
The marketing bonanza surrounding the change is somewhat odd given its limited scope. Philadelphia customers can only enjoy this new structure in markets where Southwest competes or will compete in July. US Airways’ press release indicated a permanent change, but for now only in a very small number of markets. Therefore, it’s clear that the public nature of last week’s announcement will make it difficult for US Airways not to eventually include all of its major markets during the pricing restructuring.
US Airways is now the third large airline, along with American West Airlines and Alaska Airlines, that have or will begin a transition from a traditional to simplified fare structure similar in a scope similar to a LCC and the Arlington-based carrier undoubtedly faces a difficult period ahead.
When this initiative is implemented system-wide it will dramatically lower revenue, therefore, to be successful costs must be brought down more than the reduction in revenue. The company’s route network touches enough revenue from the other majors, particularly Delta, to increase the chances of a collapse of the highest walkup fares for every major airline. The implications of a complete collapse is likely to be most profound on the major airlines, but LCCs will surely feel the
impact as well with less of a price umbrella.
Here is the route network exposure to US Airways by other large airlines:
AirTran – 43.3%
JetBlue – 41.4%
Delta – 31.6%
Continental – 24.7%
Northwest – 20.8%
United – 16.9%
American – 16.6%
Southwest – 12.5%
America West – 7.9%
Alaska – 0.6%
Respectfully,
USA320Pilot
Last week US Airways introduced a simplified, reduced fare structure for both coach and first class domestic fares called “GoFares†in selected Philadelphia markets, which will begin on May 9. This is a "toe in the water" approach to pressures to reduce unrestricted airfares in response to Southwest Airlines entrance into US Airways’ principal and most profitable hub.
The Arlington-based carrier has had Southwest "match fares" in its CRS for a while and last week’s announcement is more of formality than anything else. The US Airways Sales Department has signaled this and a much broader initiative to its key corporate clients, but to be successful the company must have a much lower cost structure.
The simplification of “GoFares†includes removing the Saturday night stay and round trip requirements, both important historical major airline pricing "fences". Price levels on the highest fares are down by 40-60 percent, but still well above available Southwest price points.
If US Airways greatly expands the initiative, which is expected according To Bruce Lakefield’s weekly message (800-873-2459, prompt 4), it could have a significant impact on industry revenue going forward.
The marketing bonanza surrounding the change is somewhat odd given its limited scope. Philadelphia customers can only enjoy this new structure in markets where Southwest competes or will compete in July. US Airways’ press release indicated a permanent change, but for now only in a very small number of markets. Therefore, it’s clear that the public nature of last week’s announcement will make it difficult for US Airways not to eventually include all of its major markets during the pricing restructuring.
US Airways is now the third large airline, along with American West Airlines and Alaska Airlines, that have or will begin a transition from a traditional to simplified fare structure similar in a scope similar to a LCC and the Arlington-based carrier undoubtedly faces a difficult period ahead.
When this initiative is implemented system-wide it will dramatically lower revenue, therefore, to be successful costs must be brought down more than the reduction in revenue. The company’s route network touches enough revenue from the other majors, particularly Delta, to increase the chances of a collapse of the highest walkup fares for every major airline. The implications of a complete collapse is likely to be most profound on the major airlines, but LCCs will surely feel the
impact as well with less of a price umbrella.
Here is the route network exposure to US Airways by other large airlines:
AirTran – 43.3%
JetBlue – 41.4%
Delta – 31.6%
Continental – 24.7%
Northwest – 20.8%
United – 16.9%
American – 16.6%
Southwest – 12.5%
America West – 7.9%
Alaska – 0.6%
Respectfully,
USA320Pilot
