Wrong, have you guys not been paying attention to the industry over the last 20 years? There is no evidence that nicer in-flight product produces higher ticket prices, zero! It does not happen. Midwest airlines didnt have a revenue premium despite having by far the better in-flight experience. Jet Blue and Virgin have experienced the exact same thing. Customers like them and it might build some customer loyalty but it does nothing for the fares, because the two are not related at all. Now you very well might be able to drive some ancillary revenue once the ticket has been purchased and that is what airlines are finding with things like ala cart pricing.
I am not advocating having a crap service either. I think a smart airline should do a lot of the little things better, that dont cost a ton but improve the overall experience. It is good for both customers and employee moral too. But the reason US has lower RASM is because of the cities we primarily serve (and the amount of direct competition in those cities) and not because we need to upgrade the in-flight experience.
From a employee stand point we are not going to get higher wages by spending more on the product and we cant have industry standard wages if we dont have industry standard revenue unless we can have a significantly lower CASM and that also is not going to happen by spending more on the product. We obviously have to have a delicate balance between the two because of our RASM disadvantage.
One thing that airline management has not payed attention to the last twenty years is the customer! You keep stating that amenities or in-flight product does not produce higher ticket prices. While that may be a true statement, pricing is certainly not the only factor. You are correct that customers are price sensitive. What you get for that price is also important. What you are describing works fine if you have a never ending stream of first time flyers that will only fly once in there life. It used to be that most of your revenue stream came from repeat customers. There is a reason the frequent flyer programs exist. It was once a great amenity. Now, you are even pimping status! One reason why you have lost a lot of your elite high dollar traveler is because there is more VALUE for their dollar elsewhere and they include more amenities and in-flight service.
A very good example is Philly to Boston round trip on March first return March second. Lets say I am not in a mileage program with US or any other carrier from those two cities as I just moved here from Canada. I can buy the cheapest ticket on US Airways at $230 round trip. That is until I check one bag at$25 because I have a piece of equipment that will not fit in the overhead. So add $50 round trip for my bag. I also want an isle seat but only choice seating is available. I have no idea the cost between these two cities but I will put it on the low side, say $10 per segment. Had a long meeting so a cocktail on the return flight sounds good. That will be $7.00 please! Hey, I need to change the flight time cause my meeting ran a little later. Don't forget that change fee! That is $50. Did I mention I am old fashion and like to conduct business on the phone. I get to pay another $30 for the privilege of speaking to a human who may not not even be located here. That brings me to a total of $380 not including tax. Folks, this is a non-refundable ticket. To be fair, I could spend $50 more round trip for my base ticket to be refundable. However all other ALA-CARTE pricing still applies making my total $430! I could even spend $1554 round trip for a refundable first class ticket and save the $7 on the drink!!!!!
OR, for $328 plus tax I could travel on Southwest round trip. This is there most expensive fare. What amenities do I get for the price? Booked ticket on phone for free. Fully refundable. Checked two bags at no extra charge. I got priority boarding, so I could grab whatever seat I desired at no extra charge. Was able to get one cocktail each way at no extra charge with a couple bags of peanuts. I was also able to change my flight for no extra fee. Again, that is their most expensive ticket. I could just pay for the cheapest ticket they had for those dates which was exactly the same price of the US Airways fare at $230 plus tax. The only thing I loose going that way is it is not fully refundable, priority boarding, and the free drink. Oh, and if there is a difference in fare I just pay the difference but no fee. I did not even consider that little fact with the US ticket. The feeling I get knowing exactly what I am getting for my money, Priceless!
What does this all mean? Well, you have done a good job of chasing elite, repeat passengers away. You are also doing a pretty good job of loosing the VALUE customer due to your crazy fee structure!
Admittedly, you are filling seats in record number and have managed to make a pretty good profit for the year. You say your profit is purely fees. I might be wrong, but I think this might come back to haunt you as people start value shopping their dollars. The will start looking at what amenities they are getting for their money. The airlines that catch on to this fact are going to have to start becoming competitive again.
I think your spreadsheet economic policies are reckless. You have taken the human factor out of your assumptions. If you think that amenities and service make no difference to your bottom line you are very much mistaken. If all you keep thinking about is movement of fares you are going to be in trouble.
