It's the Fares, Stupid---STILL

[Art at ISP]

I had the opportunity to attend a trade event in Hilton Head this coming weekend. I began looking for fares on Saturday night. Since HHH is long sold out, Chairman's override would have been just over $1K--too expensive. So I priced SAV, CHS, GSP and CLT. The least expensive was CLT, and it priced out at $767 or thereabouts. Considering that the COST in terms of CASM is approximately $65 and I am being generous, this is outrageous. The others were between $900 and $1300--unconscionable in this day and age.
Knowing it was last minute, and since this was totally unacceptable pricing (US used to have full B fares of about $415 r/t, which were still very profitable, yet competitive), I looked around for better pricing. Lo and behold, Airtran came up with $447, with a connection in ATL.

It turns out I did not need to go (nor could I justify the US price for this type of meeting), but let's look a little deeper..you could lose revenue in a couple of ways here. First, some people just won't go....like me, but entirely because of the cost. Second, and more likely, and hard to measure, is a guy who may be somewhat loyal to US, who does need to go, and takes Airtran. He finds that they are not too bad, and decides to stay with them. The end result is a lost customer for US.

Coupled with the pending changes to DM, which we hear amount to a devaluation of the program, as well as a general decline in an already inferior inflight product, this could turn into a big problem. For every 15-20 people who pay the outrageous fare, maybe a few hundred will look elsewhere and not come back, or just won't go.

Perception is reality to most people, folks, and if someone THINKS he's getting hosed, then in his mind he IS getting hosed.

It's time to rationalize the fares system wide. And I don't mean CHEAP, I mean fair--to the company as well as the customer. It is proven that overall revenue will increase, and profitablilty will grow as well--HP proved it when they rationalized their fare system.

You don't need to be the cheapest to most business travelers, you have to give the most VALUE.

IF US wants to be a true LCC, and they continue to reduce service and amenities to that level, they MUST reduce fares accordingly, or there is no VALUE to the product, and they stand to lose MUCH more than they could gain.If, however, they rationalized the fare structure while continuing to offer a superior level of service and product to LCC's, they would make a killing. This is how they could differentiate themselves and be a market leader. Profits would enable them to continue improving service, and to reward you loyal folks who helped keep the place afloat with some more pay. It could be a win/win/win situation--for the customers, the company and the employees.

Finally, as I noted in another thread, the company is listening to the employees--regarding painted smiles on an airplane. Try listening to your customers as well.......you won't know how to give us the value we want unless you ask...

This is not meant to be a rant, so no sniping--but it opens the floor for valid discussion.

My best to you all....

 

[longing4piedmont]

The DARK side awaits you......

 

[700UW]

Let me ask you a question.

If you US is not profitable with the current level of fares and fuel prices increasing, how would you expect them to lower prices and try to make a profit?

 

[Rico]

I am not trying to be mean either, but if those flights are more or less sold out, then the expectation is that any chance to get a ticket will cost more.

You would not expect tickets for a sold out sports event to go for cheap, why would flying be different...?

IMO the issue is not charging too much for the few remaining seats, rather that the company needs to recognize the cities in which they can add seats (at the lower fares the first ones sold at), and thus increase revenue.

Delicate balancing act, true... But IMO we have too few seats in certain markets. You cannot tell me that there is not some surplus somewhere else in the system that could be shifted towards the stations that need it.

 

[Art at ISP]

700, a RATIONAL fare structure would be biased on the higher side, away from the loser fares. I fully advocate getting rid of the loser fares, instead of $49 fares, start at $89 or so. Let the bargain basement hunters go to WN or other carriers who price below cost on a regular basis. You will attract more business travelers, who want VALUE and service as well as a FAIR price. In such a case, where the "full" fares are still reasonable, you will have more last minute flyers willing to travel, and fewer fares which are actually below "cost". With more fares being actually profitable, you make more money (or lose less if you want to be pessimistic).

Rico, its great that flights are full--but what good is it if 60-70% of those seats are losing money? Rational fares would mean higher AVERAGE fares, therefore more revenue, therefore better chance of being profitable. It is a proven fact.

Remember--I mentioned Crazy Eddie once--a NY electronics retailer who literally gave product away. When asked why he continually sells things below cost, he answered "it's okay, if I sell 100 of them I will make money". THIS is the logic we have to get away from.

My best to you all.

 

[700UW]

My prices are so low I am insane!

I grew up on Long Island Art, I remember those commericials. We even had a Crazy Eddie's in my town.

 

[bwipilot]

I fully advocate getting rid of the loser fares, instead of $49 fares, start at $89 or so. Let the bargain basement hunters go to WN or other carriers who price below cost on a regular basis. You will attract more business travelers, who want VALUE and service as well as a FAIR price.

Art,

The funny part of your post is bashing WN for the loser fans. WN is the airline that avoids filling up the airplane at all costs. WN would rather have a few empty seats left for business travelers at $299 rather than fill the airplane with $99 fares. Hence, WN has lower load factors than the majors. If load factors exceed 70%, WN tends to add flights to allow for more business travelers. I understand and respect your aversion to WN. If I was king I'd fly with more amenities as well. Still, WN is not the king of bargain basement--just the king of marketing.

 

[qwerty]

The missing piece of your argument Art, is this; someone will buy that seat and will pay $700+ to get it. Revenue management looks at a variety of factors and determines, with fairly precise results, how many of these customers are out there. Sure its gouging and B6 is sure to help change that, but why not grab the cash now while US still can?

Do you think US doesn't realize that this pisses people off? Do you think they care? (Maybe a little but when fare levels are rationalized customers will get over it.)

 

[Art at ISP]

bwipilot,

I am not "bashing" WN, I just used them as an example. You by the way made a great point--about how WN holds seats for the higher fares, and manages to get their average fares up a bit. Now adjust those prices for US' true costs, which are admittedly higher, but use the strategy you described, and you'd likely have a few more empty seats, but those which were filled would be more profitable.

And qwerty, there is a butt for every seat, but there are far fewer of them than the airlines realize. It is difficult to quantify how many people just choose not to travel, or who goes elsewhere, but the long term consequence is that it could conceivably be more costly than the extra revenue it brings short term.

I realize oil is going up, and the airline needs to make money--it can easily be achieved by a different MIX of fares, rather than gouging the top to make up for the losses at the bottom.

A former US Sr. VP once told me that if he could raise the bottom fares by $20, he could lower the top ones by $300. I challenged him to do it, and he shied away (not wanting to give up the cash cow obviously).

Interestingly enough it is HP themselves who rationalized the fares a couple of years ago, and oddly enough they made money! It's not that new, it just needs to spread system wide.

Truthfully, folks, it's still the fares, stupid.....

 

[SoftLanding]

I had the opportunity to attend a trade event in Hilton Head this coming weekend. I began looking for fares on Saturday night. Since HHH is long sold out, Chairman's override would have been just over $1K--too expensive. So I priced SAV, CHS, GSP and CLT. The least expensive was CLT, and it priced out at $767 or thereabouts. Considering that the COST in terms of CASM is approximately $65 and I am being generous, this is outrageous. The others were between $900 and $1300--unconscionable in this day and age.
Knowing it was last minute, and since this was totally unacceptable pricing (US used to have full B fares of about $415 r/t, which were still very profitable, yet competitive), I looked around for better pricing. Lo and behold, Airtran came up with $447, with a connection in ATL.

Art,

as we all know, US Airways will try to gauge the customer, if the customer allows it. The company have done it for years in Central New York, and local politicians wanted any low-fare airline to compete. And we now have Southwest, JetBlue and AirTran.

For your flight, with high load factor, why not that high fare? It's true the revenue on that flight (if you paid the fare) would be high, however that same day dozens of flights to Florida are money-loosers because of TOO low fares...Insanity, I agree...

MSFT prices it's product to make, let say, 20% profit margin(Actually, their margin is a lot higher). The airlines can barely make a profit with loadfactors around 80%, even when jetfuel prices were in the 50's.

Solution: Government intervention, or, for you, as luck should have it, soon you can book a flight on JetBlue. I have to agree our fares can be over the top, and certainly JBLU's fares to the Carolina's will be more reasonable, as they have been out of CNY. Same goes for AAI & LUV.

Our cost is still high, compared to AAI, JBLU & LUV, however our product is superior (At least, I would like to think so). First Class seats, clubs, extended service to Europe, Caribbean etc. etc. Our cost will always be above these carriers, though they are coming down slowly but surely over the next couple of years.

(Very high fares in the North East is also why I believe JBLU can make inroads in former core US Airways markets). (Not to mention Dash8/RJ's vs E190's). Hopefully Parker will not let them have "our" markets without a fight.


SoftLanding

 

[N628AU]

Priced CLT-HSV leaving on June 9 and returning June 12. This was a market that saw the fare reductions back in Feb. Last week it was $832 R/T and this week it is still up there at $559. DL through ATL is $252. Right now it is through ATL or make the drive. This is a round trip in the neighborhood of 750 miles total (actually closer to 700 R/T). The $250 fares they had in Feb would have been a $.33 RASM yield, not too shabby and something I would consider a fare price to pay round trip.

 

[UAL_TECH]

I had the opportunity to attend a trade event in Hilton Head this coming weekend. I began looking for fares on Saturday night. Since HHH is long sold out, Chairman's override would have been just over $1K--too expensive. So I priced SAV, CHS, GSP and CLT. The least expensive was CLT, and it priced out at $767 or thereabouts. Considering that the COST in terms of CASM is approximately $65 and I am being generous, this is outrageous. The others were between $900 and $1300--unconscionable in this day and age.
Knowing it was last minute, and since this was totally unacceptable pricing (US used to have full B fares of about $415 r/t, which were still very profitable, yet competitive), I looked around for better pricing. Lo and behold, Airtran came up with $447, with a connection in ATL.

It turns out I did not need to go (nor could I justify the US price for this type of meeting), but let's look a little deeper..you could lose revenue in a couple of ways here. First, some people just won't go....like me, but entirely because of the cost. Second, and more likely, and hard to measure, is a guy who may be somewhat loyal to US, who does need to go, and takes Airtran. He finds that they are not too bad, and decides to stay with them. The end result is a lost customer for US.

Coupled with the pending changes to DM, which we hear amount to a devaluation of the program, as well as a general decline in an already inferior inflight product, this could turn into a big problem. For every 15-20 people who pay the outrageous fare, maybe a few hundred will look elsewhere and not come back, or just won't go.

Perception is reality to most people, folks, and if someone THINKS he's getting hosed, then in his mind he IS getting hosed.

It's time to rationalize the fares system wide. And I don't mean CHEAP, I mean fair--to the company as well as the customer. It is proven that overall revenue will increase, and profitablilty will grow as well--HP proved it when they rationalized their fare system.

You don't need to be the cheapest to most business travelers, you have to give the most VALUE.

IF US wants to be a true LCC, and they continue to reduce service and amenities to that level, they MUST reduce fares accordingly, or there is no VALUE to the product, and they stand to lose MUCH more than they could gain.If, however, they rationalized the fare structure while continuing to offer a superior level of service and product to LCC's, they would make a killing. This is how they could differentiate themselves and be a market leader. Profits would enable them to continue improving service, and to reward you loyal folks who helped keep the place afloat with some more pay. It could be a win/win/win situation--for the customers, the company and the employees.

Finally, as I noted in another thread, the company is listening to the employees--regarding painted smiles on an airplane. Try listening to your customers as well.......you won't know how to give us the value we want unless you ask...

This is not meant to be a rant, so no sniping--but it opens the floor for valid discussion.

My best to you all....

Possibly, if we were not so 'deregulated'
You could still have 'walk up fares' that reflect 1982 prices.

:mf_boff: UT

 

[SpinDoc]

I am not trying to be mean either, but if those flights are more or less sold out, then the expectation is that any chance to get a ticket will cost more.

You would not expect tickets for a sold out sports event to go for cheap, why would flying be different...?

IMO the issue is not charging too much for the few remaining seats, rather that the company needs to recognize the cities in which they can add seats (at the lower fares the first ones sold at), and thus increase revenue.

Delicate balancing act, true... But IMO we have too few seats in certain markets. You cannot tell me that there is not some surplus somewhere else in the system that could be shifted towards the stations that need it.

SpinDoc replies:

Good observation. There are MANY markets right now where capacity is lower than demand, and needs to be corrected. Fare rationalization is definitely needed, and will occur after demand drops off during the normal September slump.

This is one area where US has learned a lesson or two from the greedy bastiches in the oil industry. They have reduced capacity to give them the license to increase prices in the short term; however, just like the oil industry, eventually, the golden goose will be killed, and the product will once again outprice the market, leading to long term price cuts.

Still, there is no excuse for raping the last minute traveler, and it will come back to bite the legacy carriers (faux LCC US included).

 

[qwerty]

Piney, your argument has merit but it's a bit short sighted. Sit down with some of Rick Zeni's (former) revenue managers and watch how they adjust inventory to maximize revenue, sometimes up to 3 hours before a flight leaves. They could massage a $20,000 swing over a week playing with the buckets. And sure sometimes they leave money and seats on the table but markets like these are what kept the lights on at CCY, which ironically closed for good yesterday.

Even a handful paying the full boat with a mix of other fares beats a full load of pax paying a "rational" fare. Be patient, the rational fares are coming, Wolfe said 10 years ago that the trend was moving east and the trickle is fast becoming a river.

There will always be CP's, everyone's replaceable - even you. When the fares come down you'll be back - or someone just like you will.

 

[Art at ISP]

Piney, your argument has merit but it's a bit short sighted. Sit down with some of Rick Zeni's (former) revenue managers and watch how they adjust inventory to maximize revenue, sometimes up to 3 hours before a flight leaves. They could massage a $20,000 swing over a week playing with the buckets. And sure sometimes they leave money and seats on the table but markets like these are what kept the lights on at CCY, which ironically closed for good yesterday.

Even a handful paying the full boat with a mix of other fares beats a full load of pax paying a "rational" fare. Be patient, the rational fares are coming, Wolfe said 10 years ago that the trend was moving east and the trickle is fast becoming a river.

There will always be CP's, everyone's replaceable - even you. When the fares come down you'll be back - or someone just like you will.

qwerty,

It's nice to see the loyalty that we showed for all these years will be repaid in such a way. You are right, everyone is replaceable--even you. And if your attitude prevails, we won't be back. If a customer is happy he tells his friend. If he's unhappy he tells 10 of them. And for the record, it was us who kept the lights on all those tough years, not the person who paid the exhorbitant fare once and never came back. That was SERIOUS money left on the table. It will only get worse, especially with the competition.

And you are wrong about the handful paying the full boat. It won't continue. The number of people willing to pay these exhorbitant fares is dwindling, and those numbers will be dropping like a rock once the competition starts. It stinks that it takes competition to get fair fares. Gouging is gouging no matter how you look at it.

The old system of yield management is broken, period. Sure you might pick up a couple of those seats, but you would lose potential repeat business.

And for Soft Landing, the problem is that you don't offer a superior product any more. Other airlines have clubs, first class etc., offer a far superior product, and are priced below US. You can't have it both ways. If you want to be a true LCC in product and service, you have to cut the prices to LCC level, period. Otherwise like I said before, you remove VALUE from the proposition. Business travelers are mostly willing to pay a little more, but you have to figure out how much. THAT is the challenge, and we can help, but nobody has asked us yet.

The answer is to do away with the majority of the fares which lose money, and let the leisure traveler go to the LCC's. RATIONAL fares will result in increased profits, it has been proven.