Lcc's Don't Always Win

[atabuy]

I don't know what is termed predatory pricing, but these are some of Air Trans new fall prices.

Are these fares good for consumers? YES
Are they good for the health of the airline industry? NO

Even Lcc's have a break even cost, and these fares are way under that.


A small sample of our sale fares:
Or check fares to your favorite destination.

Akron/Canton – New York (LaGuardia) $70
Akron/Canton – Tampa* $95
Atlanta – Baltimore (BWI) $81
Atlanta – Boston $91
Atlanta – Dallas/Fort Worth $91
Atlanta – Philadelphia $81
Atlanta – San Francisco $105
Atlanta – Washington (Reagan) $81
Baltimore (BWI) – Dallas/Fort Worth $95
Baltimore (BWI) – Fort Myers $85
Baltimore (BWI) – Rochester* $50
Baltimore (BWI) – Tampa* $85
Bloomington* – Orlando $95
Boston – Baltimore (BWI) $69
Boston – Philadelphia $40
Dallas/Fort Worth – Orlando $85
Dayton* – Orlando $75
Flint – Fort Lauderdale $95
Flint – Orlando $85
Milwaukee* – Baltimore (BWI) $55
Milwaukee* – Fort Myers $94
Milwaukee* – Tampa* $80
Minneapolis – Orlando $90
Moline* – Orlando $95
Newport News/Williamsburg – New York (LaGuardia) $70
Newport News/Williamsburg – Orlando $65
Philadelphia – Fort Lauderdale $90
Philadelphia – Fort Myers $103
Philadelphia – West Palm Beach $95
Pittsburgh – Atlanta $71
Raleigh/Durham* – Los Angeles $135
Rochester* – Orlando $85
Tallahassee* – Tampa* $45
Tampa* – Miami* $45
Washington (Reagan) – Fort Myers $85
Washington (Reagan) – West Palm Beach $85

 

[FWAAA]

I don't know what is termed predatory pricing, but these are some of Air Trans new fall prices.

Are these fares good for consumers? YES
Are they good for the health of the airline industry? NO

Even Lcc's have a break even cost, and these fares are way under that.

How do you know that these fares are below cost?

Very likely they are above average variable cost, even if they are below average total cost. Fares at or above average variable cost are not "predatory" and are not "below cost."

Every airline (LCC or Big 6 legacy carrier) sells some fares below their average total cost. I buy fares all the time for 4 or 5 cents per mile yet AA's costs are 9.5 cents per mile. Sometimes I pay 15 or 25 or even 50 cents per mile. That's way above cost (no matter how you measure costs).

Besides, only a few of these fares will be sold on each flight - no airline fills the whole plane with the cheapest sale fares.

 

[atabuy]

How do you know that these fares are below cost?

If you filled all the seats with these fares, the airplane would lose a lot of money for that leg.
The airlines had many flights with high load factors, and they could not break even.

Airlines hold so many seats which they give away for frequent fliers, or whatever terminology they use for their airline. These seats are free if you saved enough miles up. This is to keep a certain loyalty to that airline.

Granted, the fares they sell at rock bottom prices, are few and far between. They are a come-on just like supermarkets use to get people in the store.
The problem is, when people are in a store they might buy other products.
The passenger, or prospective passenger, is shopping online or through the telephone.
There is not much more they want but a good deal. If all the seats are sold at that price, they probably move on to the next site.

The .05 cents a mile is a deal you get when you can plan ahead. The .25 cents a mile is when you can't. If your on business, the airline will split the difference with you if you split your profits with them.
You are traveling to service an account, Long term planning, fix an account: Short term screw up, or landing an account: Big bucks.
Make the airline your travel and business partner and we can all succeed.

Just a different look.

 

[KCFlyer]

The .05 cents a mile is a deal you get when you can plan ahead. The .25 cents a mile is when you can't. If your on business, the airline will split the difference with you if you split your profits with them.
You are traveling to service an account, Long term planning, fix an account: Short term screw up, or landing an account: Big bucks.
Make the airline your travel and business partner and we can all succeed.

The problem here is that the "major" airlines still charge almost $1.00 per mile for those "unrestricted" tickets. The goal of "value pricing" was to bring those fares down to about .30 to .40 cents a mile and the "advance planning" fares up to about .10 cents a mile. Unfortunately, nobody thinks value pricing would work.

 

[JS]

The big boys could nip a lot of it in the bud by doing one thing the LCC's already do - value price. Only a few fare levels, usually based one way, not always the lowest, but never the highest. Instead the big boys respond by losing money, or, implenting some inane "airline within an airline" concept.

I've been a proponent for value pricing for some time, but it's always shot down with "that would never work". It seems to work for the LCC's - and if I may point out, nothing else the majors have tried has seemed to work very well either. So why not give it a try. Yes, they tried it on "select routes"...do it system wide. From your biggest hubs. Then, when an LCC moves in, they either lose the money in undercutting your prices, or take the market where their flights are more convenient. Your current customers would have no reason to fly them, outside of some hatred of service, - and you still are able to make money without giving away the farm to woo back customers who left because they'd been screwed over in the past. JMHO.

Have you looked at the Southwest web site lately? There are only two fares that don't require roundtrip travel -- full fare and Internet special. Southwest just keeps inching its way towards being a "legacy" carrier -- no more "all fares are one way", close reservation centers, move in to PHL. Pretty soon they will have turboprops flying HOU-ILE. 😉

Network-wide "value pricing" for all legacy carriers simply will not work. Why do you think NW attacked AA back then? Because AA was going to get NW's business travelers. Had NW matched AA, they would share the business travelers at a lower price. Then they both lose money.

Consider this -- without JetBlue and AirTran, Southwest is, for all practical purposes, the only airline with "value pricing". With AirTran already in PHL and JetBlue eyeing PHL, what does Southwest do? Move in to PHL! It's just like NW with their fare war against AA.

In other words, one, maybe two, large airlines can cherry-pick off the other airlines, but it is not possible for ALL the airlines to cherry-pick off everyone else. All the cherries would be gone, and the result is losses until enough airlines go Chapter 7 to lower capacity down to the point where "value pricing" is sustainable nationwide.

If an airline is charging $1,000 one way for a walk-up fare on a particular route, and no one is buying it, the solution is to lower it to $500 or $600, or whatever the revenue-maximizing amount is. The solution isn't to slash walk-up fares nationwide to $299. The legacy carriers aren't Southwest and they never will be.