Simple Fair Structure

[Phoenix]

If they fix it, we will fly

One of the factors destroying the Big Six (American, Continental, Delta, Northwest, United and US Airways), is their intractable opposition to fixing their Byzantine fare structure that depresses profitable leisure travel, curtails legitimate business travel demand and confuses everyone....

http://www.usatoday.com/travel/columnist/b...RM_Exclude=Juno

 

[ClueByFour]

Hmmm Ever hear of Go Fares? The lynchpin of the Plan of Transformation. US for once is first at doing what needs to be done

[post="196976"][/post]​

Really? What's the GoFare on PIT/CLT-BWI? Or PIT-BOS?

PBI-DAY?

And so forth.

 

[BoeingBoy]

Hmmm Ever hear of Go Fares? The lynchpin of the Plan of Transformation. US for once is first at doing what needs to be done

[post="196976"][/post]​

Sorry, Bob, but I've got to agree with Clue on this one. While U "talked the talk" DAL "walked the walk" with simplified fares in every domestic market served from the CVG hub (at least according to media reports). And that's not counting AWA & Alaska.

Of course, all are following the example of WN & B6. So U is "leading" from well back in the pack.

U was the first to come up with a catchy name though....

Oh, yeah - and Seth.....

Jim

 

[PITbull]

And then there's this: "Doing it the old way, we always used to obsess about whether other airlines matched our fares, whether we were matching the other guys," Foley says. But now the relationship is between us and the market, not us and the other carriers."


Now that's a statment! B)

 

[USFlyer]

US needs to get its costs down further before it can rollout GoFares in all markets. The day is coming. If US can make it to Spring 2005, my prediction is 100 percent of the domestic route network will have GoFares by then.

 

[BoeingBoy]

US needs to get its costs down further before it can rollout GoFares in all markets. The day is coming. If US can make it to Spring 2005, my prediction is 100 percent of the domestic route network will have GoFares by then.

[post="197008"][/post]​

Using some pure guesswork, the "plan" will lower CASM to about 9 cents. That guessing that total mainline ASM's will be about 15 billion a quarter, or 60 billion per year (roughly 10% above 3rd quarter) and $1.6 billion per year in cost reductions.

I think what some forget:

1 - that is mainline only and doesn't count the effect of express operations on system CASM.

2 - that includes international (Europe, Caribbean, Latin America) which generally has lower CASM than domestic mainline (longer average segment length, widebodies).

Again using purely guesswork (how big express will be in the future, what mix of equipment), it's entirely possible that domestic system CASM will still be 11 cents or higher.

Can GoFares support that? Certainly, given the right mix of fares and high enough load factors. After all, $500 for a transcon is still about a 20 cent yield.

Of course, with enough full fare GoFares and high enough load factors, we would be profitable now.

Jim

 

[Finish or Ignore]

Hmmm Ever hear of Go Fares? The lynchpin of the Plan of Transformation. US for once is first at doing what needs to be done

[post="196976"][/post]​

Yes, after TWO chapter 11's the top notch talent we are retaining have realized what front line employees knew several years ago.

 

[BoeingBoy]

Bob,

"How about some business basics that dictate you have to have some cash coming to at least get close to brean even."

Ok, Bob, how's this since I've got no way to easily pull up the range of GoFares in particular markets.

Top GoFare of $50 for each 250 mile block of trip length, i.e. 0-250 miles = $50, 251-500 miles = $100, 501-750 = $150, etc. Bottom GoFare = 2/3 of that. (as the website says, fees and taxes extra) That yield works out to 20 or more cents per mile at the top and 14 cents per mile at the bottom. If the average fare were in the middle, that's a yield of 17 cents. Our mainline CASM is about 11.5 cents. Breakeven LF souuld be around 70%.

So mainline should be profitable with a pricing scheme like that. Heck, you could drop the bottom GoFare to 1/2 of the top and make money if you managed the inventory properly. And that's not even counting F/C GoFares which would be higher than coach.

Oh, that's right, there's that pesky express operation. That CASM is up over 15 cents, so hard to make money as long as that's there (and growing). I know, get more concessions from the mainline folks to offset express cost....

"Comparing to DL, likely the next domino to fall into BK isn't comparing to much of an airline either."

Well, if being on the brink of BK makes DL not much of an airline, what does that say about the airline that's in BK for the second time in two years?

Jim

 

[whlinder]

US isn't even close to being first at doing what needs to be done. HP and AS beat US to the punch.

 

[sfb]

What seems to be most remarkable about Delta's SimpliFares at CVG is that this is being done at a hub that has little, if any, low-fare competition. And yet the vast majority of US's GoFares are on routes that go directly against low-fare carriers. Building up PHL is all fine and good if they can get people to work there for the wages the company plans to offer, but they're going to find it difficult to get people to fly if the fares don't get rationalized. Are GoFares going to stay around at DCA if Independence goes under, or will they be withdrawn/raised quietly?

The only thing that, to me, seems new about GoFares (so far) is the name. The fares were already in the system to match WN at PHL when the marketing began. "GougeFares" continue to be seen in most non-Southwest markets from PHL -- walk-up to BUF is a staggering $450+ each way! One-week advance purchase is $400 each way, but US will happily sell you a BUF-MCO ticket, connecting at PHL, on the same flights between PHL and BUF for $76 each way. I submit that US would see revenue improve if they chose to rationalize fares, thus improving O&D traffic to the hubs, rather than relying on cheap connecting fares to fill the airplanes.

 

[UseYourHead]

Bob,

Your right, and it is encouraging to see good things happening, even in the face of many that would never admit it is happening....

I meant first of the so-called "Big Six". HP and AS are ahead of the curve. US for the first time in recent memory is at least on the curve.

[post="197087"][/post]​

 

[TheLarkAscending]

Your[sic]right, and it is encouraging to see good things happening, even in the face of many that would never admit it is happening....

That truly depends upon one's own perspective, ce n'est pas?

 

[WorldTraveler]

oh dear PineyBob,
you apparently missed the memo but there will be no bankruptcy at DL. They got $1B in concessions outside of bankruptcy (largest in the industry), have received financing commitments for $1B in the last week (the latest of which was released before you typed your ridiculous post), and VOLUNTARILY restructured its fares in every market.

You know what happened to that tiny hub with an abundance of service? According to Delta, bookings from the cities around CVG have taken off like a rocket and bookings from delta's website are disproportionately growing faster than the overall bookings growth. But USAToday cited Aer Lingus who saw the same results so they probably have also missed the boat. And if DL is on the verge of bankruptcy, it must have been pretty stupid for them to change the entire pricing structure in their 2nd largest hub when no one made them do it. For supposedly being a customer, you seem mighty defensive of US' practices, even when they cost you (or your clients) money.

The industry is not going to be defined by 6 homogenous airlines. Some will get it and some will not. The ones who do not get it will have shorter and shorter lives.

 

[Art at ISP]

One of the most popular misconceptions about fare adjustments is that they all have to be artificially low. They don't. My theory, which has been discussed ad nauseum in these forums, is that FAIR fares will rule.

Instead of worrying about matching $29 to $49 fares in certain markets, just make EVERY fare a good value. I was once told by a senior exec that if he could raise the bottom fares by $20 he could lower the top end by $300. My response was "So do it!!". The response was that it isn't that simple.

This is one of the only businesses I know of where pricing is not governed by cost plus profit. While I realize there have to be some loss leaders, it can work. The examples of HP and AS pricing models ARE working, and those companies have been profitable (or near profitable) of late. In either case they have happy customers paying reasonable fares on relatively full airplanes.

Instead of "How Low Can You Go?", the question should be "How Can We Offer the Best Value?"

Looking at some of my pet peeve markets: NYC-ROC and LGA-CLT:

NYC-ROC is approximately 253 miles. If one assumes a mainline CASM of 11.5 cents, or an express CASM of 15 cents, your costs to operate the flight are $29.10 and $37.95 respectively per seat. Assuming that there is a $5 - $10 fudge factor, you still have each flight costing under $50 per seat to operate.

US pricing has ranged from a low of $125 each way to a high of almost $250 each way, while B6 holds steady at around $90 each way (their costs being under 8 cents per mile make their margins even better!).

Therefore even with express they could make money in the $75-$100 range each way day in and day out.

LGA-CLT is 543 air miles more or less. At 11.5 cents the cost to operate each seat is $62.44, while on an express flight it is about $81.45. Still costs per seat are well under $100 each way. If you price this market at a max of $250 each way you have a significant profit no matter how you look at it. I cannot justify a B fare (not even the highest) of more than $450 each way--it's almost criminal.

Now I am not an expert but I am trying to consider variables such as actual aircraft costs vs. number of seats etc. I know there are significant variables, but my major theory still holds.

I know I speak for most frequent fliers when I say that we are tired of subsidizing these artificial and unsustainable fares which are usually grabbed by the once a year fliers. The problem is that we are refusing to pay the ridiculous fares, yet no one is allowing for that loss of revenue by adjusting the bottom upwards.

What we want are FAIR fares, not artificially low ones. We do not mind paying for value received. While in certain markets you need to have low fares to compete, the ENTIRE system needs to be RATIONALIZED.

Go Fares are a start, but until they roll out system wide and modify to meet the market needs, I don't know if it will make a difference.

My best to you all....

 

[WorldTraveler]

Art is absolutely right. A few low fares amidst a huge warehouse of high prices do nothing to convince the world that you are a value leader. Having fair fares throughout your system, or as broad as you can competitively do it, is far more likely to engage the public. And to further Art's point, if an airline offers decent value across the board, they are no subject to the whims of a few desperate airlines who slash fares ridiculously. I have an e-mail from a friend who said they flew Independence recently but could have driven the 400 miles faster than DH got them there. The $44 fare was no bargain and they admitted they won't make the mistake again.