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On 3/27/2003 4:28:04 PM KCFlyer wrote:
Tom - try this - price out a PHL-LAX flight on U, leaving 4/17 and returning 4/24. Then, look at the mileage between the two cities, multiply it by 2 (to get the round trip mileage), and muliply that by .10 (hoped for CASM). $49 doesn''t even come clost to covering those losses.
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Route by route examples aren''t going to resolve the issue -- we can both find data points to support whatever.
The point that I think you''re making is that if they''re losing money they''re losing more by providing "amenities".
I agree. I just don''t think the amenities in question amount to spit in the ocean of red ink that selling unprofitable tickets results in. Cutting back so-called amenities is, at best, a feel good measure. It has no real impact on costs.
My point is that if the basic fare is break-even and that the willingness stipulated way back in the thread to spend an additional $49 to fly on a airline that provides such is real then those amenities are attracting additional
profit to the airline -- they are not costing it anything.
Of course if they''re going to sell tickets at a loss they''re going to lose (slightly) more by offering a bag of peanuts too. And if they try to make up for it on volume it just gets worse. We have no disagreement there.
We might disagree over whether or not the typical "preferred" cockroach is buying a profitable ticket. I think we generally are. I''m fairly sure that I, personally, didn''t have any out and out money losing fares last year. I may have had a few that were borderline -- almost all were discount fares of one sort or another -- but on the whole they should have been modestly profitable. I doubt that I''m atypical in that regard. A business traveler doesn''t need to sweat the fare down to $39 -- he''ll take it if it''s thrust on him but once you''re down in the $250 range (or sub $500 for a trans-con) it''s probably going to be approved by who ever needs to sign off on it. On the other hand $1,000 is almost always going to raise eyebrows.
Somewhere on US''s website there is some data that says that the average customer trip is around 800 miles. With a CASM around $0.10 that means that they need about $80 of revenue to break even on that seat. If they can''t get it down to $0.10 and it stays at $0.12 they still only need $96. If the planes are only 60% full they still only need $128 to $155 to be breaking even. $49 is a lot of incremental revenue in that picture -- it''s about between 3% & 5% to the bottom line depending on how full the plane is and what the actual CASM turns out to be.
The difference between profit and loss is a very small shift in the average ticket price. Right now US has a ridiculous pricing scheme that very strongly steers customers to buying unprofitable fares. Reducing the business friendly differentiators will accelerate that trend (as it has been for some time) and have a more negative impact on profitability than any savings that might be generated.
The real problem is that zero effort has been put into providing any sort of incentives or support for buying more expensive tickets. Instead the gap between low fares and high fares gets wider, amenities for those few who still actually pay for them are reduced, those people ask themselves why they should pay so much, the company dreams up new punishments for freeloaders who buy discount tickets and the spiral continues.
The real thing that the business paying the freight would actually pay for -- flexibility at a fair price -- is anathema to the airline. They are addicted to those ever so scarce big wads of cash. Rather than earn an honest living they want big score.
To the airline "my dates are flexibile" means that the PAX bends over and submits to an arcane and convoluted set of rules and restrictions which are designed solely for the purpose of confiscating money from the customer. The traditional airline''s idea of a "fair price" is something that even a congressman would blush to ask.
Contrast that with Southwest and you quickly see why people who fly Southwest like Southwest. But nobody at Fort Fumble will ever do that -- that isn''t the lesson that they want to learn. It''s too bad because if they did learn that lesson they could really do well.
