Luvn
you have it mostly right. WN's strategy has always been to enter the biggest markets and skim off the biggest markets from that city to make a profit.
Despite all the worship of low fare carriers, anyone who understands the industry knows that low fare carriers as a group and WN esp. will never provide the level of nationwide air service that the network carriers do… which is why RJs continue to use large portions of the airspace and slots in the nation’s most congested airports.
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Your assumption is wrong that network carriers have to choose where to make they want to make the most money based on the increasingly competition from WN. WN’s experience at PHL shows that network carriers have much larger and deeper networks they can use to compete against low fare carriers and they can add capacity in order to maintain the resources necessary to compete against WN.
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While DL has pulled down connecting capacity in CVG and MEM, they have shifted it to ATL where they are adding system capacity – much of it on lower cost mainline or large RJ flights. DL is in fact able to make it harder for WN (or its FL subsidiary) to establish itself by adding more capacity and by using the depth of the network carrier networks to push a lot more capacity thru those hubs, making WN compete for the local market against a much larger number of seats from the network carriers in each market. DL and US’ revenue management systems decide which markets are most valuable but as long as they continue to add capacity, there is no need to make a choice between the local, WN competitive flow markets, or non-low fare competitive markets.
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Jim,
Employee productivity in the airline industry is measured by ASMs produced per employee. You might be interested in knowing that using the latest quarterly releases, WN produced about 700,000 ASMs per employee. US mainline employees only was less at about 615K but DL and UA’s mainline employees produced very comparable levels of ASMs as WN.
DL and UA used their higher percentage of widebody aircraft (compared to US) and longhaul (including international) flying to produce comparable levels of productivity.
Excluding international flying from the redeye equation excludes exactly the places where the network carriers have turned in order to increase their productivity; that full 333 flying from PHL to Europe for 16 hours per day round-trip is a major part of why US can successfully be able to defend its PHL hub against WN. US does have some less efficient shorter haul connecting parts of its business than WN but US and other network carriers are able to use most efficient parts of their operation – including transcons and intercontinental flying – to offset some of their inefficiencies in other parts of the network.
Not only does WN pick a narrower market scope to compete in, but they also used a narrower scope of resources than the network carriers in order to serve it.
RJs and contracted operations are part of how network carriers serve the less efficient parts of the operation but they also serve segments such as longhaul, widebody segments which are more efficient than WN.
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As you are also aware, WN actually does very little (proportionately) nonstop coast to coast flying – in large part because their efficiency advantages do not help them near as much on those routes. Given that transcon flying is a much larger percentage of FL’s ATL operation than it was of US’ PHL operation, it means WN has even less ability to generate efficiencies compared to DL, esp. considering that DL is able to use very efficient aircraft like the domestic 763 and 753.
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It is certainly true that management at US and any company in general – although US pushes the limit more than other carriers – will outsource as much as they can to reduce costs. But the notion that network carriers cannot compete successfully against low fare carriers including WN is simply not true.
There are plenty of statistics to show that the painful restructurings the network carriers have gone through esp. over the past decade have been successful in helping them compete with low fare carriers.
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Finally, you do realize that in the most recent quarter, WN’s operating profit margin was less than DL, UA, and US AND its RASM growth also trailed all of the network carriers on their domestic system?
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WN has a lot of historical advantages to it… but it is naïve to not recognize the challenges that WN faces in becoming a true coast to coast carrier competing in markets where network carriers have long been established. Network carriers have many advantages that they have at their disposal and which they continue to perfect to allow them to compete against low fare carriers.
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The notion that network carriers cannot compete not only is false but so also is the notion that the only way for network carriers to compete against WN and other low fare carriers is to outsource their flying and operations.
It is highly possible for network carriers to maintain the size, scope, and efficiencies that WN has in order to keep jobs and revenues at mainline carriers.
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Failing to believe that network carriers can successfully compete or justifying their inefficiencies – which aren’t there or if they do exist are a lot less than you think – is an invitation for management to continue to justify outsourcing.
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Network carrier employees need to focus on what they have accomplished and what they can do instead of seeing themselves as unable to compete.
excellent example, Tech... Kev has related that some of his frustration with DL has come from the bureaucracy that has come as DL has taken away some of the "entrepeneuralism" that NW had in its operations.
DL employees are perhaps less likely to help out in each other's work areas than what you and Kev described as happening at NW but DL was and still is a larger airline so if they lost something in process efficiency they have made up for it in efficiency coming from volume. DL and NW had very similar labor productivity and labor CASMs at the time of the merger although they came up w/ those numbers differently. CO, DL, and NW all had much higher labor productivity than AA, UA, or US before the mergers started happening. Now most of the network carriers aside from AA have pretty similar levels of productivity but UA and US cut alot higher percentage of jobs than NW or DL in BK to get to that level of productivity.
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Your example shows that it is possible thru more than one way to create the needed efficiencies.