The Parrots Are At It Again:Low Fare Airlines Will Dominate The World

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Hatu

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[A href=http://www.aviationplanning.com/]http://www.aviationplanning.com/[/A][BR][BR]The Flower-Children Mantra Continues. Hardly a week seems to go by without some analysts announcing that they have discovered the Rosetta Stone that unlocks the secrets of the airline industry. Yes! We found it! Our study proves it! Crank up the press release! Southwest Airlines (or another one of the few discount carriers) has lower costs than mega-carriers! [BR][BR]Then the usual suspects in the media perform like Pavlov's dogs. At the bell, the rush to file stories illuminating this great discovery, with the expected start-with-the-conclusion-and-work-back stories telling the reader that there is a new world coming for air travel. The implication is that United, American, Northwest, and Continental need to dump their inefficient love affair with hubbing, and get down to being like Southwest. [BR][BR]Yessir. Just like Southwest. (Or jetBlue, as a variation on the journalistic theme.) This is the airline industry of the future, the reporters report confidently, implying that's heresy to disagree. It's a new world, they write. A world of 737s and A-320s jetting people around on cheap fares. A world that serves the masses without those dreadful hub connections. Yes! A world rid of the scourge of O'Hare.[BR][BR]And a world that also rids us of air service to Baton Rouge. Gainesville. Grand Junction. Lincoln. Erie. Eugene. Lynchburg, not to maybe a hundred more places. A minor point, it seems, that the flower children are missing..[BR][BR]Sorry To Inject Reality, But... What these monkey-hear, monkey-say analysts miss is that the low fare model addresses only part of the air transportation system. Southwest flies to places where there are, or where there can be collected, huge numbers of passengers, and flies them to other such places. Network carriers are (at least currently) in the business of mostly collecting passengers from a large number of points, combining them at a hub, and shooting them on to other points. A 50-seat jet is about all that some markets can support, and that means higher costs. [BR][BR]Yeahbut, the flower children condescendingly retort, hubbing is less efficient in terms of aircraft utilization than the point to point model used by Southwest. Put down the herbal tea and get real. Very high utilization is highly inefficient if the plane has no revenue on it. There's nothing less efficient that a 737 carrying 10 passengers point to point between Bangor and Omaha. And Southwest (not to mention any other low-fare airline) isn't going to launch 737s to Aberdeen, SD anytime soon. The airliners that can efficiently operate to places like that have much higher ASM costs, and - tellingly - must rely on the hub system to make sure there's enough traffic per flight to support a schedule of more than one round trip a day. Higher costs than Southwest are not prima face evidence of inefficiency. [BR][BR]This is not to imply that there is anything wrong with the Southwest Airlines approach. It's a valued part of our air transportation system. Only it isn't one that can provide efficient air transportation to most airports in the nation. It isn't the harbinger of all future air transportation. Because if it is, lots of places - some of them not so small - will be air service blighted.[BR][BR]Nor is this to imply that the mega-carriers are as efficient as they need to be. Far from it. But there is a difference in cost structure between carriers which focus mostly on large traffic flows, leaving smaller airports off the route map. Yeahbut, the flower children retort, Southwest does fly to some smaller points. Like, say, Lubbock. True, but that's a legacy of the 1970s. If then were now, there's an open question whether such points would be strongly considered. They are there. It works. But today, the bar for market entry is lots higher than in, say, 1977. And that has led to some embarrassing moments for some cities trying to recruit Southwest. Like, how many lightweight air service consultants have met their untimely end condescendingly handing Southwest a presentation that trumpets, Why, how on earth could you still fly to Amarillo? My client, East Bimboburg, is 30% bigger! [BR][BR]Finally, the flower children are missing another point: these low-fare carriers, including Southwest, have not been unscathed by the events in the past year. Their pricing and planning people have not been sitting in the break room, sipping coffee and eating bon-bons while they leisurely peruse all the glowing media reports on their success. The fact is that low fare carriers have been hit harder than the majors in unit revenue declines, and they face some daunting challenges too.[BR][BR]There are few low fare airlines for a reason. It's not because of predatory actions by big carriers. It's because the number of markets that can support them is limited.[BR][BR]What isn't limited, it seems, are the number of studies done that illuminate the obvious, outline what's easy to see, and then still manage to come to the wrong conclusion.[BR][BR]© 2002 The Boyd Group/ASRC, Inc.[BR][BR]
 

AC AA LA FA

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The next few years will certianly be interesting, as things sift out and the new world order of airline operation and consolodation takes place...The fact and the numbers to support them are clear with regard to service to small and mid size city markets..if you add them up, the number grows and collectivly there is a profit to be made in servicing these markets I am sure. Responsibility of air service by airlines to these markets as set forth by the government as a result of local politics and industry will dictate to a point how much the point to point low cost to hub and spoke low(er) cost service will exist..I think we all know now that yes, the WNs and JBs of the world have the cost advantage..for now..by approaching the majors business model on all fronts, with some fine tuning and adjustment..hub and spoke will be around in some shape or form for a long time to come....it still is a win win system for all...
 

JFK777

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For all those saying LOW FARE AIRLINES WILL DOMINATE I say look at British Airways, Singapore and Virgin Atlantic. BA is using smaller planes with less coach seats and the same number of Club and First seats plus the Concorde, and people pay thousands to fly them. A trip from JFK to LHR is not much longer or further then Jet Blue to California. Virgin and SIA need no explanation. Long live Business Class, the only way to go the long haul.
 

MileHighGuy

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Oct 14, 2002
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[P]Let's not be too quick to discount (no pun intended) the discount carriers. If passengers were willing to pay more for meals, increased frequencies, larger aircraft. MRTC, etc.; airlines like Southwest and JetBlue wouldn't exist. Also, charters to Europe, the Caribbean, etc., wouldn't exist either.[/P]
[P]The passengers will prove if the discount carriers survive in the long run. If Southwest is any indication, I would say that the discount carriers are here to stay.[/P]
[P]Now if I could only convince JetBlue to fly to Europe from JFK on modified A320s!!! [/P]
 

AirplaneFan

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[P]A comment from Mr. Boyd. Now we always have to remember that he is a paid consultant who will spin his words and results to whomever is paying the bill. The facts[/P]
[P]1) Revenues have gone up for JetBlue and stayed essentially flat at SW and AirTran. All 6 of the hub-n-spokes have seen revenues drop significantly.[/P]
[P]2) [STRONG][FONT color=#6600cc]Altruism [/FONT][/STRONG]has nothing to do with the hub-n-spokes flying between Bangor and Omaha. They do it because they can [FONT color=#cc0066]gouge [/FONT]those passengers for a lot more money. But SW already flies to Omaha and could easily make it work flying 2 r/t daily to BWI and MDW. Then Bangor to Omaha would be covered. Some might say that it is not the SW way to go into a city with less than a full complement of 10 flights. That is true now, but might not be true in the future. Certainly West Jet in Canada makes a profit flying to cities with far less frequency than SW. As does JetBlue. As does Ryan Air. There are many ways to use the SW model to make a profit and not copy the frequencies of SW. And as SW fills out its network, some cities that couldn't have made the initial cut of being able to support 10 flights per day will now be closer to the mark. [/P]
[P]3) There is some truth to the fact that SW scrapes the cream off the top of the airline industry. But that cream has been lying there dormant as other carriers chose not to see it. SW, I believe, is now the 3rd largest carrier in the Boston area by flying 49 flights daily out of MHT and PVD. The major carriers only wanted to fly to Boston, SW decided to go to the less congested airports to the north and south.[/P][/FONT]
 

DLFlyer31

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Aug 20, 2002
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[blockquote]
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On 10/16/2002 11:10:56 AM AirplaneFan wrote:

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A comment from Mr. Boyd. Now we always have to remember that he is a paid consultant who will spin his words and results to whomever is paying the bill. The facts[/P]

1) Revenues have gone up for JetBlue and stayed essentially flat at SW and AirTran. All 6 of the hub-n-spokes have seen revenues drop significantly.[/P]
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You are wrong and need to re-read Boyd's site...he is talking about unit revenue not total revenue. There's a huge difference. Here's a comparison for the 2nd quarter (2002 vs. 2001) (since we don't have all the 3rd qtr data).

WN -11.4%
FL -25.1%
JB -5.8%
F9 -24.1%

The reason total revenues are up at JBLU is that JBLU is expanding rapidly so hopefully they would see more revenues.

Look over at the WN message board and see the comments from Parker. Obviously, WN is in good shape and far better off than the majors, but don't think WN isn't feeling some pain too.

As for new cities, I doubt you'll ever seen WN in a small market like BGR or any other small market. It's too hard to make money in those markets with 737's. Notice how FRNT,AAI and ATA all rely on regional feeders more and more to get into small markets.

The economics of small towns just won't work for WN. Not too worry...there are still quite a few medium/large markets that can support WN.
 

DLFlyer31

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[blockquote]
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On 10/16/2002 2:38:20 PM KCFlyer wrote:

Something Mr. Boyd forgot is that the while the discount model would preclude service to cities like Baton Rouge, Gainesville, Erie, Eugene and Lynchburg, the current pricing structure of the majors has made it attractive for those residents to DRIVE to New Orleans, Orlando, Cleveland, Portland and Baltimore.
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That's true KC, but not good for business in those small towns. Hard to attract new industries or tourists if the only air service is 100+ miles away.

Not to mention that some of those drives you mention are pretty terrible. Driving from Lynchburg to BWI could be hell on earth!!!
 

DLFlyer31

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Aug 20, 2002
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[blockquote]
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On 10/16/2002 4:58:25 PM mrman wrote:

DlFlyer you wrote "The economics of small towns just won't work for WN. Not too worry...there are still quite a few medium/large markets that can support WN."

I assume you think WN is loosing cash in ALB, AMA, BHM, BOI, CRP, ELP, HRL, JAN, JAX, SDF, LBB, MAF, OMA, PVD, RNO, GEG, PBI....
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[/blockquote]

When I say smaller markets, I speak of cities with less than 500,000 metro population. That immediately knocks out ALB, BHM, ELP, JAX, SDF, OMA, PVD and PBI.

Most of the other cities you list are Texas cities that were inherited pre-deregulation. JAN was a political choice and just barely clings on. JAN has 9 flights today and WN has shown little interest in expanding there.
 

mrman

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Sep 10, 2002
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DlFlyer you wrote The economics of small towns just won't work for WN. Not too worry...there are still quite a few medium/large markets that can support WN.

I assume you think WN is loosing cash in ALB, AMA, BHM, BOI, CRP, ELP, HRL, JAN, JAX, SDF, LBB, MAF, OMA, PVD, RNO, GEG, PBI....


Don't forget in most of these cities they only have to fill half a plane as this is a continuation of a flight. Also they compete with regionals in many of these cities including props where the full service (Note WN is a major) airlines rape the passangers with RJ prices.

WN won't stay in an unprofitable city for traditions sake. Look at Beaumont and SF.

MrMan
 

JFK777

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Living in west palm beach near the jet path, I see all those big Delta 767 going to ATL and LGA plus other DAL going to JFK, BDL, and BOS. AA goes to ORD, LGA, and BOS. Southwest flies to no major New York or Boston airport. If I am commuting to Florida as many with winter homes do and leaving NYC or BOS friday for a 4 or 5PM flight and a 7pm back sunday night would I fly el cheapo? NO

If your time is flexible and you don't mind flying to providence or islip then SW is for you. If you have to maximize you 48 hour weekend then you have to fly the major airline. But if you need a metropolitan area airport then you have to fly the major airline. Jetblue at JFK does compete better to florida sinec they are within NYC. The only major metropotitan airport SW flies to I can think of is LAX. Not in Dallas, Chicago, Washington(Baltimore is in another state), Boston , New York or San Francisco does SW fly to the major area airport. I think they would do very well at Newark, but there 20 minute turnaround won't work there. Airtran is junk, Jetblue is wonderful, and SW for less then 2 hours is alright but from BWI to LAX for get it.
 

mrman

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Sep 10, 2002
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JFK,

Actually many of the non-hub airports are closer to the city center. Dallas, Houston, Chicago, maybe Burbank come to mind. They also do fly to some hub airports, St Louis, Salt Lake, LAX, Phoenix, Las Vegas come to mind
 

JFK777

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MR. MAN,

I realize Love field and Midway in Chicago are closer to the city then DFW or ORD but the reverse is also true. In Boston Logan is just a tunnel ride or short subway away from downtown. SW served SFO but stopped, it serves Oakland, not a great substitute. In New York it doesn't fly to LGA, JFK or EWR only Islip, great for eastern long island but not the city itself. In Florida does serve PBI and FLL, where more people from the US travel to south florida then MIA. SW doesn't fly to the big airports where most passengers fly in or out of, the only exception I know of is LAX. Even in Dallas, one of the cities where SW was born it can only fly to the contigious states under the Wright Amendment, SW can't sell a ticket to either coast. Doesn't that limit its ability to compete against AA? While SW's formula does work, the bigger it gets the more it may have to stray from it.
 

KCFlyer

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[P]
[BLOCKQUOTE][BR]----------------[BR]On 10/17/2002 8:31:27 AM JFK777 wrote:
[P]MR. MAN,[BR][BR]      I realize Love field and Midway in Chicago are closer to the city then DFW or ORD but the reverse is also true.  In Boston Logan is just a tunnel ride or short subway away from downtown.  SW served SFO but stopped, it serves Oakland, not a great substitute.  In New York it doesn't fly to LGA, JFK or EWR only Islip, great for eastern long island but not the city itself.  In Florida does serve PBI and FLL, where more people from the US travel to south florida then MIA.  SW doesn't fly to the big airports where most passengers fly in or out of, the only exception I know of is LAX.  Even in Dallas, one of the cities where SW was born it can only fly to the contigious states under the Wright Amendment, SW can't sell a ticket to either coast. Doesn't that limit its ability to compete against AA?  While SW's formula does work, the bigger it gets the more it may have to stray from it.    [/P]
[P]----------------[/P]
[P]JFK777 - Want to make AA's day? Just let SWA announce that they are leasing a couple of gates at DFW to serve LA, Chicago, Baltimore, and Oakland. Southwest never sets out to own any market. ISP is a good example. Last I checked, Long Island had a prett decent sized poplation base. Maybe it's not New York City, and maybe they won't get people who won't want to put up with the hassle of getting out there (which strikes me as odd in a city where a large number of folks take the train to get to work, but wouldn't consider taking a train to Long Island to save a few bucks) but they'll get enough folks who want to fly out of there. And one has to wonder if ISP wouldn't be even bigger if JetBlue were not in the picture, offering low fares from convenient JFK. SWA stopped service into SFO because the delays caused by the airport design were impacting their flights down the line. But OAK is just about the same distance from downtown San Fran as SFO is, and it isn't subject to the same delays that SFO gets. [/P][/BLOCKQUOTE]
[P][/P]
 
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