- Nov 9, 2003
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Market Focus
US Airways Mounts Modest Defense Against Southwest
Aviation Week & Space Technology
05/03/2004, page 12
Barry Rosenberg
Thousand Oaks, Calif.
MARKET FOCUS
US Airways' first response to Southwest Airlines' invasion of its turf in Philadelphia is more like a jab than a right-cross meant to cause any damage (see p. 44).
"GoFares" introduced on Apr. 29 by US Airways are targeted specifically at 13 Southwest routes from Philadelphia, including four cities in Florida, plus Southwest's powerhouse markets in Los Angeles, Las Vegas and Phoenix.
For the most part, the new fares keep US Airways technically price-competitive with Southwest walk-up levels, but maintain two to three additional higher price categories, plus a first-class level. And while the US Airways fares represent a drop from archaic legacy price points, Southwest is still cheaper on many routes.
"In the vernacular of pricing circles, this is known as charging a 'stupid premium'," said JPMorgan analyst Jamie Baker. "In the vernacular of airline executives, it is known as charging a yield premium for benefits passengers truly want--such as assigned seating, pre-boarding for elite fliers and the ability to pay $7 for a chicken Caesar wrap."
For the short term, Baker believes the price disparity does not necessarily comprise a bad strategy for US Airways, which, because of its "favorable concentration" in the Philly market, should be able to get away with a yield premium relative to Southwest for the time being. The 13 routes affected represent about 8% of US Airways' system revenues. And although aimed primarily at Southwest, the GoFares will also swipe at AirTran's presence in Philadelphia. Those 13 markets account for 6% of AirTran's revenues.
It will be interesting to see whether US Airways carries its pricing strategy over to other markets--it says the new GoFares are "permanent"--and whether the carrier is willing to be a legacy airline spearhead for pricing reform directed at low-cost airlines. "We fully expect US Airways to take a more proactive approach to fare reform in the future, potentially damaging industry revenue trends along the way," says Baker.
On Apr. 27, US Airways Group Inc. reported a first-quarter net loss of $177 million, a 37% improvement over the net loss of $282 in the year-ago period.
"US Airways' principal upcoming challenge remains convincing its labor groups to accept another round of concessions as part of management's plan to lower expenses in the face of rising low-cost competition," said Philip Baggaley, a credit analyst with Standard & Poor's, which, like Aviation Week & Space Technology, is a division of The McGraw-Hill Companies.
US Airways Mounts Modest Defense Against Southwest
Aviation Week & Space Technology
05/03/2004, page 12
Barry Rosenberg
Thousand Oaks, Calif.
MARKET FOCUS
US Airways' first response to Southwest Airlines' invasion of its turf in Philadelphia is more like a jab than a right-cross meant to cause any damage (see p. 44).
"GoFares" introduced on Apr. 29 by US Airways are targeted specifically at 13 Southwest routes from Philadelphia, including four cities in Florida, plus Southwest's powerhouse markets in Los Angeles, Las Vegas and Phoenix.
For the most part, the new fares keep US Airways technically price-competitive with Southwest walk-up levels, but maintain two to three additional higher price categories, plus a first-class level. And while the US Airways fares represent a drop from archaic legacy price points, Southwest is still cheaper on many routes.
"In the vernacular of pricing circles, this is known as charging a 'stupid premium'," said JPMorgan analyst Jamie Baker. "In the vernacular of airline executives, it is known as charging a yield premium for benefits passengers truly want--such as assigned seating, pre-boarding for elite fliers and the ability to pay $7 for a chicken Caesar wrap."
For the short term, Baker believes the price disparity does not necessarily comprise a bad strategy for US Airways, which, because of its "favorable concentration" in the Philly market, should be able to get away with a yield premium relative to Southwest for the time being. The 13 routes affected represent about 8% of US Airways' system revenues. And although aimed primarily at Southwest, the GoFares will also swipe at AirTran's presence in Philadelphia. Those 13 markets account for 6% of AirTran's revenues.
It will be interesting to see whether US Airways carries its pricing strategy over to other markets--it says the new GoFares are "permanent"--and whether the carrier is willing to be a legacy airline spearhead for pricing reform directed at low-cost airlines. "We fully expect US Airways to take a more proactive approach to fare reform in the future, potentially damaging industry revenue trends along the way," says Baker.
On Apr. 27, US Airways Group Inc. reported a first-quarter net loss of $177 million, a 37% improvement over the net loss of $282 in the year-ago period.
"US Airways' principal upcoming challenge remains convincing its labor groups to accept another round of concessions as part of management's plan to lower expenses in the face of rising low-cost competition," said Philip Baggaley, a credit analyst with Standard & Poor's, which, like Aviation Week & Space Technology, is a division of The McGraw-Hill Companies.
