Us Airways As Poster Child

[USA320Pilot]

US Airways as Poster Child

By Kevin Mitchell, Chairman, Business Travel Coalition

ARLINGTON (Aviation Daily ) - Recently, US Airways announced that where it competes with Southwest Airlines at Philadelphia it will simplify, lower and cap its airfares.

Upon learning of this news, a senior Southwest Airlines executive told me that if US Airways had taken this action three years ago, Southwest would not have made the decision to enter Philadelphia.

As Lakefield states, the US Airways strategy of charging supra-premium airfares in monopoly city-pair markets is now under attack by low-cost carriers. Instead of proactively providing a product its customers for the past 10 years said they wanted, at a price point they could embrace, US Airways is being forced to do so by competitors. Unfortunately for US Airways, this is not lost on its customers.

To best inform a decision regarding how deep further restructuring needs to be, it’s valuable to understand not just how the marketplace has shifted, but why. There is more to industry change than Lakefield’s opening sentence suggests: “The new competitive landscape facing the legacy carriers is forcing major structural shifts.â€

There are three drivers that combined to cause the structure of the airline industry to change permanently:

1) A truly global marketplace, wherein companies are forced to pursue low-cost producer status is resulting in business travel cost reduction becoming a permanent initiative at most corporations.

2) Business travelers now have an unprecedented and growing range of alternatives to a seat on a major network carrier, such as low-fare airlines, web casting, web conferencing, trains, or automobiles.

3) Travelers have access to increasingly sophisticated Internet-based tools that bring transparency to all air travel options.

In response to this changed marketplace, America West and Alaska Airlines proactively undertook significant airfare structure reform because they were smart and because they had the cost structures to be able to do so.

However, it is unlikely there will be a wholesale shift by other large carriers to simplified airfare structures.

The majors will more likely reform portions of their systems at a time because their current cost, debt and asset productivity constraints will hamstring the pace and extent of reform. Concurrent with partial reform, however, smart majors will aggressively pursue deeper restructuring as the only sure course to long-term viability.

For US Airways and other majors that can successfully restructure to provide an airfare structure their customers have long wanted, rewards will include:

•Induced leisure and business travel demand
•Slowed market share shift to the low-cost airline segment
•Profitability; improving balance sheets
•Growth; new investor confidence
•Longer-term viability; more motivated and focused employees

US Airways is now the poster child for majors caught unprepared for a changed marketplace and in the crosshairs of the low-fare airline juggernaut. As a proxy for battles yet to be fought, the industry will be watching the engagement of US Airways and Southwest Airlines at Philadelphia with unparalleled interest.

 

[funguy2]

Upon learning of this news, a senior Southwest Airlines executive told me that if US Airways had taken this action three years ago, Southwest would not have made the decision to enter Philadelphia.

Now I said this when the announcement was made!

And how does US Airways respond? By only lowering fares in markets without direct competition. Why isn't US Airways loweing fares on PHL-BUF, PHL-ORF, PHL-ALB, PHL-BDL, PHL-BNA, PHL-CLE, and others in order to limit Southwest's advancement in PHL.

GoFares is needed, but the battle was already lost on PHL-PVD... The next battle will be on Southwest's next round of new flights from PHL... If US Airways made a meaningful fare structure change, maybe Southwest would de-emphasize PHL in its growth plans... But as long as US Airways remains reactive, Southwest will continue to successfully grow their PHL operation. As they do, they will force US Airways fares down and steal market share, rather than US Airways give up some yield (i.e. revenue per ticket) now in an attempt to stimulate the market (thus maintaining revenue through volume).

 

[oldiebutgoody]

Personally, I believe that when LUV sees how in-over-its-head it is in PHL, a graceful exit will be underway. PHL will be a DISASTER for LUV's system, much like it is for UAIR (from a system statistic standpoint). I don't see how they can overcome the prevailing attitudes, along with the airport operations and airspace problems.

 

[mweiss]

Personally, I believe that when LUV sees how in-over-its-head it is in PHL, a graceful exit will be underway.

I'll make a bet that you're wrong. How long would WN have to stay in PHL before you'd agree that you're wrong?

 

[Schatzee]

I'll make a bet that you're wrong. How long would WN have to stay in PHL before you'd agree that you're wrong?

Until the first bad weather day in the summer thunderstorms or winter ICE storms. It is kinda hard to reroute anynody when WN doesn't have a ticketing or baggage agreement with any other airline. Watch their TV show "Airline" sometime and see how they handle a canceled flight. You'll be on the standby list until you clear it on a WN flight.

 

[oldbscaler]

Gee,
I guess they don't have thunderstorms or deicing problems in STL, DAL, CLE, BNA, PVD, etc... etc.

 

[ClueByFour]

Personally, I believe that when LUV sees how in-over-its-head it is in PHL, a graceful exit will be underway. PHL will be a DISASTER for LUV's system, much like it is for UAIR (from a system statistic standpoint). I don't see how they can overcome the prevailing attitudes, along with the airport operations and airspace problems.

I think LUV figures that once they kill US, they can pretty much have all the runway and airspace they will ever need.

It's not that far down the road to BWI and LUV seems to learn something from institutional memory.

 

[ClueByFour]

Until the first bad weather day in the summer thunderstorms or winter ICE storms. It is kinda hard to reroute anynody when WN doesn't have a ticketing or baggage agreement with any other airline. Watch their TV show "Airline" sometime and see how they handle a canceled flight. You'll be on the standby list until you clear it on a WN flight.

I think LUV survived the last few days of storms with golfball sized hail that tore up Texas. They've been surviving such storms for years.

They operate from MDW, DTW, CLE (a bit of snow?), MHT, PVD, etc. Not exactly stellar weather in these places either.

I wonder how many folks have booked away from LUV on account of what they've seen on "Airline."

My point is that none of the problems you have mentioned are new to LUV. And if they have to, they'll get you to/from BWI on Amtrak (if you watch "Airline," you have surely seen that even LUV was willing to bus people between DTW and MDW during the summer power outages).

 

[oldiebutgoody]

I think LUV figures that once they kill US, they can pretty much have all the runway and airspace they will ever need.

It's not that far down the road to BWI and LUV seems to learn something from institutional memory.

I can understand THIS scenario, but any other is RIDICULOUS! This is EXACTLY what U thought after they drove Midway1 out of PHL shortly after EAL went under. I saw it first hand. IMO, it was the fact that UAIR (preceded by U) had a near monopoly in PHL, with its large O & D base that allowed it to build to its present state in UAIR's system. Even LUV admitted in an article (sorry, I know I read it, just can't remember where) that their main goal in going into PHL was to prevent other LCCs from getting a foothold so close to BWI, NOT to drive UAIR into a phrenzy (it just worked out that way). PHL is PLAINLY an airport contrary to LUV's normal M.O., since they normally choose outlying or underserved airports in large markets in order to turn their airplanes quicker and utilize their assets better. Hey, Mr. MWEISS, I've been in this business probably since you've been out of diapers ( maybe before). I've seen alot, and even remember the days when U was lauded as an industry powerhouse. The bigger they are, the harder they fall. LUV may be on top now, but rest assured, THEY WON'T BE FOREVER! No matter what YOU think.

 

[mweiss]

MWEISS, I've been in this business probably since you've been out of diapers ( maybe before). I've seen alot, and even remember the days when U was lauded as an industry powerhouse. The bigger they are, the harder they fall. LUV may be on top now, but rest assured, THEY WON'T BE FOREVER! No matter what YOU think.

LOL You slay me. I never suggested that LUV will be on top forever. In fact, if you read my posts in the WN section of this board, you'd see where I was pointing out that their business model is as dependent on expansion as any other airline's, and that their expansion rate is unsustainable.

My bet is that WN will not be leaving PHL anytime soon. Wanna take it? How long should it be?

 

[oldiebutgoody]

LOL You slay me. I never suggested that LUV will be on top forever. In fact, if you read my posts in the WN section of this board, you'd see where I was pointing out that their business model is as dependent on expansion as any other airline's, and that their expansion rate is unsustainable.

My bet is that WN will not be leaving PHL anytime soon. Wanna take it? How long should it be?

How can anybody (you included) make ANY prediction about what kind of idiotic decisions an airline management will make? Are you joking, or are you REALLY that stupid?

 

[mweiss]

How can anybody (you included) make ANY prediction about what kind of idiotic decisions an airline management will make?

Nobody can. I take it from your response that you haven't done much gambling. You play the odds, based on available information. In playing the odds, based on available information, WN will be around PHL for many years to come. I'm less willing to bet that WN would outlast US, since that involves more variables than I'm comfortable with.

Are you joking, or are you REALLY that stupid?

Hey, I'm not betting my life's savings here. I'd be willing to put a Jackson on it, though.

 

[oldiebutgoody]

Sorry,
I don't bet. They don't pay the light bills on the Vegas strip by giving money away. Something else I learned many years ago.

 

[ELP_WN_Psgr]

LUV may be on top now, but rest assured, THEY WON'T BE FOREVER! No matter what YOU think.

I am not sure anybody will be on top forever. Forever is an awfully long time. But after 33 years it is time for WN to back in the sun. The nice thing about the boys and girls from Dallas....they bask with one eye open. I have always admired the fact that most everybody there seems to realize that complacency, not any other airline, is the real enemy.

Why has WN been successful? It isn't all low employee costs due to junior folks. There is more to it than meets the eye.

Read Lamar Muse's "Southwest Passage" sometime. Those of us who do (or have done) Army stuff for a living sort of heed the axiom "know thine enemy." I don't think many folks at any other carrier really understand where WN has come from. It wasn't all Herb drinking Wild Turkey and sketching route maps on cocktail napkins.

There was a protracted legal struggle just to get in business against entrenched competition.

There were numerous regulatory hurdles due to CAB regulation....that could only be overcome for the first 7 or 8 yrs by staying within a single state.

There was having to sell one (of four) airplanes to meet the payroll and stay afloat.

There was the $13 war.

The folks from Dallas do not run a cheap operation. Southwest having low costs has nothing to do with the company being cheap. Other airline executives have repeated the mantra...over and over again....that Southwest won't hurt them because business travelers won't ride the cattle car, businessmen demand F class and clubs, yada yada yada ad nauseum. Most, if not all,, of those executives have lived to regret thinking those things.

Here is the real bottom line - WN is in Philadelphia to stay. Even if WN didn't carry a single PHL passenger (and we know that won't happen) they have strengths in many of the markets they are connecting to, and will continue to connect to PHL. If I am not mistaken, WN is not only #1 in passenger boardings at LAS...they are #1 at LAX also. So big urban markets are not anathema to them.

I doubt a single WN employee wants to see USAirways implode. It may happen, but none will gloat (there was some minor gloating when Braniff expired, but there were a whole lot of other reasons behind that). But whether or not USAirways goes on to its reward....WN will stay and thrive in Philadelphia. It's that simple.

I don't have any recent boarding numbers but what I did have looked awfully good. The talk around the ticket counters when I go places is that they had looked at another city this calendar year, but were probably going to go ahead and plus PHL up to 42 flights a day before the end of the year.

WN with 42 flights in and out of PHL doesn't mean squat to USAirways in terms of passengers, but at a customary WN LF of 65%, that's a 1.2MM passenger a year station. And it very well may get even bigger. We'll see.

As far as people being in diapers, OBG....you probably have been around the industry long enough to recall when Allegheny or Lake Central flew DC-3s. I can remember when Delta, Braniff, and Continental flew DC-3s.

 

[FLYAWAY]

USAirways has now publicly stated that it believes that Southwest is in trouble with it's cost structure. More importantly, USAirways has said that Southwest's entry into PHL is a direct response to Jet Blue. "Jet Blue offers a superior product to Southwest" with assigned seating and inflight TV. Look for USAirways to offer "upgraded" inflight entertainment.