What Happens When The Next Recession Hits?

[enilria]

I guess I'll try to answer my own question. If airlines are not allowed by the government to go out of business, the next recession will be horrible with more wage concessions and many more bankruptcies.

If some of the weak do die and fuel prices decline (which often happens in a recession) then a recession is the best thing that could happen.

I think the problem is that the industry has corrected itself to a point where it can continue to limp along, but not be even close to successful.

 

[whlinder]

Whlinder do you propose now that the wages and benefits have been extracted from employees the airline is fixed? If not why?

[post="247524"][/post]​

Hell no the airline isn't fixed. Its not even close. Operations are an inefficient mess. Pricing is a complicated mess. Marketing is a joke. I still don't understand their strategy of being a quasi-LCC flying tons of RJs with connecting traffic, seeing as how FlyI is printing money with that strategy. :down:

Instead of going after wages/benefits, US should have pushed for productivity improvements (especially in the latest bankruptcy).

 

[BoeingBoy]

UVN, do you propose that all tickets be sold at a yield that at least equals the CASM for the seat the passenger would fill?

[post="247520"][/post]​

Seems to be what WN does (except for intro and sale fares) and it seems to work for them. They seem to make up for LF with the sale of their higher fares.

Jim

 

[USA320Pilot]

In my opinion, legacy carrier capacity reduction will only provide limited short-term benefits to those companies remaining following a business enterprise failure because of the huge pending LCC growth. LCC's will back fill the capacity reduction, thus pricing power will not return -- ever.

People primarily shop on one point: price. That's true for all goods and services, including airfares.

US Airways and every legacy carrier must be able to compete on price on they will fail. Just today US Airways launced its third fare sale in as many weeks, this time for three versus two days.

See Story

Best regards,

USA320Pilot

 

[SVQLBA]

People primarily shop on one point: price. That's true for all goods and services, including airfares.


[snip] Best regards,

USA320Pilot

[post="247777"][/post]​

This is c**p. All other things being equal, people will buy on price. But customers are very discerning consumers -- under-estimate their ability to discern product and services differences, real and perceived, at your peril.

If what you said was correct, Motel 6 would be the largest hotel chain, everyone would drive Yugos, there'd be no premium cable TV channels, and everyone would shop at Aldi.

There are plenty of business travelers (Piney may be the exception that proves the rule) that could by full coach or business on a legacy carrier but choose WN because a) it's reliable and on-time, B) the service is friendly and c) a 737 at 60% load factor is way way way more comfortable than an RJ, MD80, or even an A320 at 85% load factor.

Air travel is NOT a commodity. Airlines that act as though it is are doomed to fail.

 

[USA320Pilot]

SVQLBA:

With all due respect, I wholeheartedly disagree with your recent post. According to US Airways marketing surveys, price is the number one consumer purchasing concern.

In my opinion, the same thing holds true for other goods and services. That's why companies like Dell, Costco, WalMart, and Sam's Club are flourishing and other companies are failing in the marketplace. It's all about cost and being able to deliver a quality product at the least possible price.

Best regards,

USA320Pilot

 

[PHL]

This is c**p. All other things being equal, people will buy on price.....If what you said was correct, Motel 6 would be the largest hotel chain, everyone would drive Yugos, there'd be no premium cable TV channels, and everyone would shop at Aldi.

.....a 737 at 60% load factor is way way way more comfortable than an RJ, MD80, or even an A320 at 85% load factor.

Air travel is NOT a commodity.

That's a bad analogy. Motel 6 does well selling low priced rooms because you get exactly what they advertise. But when I pay a premium to stay at a Four Seasons, I know I'm getting something of VALUE for it. What you miss is that while people do shop on price, more than anything, if they are faced with options to increase their value, however, they will often upspend if they feel that there's something to be gained. Suppose you check into a $99/night hotel and the clerk offers you an upgrade to a 500 sq. ft. suite for an extra $30/night. A lot of people might take that offer because there's a value being offered for the additional, nominal, amount.

But everyone knows that the $500 Y fare coach seat is no different than the $29 GoFare seat. Even paying a discounted or full F fare has proven to not give a proportional level of value increase.

So guess what - why should I pay the higher price when I know that it can be had for lower, WITH the same level of service. Would you expect to pay a Four Seasons hotel price to get a room at the Motel 6? Didn't think so.

The same goes with your Yugo arguement. If I want to get something more for my money, I know that the money spent on a Mercedes will BUY me a LOT more in value, comfort and safety than the money spent on a Yugo. I could go on with the other two examples you site, but the logic is similar.

And, I would also say an 85% full A320 is still more comfortable than a 737. Period. The 7" extra width in the fuselage makes a huge difference in the overall cabin comfort.

Suffice it to say, air travel HAS become a commodity.

 

[a320av8r]

1- Price
2- Schedule

Most travelers have no idea what type of aircraft they are on. They don't book that way, even my friends who are FF ask if it is a 2-3 seat or 3-3 seat aircraft. They would rather ride on a jet than a prop. So they go to a website and look for price- then if it will work with their schedule. I have talked with some who automatically go to the WN website because they are "the low price leader" without checking other airlines even though they can get a better price. WN has great marketing, period. Just like BA is the "worlds favourite airline", says who? BA. Perception is reality.

What we are trying to do is make people go to our website first. We need to train them just like WN has done. I don't know how, but there it is.

Airline seats ARE a commodity. Once the aircraft leaves the gate, its gone, it can't be used again.

Regards.

 

[BoeingBoy]

I think SVQLGA and PHL are saying the same thing, expressing the same point from different sides...

SVQLGA said "All other things being equal" [and I think he meant as percieved by the purchaser], price is the determining factor.

PHL was basically saying that other things are rarely equal in the eye of the purchaser.

I don't care what marketing surveys say, price is a factor in a purchasing decision but it is not the only one for many (maybe most) people because of PHL's point - everything else is rarely perceived to be equal. And that is the problem with trying to compete entirely on price. Even if every effort is made to make your product equal to your competition's, some portion of the public will still perceive a difference.

A perfect example is if the exact same widget is available from two stores that are side by side. USA320Pilot's opinion is that the store that has the lowest price will always get the sale. But they won't. One potential customer may have a neighbor/friend/relative working at the more expensive store and shop there - different perceived value. Another may have had a bad experience at the less expensive store - a deiferent perceived value.

Jim

 

[a320av8r]

You're right. Take Wal-Mart vs. Target.
I don't know of anybody who would shop Wal-mart over Target.
Target also has low prices (not as low?) but they are easier to shop in, employees are more helpful, stores are cleaner and brighter and just a little more upscale.

 

[SVQLBA]

That's a bad analogy. Motel 6 does well selling low priced rooms because you get exactly what they advertise. But when I pay a premium to stay at a Four Seasons, I know I'm getting something of VALUE for it. What you miss is that while people do shop on price, more than anything, if they are faced with options to increase their value, however, they will often upspend if they feel that there's something to be gained. Suppose you check into a $99/night hotel and the clerk offers you an upgrade to a 500 sq. ft. suite for an extra $30/night. A lot of people might take that offer because there's a value being offered for the additional, nominal, amount.

But everyone knows that the $500 Y fare coach seat is no different than the $29 GoFare seat. Even paying a discounted or full F fare has proven to not give a proportional level of value increase.

So guess what - why should I pay the higher price when I know that it can be had for lower, WITH the same level of service. Would you expect to pay a Four Seasons hotel price to get a room at the Motel 6? Didn't think so.

The same goes with your Yugo arguement. If I want to get something more for my money, I know that the money spent on a Mercedes will BUY me a LOT more in value, comfort and safety than the money spent on a Yugo. I could go on with the other two examples you site, but the logic is similar.

And, I would also say an 85% full A320 is still more comfortable than a 737. Period. The 7" extra width in the fuselage makes a huge difference in the overall cabin comfort.

Suffice it to say, air travel HAS become a commodity.

[post="247801"][/post]​

PHL -- we're in violent agreement. Please re-read what I said, though I probably wasn't as clear as I should have been in my reply to A320pilot-- I was disagreeing with A320pilot's view that everything that consumers purchase has become a commodity --

A320pilot: "People primarily shop on one point: price. That's true for all goods and services, including airfares."

I said, "If what you [A320] said is correct, then ...". Your [PHL]'s arguments are exactly what I was trying to say.

Yes price is very important to many people -- duh! However, there are plenty of successful companies that provide different service levels that customers value at different price points (as we have just discussed). You have to be cost competitive at any level you compete (Toyota is probably most cost competitive in the luxury sedan market as well as family sedan market) -- but that is absolutely NOT the same as saying people just want the cheapest product out there. That is not the reason why Costco, Southwest, whoever are successful.

 

[SVQLBA]

I think SVQLGA and PHL are saying the same thing, expressing the same point from different sides...

SVQLGA said "All other things being equal" [and I think he meant as percieved by the purchaser], price is the determining factor.

PHL was basically saying that other things are rarely equal in the eye of the purchaser.

[snip]
Jim

[post="247810"][/post]​

Thanks -- you put it better than I did even in my own follow-up

 

[mweiss]

Who says there isn't any upward pricing power?

Plenty of people do. There is a huge body of evidence to back it up. However, let's be clear on the accurate statement: the legacy carriers have extremely limited upward pricing power. Basic competitive economics explains why.

They come and take from the pockets and take food off the table of the employees only to turn around and lower prices the next day even as fuel prices rise.

Do you know why? Right now, US and UA are in bankruptcy. That generates a perceived risk in the eyes of potential customers. The upshot is that, to a significant demographic, a seat on US or UA is worth less than a seat on WN. This means that US has to choose among undercutting WN, letting the seats fly empty, or moving the metal elsewhere.

Did I have the specific answers ? No.. Doesn't mean I can't be a critic does it?

[post="247517"][/post]​

No, it doesn't. But what's the point, then?

 

[BoeingBoy]

One thing to keep in mind is that airlines have pretty much always had razor-thin margins - 1 or 2 passengers more or less on the average flight is the difference between making money or losing money.

Given that, the fact that "most" people shop on price is no consolation. Losing those 1 or 2 people per average flight due to perceived differences is not good. Even a320av8r's "people that think WN is the low cost leader" contribute to losing potential customers thru a perceived difference that is oft times false.

Lots of little things can contribute to a perceived difference. Luggage not showing up at the same place and time as the passenger (or even having to wait too long for the luggage when it does) might affect a future travel decision. Being "crammed into a RJ" for 2-3 hours might affect a future travel decision. The list is as long as you want. Even things that we employees or FF's might shrug off as insignificant (or "it happens with all carriers once in a while) could affect the perceived value of our product to an infrequent flyer.

The only solution I know of is to offer the most consistent service possible and make sure that the service given equals the service expected as much as possible. Look at the uproar over F/C meals on transcons - the product didn't meet expectations. Something as insignificant as letting the customers know beforehand that there was a change of vendors and that there would be a "short" period when the meals wouldn't be available (assuming that is the case) would have gone a long way toward defusing that situation.

Jim

 

[SVQLBA]

1- Price
2- Schedule

Most travelers have no idea what type of aircraft they are on. They don't book that way, even my friends who are FF ask if it is a 2-3 seat or 3-3 seat aircraft. They would rather ride on a jet than a prop. So they go to a website and look for price- then if it will work with their schedule. I have talked with some who automatically go to the WN website because they are "the low price leader" without checking other airlines even though they can get a better price. WN has great marketing, period. Just like BA is the "worlds favourite airline", says who? BA. Perception is reality.

What we are trying to do is make people go to our website first. We need to train them just like WN has done. I don't know how, but there it is.

Airline seats ARE a commodity. Once the aircraft leaves the gate, its gone, it can't be used again.

Regards.

[post="247806"][/post]​

av8r -- I agree with everything up to the very last line. Airline seats are perishable (it can't be used again once it leaves the gate), but that does not make it a commodity. The legacy carriers are making it a commodity because, until very recently, all they ever sold on was price, price, price when they had to compete. If you were a captive customer and the airline did not need to compete for your business (last minute traveller, lived at a hub) you got the rip-off fares treatment.

Think of your typical fare sale ads, or the first page on most carrier web sites. Go to Southwest's first page -- what do you see? Not a booking engine, but their people. jetBlue's booking engine isn't on the front page. Every jetBlue press release and ad talks about LiveTV and the seating. The US Airways web site still just screams "price, price, price" -- there's no hint on the front page about waht might differentiate US from any of its competitors.

It's not enough to have some differentiating product or service, you have to market it effectively too. If you never flew UA and went to their web site, you would have no idea that Economy Plus ever existed, much less be able to buy it. For U, there is little attempt via the web site to get people to buy-up to full coach or first. UA and AA's corporate brand advertising still misses because it still fails to tell the traveler what the heck is actually different about what they provide compared to jetBlue and WN. BA's advertising of of it's Club World product (Business Class) -- the lie flat seats (truly lie flat, not the wedgie seats some US carriers are claiming are lie flat) -- is a good example of how airline marketing should be done.

Summary -- compete only on price, and let customers only know about price, then guess what, they'll buy on price. A big part of B6's success, is they have effectively differentiated their product and marketed it to get a decent premium.

Last comment: Travelocity has made an interesting move to allow airlines to provide greater info on the service they provide -- not just "1 seat is available at price X" but other info such as a/v, leg room, food, load factor (see the seats available before you book) etc. It will be interesting to see whether carriers are able to develop this capability to better show what differentiates the product or service they provide.

Sorry for the stream of conciousness -- hope I was clearer this time.