Who Will Be Next To Go Low-fare?

[BoeingBoy]

Who Will Be Next to Go Low-Fare?

By Keith L. Alexander
Tuesday, February 17, 2004; Page E01

Nearly two years ago, America West Airlines broke from the traditional airline fraternity with a revamped fare system to win back business travelers who'd had enough of paying five to seven times what leisure travelers pay, unless they booked two weeks in advance and gave up their weekends.

Washington Post Article

Jim

 

[BoeingBoy]

Piney, Tom, Art, WN_ELP, KCFlyer, and others I'm surely omitting,

Looks like there's some saying that y'all will get your wish (and about time). Simplified fares may be coming.

What I found interesting is the jump in business traffic AWA saw - 30 to 46%. The jump in business traffic was not the really surprising thing, but the number it jumped to was what caught my attention.

The Bureau of Transportation Statistics did a passenger survey in early 2003 (IIRC) that showed that 48% of airline passengers said they were traveling for work/business. When you hear Ben B or whoever say that business travel is down and won't be coming back, what they really mean is that the number of people paying the full fare is down and won't be coming back. Those passengers are either finding ways of taking advantage of lower fares or going to the LCC's.

As AWA has demonstrated (and Alaska is going to), give the business traveler a reasonable product at a reasonable price and they will come.

Jim

 

[TomBascom]

For everyone's sake lets hope that it's true and that they do a really good job rolling it out. Yet another ham-fisted Fort Fumble performance is in nobodies interest.

 

[Hope777]

Well AWA has just done it to First Class Fare............

http://biz.yahoo.com/prnews/040217/latu073a_1.html


What I found interesting is that AWA is going to take the same approach
as far as C/S agents who sell the upgrade on the Day of departure, THEY (the agent) make $5.00 per upgrade. Good way to make more money by doing your job.

 

[MrAeroMan]

Well AWA has just done it to First Class Fare............

http://biz.yahoo.com/prnews/040217/latu073a_1.html


What I found interesting is that AWA is going to take the same approach
as far as C/S agents who sell the upgrade on the Day of departure, THEY (the agent) make $5.00 per upgrade. Good way to make more money by doing your job.

This is the type of thinking that is desperately needed at U. There has been no thinking outside of the box in such a long time it appears to be a type of forgotten art. Some agents wouldn't like this idea but I know lots of them that would make a killing at it. Some are natural salespeople and some aren't but seeing a few raking in some extra cash might be incentive enough.

 

[RowUnderDCA]

From what I understand, going to "easy" fare system like HP and WN is not a slam-dunk for U. There is a good possibility that there will be significant revenue drop-off. I suspect that management was worried that other carriers would be motivated to go for U's jugular if U implemented a 'value' pricing structure without the significant cost reductions necessary to withstand a fare war.

If I recall correctly, other majors did go after HP with reduced fares to undercut the success of the new fare structure and that was with HP's significant cost advantage over U.

Good luck. I hope it won't be too painful and ultimately successful.

But, I believe U management when they say it may be a significant revenue hit. Obviously, the market is a moving target, so timing the switch might be difficult.

 

[Art at ISP]

IF it's true, then it's about time. I know that there are risks to doing this, like Row said. I am not sure if I would call it a LOW fare scheme or perhaps a SMART fare scheme. If done right (and AWA appears to be succeeding), the AVERAGE fare paid on any given flight will go up--by quite a bit. If average RASM goes up, doesn't that help the overall picture????

One thing which can't be overlooked in this picture is that in order to succeed the PRODUCT has to be better. One part of this equation is already in place--the people. The people at U are by far the best in the industry. As I said elsewhere, couple that with a superior product and workable schedules, and you have an unbeatable combination.

OK you've got the tools--now let's see how you can build.....I for one am pulling for you.

My best to you all......

 

[USFlyer]

If you look at what Alaska just did, some of the Horizon (i.e., express) markets are not part of the new fare structure the way mainline markets are. My hunch is US will do the same in some fashion, since many of the smaller cities probably generate more revenue per seat mile than do the larger markets. No way they will jeopardize this especially if there's little competition in some of those smaller markets. I also wouldn't expect to see this deployed in international markets either.

 

[Dont call me Shirley]

While AS does get some revenue from EAS markets and has little competition with the 49th state, most of their business is now south of Seattle. It is a mature, full service carrier that has done well against WN, Shuttle By United, and others.

One signfiicant difference (although I have no idea of its effect on AS's CASM) is that except for SEA and PDX, ramp service at their lower 48 stations is contracted out. But there are more things in common than there are different. While AS does not fly widebodies to Europe one can like their signifacant service to western Mexico and Baja to US's Carribean expansion. Like US, AS has has cadre of very loyal VFFS and while I am not sure how their business/leisure traffic breaks down,. I suspect it's similar.

 

[SVQLBA]

From what I understand, going to "easy" fare system like HP and WN is not a slam-dunk for U. There is a good possibility that there will be significant revenue drop-off. I suspect that management was worried that other carriers would be motivated to go for U's jugular if U implemented a 'value' pricing structure without the significant cost reductions necessary to withstand a fare war.

If I recall correctly, other majors did go after HP with reduced fares to undercut the success of the new fare structure and that was with HP's significant cost advantage over U.

Good luck. I hope it won't be too painful and ultimately successful.

But, I believe U management when they say it may be a significant revenue hit. Obviously, the market is a moving target, so timing the switch might be difficult.

What U management (and planning/mgt at other airlines) are saying is that their models say that they will lose revenue. These are the same planning models built on QSI principles and old CRS screens -- i.e., they tell you that reducing connection time by 5 minutes increases revenue, even though almost no-one buys anymore from a screen that shows lowest-elapsed time flights first. These are the same models that say 24 fare classes are better than 22 ... but have no idea about the cost of complexity on an airline operation.

There have been huge changes out there in the real world -- from the ways individuals and corporations buy air travel, to the distribution channels (esp. internet) to the competitive landscape. Meanwhile, in legacy carrier revnue management they keep tweaking the factors in their black box models ...

HP had the sense to realize when their planning models no-longer reflected the real world. Other carriers need to blow up their models too and start again from scratch.