Overcapacity

[blueoceans]

Another thing that's interesting is that frequent business travelers (who don't want to use up their miles) will look for the cheapest possible vacation fares online and then decide to travel on any U.S. airline. These are people who shop at Target instead of Walmart, and shop at upper-end grocers instead of Food Lion.

Are there enough people willing to pay a premium to fly in coach? Maybe not. People who always pay for first class still will, but everyone else seems to want the lowest fares. The seats are the same, and with JetBlue you get TV.

Will companies pay more to put their staff in higher-priced coach? It seems like (domestically, at least) they don't want to.

 

[mweiss]

Are there enough people willing to pay a premium to fly in coach? ... The seats are the same, and with JetBlue you get TV.

[post="257770"][/post]​

But that's just it. JetBlue offers a different product at a competitive price. I'm pretty sure that people would be willing to pay a bit more to fly on B6 than WN in a competitive market between the two, particularly for longer flights.

Now compare legacy coach with B6. Is it any wonder people aren't willing to pay a premium? Sure, interlining is nice, as is the related benefit of protection on other airlines. However, most passengers don't even realize that it is a point of differentiation at all (where's the marketing department?). Furthermore, it's a "feature" that would be used infrequently enough that only frequent passengers (i.e., road warriors) would value it, even if they knew about it.

 

[RowUnderDCA]

if you go to the air canada website, you can see that they are trying to 'visualize' fare rule differences and market segment them with a brand

 

[blueoceans]

Ok. So, how much more are people willing to pay? Let's say you want to go from Richmond to Miami. We have hypothetical, round-trip fares on US Air and JetBlue. On USAir, let's SAY you get a snack box. On JetBlue, you get satellite TV. If Southwest Airlines (who offers neither) charges $200, what would you pay to fly the other choices (leaving out assigned seats for now) ?

Would you pay $50 more for a snack box on USAir? No. How about $20? Probably not. How about $10? Maybe. Maybe the snack box is worth $10 to you. How about paying more for TV? $50 more? No. $20 more? Maybe. $10 more? Probably yes on a longer flight.

So what does US really offer? Usually not food, but (to Frqnt Trvlrs) the possibility of upgrading to first class if the ticket price is right and you've flown enough miles and there's a seat empty. This policy would attract zero new customers, and I don't think a company can continue to sell premium fares for very long offering "maybe's."

 

[PHX Flyer]

After two pages of contributions to this thread, I am wondering, why nobody here has come up with a reasonable explanation for the difference in operating cost between the legacy carriers and Southwest. In my opinion, it is the long-term debt and poor credit ratings, resulting in high interest payments, very unfavorable leasing rates, and the inability to hedge fuel. This difference cannot be compensated for by further cuts in labor cost and passsenger amenities - Jetblue's service - with inflight entertainment and a seat pictch of 32"-34" - is already better than that of any coach service of any traditional airline (31" pitch, no IFE).
Obviously, there is no easy fix for this. A Chapter 11 proceeding does not wipe out all the debt.
I think, mweiss has probably a good idea, that is, offering a premium service at a slightly higher price. The question is, how much would it cost US to upgrade their service, and how much more would customers be willing to pay for it? And would the additional revenue not only outweigh the direct higher cost for better service, but also compensate for the above-mentione intrinsic cost factors? With the new P.S. transcons, United has launched an experiment to answer that question. I am actually considering their P.S. service later this spring. However, the last time I checked, UA's fares started at above $400, while AWA's ran at around $250. If the fare difference remains that high, I would probably stick with AWA. If it shrank to around $50, I would certainly switch. It'll be interesting to see, how it pans out for United in the long run.

Back to US:
From a neutral observer's viewpoint, management has certainly put in a lot of effort to trim cost, wherever possible. However, I have yet to see a similar effort to increase revenue by focusing on the airline's strengths. These strenghts are - when compared to Jetblue and Southwest - long-haul expertise, access to two of the most restricted airports in the US, and a good presence and name recognition in the highest-yielding markets. It is beyond my comprehension, why US would open a focus city in Florida, where it competes direcly with two or three low-fare carriers, while missing out on a huge opportunity for expansion at a plave like Boston, which has now been snatched up by Jetblue. Also, I wonder if the slots at LGA are really used to their full potential. I know, that there are commuter slot and mainline slots, but I think the latter can be used for commuters too, and I wonder if that's the case with US Airways. There are nine roundtrips per day between BUF and LGA, only one of which is operated by mainline jets. Incidentally, checking fares for a RT BUF-LGA tomorrow, the lowest fare on the mainline flights is $280. Selecting a turboprop, which leaves BUF approx 1 hr later, reduces the fare to $190. I wonder, if this is an indication that a lot of travelers are willing to buy a premium to avoid commuter aircraft, whenever possible. If that's true, one should seriously consider cutting the commuter flights to places like Buffalo, and replace them with roughly half the number of mainline flights. I know that there are certain travelers, who prefer higher frequencies on any give route, however given that LGA remains slot-restricted, nobody is going to fill in the gap there. And the slots that are freed up this way, could be used for a further increase in mainline flights to place that I consider relatively underserved, like Houston for instance.
With regard to long-haul flying:

With regard to the long hauls: I noted that US has added some seasonal routes to Europe. But on the other hand, the nonstops to FRA and LGW out of PIT have been dropped. I think that a lot more could have been done in that area. It seems that widebody aircraft are hard to come by these days, because they are in such high demand. Then again, B767-200 are being scrapped way before the end of their "natural" life-span. Given that US cannot afford new widebodies in the foreseeable future, I wonder if anybody at US has considered acquiring a handful of 762s, bringing them throughr D-check once again, and use them for growth on intercontinental routes, or possibly to Hawaii. At least for now, there would be no competition from the likes of Southwest, and aside from bringing in additional revenue, long hauls also reduce CASM further - even more so than Jetblue's nightly transcons.

 

[funguy2]

PHX_Flyer: I have brought up your LGA-BUF point (and example, actually) in the past, and I feel your point has merit. Particularly when you have to compete with jetBlue. For someone in Brooklyn or Queens, or even Manhattan, is it worth it to go to JFK, get a bigger, more comfortable aircraft, superior service, TV all at a lower fare? I think it is.

That said, one mainline in LGA-BUF is an improvement. When I brought up that argument the schedule was 2 ERJ's and a bunch of Dash-8's (5 or 6 I think).

In my opinion, US Airways should not operate a single turbo prop in LGA. The slots are too valuable. At least use if for a CRJ/ERJ.

 

[mweiss]

So, how much more are people willing to pay?

It depends on who "people" are, and what the comparative offering is. Assuming that we're talking about a choice among US, B6, and WN, let's compare.

US's advantages:

• First class upgrades for frequent fliers. This is a good thing for frequent travelers, but not much help for anyone else.
• Miles that can be used in a very large network. This is somewhat offset by concerns regarding the longevity of these miles...or at least carriers that will accept them.
• Food. They still have a (tiny, slim) advantage here, but it's razor thin.
• Interline...but that's not a tangible benefit to most people.

US's disadvantages:

• Tight pitch if you're in coach.
• Depending on the route, the Philly Phactor.
• Depending on the route, the unpredictability of contract regionals.

B6's advantages:

• Free TV. It's not for everyone, but it sure appeals to a lot of people, especially during important sports events.
• The best "cheap seat" pitch in the industry, on par with AA's MRTC, but the seats are wider than AA's.
• Consistently good service.

B6's disadvantages:

• Smaller network in which to use miles.
• No interlining.

WN's advantages:

• Better network than B6 for free trips.
• Better coach pitch than US.
• Free alcohol for FF members.
• Consistently good service.

WN's disadvantages:

• Tighter pitch than B6.
• No IFE.
• No assigned seats.
• Much worse network than US for use of miles.
• No interlining.

Depending on the individual, there are good reasons to prefer any of the three airlines. Nobody comes out on top in all areas. This means that each airline has a segment of the population that would be willing to pay more for one of those three airlines than for the other two. I doubt that there are many who would be willing to pay two to three times as much, however, if the money is coming out of their own pockets.

After two pages of contributions to this thread, I am wondering, why nobody here has come up with a reasonable explanation for the difference in operating cost between the legacy carriers and Southwest.

It's been mentioned in several other threads:

• Interlining
• Banked hubs
• Multiple fleets
• More senior workforce (on average)
• Less flexibility among workgroups for tasks

Yes, the other things you listed (all finance-based) are also contributing factors.

The question is, how much would it cost US to upgrade their service, and how much more would customers be willing to pay for it?

Fundamentally, that's the key question in a differentiation strategy. I think that there is a mix of services for which customers would be willing to pay at least the cost. However, given the lack of history of a true differentiation strategy in the airline industry to date, I can only speculate.

From a neutral observer's viewpoint, management has certainly put in a lot of effort to trim cost, wherever possible. However, I have yet to see a similar effort to increase revenue by focusing on the airline's strengths.

This is Gordon Bethune's pizza analogy. US is rapidly creating a pizza so bad nobody wants to buy it.

I wonder, if this is an indication that a lot of travelers are willing to buy a premium to avoid commuter aircraft, whenever possible.

It's hard to separate the wheat from the chaff in that analysis. Is the fare higher because it's a jet, or is it a jet because it's a time of higher demand, and US doesn't want to leave high-margin business money on the table? Could be either. Or both. Or something else entirely that we don't see. The other issue that US has to contend with is an abundance of regional aircraft that need to fly somewhere.

Given that US cannot afford new widebodies in the foreseeable future, I wonder if anybody at US has considered acquiring a handful of 762s, bringing them throughr D-check once again, and use them for growth on intercontinental routes, or possibly to Hawaii.

Even that may be unafordable with US's current financial state of affairs. But it's an interesting idea.

 

[whlinder]

In my opinion, US Airways should not operate a single turbo prop in LGA. The slots are too valuable. At least use if for a CRJ/ERJ.

[post="257819"][/post]​

You think they would be better off with a CRJ/ERJ than good service on a Q400? I know US doesn't have any Q400s but economically it seems like it is the plane they should have, with the ATC problems at LGA and PHL. Plus the thing is almost as fast as an RJ.

Has anyone every been able to find a cost comparison for the Q400 vs a CRJ-700 or E-170?

 

[KCFlyer]

Ok. So, how much more are people willing to pay? Let's say you want to go from Richmond to Miami. We have hypothetical, round-trip fares on US Air and JetBlue. On USAir, let's SAY you get a snack box. On JetBlue, you get satellite TV. If Southwest Airlines (who offers neither) charges $200, what would you pay to fly the other choices (leaving out assigned seats for now) ?

Would you pay $50 more for a snack box on USAir? No. How about $20? Probably not. How about $10? Maybe. Maybe the snack box is worth $10 to you. How about paying more for TV? $50 more? No. $20 more? Maybe. $10 more? Probably yes on a longer flight.

So what does US really offer? Usually not food, but (to Frqnt Trvlrs) the possibility of upgrading to first class if the ticket price is right and you've flown enough miles and there's a seat empty. This policy would attract zero new customers, and I don't think a company can continue to sell premium fares for very long offering "maybe's."

[post="257805"][/post]​

Blueoceans...the problem is this...if Southwest or B6 is charging $200 on a city pair, US is selling out the plane at $150. Too bad it costs them $152 per person.

 

[funguy2]

Maybe I should have said aircraft with less than 50 seats...

Although, if LGA were all pure jet equipment, that would presumably alleviate some ATC issues with spacing of aircraft - controllers have to mix slower props with faster jets...

But my primary point was this... If its a market that can only support a few props per day, those slots would be better allocated to a market which could support more seats per day.

I have also suggested what PHX_Flyer did... Less flights from LGA to BUF on bigger equipment. This is more efficient use of the slots, which are a very valuable asset.

 

[JS]

Maybe I should have said aircraft with less than 50 seats...

Although, if LGA were all pure jet equipment, that would presumably alleviate some ATC issues with spacing of aircraft - controllers have to mix slower props with faster jets...

But my primary point was this...  If its a market that can only support a few props per day, those slots would be better allocated to a market which could support more seats per day.

I have also suggested what PHX_Flyer did... Less flights from LGA to BUF on bigger equipment.  This is more efficient use of the slots, which are a very valuable asset.

[post="257871"][/post]​

But then you destroy one of the few advantages that US Airways has -- a wide network with good frequency. Chasing the cheap seats by "JetBlueing" yourself is simply not going to work.

There is no way that US can compete with B6 and WN trying to be just like them, serving only large cities at lower frequency.

Now, before someone yells at me that WN has a flight every 20 minutes between DAL and HOU or MCI and MDW, I am talking about *network-wide* flight frequency.

Want to fly B6 from SYR to PHX? You can leave at 5:05 PM, and that is it.

Want to fly WN from MAF to ISP? Sorry, can't do that. How about JAX-GEG? Nope. How about LIT-ISP? Wow, two choices for this one -- you can leave at 2:35 PM or 3:55 PM!

 

[funguy2]

Well... based on US Airways 2 BK's, flying from LGA to every small town from Lebanon, NH to Wilmington, NC doesn't seem very successful either.

Let the folks in ILM and LEB make connections at the hubs to get to LGA. That's what the hubs are for. Then use the LGA slots to take people where they are actually going. I am not suggesting that US Airways "become" jetBlue... I just think they should use their assets in the most efficient manner possible.

US Airways Express offers 150 seats/day from ILM to LGA and 76 seats/day from LEB to LGA. Furthermore, there is no nonstop competition on either route. Some of those slots would be better used, in my opinion, to fly LGA-MCI, or LGA-MCO, or LGA-YYZ, or where you can fill up more than 19 seats. Not only do bigger markets offer more revenue potential, but using bigger aircraft lowers CASM. But you can't fly a 737 to LEB.

 

[RowUnderDCA]

exactly.... ditch the old idea of being a monopoly airline in small markets...... go for the big markets and actually compete.

 

[diogenes]

Well... based on US Airways 2 BK's, flying from LGA to every small town from Lebanon, NH to Wilmington, NC doesn't seem very successful either.

Let the folks in ILM and LEB make connections at the hubs to get to LGA. That's what the hubs are for. Then use the LGA slots to take people where they are actually going. I am not suggesting that US Airways "become" jetBlue... I just think they should use their assets in the most efficient manner possible.

US Airways Express offers 150 seats/day from ILM to LGA and 76 seats/day from LEB to LGA. Furthermore, there is no nonstop competition on either route. Some of those slots would be better used, in my opinion, to fly LGA-MCI, or LGA-MCO, or LGA-YYZ, or where you can fill up more than 19 seats. Not only do bigger markets offer more revenue potential, but using bigger aircraft lowers CASM. But you can't fly a 737 to LEB.

[post="257962"][/post]​

To add to the ludicrousness, when the RJ's depart ILM-LGA, there is mainline metal scheduled to CLT within 90 minutes, making the connections you refer to very doable.

As best we can tell, the function of the RJ's is to take passengers from mainline. As mainline employees handle the RJ's, all costs are absorbed by mainline, yet the increased costs (by servicing the express flights - GSE, manhours, etc.) are now spread over few (mainline) passengers.

Not efficient.

 

[SVQLBA]

Ok. So, how much more are people willing to pay? Let's say you want to go from Richmond to Miami. We have hypothetical, round-trip fares on US Air and JetBlue. On USAir, let's SAY you get a snack box. On JetBlue, you get satellite TV. If Southwest Airlines (who offers neither) charges $200, what would you pay to fly the other choices (leaving out assigned seats for now) ?

Would you pay $50 more for a snack box on USAir? No. How about $20? Probably not. How about $10? Maybe. Maybe the snack box is worth $10 to you. How about paying more for TV? $50 more? No. $20 more? Maybe. $10 more? Probably yes on a longer flight.

So what does US really offer? Usually not food, but (to Frqnt Trvlrs) the possibility of upgrading to first class if the ticket price is right and you've flown enough miles and there's a seat empty. This policy would attract zero new customers, and I don't think a company can continue to sell premium fares for very long offering "maybe's."

[post="257805"][/post]​

I think this also accidentally illustrates one of the major issues facing the legacies -- a consistent marketing message. Everyone, even infrequent travellers, know exactly what they'll get with either WN or B6. With the legacies, even FFPs have no idea what they'll get from one flight to the next. Will I get a hot meal? A snack box? Nothing at all? Will I get audio (can you say which UA aircraft have video, which have audio, which none? I certainly have no idea about US -- I'm an infrequent traveler on U ) Do I get E-plus or not (if flying UA) -- heck, has the traveler even heard of E-plus, and do they know how to get a seat in it?

US doesn't have UA levels of complexity, but none of the legacies have done a good job of marketing their product, in all classes, so travelers, however frequent or infrequent, know what to expect. Just look at the surprises hitting US's loyal CPs. The airline web sites have been a big wasted opportunity to market the product.

I think DL is belatedly "getting it" in that consistency of service is important, because it is then easier to communicate to customers what to expect (no "if the flights less than this, but more than that, but east bound only ... then you get the mini-snack ...").

One of the big drawbacks of all the regional affiliates has been the very different service levels, lack of consistency, etc., making the picture even more complex for marketing departments who are supposed to be painting a clear picture in the customers' minds as to what they are getting for their $$. No wonder it comes down to price so often -- the only thing a customer knows, for certain, they are going to get most of the time is a seat (and even that isn't certain with overbooking -- although B6 doesn't overbook).

The "US Airways Express" branding of MDA I think was bad move and another great example of all the above.