Predatory Pricing

[usairwaysfan]

When predatory pricing was talked about in the 90s, it was the legacy carriers trying to outprice the LCCs to keep them from expanding in certain markets. Even though the Legacy carriers lost money on these routes, they were still able to post an overall profit (in the good times, of course). Legacy carriers were fined and/or scolded by the government for this practice.

I do believe that things are turning around and the LCCs are losing money on certain routes just to force carriers to bleed. Is this predatory pricing? The LCCs may be posting profits every quarter, but I believe that they are losing money on certain routes just to force some legacy carriers to bleed cash and/or to go out of business.

e.g. LAX-LAS - 19 dollars one way

US Airways gave Southwest California and Baltimore. Southwest should thank them! Now they have moved into Philly and are hoping that US Airways will go under. I guess I don't understand this whole thing.

 

[mweiss]

Hmmm...the cheapest WN fare I see is $29. That's a 236 mile trip, so the RASM on that fare is 12.3¢. Even if it were $19, the RASM would be 8¢, about the same as WN's systemwide CASM (albeit probably slightly below their CASM on the LAX-LAS route).

This doesn't smack of predatory pricing to me. Besides, who are they going after? HP? They've pretty much fought to a truce.

 

[whlinder]

Don't forget that $29 fare has the 7.5% tax in it, so WN gets even less $.

The question is, how do you define predatory pricing? Any fare below your CASM on the route? Then everyone would be guilty.

 

[wings396]

It is obvious that nobody can make a profit with fares like that. Make no mistakes about it, their sole purpose is to make US bleed as much as possible.
You can hardly get a train or bus ticket that cheap.

 

[autofixer]

SWA's goal is to increase market share. They charge $29 on a route because they can and they want to increase their market share. It probably is no more sinister than that. Of course UAIR and the legacys cannot compete with these fares, but whos fault is that? SWA has built a better mouse trap. What is amazing, is that if these rock bottom fares are above SWA's CASM, they are not even having to dip into their vast resevoir of cash to increase their market share. You have to hand it to them, "they know how to run an airline".

 

[wings396]

Either way, it is the same stuff that the Majors were acused of a few years back. Granted the tables are turned now, but it is the same theory with the LCC's being the culprit.

 

[mweiss]

Don't forget that $29 fare has the 7.5% tax in it, so WN gets even less $.

Nope. That $29 is a pre-tax price. You need to add $10 for the extra stuff (PFC, security fee, etc). Out the door, you'll pay $39.

 

[mweiss]

It is obvious that nobody can make a profit with fares like that.

Really? And what makes that so obvious. :huh:

First of all, WN doesn't fill the whole plane with that fare. As one former WN employee pointed out, they sell their cheapest seats at cost. So, no, they wouldn't make a profit if every plane were filled with only $29 fares. But since their most expensive fare...the fully-changeable, fully-refundable, walkup fare...is $92, I'm sure they do just fine in making a profit on the flight.

Make no mistakes about it, their sole purpose is to make US bleed as much as possible.

B) They don't care about US one way or the other. Don't kid yourself. If US can survive sitting side by side with WN, that's OK with them. You haven't seen them go predatory on HP, even though they compete pretty heavily in PHX and LAS.

You can hardly get a train or bus ticket that cheap.

So? The costs are different, for dozens of reasons. One of them is the fact that you have to pay the bus driver for four hours of labor compared to the one hour you pay the pilots (and, yes, I know that pilots make more per hour). The bus also holds fewer passengers, so the costs are amortized over fewer fares.

Either way, it is the same stuff that the Majors were acused of a few years back. Granted the tables are turned now, but it is the same theory with the LCC's being the culprit.

No, it's not the same stuff. When the competition ceases, the fares aren't tripled. The frequency isn't cut by 75%. In fact, generally when the competition leaves, WN increases frequency.

The hallmark signs of predatory pricing show up after the competition leaves, not when the competition enters.

 

[Boeingguy]

SWA actually prefers having a weak competitor in a market to help protect them from what would be a stronger competitor coming into the market such as JetBlue or Airtran. SWA enjoyed having TWA linger in their STL market in order to keep out a stronger UAL, AA, and Delta (such as things were back then).

 

[wings396]

I'm sure you can do the Math here. Selling seats for that price, while operating a multi-million Dollar A/C can't cover the costs. With fuel as high as it is, Mtc. costs and Airport fees factored in $29 doesn't go that far. In comparison to a train or bus, the operating costs are much lower than they are for a 737. You must be kidding yourself if you don't think that SWA would love to Kill US. They did it in BWI along with several other cities, so why not PHL? Does SWA still offer $29 out of BWI??

 

[mweiss]

I'm sure you can do the Math here.

I did the math. Right here, in case you missed it the first time.

In comparison to a train or bus, the operating costs are much lower than they are for a 737.

Really? Show us the numbers, please.

You must be kidding yourself if you don't think that SWA would love to Kill US. They did it in BWI along with several other cities, so why not PHL?

No, US committed suicide in those cities. If US had been able to match the WN prices profitably, WN wouldn't have lowered them any further. You need to step back and look at the whole picture instead of looking at the world through US-colored glasses.

Does SWA still offer $29 out of BWI??

I don't know if they ever did, but they have many $39 fares, to MHT, ISP, BUF, ORF, and RDU. They'll get you to Florida for $49 each way. Not very predatory.

 

[ELP_WN_Psgr]

Something else you all are overlooking is that WN often drops the fares to low-low levels to stimulate traffic.

If anyone remebers airline history, Southwest discovered that running $10 flights between Dallas & Houston late in the evening created a brand new market. And a lot of those $10 passengers got used to flying so when the price went up to $13 or $15 (or even full fare during the day at $25) they didn't quit flying.

People have been asked to pay a whole lot to fly from PVD to PHL for a long time....the average fare in the market was over $300 for a roughly 250 or 300 mile trip.

When the fares are that high, do you think that as many people fly as would like to>? Get real.

So, you chop the fare back...waaaaaaaaaaaay back....to sort of shock the marketplace and stimulate it. Sort of like paramedics would with paddles on the old "Emergency 51" TV show. Shock demand back to life with low fares.

Flying is faster than driving. It can be a whole lot more pleasant. Anyone stuck on I-15 in bumper to bumper traffic near Barstow on their way between LA and Las Vegas for a weekend can relate. Somebody who hits Austin at rush hour with all the construction while going from San Antonio to Dallas can relate.. A 300 mile flight isn't worth $300./....but it sure as heck can be worth $39. And once you get spoiled to flying, you'll probably be glad to fork over $50 or so.

But not $300.

So, before we accuse WN of being predatory with pricing, let's look at the facts. What they have done historically in lots of places is try to stimulate demand for air travel with low prices. They make money at it. Whether or not every seat on every flight is sold at or above the cost of producing a seat is irrelevant.

 

[javaboy]

anytime a company knowingly prices it product below its know cost to produce it in an effort to directly undercut any direct competitors it is considered predatory pricing UAIR was found guilty of this in BWI when SWA fist started with bwi cle...the suit forced uair to raise its prices to cost....EVEN THOUGH swa was pricing below its cost...thus UAIR could probably prove the same inPHL quite easily especially in light of the most recentl pay increase for f/a's @swa
swa over the past 31years has won more suits against other airlines than all current majos COMBINED! it was built on suit and protect as such all along (see wright amendment to deregulation act of 1978)

 

[mweiss]

Well, now, javaboy...that's quite a revisionist view of the world.

 

[ELP_WN_Psgr]

Weiss, I have to agree.

Big time revisionist history.

The Wright Amendment was not a lawsuit victory FOR Southwest Airlines Co., it was legislation aimed at hurting Southwest and protecting American.

To the best of my knowledge there was never any lawsuit floating around about BWI fares, and Metrojet continued to charge Southwest prices until they were shut down.

Southwest has won a lot of lawsuits, this is true. Buty they have won the lawsuits solely because they generally had adopted a position in accordance with the law.

And if all airlines are required to price their product at cost, what in the world is USAirways doing charging $176 RT between PHL and LAX? At a CASM of around 12 cents, that seat is probably costing them close to $700 to produce.