Route/Equip changes; including a new 777 market

[JS]

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On 4/29/2003 9:41:46 PM eolesen wrote:

Disagree. Very few flights operate at 100% without any revenue standby being accommodated. Some markets do operate at 100% on certain days, but that's due in part to revenue standby filling up the remaining seats. Think 5pm departures on ORD-LGA, LGA-ORD, DCA-ORD, etc...

Looking at 4Q02 data, only 3% of all flights operated at a 100% revenue load factor. 5% operated at 99% or higher. Those percentages include revenue standby passengers.

So, do you plan your airline around that 5% of flights, or around the 95% of flights which operate at lower load factors? I'd plan for what I'm more likely to see.

Given that the 100% LF flights are more predictable than not, I'd think it is easier to simply trade off some of the lower revenue and leave seats available for a last-minute sale, especially if you know that there will be revenue standby to soak up any unsold seats at departure time.

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It's not just the total load factor. You also have to consider the fact that with 12 fewer seats on the plane, I assume there are going to be about 12 fewer seats in the low-fare inventory buckets.

There are lots of flights where the low-fare inventory is sold out but the plane is not sold out, and it leaves the gate with empty seats.

Why is this bad? Because for many people, if the low-fare inventory is sold out, they don't cough up the extra bucks for the higher fare on AA, they go to another carrier that still has the availability. Most people do not care about the airline's name, they just look at the price.

You can avoid losing these fares by keeping the low-fare inventory at the same level as if there were no MRTC, but then you run the risk you won't have enough seats left for last-minute purchases at higher fares, or keep the high-fare inventory the same, and bump more people.

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MRTC is more important to me on the 5% of flights which are full, since a middle seat with more legroom is better than a window seat with less legroom. I suspect there are other people who agree with that.
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I prefer a window seat with less legroom to a middle seat with more legroom, even UA E+ legroom.

 

[FWAAA]

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On 5/1/2003 10:36:53 AM JS wrote:

It''s not just the total load factor. You also have to consider the fact that with 12 fewer seats on the plane, I assume there are going to be about 12 fewer seats in the low-fare inventory buckets.

There are lots of flights where the low-fare inventory is sold out but the plane is not sold out, and it leaves the gate with empty seats.

Why is this bad? Because for many people, if the low-fare inventory is sold out, they don''t cough up the extra bucks for the higher fare on AA, they go to another carrier that still has the availability. Most people do not care about the airline''s name, they just look at the price.

You can avoid losing these fares by keeping the low-fare inventory at the same level as if there were no MRTC, but then you run the risk you won''t have enough seats left for last-minute purchases at higher fares, or keep the high-fare inventory the same, and bump more people.

I prefer a window seat with less legroom to a middle seat with more legroom, even UA E+ legroom.

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JS: You may be correct about AA losing up to 12 pax per flight who would have flown AA had the L and N fares not sold out.

Testing your hypothesis shouldn''t be too hard; If you are right, then DL, CO, NW and US should have seen an increase (or a smaller decline) in pax boarded, together with an increase in revenue pax miles flown (or a smaller decline), combined with an increase (or smaller decline) in load factor, relative to AA, since none of these carriers removed seats.

I''m far too lazy to do all the research and math, but I''m certain that someone at AA is paid to do the analysis. I''m just guessing that on some routes you are right and on others the numbers don''t support your hypothesis.

In any event, AA''s revenues have declined, but not much more than have the others listed above. Although the LCCs'' revenues have ballooned since MRTC was implemented, I''m confident their revenues would have grown just as much regardless of AA''s seating configuration.

If AA''s plan is to remain a full-service airline catering to pax who are willing to pay more (while still selling some seats in the back at competitive L and N fares), then it is imperative that AA give us something in exchange for those higher fares. For me, MRTC fits the bill.

Years ago, when I wrote to AA begging for some additional legroom, my plan was premised on an additional charge for the extra room (I envisioned, and outlined for AA, what would eventually be called E+ at UA - AA, of course, did not implement my idea). If AA had removed one row from coach and spread the 31-32 inches among 5 rows, it would not have cost AA very many cheap fares and could have been recovered thru a fairly small upcharge for the extra space.

AA didn''t implement my idea - AA decided that everyone would get some extra space - and I don''t even have to pay an extra $20 - $30 for it like I had expected.

Has MRTC cost AA much-needed revenue? Hard to say (unless someone does the analysis). And I don''t expect AA to publicly share the analysis in any case. Our mileage on this issue certainly varies.

 

[JS]

FWAAA, with the data we have, we can't conclude anything. The large decrease in revenue since MRTC is either entirely or almost entirely due to the slowndown in the economy and 9/11.

Theoretically, there are only two ways to tell if MRTC is a success for AA -- do a controlled experiment, where you operate MRTC AA and non-MRTC AA under the same conditions; or, do a survey.

Obviously a controlled experiment is not possible, so the only way to know is to do a survey of passengers who have recently flown (AA or otherwise), and then estimate what revenue would have been had there been no MRTC.

This would be very difficult, because the variation in actual availability of fares is tremendous, and you would have to depend on people's accuracy when saying "No, I wouldn't fly AA with no MRTC at the same fare" or "Yes, I would fly AA with MRTC at this higher fare". Plus, many people take the airline with non-stop service even if the connecting fare is lower, so you would also have that opinion to gauge.

Finally, there is the issue of advertising. AA did a lot of advertising of MRTC. I admit that I booked an AA because of the MRTC ads before MRTC was finished, and I ended up on a non-MRTC plane, and I usually ignore ads!

I think the only way to tell if MRTC was a success is to do what TWA did with Comfort Class -- put the seats back in without telling anyone, and if the economy is basically the same next year as it is this year, compare revenue by month for the two years and see which one's higher. If MRTC proved better, then take the seats back out. Of course, that would be expensive to put seats in and then take them out if that is the conclusion.

 

[ct]

Everybody has an opinion on MRTC so I''ll give mine. I nearly always upgrade to F, and as long as I can do that, I don''t care what the legroom is in the back. But if upgrades to F become less available because either:

- the number of F seats is reduced or
- the upgrade policy is changed or
- business travel picks up and competition for upgrades is tougher

... then I get very interested in MRTC.

It was no coincidence that MRTC started about the same time that M80 F cabins went back to 14 seats.

 

[Busdrvr]

The lack of understanding of basic econ concerning the seat issue is scary. Just a few of the silly arguements
1. AMR''s LF is around 70%, with only 8% of the flights leaving with over 99% LF, so why carry around all those extra seats?
Answer: Do you think it''s a coincidence that most arlines have a loadfactor year in and year out near that number? By this logic, SWA could become the comfort airline of choice (current LF of around 65%) by taking out 1/3 of it''s seats and operating with 4 across seating, All FC. For every Friday evening travel period, there is a Wednes morning one. In a perfect world, jets could be reconfigured for the diff in demand, but this ain''t a perfect world. If you have 150 seats, the revenue managers will sell as closs to that number as possible (in non monopoly markets). It is HUGELY expensive to oversell. Yes, the revenue managers can tell you down to last pax, the traditional level of no-shows on any given leg on any given day. That''s why they oversell. But they''d much rather have 2 empty seat (at $99 roundtrip) than 2 oversells (at a cost of a $700 travel voucher, hotel room, meals, and lost goodwill). If you put on more seats, THEY WILL SELL MORE SEATS in the competative markets.
2. UAL and AMR derive more income from MRTC and ECON plus
Answer: BS, please show me ANY numbers that back that up. I''d suggest that it might have the opposite effect. We compete in ORD, but everywhere else, "Most" business people fly the local hub airline. "Most" CLT business men fly U, Most DEN businessmen fly UAL, Most DFW businessmen fly AMR. MRTC and Econ plus might even LOWER revenue. If I''m a 6''5" business traveler, why am I going to us my miles to upgrade to FC or business class when you give me more legroom for FREE. I''d rather use those miles to fly the kids to Disney, INSTEAD OF BUYING A REVENUE TICKET!
3. keep MRTC, and just substitute bigger equipment during the "peak times".
Answer: and just what do you plan to do with those big jets during the "non-peak times". Send them back to "jet fairy land"? Thats the place where jets are free and you can fly them for only a few hours a day. Airlines are able to do what you suggest on a somewhat small scale buy flying the 777 to europe and back during darkness, when domestic traffic is nonexistant, but simply "matching supply to demand" is MUCH easier said than done.

 

[ct]

I don''t disagree with the prior analysis on MRTC economics, but as a 2MM Advantage member, I can say that upgrades to F are motivated by many factors other than leg room. Also, most of the really frequent travelers don''t burn miles to get F upgrades; the upgrades come for free in the electronic equivalent of what we used to call stickers. If half of your flying is overseas in C, you accumulate free upgrades as fast as you can use them on your domestic flights.

 

[xlurker]

MRTC is killing the ASM cost. Think about it.

 

[FWAAA]

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On 5/3/2003 11:00:03 PM Busdrvr wrote:

The lack of understanding of basic econ concerning the seat issue is scary. Just a few of the silly arguements
1. AMR''s LF is around 70%, with only 8% of the flights leaving with over 99% LF, so why carry around all those extra seats?
Answer: Do you think it''s a coincidence that most arlines have a loadfactor year in and year out near that number? By this logic, SWA could become the comfort airline of choice (current LF of around 65%) by taking out 1/3 of it''s seats and operating with 4 across seating, All FC. For every Friday evening travel period, there is a Wednes morning one. In a perfect world, jets could be reconfigured for the diff in demand, but this ain''t a perfect world. If you have 150 seats, the revenue managers will sell as closs to that number as possible (in non monopoly markets). It is HUGELY expensive to oversell. Yes, the revenue managers can tell you down to last pax, the traditional level of no-shows on any given leg on any given day. That''s why they oversell. But they''d much rather have 2 empty seat (at $99 roundtrip) than 2 oversells (at a cost of a $700 travel voucher, hotel room, meals, and lost goodwill). If you put on more seats, THEY WILL SELL MORE SEATS in the competative markets.
2. UAL and AMR derive more income from MRTC and ECON plus
Answer: BS, please show me ANY numbers that back that up. I''d suggest that it might have the opposite effect. We compete in ORD, but everywhere else, "Most" business people fly the local hub airline. "Most" CLT business men fly U, Most DEN businessmen fly UAL, Most DFW businessmen fly AMR. MRTC and Econ plus might even LOWER revenue. If I''m a 6''5" business traveler, why am I going to us my miles to upgrade to FC or business class when you give me more legroom for FREE. I''d rather use those miles to fly the kids to Disney, INSTEAD OF BUYING A REVENUE TICKET!
3. keep MRTC, and just substitute bigger equipment during the "peak times".
Answer: and just what do you plan to do with those big jets during the "non-peak times". Send them back to "jet fairy land"? Thats the place where jets are free and you can fly them for only a few hours a day. Airlines are able to do what you suggest on a somewhat small scale buy flying the 777 to europe and back during darkness, when domestic traffic is nonexistant, but simply "matching supply to demand" is MUCH easier said than done.

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This is rich - a UAL pilot lecturing one of AA''s best customers on airline economics.

Not all airline Load Factors hover around 70%. In fact, two airlines with the largest profits have widely divergent load factors: WN''s 2002 LF of 65.9% and B6''s 2002 LF of 83%. That''s quite a spread.

Airlines could operate at a 90% load factor (or even higher) if they wanted to - but obviously the fare levels required to fill those seats is deemed too low by airline managers. WN is very smart, and they made money at 66%. B6 appears to be the exception, as they push load factors higher and higher.

I have to admit that I can''t figure out what the discussion of oversells has to do with whether it makes sense to give flyers more legroom - but as a frequent voluntary bumpee, I rarely get $700 vouchers. My record is $1,200 for a LAX-JFK delay of several hours, but that was several years ago. Typically, $200 - $400 depending on stage length and delay.

And I do know that as a top tier elite at AA, more than once I have played the trump card of a guaranteed coach seat (even on 100% sold out flights). In that case, AA hands a voucher to some happy backpacker (probably on an L or N fare) to make room for me (on a full Y or B fare). Everyone wins.

And about the typical business flyer in the hub cities - who cares? What about all the people in NYC or LAX or all the hundreds of spokes all over the country who have lots of choices (sometimes 7 or 8 different carriers)? Are you sure that MRTC or E+ is completely ignored among those pax?

Besides - isn''t it possible that your non-upgrading business traveler is flying your airline because of E+ (buying expensive tickets for business, regardless of the decision on MCO)??

As a very frequent flyer, I have never redeemed miles for a $180 coach ticket to Mickeyville (and I never will). I do use them frequently to upgrade international discount fares (of course, at UAL, you wouldn''t know about that policy) and I sometimes redeem them for international first class award tickets. I fly about 150k miles per year, and my total accumulation (bonuses, CC miles, etc) is between 400k - 500k miles annually.

Only fools exchange 25k miles for coach seats they could buy for $180. And yes, there are plenty of fools out there. My guess is that most who do are not very frequent flyers (thus, 25k miles takes them a while to accumulate), probably don''t have status and thus, don''t sit up front.

And even if you''re right - AA and UA aren''t hurting because some frequent pax are choosing not to buy $180 tickets to MCO.

Besides, your airline is really hurting - first quarter yield of $0.1016 and RASM of only $0.0736. AA was able to squeeze and extra two cents of yield out of its pax - $0.1219 and RASM of $0.0843. So you may be right - E+ may not be helping UAL''s revenue. AA''s revenue, being substantially higher than UAL''s per pax mile and per ASM, may be helped by (or not hurt as much by) MRTC. Who knows? You sure don''t. And neither do I.

MRTC doesn''t cause me to not upgrade to first - it means I''m not tortured when I do not (or cannot) upgrade.

About right-sizing the aircraft: I didn''t say that AA should magically find a larger plane for the occasional full route - I said that AA should shift a larger plane to routes that routinely fly full. AA is able to find plenty of 757s every winter to fly to ski locations - those planes fly elsewhere in the summer. And on plenty of routes there is already a mix of planes of various sizes - so it''s not like the size of aircraft on a particular route is fixed in stone forever. Besides, you of all people should recognize that - UAL is famous for flying widebodies on domestic routes long after most other airlines have ceased the practice.

If MRTC is hurting yield or RASM, then the other airlines without MRTC should have seen their numbers improve (or not decline as much as AA''s) for 2001 and 2002 (since MRTC was introduced).

Several have said that AA is throwing away L and N fares on every flight by flying 10-14 fewer seats (depending on aircraft). If that were true, then the 31 inch pitch garbage carriers (CO, DL, NW and the others) should have improved numbers because of all those L and N fares that AA threw away. But there is scant evidence that AA has thrown away any pax due to MRTC.

JS mentioned that the average AA pitch in coach was 31 inches prior to MRTC. I seem to recall that it was more like 32, but I may be wrong. MD-11s had about 34 inches while DC-10s had about 33. I seem to remember 757s and MD-80s having 32 inches.

In any event, as I''ve said before, some rows have a little more room, and others have lots more room. AA removed one row fore and one row aft of the overwing exits on narrowbodies. The rows aft of the overwing exits on 737s and 757s are nowhere near as nice as those ahead of the exits. The opposite is true on F-100s and MD-80s. The front rows of 737s and 757s are close in pitch to E+, while the other rows are marginally better than they used to be.

The good news about MRTC is that AA doesn''t have the money to put the seats back in even if management thought they could get a few more junk fares for the effort. So although you may be right (that MRTC and E+ don''t help the revenue picture at all, and may actually hurt it), the pax still win, since the broke airlines can''t do anything about it.

 

[Connected1]

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On 5/4/2003 157 PM FWAAA wrote:

If MRTC is hurting yield or RASM, then the other airlines without MRTC should have seen their numbers improve (or not decline as much as AA''s) for 2001 and 2002 (since MRTC was introduced).
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FWAAA, don''t get me wrong - I''m glad you fly American Airlines. However, I think you''re a little too far away from our books to understand just how underwhelming the impact of MRTC has been. Without throwing any proprietary information on the table, I will tell you that our unit revenue performance versus the other major airlines (excluding Southwest) has deteriorated since the inception of MRTC.

From a PR standpoint it was a great decision. For Pete''s sake, I can''t even convince one of our frequent travelers that it was a bad financial decision! From a financial standpoint, it was at best breakeven. We''ll never know, and I think our executives are secretly counting on that.

 

[ct]

ASM is just a metric to compare apples and apples; it isn''t cash flow, which is what matters at the end of the day. MRTC changes ASM, but it also changes RASM, and the analysis is complex.

I believe AA did MRTC primarily because it would appeal to business travelers. However, the reality is that most business travelers have well-established loyalty to one airline or another, so it takes a discontinuity like a liquidation of US or UA to create an opportunity for MRTC to come into play. That hasn''t happened - yet. The other motivation for MRTC was to give personal travelers a reason not to fly WN or B6, like a tie-breaker, but it''s very difficult to measure the effectiveness of a tactic like that, even for professional market researchers.

In terms of cash flow, MRTC is a loser if AA is foregoing significant incremental revenue from the seats that were removed and that lost revenue is not offset by gains from the marketing hype. I don''t find a compelling argument in this thread one way or the other. It''s probably a wash, which is perhaps disappointing to the people who argued to do MRTC, but not a justification to un-do it.

 

[Oliver Stone''s Apprentice]

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On 5/5/2003 2:01:30 PM Connected1 wrote:

Without throwing any proprietary information on the table, I will tell you that our unit revenue performance versus the other major airlines (excluding Southwest) has deteriorated since the inception of MRTC.

From a PR standpoint it was a great decision. For Pete''s sake, I can''t even convince one of our frequent travelers that it was a bad financial decision! From a financial standpoint, it was at best breakeven. We''ll never know, and I think our executives are secretly counting on that.

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Unit revenues have declined because AA''s emphasis was on business travelers. AA has always had a higher RASM than its peers, so it had farther to fall. If anything, MRTC probably slowed the decline.

 

[Busdrvr]

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On 5/4/2003 157 PM FWAAA wrote:

"Not all airline Load Factors hover around 70%. In fact, two airlines with the largest profits have widely divergent load factors: WN''s 2002 LF of 65.9% and B6''s 2002 LF of 83%. That''s quite a spread. "

With the exception of the PT cruiser, pet rock, beanie baby airline, name ONE airline with a proven trackrecord of load factors over 70% sustained over any significant length of time. You pointing out that SWa had a load factor of 65.9% only makes my point. Those SWA managers must be dumb as rocks flying around with an average of 40 empty seats. think of all the wgas they''d save if they just took out those seats.....


"I have to admit that I can''t figure out what the discussion of oversells has to do with whether it makes sense to give flyers more legroom - but as a frequent voluntary bumpee, I rarely get $700 vouchers. My record is $1,200 for a LAX-JFK delay of several hours, but that was several years ago. Typically, $200 - $400 depending on stage length and delay."

The point is airlines don''t WANT full airplanes. Even at what you have found in your extensive travels as one of those back seat riders with a complete understanding of the industry, the airline wold prefer to NOT sell that $99 ticket to begin with.

"And I do know that as a top tier elite at AA, more than once I have played the trump card of a guaranteed coach seat (even on 100% sold out flights). In that case, AA hands a voucher to some happy backpacker (probably on an L or N fare) to make room for me (on a full Y or B fare). Everyone wins. "

I agree. What folks don''t realize is Airlines hording tickets for last minute sell to a business traveler, even at confiscatory prices, is FAR better than the typical LCC practice of selling out and then not awarding the FF "must travel" status with the perk of being the first to get on the jet after paying for all the gas.

"And about the typical business flyer in the hub cities - who cares? What about all the people in NYC or LAX or all the hundreds of spokes all over the country who have lots of choices (sometimes 7 or 8 different carriers)? Are you sure that MRTC or E+ is completely ignored among those pax?"

It is NOT completely ignored, but, most companies now REQUIRE lower level business pax to travel at THE LOWEST FARE. That means AMR or UAL may get the sale if the charge the SAME amount as another airline with 20% more seats. The sad thing is, that just aint a way to make money. How many cities does AMR serve with DIRECT flights from the Washington DC area? DEN? how many citis does UAL serve Directly from NYC? DFW? Do you LIKE connecting? It''ll be even MORE fun with the "rolling" hub AMR experiment (rolling Hub is code for "longer layovers") BTW, where do YOU live? I''ll bet it ain''t DEN.

"Besides - isn''t it possible that your non-upgrading business traveler is flying your airline because of E+ (buying expensive tickets for business, regardless of the decision on MCO)??"

Possible, but usually not likely

"As a very frequent flyer, I have never redeemed miles for a $180 coach ticket to Mickeyville (and I never will). I do use them frequently to upgrade international discount fares (of course, at UAL, you wouldn''t know about that policy) and I sometimes redeem them for international first class award tickets. I fly about 150k miles per year, and my total accumulation (bonuses, CC miles, etc) is between 400k - 500k miles annually."

Actually I know several UAL 1K''s who regularly use miles to go on vaction (and one of them is 6''5"). as a matter of fact, i had the 6''5" guy on one of my jets. he was sitting in 1B on a guppy. Said he had to upgrade since the jet was an old "shuttle" jet (no Econ plus)

"And yes, there are plenty of fools out there."

And that''s the point isn''t it?

"And even if you''re right - AA and UA aren''t hurting because some frequent pax are choosing not to buy $180 tickets to MCO. "

Every dollar counts.

"Besides, your airline is really hurting - first quarter yield of $0.1016 and RASM of only $0.0736. AA was able to squeeze and extra two cents of yield out of its pax - $0.1219 and RASM of $0.0843. So you may be right - E+ may not be helping UAL''s revenue. AA''s revenue, being substantially higher than UAL''s per pax mile and per ASM, may be helped by (or not hurt as much by) MRTC. Who knows? You sure don''t. And neither do I."

It''s called BK, and as a FF on AMR, you should prob familiarize yourself with the process. Pax booking GO DOWN when you file. Luckily they are rebounding at UAL, while they are prob going down at AMR (Eoleson?)

"MRTC doesn''t cause me to not upgrade to first - it means I''m not tortured when I do not (or cannot) upgrade."

Torture you long enough, and you''ll upgrade (as long as UAL doesn''t have an alternative).

"Besides, you of all people should recognize that - UAL is famous for flying widebodies on domestic routes long after most other airlines have ceased the practice."

Yet those paragons of inefficiency, the japanese, fly 747-400 DOMESTICALLY. The US government to some extent has subsided the proliferation of smaller jets and contributed to the grid lock that we enjoyed in the late 90''s and will soon get to enjoy again. UAL flies widebodies domestically usually to reposition them for max utilization (prior to 911). we had 777 or larger equipment flying internationally out of 8 differant airports (NYC, IAD, MIA, DEN, ORD, SEA, SFO, LAX), and flew over 100 jets that were 777 or larger. The CASM for a 777 is LOWER than an F100. The rub is filling it up.

"If MRTC is hurting yield or RASM, then the other airlines without MRTC should have seen their numbers improve (or not decline as much as AA''s) for 2001 and 2002 (since MRTC was introduced)."

I think the proof is the fact that U, CAL, NWA, DAL DIDN''T follow suit.

"Several have said that AA is throwing away L and N fares on every flight by flying 10-14 fewer seats (depending on aircraft). If that were true, then the 31 inch pitch garbage carriers (CO, DL, NW and the others) should have improved numbers because of all those L and N fares that AA threw away. But there is scant evidence that AA has thrown away any pax due to MRTC."

Is it proof enough that the two worst performing airlines financially were the ONLY two that took out seats, and were two of the consistantly best performing Airlines in the mid to late 90''s BEFORE pulling out the revenue ops?


"The good news about MRTC is that AA doesn''t have the money to put the seats back in even if management thought they could get a few more junk fares for the effort. So although you may be right (that MRTC and E+ don''t help the revenue picture at all, and may actually hurt it), the pax still win, since the broke airlines can''t do anything about it. "

OK einstien, if AMR can''t afford to make modifications to the jets that will generate more revenue, what makes you think they can afford to do work on jets that DOESN''T improve revenue, like changing tires before the last possible landing, and fixing all the small writeups that can snowball later? The FAA will make sure they will? Yeah right, ask the pax on Valudeath and ALK. The FAA was right there...after they died.

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[Connected1]

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On 5/6/2003 10:18:27 AM eolesen wrote:

Unit revenues have declined because AA''s emphasis was on business travelers. AA has always had a higher RASM than its peers, so it had farther to fall. If anything, MRTC probably slowed the decline.
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You''re starting to sound like RM explaining themselves at EC.

 

[Oliver Stone''s Apprentice]

Yes, but with about 3,000 fewer words and without pretty graphs in a powerpoint presentation...

 

[MiAAmi]

MIA seems to have started moving some of the International Carriers to the E concourse. Virgin, Iberia are using E terminal. Meanwhile more and more AA flights are using A terminal (much nicer place)