So.....Where's the difference?

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On 11/17/2002 10:54:03 AM KCFlyer wrote:



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On 11/17/2002 10:29:30 AM Falco wrote:


Give up the idea of going with HP's fare structure. When they did it, they had very few people paying the high walkup fares anyway. In spite of the drop in business travel, U still does get some high fare travellers (look at the yield compared to HP). U couldn't make up for the loss of that revenue with higher volume because it has been proven many times that lower fares don't stimulate much in the way of more BUSINESS travelers.[/P]----------------[/BLOCKQUOTE]


[/P]Seems to be working for Southwest.......
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U hold that thought,Falco.....I agree, KC....when U is a distant memory and HP is still flying.....
 
[blockquote]
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On 11/17/2002 10:29:30 AM Falco wrote:

Give up the idea of going with HP's fare structure. When they did it, they had very few people paying the high walkup fares anyway. In spite of the drop in business travel, U still does get some high fare travellers (look at the yield compared to HP). U couldn't make up for the loss of that revenue with higher volume because it has been proven many times that lower fares don't stimulate much in the way of more BUSINESS travelers.
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Proven by whom? Just who do you imagine is buying all of those low fares? You might want to try looking around on a flight some day -- count the laptops or something. Or maybe do something really out of the box like asking a few customers what they're doing and how much they paid...

Yeah, U gets some high fare victims. Not very many though.

Even Ben admits that his worst nightmare has come true -- business travelers buy leisure fares. AMEX reports that something like 88% of the corporate tickets that it sells are leisure fares (and that the trend is ever higher). You've got to figure that AMEX is at the top end of the curve -- a far higher percentage of small companies and independent contractors etc are buying leisure fares for business purposes. I'd also wager that AA & UA get a much bigger bite of that pie than U does -- they have the markets which will support it and they serve those markets with aircraft that make a difference.

Get your heads out of the sand -- you cannot keep shafting your best customers.
 
It works for Southwest because of their cost structure. Is US anywhere close to WN's CASM level, or HP for that matter? No. If you put WN at US's CASM level, they wouldn't be making money either in this environment.
 
[blockquote]
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On 11/18/2002 10:36:30 AM UAL777flyer wrote:

It works for Southwest because of their cost structure. Is US anywhere close to WN's CASM level, or HP for that matter? No. If you put WN at US's CASM level, they wouldn't be making money either in this environment.
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[/blockquote]

According to US' web site their CASM is $0.1095 now. That's a pretty hefty decline that has not been reflected in fares. Does it have to be $0.00 before the fare structure can be touched?

UAL777flyer you seem to be willfully ignoring the point -- we aren't saying to match the fares. It's the structure of them -- particularly the gap between high and low that we see as the problem. It is patently obvious that airlines gouge their best customers. It should be obvious, even to an airline executive, that we've noticed.
 
[P]
[BLOCKQUOTE][BR]----------------[BR]On 11/18/2002 10:36:30 AM UAL777flyer wrote:
[P]It works for Southwest because of their cost structure. Is US anywhere close to WN's CASM level, or HP for that matter? No. If you put WN at US's CASM level, they wouldn't be making money either in this environment.[/P]----------------[/BLOCKQUOTE]
[P]UAL777Flyer - Respectfully - bulls*t. Do you think that SWA was happy to reduce their one way walkup fares to $299? Even with their cost structure? I'm not saying to clone SWA at U. I am saying that SWA lowered their one way walkup fares in an attempt to spur people...business people to purchase a ticket that might not have otherwise. Southwest took a bold step to do something....ANYTHING...to spur travel...even if it meant a decrease in their yields. The result is that they are showing a profit, albeit a small one. But I just flat out don't buy this We can't reduce the $2,000 unrestricted fare until we get costs under control argument. The only thing that U (and most others) have done is to offer super duper (money losing) low fare sales geared toward the leisure traveller. What they have done to any business looking to cut their travel budgets is implement a series of fees and penalties that IMHO are tempting businesses to say screw it and try out web conferencing. [BR][BR]Does the airline industry just not recognize that this downturn in the economy impacts their customers as much, if not more, than it does the airlines? It really appears that the airlines are not willing to take a cut in yields for an increase in profits....They desparately need to reevalute the revenue managment model, and get rid of the damn fees. I'm not a betting man, but I'd bet that these asinine fees have cost more business than they ever brought in in revenue. The business community has spoken by trying to book advance fares whenever possible to try and save money. They want to do business with the airlines, but the airlines don't seem to be ready to change to meet their needs. Instead, they appear to be daring them to buy a ticket. [/P]
 
KCflyer,

You and everyone else need to stop the Southwest comparisons. They are an enigma in this business. If every airline adopted their exact same strategy and cost level, they still wouldn't come close to WN's level of success. WN has the lowest cost structure of anyone. Don't you think that allows them to undercut everyone else and still make money? Of course it does. Without the cost structure to make it work, it doesn't work. Would WN like to charge higher fares and make more money? I'm sure they would. But why should they? But cheaper fares are not the secret of their success. In fact, you can find many instances where WN does not offer the lowest fare in the market. But WN's brand is so strong that they will always be thought to have the lowest fare. Their success comes from their efficiency of operations and their corporate culture. The dysfunction that is ripe within the rest of the airlines makes it nearly impossible for other airlines to adopt that strategy and succeed. It's more than fares. Simply offering WN style fares won't solve the problem. I agree that fare changes are necessary. The whole structure is ridiculous these days. But either you get the entire industry to go along at the same time (which won't happen), or you must take baby steps to get to that point.

Sure you can reduce fares. But to what level? If you simply don't buy the argument, than do the math with the CASM, RASM and yield numbers and you'll see what a disadvantage US is at in this environment with their CASM still hovering around 11 cents. Not willing to take a cut in yields? Have you tracked yields in the industry over the last two years? Yields are misleading. Unit Revenue is the better indicator of an airline's revenue performance.

But I wholeheartedly agree with you that fare structures must change. But you cannot change them overnight unless you enjoy a cost advantage over other carriers. They will simply CMI you to death.
 
UAL777flyer -- you're starting to catch on... we've been trying to make the point for quite some time that it isn't all about who has the lowest fares. It's about a lot of other things too -- like how you treat your customers. SWA has such strong brand loyalty at least in part because they have not tried to make a business out of gouging their best customers.

SWA isn't the only carrier that does things differently. But all the big six ever seem to take from the lesson is a synthesis of punishments that they think they can get away with while ignoring the positive trade-offs that other airline's customers get in exchange for for those restrictions.

There are changes that can be made. Draconian and punitive rules can be relaxed or dropped altogether rather than added to. Enticements can be offered. Customers can be treated with respect rather than as not yet convicted criminals. Egregiously out of balance fares can be made more reasonable. It doesn't have to happen overnight but it is going to happen -- airlines that don't change will end up in chapter 7. I'd like for US Airways to not be on that chapter 7 list -- I'd like to see US Airways lead the way to a bright new future.
 
Here's an example of how HP is attracting new customers:

Sunday Nov. 17 Load Factor: HP = 81%
US = 67%

A whopping 14% negative differential! I completely understand that load factors are only one thing to consider when focusing the bottom line, but HP is clearly attracting new customers with their consumer friendly fare (FAIR) initiative.
 
[STRONG]You and everyone else need to stop the Southwest comparisons. They are an enigma in this business. If every airline adopted their exact same strategy and cost level, they still wouldn't come close to WN's level of success. WN has the lowest cost structure of anyone. Don't you think that allows them to undercut everyone else and still make money? Of course it does. Without the cost structure to make it work, it doesn't work.[BR][BR][/STRONG]Again, I am not saying to clone Southwest. But in the market today, price is playing a much bigger role in corporate travel decisions. What I (and Tom Bascom) are saying is that you don't have to match LUV's fares. But U really should do something to attempt to increase the number of people on their planes who are NOT buying a loss leader ticket.[BR][BR][STRONG]Would WN like to charge higher fares and make more money? I'm sure they would. But why should they? [BR][BR][/STRONG]You miss my point...you're quite correct that they would like to charge higher fares and make more money. But they found that even with their relatively low walk up fares, they were not getting as many passengers as they needed. So they lowered their fares to $299 one way in an effort to stimulate demand in a down period. It is working for them. When the economy picks up, I am quite sure that you'll see them raise those last minute fares again. The thing is, they'll still be affordable[BR][BR][STRONG]But cheaper fares are not the secret of their success. In fact, you can find many instances where WN does not offer the lowest fare in the market. But WN's brand is so strong that they will always be thought to have the lowest fare. [BR][BR][/STRONG]This is the leisure traveller must save us mentality that is killing the major carriers. Sure enough everybody thinks of SWA as the low fare carrier. You admittedly can't match their costs, so why in the hell are you offering fares that undercut SWA advance purchase fares? Do you want to let the public know that you can be just as affordable? And you are...to the vacationing leisure traveller who cannot save your industry. You may not be able to match the cost structure of SWA, but go look at their website and look at what the other airlines should be doing....go into reservations, pick two cities and see what you are presented with...4 or 5 fares, and the avialabilty of those fares. Simple. Look at their restrictions...stay over one night. Non refundable. But... no chnage fees. No use it or lose it penalties. Now try booking a trip on U or UAL or AA. Look at the restrictions...even on some last minute fares. Think theres any room to shave something off those fares...enough that just might encourage a businessman to fly you? [BR][BR][STRONG]Their success comes from their efficiency of operations and their corporate culture. The dysfunction that is ripe within the rest of the airlines makes it nearly impossible for other airlines to adopt that strategy and succeed. It's more than fares. Simply offering WN style fares won't solve the problem. I agree that fare changes are necessary. The whole structure is ridiculous these days. But either you get the entire industry to go along at the same time (which won't happen), or you must take baby steps to get to that point.[BR][BR][/STRONG]Again, don't clone SWA. But look at this scenario - U doesn't compete with AWA...you say you have to get the entire industry to go along...poppy****...to use the Nike phrase - [STRONG]Just Do It[/STRONG]. U could restructure their fares in the same way HP restructured theirs. If the others don't want to follow, then laugh all the way to the bank as they try to continure luring money losing leisure travellers with fare sales while you draw in business flyers who are making you a PROFIT. HP is still showing a loss...but they have seen their loss decrease under their new scheme. U doesn't have to become a low fare carrier, just a business friendly carrier. IMHO, if that doesn't force the industry to change, then the benefit will go to U (or the first airline with cajones enough to try it). [BR][BR][STRONG]Sure you can reduce fares. But to what level? If you simply don't buy the argument, than do the math with the CASM, RASM and yield numbers and you'll see what a disadvantage US is at in this environment with their CASM still hovering around 11 cents. Not willing to take a cut in yields? Have you tracked yields in the industry over the last two years? Yields are misleading. Unit Revenue is the better indicator of an airline's revenue performance.[BR][BR][/STRONG]What level? How about half for starters? Take the highest unrestricted fare on a U route and cut it in half. Set up 4 other fare levels under that, and worst case, make the most advance purchase fare bucket break even. Drop the change fees. Drop the penalties. Drop the use it or lose it. Allow standby. Become the business travellers airline. U could offer highly competitive advance fares (maybe not the lowest, but a good ad campaign showing the benefits of paying a few dollars more might not be too bad) and highly affordable last minute fares. Price them by segment (like SWA or Airtran). If someone buys a ticket in the forth fare bucket and changes their departure date on the outbound within 7 days, upcharge that segment to the available fare bucket, without assessing a change fee. [BR][BR][STRONG]But I wholeheartedly agree with you that fare structures must change. But you cannot change them overnight unless you enjoy a cost advantage over other carriers. They will simply CMI you to death.[BR][BR][/STRONG]I disagree with this...you can restructure them to work under your current cost structure...maybe not $299 one way, but certainly less than what you currently have. This should be something that is done in tandem with cost cuts. [BR][BR]I don't know why I'm so adamant about this...I'm about the biggest SWA fan there is. What I propose could actually hurt SWA. But you guys want to out-Southwest them on advance purchase fares, and as long as you do that, I can only sit back and watch SWA enjoy even greater success. Restructuring fares might entice the elites you crave to actually fly you at a profit. As it is, the ones that do travel are doing it with your loss leader fares. Helluva way to run a business.
 
Restructuring fares might entice the elites you crave to actually fly you at a profit. As it is, the ones that do travel are doing it with your loss leader fares. Helluva way to run a business.

In fact I just sent Mike Isom an e-mail a little while on this very topic.

Among other things I've been flying between MHT & IND a lot since spring. My usual fare has been a heavily restricted $260. Judging from the CASM discussion that ought to be more or less profitable -- it surely isn't a gushing wound in profitability.

But this week I'm accidentally on an unrestricted $390 fare. (I bought it later than usual.) I discovered this because I needed to change it and I was shocked when they didn't extract $100 from my wallet for the privilege.

But the point is that I would very likely have been buying these right along if they had been offered to me. The difference is at the edge of my tolerance for this flight but it's close enough -- I can justify it with a modest effort. But I never even knew that it was available. Whenever I book flights I get quoted the lowest fare or, if I choose poorly, suggestions are made for even lower fares.

Contrast that to booking on SWA (which I just did this am.) On SWA all the possible fares for that itinerary are shown. If it makes sense to purchase the less restricted fare then I just click a button and do it -- with US Airways I have to go through booking twice to do the research and maybe a 3rd time if desired fare was on the other basis to actually buy the ticket. And booking on US is already much more difficult than SWA (that site is a model of making it easy to spend your money.)

US Airways is practically begging me to buy unprofitable tickets. Helluva way to run a business.
 
KCflyer,

Poppy****? LOL, I like that one. Not so sure you'd get that to go over too well in the boardroom when you're trying to convince your BOD that a wholesale fare structure change is needed regardless of whether it's matched or not by other carriers.

I agree with you that fare levels need to be changed. But it's not as easy as it sounds. You have to test them in certain markets first. That will give you an idea of whether you'll be successful or not. You'd be surprised how much testing is currently going on about that very subject. You're just not hearing about it. I am all for changing fare levels and reducing the insane restrictions. It has become a joke. But you can't merely make change for change's sake. You have to be sure it will work. And that takes the time to test new fare levels in certain markets.

Unfortunately, we've reached a point of witnessing a Wal-Mart-ing of the industry. Customers always want the cheapest fare and then scream and yell when they don't get all the amenities with it. You can't have it both ways. Low, reasonable fares are great. But if your costs can't support it, something has to give.
 
UAL777flyer - I didn't think the profanity censor would dash the word...oh well... Perhaps some airline boards need somebody to stand up and tell them that. Right now, it seems like there's a bunch of yes men out there, nodding their heads in agreement as the cost cutting mantra is recited over and over. Heck, I'd go in there and tell them, but I really don't think that they want (or care for) the thoughts of the customer. [BR][BR]But I thought of something while having dinner tonight. Sitting before me was an ad for MacDonalds. It showed a quarter pound burger with lettuce, tomato and sesame seed bun. In the good old days, they charged about $2 for that. But this was a dollar mac. Demand is down, even for necessities like food. Mickey D's sees that with this dollar mac thing, and Burger King and Wendy's all have their 99 cent menus. Why? To increase the demand. And the odd thing is...fast food places are actually having to pay folks more to work there because nobody wanted jobs there...so their costs are actually increasing, but they are stimulating demand by lowering the price of their product. Most likely when the economy improves, the dollar mac's and 99 cent menus may fall by the wayside, and the prices will inch upward. [BR][BR]So...what's the difference between a hamburger and an airline ticket? If they cook the burger and nobody buys it, they lose money...it gets thrown away. If a plane takes off with an empty seat, they lose money. The burger guys are sacrificing some of the profit potential to increase sales. I just don't see why airlines don't see that. Hell, who's the NWA guy that went to work at Burger King? Bring him back into the airline biz and let him see if he could implement anything he learned from the burger biz.
 
[BR][BR]
[BLOCKQUOTE][BR]----------------[BR]On 11/18/2002 8:49:56 PM FrugalFlyer wrote: [BR][BR][BR]
[BLOCKQUOTE][BR]Yes, US costs are higher than SW, so instead of capping the walk-up fair at $299 US could cap their highest walkup fare at say $799-$999. I think you might be amazed at how many people would be more willing to pay $999 walk up fare vs. $2000 or more. [BR][/BLOCKQUOTE][BR][BR]----------------[/BLOCKQUOTE][BR][BR]Judging from the news, AA just beat U to the punch. Now the U BOD can stand around and wait to see what happens. My bet is that AA will see an increase in profits on their selected routes. Imagine, more room throughout coach and an unrestricted fare that won't break the bank. And don't look now UAL777flyer, but UAL is quietly matching those fares. Perhaps we are on the brink of sanity.
 
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