Study Shows Lccs Outshine Legacy Carriers

[Ch. 12]

Cherry picking dense routes comes to mind as something that JetBlue does right. My uneducated guess is AA's load factors are not that different from JB's on routes where the two compete head to head.

Where would we be without full service airlines that fly more than just the most popular routes?

Point well-taken. I do think, however, that an 80%+ systemwide LF...even if it is NY-FL and dense trans-con markets...is highly commendable and would be interested in knowing if AA would compare if pared down to just those routes. Certain days of week or times of day, 85% is expected, but across all times...and when people have chastized JB for its dependancy on red eyes...they seem to be getting something right. Typical red-eyes alone have LFs well below 50%.

But you are right...the AA system is vastly different from that of JB.

 

[Fubijaakr]

And AS is quasi-LCC these days too.

Actually, that's a wannabe LCC!

 

[mweiss]

I was not addressing the issue of revenue, only that of load factors.

Of course. I understood that. But the argument is apples-to-oranges unless you're referring to the "cherry-picked" routes as profitable, with the others not. Otherwise, who cares what routes the LCCs take? If all they take are the unprofitable routes, let 'em take all they want!

 

[TWAnr]

Of course. I understood that. But the argument is apples-to-oranges unless you're referring to the "cherry-picked" routes as profitable, with the others not. Otherwise, who cares what routes the LCCs take? If all they take are the unprofitable routes, let 'em take all they want!

I was merely replying to Ch. 12 regarding the reasons that JetBlue has very high load factors; one important factor, which contributes to that impressive figure, is that they fly routes with heavy traffic and avoid the less popular ones. It is obviously easier to consistently fill up the planes flying almost exclusively on dense routes.

Yes, you are right, it is easier to turn profits while charging low fares when the planes are full, so in that respect you are correct that JB has "cherry picked" mostly profitable routes (and abandoned others, i.e. LGB-ATL, like hot potatoes).

 

[mrman]

The cherry pick arguement is moot in my opion. Regulation has been over for 30 years. No airline is forced to fly any route. If the route is not profitable, then cut it. CO found this strategy very profitable in the 90s. Pride should not keep an unprofitable route in the system.

 

[mweiss]

Exactly. Any US airline that continues to fly unprofitable routes gets precisely what they deserve.

 

[jimntx]

Exactly. Any US airline that continues to fly unprofitable routes gets precisely what they deserve.

If anything should have been regulated in the glory days, it should have been the building of bigger, better, more expensive airports and terminals in cities that could not produce the traffic needed to pay for the things. A lot of cities went on the "if you build it, they will come" philosophy. However, airlines do not choose to serve a city because of the size or beauty of their air terminal. Lord, look at LGB.

My hometown, BHM, had an ok, but not very big or attractive terminal built in the late 50's or early 60's. In the 80's they built a new terminal with expansive attached parking and 3 or 4 concourses with 10 or so gates on every concourse. Most of those gates are empty most of the day every day. Only the concourse that SWA uses could be deemed "busy." And, that's not even all day everyday.

Some cities, like ICT, are even resorting to subsidizing airline service in order to get non-stop service to major cities. Those subsidies are the only thing keeping the service in place.

With major network carriers, like AA, I think we will see more and more "2nd and 3rd tier" cities being served by American Eagle rather than mainline AA. There is a profit to be made in these cities because the LCCs are not interested in serving them, but there is not enough traffic to justify full-size a/c on the routes.

 

[mrman]

There is a profit to be made in these cities because the LCCs are not interested in serving them, but there is not enough traffic to justify full-size a/c on the routes.

WN flys to many 2nd tier cities others fly only with an RJ or Prop and use this to their advantage.

See AMA, BHM, BOI, CRP, ELP, HRL, JAN, ISP, SDF, LBB, MHT, PVD, RNO, GEG, TUL, PBI

Its ironic WN gets knocked for not flying to Big Markets by some and Small by others

 

[Ch. 12]

So here's another interesting angle to inch this back towards the original topic...

Can it be said that the legacies have been putting TOO much effort into pleasing their middle and elite FFs? I think it carries much merit as the legacies have focused on the upper echelon so much that they have missed looking at ways to improve service to the other 90% of the passengers...those that jump from carrier to carrier because they are not tied down by enourmous mileage accounts. True...the elite FFs pay the highest yields and are very important, but yields have been decaying significantly in recent years and their value is not as elite as it once was. Now the legacies must improve their overall product to keep the passengers that are willing to change from carrier to carrier based on service experiences. This is also the group that can sway the general public's opinion...and there you have the latest poll results...

 

[FWAAA]

So here's another interesting angle to inch this back towards the original topic...

Can it be said that the legacies have been putting TOO much effort into pleasing their middle and elite FFs? I think it carries much merit as the legacies have focused on the upper echelon so much that they have missed looking at ways to improve service to the other 90% of the passengers...those that jump from carrier to carrier because they are not tied down by enourmous mileage accounts. True...the elite FFs pay the highest yields and are very important, but yields have been decaying significantly in recent years and their value is not as elite as it once was. Now the legacies must improve their overall product to keep the passengers that are willing to change from carrier to carrier based on service experiences. This is also the group that can sway the general public's opinion...and there you have the latest poll results...

Although you are right that yields have eroded, one thing top-tier elites tend to do is buy most/all their tickets from that one carrier, which includes some L and N fares but also tends to include some Y or B fares (if not P, J and F as well). Not all do, but they tend to.

Some of the other legacy airlines lost sight of this last year (DL, US and CO come to mind) when they decided to try to punish the elites for not buying higher fares (by only awarding half credit toward elite status for discount coach fares).

AA doesn't do this (yet) and other airlines have recently copied AA's carrot approach (abandoning their sticks) - most recently, US, which yesterday made its elite program qualification more like AA's.

Treat the top-tier elites poorly and they may take ALL their business somewhere else, which probably includes a mix of fares, some garbage, some high-yield. You may not miss their Ls and Ns, but you don't want to lose any of their P, F, J, Y or B business.

Not all top-tier elites get there solely on L and N fares. Nice to see that (for now) AA still recognizes that.

 

[Ch. 12]

FWAAA,

I totally agree that this sector of the business is very important and should not be overlooked. BUT...with the intense focus that the legacies have had on this sector, they have abandoned the larger population of non-elites that actually sway from carrier to carrier. WN and JB have spent just as much energy on their "average" passenger as they have on their top-tiers and it shows in the publics perception of them. And with the legacies continually upping the ante with the elites...it only costs more.

I am in no way saying to ignore the most loyal passengers...just that the legacies have missed the boat by putting all of their energy into this group and forgetting about the population that only needs to have their hearts won and not their lavish needs fulfilled.

THAT is why the LCCs outshine the legacies in these surveys.

 

[TWAnr]

From TheStreet.com:

The lack of pricing power and weakness in yield is also having a negative effect on the low-cost competitors, even if it doesn't result in red ink.

With prices falling and costs rising at all low-cost carriers, if only because of fuel, analysts expect earnings expectations to come down again.

What's seen as a negative for Southwest could be even more so for JetBlue (JBLU:Nasdaq - news - research) , which has been warning about falling operating margins for the last two quarters. As legacy carriers specifically target JetBlue's transcontinental routes with fare sales, the company's first-quarter earnings release next Thursday will very likely include a healthy dose of cautious language along with the carrier's ambitious growth plan -- and perhaps falling estimates as well.

"The current level of capacity in select transcontinental markets is not sustainable; schedule filings clearly indicate that the worst is yet to come with significant additions in the April through July period," said Sam Buttrick, airline analyst at UBS Warburg, in a note. "As such, we expect continued margin pressure [and] reduced margin guidance from JetBlue."

Airline Outlook Brightens

 

[funguy2]

Not just oversales, but overbooking generates additional revenue. Many, many more flights are overbooked but still go out without being oversold due to no-shows.

JetBlue is stupid for not overbooking. Eventually they will wake up and do it.

Actually... The way JetBlue doesn't overbook is kinda smart.

If your plans change, or something happens, you have to call JB to rebook. They put your seat back for sale and try to sell it to somebody else. You get to rebook later for a fee. Essentially, that fee is supposed to cover the cost of the lost sale while you were holding the seat you never ended up using. Yes, sometimes people never use that credit and the airline gets revenue for nothing. This is true of all airlines who charge change fees or have tickets that expire (i.e. all of them).

The JB "twist" is if you simply no-show, you lose all the cash, as if you flew. Much like buying a movie ticket and not making it to the movie. You may not have seen the show, but you did purchase the seat for two hours.

At most airlines, if you just no-show, you still get to rebook for the change fee, even though the airline had no other ability to re-sell your seat, since they had no idea you wouldn't show up until 5 minutes prior to departure.

I would guess that JB will not overbook until they see a significant no-show factor. Seems like that hasn't happen yet.

 

[funguy2]

The cherry pick arguement is moot in my opion. Regulation has been over for 30 years. No airline is forced to fly any route. If the route is not profitable, then cut it. CO found this strategy very profitable in the 90s. Pride should not keep an unprofitable route in the system.

Its a matter of market share. The legacy carriers have often been criticized for focusing on market share instead of profits. The idea is that the more market share you have, the more profitable you could be.

The problem is that you could have 100% market share betweem Birmingham and Mobile, but if you can't do it profitably, that market share isn't worth a hill of beans. In fact, it could be a bad thing because for every additional point of market share gained while occuring a loss, you lose more money providing it.

Southwest figured out a long time ago that if you become profitable on route first, you can dominate market share later... And look at how many major markets they dominate... DAL-HOU, LAX area - Bay area, Chicago-St. Louis and Detroit, etc.

 

[TWAnr]

The JB "twist" is if you simply no-show, you lose all the cash, as if you flew. Much like buying a movie ticket and not making it to the movie. You may not have seen the show, but you did purchase the seat for two hours.

Smart, very smart.