The Big Six And Wal-mart

[RowUnderDCA]

I believe that Mike Boyd from the Boyd Group stated last week that UA has a CRJ for one of the DEN-ATL-DEN runs. I haven't checked the schedules yet.

That's correct. I was looking at ATL-LAS and one option was a route through DEN. I couldn't believe that there was a CRJ-700 listed on that route. Is there anyone here above 4' 10" who would consider that a comfortable flight for that distance?

I think the CRJ product is inferior. I'm not against RJ's but the AMR Eagle CRJ 700 I was on recently was soooo cramped. I would NOT risk sitting in a CRJ for that length of flight. I have yet to have a bad experience on an ERJ, though.

 

[javaboy]

yes quite interesting, accurate? to a degree sure.

lets see.
1. years ago airline food was the butt (pun intended) of jokes on late night tv, so airlines removed it (cost savings you want cheaper tickets right?) only to hear an up roar about wheres the beef? now they charge for the food? a case of managment giving the people what they think they (the public) wants. and now the public wants rock bottom ticket prices so lets give it to them?

instead of managing the product.
if price were the only determining aspect of american consumers, then southwest, airtran, jetblue, frontier would be the only airlines flying, we would shop only at walmart, dine only at mc donalds, and drive hundays.

yet the american consumer goes to steak houses, salad bars, shops at malls that have many stores other than walmart, and drive SUVs and Cadillacs and everything in between. why the perception of what you get is different. why then not airlines?

years ago the low cost japanese autos were going to put detroit out of business, the industry suffered but adapted, same here the industry as a whole is going through a fiscal/marketing shake up akin to the transition from props to turboprops to turbojets back in the 50s-60s.

 

[ELP_WN_Psgr]

Javaboy writes in, and I quote:>>"yet the american consumer goes to steak houses, salad bars, shops at malls that have many stores other than walmart, and drive SUVs and Cadillacs and everything in between. why the perception of what you get is different. why then not airlines?"<<

Why not airlines indeed.

Let me tell you why, from the perspective of somebody who buys airplane tickets...both for business (other people's money) and personal travel (my money).

If you buy something at a store.....it is generally something that you are going to keep for a while. A vase. A sofa. A suit of clothes (or, if you are a lady, a dress). Jewelry.

WalMart carries a lot of things but they do not necessarily carry the clothes my wife wants to wear. (My wardrobe generally comes from WalMart, they have great prices on Wrangler jeans).

So...why do people go to Neiman's...Foley's....Mervyn's...Dillard's? Because they have a specific good or product that people want, something that cannot be found at WalMart, and it represents something tangible...that will hang in your closet or sit in your living room....for a lengthy period of time.

If WalMart carried Liz Claiborne or Pierre Cardin or whatever designer junk my wife is wearing these days I imagine we'd be buying it there. But they don't.

What are you purchasing when you buy an airplane ticket? You are buying transportation. It is very transitory in nature. You wouldn't buy a plane ticket from an airline if it was unlikely that they would get you to your destination. Fortunately, the airline industry...all of the carriers....in our country have a pretty decent track record as far as getting you there is concerned.

Since the basic product is transportation, price of said transportation is going to be the determining factor. If for a few bucks more folks can get a meal, a tv set, or an assigned seat...they ~might~ spring for the slightly higher ticket price. They are unwilling for these things to cost very much extra, though.

There are some intangibles that will also factor into it: I live out in El Paso (duh). A lot of my family is on the other side of Texas. On the intra-Texas routes AA, DL, and CO all match WN's prices. I guess a good thing to do would be to figure out why I choose WN over those other carriers....

WN has a better FF program for what I do. WN's lack of a change fee gives me flexibility....if I have to change or cancel, I've lost nothing (and with kids everything is subject to change on a moment's notice.) I personally don't like RJs (we call them 'Barbie's Dream Jet') and with WN I never have to sweat that. The worst thing that can be said about WN is that it is basic air tarnsportation but heck, when air transportation is what you are purchasing, that's okay. Much of the time I can climb on WN and get off the airplane at my destination with no plane changes.

If I want a SUV I buy one...even though I could probably find a '73 Gremlin for less money..because in 2 years I am still going to have it in my garage. It isn't transitory. The airplane trip is transitory. 6 months from now I am not going to look back with fond recollections of my plane change in Atlanta. The pizza or chicken wrap or Bistro bag they served me at 33,000' is not something I am going to really want to put pictures of in a scrapbook.

Apples vs apples and oranges vs oranges. That's the real issue here. We can't compare WalMart vs Neiman Marcus to Southwest vs USAirways. The bottom line is WalMart and Neiman Marcus...while both are retail stores....sell different products. I don't go to Neiman's for Preparation H or white socks...by the same token I wouldn't buy my wife's name brand clothes at WalMart. Southwest and USAirways sell the same product, maybe it is packaged a little differently...BUT IT IS STILL THE SAME PRODUCT. Folks at the erstwhile major carriers claim their product isn't the same as Southwest's...but they are wrong. Only difference is the packaging. An assigned seat....a membership club....a F cabin......all that stuff is just packaging. The root product is still to get you from A to B in a metal tube which whizzes through the air.

 

[BoeingBoy]

ELP_WN_Psgr,

You miss a basic point. An article of clothing is just an article of clothing - something to wear. A car is just a car - something to get from point A to B. What differentiates the clothes at Wal-Mart from those at Neiman-Marcus is "cachet". What differentiates a Cadillac from a Taurus is "cachet". What is "cached" but product differentiation.

Many folks don't think designer jeans are worth the extra cost, especially at Neiman-Marcus prices. Likewise, many don't see the extra value in the Cadillac vs the Taurus. And truthfully many can't affort the difference.

However, some see the extra price as being worth paying - else Neiman & Cadillac wouldn't be in business. An airline, by differentiating it's product (fc, lounges, international, etc), can hopefully attract some of the folks willing to pay more. This raises average fares.

Jim

 

[ELP_WN_Psgr]

Boeing Boy:

won't disagree with what you say...BUT:

you are missing a point of mine.

Things like clothes, jewelry, vehicles.......stick around for a while. I have boots in my closet that are nearly 30 yrs old. My pickup is a '98 model. We are talking, in general, about goods with some lasting value. Granted you might not get as much for used clothing or a vehicle with 200K miles on it, but there is still some residual value.

A plane ride is over and done with when you taxi up to the gate at your destination. The ticket on a flight that landed 4 days ago doesn't retain any of its purchase price down the road.

 

[BoeingBoy]

ELP_WN_Psgr,

I concede that point to a significant degree - but some folks pay to eat at ritzy restaurants while others eat at the diner. In both cases, the food will be "behind" them by morning.

The value of an airline seat is in what it allows a person to do - from not spending 2 days on the road each way taking the family to Disney World from the northeast to having a business meeting half-way across the country and being home that night. For most people, any airline's seat that will take them where they want to go and back will do and price is the primary factor.

I was merely saying that part of the answer to competing with the LCC's is product differentiation to attract some of those willing to pay more for what they perceive to be a "better" product. That perception can arise from fc seats, ff club, or whatever, but the perception must be there.

Jim

 

[ELP_WN_Psgr]

Again, I agree with you wholeheartedly.

The dilemma facing the so-called major carriers is that folks have been unwilling to pay the cost of the "extras".

Some of this is the airlines' fault.

In competing with WN, in many cases airlines just chopped their fares selectively (el cheapo advance purchase seats) while retaining food service, FF miles, assigned seating blah blah blah.

We can blame CrAAndall for that, to an extent. Once upon a time WN had no advance purchase fares. They had a peak and off peak 2-tiered fare structure. I wish they still had it, too. Life was much simpler when I could get a cheap fare on a walk up basis. Alas I think those days are gone.

The airlines conditioned their passengers to EXPECT those things at a rock bottom price. And people wonder why passengers are mad when those things get taken from them. In fact, some of them advertised along those lines...."don't pay more....get more at the same price as Southwest).

I think the biggest problem is airlines assumed passengers were stupid. If I were a frequent user of USAir...don;t you think it would BOTHER me that to fly PHL-PVD I have to pay an average of $307 for a 238 mile flight....but the flights you used to run from PVD to BWI would cost me 1/4th that even though they were a few miles longer? Competition is all fine and good....but as a passenger it is bound to annoy me that the ticket I buy is subsidizing someone else.

The McClain's...Ultrair's....MGM Grand's...and Legends of the industry sort of validated the fact that the vast majority of passengers are less interested in luxury than they are damage to their pocketbook. Yes, you might be able to differentiate your product so as to garner a slightly higher price for it. The problems arise over (a) the premium you manage to get for your slightly nicer product is not apt to cover the cost of providing it and (B) there really aren't enough passengers interested in coughing up a few extra bucks to make it worthwhile for you financially.

 

[BoeingBoy]

ELP_WN_Psgr,

Agreed. To me, the claim that "business travel has not come back" exemplifies what you're saying. A fairly recent (2nd qtr '03) passenger survey by the Bureau of Transportation Statistics revealed that almost half (48%-49%) of pax said they were traveling for business. It's just that those folks are taking advantage of lower fares or lower cost airlines.

Jim

 

[ISP]

I will bite on this topic...

The article basically talks about how the legacy carriers have abandoned Eurpoe/Asia routes.

I don't think this is true as far as US Airways is concerned.

US never flew to Asia, so that aspect is eliminated.

In the past year, US has added flights to Shannon, Dublin, & Glasglow, albeit seasonal.

PIT-LGW will return this summer.

With Glasglow, US Airways will now serve 11 European destinations (8 year round, 3 on a seasonal basis).

Dave Siegel has said that US wants to serve 20+ European destinations from PHL.

If US is able to survive, I believe that they have actually become the carrier that has been willing to expand their European presence more than any other carrier. In fact, while US domectic ASM's continue to shrink, their international ASM's continue to grow. Although much of this is due to Carribbean expansion, much of it can also be attributed to European flying.

 

[TomBascom]

The dilemma facing the so-called major carriers is that folks have been unwilling to pay the cost of the "extras".

Not quite.

People are perfectly willing to pay for those things. It's a question of "how much". What they're not willing to do is to pay what the airlines want to charge for them -- those charges have nothing to do with costs. If I want to pay for an F seat I get a seat that is, at best, 75% bigger than a coach set, I get to grab a couple of things out of a snack basket and I maybe get a few bottles of something. But the airline wants to charge me a thouand dollars or so extra for the privilege. On routes where there might actually be a few hundred dollars, or even a thousand dollars, worth of additional value (Envoy) they want multi-thousands for the seat!

The same issues apply to all of the areas where legacy airlines see differentiation -- serving small cities, frequent flights and so on and so forth. The airlines think that stuff is a license to gouge.

The problem is that the product differential and the price differential aren't aligned. The airlines perception of the value of the product doesn't match the customers perception -- and since the customer thinks it is worth less than the airline wants to charge and the customer has choices that are more aligned with the customers perceptions the cutsomer goes elsewhere (or buys the lower priced product).