Trying to debunk the ''Southwest effect''

[Busdrvr]

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On 6/2/2003 10:53:51 AM whlinder wrote:


The real Southwest effect is indisputable- WN enters city, other airlines cut fares to stay competitive, more people fly out of that city. (Instead of driving or Greyhound or simply not traveling)

But any savvy/seasoned traveler knows that you have to check everywhere to get the lowest fare for what you want. Sometimes it will be WN, sometimes not. But the fact remains that WN will have no more than what, 6? 10? different fares on a given route, while your typical major airline can have 60 different fares.

And even though the majors continually sell loss-leader fares, thats their own problem, not consumers''. A fair fare is whatever the airline is willing to sell it for.

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Actually I think the "real" SWA effect is a decrease in mailine sercice and the exit of businesses that rely on that service. When SWA comes in, in addition to "lowering fares" at a given airport, it also sucks traffic away from many other airports (and communities) in the region, leaving those cities without vital air service in some cases. It''s kind of like having a nice big new super walmart in your little town. prices go down, but whether or not it is "good" for the community is debatable. I have to hand it to SWA though. They have a BRILIANT marketing dept. This article simply highlights the reason you won''t see SWA on Travelocity. SWA depends on you to go direct to SWA.com (or IhateSWA.com) and buying the ticket direct, assuming it''s the lowest fare, when in fact it likely isn''t. they also depend on you not adding up the total fare. On travelocity, the fare usually includes all the taxes, SWA tacks those fee''s onto the "low price". kind of like buying a cheap camara on-line only to be hit for $50 "shipping and handling". They don''t "fare" well in a head to head, racked and stacked fare comparison. we went into this at length about 6 months ago. Booz Allen''s travel dept made a statement for a national publication that his company could save thousands on each trip from the Washington area to the bay area by driving to BWI and taking one of the more time consuming multi-stop SWA flights than on UAL. Of course, UAL''s walk up (non-stop) fare was actually cheaper and included a meal and movie. they must bill for travel time.

 

[Busdrvr]

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On 6/2/2003 11:41:16 AM KCFlyer wrote:


Bus...you're welcome to all those "lower than Southwest fares" on United, obtained by those who were smarter than the average bear and "shopped around". How much additional revenue did UAL bring in by having a butt in that seat at a fare that is on average about half of UAL's CASM?

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KC, I really wonder about you sometimes. First you complain that the mainlines charge too much, then when the charge less than SWA, you question whether it is done profitably. What do you care? The question was, who has the lower fare. Does that matter to you the consumer? But if a fare is half of UAL's CASM then it's also a losing prop for SWA. as a matter of fact, the CASM for a non-econ plus nonstop CC seat (corrected for it's percentage of seating space) on a UAL A-320 is likely lower than the total of up to four legs you'd have to take on SWA.

 

[KCFlyer]

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On 6/2/2003 156 PM Busdrvr wrote:

KC, I really wonder about you sometimes. First you complain that the mainlines charge too much, then when the charge less than SWA, you question whether it is done profitably.

Yep - I've always thought that the major airlines pricing model is way out of whack...they charge loss leading fares and pray like heck that they can make it up on overpriced fares on someone else.

Looking at some consumer advocates websites, they pretty much are of the impression that an airline selling a $118 round trip from ATL-SEA must be making them a profit. Southwest's best advance fare is $356 out of BHM. That's roughly .085 cents a mile - exceeding their costs. That $118 out of ATL comes out to about .027 cents. By offering that, your management now says that you have to get your CASM's to a level BELOW Southwest's. But the public now expects $118 from Atlanta. And the posts on that website are pretty much "I have found a flight from Atlanta to Las Vegas for $200. Should I buy it now or wait until they offer a better fare". And even though IMHO, $200 is a screaming deal, the advice is usually to wait for something lower. I have attempted to point out that the flights are not profitable, and unless the consumer learns to expect to pay a slightly higher price, there may not be an airline around to offer that fare. The response from the consumer??? "It's not my problem". And they are right - it isn't. But I thought the goal of most companies was to make a profit. Is market share so important that profits have taken a back seat? If the pricing model was working, the airlines should be showing a profit - right? Yet they aren't. Isn't UAL on a schedule to lose another billion dollars this quarter?

What do you care? The question was, who has the lower fare. Does that matter to you the consumer? But if a fare is half of UAL's CASM then it's also a losing prop for SWA. as a matter of fact, the CASM for a non-econ plus nonstop CC seat (corrected for it's percentage of seating space) on a UAL A-320 is likely lower than the total of up to four legs you'd have to take on SWA.

I guess I don't care. Just as long as an airline doesn't come crying to the feds to "help" them thru these tough times, and just as long as the other airlines don't ask for the feds to "regulate" airlines again - at the expense of the others who have found a way to make it work. I guess however they want to price, it's fair game. Believe it or not, I don't like to see you guys have to take pay cuts - but as it is, your mangament is setting a trap for customer expectations that will leave them few options other than asking for even more in concessions.

BTW - I'm not saying that Southwest is operating a flight at half UAL's CASM...quite the opposite, I am saying that UAL is operating a flight at half of Southwest's CASM..and that's definitely a losing prop for UAL

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[KCFlyer]

Okay buss...sorry about conflicting letters. Bottom line, in order for UAL to make a profit on those types of fares, they would have to get your costs down to half of SWA's. Hope that clears things up. But not to worry, several folks will pop for that $2,500 last minute fare to allow the $118 flight to show a profit...won't they? . As far as the 70% load factor, I do not believe that Southwest sells every seat on that BHM-SEA flight for $356. As a matter of fact, for the dates I checked (7/8 - 7/16), they didn't have ANY seats available at that fare. The next best thing that one could purchase was $450. And many of the flights at THAT fare were also unavailable. Bottom line, SWA is selling their most advance purchase fares for a price that covers the costs for that seat. - hence a profit for a systemwide average load factor that is below 70%. When more fare buckets sell out, they are making even more of a profit. And the most they'd charge for that round trip is $650. Compare that to the $118 from Atlanta to Seattle. And you guys wonder why you're being asked for concessions. Your costs aren't THAT much more than Southwests. But because your managment feels it necessary to pretty much give away seats, either with deep discounted advance fares or on some last minute fares offered thru the website in which UAL is a part owner (Hotwire), they now have to get their costs lower than SWA's. It's pretty stupid, if you ask me

 

[Busdrvr]

"Southwest''s best advance fare is $356 out of BHM. That''s roughly .085 cents a mile - exceeding their costs"

Really? At an average load factor below 70%? What you meant to say is that lowest fare exceded the COST OF THAT SEAT. The truth is 5 cents a mile would excede the cost of that seat (jets going there anyway)

"I am saying that UAL is operating a flight at half of Southwest''s CASM..and that''s definitely a losing prop for UAL"

Then you mean RASM, if we were operating at half of SWAs CASM, we wouldn''t be the ones in BK...

 

[sfb]

I think what that reporter just doesn''t get is the difference between single examples of fares and general trends in the market as a whole. One could also ask the question, why is US Airways willing to fly someone from RDU to MCO for $117 round-trip (before taxes), connecting through CLT, when the *lowest* they charge between CLT and MCO round-trip is $239. Do those extra flights cost US Airways -$122 per person to operate? Why is it $50 more expensive to fly round-trip between ATL and JAN on Delta than between ATL and LAX?

If one looks back to 3Q1996, fares between TPA and BHM, MSY, FLL, BWI, LAS, PHX, CMH, and HOU/IAH all fell by over 1/3 over 3Q1995. But that had nothing to do with Southwest entering the Tampa market in January, 1995, right?

Even now Southwest isn''t the cheapest between TPA and DTW -- that honor goes to Spirit, which is also a low-fare carrier. And I wouldn''t argue with someone who stated that average fares are lower on routes operated by Spirit. ACY (where NK is the largest carrier) has some of the lowest air fares in the country.

But actually, given a price comparison study where Southwest was lowest roughly 1/4 of the time, when they were only offering 1/12 of the available itineraries (1,200 itineraries were priced on 100 routes), that certainly does say that they are offering lower fares more often than their competitors. But no, they are not always the lowest!

 

[Busdrvr]

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On 6/2/2003 11:37:47 AM Busdrvr wrote:

Actually I think the "real" SWA effect is a decrease in mailine sercice and the exit of businesses that rely on that service. When SWA comes in, in addition to "lowering fares" at a given airport, it also sucks traffic away from many other airports (and communities) in the region, leaving those cities without vital air service in some cases. It''s kind of like having a nice big new super walmart in your little town. prices go down, but whether or not it is "good" for the community is debatable.

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For insight into SWA''s "Sphere of influence" go to

www.aviationplanning.com

Check out the june 2nd and may 26th "hot flashes". interesting reading.

 

[WNjetdoc]

Hey KC, Im proud of ya big guy. Here you are, defending SWA against these SWA hating nitwits.

This board has become a, "trash SWA site", and thats why there isn't much postings from SWA employees, who needs it? We all have nice jobs and are happy, for the most part. These creeps that slam SWA have been layed off, or have been bumped down, or around, and blame SWA for their woes.

I say, "screw all of you losers". Don't blame SWA for your problems. Get off your fat lazy asses and do something with your pathetic lives....that is something other than bit#ching about it.

 

[Ch. 12]

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On 6/3/2003 231 PM Busdrvr wrote:

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On 6/2/2003 11:37:47 AM Busdrvr wrote:

Actually I think the "real" SWA effect is a decrease in mailine sercice and the exit of businesses that rely on that service. When SWA comes in, in addition to "lowering fares" at a given airport, it also sucks traffic away from many other airports (and communities) in the region, leaving those cities without vital air service in some cases. It''s kind of like having a nice big new super walmart in your little town. prices go down, but whether or not it is "good" for the community is debatable.

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For insight into SWA''s "Sphere of influence" go to

www.aviationplanning.com

Check out the june 2nd and may 26th "hot flashes". interesting reading.


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What your little tidbits of "interesting reading" fail to mention is that there is currently an enormous decrease in air travel demand everywhere. When that happens, it''s not profitable for even a DH8 operator to fly into these small towns to pick up 3 people per flight. ALL carriers have drastically scaled back the small populations in favor of the larger draw of the main cities. WN should be a model for all carriers since they have remained profitable and haven''t faltered in 30+ years. The public has remained loyal to WN regardless of whether they fly them or not. The problem with the majors such as UA is that they are full of employees trying to critique every aspect of WN''s model that they feel are no good rather than being contstructive and gaining valuable knowledge from WN. I guess that mentality will only ensure WN''s continued prosperity and continued struggles among the others.

Stop looking for the hidden negative in every story-line, Bus, and realize that if you opened your mind a LITTLE, you would gain a LOT.

 

[whlinder]

Great, now this wonderful article is on the frontpage of USAviation.com


Sure, WN steals traffic from smaller cities that are a good distance from the city they serve and the smaller city can lose traffic and service, but so what? Let the market decide what happens. If service to that community is truly vital then there will be customers willing to pay for it.

It all goes back to time vs. money, which people have to make decisions about everyday. I face this decision every so often when trying to fly to see my Grandma in the middle of nowhere, Kansas.

I can:
spend ~ $400 to fly UA IAD-DEN-HYS or YX DCA-MCI-HYS, where I will not have to rent a car in HYS.

spend ~ $275 to fly UA/AA IAD-ORD/STL/DFW-ICT and then rent a car and drive 3 hours

spend ~ $225 to fly WN BWI-MCI, where I have to drive further to the airport and then rent a car and drive 5 hours

HYS and ICT are the smaller communities that have lost service over the years. Well HYS hasn''t but nearby communities of the same size have. HYS gives ZK a nice chuck of EAS money too. ICT has gone from 737s/MD80s to mostly RJs, mostly due to WN at MCI and Air Tran entering ICT.

Luckily my decision is made by burning frequent flyer miles to HYS.

But this is the market doing its job. If people aren''t willing to pay a convenience premium then the small city won''t have as much air service.

 

[sfb]

Something else that seems to get lost in some analyses is that a "nominal" convenience premium of $100-200 per passenger for small-city air service may be reasonable for a single (business or leisure) passenger, but it''s a far more costly burden for a family or other group of passengers. Using whlinder''s example of DC-area-to-HYS, if a family of four were to want to make the trip, the premium for IAD-HYS is a whopping $700 over using Southwest to fly BWI-MCI. For most families, the rental car and extra drive time would be worth savings of that magnitude. For a single traveler on leisure or business, the total savings aren''t as significant.

To some degree, the scenario as described by Mike Boyd is completely analogous to the effect of Wal-Mart in smaller communities. After Wal-Mart enters the market, smaller stores either go out of business or are forced to adapt by offering better service at a somewhat higher price. While consumers may lose some choice in the number of smaller stores, they also gain a significant benefit in being able to stretch their dollars further.

Consumers aren''t entirely stupid. They''d prefer to have convenience, but if that convenience isn''t offered at a reasonable price, they will select the alternative which offers them the greatest value.

 

[AirplaneFan]

Some of you live in the 51st state of the United States .....denial. Does SW always have the lowest fares ....NOPE. Does SW always have low fares.....Yes. When I fly the "majors" they alwasy seem to want to nickel and dime me for everything. Cost to change an itenerary, get a paper ticket, fuel surcharges, etc. Why deal with that when I can get an inexpnsive seat on SW, reliable transporation and friendly service?

As for SW causing mainline carriers to leave, that would have to be the exception more than the rule. For example at MHT (Manchester, NH) since SW airlines started service there 5 years ago, Delta, Northwest, Continental and Air Canada have all come in. United has not cut back service. Only US Air has significantly service to its preMetrojet days.

I was just watching the Red Sox game and SW is advertising 21 daily roundtrips from Manchester and Providence to BWI for $49 each way. UAL flies from those two airports to Washington DC for 3 or 4 times that. If UAL is the low cost carrier some claim why don''t they have low fares when they don''t have competitive pressure from SW?

So I will continue to drink the SW kool-aid as some of you will continue to drink the prune juice the majors server up.

Cheers!

 

[TomBascom]

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On 6/2/2003 7:03:59 AM KCFlyer wrote:

I suppose what the article DIDN'T state was the following:

1. The most anyone will pay on Southwest is $299 one way

2. Changes to the advance purchase fare on Southwest will result in a net "service charge" of $0.00. Changes on other airlines result in a fee of $50 to $100 per change

3. If you've bought an advance purchase ticket on Southwest and you have to change plans, but cannot decide where to go before your original departure date, you still have up to one year to get full credit towards another trip. The other airlines force you to purchase a new itinerary prior to the original departure date (along with the penalty assessment) or else forfeit the entire amount of the ticket.

4. Senior citizens and fly coast to coast for $129 each way, anytime. Most other airlines have abolished the senior discount program.

and last but certainly not least...
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This is probably not always true:

5. Southwest is making a profit on the flight. Are the others?
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And not really all that important. What matters is that the airline as a whole is making a profit. Just as seats don't have to be sold for "minimum profitable" prices certain flights & routes can be "loss leaders" if it is done right.

Our friends at the traditional airlines have completely lost sight of that. They're hacking and slashing at "unprofitable" routes and micromanaging themselves out of existence.

Taking those things into consideration, I can see the extra "value" in paying just a few dollars more for a Southwest ticket.

Southwest never ever claimed to have the lowest fares....just the fairest fares.

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6. If your plans change, for whatever reason (think "kid sick on day of departure"), on SWA it'll never cost you more than $598 less whatever you already paid (and if you're slightly flexible there's probably something better available.) If your plans change ever so slightly for any reason on one of those "major airline" "lower than SWA" fares you're probably faced with thousands of dollars in add/collects no matter how flexible you are. Per person.

The "lower than SWA" fares offered by the majors aren't the same product. They carry onerous restrictions and gotchyas with them. They fool some people and some people willingly take a chance on them but only a journalist would believe that that comparison is apples to apples.

 

[tbags]

An Airline makes money or an airline doesn''t. Where are your arguements re: this fact! WN makes money (fact). UAL, AA, US, etc. do not!!! Bash On! This will not change the finances of any airline. Whine, Cry all you want! Adapt or fail, deal with it! Times have changed for all of us in the airline industry. I would say all previous arguements are moot! Business models change or companys will eventually fail.
Change or Be Gone,

Chris