If CASMs can be reduced to 10 cents/seat/mile through operational changes, that would put US' cost slightly under 50% more than SW's 7cents. Would you be williong to pay 50% more for a US ticket? SW's $299 maximum could become US' $449 maximum domestic fare. A $29 special from PHL to PVD could become a $44 special on US. Would you pay the fare premium to fly on US?
What Are Customers Willing To Pay?
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GadgetFreak
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To me, what a flight on US is worth is a bit of a moving target. For US of 2 years ago I would have paid 100% (maybe even a bit more) more to fly US. For US of today, I might pay 100% more. For a one class, coach US with a limited FF program, I probably wouldnt pay as much for US as I would for Southwest. One thing that often gets left out of some of the discussions is restrictions and fees. Its one thing to say US prices are close to Southwest. But at least now, that means that there are a limited number of advance tickets for sale that have major restrictions on them. On Southwest, those prices are the for the whole plane with no restrictions. That is a huge difference. I realize prices change around a lot, but last fall I was looking to fly from NY to LA with no Saturday stay. I wanted to fly on US. It was $2200 on US for a connection through PHL. Im pretty sure it was still a restricted ticket. It was somewhere in the low $300s on AA. Thats right, AA, not Southwest. $1900 more for a connecting flight on US than a non-stop on AA. Plus I would have had to pay to standby for an earlier flight on the return, which I was able to do for free on AA. Someone needs to pay way more attention to the competition across the board.
BoeingBoy
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GadgetFreak,
You/ve hit the nail on the head - there is no single answer..
A large chunk of our passengers are extremely price sensitive - the family going on vacation, the students going to/from school or on spring break, the servicemen (& women) going home on leave. First class, interlining, international, and all that mean little to them. That's why you have folks driving from PIT to CLE to get lower fares, same for CLT folks driving to GSO & RDU.
At the other extreme you have the very frequent fliers with diverse travel needs. That f/c seat, interlining, international service, etc has value to them. But even here, things are changing - they're less and less likely to pay 10X or more unless they have no choice.
At the low end, you have to match your LCC competition's fares (not for every seat on the airplane, though). At the high end, my guess (and that's all it is) is maybe 1.5-2X for coach and 3X or so for f/c .
Jim
You/ve hit the nail on the head - there is no single answer..
A large chunk of our passengers are extremely price sensitive - the family going on vacation, the students going to/from school or on spring break, the servicemen (& women) going home on leave. First class, interlining, international, and all that mean little to them. That's why you have folks driving from PIT to CLE to get lower fares, same for CLT folks driving to GSO & RDU.
At the other extreme you have the very frequent fliers with diverse travel needs. That f/c seat, interlining, international service, etc has value to them. But even here, things are changing - they're less and less likely to pay 10X or more unless they have no choice.
At the low end, you have to match your LCC competition's fares (not for every seat on the airplane, though). At the high end, my guess (and that's all it is) is maybe 1.5-2X for coach and 3X or so for f/c .
Jim
Thus depends on two things really. Trip segment length, and "route expectations". What are they? A flight on WN and a flight on US that are the same mileage, same block time, are essentially the same. Same service level, same seat, same coke, same bag of treats. So why does US think they can get away with gouging people on certain routes? NO COMPETITION! And a sense of "I am US, I am special!". WN doesn't attempt to dork the passenger around. A square fare, good schedule, and destination choices that are close, if not at the place you need to be.
Some routes in the world have what are called "route expectations" on them. Example: JFK-LAX or JFK-SFO. High rollers and the fortune 500 crowd with the stars are on those routes all the time, and pay for and demand superior service. Add in the long flight time, and you get flights that are more expensive than most, but give more as well. No one wants first class on a 1 hour flight from CLT to BHM, so why waste money trying to provide it? Only certain domestic and most international routes require the royal treatment.
My US dream fleet: All A319-A320s for domestic and Carribean services - with Direct TV and XM(ooh la la!). B777-200LR and B777-300ER for internationals. Hey Dave, can you do this?
Some routes in the world have what are called "route expectations" on them. Example: JFK-LAX or JFK-SFO. High rollers and the fortune 500 crowd with the stars are on those routes all the time, and pay for and demand superior service. Add in the long flight time, and you get flights that are more expensive than most, but give more as well. No one wants first class on a 1 hour flight from CLT to BHM, so why waste money trying to provide it? Only certain domestic and most international routes require the royal treatment.
My US dream fleet: All A319-A320s for domestic and Carribean services - with Direct TV and XM(ooh la la!). B777-200LR and B777-300ER for internationals. Hey Dave, can you do this?
Jim,
I think you're on target with that segmentation, which leads me to wonder how that segmentation really should play out successfully.
With automobile manufacturers, the solution is to have different brands for different markets (e.g., Chevy & Caddy, or Toyota & Lexus). Thus far, in air travel, the solution has been to have one brand with different cabins.
Perhaps having a TED/United approach makes sense in light of this recognition. Does it make sense to have FC seats on all airplanes all the time? In a perfect world, FC seats would magically appear to satisfy all of the customers for whom it matters, and would disappear when not needed. In this imperfect world, subfleets could address some of that.
Naturally, subfleeting has increased management costs, simply because you lose some of the economies of scale of a single fleet and single brand. I'd love to get my hands on numbers that would justify one way or the other.
I think you're on target with that segmentation, which leads me to wonder how that segmentation really should play out successfully.
With automobile manufacturers, the solution is to have different brands for different markets (e.g., Chevy & Caddy, or Toyota & Lexus). Thus far, in air travel, the solution has been to have one brand with different cabins.
Perhaps having a TED/United approach makes sense in light of this recognition. Does it make sense to have FC seats on all airplanes all the time? In a perfect world, FC seats would magically appear to satisfy all of the customers for whom it matters, and would disappear when not needed. In this imperfect world, subfleets could address some of that.
Naturally, subfleeting has increased management costs, simply because you lose some of the economies of scale of a single fleet and single brand. I'd love to get my hands on numbers that would justify one way or the other.
BoeingBoy
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mweiss,
My opinions only - which will get you a Starbucks if you add a few dollars.
Unfortunately the segmentation is not a "lowest fare/high flier" situation. It's not Chevy vs Cadillac, it the dozen different models of Chevy and 4-6 models of Caddy. Of course that is offset by not having a fare structure of only lowest/top dollar, but severial choices in coach and 2-3 in F/C.
The "airline within an airline" concept has potential in theory. I see the failure of earlier attempts (MetroJet, Delta EXpress, Shuttle by United) as a combination of not low enough costs compared to true LCC's) and not enough differentation from the "parent" operation, with the differentation being a major factor.
I don't think any of those three was seen as a LCC by the public - at least not like WN. They were probably seen as part of U, Delta, or United - not the carriers most people think of as "low fare".
Additionally, I believe there was too much "cross contamination" with them. The businessman with a connection in BWI could end up flying mainline one leg (upgraded to f/c) and MetroJet the next (what do you mean I can't upgrade?) Same applies to the coach passenger - mainline one leg and MetroJet the next doesn't do anything to foster the belief that MJ was a different sort of carrier. Having the same f/a, gate agent, etc uniforms didn't help either. I'm not even sure that the passengers ticket even said MJ instead of U, though I don't really know.
Will Song and Ted fare better - time will tell but I suspect not.
Jim
My opinions only - which will get you a Starbucks if you add a few dollars.
Unfortunately the segmentation is not a "lowest fare/high flier" situation. It's not Chevy vs Cadillac, it the dozen different models of Chevy and 4-6 models of Caddy. Of course that is offset by not having a fare structure of only lowest/top dollar, but severial choices in coach and 2-3 in F/C.
The "airline within an airline" concept has potential in theory. I see the failure of earlier attempts (MetroJet, Delta EXpress, Shuttle by United) as a combination of not low enough costs compared to true LCC's) and not enough differentation from the "parent" operation, with the differentation being a major factor.
I don't think any of those three was seen as a LCC by the public - at least not like WN. They were probably seen as part of U, Delta, or United - not the carriers most people think of as "low fare".
Additionally, I believe there was too much "cross contamination" with them. The businessman with a connection in BWI could end up flying mainline one leg (upgraded to f/c) and MetroJet the next (what do you mean I can't upgrade?) Same applies to the coach passenger - mainline one leg and MetroJet the next doesn't do anything to foster the belief that MJ was a different sort of carrier. Having the same f/a, gate agent, etc uniforms didn't help either. I'm not even sure that the passengers ticket even said MJ instead of U, though I don't really know.
Will Song and Ted fare better - time will tell but I suspect not.
Jim
That's OK, Jim, I don't like Starbucks anyway (they overroast their beans). 
You're absolutely right about the cross-contamination issue. That's the old sewage and wine analogy. People flew MetroJet (the sewage) and thought US Airways (the wine) is sewage.
One of the big unanswered questions is whether there are enough Cadillac customers out there to support an entire airline. Midwest Express suggested there might be.
I would have loved to see what Legend might have become on its own, if AA didn't destroy them. They were truly trying to find out if there was enough business for that sort of service.
You're absolutely right about the cross-contamination issue. That's the old sewage and wine analogy. People flew MetroJet (the sewage) and thought US Airways (the wine) is sewage.
One of the big unanswered questions is whether there are enough Cadillac customers out there to support an entire airline. Midwest Express suggested there might be.
I would have loved to see what Legend might have become on its own, if AA didn't destroy them. They were truly trying to find out if there was enough business for that sort of service.
Singleflyer
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I am one who pays more becasue I (company) buys last minute ticks. And I choose the airline that has the best aircraft to the small cities I go to. I spend too mch time in the air to fly on RJs all the time to support any one airline. So if US has a flight on a 320 BGM I book it. I fly enough I am CP on US, gold on two other carries and silver on third, all earned. SO the sze of the seat makes a big difference to me, and others.
As far as Midwest is concerned, it is not the same product as two years ago, even though they still have the warm cookies. Gone are the meals, you buy them. You sill get free wine, but only 3oz. The seats have a nice width but on the new 717s, there is barely enough room for my legs, and I am only 5'11'' tall. The service is still great with this small carrier. But they also have an airline in an airline now, on the leisure routes that they fly.
So With the drop in service I would call the airline a Buick, not a Caddy. I have not flown their their new airline yet, but it is probably a Chevy.
Therefore I don't think there is enough business available to cater the people who are willing to pay more for better service for an airline to focus inon just that one market segment.
As far as Midwest is concerned, it is not the same product as two years ago, even though they still have the warm cookies. Gone are the meals, you buy them. You sill get free wine, but only 3oz. The seats have a nice width but on the new 717s, there is barely enough room for my legs, and I am only 5'11'' tall. The service is still great with this small carrier. But they also have an airline in an airline now, on the leisure routes that they fly.
So With the drop in service I would call the airline a Buick, not a Caddy. I have not flown their their new airline yet, but it is probably a Chevy.
Therefore I don't think there is enough business available to cater the people who are willing to pay more for better service for an airline to focus inon just that one market segment.
bankernclt
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I would love to give US Airways 100% of my travel business, both domestic and international. Not only do I travel all over the US and internationally, I also travel to cities within 300 miles of Charlotte. I just checked fares from Charlotte to Wilmington for May 14 through May 16. With more than a 21-day advance purchase and Saturday night stay, the fare is $355.70. This compares to $194.20 for the same dates of travel on Delta from Atlanta to Wilmington. I would pay $194.20 all day long, but never would I pay $355.70 to travel this distance.
I just do not understand why US Airways tries so hard to push away customers to other carriers. I give the majority of my business to Delta as I feel that US Airways does not wany my business. In other words, if you do not want my business at a reasonable fare for travel such as CLT to ILM, then what incentive do I have to give my CLT to SFO or CLT to London business to US Airways.
I have several friends who live in the Charlotte area who travel on business frequently, and their companies forbid them to use US Airways for their business travel due to the pricing. My company does allow us to fly on US on business trips. I do hope that one day US wakes up and realizes that people are not going to pay these kind of prices on short distance trips. (Delta just lowered their intra-state fares in Florida as they are trying to get people out of their cars and in their planes - while US forces people to make the 4.5 hours drive instead of filling their planes.) If US ever wakes up, I would return and give them 100% of my business to cities US serves. I gave Piedmont 100% of my business when they offered reasonable fares.
Good luck to all. I really hope US makes it and grows again. I would just like to help.
I just do not understand why US Airways tries so hard to push away customers to other carriers. I give the majority of my business to Delta as I feel that US Airways does not wany my business. In other words, if you do not want my business at a reasonable fare for travel such as CLT to ILM, then what incentive do I have to give my CLT to SFO or CLT to London business to US Airways.
I have several friends who live in the Charlotte area who travel on business frequently, and their companies forbid them to use US Airways for their business travel due to the pricing. My company does allow us to fly on US on business trips. I do hope that one day US wakes up and realizes that people are not going to pay these kind of prices on short distance trips. (Delta just lowered their intra-state fares in Florida as they are trying to get people out of their cars and in their planes - while US forces people to make the 4.5 hours drive instead of filling their planes.) If US ever wakes up, I would return and give them 100% of my business to cities US serves. I gave Piedmont 100% of my business when they offered reasonable fares.
Good luck to all. I really hope US makes it and grows again. I would just like to help.
BoeingBoy
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bankernclt,
And you are the perfect example of why high fares don't necessarily increase revenue and reasonable fares don't necessarily decrease revenue.
It wasn't all THAT long ago that we were the only carrier serving MYR with mainline aircraft. Delta had turboprop express service, and that was about it. Look at MYR now and all the other carriers operating service there with mainline airplanes. We've become a relatively small part of the service there.
Jim
And you are the perfect example of why high fares don't necessarily increase revenue and reasonable fares don't necessarily decrease revenue.
It wasn't all THAT long ago that we were the only carrier serving MYR with mainline aircraft. Delta had turboprop express service, and that was about it. Look at MYR now and all the other carriers operating service there with mainline airplanes. We've become a relatively small part of the service there.
Jim
GadgetFreak
Advanced
This is an interesting thread. I think a better analogy than cars is hotels, also in the travel business. Hotel pricing is far different than airlines from what I see. But the things that hotels do is segment the market. You get to chose what you want and pay for it and the market is big enough for multiple cost levels to all exist. The difference is that more or less, you know what you are getting when you pay for a cheap or expensive hotel, and you typically get it. Also, the difference between the lower end and higher end places are not as great as with airline tickets. Im in Tokyo now where hotel prices can be pretty extreme. You can get a decent room for $100-150 per night. Im at the Intercontinental, about $50-100 more per night. Double that again and you are at the Grand Hyatt or one of the 5 stars. In most cities the price range is substantially less.
But that is a lower difference by far than the price of airline tickets usually vary between the low end and the high end depending on carrier. Even if you only compart coach, you can often see 7 fold or higher price differences. Even in Tokyo that is way outside what you see for hotel variation.
Moreover, as the (admittedly unscientific) poll above indicates, you cant see the difference between US and Southwest in product. That is something that doesnt seem to be sinking in. The difference between a $100 a night hotel and a Grand Hyatt hits you like a 2x4. You may decide it isnt worth it, but no one will confuse the two. There are room for both because they are clearly different. No one would pay for the Hyatt if they couldnt tell the difference. I bought a room in between, because I wanted better concierge service (due to language differences), 24 hour room service and a few other things. I could get them without the cost or luxury of the Hyatt. In London, since language isnt an issue I would have likely bought lower. Point being that given my budget and needs I can differentiate and chose.
I dont think the main problem with US is that their fares a $1 or $10 more than Southwest. It is that their fares have been at times hundreds or thousands of dollars more than Southwest, and they havent produced a product that shows customers there is value in making that choice. What they are doing now it seems to me, trying to beat Southwest at their own game, is bound for utter and complete failure. They need to redefine the game and show some market segment that they have a product that is valuable to them at a cost that US makes money selling. I cant imagine this management group having the faintest idea in the world how to do that, but I wish them luck.
But that is a lower difference by far than the price of airline tickets usually vary between the low end and the high end depending on carrier. Even if you only compart coach, you can often see 7 fold or higher price differences. Even in Tokyo that is way outside what you see for hotel variation.
Moreover, as the (admittedly unscientific) poll above indicates, you cant see the difference between US and Southwest in product. That is something that doesnt seem to be sinking in. The difference between a $100 a night hotel and a Grand Hyatt hits you like a 2x4. You may decide it isnt worth it, but no one will confuse the two. There are room for both because they are clearly different. No one would pay for the Hyatt if they couldnt tell the difference. I bought a room in between, because I wanted better concierge service (due to language differences), 24 hour room service and a few other things. I could get them without the cost or luxury of the Hyatt. In London, since language isnt an issue I would have likely bought lower. Point being that given my budget and needs I can differentiate and chose.
I dont think the main problem with US is that their fares a $1 or $10 more than Southwest. It is that their fares have been at times hundreds or thousands of dollars more than Southwest, and they havent produced a product that shows customers there is value in making that choice. What they are doing now it seems to me, trying to beat Southwest at their own game, is bound for utter and complete failure. They need to redefine the game and show some market segment that they have a product that is valuable to them at a cost that US makes money selling. I cant imagine this management group having the faintest idea in the world how to do that, but I wish them luck.
BoeingBoy
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"What I'm dying to know is if there is another viable price point besides the WN one. You know, one where the increased cost is at least matched by increased willingness to pay."
Most analysts suggest that a network carrier should get a 10% - 20% yield premium (on average) over a LCC. Why? Let's look at a few situations....
Availability of F/C - higher revenue partially offset by increased cost from having less seats on the A/C.
Service to markets without LCC service - folks in Harrisburg PA going to Raleigh NC can either fly a network carrier from the local airport or drive to BWI (soon PHL) and fly a LCC. Convenience carries some price.
International service - While folks going from PVD to PHL might not pay more to fly US, if they are connecting to a flight to LGW US should be able to charge more per mile for the PVD-PHL leg - again the convenience (only have to buy one ticket, don't have to claim baggage and recheck it, etc) carries a price. And this leads to...
Interlining - wheither changing carriers as above or as better back-up protection for cancelled/delayed flights, this is worth some premium.
Clearly you have to match fares with the LCC where you compete head to head - on a portion of your seats. But your top fares can be higher (in coach) than the LCC in head to head markets and all fares can be higher in non-competitive markets. Of course, F/C can be higher in all markets.
The $64 Million question is how much more - clearly not as much as in the past.
Jim
ps - the big similiarity between hotels and airlines is the perishability of the product. You can't sell a hotel room on a given night once that night is over and you can't sell a seat on a flight once the plane leaves the gate. But you can't go to Days Inn and ask for the 5-star suite or the La Quinta and call room service - if you want those things you go to a different hotel. Network carriers attempt to be all things to all the people riding the same airplane, whether they want the lowest fare, a F/C seat, an international destination, etc. Of course, Days Inn or La Quinta could add luxury suites, room service, etc, but they have to be paid for one way or another.
Most analysts suggest that a network carrier should get a 10% - 20% yield premium (on average) over a LCC. Why? Let's look at a few situations....
Availability of F/C - higher revenue partially offset by increased cost from having less seats on the A/C.
Service to markets without LCC service - folks in Harrisburg PA going to Raleigh NC can either fly a network carrier from the local airport or drive to BWI (soon PHL) and fly a LCC. Convenience carries some price.
International service - While folks going from PVD to PHL might not pay more to fly US, if they are connecting to a flight to LGW US should be able to charge more per mile for the PVD-PHL leg - again the convenience (only have to buy one ticket, don't have to claim baggage and recheck it, etc) carries a price. And this leads to...
Interlining - wheither changing carriers as above or as better back-up protection for cancelled/delayed flights, this is worth some premium.
Clearly you have to match fares with the LCC where you compete head to head - on a portion of your seats. But your top fares can be higher (in coach) than the LCC in head to head markets and all fares can be higher in non-competitive markets. Of course, F/C can be higher in all markets.
The $64 Million question is how much more - clearly not as much as in the past.
Jim
ps - the big similiarity between hotels and airlines is the perishability of the product. You can't sell a hotel room on a given night once that night is over and you can't sell a seat on a flight once the plane leaves the gate. But you can't go to Days Inn and ask for the 5-star suite or the La Quinta and call room service - if you want those things you go to a different hotel. Network carriers attempt to be all things to all the people riding the same airplane, whether they want the lowest fare, a F/C seat, an international destination, etc. Of course, Days Inn or La Quinta could add luxury suites, room service, etc, but they have to be paid for one way or another.
And a price that is apparently too high to be sustainable.BoeingBoy said:
Nope. And will they be willing to pay ~75% more for FC than for the average coach seat? That seems to be the amount of increased cost.
Hey, you know what? That accounts for a portion of increased CASM, doesn't it? In the not too distant past, FC made up about 8% of all mainline seats, which would make those seats cover about 12% of the total cost. I wonder if that's where this silly "maybe we should get rid of FC" idea comes from? I mean, it's totally counterproductive, but that might be the source of the idea.
BoeingBoy
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mweiss,
You are correct, of course - having F/C increases CASM. 12 F/C seats could be 18 coach seats even if the extra pitch was retained. For comparison, US 737-300's have 126 seats (114 coach, 12 f/c) while WN's 737-300's have 137 seats. US A320's have 142 seats while JB's have 156.
When you combine the lower capacity of the aircraft when you have F/C with the amount of F/C seats actually sold, the result is the thought that maybe the F/C cabin should be downsized or eliminated. Of course, the better answer is to sell more of those F/C seats by any or all of several methods.
Jim
You are correct, of course - having F/C increases CASM. 12 F/C seats could be 18 coach seats even if the extra pitch was retained. For comparison, US 737-300's have 126 seats (114 coach, 12 f/c) while WN's 737-300's have 137 seats. US A320's have 142 seats while JB's have 156.
When you combine the lower capacity of the aircraft when you have F/C with the amount of F/C seats actually sold, the result is the thought that maybe the F/C cabin should be downsized or eliminated. Of course, the better answer is to sell more of those F/C seats by any or all of several methods.
Jim
