OP
WorldTraveler
Corn Field
- Dec 5, 2003
- 21,709
- 10,662
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- Banned
- #16
WN doesn’t have costs significantly lower than DL as much as FWAAA wants to think otherwise. The reason why their buildup at DCA and DAL are a threat to AA is because, even if WN eventually ends up with the same average fares as AA has, AA will have to divide the market with WN. But WN has the financial strength to come into a market, drop the fares and create hype, even if they later raise the fares so that WN is no more of a value than the network carriers. WN’s advantage is that they don’t have the high walkup fares but few passengers actually pay them on the legacy carriers. Those high walkup fares become the basis of negotiated fares.
Thus, WN is perceived as a low fare carrier because its fare structure doesn’t have the high levels that the network carriers have but WN manages to revenue manage to get overall fares as high as the network carriers.
Given that WN’s costs are not significantly lower than DL’s, the lowest CASM network carrier, WN has no choice to either pull in average fares comparable to DL or pull out from the market.
JAN and EYW are both strong DL markets where DL has an average fare advantage from the city and those cities are also small operations. WN cannot cover their costs in small cities where they cannot get average fares comparable to DL.
FL operated dozens of cities that fit the same profile as JAN and EYW. I said at the time of the FL/WN merger that WN’s higher costs would mean they would not be able to maintain FL’s current service levels and that is exactly what has happened.
The whole reason DL execs can say that DL’s profit margin in ATL has grown is because WN continues to pull down markets in the SE including in ATL where WN has decided they cannot cover their costs and gain a big enough revenue advantage. There are more cities on WN’s network like JAN and EYW and there will very likely be more cities cut.
As much as WN’s marketing machine wants to say otherwise, they have cut more seats out of more outstations than any legacy airline has ever done in a merger. WN has dismantled huge portions of the FL network and fares have risen.
FWAAA,
First, it is a little hypocritical to be talking about DL’s 2nd quarter capacity adds without noting that AA and US are the ones that have been driving capacity additions to the industry for a couple years. AA never cut its capacity during BK because they have been trying to force their CASM down by adding new routes, esp. long haul int’l routes where the effect on pushing down CASM is the greatest. Given that many of AA’s longest haul routes are losing money according to DOT data, including in the Pacific, AA’s capacity can only be seen as a means to force CASM down, even if anyone can realize the strategy is not sustainable.
Second, DL, UA, and WN all pay hefty profit sharing in amounts far larger than AA and US have paid so your comparison of costs without profit sharing just highlights that AA and US employees are the ones that are getting the short end of the stick. Given that AA employees absolutely know that they aren’t and won’t be getting pay and profit sharing at levels comparable to their peers at DL, UA, and WN, those other three might have found that the fraction of a percent in total costs is well worth it.
Third, you can pick out cumulative costs if you want, but the ability to compete tomorrow is far more based on current costs. DL’s costs are going down or increasing at far lower rates even this year because they are removing another couple dozen 50 seat regional jets and perhaps a few 757s and replacing them with 717s and 739ERs that are operated by DL employees instead of regional carrier employees which will push DL’s CASM down. WN is giving up capacity and no other network carrier is replacing anywhere close to as much regional capacity with mainline capacity as DL is doing.
DL knows exactly the advantage that comes from having a lower CASM than its network peers, its success in growing in markets where AA and UA have been traditionally strong shows DL’s strategy is working, and WN’s withdrawal from key DL competitive markets shows that WN would rather take its assets and compete either in markets where they have little competition or where they can compete against higher cost carriers which will continue to be AA and UA. The fact that there are far more traditionally strong AA and UA markets where WN has grown shows that WN knows where their opportunities lie. WN is not talking about growing in ATL or SLC or other key DL strength markets. They are talking about growing in DCA, DAL, and Texas-Latin America, key markets for AA and UA.
Where WN is growing and where it is not speaks volumes about their understanding of their ability to succeed and about the threat to the network carriers that WN poses, even if they don't have the size of the cost advantage they once had.
Thus, WN is perceived as a low fare carrier because its fare structure doesn’t have the high levels that the network carriers have but WN manages to revenue manage to get overall fares as high as the network carriers.
Given that WN’s costs are not significantly lower than DL’s, the lowest CASM network carrier, WN has no choice to either pull in average fares comparable to DL or pull out from the market.
JAN and EYW are both strong DL markets where DL has an average fare advantage from the city and those cities are also small operations. WN cannot cover their costs in small cities where they cannot get average fares comparable to DL.
FL operated dozens of cities that fit the same profile as JAN and EYW. I said at the time of the FL/WN merger that WN’s higher costs would mean they would not be able to maintain FL’s current service levels and that is exactly what has happened.
The whole reason DL execs can say that DL’s profit margin in ATL has grown is because WN continues to pull down markets in the SE including in ATL where WN has decided they cannot cover their costs and gain a big enough revenue advantage. There are more cities on WN’s network like JAN and EYW and there will very likely be more cities cut.
As much as WN’s marketing machine wants to say otherwise, they have cut more seats out of more outstations than any legacy airline has ever done in a merger. WN has dismantled huge portions of the FL network and fares have risen.
FWAAA,
First, it is a little hypocritical to be talking about DL’s 2nd quarter capacity adds without noting that AA and US are the ones that have been driving capacity additions to the industry for a couple years. AA never cut its capacity during BK because they have been trying to force their CASM down by adding new routes, esp. long haul int’l routes where the effect on pushing down CASM is the greatest. Given that many of AA’s longest haul routes are losing money according to DOT data, including in the Pacific, AA’s capacity can only be seen as a means to force CASM down, even if anyone can realize the strategy is not sustainable.
Second, DL, UA, and WN all pay hefty profit sharing in amounts far larger than AA and US have paid so your comparison of costs without profit sharing just highlights that AA and US employees are the ones that are getting the short end of the stick. Given that AA employees absolutely know that they aren’t and won’t be getting pay and profit sharing at levels comparable to their peers at DL, UA, and WN, those other three might have found that the fraction of a percent in total costs is well worth it.
Third, you can pick out cumulative costs if you want, but the ability to compete tomorrow is far more based on current costs. DL’s costs are going down or increasing at far lower rates even this year because they are removing another couple dozen 50 seat regional jets and perhaps a few 757s and replacing them with 717s and 739ERs that are operated by DL employees instead of regional carrier employees which will push DL’s CASM down. WN is giving up capacity and no other network carrier is replacing anywhere close to as much regional capacity with mainline capacity as DL is doing.
DL knows exactly the advantage that comes from having a lower CASM than its network peers, its success in growing in markets where AA and UA have been traditionally strong shows DL’s strategy is working, and WN’s withdrawal from key DL competitive markets shows that WN would rather take its assets and compete either in markets where they have little competition or where they can compete against higher cost carriers which will continue to be AA and UA. The fact that there are far more traditionally strong AA and UA markets where WN has grown shows that WN knows where their opportunities lie. WN is not talking about growing in ATL or SLC or other key DL strength markets. They are talking about growing in DCA, DAL, and Texas-Latin America, key markets for AA and UA.
Where WN is growing and where it is not speaks volumes about their understanding of their ability to succeed and about the threat to the network carriers that WN poses, even if they don't have the size of the cost advantage they once had.
