Your Top Ten

[Ch. 12]

sfb,

I would like to respectfully disagree with you in the context that I have presented the West. I have not stated that U should drop what they are doing in the East and start a shorthaul point-to-point in the West that competes head-on with WN, AS, and HP. No...that would be suicide, quite obviously. The question was how can U improve its operations and I pointed out that they significantly lack the ability to take anybody other than those living ON the East Coast to the West b/c all travel has to go through CLT/PIT/PHL. That eliminates quality flights between the West and major markets such as ATL, DFW, CHI, STL, MCI, MSY, CLE, DET, MSP, etc, etc. True...these are mostly all hubs but that is b/c they are population centers.

And I totally disagree with you that there is still opportunity in the east...at least in the context that U and people here have suggested. The fares are abismal in the large markets and as I preach over and over...it's not worth going into little markets just to say that you are the exlcusive carrier. That doesn't make profit.

Here's the lack of opportunity:

LGA-FLL $166
LGA-MCO $166
BOS-TPA $153
DCA-FLL $122

vs. the opportunity:

PDX-ORD $244
SMF-DFW $265
RNO-ATL $308
SAN-MSP $224
and I'd even take WN head-on in LAX-MCI for $187 b/c it is still much better than $198 from BOS-LAX.

U cannot serve anything to the west coast and their current structure is sort of pointless in that sense as they miss so many important cities. Rather than connecting the dots in the east for even lower yields, they must capitalize on the vast number of LARGE markets that they have long been ignoring.

I understand the focus on transcons and international. That is opportunistic. I don't understand ignoring opportunity and connecting the dots from NE to FLA. That is fatalistic.

 

[Prince of PAWOBs]

My two cents:

Even if you have to do it with express aircraft alone. every college town with an enrollment of over 20,000 students should be served by US. Why? Simple.

1) Students have cash. Whether they have the wisdom to spend it properly is something entirely outside the scope of this post.

2) Students have to go home sooner or later to visit Mom and Dad.

3) Mom and Dad sooner or later go to visit the campus to see their kids.

4) Large campuses encourage other travelers to visit for various reasons (speaking engagements, graduations, sporting events, concerts, dare I say frat parties).

5) If you look at the number of flights US has to certain large college towns (i.e. GNV, TLH, SCE, SBN) and you consider that most are served by Express aircraft, not everyone can get to those destinations when a 50 seater is booked solid for a two day period. If I'm not mistaken, there were a couple of airlines that used to fly 737's out of GNV in the late 80's and early 90's. What happened? Now, you have to drive from JAX, TPA or MCO (or further!) to get to a Gator game at UF. BTW, that 85,000 seat stadium is always packed with spillover fans outside.

6) Corporate recruiters love to spend company dollars to fly to colleges, find potential employees, and make their salaries doing it.

It seems like common sense, but if you have full flights all the time to destinations, either add flights or use larger aircraft for existing flights. I'm sure the people at US who are in charge of routing are rolling their eyes saying, "We already know all about that, Prince. What makes you such an expert?"

The answer is this: "Because you haven't done anything about it, and when you sit on your hands it becomes difficult to count the dollar bills."

 

[DCAview]

US Airways might find some opportunity in linking Midwestern cities where it has some strength with United's California hubs.

Take a market like IND-SFO, for instance. US could offer one or two daily flights timed to plug into onward connections on United. It would help US get into longer stage lengths and give UA the revenue for the connecting flight -- a win-win.

As for international expansion, I think the next logical point is Latin America. US should continue to grow Charlotte as a Latin American gateway, but I would also look at Tampa. Sure, Tampa is increasingly dominated by low-cost carriers, but a strong international network would help support the one or two daily non-stops US should launch from Tampa to each of its top 20 or 25 destinations.

 

[ITRADE]

1) Students have cash. Whether they have the wisdom to spend it properly is something entirely outside the scope of this post.

2) Students have to go home sooner or later to visit Mom and Dad.

3) Mom and Dad sooner or later go to visit the campus to see their kids.

4) Large campuses encourage other travelers to visit for various reasons (speaking engagements, graduations, sporting events, concerts, dare I say frat parties).

To heck with the students - one big word for you - ALUMNI.

Reunion Weekends, football games, basketball games, and the like draw lots of alumni back to town.

US has devoted some attention to special events, but possibly the regional sales reps should devote additional time. Charlottesville, VA gets very crowded during reunion weekend. As does Raleigh when Duke or NC State are doing deals.

Then again, consider the other types of events - conventions (some of which US has focused on).

Here's one that Cavalier will agree on - the Dayton Hamvention. 40,000 amateur radio operators descending upon Dayton next weekend.

 

[Prince of PAWOBs]

You're right, ITrade. Alumni make more impact on inbound college town flights, for sure.

I'm bummed about the Dayton Hamfest, because I'll be working all weekend. Guess I'll have to wait until next year.

Speaking of conventions, I'm wondering what the grand connection is between the new Pittsburgh Convention Center, the construction on the Findlay Connector near PIT, and the planned expansion of the light rail service by the Port Authority through the North Side and possibly into the North Hills of Pittsburgh.

I still wish the Bush administration had not yanked the $800 million for high-speed rail from PIT to downtown, Monroeville and Greensburg for paying for the war in Iraq. Tell me US wouldn't behave like good little girls and boys at PIT with a hook like that.

 

[funguy2]

DCAview:

US Airways did offer nonstops IND/CMH-LAX/SFO years ago. I can only presume they dropped them because they were unprofitable. Not sure if the UAL feed is enough to make them work today.

Ch. 12:

Interesting suggestion. I have calculated yield on your suggestions by dividing the fare by the milage between the destinations. The yields are not much different (Yield is the revenue/mile of one seat).

Here's the lack of opportunity:

LGA-FLL $166 Yield 15.4 cents
LGA-MCO $166 Yield 17.4 cents
BOS-TPA $153 Yield 12.9 cents
DCA-FLL $122 Yield 13.5 cents

vs. the opportunity:

PDX-ORD $244 Yield 14.0 cents
SMF-DFW $265 Yield 18.5 cents
RNO-ATL $308 Yield 15.5 cents
SAN-MSP $224 Yield 14.6 cents
LAX-MCI $187 Yield 13.7 cents

Thr problem with the opportunities is that US Airways would be forced to rely on point-to-point traffic, where the competition has the ability to flow traffic on these routes... Therefore, AA can count on the SMF traffic to DFW and everything east of DFW. US Airways would only be able to offer SMF-DFW due to lack of flow. That means in term of flights/day, US Airways cannot compete with the hub carrier (i.e. AA in this case).

Look at AirTran's DFW service... AirTran has 2 flights DFW-LAS... vs. 10 on AA, 5 on HP, and 3 on DL. Because the other carriers all have flow traffic. This puts AirTran at a serious disadvantage to the other carriers... Then, consider that LAS traffic is huge compared to other places... I am sure SMF-DFW is a much smaller market than LAS-DFW, and there is just no way that US Airways would get enough pax to fill even two A319's, or even 3 RJ's. AA only have 5 flights per day, even with the strength of their DFW hub behind it.

LGA-FLL on the other hand, has similar yield, does not have an OAL hub on either end, and is also a huge market. If US Airways can fill 100% of its seats, it would make money (Yield at 100% Load Factor = RASM, so RASM would be 15.4 cents, CASM at 11.7 cents, profit is 3.7 cents) I think 100% Load Factors are much more likely on LGA-FLL than DFW-SMF for US Airways.

The problem is that US Airways currently runs a 70% LF... So to estimate, 70% of Yield (15.4 cents X 0.7, this is not really how to calculate RASM, but I am using as a guestimate) is 10.8 cents... This produces a loss (10.8-11.7) of 0.9cents per ASM. My guess is that Load Factor on DFW-SMF one time a day, would not even be close to 50%, let alone better than 70%. So the routes you have suggested may have similar or better yield, but probably not enough demand to fill the plane, and make RASM high enough.

(Extreme example Yield on DFW-SMF is 15.4 cents per pax. If only one pax gets on the A319, RASM is 0.12 cents, roughly. At 50% Load Factor, RASM is 7.7 cents)

You can only go into another airline's hub when you have your own hub behind it... Look at AirTran which could not make PIT-LGA and PIT-MDW work, but is doing just fine with PIT-ATL.

 

[ITRADE]

funguy makes some interesting points in response to Ch. 12.

Let me add a few others. Re Ch. 12's opportunity routes, note that every single one of them involves a city that is a major hub of a hub/spoke carrier. ORD belongs to UA/AA; DFW belongs to AA; ATL belongs to DL and to a lesser extent FL; MSP belongs to NW. How is US going to penetrate these markets with two or three flights a day when, as funguy noted, the incumbents are running 6 - 10 flights a day. On fares? Nope, US will just lose more money since they're more costly to operate. On connections? Nope. On service? That's your call.

In any event, I think funguy's yields are inflated - by double to be exact. Those fares are round trip fares. The one way fare of LGA-FLL is $83 - with a yield of $0.077. Not very high.

That is why you've got Caribbean expansion. PVD-GCM is $626 round trip and a yield that is nort of $0.17.

 

[Ch. 12]

Adding my ideas together (which was what I tried to infer but didn't directly state so I am sorry) would be to have a focus city or two between the WC city and the east or midwestern cities...not to fly point-to-point. U is the HP of the east with inability to have many frequencies from the east to west b/c it is all point-to-point through CLT/PIT/PHL. They need a similar city out west to connect through to create a flow and to catch all of the cities in the middle. Yes...I pointed out hubs b/c those are the major cities in the middle. I did not mean that they should match the routes from the hubs but rather fly through the western focus cities to bolster their own network. On the other hand...the NY-FLA is a blatant attack on the LCCs as it IS directly matching their routes in a low fare environment with a high cost carrier.

And thanks ITRADE for bringing up the doubled yields. And to bank on a LF that is nearly 100% to attain profitability (funguy) is unreasonable for U and in your example would actually still be a loss: RASM of 7.7 minus CASM of 11.7 = loss of 4 cents per passenger per mile!!

I would rather fly against the legacies with a moderate fare structure (HP is the perfect example) than jump into the frying pan head on against the most formidable LCCs in the industry with money to lose.

 

[funguy2]

ITRADE: Thanks for catching my mistake... Ch. 12 wasn't specific on what the fares were, but I should have thought about it for two seconds and figured it out!

Regardless, if those fares were the average one-way fares, instead of the rock-bottom roundtrip fares, my examples stands. $166/rt = $83 one-way. Not every passenger pays the bottom rate.... But at the same time, I am sure that double the lowest fare is not a reasonable average fare. It is too high.

And you are right Ch. 12, those would be loss producing... everyone of them.

Ch. 12, your comparison to HP is curious, for a couple of reasons:

1. By passenger volume, HP is #3 in the transcon market, even before they started non-stop transcons. That means they have sufficient penetration of the East Coast, compared to US Airways penetration of the west coast. Just as an example, HP flies to mid-sized East Coast cities like PIT and RDU and BDL. While US Airways does not fly to mid-sized west coast cities like PDX, SMF, SJC, SLC.

2. HP is in the frying pan, flying many routes against Southwest from both LAS and PHX.

3. HP does not have a focus city between the West Coast and mid-west... They have full hubs... PHX and LAS are their version of PIT and CLT. You could say they have developing focus cities at JFK/BOS/LAX/SFO because of the transcons.

I agree that US Airways does need to follow the AWA approach. However, I would define the AWA approach as 319's 1 or two times a day to mid level cities on the opposite coast. AWA does it with RDU, PIT, BDL... No reason why US Airways (with the proper cost structure) could not do it to PDX, SMF, SJC, SLC.

I also tend to agree with DCAview that a focus city at SFO and/or LAX with nonstop service to major US Airways cities west of PIT/CLT, like IND, CMH, DAY (not as many as their used to be) makes sence strategically. But in many of these markets, Southwest will control pricing, even if they don't operate nonstops... LAX-CMH for example, Southwest does not fly nonstop, but I am sure they set the price-points. I tend to think this is the right strategic direction, but when I look at the pricing environment combined with US Airways costs, I believe it will be a money loser even if its the right strategic direction. That is my major problem with any "west-ward" movements.

 

[ITRADE]

How 'bout Colorado springs as a focus city??? As long as you don't pi$$ off your neighbor - United.

I always fall back to MCI, but if you want to do battle with WN.

Of course, you could do MCI this way: only one type of mainline aircraft - either the 737-300 or the A-319. Two types of Express planes: ERJ-170s and Dash-8s.

Somewhere, I've got a schedule built up for MCI involving about 30 cities with service to each city running from 2x to 4x a day.

 

[EyeInTheSky]

Why don't we just paint over that US Airways.com plane "aka no brainer" with Homer Simpson - DOH! Bring WestPac back....

 

[sfb]

Ch. 12-

My first observation was the same as ITRADE's -- all of your example routes out west either start or end at major network hubs. Since one or more of your competitors will continue to have non-stop service on the route, how do you take market share away unless you're just offering drastically lower fares? SMF-DFW (with a connection at, say, COS) isn't such a great route if you have to charge $180 round-trip to lure passengers off the non-stop.

WN did just fine with a route structure ignoring the entire east coast until 1993 (well, I'd consider 20 consecutive profitable years "just fine"). I'm not saying that connecting the dots on the east coast is the solution (it's not with the current pricing/cost structure). But by the same token, deploying capacity out west where the competition is already far more intense is just suicidal.

USA Today did a cover story today on WN's entry into PHL, and there was an interesting observation made by the author:

Today Southwest is the biggest domestic carrier at LAX and Las Vegas, a close No. 2 at Phoenix, and a major player at nearly every airport west of the Rocky Mountains. It influences fares on nearly every route in the region, even those it does not serve.
(emphasis added)

Southwest is viewed as one of the greatest threats to the company, and yet beefing up on routes within the west would increase the company's exposure to WN pricing. I just fail to see how that's a workable strategy.

America West manages to have costs comparable to or below WN largely through lower pay rates. HP's yields on routes directly competing with WN are often lower than Southwest's. They often make up for this with higher fares on routes where they do not compete and by undercutting the larger network carriers.

 

[mbmbbost]

And thanks ITRADE for bringing up the doubled yields. And to bank on a LF that is nearly 100% to attain profitability (funguy) is unreasonable for U and in your example would actually still be a loss: RASM of 7.7 minus CASM of 11.7 = loss of 4 cents per passenger per mile!!

Using the US systemwide CASM of 11.7 cents to figure profit/loss on a single new point to point route doesn't make sense to me. It's convenient, but it ignores too many other factors. It seems that there's a reasonable likelihood that the actual cost per seat mile on certain routes might be much lower.

 

[funguy2]

Of course, you are correct... But unfortunately, without inside (and probably proprietary) information, its the best guess I can come up with. But certainly aircraft size, station costs, and other factors could affect this number in a large and material way. Unfortunately, I had to go with something, so the lastest CASM from quarterly reports had to do.

 

[mbmbbost]

Funguy,
I understand where you're coming from, it's just that I have a pet peeve when it comes to CASM's being tossed around. I could be way off base, but I'm inclined to think that certain point to point routes could have substantially lower costs per seat mile than the CASM for the system, which at present depends on a lot of traffic connecting through the hubs, along with lots of other inefficiencies that may not apply to some of these routes. I'd hate to see good opportunites dismissed.