Originally Posted by
fly747first
Hey chill, I'm not defending VX's management--I'd be the first one to admit, as I have posted already, that some departments clearly lack talented staff and to VX's misfortune, some of these are extremely critical departments to the success of the airline.
Well, it seems that you've been blaming the evil legacies for VX's failure.
Honestly, the plan was doomed from the time that Sir Richard dreamed it up - a hip airline with superior service at a lower cost.
First, you've already mentioned the target group - young people. Those that have good jobs are still establishing their lives ... paying off student loans, paying off their car, saving for a house and retirement. Most don't have high paying jobs so when they travel, it will be on the lowest cost airline.
Second, VX's Y product is good enough to satisfy most people. Unless they purchase a $299 upgrade in the 24 hour window, almost everyone buying a ticket on VX is not booking in F. The airline should have been only Y service, but I'm sure that Sir Richard foolishly insisted on F seating.
Third, while VX has an extremely low CASM and can successfully price their product below established carriers, they have chosen to price WELL BELOW and then never allow those fares to rise to a point where they can be profitable, even though a profitable point would be below where other airlines were charging on those routes prior to VX's entry.
Fourth, VX has chosen to put their headquarters in Burlingame, a very expensive part of the country. In spite of the high cost of living, they don't pay their top leadership positions a high enough salary to attract any talent. For the most part, they're getting mediocre senior personnel, most of whom have had a shelf life at previous companies of 24 months or less.
VX chooses to enter markets where the established fare is at a level that VX could make money on every seat sold. They choose to run introductory fares at prices that VX can't make money. Legacies match their fares. VX never raises their fares to a point where they can make money. Legacies have matched VX's fare increases, but have been allowing VX to set the prices in their markets.
Originally Posted by
fly747first
However, I don't quite agree with your elasticity and capacity comments (they are indeed true in some markets but not really in those VX serves). Take the premium transcon JFK - LAX/SFO markets well-known for the large volumes of businessmen and celebrities who fly these markets, yet you often see AA, B6, DL, UA and VX all ligned up at $158 or lower one-way, but that's just in deeply discounted coach, while VX only has 8 F seats to sell and AA, DL, and UA all have over 50% more F/J seats to sell due to the size and configuration of their aircraft, which in the case of AA and DL also includes a bigger main cabin. Now, VX is struggling selling 8 F seats and has a smaller Y cabin. You really think passengers will take an increase of $25 or more to fly VX when airlines with better frequent flyer programs and far more decent ways to redeem miles have lower fares?
Recent studies have shown that air travel isn't very elastic anymore; that was true when airlines had average load factors below 75% but air travel has become increasingly inelastic.
As stated above, VX is having trouble selling their F product because their Y product is 'good enough'.
As stated above, VX is the fare setter on this route, not other airlines. VX could raise their prices incrementally over three weeks and become wildly profitable. For VX last quarter, third quarter 2012, if they had raised their fares an average of $10 and would have had a $4 million NET profit, assuming that loads remained stable.
Again, with so little excess capacity in the system, VX could raise fares and would find that their loads would not be significantly impacted.
You seem to suggest that people won't fly a transcon for $366 RT but will fly a transcon for $316 RT. I don't buy that. And the reason why the price is $316 RT is because VX established that price level. I don't feel sorry for VX; they're the aggressor in pricing.
Originally Posted by
fly747first
Then though in FLL - SFO the only nonstop flights are offered by B6, UA, and VX, as it is, B6 and UA are already undercutting VX.
Did VX recently raise the fare on that route? Give it time; both B6 and UA will price match.
Bottom line is that VX's business model is deeply flawed. Other airlines have not been 'going after' VX; they were doomed to failure from the moment that Sir Richard dreamed up the idea. I don't know how he thought a hipster ultra low cost carrier offering premium service at prices below breakeven. VX has merely delayed further stabilization and rationalization in the airline industry. The best thing for the US airline industry is for Sir Richard to stop pouring money into VX so that they go out of business and the industry can further stabilize. It's reckless companies like VX that exacerbate the airline industry's boom/bust cycles.