YVR - HNL Business
Feb 26, 2015, 12:06 pm
#76
Join Date: Jul 2005
Location: Ontario, CAN
Posts: 5,813
Sorry, but why would you say this. rouge is about reducing AC's costs. When is there even *not* a reason to rouge? Even if they run at 100% load factor on a route, why not rouge a route if costs go down and profit goes up? AFAICS the only reason they don't rouge everything except long haul TPAC and TATL is the pilot's contract. There was no *need* to gut the Altitude program either, but they did. Your statement doesn't make sense.
You are saying that given a chance to increase profit AC will a) not do that b) ignore its fiduciary duty to shareholders.
rouge is this:
- Seat "A" sells for $10
- Mainline AC cost is $8
- rouge cost is $7
Which product do you stock to supply "A"? There is no world in which you choose mainline over rouge (pilot contract aside).
rouge is this:
- Seat "A" sells for $10
- Mainline AC cost is $8
- rouge cost is $7
Which product do you stock to supply "A"? There is no world in which you choose mainline over rouge (pilot contract aside).
Feb 26, 2015, 12:29 pm
#77
Join Date: Apr 2011
Location: YYC
Programs: AC 50k 1MM, Marriott LT Titanium Elite
Posts: 3,402
So you think if Rouge is good for one route it must be good for all routes? That's ridiculous.
Here's the typical YVR-Hawaii passenger
-WS seat 'A' sells for $10 (no IFE, slimline), mainline AC 763 sells for $11
-Passenger chooses WS as they just want a cheap seat. They don't care about 2-3-2, AVOD
-AC changes price to $10 just to try and fill the seats. The route underperforms relative to the rest of the network
So it goes to Rouge where AC can charge the same $10 but leads to higher ROI thanks to 29% lower CASM.
If AC tried doing that on many other routes (YYZ-YYC, YYZ-LGA) it wouldn't work. AC would have to slash prices far more than Rouge CASM savings to fill the seats. Travellers on some routes will pay more for mainline than Rouge, but not all routes.
Seems pretty simple to me.
Here's the typical YVR-Hawaii passenger
-WS seat 'A' sells for $10 (no IFE, slimline), mainline AC 763 sells for $11
-Passenger chooses WS as they just want a cheap seat. They don't care about 2-3-2, AVOD
-AC changes price to $10 just to try and fill the seats. The route underperforms relative to the rest of the network
So it goes to Rouge where AC can charge the same $10 but leads to higher ROI thanks to 29% lower CASM.
If AC tried doing that on many other routes (YYZ-YYC, YYZ-LGA) it wouldn't work. AC would have to slash prices far more than Rouge CASM savings to fill the seats. Travellers on some routes will pay more for mainline than Rouge, but not all routes.
Seems pretty simple to me.
Feb 26, 2015, 1:04 pm
#78
Formerly known as tireman77
Join Date: Dec 2013
Posts: 5,530
You are saying that given a chance to increase profit AC will a) not do that b) ignore its fiduciary duty to shareholders.
rouge is this:
- Seat "A" sells for $10
- Mainline AC cost is $8
- rouge cost is $7
Which product do you stock to supply "A"? There is no world in which you choose mainline over rouge (pilot contract aside).
rouge is this:
- Seat "A" sells for $10
- Mainline AC cost is $8
- rouge cost is $7
Which product do you stock to supply "A"? There is no world in which you choose mainline over rouge (pilot contract aside).
Tango $10
Flex $15
Latitude $20
If you're selling 90% Tango, then yes... Rouge it is. If your selling 50% Tango, 30% Flex and 20% Latitude, that easily covers the added $1 cost per seat.
If AC is selling the seats to full fare Y for $20, only because its ML, then its a no brainer.
I am saying that as long as there are people willing to pay higher fares for a ML product, then they will continue to offer it. Their motivation is revenue based, they react on a cost basis if the market is not willing/able to pay the premium.
Feb 26, 2015, 2:05 pm
#79
Join Date: Sep 2000
Location: OGG, YYC
Programs: AA, AC
Posts: 3,697
AC's schedule to KOA is close to non-existent, so it's almost not worth mentioning. You can count the number of flights in a year on your fingers. I've only known one person to have been booked on a KOA flight and he was contacted prior to departure and advised it would be operated by rouge, and left scrambling to find another carrier.
YYC-OGG is also pretty inconsequential, probably no more than 80 flights in an entire year. So whether this is operated by mainline or rouge can't possibly make much difference to AC's profitability.
YYC-OGG is also pretty inconsequential, probably no more than 80 flights in an entire year. So whether this is operated by mainline or rouge can't possibly make much difference to AC's profitability.
Feb 26, 2015, 5:40 pm
#80
Moderator, Air Canada; FlyerTalk Evangelist
Join Date: Feb 2015
Location: YYC
Programs: AC SE MM, FB Plat, WS Plat, BA Silver, DL GM, Marriott Plat, Hilton Gold, Accor Silver
Posts: 16,778
Whether they run 10 flights a year or 10,000 flights a year to a destination, you can bet the number-crunchers are doing just that. If the profitability of the route is better with Rouge, and it's within the contracts that they can do it, I'm sure they'll change it to Rouge.
Feb 26, 2015, 6:00 pm
#81
Join Date: Apr 2011
Location: YYC
Programs: AC 50k 1MM, Marriott LT Titanium Elite
Posts: 3,402
It depends on revenue.
Tango $10
Flex $15
Latitude $20
If you're selling 90% Tango, then yes... Rouge it is. If your selling 50% Tango, 30% Flex and 20% Latitude, that easily covers the added $1 cost per seat.
If AC is selling the seats to full fare Y for $20, only because its ML, then its a no brainer.
I am saying that as long as there are people willing to pay higher fares for a ML product, then they will continue to offer it. Their motivation is revenue based, they react on a cost basis if the market is not willing/able to pay the premium.
Tango $10
Flex $15
Latitude $20
If you're selling 90% Tango, then yes... Rouge it is. If your selling 50% Tango, 30% Flex and 20% Latitude, that easily covers the added $1 cost per seat.
If AC is selling the seats to full fare Y for $20, only because its ML, then its a no brainer.
I am saying that as long as there are people willing to pay higher fares for a ML product, then they will continue to offer it. Their motivation is revenue based, they react on a cost basis if the market is not willing/able to pay the premium.
And there is no evidence flyers are willing to pay for better product (unless rouge fails).
Feb 26, 2015, 6:15 pm
#82
Formerly known as tireman77
Join Date: Dec 2013
Posts: 5,530
I'd be willing to bet the ratio of seats sold between Tango and Latitude is considerably different on Rouge routes than ML routes. Once that ratio hits a certain threshold, Rouge becomes the correct choice.
Feb 27, 2015, 5:44 am
#83
Join Date: Apr 2011
Location: YYC
Programs: AC 50k 1MM, Marriott LT Titanium Elite
Posts: 3,402
They have the same fare buckets. But we do not know how many seats are available in each and how many are actually sold in each.
I'd be willing to bet the ratio of seats sold between Tango and Latitude is considerably different on Rouge routes than ML routes. Once that ratio hits a certain threshold, Rouge becomes the correct choice.
I'd be willing to bet the ratio of seats sold between Tango and Latitude is considerably different on Rouge routes than ML routes. Once that ratio hits a certain threshold, Rouge becomes the correct choice.
Feb 27, 2015, 5:46 am
#84
Suspended
Join Date: Jun 2009
Location: YYZ
Programs: AC E50K (*G) WS Gold | SPG/Fairmont Plat Hilton/Hyatt Diamond Marriott Silver | National Exec Elite
Posts: 19,284
Explained by post below. Retracted.
Last edited by superangrypenguin; Feb 27, 2015 at 6:13 am
Feb 27, 2015, 6:10 am
#85
Formerly known as tireman77
Join Date: Dec 2013
Posts: 5,530
I am absolutely astonished that this simple business principle is so difficult to understand for some: a product that costs you less to supply is always better. You like arguments by analogy, so: does Apple manufacture an iPhone 6+ with 128 GB of memory in California at a higher cost for labour than all other iPhones made in China because they charge more for it? Your argument is that AC doesn't care about making higher margins. That there is a point where margins are "good enough". This is patently absurd.
TO follow your example: iPhones could also be manufactured using plastic casings, lower priced materials, less special glass to be lower cost. They choose to offer a premium smart phone product because that product can get them a premium price.
An iPhone 6 sells for $800, costs $200. They make $600 per phone and sell 10 million of them, producing a $6B gross revenue.
If they produce a lower cost (see iPhone 5c) version at $100 but can only get $450, they make $350 per phone. So to match the potential gross revenue of the top model, they need to sell 17,000,000 units. 70% more units to achieve the same gross revenue.
My entire point is there are routes where people are willing to pay for the premium of ML, but would not be willing to pay the premium, should the ML services not be offered.
There must exist a tipping point where the ratio between paid J, Y&B fares versus Tango/Flex reaches the decision point of offering the lower cost model.
Just like Apple offers different phones to different markets, AC is marketing different services to different routes with the goal of maximizing gross revenue.
Is this business principle that complicated? I'm not discussing cutting edge revenue modelling here, am I?
Feb 27, 2015, 8:24 am
#86
Join Date: Nov 2013
Location: YOW
Programs: AC SE, Marriott Platinum
Posts: 395
You analogy has as a premise that people will continue paying a premium ticket (latitude & paid J) should the flight be rouged. I am saying that on the routes where that high yield revenue exists, it would be a bad business decision to Rouge the flight, since it would lead to lower gross margin revenue.
TO follow your example: iPhones could also be manufactured using plastic casings, lower priced materials, less special glass to be lower cost. They choose to offer a premium smart phone product because that product can get them a premium price.
An iPhone 6 sells for $800, costs $200. They make $600 per phone and sell 10 million of them, producing a $6B gross revenue.
If they produce a lower cost (see iPhone 5c) version at $100 but can only get $450, they make $350 per phone. So to match the potential gross revenue of the top model, they need to sell 17,000,000 units. 70% more units to achieve the same gross revenue.
My entire point is there are routes where people are willing to pay for the premium of ML, but would not be willing to pay the premium, should the ML services not be offered.
There must exist a tipping point where the ratio between paid J, Y&B fares versus Tango/Flex reaches the decision point of offering the lower cost model.
Just like Apple offers different phones to different markets, AC is marketing different services to different routes with the goal of maximizing gross revenue.
Is this business principle that complicated? I'm not discussing cutting edge revenue modelling here, am I?
TO follow your example: iPhones could also be manufactured using plastic casings, lower priced materials, less special glass to be lower cost. They choose to offer a premium smart phone product because that product can get them a premium price.
An iPhone 6 sells for $800, costs $200. They make $600 per phone and sell 10 million of them, producing a $6B gross revenue.
If they produce a lower cost (see iPhone 5c) version at $100 but can only get $450, they make $350 per phone. So to match the potential gross revenue of the top model, they need to sell 17,000,000 units. 70% more units to achieve the same gross revenue.
My entire point is there are routes where people are willing to pay for the premium of ML, but would not be willing to pay the premium, should the ML services not be offered.
There must exist a tipping point where the ratio between paid J, Y&B fares versus Tango/Flex reaches the decision point of offering the lower cost model.
Just like Apple offers different phones to different markets, AC is marketing different services to different routes with the goal of maximizing gross revenue.
Is this business principle that complicated? I'm not discussing cutting edge revenue modelling here, am I?
Feb 27, 2015, 8:52 am
#87
Join Date: Apr 2011
Location: YYC
Programs: AC 50k 1MM, Marriott LT Titanium Elite
Posts: 3,402
You analogy has as a premise that people will continue paying a premium ticket (latitude & paid J) should the flight be rouged. I am saying that on the routes where that high yield revenue exists, it would be a bad business decision to Rouge the flight, since it would lead to lower gross margin revenue.
TO follow your example: iPhones could also be manufactured using plastic casings, lower priced materials, less special glass to be lower cost. They choose to offer a premium smart phone product because that product can get them a premium price.
An iPhone 6 sells for $800, costs $200. They make $600 per phone and sell 10 million of them, producing a $6B gross revenue.
If they produce a lower cost (see iPhone 5c) version at $100 but can only get $450, they make $350 per phone. So to match the potential gross revenue of the top model, they need to sell 17,000,000 units. 70% more units to achieve the same gross revenue.
My entire point is there are routes where people are willing to pay for the premium of ML, but would not be willing to pay the premium, should the ML services not be offered.
There must exist a tipping point where the ratio between paid J, Y&B fares versus Tango/Flex reaches the decision point of offering the lower cost model.
Just like Apple offers different phones to different markets, AC is marketing different services to different routes with the goal of maximizing gross revenue.
Is this business principle that complicated? I'm not discussing cutting edge revenue modelling here, am I?
TO follow your example: iPhones could also be manufactured using plastic casings, lower priced materials, less special glass to be lower cost. They choose to offer a premium smart phone product because that product can get them a premium price.
An iPhone 6 sells for $800, costs $200. They make $600 per phone and sell 10 million of them, producing a $6B gross revenue.
If they produce a lower cost (see iPhone 5c) version at $100 but can only get $450, they make $350 per phone. So to match the potential gross revenue of the top model, they need to sell 17,000,000 units. 70% more units to achieve the same gross revenue.
My entire point is there are routes where people are willing to pay for the premium of ML, but would not be willing to pay the premium, should the ML services not be offered.
There must exist a tipping point where the ratio between paid J, Y&B fares versus Tango/Flex reaches the decision point of offering the lower cost model.
Just like Apple offers different phones to different markets, AC is marketing different services to different routes with the goal of maximizing gross revenue.
Is this business principle that complicated? I'm not discussing cutting edge revenue modelling here, am I?
Further you consistently confuse and conflate AC's costs with consumer costs. rouge does NOT offer consumers lower costs. It offers AC lower costs.
In any event, it is clear that we are not going to agree and I don't feel inclined to indulge in further thread jacking here.
Feb 27, 2015, 8:54 am
#88
Suspended
Join Date: Jun 2009
Location: YYZ
Programs: AC E50K (*G) WS Gold | SPG/Fairmont Plat Hilton/Hyatt Diamond Marriott Silver | National Exec Elite
Posts: 19,284
But rouge prices aren't cheaper. And they aren't set solely by AC. They are set by the market. And mainline isn't some premium product that people are willing to pay for (except a limited number of TPAC/TATL routes). Consumers definitely do not see mainline as a "premium" product. LOL. As if. And there is no way they are offering mainline YYC-YYZ because "consumers are willing to pay for a differentiated product." They aren't. And it isn't.
Further you consistently confuse and conflate AC's costs with consumer costs. rouge does NOT offer consumers lower costs. It offers AC lower costs.
In any event, it is clear that we are not going to agree and I don't feel inclined to indulge in further thread jacking here.
Further you consistently confuse and conflate AC's costs with consumer costs. rouge does NOT offer consumers lower costs. It offers AC lower costs.
In any event, it is clear that we are not going to agree and I don't feel inclined to indulge in further thread jacking here.
Feb 27, 2015, 9:55 am
#89
Join Date: Mar 2014
Programs: AC SE100k, Marriott Titanium, UA Silver
Posts: 2,648
From what I can tell, the YVR-KOA-YVR turn is only done on Saturdays, December - April, is this correct?
Feb 27, 2015, 10:23 am
#90
Moderator, Air Canada; FlyerTalk Evangelist
Join Date: Feb 2015
Location: YYC
Programs: AC SE MM, FB Plat, WS Plat, BA Silver, DL GM, Marriott Plat, Hilton Gold, Accor Silver
Posts: 16,778
And mainline isn't some premium product that people are willing to pay for (except a limited number of TPAC/TATL routes). Consumers definitely do not see mainline as a "premium" product. LOL. As if. And there is no way they are offering mainline YYC-YYZ because "consumers are willing to pay for a differentiated product." They aren't. And it isn't.
People who don't fly a lot may not care about the difference in quality between ML/Rouge/WS/whoever and may just book whatever fare is cheapest.
But to many FFs (like penguin, like me, like many others around here), there's a meaningful enough difference that it's worth paying for.
That's the whole reason why we see Rouge running flights like YYC-PHX and YVR-OGG that are the leisure, super-price-sensitive crowd.