tphuang

I would actually say AS dominates SEA also. And that's unlikely to change given the current gate count situation. AS in SEA/PDX hasn't faced any kind of situation like SFO/LAX, which explains why it's experiencing so much trouble with these new assets.

I think AS and B6 in terms of current network coverage is quite comparable. In terms of revenue and cost are also quite comparable. So while AS cannot get larger size than UA, there is no reason why it can't be sucessful and profitable in the bay area given its cost profile.

Think about this, DL operates 2 to 3 times as many flights as B6 in NYC and same with UA (if you count EWR). Yet, B6 has the highest margin in NYC. So having less gate than incumbent should not prevent AS (who has enough gates at SFO/SJC) from mounting a formidable challenge on UA. That could be as a leisure carrier with great coverage N-S or could be something else. There is potential there if AS makes the right moves.

Now even if we ignore the case of BOS, I think FLL is also a good case to look at. Again, AA controls the higher yielding airport with an established network and international partner, whereas B6 started with nothing in 2001 and didn't focus on FLL until last few years. This is another case of a slow build up until FLL is actually becoming a really profitable hub that has revenue edge over other FLL competitors like WN/NK. B6 at FLL will not overtake AA due to disadvantage in the number of available gates, the # of international partners and the national network, but it has managed to put serious dent on AA profitability at MIA especially with mint. There is simply no example of B6 adding a whole slew of routes at FLL and then cutting them back 6 months later. While UA is dominant at SFO, it has I think under 50% in market share while having to battle WN strength at OAK/SJC for bay area traffic. That's not so different from south florida where AA has over 70% market share at MIA and both WN/NK run very strong operations at FLL.

ashill

AS+QX (excluding VX) are 50.1% of the total traffic at SEA, so they're hardly dominant. Delta mainline is 15.2%, compared to 10.5% in 2010. (That excludes Delta Connection because DL has multiple operators and is thus harder to count. I wouldn't be surprised if Delta Connection is a fair fraction of the 22% that is "Other",) And Delta at least claims to have more revenue than AS out of SEA (which strikes me as plausible because they of course have the intercontinental flights that AS doesn't).

(Incidentally, AS+QX were 51.1% of the SEA traffic in 2010, 52.5% in 2012, and 50.1% (excluding Skywest Alaska flights) in 2017; the Delta build-up has been new growth and at the expense of other airlines, not at the expense of AS.)

B6 has 31% at BOS, 37% at JFK, and 23% at FL; AS+QX has 37% at PDX. As I noted above, AS and VX don't individually make the top 5 at SFO; 5th place is DL at 8.5%, so AS+VX are no more than 17% at SFO.

(These are departure statistics, which include connecting traffic, not O&D, so AS and DL's O&D market shares at SEA are lower because of connecting traffic.)

ETA: As noted below, these are domestic statistics only. So ASVX and B6's shares at all of these airports are probably smaller than the numbers quoted here. But at the same time, domestic traffic is by and large the market they're competing in.

milypan

Because pushmyredbutton argued above that, from a network perspective, AS is analogous to B6 (but on the opposite coast). My point is that we should be so lucky.

Yeah, it's very close. In the merger announcement slide deck AS claimed that the merger would immediately give them 16% share at SFO, which would imply 6,544k during 2017. Of course, they presumably didn't plan to abandon quite as much of the VX network as they have. In general though I use ex-SFO as shorthand for ex-SF Bay Area, so in that sense it would be more accurate for me to list SFO + SJC (+ OAK) as No. 2, which would clearly dominate PDX. From a network perspective that would be a bit disingenuous if the SJC routes just duplicated the SFO routes, but in fact almost half (7 of 15) of the non-hub destinations out of SJC are not served from SFO (though BUR is of course the same market as LAX).

I have serious doubts about whether a sufficient number of people in CA will pay even a small premium to fly AS. VX wasn't making that much money, and it was better differentiated than AS is (at least here in CA).

But the bigger question is why pay $2.6b for VX if this is the strategy? We've always defended the purchase on the basis that at least AS kept B6 from getting it. But if you completely abandon competing on the basis of network, as AS is doing in CA, then why do you care if B6 establishes a new base in SFO? What's yet another big network competitor if you're not competing on network anyway? Just buy some new aircraft, deploy them on whatever routes around the country you can find that make any financial sense, and hope that you can charge a small premium. That seems to be what they're doing now anyway, except seemingly they paid $2.6b to do it and got almost nothing in return (not even ownership of aircraft).

milypan

Wait, I'm confused, what's our definition of "dominant"? 50% of total traffic sounds like a lot to me.

It's not "dominant" like WN is at MDW, HOU, or DAL (96%, 93%, and 92%), but those are all secondary airports, and in each case WN is competing against one or more big network carriers with huge footprints at the relevant primary airports (ORD, IAH, and DFW).

Is there another case of a top-15 MSA in which a single airline carries a majority of the traffic?

Edit: Answering my own question, ATL for sure (duh), and most likely DTW too (after factoring in DL Connection). But as far as I can see, that's it. If you went down to top-20 you'd also get MSP...apparently nobody does dominance like DL!

ucdtim17

JFK you mean?

bmvaughn

You're referencing BTS data (https://www.transtats.bts.gov/airports.asp?pn=1&Airport=SFO&Airport_Name=San%20F rancisco,%20CA:%20San%20Francisco%20International& carrier=FACTS) which:
1) Only looks at domestic traffic
2) Doesn't break out SkyWest into the flying they do for UA, DL, or AS

Sort of an odd stat to pick to try to make your point... but even at 17% they would be the clear #2 carrier.

These are also all domestic-only statistics and are mainline only. Makes them pretty useless IMO.

AS Flyer

I haven't posted here in a very long time but there seems to be a fair amount of misinformation and selective facts being tossed around and it's driving me nuts. So much hand wringing about a merger that is just starting to take shape. There's mention of AS abandoning a bunch of VX routes. Simply put, that isn't happening to the extent being implied here. Post merger, AS added a slew of new routes from SFO. Many of them are still around. The routes that have been cut were not going to be profitable. AS decided to cut their losses rather than continue to throw money into the fire. A few of those were ex-VX routes. DEN, CUN and FLL are those that come to mind, while some routes have been pared back slightly (BOS, ORD). The other routes cut were routes added post merger (MSP, MEX). In terms of total destinations and departures, the schedule at SFO for AS/VX is more robust now than it was pre-merger. Service that didn't exist from SFO on VX/AS before this merger include MCI, KOA, RDU, PHL, IND, BWI, BNA, MSY, MCO and SNA, with additional frequency to AUS. That's an additional 10 cities currently flown from SFO that neither VX nor AS were flying at the time of the merger. There will continue to be refinements made to the schedule because AS is not going to fly routes that are not making money in the same way that VX was willing to. AS is not going to compete with Mint - people that want to spend upwards of $1000 round trip (and that varies wildly, going significantly higher in many cases) for a flat bed are probably going to be happier on B6. That's not the market AS is going after, regardless of whether anyone here thinks that's the key to success.

BOS vs SFO - who cares? B6 is operating on the east coast and AS is operating on the west coast. Two different geographical regions. There are so many more large cities east of the Mississippi that are within a much easier reach from any east coast city than from the west coast - the resources required to fly from BOS to ORD are significantly less than those required to fly from anywhere along the west coast to ORD. It's obviously going to be easier for an airline based along the east coast to expand more quickly as the resources required to do so aren't as great. One airplane can fly BOS-ORD round trip twice in just about the same amount of time as one 737 from SFO-ORD. My point is that there are many more opportunities to expand east of the Mississippi for an airline with hubs in JFK/BOS/MCO/FLL than for an airline with hubs in SEA/SFO/PDX/LAX. B6 grew quickly, jumping into voids that the larger airlines neglected to fill. AS has been fighting WN and UA along the west coast long before B6 was ever around. B6 jumped into JFK and BOS and took what they wanted because it was there for the taking. I think, in time, someone is going to revisit this thread and point out the irony in it after B6 and AS get together - but that's just my thought.

VX was never an airline someone flew because they took them anywhere they want to go because their network was extremely limited. AS is not going to be that airline either - but they ARE growing. Some people from SFO will fly them because they are going where they want to go and others will not - but the market from the bay area is great enough that I think AS will find their niche - even if it's not the same niche that VX was going after. SFO is far from a failure vv. AS, and this is only the beginning. Look for more routes and schedule enhancements in time and, without doubt, there may be some reductions in certain markets. It doesn't mean AS is throwing in the towel or failing miserably.

ashill

Certainly not a precise term, I agree; you and I have both defined our terms with percentages, which are considerably less subjective. I generally use "dominant" to describe fortress hubs, where one airline is around 70 or 80% or more of the traffic, because that's a materially different level of dominance than an airport where the hub airline is around 50% (like AS at SEA or UA at SFO, but B6 nowhere).

Dallas (DAL is enough smaller than DFW that AA+Mesa+Envoy are 66% of the DFW+DAL traffic) is close (to my definition of dominant ). I agree that there aren't many very large cities where any carrier is truly dominant. But DL and AA each have at least two airports where they are truly dominant (although CLT is a relatively-small city) and WN has 5 (including OAK and BWI); neither AS nor B6 are ever likely to be in that position in even a top-30 MSA (unless you count LGB).

I guess my real point is that B6 and AS, no matter where they set up, will never be so dominant that they can be all things to most people in a given city. The question is how they structure their route network to be profitable. Is it worthwhile to throw money at a city to try to be able to be all things to a good number of people even if the routes are individually unprofitable? VX management didn't have a better option than to do that at SFO, so they did that. AS management has other feasible options than to fly money-losing flights at SFO (like SFO-DEN) at the risk of losing traffic on, say, SFO-SEA to people who fly one airline for everything. I don't know whether that will be a viable strategy in the long term. I also don't know whether throwing $2.6bn at VX will have been money down the drain. But, from my uninformed armchair CEO position, I'm less doom-and-gloomy on the strategy than many in this thread.

ucdtim17

This seems like the appropriate analysis at this point in time. To the extent AS has made any decisions about what to do about VX, it's mostly been cutting routes and throwing everything else that came with the airline in the trash, while B6 continues to organically expand Mint and offer a significantly superior product on transcons. Buying a competitor to kill it doesn't help much if you still have other larger competitors out there who will undercut you or be able to provide superior service because they're unburdened by a $2.6 billion expenditure.

ashill

Oops; corrected.

I did add in QX, which is easy to incorporate and also makes AS look stronger (because it's not so easy to incorporate regional affiliates for the others). That and the fact that these are domestic only just makes my point -- that ASVX isn't the dominant carrier anywhere, and certainly not at SFO -- stronger.

I agree that it's a very incomplete statistic; it's the most easily-available one.

AS Flyer

Wrong - they are getting rid of the things that didn't make sense AND, as I've pointed out, AS has double the number of new destinations on the schedule now from SFO than those cut, with two being cut that were added post merger and three that were previously operated by VX. AS is also refining the product because, as many have pointed out on other threads, the VX product was ground breaking when it rolled out and getting long in the tooth as their sun set. They have chosen to not follow Jet Blue down the flat bed path - they are not going to be everything to everybody - just as B6 isn't.

ucdtim17

AS Flyer

tphuang

That last statement shows you have not been really following the transcon markets where B6 is consistently priced around where AS is prices its F at (outside of BOS-SEA, where AS prices a lot higher). It's no wonder when looking at BOS-SAN, AS's first class cabin is constantly half empty a couple of days out even though MVPG can purchase f for the same cost as f for over a week.

As for the cuts, the issue is that they came so soon after expansion when they realized things are harder than expected. How often do you see DL give up on a route or WN or B6?

AS has plenty of time on its hand and gate space, but it needs to show that it can develop a profitable strategy. Right now, transcon, intra-cali and legacy hubs are all bloodbath for AS and they have cut back on transcon and legacy hub routes. It takes time and money to build a hub. Everyone knows that. It doesn't seem like AS strategy is too great at the moment.

it's really hard to loose money in US airlines industry these days. AS has seen its revenue go down for past 3 quarters when everyone and there mother is gaining. How is that not a problem?

ucdtim17

Compared to $184 mil in profit in Q1 2016 and $99 mil in profit last year, it's a little troubling. It's symptomatic of their current struggles, not a disaster in and of itself.

Whether or not it's been pointed out already, it's not obvious that allowing B6 to win the bidding for VX would have meant "far worse things" for AS. That's what we're debating now. Maybe it would have but I'm growing more skeptical of this idea as time goes forward and it becomes more obvious AS is just making this up as they go, with no great plan for what to do with their $2.6 billion purchase.