Is CO really a ditch dweller?
 

Todays WSJ bears an interesting article dealing with the state of the airline industry and anti-trust reg's and so on.


Accordingly, the US airline industry is divided into 3 groups of carriers:

The big three. American, United and Delta own about 54% of the market...

The specialists. Profitable niche players such as Southwest (a "product specialist" focusing on short-haul flights), Jet Blue and Midwest Express (both "market specialists" focusing on NYC & Milwaukee markets, respectively) and others...

The ditch dwellers. These are airlines that are stuck in a no-man's land between the big generalists and the focused specialists. They are too large and diversified in terms of markets and services to be viable as focused specialists, but too small to compete across the board with the big three. Those in the ditch (typically, companies with between 5% and 10% market share) include US Airways, Northwest, Continental and, until its recent purchase by American (justified, ironically, by United's announced plans to acquire US Airways), TWA.

http://www.flyertalk.com/forum/Forum1/HTML/004788.html


So is CO really a "ditch dweller"? I do not really think so, based on what little I see anecdotally and the earnings reports, etc!

The problem is that the "ditch" companies have no long-term future, serve only to drag down the industry's financial performance as well as its ability to serve customers efficiently and with reasonable service standards. "Ditch" companies incur costs that are comparable to those incurred by the big three...


Perhaps there is a need for a 4th classification! http://www.flyertalk.com/forum/biggrin.gif

I've been watching, but I'm seemingly missing something important here! http://www.flyertalk.com/forum/wink.gif



[This message has been edited by doc (edited 07-03-2001).]

Saw the entire thing posted in The Buzz - noted another post commenting that being an editorial, it was opinion as opposed to business or market "fact".

I disagree that CO falls into some nether region of the industry (and certainly don't care for the term "ditch"). Look at it this way - if United were a software company, they'd be Microsoft. Look at all the good competition there.

The industry seems quite content with the current "10 Largest US Airlines," merger mania notwithstanding. The only ones I truly have concerns for are the smaller regional and/or charter specialists such as JetBlue, ATA, and Tower (where'd THEY go?). I think CO's got the right people, equipment, and business model to be a dominant player - as long as one of the aforementioned "Big Three" don't decide to crush or swallow them instead of trying to actually compete.

IMHO, what CO needs for the next level is a western hub - west of the Rockies or on the coast. UA's just too big, unwieldy, and generally brutish for my tastes. I remember before the first bankruptcy, they were EVERYWHERE - but that was also before the H&S method prevalent today. Hmm, with only HP and WN now, PHX could sure use another major player... http://www.flyertalk.com/forum/wink.gif

[This message has been edited by PHX_Phlyer (edited 07-03-2001).]

When uou consider, that the editorial was written by someone, who doesn't fly as much as most FTers, there is little to be concerned about or waste much time on the subject. I for one will continue to enjoy CO flights this year, regardless of what others think. Nuf said! http://www.flyertalk.com/forum/smile.gif

Who cares about categorizing what airline is a ditch-digger or whatever?

This investor looks at the numbers, and not arbitrarily assigned monikers that help to oversimplify the issues for those needing it.

Short answer is no.

The issue is how does the public perceive CO, NW, and US vs DL, UA, and AA. I don't think that the average traveler sees any difference at all in these airlines. Perhaps if you live in a hub you can see that one airline is bigger than the other, but I know that before I started reading these boards, as far as I knew US was as big as UA. Maybe I was the exception though.

As a relative novice to this stuff, my opinion was there was no difference between what I percieved at national airlines, which would be AA, DL, CO, US, UA, etc.

I used to be somewhat of a US flyer until my first trip on CO this year. I was converted, as it just struck me that CO was a better airline based on service, better equipment, and compensation given to me for a late flight. With just a bit of care on their part CO, has gained a customer who has gone from 0 miles to 80k miles in one year.

I've flown on all the united states based airlines, and there is only one I refuse to fly, which is Delta. I have never had a worse flight in my life as when I flew to Washington DC on a Delta Express flight. Additionally the attitude they took was one of irreverence toward the passengers.

Comparing CO to DL, long live the 'ditch dwellers.'

Well, FWIW, CO certainly seems to be winning quite a few awards these days! http://www.flyertalk.com/forum/smile.gif

Well, the "ditch dweller" argument has some appeal, and you can certainly see evidence of it by looking at most of these companies. I would say that CO has some advantages, mostly due to good managment:

1) Labour relations: Most of the so-called ditch dwellers have a serious problem in that they are forced by their unions to pay Big 3-type wages, but without Big 3-type profitability. The specialists (Southwest, jetBlue) are profitable in part because they effectively manage their labour forces through profit sharing and other incentives for performance which are alien to the big players. CO, despite being in the ditch, has very positive labour relations much more in line with those of the specialists.

2) Yield management - CO is the master. Maybe it's because the rest of the top 6 have less streamlined fleets or networks, but CO manages yield like nobody's business - and it shows in the fact that none of the rest of the top 6 are profitable right now.

3) EWR hub - This near-NYC hub is a huge asset, and they capitalize on that asset through aggressively dealing with the many corporations in the region to guarantee a large share of their air travel. Now that strategy is not foolproof, as we've seen with some recent rebellion against CO's strong-arm tactics with corporate partners. But still, they are the dominant carrier in the biggest market, and that is worth a lot.

Will these and other assets keep CO profitable over the long run? I don't know. As the Big 3 get bigger, it will be easier to put the squeeze on CO, and there are already hints that labour may be getting tougher. They're not in an easy position, but they are the best managed major (possibly after Southwest) in the sky.

They also serve more international destinations than any other U.S. airline.

The author has an axe to grind in that article. He wanted to prove to frequent flyers (and leisure ones too) that airline mergers actually promote 'true' competition and that with that competition, airfares will remain competitive.

Did he succeed in his mission? No. He went off on tangents about so-called 'ditch dwellers' which basically slammed airlines like Continental which were not his favored 3: American, Delta, and United.

As someone else mentioned, Continental has the only New York hub. But the hub in EWR attracts mostly NJ flyers. Many NYC, LI, Westchester, and CT flyers still flock to JFK, LGA, Islip, and Westchester Cty airports because those airports are closer to them. So Continental does what it can to compete for those passengers thereby eliminating any resemblance to the author's so-called 'ditch dweller' model.

The article was sheer drivel IMHO.

Specifically in Latin America, CO has something that other airlines lack: name recognition. A flyer from Panama won't care if DL is larger than CO: both get him/her to Albuquerque with a single connection. CO has definitely established itself in Mexico, Central America, and northern South America as one of the key US players, and this recognition converts directly into ticket sales.

I'd go as far as to say that based on public perception by people in northern Latin America, Continental and American are the 2 largest US airlines.

[This message has been edited by Viajero Joven (edited 07-09-2001).]

This would make Porsche, Ferarri, and Jaguar "ditch dwellers" of the automobile industry also I suppose.

Perhaps we should all join hands and join in a chorus of "I've Got Friends in Low Places"??
http://www.flyertalk.com/forum/biggrin.gif

[This message has been edited by Seth (edited 07-09-2001).]

Any change(s) of view(s) six months later?

does "six feet under" count?