The Future of SONG, Here to Stay or Going Away?
Jul 28, 2004, 11:21 am
#46
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I saw something similar to that BusinessWeek article in the Atlanta Journal-Constitution about Delta Air Lines employing the Song concept systemwide. I hope no one minds if I post it, because the registration process to view it online is lengthy:
Piecing Delta back together
By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 07/24/04
Next month, Delta Air Lines' executives are expected to put the finishing touches on a strategic review of the ailing carrier.
A lot is riding on their months-long effort. Delta's losses have mounted to a staggering $5.6 billion since 2000, and the Atlanta carrier is still seeking deep pilot pay cuts it says are needed to avoid bankruptcy. Even if last week's sweetened offer from pilots leads to a deal, the airline won't be out of the woods, analysts say.
Creditors that have supplied Delta with aircraft, capital and other needs will be watching, too, for a viable exit strategy from the morass.
Chief Executive Gerald Grinstein has only hinted at Delta's plans, and warned that he won't reveal many details next month for strategic reasons.
With that in mind, the Journal-Constitution asked three longtime airline-watchers what they think Delta's strategic plans should include.
Kevin Mitchell
Chairman of the Business Travel Coalition, an advocacy group for airlines' corporate travel customers
Delta has to learn to live in the age of Wal-Mart, says Mitchell.
Much as Wal-Mart has trained a nation of bargain-hunters, the ease of fare shopping on the Internet and buying cheap tickets from discount carriers has taught air travelers to expect everyday low prices, he said.
What that means for Delta is "absolutely the most gut-wrenching of restructurings that you can imagine," he said.
His prescription for Delta is bitter: more job, pay and benefit cuts; shedding unprofitable routes and assets; and rethinking many jobs and operations.
"I think [Delta's] biggest problem is its own understanding of the current marketplace and where the marketplace is going," said Mitchell, who admits that his own thinking also has evolved in the face of discount carriers' rising market power.
In the past, he dismissed Song, Delta's 16-month-old discount unit based in New York, as a "gigantic management attention-diverter."
But now that discount carriers like Southwest, AirTran and JetBlue control about a quarter of the market and influence fares far beyond their direct route networks, he has changed his mind. Within a year or two, discounters will be flying to Europe and other international destinations, opening another battle front, he predicted.
Their market power is "at a killer level right now," he said. "Delta has got to become Song or some version of Song across its whole network, and it's got to get out of markets it's losing money in, and it has to have also an opportunity to innovate in other markets like ... international long-haul."
Delta's out of the race until it reduces costs, he added. "You really can't do a strategy until you know what you're working with on the cost end."
Lower costs are "central" to Delta's ultimate survival, he said. That means the airline must persuade its employees to accept job cuts, higher productivity demands, and lower pay and benefits now for uncertain promises of future job security.
"It's a conundrum," he said. "There's no escaping the fact that it's got to include some very, very significant cutbacks, and maybe changes in the very nature of the jobs and how they're compensated and how they're rewarded over the long term."
And Delta needs to accomplish these feats while also repairing ties to its customers, which have become badly frayed. He said the airline hurts its credibility and customer service reputation through clumsy moves that tightened ticket restrictions and its frequent-flier plan.
He said Delta needs to cut capacity, especially in leisure-oriented markets where it has lost the battle to low-cost carriers. He cited the New Orleans-Fort Lauderdale, Fla., route, where Southwest has 69 percent of the market.
"They're in certain markets where they can't compete, and they're wasting money," Mitchell said.
Perhaps most important, Delta needs to "speed it up," he said. "The longer it takes, the weaker it's going to be when it gets there, and the more market share it's going to lose."
John Luth
Chairman of Seabury Group, an investment banking firm that specializes in airlines
John Luth's New York firm helped shepherd US Airways and Air Canada through recent bankruptcies and helped Continental and America West restructure outside Chapter 11.
While he declined to talk about Delta specifically, Luth's advice on how big hub-and-spoke carriers need to change in order to survive could apply to the nation's third-largest carrier.
Getting and keeping access to capital is paramount, he said.
But airlines have to earn that access, he added. To craft a credible business plan, an airline must painstakingly analyze each route and product to figure out what revenue it can realistically generate. Only then can it figure out what its costs need to be.
Simply cutting routes isn't a good solution because costs rarely drop as fast as revenues, he said.
"You have to start with 'I have to have a competitive product,' " he said. "And then by defining where the competitiveness needs to be, and where those markets are going to be, and what the competition is likely to be, you redefine your network, how big you're going to be, whether you have the right-sized planes, and how you fly the system."
These days, big network carriers can only count on getting about $15 more on the average one-way fare because they offer more flights, destinations and other perks than discount carriers, he said.
That's not enough to cover most traditional airlines' higher costs, Luth said. Moreover, they must match discounters' simpler, less-restrictive ticket rules someday, he said. That requires lowering costs even more.
Most airlines haven't taken such a bottom-up approach in the past, said Luth. For the past 30 years, most carriers projected their share of revenues based on how they expected the overall economy to perform.
But there is no longer a clear link between travel spending and the economy because of the growing power of discount carriers.
The competition will only get tougher over the next few years, Luth said, because new low-cost players like Independence Air and Virgin America are popping up. The ever-growing use of the Internet raises the profile of smaller airlines, which used to be "invisible," Luth said.
Within three to five years, he predicts, discount carriers will control a third of the market and largely dictate pricing in 85 percent of the U.S. market, because they only have to have a small presence on a given route to affect fares. Low-cost carriers now hold 26 percent of the U.S. market, according to Seabury Group.
"There's going to be an excess supply vs. demand of product in the coming couple of years that ultimately will cause some shakeout," he said. Some old-line carriers will contract or fail "unless they get competitive."
Darryl Jenkins
Professor of airline management at Embry-Riddle Aeronautical University, former director of George Washington University's Aviation Institute
Age works against Delta, says Jenkins.
It's hard to make a fresh start when you're a 75-year-old company with billions in debt and "contracts that go so far back that none of us can remember why we even negotiated them the way we did," said Jenkins, who has done consulting work for dozens of airlines over the years.
"That's kind of a discouraging place to start," he said.
In contrast, young carriers like AirTran and JetBlue have lower costs in part because employees are younger and lower-paid, with little or no pension liabilities. Planes are newer, with lower maintenance costs. Quicker promotions boost employee morale.
"I'm doing some work with some start-ups now, and it's so much easier to start with a clean slate that it's actually fun again," said Jenkins.
So what should Delta do, given that it's already loaded with baggage?
Shed about $5 billion in annual costs. That almost certainly means at least one trip through bankruptcy, he added.
"Their labor cost is not their only ridiculously high cost. They have billions of dollars in debt," said Jenkins. "I think if they did not go into bankruptcy, they would be doing themselves a disservice."
Like other big carriers, Delta took on too much debt, bought too many expensive planes and signed pricey labor contracts during the boom days of the late 1990s, he said.
"It's pilots. It's management. Everybody let this get out of control," he said. "Each side of the table has negotiated agreements that could never be kept, and that's foolishness on both sides.
"I'd start out with the assumption that everything I'm currently doing is wrong, and I would look for ways to change how I do it," he said. "I would leave nothing sacred."
Cutting labor costs "is the quickest way to cut your costs," said Jenkins. Even more than pay cuts, Delta needs job or work rule changes that would allow it to operate with fewer employees, he said.
"There has to be fewer employees, no ifs, ands or buts," he said. "The guys that are left over from the purging that will happen could make really good incomes," he said. But the survivors "will have to work more than they've ever worked before."
Jenkins said old-line airlines like Delta don't need to scrap their hub-and-spoke networks, which some say are too costly to compete with discount carriers' simpler networks.
"I see hub-and-spokers making money," he said. "AirTran's a classic hub-and-spoke carrier, and these guys run a very good airline."
Delta should instead run hub operations more efficiently and stop scheduling flights so planes arrive in waves. These so-called banks reduce waiting time for connecting passengers. But airlines need extra staff, gates and airplanes to handle the surges of traffic.
Some airlines have moved toward a so-called rolling hub of almost continuous departures and arrivals, and Delta took similar steps in 2001.
Jenkins said the proof should be in Delta's aircraft utilization numbers. "To have low costs, you have to have airplanes up in the air a whole lot," he said. "I think aircraft utilization is one of the great measurements of an effective carrier."
Delta's aircraft flew an average of 7.3 hours a day last year, the same as 2002 and 2001, down from 8.2 hours in 2000.
If Delta files for Chapter 11, it should consider radical surgery, said Jenkins.
"Look at the places where they make money. That's where you stay. Look at the places where you don't make money. You ditch them."
Does that mean the future Delta may consist largely of its regional carriers and its international routes, the two operations that industry analysts say are making money?
"If I had my way, that's how I would do it," said Jenkins.
Piecing Delta back together
By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 07/24/04
Next month, Delta Air Lines' executives are expected to put the finishing touches on a strategic review of the ailing carrier.
A lot is riding on their months-long effort. Delta's losses have mounted to a staggering $5.6 billion since 2000, and the Atlanta carrier is still seeking deep pilot pay cuts it says are needed to avoid bankruptcy. Even if last week's sweetened offer from pilots leads to a deal, the airline won't be out of the woods, analysts say.
Creditors that have supplied Delta with aircraft, capital and other needs will be watching, too, for a viable exit strategy from the morass.
Chief Executive Gerald Grinstein has only hinted at Delta's plans, and warned that he won't reveal many details next month for strategic reasons.
With that in mind, the Journal-Constitution asked three longtime airline-watchers what they think Delta's strategic plans should include.
Kevin Mitchell
Chairman of the Business Travel Coalition, an advocacy group for airlines' corporate travel customers
Delta has to learn to live in the age of Wal-Mart, says Mitchell.
Much as Wal-Mart has trained a nation of bargain-hunters, the ease of fare shopping on the Internet and buying cheap tickets from discount carriers has taught air travelers to expect everyday low prices, he said.
What that means for Delta is "absolutely the most gut-wrenching of restructurings that you can imagine," he said.
His prescription for Delta is bitter: more job, pay and benefit cuts; shedding unprofitable routes and assets; and rethinking many jobs and operations.
"I think [Delta's] biggest problem is its own understanding of the current marketplace and where the marketplace is going," said Mitchell, who admits that his own thinking also has evolved in the face of discount carriers' rising market power.
In the past, he dismissed Song, Delta's 16-month-old discount unit based in New York, as a "gigantic management attention-diverter."
But now that discount carriers like Southwest, AirTran and JetBlue control about a quarter of the market and influence fares far beyond their direct route networks, he has changed his mind. Within a year or two, discounters will be flying to Europe and other international destinations, opening another battle front, he predicted.
Their market power is "at a killer level right now," he said. "Delta has got to become Song or some version of Song across its whole network, and it's got to get out of markets it's losing money in, and it has to have also an opportunity to innovate in other markets like ... international long-haul."
Delta's out of the race until it reduces costs, he added. "You really can't do a strategy until you know what you're working with on the cost end."
Lower costs are "central" to Delta's ultimate survival, he said. That means the airline must persuade its employees to accept job cuts, higher productivity demands, and lower pay and benefits now for uncertain promises of future job security.
"It's a conundrum," he said. "There's no escaping the fact that it's got to include some very, very significant cutbacks, and maybe changes in the very nature of the jobs and how they're compensated and how they're rewarded over the long term."
And Delta needs to accomplish these feats while also repairing ties to its customers, which have become badly frayed. He said the airline hurts its credibility and customer service reputation through clumsy moves that tightened ticket restrictions and its frequent-flier plan.
He said Delta needs to cut capacity, especially in leisure-oriented markets where it has lost the battle to low-cost carriers. He cited the New Orleans-Fort Lauderdale, Fla., route, where Southwest has 69 percent of the market.
"They're in certain markets where they can't compete, and they're wasting money," Mitchell said.
Perhaps most important, Delta needs to "speed it up," he said. "The longer it takes, the weaker it's going to be when it gets there, and the more market share it's going to lose."
John Luth
Chairman of Seabury Group, an investment banking firm that specializes in airlines
John Luth's New York firm helped shepherd US Airways and Air Canada through recent bankruptcies and helped Continental and America West restructure outside Chapter 11.
While he declined to talk about Delta specifically, Luth's advice on how big hub-and-spoke carriers need to change in order to survive could apply to the nation's third-largest carrier.
Getting and keeping access to capital is paramount, he said.
But airlines have to earn that access, he added. To craft a credible business plan, an airline must painstakingly analyze each route and product to figure out what revenue it can realistically generate. Only then can it figure out what its costs need to be.
Simply cutting routes isn't a good solution because costs rarely drop as fast as revenues, he said.
"You have to start with 'I have to have a competitive product,' " he said. "And then by defining where the competitiveness needs to be, and where those markets are going to be, and what the competition is likely to be, you redefine your network, how big you're going to be, whether you have the right-sized planes, and how you fly the system."
These days, big network carriers can only count on getting about $15 more on the average one-way fare because they offer more flights, destinations and other perks than discount carriers, he said.
That's not enough to cover most traditional airlines' higher costs, Luth said. Moreover, they must match discounters' simpler, less-restrictive ticket rules someday, he said. That requires lowering costs even more.
Most airlines haven't taken such a bottom-up approach in the past, said Luth. For the past 30 years, most carriers projected their share of revenues based on how they expected the overall economy to perform.
But there is no longer a clear link between travel spending and the economy because of the growing power of discount carriers.
The competition will only get tougher over the next few years, Luth said, because new low-cost players like Independence Air and Virgin America are popping up. The ever-growing use of the Internet raises the profile of smaller airlines, which used to be "invisible," Luth said.
Within three to five years, he predicts, discount carriers will control a third of the market and largely dictate pricing in 85 percent of the U.S. market, because they only have to have a small presence on a given route to affect fares. Low-cost carriers now hold 26 percent of the U.S. market, according to Seabury Group.
"There's going to be an excess supply vs. demand of product in the coming couple of years that ultimately will cause some shakeout," he said. Some old-line carriers will contract or fail "unless they get competitive."
Darryl Jenkins
Professor of airline management at Embry-Riddle Aeronautical University, former director of George Washington University's Aviation Institute
Age works against Delta, says Jenkins.
It's hard to make a fresh start when you're a 75-year-old company with billions in debt and "contracts that go so far back that none of us can remember why we even negotiated them the way we did," said Jenkins, who has done consulting work for dozens of airlines over the years.
"That's kind of a discouraging place to start," he said.
In contrast, young carriers like AirTran and JetBlue have lower costs in part because employees are younger and lower-paid, with little or no pension liabilities. Planes are newer, with lower maintenance costs. Quicker promotions boost employee morale.
"I'm doing some work with some start-ups now, and it's so much easier to start with a clean slate that it's actually fun again," said Jenkins.
So what should Delta do, given that it's already loaded with baggage?
Shed about $5 billion in annual costs. That almost certainly means at least one trip through bankruptcy, he added.
"Their labor cost is not their only ridiculously high cost. They have billions of dollars in debt," said Jenkins. "I think if they did not go into bankruptcy, they would be doing themselves a disservice."
Like other big carriers, Delta took on too much debt, bought too many expensive planes and signed pricey labor contracts during the boom days of the late 1990s, he said.
"It's pilots. It's management. Everybody let this get out of control," he said. "Each side of the table has negotiated agreements that could never be kept, and that's foolishness on both sides.
"I'd start out with the assumption that everything I'm currently doing is wrong, and I would look for ways to change how I do it," he said. "I would leave nothing sacred."
Cutting labor costs "is the quickest way to cut your costs," said Jenkins. Even more than pay cuts, Delta needs job or work rule changes that would allow it to operate with fewer employees, he said.
"There has to be fewer employees, no ifs, ands or buts," he said. "The guys that are left over from the purging that will happen could make really good incomes," he said. But the survivors "will have to work more than they've ever worked before."
Jenkins said old-line airlines like Delta don't need to scrap their hub-and-spoke networks, which some say are too costly to compete with discount carriers' simpler networks.
"I see hub-and-spokers making money," he said. "AirTran's a classic hub-and-spoke carrier, and these guys run a very good airline."
Delta should instead run hub operations more efficiently and stop scheduling flights so planes arrive in waves. These so-called banks reduce waiting time for connecting passengers. But airlines need extra staff, gates and airplanes to handle the surges of traffic.
Some airlines have moved toward a so-called rolling hub of almost continuous departures and arrivals, and Delta took similar steps in 2001.
Jenkins said the proof should be in Delta's aircraft utilization numbers. "To have low costs, you have to have airplanes up in the air a whole lot," he said. "I think aircraft utilization is one of the great measurements of an effective carrier."
Delta's aircraft flew an average of 7.3 hours a day last year, the same as 2002 and 2001, down from 8.2 hours in 2000.
If Delta files for Chapter 11, it should consider radical surgery, said Jenkins.
"Look at the places where they make money. That's where you stay. Look at the places where you don't make money. You ditch them."
Does that mean the future Delta may consist largely of its regional carriers and its international routes, the two operations that industry analysts say are making money?
"If I had my way, that's how I would do it," said Jenkins.
Jul 28, 2004, 3:03 pm
#47
Join Date: Jun 2004
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Pretty depressing. Thanks for sharing, though. 
Jul 30, 2004, 10:59 am
#48
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Originally Posted by bocastephen
My argument against Song is based on my opinion that the Song "product" - the nicer seats, TV, friendly crew, etc. should be *standard* on Delta mainline. They shouldn't need a separate brand to show off a better product, especially when that brand is targeted at price inelastic leisure customers while the loyal higher-fare frequent flyer is left with a product that they almost admit is inferior to Song. I think we are all in agreement that a "Song"-like product should be in the mainline, but my distinction is that Song should not take over mainline flights, rather its features should be enhanced and incorporated into the entire Delta product and then Song should vanish as a distinct brand.
This is exactly what has been my problem with Song.
The service on DL has deteriorated. Coast to coast flights in 757 and 738 with no entertainment system. No meals are served. On international flights one have to pay for drinks, etc.
Then cheap tourists (wants the cheapest fare) receive a much better service than loyal business travelers.
We don't get Song out here in SFO - we don't get much of anything from DL anymore. So I haven't had a chance to try it. jetBlue goes out of OAK, but again I haven't tried them since I'm still so masochistic to go with DL, so I can get my miles and status.
Last edited by GrapeDane; Jul 30, 2004 at 11:01 am Reason: typo
Aug 2, 2004, 3:33 pm
#49
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Looks like United has fired the first shot in the argument about quality vs price...and it looks like they agreed with me that the majors needs to create more quality in their product and offer less inventory at deep discount prices. Fewer seats, more comfort, better service, and less inventory to sell at the deep discount fares so the "price means everything" bunch can fight it out on Southwest. I think DL needs to watch this. Even though UA is starting with limited transcons, I bet this is a test to roll out on additional business routes. Leave the leisure routes to TED and make sure the limited inventory on the PS service keeps the revenue and yields perked up by moving the mean paid-fares higher.
http://biz.yahoo.com/prnews/040802/nym076_1.html
http://www.unitedps.com
http://biz.yahoo.com/prnews/040802/nym076_1.html
http://www.unitedps.com
Last edited by bocastephen; Aug 2, 2004 at 3:47 pm
Aug 3, 2004, 5:53 am
#50
Join Date: Jul 2004
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Jetblue looking to start service to Bahamas. Maybe Song will go in before they can start? Steal a little thunder and prevent them from getting a foothold. Definitely a market for Song type service.
Last edited by texan09; Aug 3, 2004 at 7:05 am
Aug 3, 2004, 6:49 am
#51
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Originally Posted by bocastephen
Looks like United has fired the first shot in the argument about quality vs price...and it looks like they agreed with me that the majors needs to create more quality in their product and offer less inventory at deep discount prices. Fewer seats, more comfort, better service, and less inventory to sell at the deep discount fares so the "price means everything" bunch can fight it out on Southwest. I think DL needs to watch this. Even though UA is starting with limited transcons, I bet this is a test to roll out on additional business routes. Leave the leisure routes to TED and make sure the limited inventory on the PS service keeps the revenue and yields perked up by moving the mean paid-fares higher.
http://biz.yahoo.com/prnews/040802/nym076_1.html
http://www.unitedps.com
http://biz.yahoo.com/prnews/040802/nym076_1.html
http://www.unitedps.com
I'd still like to know who they're marketing to, particularly their business and first products? I know there's no way my company would ever let me travel on such a service domestically if one of our other carriers offered lower-priced coach tickets at similar times on the same routes.
Aug 3, 2004, 8:27 am
#52
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well, looking at the newly released cabin photos, their service levels are superior to Delta's in all classes. The "coach" cabin, while still offering limited fares in the deep discount buckets, will offer uniform 34" pitch and newly designed comfortable seats - a far cry from the uncomfortable seats Delta has in coach. If one could pay the same for United PS in coach as they could on Delta, what reason would they have to fly Delta? Outside of Skymiles loyalty, Delta's product in coach and BE would be inferior to the PS product.
I still believe there are enough people out there who can pay a small premium in exchange for better service and comfort to make it workable. There were ideas to create an all-FC airline, but they were doomed to failure. There are not enough people who can pay $1200+ to fly coast to coast to sustain an airline, but if you made the cabins nicer, the seats more comfortable, the pitch more generous and offered higher quality service, you could certainly get enough people willing to spend $50-$100 more (about an extra 20% on most discount fares). Even now, I spend about $80 more per ticket to fly CO for my status and upgrades vs. the cheapest fare I could book on DL to sit in coach. Companies wont spend a few hundred extra per ticket, but if it made the lives of their traveling employees easier, I think enough would cough up an extra $50-$100 to make it viable, especially if business-friendly tools were added to the aircraft, like Internet access, affordable air/ground phones, ground-to-seat paging, etc - that way you could show that people have access to productivity tools while on-board and "could" work during their flight.
I think United PS is a step in the right direction. I wish them well with the concept and I am very interested in how its competitors will respond. Either Grinstein already has something similar planned, or he ended up with a big headache yesterday.
I still believe there are enough people out there who can pay a small premium in exchange for better service and comfort to make it workable. There were ideas to create an all-FC airline, but they were doomed to failure. There are not enough people who can pay $1200+ to fly coast to coast to sustain an airline, but if you made the cabins nicer, the seats more comfortable, the pitch more generous and offered higher quality service, you could certainly get enough people willing to spend $50-$100 more (about an extra 20% on most discount fares). Even now, I spend about $80 more per ticket to fly CO for my status and upgrades vs. the cheapest fare I could book on DL to sit in coach. Companies wont spend a few hundred extra per ticket, but if it made the lives of their traveling employees easier, I think enough would cough up an extra $50-$100 to make it viable, especially if business-friendly tools were added to the aircraft, like Internet access, affordable air/ground phones, ground-to-seat paging, etc - that way you could show that people have access to productivity tools while on-board and "could" work during their flight.
I think United PS is a step in the right direction. I wish them well with the concept and I am very interested in how its competitors will respond. Either Grinstein already has something similar planned, or he ended up with a big headache yesterday.
Aug 3, 2004, 8:28 am
#53
Join Date: Jul 2002
Posts: 2,069
ATLANTA, Aug. 3 /PRNewswire/ -- Song(R), Delta Air Lines' low-fare, high-style air service, announced today its first international route, from New York's John F. Kennedy International Airport to Nassau, Bahamas. Daily non-stop roundtrip service begins on December 1, 2004. One-way fares start as low as $139. Additional taxes/fees/restrictions apply. See Terms and Conditions below. Tickets may be purchased now by visiting http://flysong.com/ or by calling Song Reservations at 1-800-FLY-SONG (1-800-359-7664).
Song's inaugural flight from New York to Nassau will depart JFK at 2:05 p.m. on December 1, 2004 and is scheduled to arrive in Nassau at 5:10 p.m. The first flight from Nassau to JFK departs at 6:20 p.m. and is scheduled to arrive at 9:25 p.m.
Song's inaugural flight from New York to Nassau will depart JFK at 2:05 p.m. on December 1, 2004 and is scheduled to arrive in Nassau at 5:10 p.m. The first flight from Nassau to JFK departs at 6:20 p.m. and is scheduled to arrive at 9:25 p.m.
Aug 3, 2004, 9:06 am
#54
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Originally Posted by bocastephen
I still believe there are enough people out there who can pay a small premium in exchange for better service and comfort to make it workable. There were ideas to create an all-FC airline, but they were doomed to failure. There are not enough people who can pay $1200+ to fly coast to coast to sustain an airline, but if you made the cabins nicer, the seats more comfortable, the pitch more generous and offered higher quality service, you could certainly get enough people willing to spend $50-$100 more (about an extra 20% on most discount fares).
Aug 3, 2004, 9:59 am
#55
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Originally Posted by platbrownguy
Remember Legend Airlines? That was gonna be so great... all first class, 56 seats per plane (737s IIRC), great gourmet food and a solid loyalty program. And out of Dallas Love Field at that. Too bad they had to spend all their money in court battling the Wright Amendments to get off the ground... They offered fares from ~$500rt to all their destinations but went broke after 6 months.
As an interesting sidebar, there has been some news on the "myth" of LCCs offering the lowest fares. Many times I have seen fares on jetBlue, Southwest, etc., significantly higher than traditional carriers. What LCCs do offer, however, are "flatter" fare schedules. Limited inventory on the lower-end and much lower fares on the unrestricted higher-end and less of a differential between the most and least restrictive fares. The result is an ability to move their mean paid-fare higher (certainly lower costs offer a significant advantage as well). Delta fills up these huge widebodies where most of the customers are in deep discounted LUT class. Lots of revenue, very little profit, and I think that approach is wrong.
Another poster figured out that removing 1 seat per row and standardizing pitch at 34-35" would increase CASM by about 16%. If that was done, and the replacements were the super-comfy 18.5" wide ergonomic seats with leg-rests that the manufacturers are coming out with now, I think you could do away with domestic FC on most flights, adopt an AmericaWest style fair pricing system and easily get the average paid fare up above the 16% increase in cost. The problem is, so far no one has stepped up to the plate to give it a try. UnitedPS almost comes close, and their success or failure could dictate how airlines offer and price service levels in the future.
Aug 3, 2004, 1:06 pm
#56
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Originally Posted by bocastephen
well, I still don't think an all-FC airline would work. Legend might have come close...but I think the future is in enhancing the main cabin experience, reducing deep discounted inventory, and getting the average paid fare up 15-20%. A small premium is doable for most customers. For those who are totally price sensitive, they can go to a competitor who offers bare-bones service. Most business customers could make a case for paying a "small" premium for extra ticket flexibility, more comfortable service, and the availability of business/communication tools onboard.
As an interesting sidebar, there has been some news on the "myth" of LCCs offering the lowest fares. Many times I have seen fares on jetBlue, Southwest, etc., significantly higher than traditional carriers. What LCCs do offer, however, are "flatter" fare schedules. Limited inventory on the lower-end and much lower fares on the unrestricted higher-end and less of a differential between the most and least restrictive fares. The result is an ability to move their mean paid-fare higher (certainly lower costs offer a significant advantage as well). Delta fills up these huge widebodies where most of the customers are in deep discounted LUT class. Lots of revenue, very little profit, and I think that approach is wrong.
Another poster figured out that removing 1 seat per row and standardizing pitch at 34-35" would increase CASM by about 16%. If that was done, and the replacements were the super-comfy 18.5" wide ergonomic seats with leg-rests that the manufacturers are coming out with now, I think you could do away with domestic FC on most flights, adopt an AmericaWest style fair pricing system and easily get the average paid fare up above the 16% increase in cost. The problem is, so far no one has stepped up to the plate to give it a try. UnitedPS almost comes close, and their success or failure could dictate how airlines offer and price service levels in the future.
As an interesting sidebar, there has been some news on the "myth" of LCCs offering the lowest fares. Many times I have seen fares on jetBlue, Southwest, etc., significantly higher than traditional carriers. What LCCs do offer, however, are "flatter" fare schedules. Limited inventory on the lower-end and much lower fares on the unrestricted higher-end and less of a differential between the most and least restrictive fares. The result is an ability to move their mean paid-fare higher (certainly lower costs offer a significant advantage as well). Delta fills up these huge widebodies where most of the customers are in deep discounted LUT class. Lots of revenue, very little profit, and I think that approach is wrong.
Another poster figured out that removing 1 seat per row and standardizing pitch at 34-35" would increase CASM by about 16%. If that was done, and the replacements were the super-comfy 18.5" wide ergonomic seats with leg-rests that the manufacturers are coming out with now, I think you could do away with domestic FC on most flights, adopt an AmericaWest style fair pricing system and easily get the average paid fare up above the 16% increase in cost. The problem is, so far no one has stepped up to the plate to give it a try. UnitedPS almost comes close, and their success or failure could dictate how airlines offer and price service levels in the future.
I guess it might work for some (those in the consulting industry for example), but I don't think a "premium" or "luxury" airline would work for many business travellers. One way or another, mow5 business travellers have to face some form of the "New York Times" test. Why do you think it's difficult for many government employees to travel in Business Class internationally? They, and employees in many industries, have to pass the "New York Times" test. For those who don't understand what I mean, think about what "Joe six-pack's" reaction is to a NYT page-one investigative feature "Millions of Tax Dollars Spent on Luxury Transportation". Remember, "Joe Six-Pack" isn't a UA 1K, US Chairman's Preferred, DL Platinum Medallion, etc., like most folks here. "Joe Six-Pack" probably flies, at most, once a year, on a family vacation, where he's just looking for the cheapest price. (Hint, remember the uproar over "$600 hammers" and "$2000 toilet seats"? The uproar over something like this would be much worse).
I don't think you'll ever see all-luxury airlines in the mainstream, but they may fill a small niche market for the completely price-insensitive travellers.
Remember, even Bill Gates used to boast that he never travelled in any class other than coach (even internationally)! Of course, he now has his own jet, but there's always the mindset "if it's good enough for Bill Gates, it should be good enough for you!"
Aug 3, 2004, 1:32 pm
#57
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i agree with you, but UnitedPS is far from an exclusive luxury airline...it's just a higher level of service quality available to all passengers willing to pay some type of premium for better quality service. This is not a Legend or MGM Air product, but a return to traditional service values that have faded over the past few years.
I believe the majority of the revenue will come from paid customers in Y who are paying reasonably priced fares for this route - maybe $50-$100 more than the super-cheap deals - but enough of a premium to make each flight a profitable venture. Toss in a handful of paid C and F passengers and you have a winning combination. I dont think it will be a hard sell for United to get corporate business onboard with this. Just the extra legroom, powerports, phones (including wireless ground-to-air forwarding), meals, and all-round additional comfort would be enough of an incentive to pay-up a small amount. We're not talking about moving from a $250 transcon r/t to an $800 fare - the W fares are only $350. It's not a huge premium.
I believe the majority of the revenue will come from paid customers in Y who are paying reasonably priced fares for this route - maybe $50-$100 more than the super-cheap deals - but enough of a premium to make each flight a profitable venture. Toss in a handful of paid C and F passengers and you have a winning combination. I dont think it will be a hard sell for United to get corporate business onboard with this. Just the extra legroom, powerports, phones (including wireless ground-to-air forwarding), meals, and all-round additional comfort would be enough of an incentive to pay-up a small amount. We're not talking about moving from a $250 transcon r/t to an $800 fare - the W fares are only $350. It's not a huge premium.