whlinder

And there lies the problem. FlyI does not want to be the answer to this question. They want to be the answer to the question: "If you want to fly somewhere what airline would you think of?"

They have created the expectation of $39 seats across the country in their customers' minds. Once that expectation is created it becomes harder and harder to convince people to pay more for tickets. I got a transcon RT for $130, why should I pay $218? $300? $650?

Eventually, they have to make money. Immediately, they have to be cash flow neutral. They have been offering discounted seats for over a year- seats below cost and quite possibly at marginal cost. There comes a point where it isn't advertising anymore, it is creating an expectation of flying for $39. It is all about revenue management, but FlyI has been practicing 'get cash in the door management', not revenue management. The initial sales in the beginning made total sense. Perhaps they were too cheap, but early flights were empty and they wanted to expose customers to their product. But the sales continue. And continue. And continue. I don't know why anyone with advance planning would pay more than $200+ tax for a transcon. Giving tickets away is fine for advertising too, but that is very limited. What is not limited is the number of tickets they are selling very cheaply. Their atrocious RASM and yield is proof of this.

I have nothing against FlyI, I like the airline and want to see them prosper. However, they will not survive much longer if they keep filling transcon seats at $69.

Cohiba

I'm with BBB on this one. It is all about revenue management. He made good points so I won't rehash them. Moving on, the point of my post was that there is some logic being practiced here, its not like DH is just thowing it all into the wind.

Regarding the actual revenue numbers, I'm well aware that tax is included in the fare, 7.5% federal tax to be exact. However, most people, even on FT, probably don't care about those specifics, so I choose to discuss fares as they are posted on the website.

The fact of the matter is, it is good to provide a little clarity now and then. Tons of stories and rumours circulate on the Internet and FT about why an airline or hotel does this or that, but the fact remains that they are inaccurate or incorrect a majority of the time.

Referring to this week's sale as a "going out of business sale" or "payroll sale" are perfect examples of inaccuracies.

whlinder, you clearly have an excellent understanding of pricing, but I would argue that with so many factors at play, just because an airline offers $79 West Coast connects, and that airline happens to be struggling financially, does not automatically make those fares "ridiculous."


Cheers.

spampurse

I think a lot of people's problem is thinking that ALL DH's seats are selling for $39. BBB made a good point, if you know you will have x-number of seats not sold, why not throw the $39 fare out there to attract attention and get more people associated with your brand. As some people have pointed out on other threads, sometimes DH's prices are actually at the high end of the spectrum.
This is not a FLYI-specific approach... if you look at the mileage run board you will see tons of rock bottom fares that people have found, and most of them are not fare loading mistakes . For example, there is a posting for someone who found BOS - DUB on AA for $188. This doesn't mean that AA is going to be selling ALL its seats to Dublin for $188 (which I would imagine is WELL below cost). I just pulled up AA.com and the same itinerary priced out over a thousand dollars... because obviously the $188 fare has been jumped all over.
BTW - Has anyone heard if AA is having a going out of business sale, too?

whlinder

Thanks for the compliment. Perhaps ridiculous is the wrong word. I am still convinced that those $79 connecting transcon fares are below marginal cost for FlyI. That is irrational. If those fares aren't below marginal cost, then I agree that they make sense and are part of the revenue management game. Based on FlyI's CASM and given that fuel is even more expensive now that the last time their CASM was published, I think they are below marginal cost.

I know that all of DH's seats are not selling for $39. The question is 'what are they selling for?' We know they aren't selling for enough, since the average passenger yield reported from the 2nd Q was 12.6 and the adjusted CASM was 13.7. 12.6 Yield at an average stage length of 574 works out to an average fare of $72.32. 13.7 (adj. CASM) x 574 is $78.64. The point is their passengers need to pay more, and having a sale every other week breeds the expectation that if you don't like the fare you see, you can wait a week and get it for $20 less.