YX acquisition hurts Republics profit

Old Nov 6, 2009, 11:15 am
  #16  
 
Join Date: Jul 2005
Location: National Capitol Region
Programs: Delta Dirt Medallion,AA,USairways, WN Rapid Rewards, National Emerald Club
Posts: 3,912
Originally Posted by BlueHorseShoe2000
I've actually seen instances where Southwest has had the highest fares among multiple carriers serving the same route. There are many people who automatically think Southwest has the cheapest flights and will not do any comparison shopping. It's a great position for Southwest to be in.
What Southwest and Air Tran do have is pricing that is more rational and transparent than the Legacies, including Midwest.
hazelrah is offline  
Old Nov 6, 2009, 11:19 am
  #17  
 
Join Date: Jul 2005
Location: National Capitol Region
Programs: Delta Dirt Medallion,AA,USairways, WN Rapid Rewards, National Emerald Club
Posts: 3,912
Originally Posted by knope2001
But if we see any sort of fuel spikes like last summer, I'm guessing crow will be on the menu.
Haha this is rich, what Midwest planes run on water?
hazelrah is offline  
Old Nov 6, 2009, 11:24 am
  #18  
 
Join Date: Oct 2004
Posts: 2,653
Originally Posted by hazelrah
How in this economy and pressure on the bottom line an employer would allow his employees to select a carrier with a fare premium is beyond me.
There can be a large fare premium even if fares are exactly equal. Here's an illustration I've used before to demonstrate this.

Let's say these are the fares for MKE-LGA

$69 discount fare when periodic fare sales run
$119 discount fare when no sale running
$194 short notice fare (not meeting requirements of discount fares)

For the sake of argument, let's make all else equal:

--Both airlines exactly match each other's fares
--Both airlines keep enough inventory open so never is airline A sold out of a fare which B still has.

So we have a case where every single person who purchases MKE-LGA finds the same fare when they book no matter which airline they pick. You'd think that fare between AirTran and Midwest would be equal. But the distribution of fare class sold by each airline makes all the difference. Let's say this is the breakdown:

$69 fare
40% of all Midwest tickets sold
65% of all AirTran tickets sold

$119
45% of all Midwest tickets sold
33% of all AirTran tickets sold

$194
15% of all Midwest tickets sold
2% of all AirTran tickets sold

At these fare breakdowns...
$110.03 Midwest average fare
$88.00 AirTran average fare

That's a fare premium Midwest over AirTran of 25% even though not a single person ever paid more for a Midwest flight when a cheaper AirTran flight was available. This is of course just an illustration and not an exact fare or fare bucket breakdown. But it shows how one airline can have a significant fare premium without anyone deliberately choosing an airline with higher fares. And is goes a long way to explaining the Midwest fare premium. For years people have mistakenly believed the fare premium was tied to better onboard product, and every time something changes about that they sounded the death knell for Midwest's revenue advantage. Yet year after year it persists. And yet the death-knell-sounders don't re-evaluate their position.

So why would AirTran get disproportionately more people booking at lower fare levels than Midwest?

--Business traffic tends to book at the higher fare buckets, and they are more likely to be frequent flyer mile addicts than lowest-fare travelers. Midwest's FF brand generally has more utility for MKE-based travelers, is the long-term incumbent, and overlaps with NW/DL.

--Frequency and timing tend to be more important to business travelers as well.

--AirTran tends to run larger, less frequent flights, and that tends to favor a need to fill seats with low-fare stimulated traffic. Even if they do sell exactly the same number of tickets at the high fare buckets as Midwest, their average fare would be lower if they have to sell more cheap seats to fill the back.

Undoubtedly there are some instances where people do willfully choose something other than the very lowest fare. But even back in the days when the 717 was all 2x2, if people chose a more expensive Midwest flight it was primarily about schedule, corporate contract, or frequent flyer miles. Not usually onboard product. Midwest has never realized a large benefit of many people willfully choosing to pay more for the premium onboard service. Not zero benefit, but nowhere near the benefit one might expect. People generally won't pay for it and never have. That's why every other airline which has attempted the premium service niche has failed quickly, because they were built to rely on the idea people would pay more. Same with just about every onboard enchancement airlines have offered but not charged for, like American's more room in coach experiment.

Last edited by knope2001; Nov 6, 2009 at 6:47 pm
knope2001 is offline  
Old Nov 6, 2009, 11:32 am
  #19  
 
Join Date: Oct 2004
Posts: 2,653
Originally Posted by hazelrah
The juries still out on the efficacy of the bag fees. There is no doubt that the bag fees are a short term tonic to the bottom line. As an example Delta has implemented the bag fees and pumped up its revenue stream; however its traffic keeps falling like a stone. it can't cut capacity fast enough. Also they have had to cut base fares in a competitive marketplace. To me the bag fees just seem another price obfuscation mechanism.
Did you happen to note the details I posted earlier about AirTran's most recent results and how the increase in ancillary revenue from things like bag fees and seats (+$30m) were critical in their $10m profit?
knope2001 is offline  
Old Nov 6, 2009, 12:15 pm
  #20  
 
Join Date: Jan 2007
Location: Chicago
Posts: 1,800
Originally Posted by hazelrah
That being said, your assertion that Southwest has backed itself into a corner is incorrect. I've followed the Southwest earning conferences and Southwest has never said -"we will never implement a baggage fee". On the contrary WN management has said we've studied the issue, we elected not to have the bag fees, but that does not mean that at some point in the future this policy won't change. For the moment the no baggage fee is used as a succesfull marketing strategy.
No, Southwest has backed itself into a corner.

They've spent millions marketing their "bags fly free" campaign. The more they beat this drum, the harder it will be for them to move away from this policy in the future.

Could they reverse course tomorrow and begin charging for checked baggage? Of course. That doesn't mean they won't take a big hit from the media and customers.

If you listened to the Southwest earnings calls close enough, management was very clear in stating that other sources of ancilliary revenue would be needed. Since they have decided not to charge for bags (for now, anyways) they will have to be really creative in finding extra fees to slap on customers.
BlueHorseShoe2000 is offline  
Old Nov 6, 2009, 12:34 pm
  #21  
Original Poster
 
Join Date: Feb 2007
Location: MKE
Programs: Midwest Miles, AirTran A+ Rewards
Posts: 1,445
Originally Posted by BlueHorseShoe2000
If you listened to the Southwest earnings calls close enough, management was very clear in stating that other sources of ancilliary revenue would be needed. Since they have decided not to charge for bags (for now, anyways) they will have to be really creative in finding extra fees to slap on customers.
I have an idea... They can charge for carry on baggage. I don't know about anyone else, but I get really frustrated waiting for people to stow their luggage. It seems like an eternity. If SW charges for carry on luggage, boarding will be so fast it will make your head spin!
flyYX is offline  
Old Nov 6, 2009, 12:49 pm
  #22  
 
Join Date: Oct 2004
Posts: 2,653
Originally Posted by hazelrah
Haha this is rich, what Midwest planes run on water?
None...which is irrelevant to the point that I was referring to and which you isolated out of context.

I think that a significant oil spike would be enough to make Southwest do a 180 on the bags fly free policy, charging for checked bags as nearly everyone else does.

If you disagree with that, please tell us why.
knope2001 is offline  

Thread Tools
Search this Thread

Contact Us - Manage Preferences - Archive - Advertising - Cookie Policy - Privacy Statement - Terms of Service -

This site is owned, operated, and maintained by MH Sub I, LLC dba Internet Brands. Copyright © 2024 MH Sub I, LLC dba Internet Brands. All rights reserved. Designated trademarks are the property of their respective owners.