How much should NW charge for tix?

 
Old Apr 21, 05, 12:57 pm
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How much should NW charge for tix?

So NW posts a 1/2 billion dollar loss today; and posters always claim that NW is being 'forced' to match $200 RTs; and yet there are way too few flights out of the West Coast. So how much 'should' NW be charging for tickets? If they could fill their planes at some reasonable load (80%?) then what would they have to charge, on average, to break even?

I am young enough to have grown up in an era when tickets have always been in the $250 range for transcons, given some advance notice and a good internet connection. So I may not have good perspective on this... yet, I can't believe that the airlines' cost structures would dictate average coach fares of anything like $500 or more, as I think many leisure flyers (including myself) would simply fly less. And of course, the answer depends on the actual costs - labor, equipment, fuel - which can themselves vary depending on management and other factors.

What is or should be the break even price for, say, LAX-BOS with 21 or 14 day advance purchase?
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Old Apr 21, 05, 1:15 pm
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There are not too few flights, the flights are there, and they're minimizing loss by filling them up. The plane is flying anyway, so it's better to get $200 than $0. In fact, you can argue, for NW's costs, there are too many flights.

If you want to be overly simplistic about it and want a break-even per flight, assume their CASM is around $0.09, and LAX-BOS is 5,200 miles RT, which would mean a base fare (pre-tax) of $468 RT per pax, assuming a 100% load to break even. Now make that a more realistic 80% load, and you're looking at $585 per pax (again, pre-tax), so about $650 all in.

Now obviously that's overly simplistic, as CASM goes down as stage length goes up, and there are variances with equipment and such. But you can see that they'd much rather fly someone MSP-BOS, where they can get more than they can on that 1,000-mile hop than they can for LAX-BOS, a 2,600-mile run.

But it doesn't work that way -- some people pay above "cost" while others pay below. So figure the 1,500 daily departures x 90 days per quarter = 135,000 quarterly departures. Take the $458M loss, and that comes out to $3,400. If you assume an average fill of roughly 100 pax per departure, that's $34 per person per segment needed to break even.

Now of course that doesn't take into account that Jan/Feb were probably weak while March was stronger (spring break, Easter, etc.). But it gives you an idea.

Honestly for NW's size, I'm a bit disappointed in the results. I thought they were stronger than that.
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Old Apr 21, 05, 8:15 pm
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Back in the late '80s and early '90s, when the industry was making tons of money, we always figured $400 was about the floor price for an advance-purchase transcon. We thought that was more than fair, too. (It was the $1,800 gotta-go-now business fares we hated.)

Today, with fuel prices doubled or tripled, I routinely find transcon fares in the $225-$350 range, and with no more holdup business fares subsidizing them I understand why the airlines are in trouble. I just don't understand why, on NW, price and supply are both down at once. Scant seats to the west, sold too cheaply. Either raise the price and break even, or add lift and book more cash flow.

BTW, I took thought the Q1 numbers were way out of control. With the load factors I've been seeing since January I can't believe they're that bad off... of course that's the classic mistake of confusing loads with yield.
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Old Apr 21, 05, 8:36 pm
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Originally Posted by BearX220
Back in the late '80s and early '90s, when the industry was making tons of money, we always figured $400 was about the floor price for an advance-purchase transcon. We thought that was more than fair, too. (It was the $1,800 gotta-go-now business fares we hated.)

Today, with fuel prices doubled or tripled, I routinely find transcon fares in the $225-$350 range, and with no more holdup business fares subsidizing them I understand why the airlines are in trouble. I just don't understand why, on NW, price and supply are both down at once. Scant seats to the west, sold too cheaply. Either raise the price and break even, or add lift and book more cash flow.

BTW, I took thought the Q1 numbers were way out of control. With the load factors I've been seeing since January I can't believe they're that bad off... of course that's the classic mistake of confusing loads with yield.
get a grip. try marketwatch.com (nwac) Why dont you check a sea mia Y fare

Last edited by rwill11; Apr 21, 05 at 8:39 pm Reason: more info
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Old Apr 21, 05, 9:49 pm
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Originally Posted by psychtobe
So how much 'should' NW be charging for tickets?
MORE!
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Old Apr 21, 05, 10:06 pm
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Originally Posted by NWA_5479
MORE!
correct they should be charging 7 to 11 % more than it costs them take out inflation and fuelprice fluctuations and they are solvent and making a profit albeit a small one.
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Old Apr 22, 05, 12:23 am
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Originally Posted by rwill11
get a grip. try marketwatch.com (nwac) Why dont you check a sea mia Y fare
Um... what in the wide world of sports are you talking about?
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Old Apr 22, 05, 12:35 am
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I went to college in 1980 and paid $339 for my first Christmas trip from BOS-SEA roundtrip. At the time, I was THRILLED to find this fare. Airline deregulation (just two years old) was working! Lower fares and more airline choices (e.g. AA and DL) abounded in the SEA market. This fare was totally refundable with no change fees, but required 14 days advance purchase.

If we adjust $339 into 2005 dollars, we get a very "reasonable" fare of $861 Granted, the airlines are much more efficient now than they were at that time. For example, everyone had to check in with an agent at the airport and then get a seat assignment at the gate. Most airlines still used "stickers" to assign seats at the airport. Hey, at least we had mainframe computers that didn't crash twice a day!

On the other hand, meals were served on almost all flights of sufficient duration. Think FA's rushing around to serve a hot breakfast on a 55 minute flight from DFW-MEM. Those cheese omelettes were flying out of the carts as the FA's flew down the aisle. Of course, the FA's were generally younger and in better shape.

I can't believe that I am old enough to reminesce about the "good old days" of 25 years ago!
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Old Apr 22, 05, 12:41 am
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Originally Posted by BearX220
Um... what in the wide world of sports are you talking about?
Hmm, I'm kinda wondering the same thing too.
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Old Apr 22, 05, 1:14 am
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its a riddle

Originally Posted by NWA_5479
Hmm, I'm kinda wondering the same thing too.
and whoever can find the most wins
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Old Apr 22, 05, 1:21 am
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channa, while your calculations are intriguing

if you divide $2.8B in revenue by 135,000 quarterly departures, you get an average ticket price of $20,740. cargo figures prominently into this equation, but i don't know how, nor how much.

but using your figures.... if you figure $34 per segment, and you figure 4 segments per flight (assuming travel from a non-hub city), that's $136 more per RT... and my point is, even if ALL airlines raised average fares $136 per RT, so that competition were not a factor, I don't think people would pay it.

At some price for gasoline (obviously higher than $2.50 per gallon), people will change their driving behavior. And at $400 plus for an average deep-discount Y, I think people would fly less. So unless we accept the premise that flying is unaffordable to most people, I would submit that it is the airlines' cost structure (labor and fuel) which is too high, at least as much as revenue being too low.

what this really boils down to is guilt... i don't think I should be made to feel that I am contributing to NW's demise by buying $250 transcons...
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Old Apr 22, 05, 1:27 am
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Originally Posted by psychtobe
if you divide $2.8B in revenue by 135,000 quarterly departures, you get an average ticket price of $20,740. cargo figures prominently into this equation, but i don't know how, nor how much.

but using your figures.... if you figure $34 per segment, and you figure 4 segments per flight (assuming travel from a non-hub city), that's $136 more per RT... and my point is, even if ALL airlines raised average fares $136 per RT, so that competition were not a factor, I don't think people would pay it.

At some price for gasoline (obviously higher than $2.50 per gallon), people will change their driving behavior. And at $400 plus for an average deep-discount Y, I think people would fly less. So unless we accept the premise that flying is unaffordable to most people, I would submit that it is the airlines' cost structure (labor and fuel) which is too high, at least as much as revenue being too low.

what this really boils down to is guilt... i don't think I should be made to feel that I am contributing to NW's demise by buying $250 transcons...
so if they dont pay it let them go greyhound see how long it takes for them to pony up. Throw money
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Old Apr 22, 05, 1:28 am
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Originally Posted by psychtobe

what this really boils down to is guilt... i don't think I should be made to feel that I am contributing to NW's demise by buying $250 transcons...
why should you feel guilty? that's what the market says that ticket is worth. You and I are the market - we set prices. They can jack them up but we'll either pay it, or go elsewhere. We're setting the prices here as we refuse to pay more than that for a transcon.

You're not contributing to their demise - that seat just as well may go empty if it wasn't for your butt in that seat, giving them $250 to go from SEA-MIA.
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Old Apr 22, 05, 1:31 am
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Originally Posted by civicmon
why should you feel guilty? that's what the market says that ticket is worth. You and I are the market - we set prices. They can jack them up but we'll either pay it, or go elsewhere. We're setting the prices here as we refuse to pay more than that for a transcon.

You're not contributing to their demise - that seat just as well may go empty if it wasn't for your butt in that seat, giving them $250 to go from SEA-MIA.
$309 lately w the fsc cruisin down a mountain hwy
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Old Apr 22, 05, 7:58 am
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Originally Posted by rwill11
$309 lately w the fsc cruisin down a mountain hwy
I really don't understand most of your posts. Sorry.
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