Retaliation on AA's New LGA-MSP flights
Jun 16, 2007, 9:13 pm
#61
Join Date: Jan 2006
Location: Chapel Hill, NC
Programs: UA GS; Former Alaska MVPG75/DL Diamond/NW Platinum/BA Gold
Posts: 942
I don't think the intent here is to take market share.
This is by all accounts a profitable route. If NW comes in and charges marginally less than AA, they will pack those 319s. AA knows this, and will undoubtedly reduce fares to match.
NW has the advantage of lower operating costs (A319 v. MD-80) and much lower labor costs. So NW could set a price that is theoretically profitable, assuming a reasonable load factor. AA, however, probably would lose money at the same price, even with full planes, and the only way they can keep NW from making money is matching their fares. Since AA won't allow NW to profit, they'll have to take the loss.
No one will make any money, but AA will probably lose a great deal more than NW by virtue of having 15 flights. If the market is lucrative enough, they would conceivably reach an equilibrium where both would profit, but that's assuming these airlines act rationally, which in the case of protecting turf they almost certainly are not.
The same thing is happening on a smaller scale with MSP-LGA.
My guess is that this hurts AA more than NW given the disparity in costs, which is probably why NW has chose to retaliate. In the past, they've avoided direct conflict with an airline with the resources of AA. Looks like a reasonable move to me.
This is by all accounts a profitable route. If NW comes in and charges marginally less than AA, they will pack those 319s. AA knows this, and will undoubtedly reduce fares to match.
NW has the advantage of lower operating costs (A319 v. MD-80) and much lower labor costs. So NW could set a price that is theoretically profitable, assuming a reasonable load factor. AA, however, probably would lose money at the same price, even with full planes, and the only way they can keep NW from making money is matching their fares. Since AA won't allow NW to profit, they'll have to take the loss.
No one will make any money, but AA will probably lose a great deal more than NW by virtue of having 15 flights. If the market is lucrative enough, they would conceivably reach an equilibrium where both would profit, but that's assuming these airlines act rationally, which in the case of protecting turf they almost certainly are not.
The same thing is happening on a smaller scale with MSP-LGA.
My guess is that this hurts AA more than NW given the disparity in costs, which is probably why NW has chose to retaliate. In the past, they've avoided direct conflict with an airline with the resources of AA. Looks like a reasonable move to me.
Jun 17, 2007, 4:53 am
#62
Join Date: May 2002
Location: Las Vegas, NV USA
Posts: 748
With all due respect to your home airport, I don't believe LAS flights are meant to drive profits. I think they're basically loss-leaders to NW. They have to serve the market because the demand is there, but the demand to pay high fares isn't. Adding routes of LAS-Podunk USA was never designed to be profitable, but to try and snag those once a year travelers that like to visit LAS. They're trying to maintain their name and reputation in the Midwest so that when Grandma and Grandpa take their next flight to somewhere else, they can say "oh, yes Northwest [Orient], they took me to Vegas and I remember them from many years ago. I'll take them when I fly to Milwaukee to visit my grandchildren instead of something "AirTran"..." etc.
So I don't think the route additions and subtractions out of LAS are necessarily a good comparison to the LGA-DFW route.
So I don't think the route additions and subtractions out of LAS are necessarily a good comparison to the LGA-DFW route.
Jun 17, 2007, 6:26 am
#63
Join Date: Feb 2005
Location: Astoria, NY: LGA, JFK
Programs: Delta PM; Sheraton's Vistana BOD; SPG Gold
Posts: 2,035
Recently, fares to LAS from LGA have spiked quite a bit higher. I'm sure east coast routes to LAS are highly profitable.
Of course, the idea with LGA-DFW is to gain market share (taking a short-term hit) and then raise prices (leading to long-term gain).
Of course, the idea with LGA-DFW is to gain market share (taking a short-term hit) and then raise prices (leading to long-term gain).
Jun 17, 2007, 11:48 am
#64
Join Date: Sep 2002
Location: msp
Programs: AA PLT 3MM, DL PM 2MM
Posts: 1,142
Use both AA and NWA and frequent NYC......AA's new route is a + for MSP.....they offer good service and competition helps all of us......the AC vs WC at LGA are generations apart.....remember too AA has direct (odd times now) from MIA to MSP.....I predict AA will continue to slowly boost MSP service and remember their other connections (so now MSP-LGA; MSP-MIA; MSP-ORD; MSP-DFW; and MSP-?).....maybe an AC is next for MSP.....just a hunch....
Jun 17, 2007, 12:06 pm
#65
Join Date: Jan 2005
Posts: 8,884
I don't know if an AC is in the picture for MSP. I think they'd have to wrestle with TSA for some square footage, IIRC...
Jun 17, 2007, 12:56 pm
#66
Join Date: Jan 2007
Posts: 5,679
Using NW's own presentation from last week we know that NW will have a labor advantage of $10/seat on that route. Add a couple dollars to that for the better planes. It's something, but not a huge advantage over time. They'll have to be aggressive with prices and miles if they really want to put the hurt on AA.