Thought some of you would enjoy reading this

http://www.brancatelli.com

As expected, a pretty one-sided view of it. He also doesn't have any suggestions, just complaints.

This guy is the worst kind of critic. He only looks at one side of the argument, while simultaneously not having any suggestions for improvement or anything good to say. "It's bad because it is, and that's all I have to say."

d

Doppy, not backing or endorsing Joe's point of view in any way. Also not challenging your comments in any way but what are your comments/suggestions? What is your side of this story?

Again, I am just interested, not contesting yours, or anyone's comments.

Here's a post from another forum which does a good job at explaining yield management. Reposted with permission:

First, let's define a couple of terms so that everyone reading this will know what I'm talking about.

ASM - Available seat miles. This is the product of an airline. A 100 seat airplane produces 100 ASM's for each mile flown. i.e. a 188 seat B757 flying a 550 mile trip would produce 188 x 550 or 103,400 ASMs.

RSM - Revenue seat miles. An ASM that is sold becomes a RSM. IOW, this is the number of seat miles produced by seats which have been sold. i.e. if our 188 seat B757 flies that 550 mile trip with 50 passengers then the flight produced 103,400 ASMs and 27,500 RSMs.

Yield - The revenue per RSM. When you sell more expensive tickets you increase yield, when you sell more cheap tickets you decrease yield. Virtually everything an airline does revolves around maximizing yield. An expensive ticket is called a high-yield ticket while a discount ticket is a low-yield ticket.

Per unit cost - This is the cost of operating a flight normally expressed per ASM.

Incremental cost - This is the increase in direct operating cost which results in carrying an additional passenger on an existing flight (or operating an additional flight with an existing airplane). It includes things like the cost of fuel to carry the extra weight, the cost of any consumables used (food, drinks, paper tickets, etc.) by or for the passenger, and the cost of the additional resources used by the passenger (res computer, res agents, 800 phone calls, agent time, etc.).

Frequency - The number of times per day a particular market is served.

Gauge - The size (in seats) of the airplane used. i.e. Replacing a 100-seat airplane with a 150-seat airplane would be an increase in gauge.

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As you know, market forces will attempt to push price (fare) to a point where supply and demand are balanced. In the airline industry it is relatively difficult to adjust supply in the short term but relatively easy to do so over the long term. Ideally, an airline would use an airplane on a route that has exactly as many seats as there are passengers who are willing to buy high-yield tickets (business travelers).

Most high-yield tickets are purchased by business travelers who are also very sensitive to scheduling. Many business trips will occur ONLY if the schedule will work out so an increase in frequency will result in an increase in high-yield sales. Ideally, we'd like to operate lots of flights per day with each flight using an airplane just big enough to accommodate the high-yield sales (smaller airplanes cost less to buy and operate). Most business travelers will want to leave home on an early flight and return on a late flight so that work can be done at the destination on the travel days and the number of hotel room nights can be minimized. This tends to increase demand for the early flights and the late flights while keeping the mid-day flights relatively light. Business travelers will also tend to prefer to fly on Mondays, Thursdays and Fridays increasing demand on those days while minimizing high-yield demand on Tue, Wed, Sat & Sun.

This demand pattern tends to favor using larger airplanes on early morning and evening flights especially on Mon, Thu, & Fri while using smaller airplanes in the afternoons and on the remaining days. Unfortunately, airplanes are quite expensive. ~$10-$15 Million for a regional jet up to $150 Million for a large wide-body. After making that kind of investment the airline can't afford to leave the airplanes sitting around all afternoon, or for several days per week, so they pretty much have to assign airplanes which are too small for the peak demand times and too big for the off-peak demand flights. (That's what I meant about it being difficult to adjust supply over the short-term)

When an aircraft departs, any unsold ASMs "spoil". Just like the molded loafs of bread at the bakery, those ASMs are gone and can not be left in inventory to be sold later. Just as a bakery might sell day-old bread at significant discount, the airlines will sell those otherwise unsold ASMs at great discounts. Those deeply discounted low-yield tickets are quite often sold at below per-unit cost, but above incremental cost, so even though your $199 r/t to LAS is less than it costs the airline to produce the ASMs you're using, those ASMs were going to spoil if you didn't go so that $199 is better than nothing at all. If, OTOH, the entire airplane was filled with people paying that $199 r/t fare the flight would lose money (because it's below per-unit cost).

What those low-yield sales do is to make it profitable to fly a larger gauge, or additional frequency, on a route which, as we know, will generate additional high-yield sales and more profits (or less losses). The relatively new regional jets have allowed airlines, in many cases, to do just the opposite. They reduce overall capacity while increasing frequency. They might replace three 100-seat airplanes with five 50-seat airplanes, reducing daily capacity from 300 to 250, but increasing the number of high-yield sales. Since they're now selling more high-yield tickets, and have 50 less seats to sell overall, the number of otherwise unsold ASMs will decrease dramatically. Without the need for the low-yield sales to fill those excess ASMs the number and amount of low-yield tickets will be reduced. You will frequently see this in markets that are served primarily by regional flights. You won't see the really low discount fares and you'll find that the lowest fares are frequently sold out. This is an ideal situation for the airline as the overall yield will be extremely high and the reduced passenger count will reduce fixed costs such as labor and ground equipment.

As recently as early last year we saw the reverse situation. When the economy started slowing down in early to mid-2001 businesses cut significantly on travel and the airlines saw their high-yield sales evaporate. The result was big losses on almost all of the US Major airlines (CAL and SWA the only exceptions) even though the airplanes were still flying relatively full. As I said previously, the airlines can't easily make short-term adjustments to capacity so there were suddenly faced with significant excess capacity and reacted by lowering fares and increasing the number of seats available at the lowest fares. Even with fairly full airplanes the airlines were losing money--lots of it.

The solution, provided by market forces, was a reduction in capacity but that takes time and every airline BOD is hoping that the OTHER airlines reduce capacity first so that they won't have to. In bad times you'll often have airlines flying airplanes at a below per-unit cost yields just to have cash flow as the fixed costs of a parked airplane are nearly as high as those of a flying airplane so you might as well fly the airplanes if you can produce a yield that's above the incremental cost--at least for the short term. When the events of September came along it gave the airlines the reason they desperately needed to make dramatic cuts in capacity to better match the reality of reduced high-yield demand plus the hope for a quick recovery was no longer realistic.