Posted by Seth on May 22, 2012 under Flying, News | 
When Southwest bought out AirTran they were quite up front about their desire to get rid of the 717s in their newly acquired fleet. Thanks to a new agreement between Delta and their pilot union, it seems like there is a deal on the table which will allow them to do precisely that. Assuming the pilots ratify the new contract Delta will lease 88 of the 717s from Southwest, putting them in to operation while also retiring the DC9-50s and some CRJs as well. The replacements will be in a capacity-neutral manner, which suggests more aircraft will be retired than will be brought in based on the seating densities.
The good news in this move is that fewer tiny regional jets generally should lead to a better in-flight experience for passengers. The bad news is that it may also lead to decreased frequencies as there will be fewer planes flying. Plus, the AirTran 717s are not known to be the most comfortable aircraft in the skies. That said, they are equipped with gogo’s in-flight internet service and Delta is also a customer of gogo so that should see the connectivity remaining in service.
As part of the deal with the pilots to bring the 717s into the fleet Delta will also be allowed to increase the number of 76-seat jets they have operated by regional carriers. These are not mainline pilot jobs, but the total number of regional pilot positions will likely remain steady as the smaller regional jets are retired and these are brought in to the fleet.
The overall position with the pilots at Delta seems to be quite positive these days. More flying will be mainline which means more pilots working for the parent company rather than a regional affiliate. It also seems relatively good for customers, with fewer of the small CRJs and the new planes all offering wifi and first class cabins. Seems to be mostly smiles all around.
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Posted by Seth on April 23, 2012 under frequent flyer, News, points |
As the integration between Southwest and AirTran progresses the company is working to integrate their loyalty programs. Today’s milestone in that effort was the announcement that points and credits in the two programs are now fungible between the two systems via an online interface.
At first blush this is a good thing. Making it possible for members to combine their points and take advantage of the redemption opportunities available via the partner is a good thing. It also provides an idea of how the company will value the points as the programs are combined in the future as the AirTran brand is retired. All good news, to be sure. That said, there are some bits about the conversion that are, well, interesting.
First up, it appears that Southwest will not permit AirTran credits to be converted to RapidRewards points; they can only be converted to RapidRewards credits. Given the move towards points rather than credits with the new RapidRewards program this doesn’t make a ton of sense given that they have an established ratio, but I suppose it is what it is.
Next, converting points doesn’t extend the expiry of them. They certainly didn’t have to do that but it would have been customer-friendly and useful. Not necessarily surprising, but a bit disappointing.
There is also the conversion factors in place. Under the plan 1200 points will convert to 1 A+ credit. That can be converted back to a RapidRewards only as 1 credit, not as points, but the rough math there seems to be a losing proposition. To get to 8 credits, enough for a one-way trip, would require 9,600 points. That same number of points is worth $160 at the Wanna Get Away fare levels if redeeming as points. Then again, for last minute tickets where the fare is high redeeming 19,200 points to get to 16 credits for a one-way unrestricted award seems to be a better value than getting only $160 worth of Business Select fare value for the same number of points.
Finally, I don’t understand why they chose to display graphics showing one set of numbers and descriptions showing a different set, albeit at the same ratio:
Definitely a bit strange, even if accurate.
Overall, nothing incredibly surprising or revealing in the system set up to handle these transactions. Good for customers in general as it opens up more options.
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Posted by Seth on April 10, 2012 under News |
Southwest Airlines is pushing the City of Houston to add international service at Hobby Airport, their base of operations in the city. Unsurprisingly, United Airlines is objecting to the idea given their position across town with the bulk of the traffic out of Intercontinental airport. And in the middle sit the City and the airport authority, trying to figure out what the right thing to do is.
Since the acquisition of AirTran the formerly domestic-only Southwest is suddenly interested in keeping some of the international routes that the buy-out included and even growing their international footprint. No real surprise there, as the routes apparently make money. So they want to grow their international service options, opening up Hobby and potentially other airports as bases for such flights. Hobby doesn’t currently have the facilities to handle immigration and customs for commercial flights, so the city has to decide if they’re going to spend the money to build that out or not. Complicating factors include the limited runway length at Hobby and the limited growth opportunities for operations there given the current gate/airline situation.
The Houston Airport System issued its opinion on Monday, suggesting that the addition of gates and a FIS facility at Hobby was a good idea. They intend to add nearly 200K square feet of finished space and more than 17K square yards of apron space (no idea why they use different units of measure there) to accommodate the FIS facilities and also the aircraft which can access them. He project is estimated to cost $91MM and apparently Southwest is willing to pay a decent chunk of that through increasing the PFC at the airport by $1.50 per passenger. Only 60MM passengers to pay it back at that rate.
But there are some quirks to the plans. For one thing, the gates will only be sized to handle 737s or A320s. The runways at Hobby don’t support aircraft that are too much larger than that, but it still seems somewhat short-sighted to not account for at least 757-200s in the gate space. They aren’t even that much larger than the 737-900s that will be accounted for. Also, the gates are an interesting configuration: three of them will be arrivals only. I honestly have no idea what an arrivals-only gate is these days, but apparently they’re going to build some new ones for some reason. It was also rather disappointing to open up the HAS papers on their opinion to find completely illegible drawings of what is actually being proposed:
More interesting, however, were the financial impact numbers that the recommendation was accompanied by. Among them, there is the suggestion that 1.5MM new passengers will be handled through the airport annually because of the new facility. That’s more than 4000 daily through a facility which will initially only handle 400 passengers an hour, In other words, those passengers will be completely miserable as they pass through or the number of passengers predicted is completely bogus.
Also, the economic study suggests that the flights will contribute 10,000 jobs and $1.6Bn in value to the community. Of course, there is no explanation offered for how each passenger taking such a flight will generate $1000+ in value to the local economy of Houston, and considering many will only be in transit the numbers are even harder to believe.
And then there is the "Southwest effect" suggesting that any market the carrier enters suddenly sees lower fares. It conveniently ignores the impacts of Southwest driving competitors out of markets and then jacking fares up. In this case that seems somewhat unlikely given the competition across town, but it also remains to be seen whether the competitive effect will even exist in this case. After all, United has a history of ignoring cross-town airports as competitive markets when it comes to pricing (e.g. EWR v. LGA/JFK).
Finally, there are the niggling issues facing Southwest in their merger progress. Little things, like their computer systems still cannot handle interlining passengers between the Southwest and AirTran brands or that they actually cannot support international flights in the current Southwest systems. The former of these actually resulted in a number of flights to and from Atlanta reverting to the AirTran codes recently so as to be able to accommodate through passengers. And the company has indicated that it will be more than a year before they can address the systems issues.
It is quite likely that the new facility will happen at Hobby. Everyone seems keen to add a bit of competition in the Houston market, even if the new competition on offer is somewhat biased in its focus. Given the population of Houston and the distribution of passengers around the metro area it will even probably work out OK as far as numbers go. That said, the revenue and economic impact numbers seem highly skeptical, so who knows. And with the passengers – even the ones not using the new facility – footing the bill, it isn’t necessarily clear that this is a good thing for the market.
Posted by Seth on November 23, 2011 under News |
JetBlue and WestJet were the winners of the auctions for landing slots at New York City‘s LaGuardia airport and Washington, DC‘s National airport according to reports. JetBlue had made it clear that they intended to bid on the slots and their win there is not particularly surprising. WestJet is a slightly bigger surprise (and only won at LaGuardia); the carrier appears ready to attack the "golden triangle" commuter traffic from Ottawa, Toronto and Montreal to New York.
On the JetBlue side there isn’t any particular indication yet of what the routes will be used for (or even an official confirmation that they won). With an equal number in both DC and LaGuardia it would be possible to take on the US Airways and Delta Shuttle operations, though that also seems unlikely; the market doesn’t need a third player in that space. There are enough other routes that could be operated from the two airports which makes Shuttle service seem unlikely. And with $72MM invested in acquiring the slots it seems to make sense that they’re going to want to maximize revenue, not just attack other established markets.
Most surprisingly to some observers is that Southwest apparently declined to bit at both airports. Southwest was the main instigator of troubles with the previous efforts to distribute the slots so their absence from the auction is somewhat surprising. That said, with their purchase of AirTran the need to acquire slots through the auction process was rather diminished.
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Posted by Seth on October 12, 2011 under Flying, News |
The deal for US Airways and Delta to trade large chunks of their operations at New York City‘s LaGuardia and Washington, DC‘s National airports has received approval from the Federal Aviation Administration. The swap, which has been in limbo since it was initially proposed about two years ago, will see Delta increase its market share significantly in the New York area, bringing it on par with United Airlines which has held a significant lead thanks to the hub operations at Newark by its Continental subsidiary.
The final agreement calls for Delta to gain 132 slot pairs at LaGuardia in exchange for 42 slot pairs that US Airways will gain in Washington. An additional 24 slot pairs – 16 in NYC and 8 in Washington – will be divested by the carriers to competitors. The divestment plan, which pretty much matches the original proposal from years ago, will have the slots auctioned in a cash-only, blind bid offering managed by the FAA. With the Southwest buyout of AirTran and acquisition of those slot portfolios the Texas-based carrier is no longer in as strong a position to oppose the swap or the blind distribution of the slot divestiture.
In addition to the FAA review of the slot swap there is a Department of Justice Anti-Trust investigation ongoing for the transaction. The DoJ announced that they are no longer concerned with the anti-trust implications in the New York City market but they are still looking into the US Airways monopoly issues at National. If that is too significant an issue it could still result in the deal being scuttled but at this point it does seem like the deal is quite likely to go through.
This represents a significant shake-up in both markets. Delta has not been shy recently about wanting to attack the New York City market and taking a sizeable chunk of that market share from competitors. They will still be running a split hub environment with major operations at both LaGuardia and JFK airports but they’ll have significantly more traffic going forward. For the Washington, DC market the domination at National by US Airways will be much more significant (hence the continued DoJ efforts).
Still plenty of excitement and new developments to come on this front but things are finally back in motion after being stalled for so long.
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Tags: AirTran, Continental, Delta, DoT, FAA, merger, New York City, Newark, Southwest Airline, United, US Air, Washington DC
Posted by Seth on August 22, 2011 under Flying, News |
The purchase of AirTran by Southwest was, in large part, to gain access to significant gate and slot portfolios at a few major airports where the company had previously had difficulty establishing a presence. So it should come as no surprise to see those operations leveraged in a way that better integrates with the route and operational structure that Southwest has built over the years. Southwest CEO Gary Kelly announced a number of new routes from Atlanta today at a meeting with local business leaders, kicking off the first notable shift of legacy AirTran resources to fill gaps in the Southwest network.
Starting on February 12, 2012 the company will add 15 daily frequencies out of Atlanta to five airports, four of which serve as hubs for the company’s operations. The new routes include service between Atlanta and:
- Austin – two daily nonstop roundtrips
- Baltimore/Washington – four daily nonstop roundtrips
- Denver – two daily nonstop roundtrips
- Houston Hobby – three daily nonstop roundtrips
- Chicago Midway – four daily nonstop roundtrips
Certainly not a major overhaul of the route network or even scratching the surface of the capacity the carrier has to work with in Atlanta. But it definitely shows the beginnings of the integration of Atlanta into a major point on the combined carriers’ network and how passengers will flow through the other hubs for onward connections. Expect to see similar moves at the other big airports the purchase came with (e.g. LaGuardia and Washington National) soon.
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Posted by Seth on May 6, 2011 under Internet, News |
American Airlines announced this week that they are extending their partnership with in-flight internet provider Aircell, the company behind the gogo service. There are two main components to the announcement, one covering internet connectivity and the other addressing streaming media. On the internet front the company has committed to expanding their gogo deployment to cover more than 140 additional aircraft in domestic service. The streaming media offering, however, is an industry first.
The service will leverage the wifi network that the gogo service currently operates on and will provide access to movies and TV shows via a locally cached copy that resides in the airplane. Users will access the media through their own wireless devices rather than through in-seat or overhead screens on the aircraft. This move is essentially a bet that in-flight entertainment is now no longer dependent on the screen that the airline can provide and instead focused on the content which can be delivered on any screen that the customer might happen to have with them. By focusing on the content rather than the delivery mechanism the company can offer greater content variety while keeping both the weight and costs of the system down.
One challenge that American will face with this approach is that many consumer devices will need power to stream the media for the duration of a flight and, to date, the carrier has only had limited power outlet distribution through their aircraft. The first planes to have the streaming service are 767-200s used on transcon routes and they do have power so that should help, at least initially.
On the wifi deployment side of the game, American announced that they will be deploying the gogo service on 93 of the company’s 757 aircraft as well as 50 more MD-80 series planes. The installation will start this summer and is in addition to the previously announced plans to fit all of the carrier’s 737-800s with the service. By pursuing the fitting of essentially their entire domestic fleet American has joined Delta, Virgin America, AirTran and Southwest in the plan to offer wifi on all domestic flights.
Of course, all the wifi deployment is only useful to the airlines if it actually makes them money, and thus far evidence suggests that still isn’t happening. Recent reports are still noting that wifi adoption rates are hovering in the 5-10% range, depending on the report. Those reports are also suggesting that the demand for screens still outweighs the demand for wifi, though the numbers are shifting in the favor of wifi. Only time will tell if having the early deployment of the connectivity will provide the airlines with a benefit versus the later adopters, notably JetBlue and Continental/United Airlines which are banking on Ka-band satellite services rather than the cellular or Ku-band options currently available via gogo or Row44, respectively.
Posted by Seth on April 30, 2011 under frequent flyer, points |
Ever wonder what’s going through the minds of the folks running your favorite loyalty programs? Of course; we all do. Ever think you’d see five of the most prominent program leaders sitting in the same room, taking questions from their customers about what makes their programs work and why they have chosen certain specific policies? Me neither.
Last Friday, at the first ever Randy Petersen Travel Executive Summit, a group of us were treated to exactly that. The heads of Delta, American Airlines, United Airlines, Hyatt and American Express Membership Rewards came together for a question and answer session led by Mr. Petersen, by most accounts the guru of loyalty programs. After discussing the history of the programs (we’re celebrating the 30th anniversary of the very first one this month) and taking a walk down memory lane it was time to get to the meat of the discussion. Many questions were asked and the program heads were mostly quite responsive, though there were a number of issues where answers were denied in favor of not violating company policy or SEC regulations. Can’t say I really blame them there.
So what were the highlights of the session? I’ve picked out a few of my favorite nuggets and expanded on those discussions.
The "elites" really are
One of the oft-asked and never answered questions about the airline loyalty programs is just how special are the "elite" customers, the ones flying the most miles, really are. And the airlines held firm this time around as well, refusing to disclose the data. But they did give a couple hints as to what the numbers are.
For United Airlines the population of top-tier elites – Global Services and 1Ks – was described as "small six figures" in size. If that’s anything like the way merger partner Continental describes "mid-year" there is certainly plenty of wiggle room there in terms of nailing down what the number really is, but may more specific than the previous non-disclosures. Foland also made it clear that they do distinguish between their frequent customers and their high value customers and that they have many metrics on which they measure those things. Not surprisingly, the two are not always the same folks.
For Delta the numbers were not presented so much based on how many are elite but rather who generates the revenue for the company. It is a very small number of people that really are the High Value Customers for them, similar to the other carriers. The top 1% of customers are responsible for 10-12% of revenue to the company. Expanding that pool out to the top ~3% of customers doubles the revenue pool to about 25%. It drops off precipitously from there, with the bottom 70% of the customers representing only 40% of the annual revenue. It is no wonder that the companies cater to their best customers; they far and away represent more cash.
Mileage expiry is a big deal, except when it isn’t
Jeff Robertson, the man running Delta‘s SkyMiles program, noted at one point that as a company they strive to do what is right for the customer and for the company, even if sometimes that move costs them a little bit of money. In the case of changing their expiry policy for SkyMiles, there is no doubt that the change had some costs, though Jeff also noted that miles expiring represented the single most significant complaint that they received as an organization. And apparently the cost of not expiring them wasn’t so high so everyone wins, right? That’s Delta’s take on the situation.
The other two airline executives speaking on the panel, Jeff Foland from United Airlines and Maya Lieberman from American Airlines, had a different take. They noted that the purpose of the programs is to keep customers engaged with the brand. If a customer hasn’t been engaged for almost two years the expiry is a great opportunity to bring them back into the fold and remind them of the value of those points they’re holding, way better than just holding the points on the book and hoping the customer comes back eventually. Which is better in the long term for the programs? I guess we’ll all have to wait and find out.
It is also worth noting that if the points accrual is so slow that there’s a two year gap in the process, odds are that the points are a bad investment anyways. A customer showing loyalty with such low frequency is likely to be better served financially by simply being loyal to their wallet and buying the cheapest fare available rather than paying extra to accrue miles in a program.
The folks buying miles aren’t who I thought they were
Pretty much every airline now offers the ability to just buy miles outright. During the booking process, at check-in and in various other transactions along the way the opportunities to buy miles are every growing. The problem with these programs is that they are rarely a good value, at least not in bulk. Every now and then it might make sense to top off an account for an award but just not that often.
That’s why I was surprised to hear the great mileage guru Randy Petersen announce (several times over the course of the events) that he buys the miles at the kiosk nearly every time. He’s got tons already and earns them at a blistering pace, and he’s buying more at almost certainly overpriced levels. Even more surprising was a statistic he shared with the group: Over 50% of the folks buying the miles have elite status on the airline they’re buying from. The people who have the most points are also most aggressive about buying more. I just do not understand that.
Speaking with Gary Leff during a break he related similar tales, including one US Airways Chairman’s Preferred member who buys the miles on every single trip. Sure, he gets some awesome reward redemptions out of the deal, but at what price? Then again, if you’re willing to pay the $4500 cost for the trip and points are the right way to find that price point, why not?
Loyalty programs are sortof a zero-sum game, but it is still possible to win
One of the questions asked of the panel was how it is possible that there are loyalty programs can provide value to the companies as well as the customers. All of the loyalty programs are obviously trying to drive revenue to the company so it is hard to have a situation where everyone can win. Indeed, at the macro level the programs are more or less zero-sum efforts – some customers are going to profit and some will not but overall it will still be a benefit for the programs.
Jeff Foland perhaps summed it up best:
We want our currency and elite status to carry more value for the member tomorrow than it does today. We have to do that against the backdrop of running a fiscally responsible company.
So what does that mean? Well, for starters it means that they really do want some customers to have a chance at winning. It also means that when the good arbitrage situations arise that the customers can exploit there is a pretty good chance that the airlines are going to be closing them up in search of that "fiscally responsible" effort.
There has only been one incident in recent memory that resulted in points (the "currency" Foland is referring to above) actually increasing in value. It doesn’t appear that there are any similar changes on the horizon. So to make sure that the currency value increases it is important to pay attention to the trends in the industry and to make sure you’re redeeming the points, not just accumulating them.
Other bits
There were a number of other interesting things discussed, from the future of lifetime status recognition (unsurprisingly United and American were quite tight-lipped on the topic) to how issuing a credit card can help Hyatt drive heads in beds, their core business focus. Oh, and apparently LOTS of folks like redeeming their Membership Rewards points for toasters and other housewares; such a horrible value.
Neither American nor United would comment on any possible changes that may be coming with their lifetime status levels though Ms. Lieberman did note that the ranks of elites on American are somewhat swollen due to their easier accrual policies. No particularly useful information on what the changes are going to be, other than that they’ll provide plenty of notice and communicate them effectively should anything happen, but otherwise mums the word there.
Delta noted that perhaps the biggest challenge they face from a loyalty program perspective is not the merger of Continental and United, but rather that of AirTran and Southwest. The latter represents a sea change to the competition landscape in Atlanta and the new Rapid Rewards program, part of a trend towards rewarding spend more than miles, is a huge part of that change. What it means for SkyMiles or passengers in Atlanta will be fun to watch in the coming months.
Ultimately I must say that it was a great event, both for the information shared and the networking opportunities in the room. Whether with other travel writers (Ben from Today In The Sky and Brian from The Points Guy were two of the bigger names there, along with Gary Leff who was one of the hosts) or rubbing elbows with the executives who make the decisions about how the programs actually operate, it was a great day for meeting new folks and extending existing relationships.
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Tags: AirTran, American Airlines, American Express, Atlanta, Continental, frequent flyer, Hyatt, Membership Rewards, merger, points, Southwest Airline, United, US Air
Posted by Seth on April 7, 2011 under News |
Yesterday had a bit of a buzz on the internet regarding a piece about airfare pricing from Nate Silver that was published on his NY Times politics blog. The post, filled with mathematical analysis, attempts to use statistics to determine which airports have unfairly high fares relative to others providing comparable service. And I’m sure the math involved is accurate. I have no doubt that someone as statistically gifted as Silver got the regression analysis correct when he ran the numbers. But the findings are still miserably flawed.
Why? Because several of the assumptions made simply do not apply to air travel.
Silver acknowledges that most the other folks who have tackled this topic have made specific flaws in their assumptions. He aims to correct these but instead makes some tragic assumptions of his own.
Let’s take a look at the factors he considers:
The first factor is the distance traveled — we use the distance from the origin airport to the destination as though it were a nonstop flight, whether or not there was a layover along the way….
The first factor cited – distance traveled – is probably one of the last things that actually comes into play when airlines are figuring domestic market pricing. Should they? I can see that argument being made, but it ignores the general concept of market pricing and supply/demand dictating the going rate for a ticket. If the airlines wanted to price everything based on distance they could, but they’d be leaving a lot of money on the table for the shorter flights and they’d never sell the longer ones. Even just using the average costs to operate a flight as a price basis you’d be looking at $600+ on average for a round-trip transcontinental flight. They seem to sell a lot better in the $300 range, at least in major markets.
Silver chose to ignore whether there is a connection or not. While that is reasonable for calculating the distance traveled, it ignores perhaps the single greatest factor that drives travel bookings for business travelers, the folks paying the higher fares: schedule. When you’re a business traveler hopping between cities and trying to get to that next appointment on time and then home as quickly as possible you pay more for a non-stop flight. Should you? Maybe, maybe not. But you do. This pricing function is probably more directly traceable in cargo numbers and there is a ton of data available on that, including in Greg Lindsey’s Aerotropolis, a pretty good read. But the same concept absolutely applies to passenger travel as well. There is a very real value in speed out in the real world; there apparently isn’t one in Silver’s.
Silver found that Newark was about 25% more expensive than JFK based on his data. And there is no doubt that is the case on some routes. But when you also consider that Newark has quite a few more domestic destinations available as a non-stop flight than JFK does that price premium isn’t nearly as surprising. After all, folks pay for speed.
Certainly demand factors into the pricing as well:
Second is a variable representing the demand for travel at both the origin and destination airports. Demand is assumed to be a function of the number of origin-and-departure passengers that an airport handled (not counting passengers who passed through the airport on a layover), but with a modification for average ticket prices. In other words, if the average fare at an airport was high, the model assumed that more people would have wanted to fly there but were deterred by the cost, and if the average fare was low, that some passengers would not have flown if the fares had not been such a bargain.
Indeed, one can expect that fares to smaller destinations will be higher. And they generally are. But assuming that more people really want to be traveling to smaller cities but choose not to because the airfare is too high misses the point. They are smaller cities with lower demand for travel because they have fewer businesses, fewer residents traveling (or being visited) and generally less volume. They aren’t seeing lower air traffic because they are too expensive, they are seeing lower traffic because they are small. Lowering fares may translate to a small increase in volume but it most certainly is not a linear path.
Moreover, the ability for a new entrant to operate in a market requires a certain base level of demand. No matter how cheap the fares, you aren’t going to survive long as a startup carrier if your hubs are in Columbus, Ohio and Greensboro, North Carolina, for example; just ask SkyBus. This means major metropolitan areas see the up-starts, and those up-starts bring lower fares because that’s how they attract customers. Their fares go up over time – JetBlue and Southwest have proven this – but that’s where it begins. And that explains a lot of the pricing trends that are seen today.
Finally, Silver looks at the most important factor, competition:
The regression analysis also accounts for three other factors that have significant effects on pricing. These are, respectively, the market share at the origin and destination airports held collectively by the five “legacy carriers” (United, American, Delta, Continental and US Air); the market share held by Southwest Airlines; and the market share held by the largest single carrier at that airport (for instance, Delta and its affiliates are responsible for about 66 percent of all traffic at Atlanta).
…
Passengers at Newark paid an average of 12 percent more than those at J.F.K. for their trips to Los Angeles, 49 percent more for those to Chicago, 65 percent more to Dallas, and 118 percent more to Washington, D.C.
Given those numbers, it is probably useful to take a look at the competition in those markets. There is zero competition between Newark and Washington, DC. National airport is only served by Continental and Dulles is served only by Continental and merger partner United Airlines. Plus, those routes are not generally reasonable to fly with a connection. The travel time is so short that when you add the connection it is silly to fly when total travel time is important, as it often is. The Dallas route sees a bit of competition from American Airlines, as does the Chicago route. Los Angeles has a tiny bit of competition but it also has the advantage of being a long enough trip that making the schlep over to JFK to save some money on airfare doesn’t actually completely ruin the speed=value margins. Ditto for connecting flights that add a smaller percentage of time to the travel experience.
Somewhat ironically based on the first factor Silver names, longer distances traveled can actually drive down prices as the impact of connections or less desirable departure or arrival airports is decreased as the total travel time increases.
It is actually surprising that Silver didn’t note the disparity on pricing in the Newark/JFK – Boston market. For quite some time now Continental has held a monopoly on that route. Similar to the DC runs, it rarely makes sense to connect for such a short trip and Continental exploited that price disparity. Right up until JetBlue announced their entry into the market. The fares dropped quite quickly at that point. Hardly a surprise, really. Competition, not the airport, drove the pricing.
Here’s a much more simple way to figure out if an airport is expensive or not:
- Is it a mostly leisure destination? If the answer is yes then it is almost certainly not going to be as expensive on average. Atlantic City, Las Vegas, Ft. Lauderdale, Orlando and most the rest of Florida all come to mind, and not surprisingly they’re all on Silver’s list of good value airports.
- Is it dominated (60%+) by a single carrier?
- If that carrier is United, Continental, US Airways, Delta, American or Southwest then odds are it will be a more expensive airport.
- If that carrier is AirTran, Spirit Air, JetBlue or Allegiant (and, to a lesser extent, Frontier) then odds are it will be a less expensive airport.
- Is it a particularly large metropolitan area? If not, fares are going to be higher because demand is lower.
Three easy questions that don’t take statistical regression or misguided assumptions. Silver actually gets some of these, particularly regarding the competition factor. But he also has a couple huge misses, especially around distance traveled and the price/demand curve.
It would also be interesting to compare the actual costs of travel versus just the base fare data. Spirit has a pretty incredible ancillary revenues per passenger – to the tune of an extra $35/head on average – so those "cheap" airports can come with significant surprises once the customer gets to the airport. Indeed, the airlines are quite keen to sell these ancillary bits to their customers and many are now stating explicitly that these fees are where their profits are. The airlines even want to control the way those fees are marketed to the customer by cutting the GDSes out of the pricing loop. Not a good deal for consumers.
Oh, and the suggestion he links to about searching for the best airfares on weekends is horribly wrong, too. Tuesday or Wednesday mid-afternoon is the time you’re most likely to find deals. On the weekends the airlines are raising fares and limiting the cheaper inventory in an effort to cash in on folks shopping for their vacations while their home with their family.
Silver should stick to baseball and politics, two things that he appears to understand a lot better than air travel.
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Tags: AirTran, American Airlines, Atlanta, Boston, Chicago, Continental, Delta, fees, Florida, Flying, Frontier, JetBlue, Las Vegas, Los Angeles, Southwest Airline, Spirit Air, United, Washington DC
Posted by Seth on September 28, 2010 under All You Can Jet, AYCJ, Trip Reports |
Quick trip down to RDU on the books for my AYCJ adventures this week. I showed up at the airport like normal, about an hour before departure. Through the security at JFK T5 reasonably quickly and then confronted with my most hated morning sight in the JetBlue terminal: the line for Dunkin. I want a donut for breakfast but I refuse to wait in a longer line than I did to clear TSA for that.
Lacking that I headed back out into the food court area and up onto the high-rise platform. Somewhat engrossed in my laptop I was startled when someone plopped down at the seat right across from me at the table. Hey there, Morgan! No more than 5 minutes later another friend dropped by and joined us at the table.
Chatting about travel, itineraries and the AirTran/Southwest merger was fun but it got better when the two folks at the other end of the table that we were sharing with them piped up that they were also on the AYCJ pass.
I’m always amazed how easy and enjoyable it is to make friends and meet people in airports. When the chances are high that you already know someone there it is even easier.
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Posted by Seth on September 27, 2010 under frequent flyer, Internet, News |
Apparently the airline industry is bored when there isn’t enough merger activity going on. Southwest and AirTran have ramped that pace back up again, with the Dallas-based carrier announcing a planned $1.4 billion buyout of AirTran this morning. The carriers expect the deal to close in the first half of 2011 with operations merging in 2012.
So those are the facts, at least as much as are available now in the early stages of the news discovery. What are the big open questions out there regarding the merger?
WHY?
OK, so this is both a very easy and very complicated question. Southwest has struggled of late to enter new markets, in part because it is harder to find underserved destinations and in part because there are significant barriers to entry in major markets like Atlanta, New York City and Washington, DC. With this purchase the carrier picks up – at a relatively bargain price – significant slot portfolios in all three of those cities. The slots at Washington’s National and New York’s LaGuardia airports are particularly valuable to Southwest.
Somewhat strangely, the Associated Press is reporting the move as an effort by Southwest as seeking “entry into a number of smaller markets.” That makes very little sense. Not only does Southwest already serve many small markets, including most that AirTran serves, but the value is in the larger markets. Southwest fought strongly to defeat the proposed US Airways – Delta slot swap at LGA/DCA in an effort to gain access to slots at those airports. When that failed they simply bought the slots they wanted.
The Atlanta market is nothing to sneeze at, either. While Delta has successfully fought off small entries on a few occasions (e.g. JetBlue’s efforts a few years back), AirTran has established themselves quite solidly in the market there. This move opens up that entire market to Southwest in one quick move.
International?
Southwest has historically only flown domestic routes. They’ve talked about code-sharing to gain international service but those deals have been delayed or canceled recently. This move gives them established service in Mexico and the Caribbean. CEO Gary Kelly stated in the analyst call that the carrier is committed to going international as part of this move. The destinations that AirTran serves should meld nicely with the Southwest operations so that decision isn’t such a surprise.
Fleet commonality?
Southwest is been a Boeing 737 customer and solely operated that type for a long, long time. AirTran operates a fleet of 737s and 717s. There was previously some discussion on retiring the 717s as they start to age – some are 10ish now – and it would seem that the new carrier could simply retire the type completely and keep most of their operations intact based on sharing in the Southwest 737 fleet base. The official statement today says that they will be keeping the 717s in the fleet but it would not be too surprising to see that stance change in the coming years.
In-flight products?
AirTran offers a first class product. They also offer in-flight entertainment. They offer food for purchase. Southwest offers none of those things. Both carriers offer in-flight internet connectivity, with AirTran having deployed the gogo product from Aircell fleet-wide. Southwest is in the early stages of rolling out Row44’s satellite-based system fleet-wide.
There are a lot of things that will need to be reconciled on that front. I expect that the gogo-equipped planes will convert to Row44 eventually. Once the 717s are retired there are not all that many 737s to add on to the Row44 deployment and Southwest holds quite a bit of pricing power on that front since they are the sole commercial customer for the product today.
On the seating front I expect that the first class sections will be removed from AirTran’s planes. Perhaps they will pursue a hybrid option comparable to JetBlue’s Even More Legroom product but that seems unlikely, particularly as Southwest seems quite satisfied with their open seating policy and their “fewer fees” marketing mantra, even if that isn’t completely true in terms of actual operations. Still, there doesn’t seem to be a sufficient demand in the business model to keep the first class seats around so those will disappear.
Loyalty Programs?
The loyalty programs of the two carriers are rather different and Southwest is long rumored to be working on a revised Rapid Rewards program expected to launch eventually. It seems highly unlikely that AirTran’s A+ Rewards will trump the Rapid Rewards program as part of this merger. Even with the uncertainty surrounding the timeframe for the revised Rapid Rewards, the program is bigger and more established than A+ Rewards.
Fares?
The quotes from Southwest are touting the “Southwest effect” and their intentions to bring lower fares to more customers. Unfortunately, that plan does not seem to mesh with the reality of the merger. AirTran already generally offers downward pricing pressure in markets which suggests that there is not necessarily a lot of room for fares to move with Southwest taking over. Connecting the two networks will offer a bit of expansion in potential for low fares but it does not seem conclusive that fares will be cut for consumers.
Moreover, it ignores the effect on airports where Southwest becomes the dominant carrier and sees little competition. In such cities, including Oakland and Albany, fares actually have increased faster than the average across the country.
Finally, any loss of competition almost certainly will lead to increased fares for passengers. Supply & demand doesn’t work perfectly in the airline industry but it is pretty close at the macro scale in situations like this.
Conclusions?
Unlike the United Airlines – Continental merger which was billed as a combination of equals, this move is most definitely a buy-out of the smaller AirTran by Southwest. The main attractions – NYC, Washington and Atlanta markets as well as the international routes – are likely worth more to Southwest than the purchase price paid. The fact that they also pick up a few extra airplanes, too, probably doesn’t hurt the situation, but not really critical to the deal. Southwest is dictating terms and nearly everything associated with the combined carrier will be based on the Southwest side of the operation.
There are plenty of other little things that will play out in the coming months. But the near-term view suggests that Southwest is going to be growing and spreading their wings just a bit further.
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Tags: AirTran, Atlanta, Boeing, Continental, Delta, fees, frequent flyer, IFE, internet, JetBlue, merger, Mexico, New York, New York City, points, Southwest Airline, United, US Air, Washington DC
