Posted by Seth on December 1, 2011 under Flying, News | 
Common decency suggests you don’t kick a man while he’s down. That sort of policy doesn’t necessarily apply in business, however, and it definitely doesn’t apply for Spirit Airlines. Following on their $11 (plus a myriad of fees that no one can ever reasonably figure out) sale to celebrates American Airlines‘ filing for Chapter 11 bankruptcy protection earlier in the week, the Spirit announced a few new routes today focused on the troubled carrier’s fortress hub at Dallas Ft Worth.
Spirit announced this morning that they are launching four new destinations with once daily round-trip service this spring. The new destinations are LaGuardia airport in New York City, Atlanta, Boston and Orlando. The first three are big business markets where American will almost see an erosion of yields thanks to this move. That’s not going to help in their efforts to keep the revenue up. At least it is only once daily service compared to the AA frequencies on offer (BOS – 8, ATL – 12, LGA – 15, MCO – 11) so there is still going to be plenty of opportunities for AA to keep most of their business.
In other bAAnkruptcy-related news, AA has filed the paperwork to return 24 aircraft to lessors, starting the process of shedding some of their costs. Most of the planes are already grounded so it won’t affect capacity. Yet. They’ve also canceled two pilot recall classes, shifting those pilots back to furlough status.
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Posted by Seth on November 22, 2011 under Flying, News |
Faced with "poorly performing" routes and an uncertain economic future, Delta has announced that they are trimming six international destinations from their Atlanta hub in 2012. One of the destinations, Shanghai, has been an on-again, off-again operation with limited service (currently only 2x weekly). The other destinations being cut – Athens, Copenhagen, Moscow, Prague and Tel Aviv – were all seasonal destinations which are not being reinstated as originally expected in the Summer ’12 season. Oh, and the timing of these cuts is a bit of a smack at the ATL airport authority. The airport’s new international facility is scheduled to open in 2012 right as demand is apparently drying up.
A few seasonal destinations from New York City are also being cut by Delta, including Manchester, U.K.; Budapest, Hungary; and Berlin.
But it isn’t all cuts for Delta. They are picking up the slack for SkyTeam and anti-trust alliance partner Air France, operating the Seattle – Paris route starting in March the day after Air France leaves the market. On that route it is most likely a fleet utilization issue as the two carriers share profits and expenses on many transatlantic routes thanks to the ATI arrangement. Delta will also be adding service between Detroit and Paris, likely for similar reasons.
There’s a lot more red on that map than green.
Tags: Air France, Athens, Atlanta, Berlin, Budapest, Copenhagen, Delta, Detroit, Moscow, New York City, Paris, Prague, Seattle, Shanghai, Tel Aviv
Posted by Seth on November 15, 2011 under Trip Reports, TSA |
This past weekend was a quick, relatively local getaway down to Savannah, Georgia. The trip was great overall. Savannah is a lovely town, and I’ll get to writing up some of those details eventually, but the flights both ways were rather worse than expected. And I wasn’t really expecting all that much from Delta Connection.
The outbound flight (LaGuardia – Savannah) was operated on N800AY, a Canadair CRJ-200. This aircraft type should be removed from service globally as a violation of torture treaties. Seriously, they are the most uncomfortable seating and in-flight experience I’ve ever had. I also had the apparent good fortune to be seated in a seat where the seatbelt was more than 3 feet longer than necessary. Apparently they don’t stock seatbelt extenders on those aircraft so they have some that are built extra long just in case. I seriously think I might have been able to sit in the row in front of me and still use this belt. But at least that was entertaining rather than troubling.
We also had some issues with seat assignments on the flight down. We couldn’t get seats assigned at booking which is usually no big deal. At the airport we were assigned seats that were not together. Again, no big deal as we can handle 90 minutes not sitting next to each other, but when I asked about switching it up the agents said there was no chance. So what are the odds that the only empty seat on the plane happened to be next to my wife? Go figure.
The return trip was an even greater adventure. As we were getting out of the taxi at the Savannah airport (great facility, though the free wifi was busted) my phone rang and the Caller ID showed Delta’s number. Not good.
Our flight was going to be delayed. It happens some times, but the way it was handled was anything but smooth. I asked the ticket agent why the flight was delayed and he offered up that it wasn’t loaded in their computer and that it was probably ATC in the New York City area. Probably a safe bet, but in this case completely false. The issue was actually that Chautauqua, the carrier providing the service, had a rather significant systems meltdown and they were having difficulty dispatching a number of flights, with cancellations and significant delays throughout the system. So when I asked about alternate routings and other options and they suggested that it was no big deal I wasn’t all that impressed.
Two hours later, while still waiting for the aircraft to depart from New York to get to Savannah to operate our flight the agents were much more helpful, but they were also now more limited in terms of what alternate flights they could offer. Eventually we got rebooked via Atlanta with roughly 9 minutes to get through security and on to the plane. Awesome.
We did make the flight despite the best efforts of the TSA to mess that up and then were in Atlanta looking to get on the next flight to New York. With a two hour layover we headed to the gate of the earlier flight to try to get on as standby passengers. Ahead of us in line was a pilot dead-heading and the flight was full; the pilot couldn’t get a cockpit jump seat and was number 5 on the standby list when he walked away from the podium. I was quite surprised to hear the same agent who just put the pilot on the list tell me that there was no opportunity to be listed as a standby passenger and that, "There is no way I’m going to put you on this flight." Harsh.
At least we had dinner at One Flew South (my first time there and it lived up to the rave reviews I’ve heard). But beyond that the experience in Atlanta was pretty poor.
And then we caught our flight from Atlanta to LaGuardia. It was a reasonably quick, though bumpy, flight and we made it home the same day as scheduled and only a few hours late. In the end that’s great, but most of the customer service interactions along the way, save for the two women in Savannah who actually cared and tried to help us, were pretty craptacular. I doubt any other airline would do much better, particularly for a pair of customers with no elite status. Sad, but true.
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 August 9, 2011 under frequent flyer, News, points |
I’ve written many times about my love for free award changes as a top-tier elite. It is one of the most valuable benefits of airline status to me and one that I use a ton. It is not uncommon to find that a better seat/route/time might open up with award inventory just a day or two prior to departure as the operating carrier realizes that they will not be able to sell the seats and they are willing to take some points off the books in exchange. In fact, my most recent Lufthansa first class experience was a direct result of one such change, with the seats becoming available about 48 hours prior to the flight and me making the change about 36 hours prior to travel.
Had I been using Delta SkyMiles that change would not have been possible.
In a new policy announced today and which takes effect on 15 August 2011, Delta has stated that all awards will be considered non-refundable and non-changeable at 72 hours prior to departure. This comes just two weeks after the announcement that the awards would expire at the time of departure. The change applies to all SkyMiles redemptions, including those of Diamond and Platinum elite members.
Customers who would book a mid or high tier award as a hedge against nothing being available would previously be able to change that award to a low tier seat – and save a lot of miles – if the award inventory opened up. And if those seats were to open up it was quite commonly 48-72 hours out. With this new policy making that change – from high/mid to low at 48-72 hours out – is now impossible. Sure, the passengers can take the chance that the low will open up anyways (Delta is spinning this change as something which will "make those seats available to other members and ultimately increase award availability."). But that’s a pretty stupid bet to make from a customer perspective.
There are a couple interesting things that the change shows. For starters, apparently there were 400,000 awards that were not flown (and presumably refunded) nor canceled prior to departure in the prior year according to the Delta representative announcing the change. There were 1,000,000 awards that were sitting booked at 72 hours out that were never flown. That’s a lot of award miles that would be forfeit should the customers not make appropriate changes. It is not hard to see where Delta got the idea to make this change.
Another interesting bit is that they made these two announcements only two weeks apart. That’s two adjustments to the same policy, a policy that had existed for a long time with no variation, announced so close together that it is hard to believe someone competent actually approved the timing of the decision. If you’re still considering changing it further, particularly when that further change is so similar to the initial one, why not just wait until you’ve made a final decision and announce the change then? Sure, the change sucks for customers. No doubt about that. But the fact that it was changed twice in such a short period is truly pathetic.
Finally, the announcement of the change and its retroactive impact on the validity of existing award reservations is questionable. The program terms includes conflicting information on that topic:
Delta and its program partners reserve the right to change program rules, benefits, regulations, Travel Awards, fees, mileage Award levels, and special offers at any time without notice. This means that Delta may initiate changes, for instance, impacting partner affiliations, rules for earning mileage credit, continued availability of Awards, or blackout dates. … Unless otherwise stated, the terms and conditions of the SkyMiles Membership Guide and Program Rules in effect at the time of your travel, request for a benefit, or other transaction will govern the transaction.
Those are the first and last bits of the same paragraph. It is not hard to believe that the last line says that the rules in effect when I conducted the transaction – issuing the award reservation – should apply to that reservation. Based on everything Delta has stated so far, however, they will be using the first line as their policy and applying this change to existing bookings as well.
Ultimately this is just another in the long line of changes made to the SkyMiles program that devalues the points for their members. At least in this case the folks in Atlanta know that the change is not going to be well received. Didn’t stop them from making it, though.
They’re not known as SkyPesos for nothing, folks.
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Posted by Seth on June 16, 2011 under Trip Reports |
Sitting in my room last night I finally got around to booking my ticket to get out of town on Friday. Yes, I waited a bit longer than I should have, leaving me inside the 7-day advance purchase window, but my schedule wasn’t settled yet so I had to. The schedule still isn’t settled but I’m booking anyways. It is a simple trip – I need to get from Raleigh to Atlanta. I need to do so in the afternoon, arriving no later than 6pm. So I searched for options and got the following results:
The first two flights are obviously the cheapest by a bit but the long layovers and poor departure times mean not actually getting work done if I pick those. And since someone is actually paying me to work these days that seems like a bad plan. Similarly, the last choice is rather pricey and still has the bad connection timing.
The 1:30pm departure on Delta is a bit too early to leave the office. The 2:45pm would actually be perfect but it is the most expensive of the options out there that has a decent schedule. Options 4, 6 and 7 seem to be still in contention and I’ve got a voucher from US Airways from when they screwed me coming home from Africa last year so spending that would be nice. But skipping the connection would be nicer.
So it is down to the two Delta choices – the 2:45pm flight in coach or the 4:00pm flight in first. And the first class seat is cheaper!
Turns out it actually wasn’t that hard a decision to make after all.
Yes, I know that it is a short flight in a rather mediocre first class cabin. And I know that I have to pick up a rental car on arrival and be mostly coherent so drinking up a storm isn’t likely to happen. Still, getting the better seat for LESS money is one of those opportunities I generally take full advantage of.
I just hope the accounting folks understand when I submit my receipts…
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.
Related Posts
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.
Related Posts
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 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
Posted by Seth on December 27, 2008 under Uncategorized |
I’m a big fan of short trips to hit a few highlights of a city and then skip town. I’m also a big fan of longer trips, but work seems to prevent that from happening as often as I’d like. For the short trips it can be a challenge to find a couple highlights and get them in without overloading the schedule. A couple weeks ago I was in Atlanta for a weekend and I managed to hit a great balance of great things to do and eat and not be overwhelmed by it all. I stretched it out as I had an extra day in town, but here are some highlights for a weekend jaunt to Atlanta.
The aquarium is not to be missed. I’ve been in Atlanta a few times now since it opened and I am seriously annoyed that it took me this long to get to see it. They have the largest single tank in the world, and it is well stocked, from whale sharks to leopard rays to barracuda, with dozens more species mixed in as well. There are several exhibits in addition to the giant tank, and all were quite well done, with docents around to answer questions or just offer up useful information about the displays, like dispelling the myth that piranhas will eat someone swimming in the Amazon. The otter feeding was more just them tossing chunks of shrimp at the otters than a real show, but that’s OK with me, as they get the fuzzy guys right up to the glass partition. The only notable disappointment for me was that the penguin exhibit was closed until 2010, but I got over it. Go to the aquarium at some point during the visit. I’d recommend earlier in the day than not, but that really depends on what else you manage to squeeze in to the weekend.
A cuttlefish hanging out in the tank.
Go Gators!
A pipefish of some sort.
I’m sure that there are other things worth seeing while in town, but given a limited schedule I’d spend most the rest of my time in town focusing on food and beverage. To that end, a few thoughts. The Midtown neighborhood is hopping on weekend nights, with plenty of options for drinking well into the wee hours. Some of the places charge a cover, which is morally reprehensible in my opinion, but such is life. Find a place without a cover and go drinking. Good times are likely to ensue.
We had some great BBQ at One Star Ranch one afternoon. We were there for a party so we had a little bit of everything to choose from which was great. I’d go for the ribs, Brunswick stew and beef brisket, in that order. And make sure to sample the jalapeño cornbread liberally.
The other really good meal we had was at the Brick Store Pub. Sure, there was a 30-45 minute wait for a table when we arrived. But I was honestly a little disappointed it was that short, as the beer selection (both bottles and draught) they have is phenomenal. And not only do they have such a great selection, the beer list explains the flavors for you. If that isn’t enough, the staff also knows them incredibly well, offering great recommendations and tastes just to make sure you like what they’re suggesting. Oh, and get the warm soft pretzels in the bar. Dip them in the homemade mustard. Enjoy. Repeat as appropriate. We waited for our table in the bar upstairs in the back. It was a bit quieter and more intimate than the main bar downstairs. The food at Brick Store was pretty good, too. The Brunswick stew was a big winner at the table, as was the fish & chips. The pasta was rather blah, though I honestly don’t know what I was thinking when I ordered it.
So there you have it. A couple great meals, something to do during the day and some evening entertainment options. You’ll probably want to find one more thing to do during the day for a normal weekend visit, but this is a good start.
