Posted by Seth on May 15, 2012 under Flying, News | 
The wait is over. A couple months after carriers applied to provide service for four new slot pairs at Washington’s Reagan National Airport the DoT has announced the winners of the coveted operating permissions. And the winners are exactly what I predicted back when the applications were revealed:
JetBlue won their first choice of routes, adding service to their quickly growing operation in San Juan, Puerto Rico. Alaska Airlines won their first choice as well, with service to Portland, Oregon being approved. Austin, Texas had two different applications for service; both Southwest and JetBlue indicated that they wanted to add the destination. Southwest was awarded that authority. Virgin America won their only application, adding service to their hub in San Francisco. The route to SFO will be the only of the new operations with direct competition on it; United Airlines is also going to be operating on that route. Southwest will face competition on the proposed through-service aspect of their Austin service to San Diego from US Airways which will operate that route with a non-stop flight.
So no real surprises in the route authorities awarded. Probably for the best; the routes picked were the favorites because they made the most sense based on the economics of the markets. Still, every now and then I do wonder if the DoT has a sense of humor and would award something like the Colorado Springs application Frontier put out there.
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Tags: Alaska Air, Alaska Airlines, Congress, DoT, FAA, Frontier, JetBlue, Portland, Puerto Rico, San Diego, San Francisco, San Juan, Southwest Airline, United, United Airlines, US Air, Virgin America, Washington DC
Posted by Seth on May 7, 2012 under News |
Ever since airport officials in Houston proposed to start international service from the city’s Hobby airport the debate has been quite strong as to the value of adding such service. I weighed in on the topic a few weeks back and figured it was worth circling back to take a look at some of the things which have transpired in the intervening weeks.
There have been editorials on both sides of the issue and both United Airlines (strongly opposed) and Southwest (strongly in favor) are putting their best face forward, claiming benefits to the local community assuming their version is pursued. I’ve now reviewed both reports and it is reasonable to claim that both are horribly biased and filled with unreasonable and unlikely expectations, drawing conclusions which are almost certain to not come to fruition.
Southwest is suggesting ridiculous economic growth based on fare levels that are simply not going to happen in the current cost structure. At the same time, however, United seems to be ignoring that a decent chunk of the Southwest operation is actually connecting traffic, making it reasonable to push some of that feed onward to international destinations.
United suggests repeatedly that opening up Hobby to international competition may force them to reduce their capacity to the LatAm region, the areas that Southwest is proposing adding service to. This ignores, of course, that Houston is a huge gateway and that they are making money on those routes (continually high yielding according to SEC filings). More importantly, however, the carrier has no other gateways from which to reasonably serve those markets. Maybe a couple of them can be handled from Los Angeles, but not many and certainly not without similar competition issues.
The United report also offers up dramatic charts like this one:
Apparently allowing international service at Hobby will see dozens of other routes canceled, reduced or never started. Most entertaining about the graphic is that they seem to be "naming names" of cities they would expect to be affected, but doing so with destinations that don’t make much sense. Or maybe it is all symbolic and the IAH-SJC route really isn’t doomed.
The editorial in the Chronicle has some similarly absurd presumptions in it, like the claim that all the affected customers are going to be locals, not connecting passengers (Southwest has a lot of connections at Hobby) and that Southwest showing up is going to cut prices so much as to create demand in the market. The days of $30/bbl are over; Southwest simply cannot afford to actually cut fares that much and have the routes be profitable.
Finally, it is worth noting that the construction being proposed for Hobby is about more than just the FIS facilities. There are upgrades to the check-in lobby and security facilities also on the drawing board. These are improvements that the airport needs badly and they seem to have become tied up with the FIS issue for a variety of reasons, some good and some bad.
At the end of the day, however, more competition is nearly always better for customers. Even the cases where United has suggested that capacity has fallen in similar historical situations (and in these they do not necessarily consider all the factors in play) the results for consumers are nearly all better. Even where the total number of seats in the market may have decreased, the decreases in the new competition markets have been lower than the national average. In other words, the new competition kept things better than average in those markets, even with decreases in frequencies.
In the game of "Lies, damn lies and statistics" both sides are playing hard and doing their best to present the numbers in a way that supports their case. I still say it eventually gets approved and that the benefits to the city of Houston will be real, though not nearly as great as Southwest suggests they can gain.
A bit more coverage on the topic can be seen at the following:
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Posted by Seth on May 5, 2012 under frequent flyer, points |
The analogies of points as a currency are not new. There are a few programs out there today that already have "pay with points" types of functionality available, but there are still a number of limits on those systems.In most cases they can be used only for specific purchases, mostly travel related, or via certain merchants. American Express Membership Rewards are one of the most easily spent on non-travel events, though the point valuation of that channel is not very attractive.
Listening to representatives from the loyalty programs and the companies who help them make the programs work at the Randy Petersen Executive Travel Summit a few days ago, however, it seems that the idea of defining a specific cash value to points and allowing full fungability of them is not too far away. Loylogic has partnered with Etihad to put their PointsPay product in the market, allowing points to be easily redeemed for value on a credit card, making points instantly spendable anywhere that credit card is accepted, for example.
Other companies at the event spoke of the shift from points to real currency with different levels of optimism and excitement. Some were lobbying for full transparency on the points, noting that many customers have already figured out what the values are anyways. Others suggested that the opacity of the specific value actually increased the perceived value, making the customers feel that they were getting a better deal and allowing the programs to remove the liabilities more quickly.
Still other companies suggested that the best way to increase the perceived value of the points is to offer up redemptions that are less utilitarian and more creative. Whether it is allowing customers to use points to redeem for space travel, a week on a private island or cashing in 386,000,000 points for a yacht, the options are, at least in theory, endless. That those awards generally are never redeemed makes it easier to offer them and the perceived high valuation since they are still too far out of reach for most to attain.
One concern voiced (by me, among others) regarding this apparent shift is the potential that it will erode or displace the travel award segment of the programs, effectively taking away some of the variable value of the programs and making them truly fixed rebate opportunities. Most present in the room and in the private conversations in the halls seem to think that this point hasn’t arrived. At least not yet. The cynic in me still sees great potential for that time to come, sooner than not. A few carriers are already very close; JetBlue, Southwest and Virgin America come to mind, though they are all still essentially only travel for the redemptions. Switching from that closed redemption network to an open, fixed-rate system actually wouldn’t be too huge a leap, at least on the conceptual side of things. The actual work to make it happen isn’t so trivial.
I’m not throwing in the towel quite yet; there are definitely still opportunities to play the game and come out ahead as a customer. But they are getting harder and harder to find. The market seems to be shifting in that direction, both on the supply and demand side of the programs. This is definitely an area to keep an eye on in the coming months.
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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 March 30, 2012 under News |
There was an interesting piece in USA Today this week about seat assignments and the ever increasing difficulty for many passengers in actually choosing seats, even on carriers which have traditionally had assigned seats for all customers. The basic premise of the piece is this:
Are some carriers intentionally holding back seat assignments, in the hope we’ll all pay for "premium" seats? It’s a fair question, and the evidence is intriguing.
It is an interesting question, to be certain. It is also somewhat surprising that it took this long to be asked, though I suppose there is something of a lag in the effects of any policy shift and the impact being felt by customers in great enough volume to rate actual reporting on the issue. The short of it is that airlines have realized that being able to have a seat assigned in advance is something that they don’t necessarily have to provide (Southwest simply doesn’t, while most other carriers do). And if it isn’t a critical component of the service then there is no real reason to give it away for free. Hello, incremental revenue!
There are two comments in the piece that I found quite surprising. The first is that it advocates simply budgeting to pay the fee rather than offering up alternative solutions. Not my approach, but I suppose for some folks it makes sense enough. More surprising, however, was the quote from Kevin Mitchell, Chairman of the Business Travel Coalition:
With yield management, consumers are aware and they know that airlines are constantly changing prices on seats. But if this is true, it is unethical—they’re grossly misleading us. The thing that I find so offensive is conveying to me that I have no options, but if I wait a week or two then I do have options.
Sorry, but I have a hard time understanding the unethical component here. Annoying? Maybe. But unethical? I think not. All passengers can still get a seat on the plane for free if they’re willing to wait. The difference is whether they are going to get the seat they want or just whatever others haven’t bought. I struggle to find an ethics argument that makes any sense in this one.
Airlines have been moving this direction for a long time. The most recent to jump in on the seat assignment fee scheme was American Airlines, back in August. United Airlines has offered a paid option for extra leg room (EconomyPlus) for years now, while US Airways charges for choosing an aisle or window seat in many cases.
Even without paying for it I got a window seat on US Airways recently, though I suppose I could have been equally unlucky and ended up in a middle; the guy sitting next to me certainly did. I don’t agree that one should necessarily budget to spend the money no matter what, but it is definitely worth at least knowing what the options are when booking a flight.
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Posted by Seth on March 21, 2012 under News |
The recent addition of perimeter exemption routes for Washington, DC‘s National Airport included the provision that the four largest carriers were entitle to slots, assuming they gave up a non-exempt slot. Three of those four routes were announced previously, with Salt Lake City, San Francisco and Los Angeles being chosen. Up until now, however, US Airways has remained silent on their plans. They already hold perimeter exemptions for service to Phoenix and Las Vegas and, as of June 8, 2012 service so San Diego, California.
The new service will start as an evening flight westbound and a redeye eastbound. In mid-July the route switched to a morning flight westbound and a noon departure eastbound, arriving at 8:30pm.
DCA-SAN lv 5:40p ar 8:03p
SAN-DCA lv 11:00p ar 7:00a
Effective 7/11/12
DCA-SAN lv 8:55a ar 11:18a
SAN-DCA lv 12:30p ar 8:23p
Neither of the timings seem particularly fantastic for business customers, particularly on the eastbound times, but I guess they have their reasons.
It will also be interesting to see how this announcement affects the pending applications from the other carriers trying to get the slots. Alaska Airlines had applied to operate the same route non-stop while both Frontier and Southwest are hoping to operate it as a one-stop service via Colorado Springs and Austin, respectively. This definitely gives the DoT some interesting things to think about.
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Posted by Seth on March 13, 2012 under Flying, News |
Washington, DC‘s National Airport is one of the "lucky few" airports in the country where the government has limited destinations which can be served. The so-called "perimeter rule" keeps the long-haul flights out at Dulles for the most part, but there are a few exceptions to rule and those are coveted by the airlines. As part of the most recent FAA budget authorization bill Congress has added a few perimeter exceptions to the pool at DCA and now airlines are scrambling to grab those slots. The filing deadline was yesterday, and here’s what the proposals look like.
New Entrants
The slots are split into two pools, one for legacy carriers and one for new entrants. In the new entrants category six carriers – JetBlue, Virgin America, Southwest, Air Canada, Frontier and Alaska Airlines have applied.
Alaska Airlines is going big with their application, hoping to offer transcon service from both their Portland, OR hub as well as San Diego. Virgin America is also hoping for hub service from San Francisco. Southwest is aiming to provide service to Austin, TX, with onward connections to San Diego and JetBlue has applied to serve both Austin and San Juan. Air Canada is hoping for Vancouver service and Frontier is looking to serve Colorado Springs.
There is some interesting overlap with the routes being requested and it seems somewhat unlikely that the DoT is going to approve such applications so perhaps the final approval will look something like this:
Legacy Carriers
For the legacy carriers the access to beyond perimeter slots comes with a slightly higher price, as they have to give up service to a destination inside the perimeter to get the new service. On the plus side, the route authorities are more or less guaranteed given that condition so the DoT has less work to do there. Of the eligible carriers, Delta, United Airlines and American Airlines all made their intentions known a couple weeks ago, with service to their Salt Lake City, San Francisco and Los Angeles hubs, respectively. Apparently US Airways has decided to not apply for an additional beyond perimeter slot. They already have service to Phoenix and Las Vegas but it is still somewhat surprising that they haven’t tried for more.
The new routes should be interesting to watch, especially with the potential for competition on the LAX and SFO routes.
Tags: Air Canada, Alaska Airlines, American Airlines, Congress, Delta, DoT, FAA, Frontier, JetBlue, Las Vegas, Los Angeles, Phoenix, San Diego, San Francisco, San Juan, Southwest Airline, United, United Airlines, Virgin America, Washington DC
Posted by Seth on March 1, 2012 under frequent flyer, News, points |
I’m generally a big fan of Scott McCartney’s The Middle Seat column in the Wall Street Journal so I was excited to read his post today about "Getting the Most Out of Your Frequent Flier Miles." I was hoping for some great insight into award pricing algorithms or inventory patterns. Instead I got a primer on how to not get any value from points. Such a disappointment.
There are a number of take-aways from the post but the main conclusion is this:
With domestic coach tickets, you generally get not much more than one penny per mile in value from airlines – that’s a $250 ticket for 25,000 miles. If the ticket now costs $400, you likely will have to pay 40,000 or 50,000 miles.
Not only is it simply wrong, but it is also very misleading in terms of getting the most from your points. Other than the programs of JetBlue, Virgin America and Southwest, (and also one option from Delta or American Airlines) the redemption rates are not tied directly to the selling price of the ticket. If there are no discounted seats left it is less likely that award flights will be available at the lower rates, but that’s tied to the inventory, not to the fare price. As the prices go up at the low end it actually means that the "value" realized for redeeming points is arguably higher since the cash option will be more expensive.
McCartney also picks a few random routes and tries to read into overall domestic award inventory based on his searches for economy class seats on one carrier for each route. His approach fails miserable in many ways.
First off, it appears that the searches he performed were based only on using the website of the carrier where the miles are sitting and then by just putting in the end points. This resulted in finding only a handful of seats for Boston-Ft. Lauderdale on Delta, Orlando-Seattle on American or Washington, DC – Austin on US Airways. For the Delta results this approach overlooks the issues that their website suffers from for award bookings; it is very limited, especially when searching for connections. For American I see very different results than McCartney did, with plenty of award seats open at the "Saver" level.
Both of those are questionable, but the US Airways one is the most egregious bad advice of the three:
And if you’re in Washington, D.C., and have US Airways miles you’d like to use to go to Austin, Texas, get ready to pay a heavy price—besides the $25 processing fee that US Airways charges for a “free’’ ticket. For the 10 months in the rest of this year, there are only five days when US Airways offered a flight to Austin at its basic mileage price.
In addition to only searching on US Airways’s website, McCartney ignores the fact that Dividend Miles can be redeemed for flights operated by United Airlines. Checking the award calendar there it is clear that finding an award seat from DCA-AUS is actually a rather trivial task on most days for the rest of the year. Yes, you’ll have to call in to book it, but that’s a small penalty for saving 25,000 points.
Sorry, Scott, but you missed the boat BIG TIME on this one.
Tags: American Airlines, award, Boston, Delta, frequent flier, frequent flyer, JetBlue, points, Seattle, Southwest Airline, United, US Air, Virgin America, Washington DC
Posted by Seth on January 18, 2012 under Flying, frequent flyer, News |
I’ll be the first to admit that I was definitely betting against Philadelphia scoring service from Virgin America in their announcement yesterday. There were a couple other destinations on their "short list" which seemed more likely to me. Alas, I was wrong, and the carrier will be launching five daily frequencies starting in April.
As part of the launch release Virgin America pulled no punches, describing their competition in less than flattering terms. Said company CEO David Cush:
Travelers deserve more options than just the typical legacy airline cattle car, and we hope our unique brand of low fares and inventive service will be a breath of fresh air for Philadelphians.
I didn’t expect Philadelphia to be the new market based mostly on the fact that transcons are expensive and it generally takes a lot of capacity to compete in those markets; once daily service, especially between larger cities, is often frowned upon by customers. Virgin America is coming in big, however, adding three flights to Los Angeles which will increase the daily frequencies from 7 to 10, a reasonably significant capacity upgrade. Similarly, the frequencies on the San Francisco route will increase from 8 to 10 with the two new Virgin flights.
But are there enough passengers – profitable ones at that – to make the service work? Virgin seems to think so, suggesting that roughly half of the passengers on each of those routes takes a connecting flight rather than a nonstop option. So maybe there are enough people looking for nonstop options; the question is whether they’re profitable. Time will tell.
With all the hating that goes on against US Airways, this route might seem like a perfect assault. But attacking them at Philadelphia with only a couple non-stop destinations seems unlikely to be the way to go. Even Southwest, which attacked many more routes, is pulling back in their assault there, suggesting that US Airways is reasonably stable and willing to fight their competitors.
One thing it might do, however, is convince US Airways to compete on pricing for the routes. A one-way fare is currently $850 on US from Phillly to LA; the new numbers with Virgin in the market look to be a bit lower:
Interestingly, while US hasn’t been matching Delta fares on the route (or United Airlines on flights to San Francisco) they appear to be taking the Virgin entry into the market a bit more seriously. They aren’t completely matching the fare, but they are much closer, at least for San Francisco. Apparently they’re banking on their frequent flyers or the more frequent schedules demanding a $20ish premium for the route.
For Los Angeles, however, the price disparity remains, at least as of this morning.
It is also worth noting that elites in the US Airways Dividend Miles program can confirm that $850 fare into the first class cabin at the time of ticketing. Virgin is selling their first class cabin – admittedly MUCH nicer than that of the US Airways A321s – for about $1,000, a premium for elites, though still $200 less than the non-elite upgrade fare from US. Both are significantly higher than Delta’s first class fare on the route.
What does it all mean? I have no idea. But there are enough interesting bits at play here that it is worth watching. Oh, and prices on some of the inaugural flights are still pretty reasonable, so I might be headed to Philly for some fun in early April.
Tags: Delta, elite status, Flying, frequent flier, frequent flyer, Los Angeles, Philadelphia, San Francisco, Southwest Airline, United, United Airlines, upgrade, US Air, Virgin America
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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