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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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 31, 2011 under Flying, News |
Everyone has a theory on what the best method is for boarding an airplane. Back to front, outside in and random are just a few of the commonly used methods by airlines. And there is no shortage of opinions – both from customers and the carriers – on which is best. Add to the list of folks with an opinion Dr. Jason Steffen. His new method is now being touted as a means to improve boarding times by up to 40%.
The Steffen Method suggests boarding from the outside in (windows first) but also by sequencing passengers back to front and skipping rows along the way. Essentially it creates a system where customers don’t get in the way of each other while in the aisle. That approach eliminates the battles in the aisle as customers put their bags away and take their seats. It looks like this:
Rather than just running computer simulations these researchers actually put the design to test in an almost real-world environment. Sortof. They rented out a movie studio’s 757 mock-up that includes 12 rows of seats. The hired 72 locals to board the plane in 5 different ways and timed the results. In the end the numbers look like this:
So, yes, the Steffen method is fastest, assuming you can get folks to line up in order. But that simply doesn’t happen.
Only Southwest has a boarding where passengers have a specific sequence number rather than just being in a group. The Southwest policy can be best approximated as the "Random" method in the study, though the Random method still had assigned seating so it still doesn’t really map. The authors of the study do acknowledge this, suggesting that without assigned seats the passengers would likely self-select seats that reduce the interference instances and speeding things up.
Block boarding – the historical model of loading passengers in sets of rows back to front – is incredibly inefficient in the manner most airlines implement it. As noted in the study:
Clearly, boarding in blocks of four rows does not help the enplaning process. Blocks of 12 rows, on the other hand, clearly does—the difference between back to front and random boarding (almost 90 seconds) shows this…. [O]nly other considerations would serve to justify its use.
Ultimately none of the results in the studies surprise me. Alaska Airlines recently stated that they found their current boarding process notably less efficient than alternatives but that they also found they could not change to the more efficient means due to the need to provide priority boarding to certain customers. While the study had three parent-child pairs which always boarded first, most airlines who pre-board any group of customers have a much higher percentage of the total number in that pre-boarding group.
And it is those passengers – namely elites – who ultimately ruin the statistics for everyone.
By boarding the elite customers who are scattered throughout the cabin in an inefficient manner the process effectively becomes the equivalent of two or three random boarding groups and then another boarding by whichever policy the particular airline subscribes to. By mixing the boarding styles even greater inefficiencies are introduced into the process.
I would be more interested in the results if the aircraft size being simulated was closer to that of an actual commercial plane. I’d also be more interested if they bothered to include the concept of elite boarding in the process since it seems highly unlikely that will ever go away. In the meantime, however, this certainly makes for a bit of interesting reading.
Check out the full report here (PDF).
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 12, 2011 under frequent flyer, Mileage Run, points |
The rumor mill is running strong these past 24 hours with Lucky pointing out a possible new scheme for elite status on United Airlines. Yes, it is a rumor, but the framework is pretty well defined so let’s take it for a spin and see just how crazy it is.
The basic qualification requirements would shift from a simple metric – how often/far you fly – to a rather more complicated one. It would still include miles/segments flown (EQMs) but on top of that there would be a count of flights taken on United metal. Most recently Air Canada announced that they would require a certain number of segments as part of their qualifying requirement and several other programs have similar requirements. This is not a particularly controversial change to the program and the number of segments required is pretty low.
And there would be a spend metric.
Yes, after years of wondering when a program would finally start to consider spend as part of their elite qualification it seems that United is going to be first to give it a try. And I actually think it is a smart idea. The spend thresholds are not trivial: 8 cents/mile is the number being rumored. Personally I probably would not qualify at the top level given that number as I do not think I spend $8,000 in airfare on United in any given year. But I’m also not so sure I’m the customer that the airline should be rewarding.
By every rational metric spend should have always been included in calculating the value of a customer to a carrier. Many airlines have done little things here and there to approximate such value (e.g. more points for higher fares) but until recently no one has gone 100% in that direction. And United is not proposing a 100% shift in that direction either, but spend will play a significant role in the qualification process.
When talking about spend rates to requalify for status or to earn points there are a lot of thresholds tossed around. Three or four years ago it would not be uncommon to find deals in the 2.5cpm range without too much trouble. These days those same deals are in the 3.5-4.5cpm range. And there are certainly some people (self included) out there flying on them and accruing a ton of award miles and elite status, too. And the airlines treat those customers the same as the business traveler who is buying full fare tickets and who is actually profitable. That is hardly a rational way for a business to behave.
Just looking at the average numbers, the cost to fly a seat on United last quarter was $0.1423. That’s averaged across all the available seats, not just the occupied ones. If you include the 84.1% load factor (n.b. all numbers from the Q2 2011 10-Q filing) then the cost of operating a filled seat was about $0.1692. It costs nearly 17 cents per mile to operate the seat on average and they’re willing to consider you a loyal customer if you’re paying just under half of that over the course of a year. Maybe I was wrong. Maybe the plan is completely irrational because the threshold is still too low.
When JetBlue announced their revamp to the TrueBlue program 18 months ago spend was almost entirely what the focus was on. Virgin America‘s Elevate has a similar structure. The new Rapid Rewards program from Southwest is similarly focused on spend, though still with some variation in the minutiae. Of these, only Southwest currently has an "elite" program and they permit qualifying via spend. So does the Hilton HHonors hotel program. It isn’t like this sort of policy is ground-breaking.
What is revolutionary about it is that the company might just finally be willing to step up and cast off the hangers on. The leeches. The folks who are not profitable to their operations. In other words, Me.
I know that I’m not a profitable customer to United. I realize benefits far in excess of the value I bring to the company. And if this policy becomes real then I’ll be looking at the numbers and deciding if I can meet them or if I’ll be finding another program from which to leech. Certainly the folks at United will not be sorry to see me and my STLKNG fare habit that gets upgrades 80%+ of the time disappear. And anyone who has a similar purchase pattern and believes the company will miss their departure is delusional.
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Posted by Seth on May 10, 2011 under Flying, frequent flyer, News, points |
I have to say that I’m incredibly intrigued by NY Times blogger/columnist and statistics guru Nate Silver’s apparent sudden interest in air travel. His last post about which airports are most expensive was certainly a fun read, particularly as I disagree with many of his points. This week he brings up another topic – hidden-city ticketing – and has decided that the rules simply do not matter.
Hidden-city ticketing is pretty simple. So long as you are not checking luggage and don’t care that the rest of your ticket will be canceled, it is often possible to purchase a connecting ticket through a hub that is significantly cheaper than a flight just to that hub. For the most part the pricing anomaly comes from the fact that non-stop flights are often more expensive as there is generally less competition and they are more valuable to the consumer thanks to the shorter overall travel time (something Silver overlooked in his last column). So, given the opportunity to buy a cheaper ticket based on pricing for a market that you have no intention of actually visiting, Silver says you should.
He acknowledges that the rules prohibit the practice, but also notes that you are unlikely to get caught and even if you do there isn’t much the airlines can do about it:
Making a habit of this certainly won’t endear you to the airlines. Most of them — the major exception being free-spirited Southwest Airlines — expressly forbid it in their ticketing rules. But those rules don’t carry the force of law, and most travel lawyers say that their recourse is limited. They could probably preclude you from flying with them in the future, but their case for demanding penalties is weak, and the risk of detection is low if you don’t book these kinds of routes more often than a couple of times per carrier per year.
I’m actually pretty sure that JetBlue also doesn’t frown on the practice but they also generally do not publish fares that would benefit from such an approach. Perhaps my favorite line in the column is this one about what to do should you get caught:
Instead, proudly state that you’re doing your part to help the airlines understand the inefficiencies in their pricing structures, and that you’re bringing exorbitant fares more in line with the free market.
Ummm, yeah. That’ll go over well. Perhaps recognizing that the "free market" means they charge what they want and you have a choice of whether to purchase or not would also be useful. Don’t get me wrong, I have exploited the benefits of hidden-city ticketing on occasion and I’m not violently opposed to the practice. But pretending that doing it is good for the airline is just plain silly.
It is also worth pointing out that the airlines do have one other path of recourse. In addition to banning you from flying with them, they can also close your frequent flyer account and take away all your points. Depending on how many you have banked that could be pretty painful.
It is also worth noting that the Germans have recently come down on the side of consumers in this situation, allowing hidden-city ticketing more openly, though it still may require fighting the airlines in court to get the fare honored. Probably not worth it.
Oh, and if you use a proper travel agent rather than the airlines’ site directly or an OTA like Expedia or Orbitz you also run the risk of them receiving a debit memo and being held liable for the fare difference. That’s never a good surprise.
So, is hidden city ticketing really all that bad? How high is your risk tolerance there?
More on this from BoardingArea blogger UnRoadWarrior.
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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 12, 2011 under Flying, News |
Every now and then a good story comes across the wire of an airline doing something particularly heartfelt and unexpected. A couple months back there was a story making the rounds about a pilot form Southwest that held a flight to allow a man to get to his grandson’s funeral at the last minute. Today’s story comes from Norway, where SAS made some special arrangements to save a woman’s vision.
The flight in question is a milk run up the west coast of Norway (and one that I’ve actually been on), shuttling folks between Trondheim, Alesund, Bergen and Stavanger. This particular aircraft suffered a mechanical failure after the first segment and the operations folks were content to cancel the rest of the flights and book all the passengers on the next plane, 6 hours later.
For one passenger on board, however, that flight was 3 hours too late. She was on her way to Bergen for emergency eye surgery that was necessary to save her vision and the new flight would land three hours later. A couple hours later a replacement aircraft, ferried in from Oslo, was on the ground in Alesund and made a quick turn to get the passengers loaded and on the way to Bergen. The plane arrived in Bergen approximately 25 minutes prior to the surgery and the patient made it to the hospital in time.
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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
