Things in the Sky

As I’ve written here plenty of times before, there’s currently a DOT proceeding taking place for the allocation of a few beyond-perimeter slot exemptions at Washington-National, and a bunch of carriers are competing for the (rare) opportunity to fly longer-haul routes out of the airport. One of the airlines competing for an exemption is Southwest, which plans to fly from National to Austin (the flight would then continue to San Diego).

In a recent filing defending its application, Southwest made a very interesting statement about its pricing strategy: “the main driver in Southwest’s pricing strategy is distance – not the number of competitors, or the identity of competitors.” That line caught my attention, and I headed over to some DOT data to run some numbers.

Of course, distance is a major factor for any airline when planning a new flight. Two of the major costs that must be considered – labor and fuel – are directly related to the length of the flight. But it seems odd for Southwest to discount competition as a factor in its pricing.

In it’s original application, Southwest included a yield curve that showed the relationship between yields and distance flown. (The fitted equation for the curve is y = 2290.2x^-0.722, where x is distance.) Southwest noted in its application that its projected Austin fare was based on this yield curve.

I decided to take a quick look at a major market for Southwest, intra-California, to examine its pricing. I chose Los Angeles to Oakland and San Francisco, both of which are 337 miles long. Based on Southwest’s yield curve equation, the fare should be identical, but for the year-ending third quarter 2011, fares on direct Southwest flights to Oakland were about 11.5% higher than San Francisco.

The big difference between the two routes is competition, and in my opinion that could be what’s driving the difference in prices. Southwest had a monopoly on OAK-LAX until the middle of the third quarter of 2011 when Delta started service, while many other airlines (American, Delta, United, and Virgin America) compete on the SFO-LAX route.

So, is distance a big factor in pricing for Southwest? Of course, and it’s very important for any other airline because major costs are linked to stage length. But one should not ignore the competition present in a market and how it affects pricing.

Recently I was playing around with the DOT T100 domestic segment traffic data, and I found some interesting results with Southwest’s numbers. If we compare recent times to a few years ago, it appears the airline has really made some adjustments when it comes to seasonality. It’s worth noting that these numbers are just Southwest — AirTran is not included.

One thing Southwest hasn’t really done, however, is more precise schedule changes. There are definitely adjustments in schedule on the weekends, but during the rest of the week Southwest’s departures are pretty constant. I wonder if that will ever change as Southwest continues to evolve.

Southwest Airlines has taken many large and difficult steps to prepare for implementing Required Navigation Performance (RNP), not least of which included training its entire pilot group. But the steps had a significant payoff: RNP allows a carrier to fly more efficient procedures  that can reduce fuel burn. When the Dallas-based launched RNP operations in January last year, it estimated the program would provide “anticipated savings of more than $60 million per year once all Southwest airports have efficient RNP procedures.” It appears, however, that those savings are taking a bit longer to materialize, according to Southwest’s recently-filed 2011 10-K.

“For reasons out of its control, Southwest’s total number of RNP approaches has slowed to fewer than 400 per month,” the company noted. To put that figure in context, Southwest had previously noted 600 RNP approaches were flown in the first week the program was active. Southwest flew a total of 6,790 RNP approaches last year, but 1,400 of them (around 20%) were flown in the first 20 days of the program.

The airline noted that it “must rely on RNP approaches published by the FAA, and the rate of introduction of RNP approaches has been slower than expected, with RNP approaches currently available at only 17 airports.” When Southwest started RNP operations last year, 11 airports were part of the program.

But the issue is not simply the introduction of approaches – Southwest also noted that “even at airports with approved RNP approaches, the clearance required from air traffic controllers to perform RNP approaches is often not granted.”

“As a result, in the second half of 2011, the Company decided not to equip its Classic (737-300/500) aircraft with RNP capabilities,” Southwest concluded.

RNP is an exciting technology that holds lots of opportunity for Southwest and the industry as a whole — hopefully progress will be made in this area soon.

The “Southwest Effect” is a pretty well-established topic at this point – the original DOT report on the subject was published in 1993. The impact of Southwest entering, generally, is a steep decrease in fares along with a boost in passenger traffic. Oftentimes the former of the two is measured in terms of average fare. Lately I’ve been playing around with the DOT’s DB1B database to look at the distribution of fares (in this specific example, a cumulative distribution is presented).

One of the markets I’ve found interesting of late is Boston- Philadelphia. This graph compared the fourth quarter of 2009 (the last full quarter before Southwest announced service) with the same period a year later. It’s pretty interesting, especially the top 50% of fares. Previously a big range of those were seen in the market, but that wasn’t the case once Southwest came in.

I’m hoping to do more analysis like this in the near future, and take a look to see if a similar effect has been seen in other markets where Southwest entered. Also, Southwest ended up cutting the Boston- Philly route, so it’d be interesting to take a look at this market a bit further to see how it developed for them.

It’s worth pointing out a couple of things about the data I used. First, fares under $50 are excluded in an attempt to exclude fares that are just taxes and fees (like award tickets). Also, fares listed aren’t considered credible in the DB1B Ticket database are excluded. There were also a few fares over $600 in both periods, but I just cut off the x-axis there for purely aesthetic reasons.

Earlier this morning Southwest Airlines revealed Evolve: The New Southwest Interior, a cabin upgrade that includes bringing new seats to the airline. Like many other carriers, Southwest has opted for lighter low-profile seats that should generate cost savings. The airline says the “improved durability of the redesigned seat coupled with fuel savings from 635 pounds less weight per aircraft is expected to result in more than $10 million in ongoing annual cost savings.”

The new seats bring some new features that should be nice for customers, including more space for bags underneath seats a fixed-wing headset that looks much more comfortable than Southwest’s current seat. The new seats also feature less recline. That change might not be popular with everyone, but as someone who is sick of having people recline and restrict my laptop usage I welcome this move! Here’s a handy diagram of the seat: Continue reading ‘Southwest Announces Interior Upgrade, Plans to Increase in 737-700 Seat Count’

Southwest announced yesterday that it would start flying its own metal between Atlanta and Los Angeles, an existing AirTran route. While it’s certainly notable that Southwest is adding a new transcon flight, it is also worth noting that  it appears that the move will have no effect on capacity.

For example, here’s a (heavily cropped to save save) screenshot of the AirTran website taken last night showing an ATL-LAX and LAX-ATL flight that are still listed but not bookable:

If one looks at the Southwest website, the timing of the new flight is nearly identical to the old AirTran flight:

Essentially, it looks like one of the four AirTran flights in the market is being replaced with Soutwhest.

Anyway, Southwest starts its own service to Atlanta next month with flights to Austin, Baltimore, Chicago, Denver, and Houston.