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Did Southwest Make Any Money On Me?  
User currently offlineDandy_don From United States of America, joined May 2000, 202 posts, RR: 0
Posted (11 years 2 months 3 weeks 1 day 13 hours ago) and read 3339 times:

I flew yesterday from DTW to Midway and then back today.

Price each way? $37.

How did they make any money?

14 replies: All unread, jump to last
 
User currently offlineAroundtheworld From United States of America, joined Mar 2003, 279 posts, RR: 2
Reply 1, posted (11 years 2 months 3 weeks 1 day 12 hours ago) and read 3322 times:

Southwest's CASM (cost per average seat mile) is 7.41 cents. Given the distance each way for your trip was 228 miles it cost them $16.89 cents each way to fly you. They made about $40 off your round trip  Smile I'm not any type of finiancial personage so if someone wants to add and/or correct this...feel free.

User currently offlineCloudy From , joined Dec 1969, posts, RR:
Reply 2, posted (11 years 2 months 3 weeks 1 day 12 hours ago) and read 3293 times:

Southwest has a low enough costs that they can indeed make money with such fares. Most airlines do not.

Higher cost airlines can offer such fairs because they use sophisticated computer tools to put seats on the market and set the terms under which they will be offered. This practice is called "Yield Management". Use this as a search term if you want a more detailed description. BTW, Southwest uses "Yield Management" as well. It just uses a more simple and less extreme version of it than more traditional airlines.

Such fares can be offered by higher-cost airlines when the airline determines through "Yield Management" tools that the seat would more than likely have flown empty if you had not bought a ticket. In such a case, the airline is better off to sell you the ticket even at a price that would produce a loss if the whole plane payed such prices. If the seat flys empty, they get nothing at all. If you buy it, they get $37. All those crazy rules you see regarding airline fares are devices to seperate the customers who would fly at much higher fares from those that can only be enticed to fly if fares are set rock-bottom. They get most of their money from people who paid higher fares for tickets with fewer restrictions and more desireable departure times, etc. They won't set up a schedule with people like you in mind. However, they are happy to let you fill one of their extra seats because if they don't let you do so they will get nothing for flying that seat.

At least this is the theory. In practice, this system can get really screwed up. The overuse and misuse of yield management may be one of the reasons the network carriers are in so much trouble today.

I


User currently offline727LOVER From United States of America, joined Oct 2001, 6380 posts, RR: 17
Reply 3, posted (11 years 2 months 3 weeks 22 hours ago) and read 3122 times:

Does CASM include landing fees  Confused If not, then I would guess they didn't make money?


Listen Betty, don't start up with your 'White Zone' s*** again.
User currently offlineBarcode From Switzerland, joined Dec 2001, 678 posts, RR: 11
Reply 4, posted (11 years 2 months 3 weeks 21 hours ago) and read 3097 times:

Oh, this reminds me, I'm wondering the same about Airtran and the $14 I paid from ATL to RDU ...

And I'm sure I paid less than $70 to get from FLL from ATL with Southwest ...


User currently offlineEA CO AS From United States of America, joined Nov 2001, 13507 posts, RR: 62
Reply 5, posted (11 years 2 months 3 weeks 21 hours ago) and read 3057 times:
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Does CASM include landing fees If not, then I would guess they didn't make money?

The thing to keep in mind is that this is their AVERAGE cost per ASM over their entire route system. The cost for shorter city pairs is much higher than that for longer ones, since there are fewer miles to spread the costs over.

While their average CASM is $0.0741, the CASM for your short hop was likely much higher.

So, odds are for this particular flight, they may NOT have made any money...but overall they still are, as your ticket price gets computed into their average revenue per ASM (RASM) against their average systemwide CASM.

In other words, your cheap ticket is offset by millions of other not-so-cheap tickets elsewhere in their system.



"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan
User currently offlineSllevin From United States of America, joined Jan 2002, 3376 posts, RR: 6
Reply 6, posted (11 years 2 months 3 weeks 20 hours ago) and read 3002 times:

No. You cost the airline money. Please send a check to Southwest.  Smile

Steve


User currently offlineN79969 From , joined Dec 1969, posts, RR:
Reply 7, posted (11 years 2 months 3 weeks 19 hours ago) and read 2954 times:

Hard to say. Airline cost allocations are complex and can be meaningless. The marginal cost of carrying you on those airplanes was approximately $0. If that seat had gone unfilled without you, then they made money. If you displaced a higher yield pax somehow, then they lost money. Given the sophistication of airline yield management and SWA's record of financial success, I would say the former is the case and they made $74 minus a buttload of taxes on you.

User currently offlineJhooper From United States of America, joined Dec 2001, 6202 posts, RR: 12
Reply 8, posted (11 years 2 months 3 weeks 18 hours ago) and read 2909 times:

I bought a ticket from SAT-MCO for $37. I wonder if they made money on THAT flight?


Last year 1,944 New Yorkers saw something and said something.
User currently offlineONT 737 From United States of America, joined Mar 2001, 587 posts, RR: 2
Reply 9, posted (11 years 2 months 3 weeks 13 hours ago) and read 2832 times:

They made more money than if you had not flown on the flight. You need to remember the 1st rule of airline economics. Once the flight is paid off, every extra seat sold (at any cost) is pure profit. Also, remember that seat miles are a perishable commodity. If it is not used, it is wasted. It's like milk, it has an expiration date. (i.e. departure time)


"The world is run by C students"-Harry Truman
User currently offlineJhooper From United States of America, joined Dec 2001, 6202 posts, RR: 12
Reply 10, posted (11 years 2 months 2 weeks 6 days 23 hours ago) and read 2743 times:

I realize they made more off of me than they would have if the seat had gone empty. But there is an opportunity cost associated with letting that seat go, that being the price of the higher cost ticket they could have sold if the flight is full (keeping in mind that if they bump me they'll have to compensate me).

I guess my question is, does the $37 I paid (actually it was $45 with all the taxes) exceed the total cost of the flight divided by the number of seats on the plane?



Last year 1,944 New Yorkers saw something and said something.
User currently offlineBR715-A1-30 From , joined Dec 1969, posts, RR:
Reply 11, posted (11 years 2 months 2 weeks 6 days 23 hours ago) and read 2723 times:

Oh, this reminds me, I'm wondering the same about Airtran and the $14 I paid from ATL to RDU ...

I'm kind of wondering the same thing with the $76.50 Roundtrip ticket I got from GPT-ATL-GPT on Sept. 7. Cost One way was $29.00


User currently offlineOPNLguy From , joined Dec 1969, posts, RR:
Reply 12, posted (11 years 2 months 2 weeks 6 days 21 hours ago) and read 2669 times:

>>>And I'm sure I paid less than $70 to get from FLL from ATL with Southwest ...

Neat trick, since SWA doesn't serve ATL...  Big grin


User currently offlineCloudy From , joined Dec 1969, posts, RR:
Reply 13, posted (11 years 2 months 2 weeks 6 days 16 hours ago) and read 2600 times:

I realize they made more off of me than they would have if the seat had gone empty. But there is an opportunity cost associated with letting that seat go, that being the price of the higher cost ticket they could have sold if the flight is full (keeping in mind that if they bump me they'll have to compensate me).
----
This is true only if that seat would have been sold to a higher-paying customer. If it would have flown empty otherwise, it is better to let you have it even if you won't pay much. As has been said before.... the whole point of yield management is to use computers and fare class rules to tell the difference. Yield management doesn't always work well. But it does have some value.

-----
I guess my question is, does the $37 I paid (actually it was $45 with all the taxes) exceed the total cost of the flight divided by the number of seats on the plane?
-------

For Southwest and most of the other low-cost airlines, the answer is probably yes. For the majors, the answer is probably no.


User currently offlineBarcode From Switzerland, joined Dec 2001, 678 posts, RR: 11
Reply 14, posted (11 years 2 months 2 weeks 6 days 14 hours ago) and read 2564 times:

I obviously wasn't paying attention ... I flew from RDU to FLL ... with a change of planes in Orlando. Total cost was $70 something dollars just over a year ago. Flew from ATL with Airtran.

*needs to be more observant*


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