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LCCs Are Bumping Into Each Other  
User currently offline727LOVER From United States of America, joined Oct 2001, 6422 posts, RR: 17
Posted (10 years 10 months 1 week 18 hours ago) and read 2743 times:

http://www.usatoday.com/money/biztravel/2003-10-29-southwest-lowfare_x.htm


Southwest puts low-fare airlines in direct competition

By Dan Reed, USA TODAY

Southwest Airlines' (LUV) May arrival in Philadelphia could be bad news not only for high-cost US Airways (UAIR), but also for two rival discounters, AirTran (AAI) and JetBlue (JBLU).
It's the clearest sign yet that the competitive free ride that low-cost carriers have enjoyed the past couple of years is ending. Discount airlines are beginning to bump into one another as they grow. The big, high-cost carriers are starting to fight back.(Fare Compare: The Southwest effect)

Consumers will benefit. History shows that fares tumble when low-cost carriers enter markets. In the few markets where discount carriers face off, prices fall more. But that cuts into the discounters' profits.

Southwest is jumping into Philadelphia now partly to head off a costly battle later. Chief Financial Officer Gary Kelly told reporters last week that, "We don't want to wake up in five years and find that another (discounter) has established a strong presence in a market we want to enter."

Analyst Jamie Baker at J.P. Morgan Securities says Southwest's Philadelphia move is a "modest disappointment" for AirTran, which has higher costs than Southwest. It could face pressure to lower prices on its flights from Philadelphia to four Florida cities and to Boston if Southwest chooses to fly those routes. Any growth plans it might have had there now will be subject to what Southwest does.

For New York-based JetBlue, it is a "psychological negative," Baker says. "Hand-to-hand combat is likely years away." But the two are "one step closer" to a showdown.

Other examples of rising competition among discounters:

• JetBlue is withdrawing from Atlanta-Long Beach and Atlanta-Oakland in December, after six months. Delta and AirTran protected their Atlanta hubs by flooding the market with cheap seats.

• America West (AWA) launched its first non-stop transcontinental flights Sunday from New York's Kennedy Airport to Los Angeles International Airport (vs. JetBlue's JFK-Long Beach service). Prices in the New York-Los Angeles market now go as low as $278 round trip, restricted; $299 one way, unrestricted.

• ATA (ATAH), which competes with Southwest at Chicago's Midway Airport, has scratched out a couple of quarterly profits this year but not enough to meet a $300 million bond debt payment due in November. A debt-restructuring deal is in the works.

The high-cost carriers also are beginning to fight the discounters.

• US Airways CEO David Siegel says his carrier must defend itself in Philadelphia, where it gets 25% of its revenue.

• American (AMR) CEO Gerard Arpey says discounters have had it "pretty easy" competing against high-cost airlines lately, but, "We are not running from these (discounters) anymore." American could announce a major simplification of its pricing and services by Thanksgiving.

• In the spring, Delta (DAL) launched Song, a low-cost secondary brand, to compete against JetBlue and other low-cost carriers. United wants to launch a similar low-cost brand next year.




Listen Betty, don't start up with your 'White Zone' s*** again.
16 replies: All unread, jump to last
 
User currently offlineBoingGoingGone From , joined Dec 1969, posts, RR:
Reply 1, posted (10 years 10 months 1 week 17 hours ago) and read 2542 times:

Southwest should operate as their name implies. In the "Southwest". Since when did the east coast become part of the Southwest anyway.

User currently offlinePe@rson From United Kingdom, joined Jan 2001, 19215 posts, RR: 52
Reply 2, posted (10 years 10 months 1 week 12 hours ago) and read 2478 times:

There should be as much proper competition as the market allows, in order to drive down the prices for the all-important consumer (price is arguably the best ingredent for loyal travellers) and to increase consumer choice. However, if predatory pricing is allowed to exist for a long time, some weak carriers would certainly be forced to withdraw from the markets and so consumer choice would again be limited.


"Everyone writing for the Telegraph knows that the way to grab eyeballs is with Ryanair and/or sex."
User currently offlineGoingboeing From United States of America, joined Dec 1999, 4875 posts, RR: 16
Reply 3, posted (10 years 10 months 1 week 11 hours ago) and read 2425 times:

Southwest should operate as their name implies. In the "Southwest". Since when did the east coast become part of the Southwest anyway.

Since when did Memphis and Detroit and Minneapolis become part of the "Northwest"?

Using your logic, "Delta" should only serve the Mississippi Delta region (where it was founded and what it was named for). American should only serve America. "America West" has no business near the East Coast.

[Edited 2003-10-31 12:43:37]

User currently offlineBoingGoingGone From , joined Dec 1969, posts, RR:
Reply 4, posted (10 years 10 months 1 week 11 hours ago) and read 2403 times:

Have some humor. I'm just burned out on the LCC's. I mean, how many do we really need?

User currently offlineGoingboeing From United States of America, joined Dec 1999, 4875 posts, RR: 16
Reply 5, posted (10 years 10 months 1 week 11 hours ago) and read 2355 times:

Well, Delta thinks we need Song, United thinks we need whatever they plan on naming their new entry. When what they really need to do is streamline the fares on their mainline entities.

User currently offlineA330323X From United States of America, joined Oct 2003, 3039 posts, RR: 44
Reply 6, posted (10 years 10 months 1 week 11 hours ago) and read 2349 times:

Analyst Jamie Baker at J.P. Morgan Securities says Southwest's Philadelphia move is a "modest disappointment" for AirTran, which has higher costs than Southwest. It could face pressure to lower prices on its flights from Philadelphia to four Florida cities and to Boston if Southwest chooses to fly those routes. Any growth plans it might have had there now will be subject to what Southwest does.

Yeah, can't wait to see WN compete with FL on PHL-RSW and PHL-BOS.  Smile



I'm the expert on here on two things, neither of which I care about much anymore.
User currently offlineBUFJets From United States of America, joined Jan 2001, 231 posts, RR: 0
Reply 7, posted (10 years 10 months 1 week 10 hours ago) and read 2281 times:

Don't WN and FL already compete on BWI to Florida routes? There seems to be room for them both in BWI.

User currently offlineGSPSPOT From United States of America, joined Sep 2003, 3016 posts, RR: 2
Reply 8, posted (10 years 10 months 1 week 10 hours ago) and read 2270 times:

I'll take AirTran or America West over other LCC's any day!


Finally made it to an airline mecca!
User currently offlineRumorboy From United States of America, joined Aug 2002, 356 posts, RR: 1
Reply 9, posted (10 years 10 months 1 week 9 hours ago) and read 2203 times:

Airtran competes directly with SWA on BWI-FLL,BWI-MCO,BWI-TPA. Its seems to be working ok. BWI is one of Airtran's highest yield markets.

If you really want to see a true test of the LCC's look at AWA and ATA. Both compete directly with Southwest on a lot of there markets. Especially PHX and LAS. I would think ATA probably has 10-15 routes that SWA directly compete at MDW.

I got a question for everybody. By the end of next year(2004) Airtran and Jetblue will probably be classified as majors based on revenue projections. I think you will have 14 or 15 major airlines in the U.S. Do you think that there are too many majors in the domestic U.S. market? If so, do you think consolidation is going to happen in 2,3 or 4 years now. My personal opinion is as these LCC's really start bumping heads its inevitable that mergers, acquisitions or maybe some going out of business is going to happen. Too many airlines and not enough passengers.


User currently offlinePe@rson From United Kingdom, joined Jan 2001, 19215 posts, RR: 52
Reply 10, posted (10 years 10 months 1 week 9 hours ago) and read 2187 times:

Quite simply, passengers want low prices and, to a lesser extent, choice and frequency. If an airline, be it a new low-fare carrier or one which is traditionally of the high-fare variety, offered low prices, then people will travel more and more aboard it. Offer low fares, and you'll carry more people - and in the end, earn a larger profit.


"Everyone writing for the Telegraph knows that the way to grab eyeballs is with Ryanair and/or sex."
User currently offline727LOVER From United States of America, joined Oct 2001, 6422 posts, RR: 17
Reply 11, posted (10 years 10 months 1 week 9 hours ago) and read 2127 times:

Have some humor. I'm just burned out on the LCC's. I mean, how many do we really need?


How many traditional carriers do we need?



Listen Betty, don't start up with your 'White Zone' s*** again.
User currently offlineBoingGoingGone From , joined Dec 1969, posts, RR:
Reply 12, posted (10 years 10 months 1 week 9 hours ago) and read 2121 times:

Personally, I could do with a lot more MEH and a lot less SWA.

User currently offline727LOVER From United States of America, joined Oct 2001, 6422 posts, RR: 17
Reply 13, posted (10 years 10 months 1 week 9 hours ago) and read 2104 times:

MEH?????? My guess is Midwest Express Holdings. Do I win the car? Big grin


Listen Betty, don't start up with your 'White Zone' s*** again.
User currently offlineBoingGoingGone From , joined Dec 1969, posts, RR:
Reply 14, posted (10 years 10 months 1 week 9 hours ago) and read 2080 times:

Ding! Ding! Ding!!!!  Smile/happy/getting dizzy

User currently offlineFlyPNS1 From United States of America, joined Nov 1999, 6606 posts, RR: 24
Reply 15, posted (10 years 10 months 1 week 8 hours ago) and read 2062 times:

Airtran and WN do compete on the Florida routes, however Florida is a little unique because it has such a ridiculous amount of volume that multiple LCC's can do well. However, when LCC's go head to head out of other markets which don't have such levels of volume, things will get tougher.

LCC's primarily target (skim) only higher volume routes with high O+D. However, there are only so many of these routes in existence. One reason some of the LCC's are growing so insanely is they are in a mad dash to grab every high volume route they can before another LCC gets there first.

With 10-15 major airlines, I do expect some consolidation in the future. I expect a few of the traditional majors to merge as well as a few of the LCC's to be blended together.


User currently offlineWorldtraveler From , joined Dec 1969, posts, RR:
Reply 16, posted (10 years 10 months 1 week 8 hours ago) and read 2031 times:

Rumorboy,
yes, I do think there will be consolidation in the industry. More than 10 airlines with nationwide scope is way too many in the US, even considering the US is the biggest aviation market in the world. It will probably happen first among the traditional network airlines who will try to expand their network and revenue in order to maintain an advantage over the LCC's. The first round will involve weaker and/or smaller network carriers. The next round could well involve LCC's - either as the acquirer or acquirer. Given market capitalization of the LCC's relative to the network carriers, it is highly possible that the LCC's could be the acquirers, assuming that the network carriers succeed at getting costs down to a point where they are competitive w/ the LCC's but before those cost savings and ability to compete begin to show up in the network carrier's financial performance.

As LCC's grow into more congested airports and take on additional fleet types, their costs will increase - while network carrier costs will be going down. While they may not be identical in the future, they will move much closer together than they are today. At the same time, the stimulatory effect from low fares will only provide growth for a few more years. At some point, most major markets will be served by LCC's and the LCC growth rate will trail off considerably. That is the point at which LCC's will begin looking to acquire or sell.


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