Tango-Bravo From United States, joined Jun 2001, 3348 posts, RR: 38 Posted (4 years 9 months 2 weeks 3 days 2 hours ago) and read 1029 times:
...as we read in topics started almost daily in this forum, then who is "forcing" the legacies to offer the absurd loss-leader non-profit fares they try to blame on LCC competition?
Ssides From United States, joined Feb 2001, 3863 posts, RR: 32 Reply 1, posted (4 years 9 months 2 weeks 3 days 1 hour ago) and read 997 times:
First, the term "LCC" does not mean low-fare carrier. It means low-cost carrier, meaning that the LCCs' cost per seat-mile is generally much lower than the legacy carriers.
Second, LCC fares are not currently lower -- but they've driven fares lower -- much lower than they used to be. In any given market that WN, F9, FL, etc. enter, fares plummet. For example, US was probably charging upwards of $1500 for a walk-up fare from PHL to LAX. WN then came in with their maximum $600 round-trip fare. US couldn't just sit back and let WN undercut them by more than 50% on this route, so they matched the fare.
If you take a look at any airport where an LCC and legacy carrier compete, compare fares on two different routes of similar distance and city size -- one where there is LCC competition, one where there is no LCC competition.
Actually, I've done it for you:
Let's take SLC-DEN and SLC-PHX. There's no LCC competition on SLC-DEN, but WN flies SLC-PHX.
For a flight departing Monday and returning Tuesday, DL is $832 on SLC-DEN (for a flexible, refundable fare). WN is $292 for the same flexible fare on SLC-PHX.
[note: for SLC-PHX, DL's refundable flexible fare is still $698]
If WN were to move into the SLC-DEN market (doubtful, but just for the sake of the argument), DL would have to lower its fares on this route. It would do so, however, with the same high-cost structure. That's why the legacy carriers are having this difficulty.
1MillionFlyer From , joined Dec 1969, posts, RR: Reply 4, posted (4 years 9 months 2 weeks 3 days 1 hour ago) and read 956 times:
Quoting Tango-Bravo (reply 0): ...as we read in topics started almost daily in this forum, then who is "forcing" the legacies to offer the absurd loss-leader non-profit fares they try to blame on LCC competition?
Supply and Demand is forcing them to offer lower prices. Over Supply = cheap airfares.
Tango-Bravo From United States, joined Jun 2001, 3348 posts, RR: 38 Reply 6, posted (4 years 9 months 2 weeks 3 days 1 hour ago) and read 933 times:
Good explanation and example of how LCCs effect fares of the legacies at the high end of the fare spectrum; but what about the low end? Why do the legacies seem to feel compelled to "out low fare" the low fare airlines at the loss-leader end of the fare spectrum?
Assuming it is true that LCC fares on a given route are higher than those of a legacy on the same route -- a claim often seen at this forum -- it would seem that the legacies are therefore undercutting the very LCCs they like to blame for their own weak yields. That, to me, is the height of foot-in-mouth absurdity.
At the very least, it would seem that the legacies could/would/should price their fares up to the higher fares of WN and the other LCCs. Or has it come to the place where the legacies cannot get people to fly with them instead of WN/B6/F9/FL etc unless the legacy offers a lower fare than the supposed low fare leaders?
Ssides From United States, joined Feb 2001, 3863 posts, RR: 32 Reply 7, posted (4 years 9 months 2 weeks 3 days 1 hour ago) and read 1103 times:
To give you an idea of where LCC competition is, however, compare these maps of legacies' cities to the maps of LCC cities. Legacies are drawing a larger share of their revenue from small and medium-sized markets that LCCs probably won't touch:
Ssides From United States, joined Feb 2001, 3863 posts, RR: 32 Reply 8, posted (4 years 9 months 2 weeks 3 days 1 hour ago) and read 923 times:
Quoting Mariner (reply 5): I'm not sure that the LCC's are exclusively to blame.
Last Monday, on Travelocity, United was offering DEN/TUL non-stop r/t for $368.
Understand, however, that those fares are RESTRICTED. On most LCCs, their $600 round-trip fares are completely UNRESTRICTED. You can refund them, change them, etc., at your will. When comparing fares, you should compare the legacies' unrestricted fare to the LCC unrestricted fare.
Mariner From New Zealand, joined Nov 2001, 13748 posts, RR: 94 Reply 10, posted (4 years 9 months 2 weeks 3 days 1 hour ago) and read 924 times:
Ssides:
Using Frontier/United again:
UAL dropped DEN/LIT after 9/11 (I think). Frontier started it last year as Jet Express, and the result, according to the CEO, has been outstanding. There are many rumors that it will go to mainline.
Surprisingly, this was one occasion when United did not feel compelled to fight Frontier directly.
Instead, United gave us DEN/XNA - and the $104 fare quoted above. It is hard to believe that United is making money (especially since it is Express) with that kind of fare - given that I understand it is the cheapest fare, not the only fare.
Supply and Demand, over supply means lower equilibrium price since people will buy more of something at a low price more seats are sold, however as we all know YEILD (Profitability) of all those full seats is very very low to negative.
Would you buy 2 CD's at the music store if they were 1.98 as opposed to 12 dollars? same thing.
Srbmod From United States, joined Mar 2001, 14261 posts, RR: 62 Reply 13, posted (4 years 9 months 2 weeks 2 days 5 hours ago) and read 748 times:
AIRLINERS.NET CREW FORUM MODERATOR
Then you have routes where the only competition to the LCC service is done by the regional affliate of an airline, or there is no direct competition at all. I'll use FL and service out of ATL as an example:
ATL-GPT. Other than the Saturday-only flight by DL, FL's competition on the route is 6 RTs a day by EV (4 using CRJ-200s, 2 using CRJ-700s). Prices on the route (for this example 3/19/05 departure 3/22/05 return): FL $174.40 EV/DL: $181. While $6.60 may not seem like a lot of money, that shows the effect FL has had on the route.
ATL-MYR. With the route being seasonal for FL, EV really has it to themselves with the exception of the Hooters Air flights several times a week. Currently the cheapest EV/DL flight on the route for a 3/19 departure and a 3/22 return is $322 (You can fly US Airways for $100 less but have to connect @ CLT). Hooters Air wants $248.40 to fly the same route on 3/18 returning 3/21. To show how FL affects the market when they're on the route, I chose some dates in May (5/5 and 5/9) here's the prices:
FL: $164.40
DL: $171
Hooters Air: $158.40
That's a sizable drop in the fares when FL is on the route.
Now for routes where FL has no competition:
ATL-MLI. (Using the 3/19 and 3/22 dates).Cheapest FL nonstop is $333.40. Cheapest ticket on the route is $211 (AA to ORD then MLI, FL MLI-ATL).
ATL-BMI. (3/19 and 3/22) Cheapest FL nonstop is $198, which is also the cheapest fare period. I was kind of surprised considering the price on MLI in the above example.
NW7E7 From United States, joined Jun 2004, 526 posts, RR: 8 Reply 14, posted (4 years 9 months 2 weeks 1 day 17 hours ago) and read 632 times:
Mariner:
UA dropped DEN-LIT shortly before 911 and then dropped ORD-LIT a month or so after 911.
I was scheduled on a UA flight to BHD via ORD and LHR the following March but then they dropped those flights and my parents had to go to MEM to get the refund since UA moved out of LIT and that was the closest ticket counter around. We eventually ended up going on DL to ATL and then taking BA the rest of the way.
ViveLeYHZ From Canada, joined Dec 2004, 194 posts, RR: 20 Reply 15, posted (4 years 9 months 2 weeks 1 day 11 hours ago) and read 578 times:
T-B,
Before joining A.net, I thought LCC were in fact low-fare carriers. Now I know better. As mentioned above by others, Legacy carriers have to match LCC prices in order to compete. Often times Legacy carriers offer lower fares but with restrictions and advance purchase requirements.
Predicting the future is a tricky business, but in order for them to make money Legacy carriers will have to become a lot more like LCC, and the only way to do that is to bring costs down. AC with its employees and unions have gone (the employees are still going) through the pains of restructuring the airline. However, AC's cost (CASM) is still higher than Westjet's, Canada's No.1 LCC. The evolution of AC is far from over. On the other side of the border, it is not yet clear what the new UA will look like, or how AA, CO, and DL plan on avoiding bankruptcy without (major) cost cuts.
I think what we are seeing today can be traced back (in my opinion) to the deregulation of the industry. Today's legacy carriers grew up in a culture of strict government regulations, which ensured their profitability. Air Canada was more than regulated, it was government owned. When the airline industry was deregulated, and competition was the name of the game, many airlines could not survive (e.g., Eastern Airlines, PanAM, TWA) and the Big Six were in control. The recessions of the 1980s and 1990s, with the high interest rates of the 80s, and the troubled state of the industry all acted to stop new LCC from ever existing, or existing ones from expanding. The result is that surviving legacy carriers were managed in the same way they were in the era of government regulation. Things like low oil prices and the economic boom of the 1990s didn't force legacy carriers for change their ways, that is until now.
I hope I am not too off topic (and not too wrong either).
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