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Question About LCC Economics  
User currently offlineLHCVG From United States of America, joined May 2009, 1535 posts, RR: 1
Posted (4 years 9 months 5 days 21 hours ago) and read 3401 times:

I noticed an FL 73G flying in to CMH today on my way back from working out, and it got me thinking about whether the sole-type model of WN is better for LCC's or whether using multiple types like B6 or FL do is the better course? The way I see it is that on the one hand, the WN model is obviously good from a simplicity standpoint, but then again following the old legacy model of different models to tailor specific needs (e.g., FL's 717 is probably a better option on a short, thinner route than a "big" 737) can free up more capable (and expensive) equipment for where it's needed.

20 replies: All unread, jump to last
 
User currently offlineSuper737 From UK - Northern Ireland, joined Feb 2008, 105 posts, RR: 0
Reply 1, posted (4 years 9 months 5 days 21 hours ago) and read 3384 times:

The whole focus of LCC's is to ensure the lowest cost. By operating a single fleet, you can derive the following efficiencies:

- Reduced crewing and training costs
- Nil impact on aircraft changes i.e. reduced capacity
- Reduced mx costs in regards to facilities, less training for engineers
- Greater flexibility in logistics of fleet movements

This allows airlines with one fleet types to ensure that the operation can flow smoother plus saves money on positioning crew from far away stations which are dedicated crew bases. So the savings from a one fleet type far outway the economics of operating thinner routes with a larger aircraft.



If its not a super tractor its not a plane
User currently offlineMariner From New Zealand, joined Nov 2001, 24974 posts, RR: 85
Reply 2, posted (4 years 9 months 5 days 20 hours ago) and read 3352 times:
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Quoting LHCVG (Thread starter):
he way I see it is that on the one hand, the WN model is obviously good from a simplicity standpoint, but then again following the old legacy model of different models to tailor specific needs (e.g., FL's 717 is probably a better option on a short, thinner route than a "big" 737) can free up more capable (and expensive) equipment for where it's needed.

There are arguments on both sides. Because Southwest has a single type - and because Southwest has been so successful - people say it is the best model for the LCC.

But both JetBlue and Airtran have two types in their fleets and both have a lower seat/mile costs than Southwest.

mariner



aeternum nauta
User currently onlineCubsrule From United States of America, joined May 2004, 22686 posts, RR: 20
Reply 3, posted (4 years 9 months 5 days 20 hours ago) and read 3344 times:



Quoting Super737 (Reply 1):
So the savings from a one fleet type far outway the economics of operating thinner routes with a larger aircraft.

There are other cost savings that come from multiple types, though. When an LFC has a single fleet type, it is often going to fly that type on a decent number of flights that have a lot of empty seats. Flying empty seats around costs money, and this cost is almost always going to be HIGHER with a single fleet type.



I can't decide whether I miss the tulip or the bowling shoe more
User currently offlineLHCVG From United States of America, joined May 2009, 1535 posts, RR: 1
Reply 4, posted (4 years 9 months 5 days 19 hours ago) and read 3297 times:



Quoting Cubsrule (Reply 3):
There are other cost savings that come from multiple types, though. When an LFC has a single fleet type, it is often going to fly that type on a decent number of flights that have a lot of empty seats. Flying empty seats around costs money, and this cost is almost always going to be HIGHER with a single fleet type.

That's what I'm thinking on balance. I've gotta believe there are a good number of flights/routes that are pretty lean for a 737, especially given that the single-class layout precludes much higher yielding First Class pax to help balance out a thin route.


User currently offlineIncitatus From Brazil, joined Feb 2005, 3995 posts, RR: 13
Reply 5, posted (4 years 9 months 5 days 19 hours ago) and read 3275 times:



Quoting LHCVG (Reply 4):
That's what I'm thinking on balance. I've gotta believe there are a good number of flights/routes that are pretty lean for a 737, especially given that the single-class layout precludes much higher yielding First Class pax to help balance out a thin route.

But it is not so simple. Those flights that are "pretty lean for a 737" have to be segregated onto another fleet and an efficient schedule has to be devised for them. It is never so clear cut in practice but most lower-load flights could be the ones in the afternoon. If the airline buys a smaller model, what will the 737s fly in the middle of day? The flexibility of multiple fleets is overstated if one does not detail exactly how that flexibility creates value.


User currently offlineElBandGeek From United States of America, joined Jun 2008, 753 posts, RR: 0
Reply 6, posted (4 years 9 months 5 days 19 hours ago) and read 3273 times:

Techinically WN does have multiple types. Their 73Gs and 733s have the same seating capacity, but they also have 735s which are smaller. Assuming they put those on thinner routes, how would the economics compare to FL or B6 flying a similar route with a 717 or E190? I know they're obviously heavier and not as good on fuel, but how much of that is offset by it's own advantages like same type rating across the fleet.

User currently onlineCubsrule From United States of America, joined May 2004, 22686 posts, RR: 20
Reply 7, posted (4 years 9 months 5 days 18 hours ago) and read 3242 times:



Quoting Incitatus (Reply 5):
The flexibility of multiple fleets is overstated if one does not detail exactly how that flexibility creates value.

That's an excellent point, and I think it's why most multi-type LFCs have relatively large fleets of each type; FL has about 85 712s and about 55 73Gs, and B6 has about 40 190s and about 110 319s. You aren't going to see a 150-frame LFC with 140 73Gs and 10 190s, but you do sometimes see legacies with small subfleets.



I can't decide whether I miss the tulip or the bowling shoe more
User currently offlineRojo From Spain, joined Sep 2000, 2442 posts, RR: 9
Reply 8, posted (4 years 9 months 5 days 14 hours ago) and read 3222 times:



Quoting ElBandGeek (Reply 6):
Techinically WN does have multiple types. Their 73Gs and 733s have the same seating capacity, but they also have 735s which are smaller. Assuming they put those on thinner routes, how would the economics compare to FL or B6 flying a similar route with a 717 or E190? I know they're obviously heavier and not as good on fuel, but how much of that is offset by it's own advantages like same type rating across the fleet.

This is exactly what made B6 think twice about either adding a second type of aircraft or keep a single type with subtypes. With the single type they could have gone for the A318 and/or A319 and get the benefits of one fleet with subtypes in the 100 to 150 seat range. The A318 could have been configured with 100 seats and the A319 with 120 or so. They could have accomplished the following:

- Reduced crewing and training costs
- Minimum impact on aircraft changes (only reduced capacity / no problems with crews).
- Reduced mx costs in regards to facilities, less training for engineers

Nevertheless, the A318 proved to be uneconomical for many airlines, which translates in very few sales of the type around the world. Even WN realized that the B735 is not efficient compared to the B73G and decided not to go for the B736.


User currently onlineCubsrule From United States of America, joined May 2004, 22686 posts, RR: 20
Reply 9, posted (4 years 9 months 5 days 14 hours ago) and read 3224 times:



Quoting Rojo (Reply 8):
Even WN realized that the B735 is not efficient compared to the B73G and decided not to go for the B736.

That sentence conflates a couple of issues. The 735 is reasonably efficient compared to the 733. Neither one is efficient compared to the -NGs. The 736 is EXTREMELY inefficient when compared to its stablemates because it is quite heavy - I'd be interested to see a comparison of the economics of the 735 versus the 736, because I think the 735 might actually win that battle.



I can't decide whether I miss the tulip or the bowling shoe more
User currently offlineBurkhard From Germany, joined Nov 2006, 4379 posts, RR: 2
Reply 10, posted (4 years 9 months 5 days 7 hours ago) and read 3220 times:

One thing you have to consider are frequency requirements. If you can have many routes that you do not fly often, and fly 5 times a week in full season and only one a week in low season, then you can do that with one type. When you have seasonal changes and need to fly morning and evening, you may be better of with a mixed fleet. I don't think there is a rule that fits all LCC .

User currently offlineJoost From Netherlands, joined Apr 2005, 3159 posts, RR: 4
Reply 11, posted (4 years 9 months 5 days 4 hours ago) and read 3220 times:



Quoting Cubsrule (Reply 9):
The 735 is reasonably efficient compared to the 733. Neither one is efficient compared to the -NGs.

For short routes, the difference in efficiency between the classics and the NG 737s is not very big, most notably as the classics are considerably lighter than the NGs. The -300 for example, has an empty weight that's 8,000 lbs lower than the -700.

The efficiency gains of the NGs compared to the classics are coming to full fruition at longer routes. (And of course from lower maintenance costs, etc.)


User currently offlineAmatiel From United States of America, joined Aug 2009, 76 posts, RR: 0
Reply 12, posted (4 years 9 months 5 days 3 hours ago) and read 3220 times:

This is a very complicated question to answer that involves a lot more information than we have available or that can be made public and depends very much on the particular airline involved.

Quoting Mariner (Reply 2):
But both JetBlue and Airtran have two types in their fleets and both have a lower seat/mile costs than Southwest.

Very good point although a good chunk of JetBlue and Airtran's cost advantage comes from labor costs compared to Southwest and not as much from fleet selection.

The bottom line for LCC's is that the fleet type should be matched to the operation. Ultimately every fleet type you add will increase cost on the maintenance/training side, but you may be able to pick up a second fleet at a substantially lower purchase price (737's are not cheap by comparison to some of the other planes out there). Multiple fleets also allow you to make certain cities work. Some of these smaller cities may also have lower operating costs which may offset the increase in maintenance/training costs as well.

I guess my final thought would be that there is not a 'correct' answer. If Southwest went to more fleet types with their current model would their costs increase? Most likely, yes they would. If Airtran went to a single fleet type with their current model would their costs increase, probably yes.


User currently offlinePlanesavvy From United Kingdom, joined Jul 2007, 65 posts, RR: 0
Reply 13, posted (4 years 9 months 4 days 22 hours ago) and read 3220 times:

I might be mistaken, but I seem to remember reading that Air Berlin decided to operate a mixed fleet of 738 and 320s as they simply weren't able to find enough 737 pilots.

User currently offlineFrontLinerWN From United States of America, joined Sep 2009, 9 posts, RR: 0
Reply 14, posted (4 years 9 months 4 days 22 hours ago) and read 3220 times:



Quoting Amatiel (Reply 12):
Very good point although a good chunk of JetBlue and Airtran's cost advantage comes from labor costs compared to Southwest and not as much from fleet selection.

Bingo! WN has very high labor costs comparatively.

There is an article in the Dallas Morning News about six years back talking about a second aircraft to the current 737 fleet, particularly the Embraer 190 when it was new:

"Airline may add new jet
Southwest is taking a 'close look' at the Embraer 190, CEO says"
ERIC TORBENSON Staff Writer
Published: November 13, 2003

Considering the article is almost six years old, the idea may be a mute one, but what I have learned at WN in my eleven years of service is, never say never.

I can see many markets, such as the Dakotas, Montana, and Wyoming that could benefit from regional jet service from WN. When looking at our route map, we have a huge gap in that part of the country. But the economics associated with that is way above my pay grade.


User currently offlineDLPhoenix From United States of America, joined Aug 2007, 416 posts, RR: 0
Reply 15, posted (4 years 9 months 4 days 21 hours ago) and read 3220 times:

Fuel cost makes a huge difference. Fleet comonality may outweight fuel efficiency at $70/barrel while at $100/barrel fuel may become critical.

Quoting Cubsrule (Reply 7):
That's an excellent point, and I think it's why most multi-type LFCs have relatively large fleets of each type; FL has about 85 712s and about 55 73Gs, and B6 has about 40 190s and about 110 319s. You aren't going to see a 150-frame LFC with 140 73Gs and 10 190s, but you do sometimes see legacies with small subfleets.

Good point. At >50 frames of each type the airline is practically running two sets of decoupled operations, each large enough to benefit from economies of scale.

DLP


User currently offlineIncitatus From Brazil, joined Feb 2005, 3995 posts, RR: 13
Reply 16, posted (4 years 9 months 4 days 17 hours ago) and read 2241 times:



Quoting FrontLinerWN (Reply 14):
I can see many markets, such as the Dakotas, Montana, and Wyoming that could benefit from regional jet service from WN. When looking at our route map, we have a huge gap in that part of the country. But the economics associated with that is way above my pay grade.

Has Southwest run out of opportunities to deploy 737s? I do not think so. We are in a recession environment right now but as soon as the economy turns up they can return to a modest growth pace using 737s. They have no reason to pursue markets that require them to use smaller aircraft with higher unit costs.


User currently offlineRojo From Spain, joined Sep 2000, 2442 posts, RR: 9
Reply 17, posted (4 years 9 months 4 days 17 hours ago) and read 2229 times:



Quoting Cubsrule (Reply 9):
Quoting Rojo (Reply 8):
Even WN realized that the B735 is not efficient compared to the B73G and decided not to go for the B736.

That sentence conflates a couple of issues. The 735 is reasonably efficient compared to the 733. Neither one is efficient compared to the -NGs. The 736 is EXTREMELY inefficient when compared to its stablemates because it is quite heavy - I'd be interested to see a comparison of the economics of the 735 versus the 736, because I think the 735 might actually win that battle.

You are correct. It was supposed to be the B735 is not efficient compared to the B733, which carries more passengers. When the NG of the B737 family came, WN decided to get the B73G (similar in size to the B733) but not for the B736 (similar in size to the B735).

In the end, airlines like Ryanair decided to go for the B738 and try to fill them on every possible route they can find in Europe, since the additional cost of operating a B738 compared to the B736 or B73G on the same route is minimal (1 more flight attendant and more fuel). So far, it has been a success for FR, since they keep posting profits!!


User currently offlineJoost From Netherlands, joined Apr 2005, 3159 posts, RR: 4
Reply 18, posted (4 years 9 months 3 days 22 hours ago) and read 2065 times:



Quoting Rojo (Reply 17):
since the additional cost of operating a B738 compared to the B736 or B73G on the same route is minimal (1 more flight attendant and more fuel). So far, it has been a success for FR, since they keep posting profits!!

The additional costs of a 738 over a 73G are more than just "marginal". Indeed, for FR the 738 has turned out to work well, but for example easyJet has decided for the 73G and later for the 319, of similar size. True, they are currently adding A320s too, but the majority of their fleet will consist of 319s. Also WN has decided for the 73G iso the 738.

The 738 is quite a bit heavier than the 73G, amongst others as it has a different wing and landing gear than the 73G. The -600 and -700 have the same wing & LG, as have the -800 and -900. The 737-700ER has the -700 fuselage and -800 wing & LG. Both the -700 and -800 are very efficient on their own. It's not like the -600 and -700. Additionally, -800s are more expensive (higher lease or financing costs) and heave a higher MTOW (higher nav. charges and landing fees on certain airports).

The -700 is defenitely not a stepchild (like the -600) and this is proven by it's excellent order book (although the -800 still sells twice as good, true).


User currently onlineCubsrule From United States of America, joined May 2004, 22686 posts, RR: 20
Reply 19, posted (4 years 9 months 3 days 22 hours ago) and read 2045 times:



Quoting Joost (Reply 18):
The 738 is quite a bit heavier than the 73G, amongst others as it has a different wing and landing gear than the 73G.

For most legacy carriers, the trip costs are very close.

Quoting Joost (Reply 18):
Indeed, for FR the 738 has turned out to work well, but for example easyJet has decided for the 73G and later for the 319, of similar size. True, they are currently adding A320s too, but the majority of their fleet will consist of 319s. Also WN has decided for the 73G iso the 738.

I think the difference is load factors. The 73G flies 110 people around much more cheaply than does the 738. Conversely, the 73G cannot fly 150 people around. Carriers that can consistently fill the 738 are likely going to fins them much more to their liking.



I can't decide whether I miss the tulip or the bowling shoe more
User currently offlineViscount724 From Switzerland, joined Oct 2006, 24670 posts, RR: 22
Reply 20, posted (4 years 9 months 3 days 19 hours ago) and read 1959 times:



Quoting Joost (Reply 18):
The -700 is defenitely not a stepchild (like the -600) and this is proven by it's excellent order book (although the -800 still sells twice as good, true).

If you look at recent orders (past 2 years or so), the -800 is selling at more than 3 times the rate of the -700. Orders for the -800 alone already exceed total production of all 737 classic models combined (-100/200/300/400/500).


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