727LOVER
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LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 2:05 pm

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.

I feel woozy....what did you put in that Pudding Pop?
 
Guest

RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 3:25 pm

Southwest should operate as their name implies. In the "Southwest". Since when did the east coast become part of the Southwest anyway.
 
Pe@rson
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RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 8:12 pm

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."
 
goingboeing
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RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 8:41 pm

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]
 
Guest

RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 8:47 pm

Have some humor. I'm just burned out on the LCC's. I mean, how many do we really need?
 
goingboeing
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RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 9:14 pm

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.
 
A330323X
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RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 9:16 pm

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.
 
BUFjets
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RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 9:48 pm

Don't WN and FL already compete on BWI to Florida routes? There seems to be room for them both in BWI.
 
GSPSPOT
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RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 9:51 pm

I'll take AirTran or America West over other LCC's any day!
Finally made it to an airline mecca!
 
rumorboy
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RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 10:53 pm

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.
 
Pe@rson
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RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 10:54 pm

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."
 
727LOVER
Topic Author
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RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 11:19 pm

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?
I feel woozy....what did you put in that Pudding Pop?
 
Guest

RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 11:22 pm

Personally, I could do with a lot more MEH and a lot less SWA.
 
727LOVER
Topic Author
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RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 11:28 pm

MEH?????? My guess is Midwest Express Holdings. Do I win the car? Big grin
I feel woozy....what did you put in that Pudding Pop?
 
Guest

RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 11:36 pm

Ding! Ding! Ding!!!!  Smile/happy/getting dizzy
 
FlyPNS1
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RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 11:47 pm

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.
 
worldtraveler
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RE: LCCs Are Bumping Into Each Other

Fri Oct 31, 2003 11:57 pm

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.