JMV
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CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 3:45 am

In a Wall Street Journal article, CO President Jeff Smisek told financial analysts that DL's Simplifares are stupid.

"Simplifares are simply stupid," Smisek said at a JP Morgan conference Thursday. "Our friends in Atlanta kind of finished off the domestic system for us."

Executives at NW and AA concur that the pricing program is harmful to their companies.

Who is really dumb here? DL, or the Lemmings that followed? If they don't believe the pricing is smart, why the heck did they match it? Why aren't the boards of these other airlines calling for the heads of their executives for matching pricing that perpetuates the red ink?

To paraphrase Forrest Gump, "Stupid is, as stupid follows!"
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airtran737
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 3:57 am

Actually it is "Stupid is as stupid does."
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DAL767400ER
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 4:13 am

Cry me a river. DL is just doing what it finds essential to staying afloat, and if CO doesn't like it, they can come up with their own reaction. After all, it's not that yields were that great before DL announced Simplifares.
 
swadispatcher
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 4:14 am

Because if they don't follow the price cuts, they don't usually get the Customers.. pricing tends to influence 85% of people's buying habits on airfares.
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762er
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 4:16 am

DL is going to be hurt by their pricing more than anyone else because they have the most out-of-whack cost structure. You'd think they'd get their costs in order to justify the fares. They've done the opposite. What, did they think that other airlines weren't going to match. The other airlines have no choice.
 
Danny
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 4:18 am

"Cry me a river. DEL is just doing what it finds essential to staying afloat,"


The point is they actually do the opposite. There are three big problems for airlines in the US:
1. Fuel prices (beyond their control)
2. Overcapacity
3. Low fares

So what did Delta do? Increased capacity and lowered the fares even more. Nuts That is insane!

Obviously competitors must match prices to avoid loosing customers.
 
AeroWesty
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 4:24 am

It wasn't so long ago that airfares changed so infrequently that airlines could actually print them in their timetables. There was a fare listed for first, coach, sometimes night coach, and an advance purchase fare named something like "Discover USA." That was it.

With the right to fly anywhere they want at any time they want, airlines were also allowed to charge whatever they wanted. It's called a level playing field.

CO and other airlines have had 27 years to adapt to deregulation. If they've not by now rationalized their fleets, streamlined operations, and come up with a marketable fare structure suitable to the across-the-board standardization of service predicted to come about in 1978 by Alfred E. Kahn, former head of the CAB, then it's too late to be calling innovations by other airlines as "stupid." Instead, they should just come right out and say they would prefer to be regulated again.
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copter808
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 5:17 am

Jeff actually made that statement about a week and a half ago to CO employees. He probably made it long before that as well!

Further reducing fares below cost to provide the srevice is not wise.
 
FlyPNS1
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 5:27 am

Further reducing fares below cost to provide the srevice is not wise.

DL isn't lowering fares below cost. They simply lowered outrageously high walk-up fares to more reasonable prices. Trust me, a one-way ticket for $499 still covers the cost. DL also raised many of the fares in the lower, advanced purchase fares.

CO is simply unhappy, because they do not want to face reality. CO's management is extremely inflexible and unwilling to change. While CO many be stronger now, if their management doesn't wake up and face reality, CO may find itself in real trouble.

Keep in mind, much of CO's success the past ten years had NOTHING to do with management skill. CO's management rode their extremely low-cost structure (caused by the 2 BK's in the early 90's) to financial success. Now, other airlines are lowering their costs (inside and outside of BK) and CO's management isn't quite sure what to do.
 
AeroWesty
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 5:31 am

Quoting Copter808 (reply 7):
Further reducing fares below cost to provide the srevice is not wise.


The Simplifares, as I understand them, reduced the very high walk-up fares, along with removing some restrictions on advance purchase fares such as Saturday night stay requirements. I've read that some of the lowest fares actually went up 10-15%.

Honest question -- is $599 one-way across the country in first class below cost?
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Midway2AirTran
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 5:33 am

I think the comments and releases from competing Legacy carriers is simply helping DL's simplifares, funny that they are following the same trend on fares too. These type of comments fuel general public perception that DL simply slashed all its fares when in reality they raised fares for the majority of passengers.

Could this little PR gimmick really be a under-the-table collusive effort of the legacy carriers to raise yeilds on the bottom out pricing and attempt to turn public attention away from growing LCCs? I believe that it's a possibility.

Just a little conspiracy theory to the mix  Big grin
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SESGDL
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 5:36 am

Danny,

"The point is they actually do the opposite. There are three big problems for airlines in the US:
1. Fuel prices (beyond their control)
2. Overcapacity
3. Low fares"

The thing about overcapacity is a myth. They was overcapacity after 9/11, but how many people do you know that are still refusing to fly? If there was so much overcapacity the airlines wouldn't be having record loads and constantly new routes opening.

Jeremy
 
Tango-Bravo
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 6:12 am

Further reducing fares below cost to provide the srevice is not wise.

Simplifares are not the culprit (nor is overcapcity) with regard to the yield-depressing pricing insanity practiced by the U.S. legacies. The real issue behind below-cost yields is the totally senseless loss-leader fares that the legacies continue to offer in the interest of market share and load factors above all else, including profit. With load factors and pax numbers at all-time highs, the market will absolutely positively bear higher fares, especially if there is consistency in what pax can expect to pay.

BTW, since CO and NW are among the harshest critics of Simplifares, they should do Delta a favor and terminate their alliance with DL. For Delta, it would be a significant step in the right direction.
 
OttoPylit
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 6:21 am

BTW, since CO and NW are among the harshest critics of Simplifares, they should do Delta a favor and terminate their alliance with DL. For Delta, it would be a significant step in the right direction.

Because the alliance is actually helpful to all the airlines. It provides each of the airlines more choices to send customers where they want to go and attract new customers who need to go to those places.

Besides, even when the NW/CO alliance was announced, it was made a point that the carriers will still be competitors in the market, but if you need to lean on one another to make a buck, then so be it. You can still help out each other and be competitors at the same time.
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Zone1
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 6:22 am

Quoting Midway2AirTran (reply 10):
I think the comments and releases from competing Legacy carriers is simply helping DL's simplifares


I fully agree. When average Joe Consumer reads in the newspaper, CO CEO mad at DL's cheap fares, what airline do you think he will check out when he requires airline travel? The buzz created by Simplifares is tremendous as seen by the amount of traffic to delta.com. The new commercials are ridiculously stupid though.
/// U N I T E D
 
legendDC9
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 6:26 am

I think many are missing an important point. Delta is in trouble. Delta did not lower fares in order to get more passengers and fill up their aircraft with more low fare paying passengers. Delta is simply playing "chicken" with the airlines that are even in deeper trouble than it is (UA, US, TZ), knowing they would have to match fares in order to compete. In order to survive, DL (and any airline for that matter) needs one of the big players to simply die out. By reducing fares, simplifying and what not, they are cutting off more and more revenue to the industry. The airlines that have the deepest pockets and lowest operating costs will be the ones to survive. As soon as a major player dies out, fares are going to jump, because or reduced competition and less traffic.
Overcapacity is not a myth, it is alive and well. seriously, do we really need 80 daily flights between LAS and the LA area? or 60 between SEA and the bay area? These flights run at 50% capacity during the week, and if those pax paid more than $100 for their round trip, they probably just didn't look hard enough.
 
1MillionFlyer
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 6:31 am

Quoting LegendDC9 (reply 15):
Overcapacity is not a myth, it is alive and well. seriously, do we really need 80 daily flights between LAS and the LA area? or 60 between SEA and the bay area? These flights run at 50% capacity during the week, and if those pax paid more than $100 for their round trip, they probably just didn't look hard enough.


Thanks for that I totally agree. Overcapacity is really true, even for LCC's !

I was on a WN flight on a Wednesday (2 feb) 7AM flight to CLE from BNA with 27 people on a 733. later that week going to MSY from BNA - Sold out both ways. Even WN has flights that arn't always full.
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DAL767400ER
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 6:46 am

Quoting Danny (reply 5):
So what did Delta do? Increased capacity and lowered the fares even more. Nuts That is insane!

You mean increasing capacity through planning the retirement of 52 100-seat 732s, 26 120/128-seat 733s, 16 150-seat MD-90s and 15 200-seat 762s over a 4-year period? Definitely sounds like adding capacity  Yeah sure .
Quoting Zone1 (reply 14):
I fully agree. When average Joe Consumer reads in the newspaper, CO CEO mad at DL's cheap fares, what airline do you think he will check out when he requires airline travel? The buzz created by Simplifares is tremendous as seen by the amount of traffic to delta.com.

Absolutely. After all, when you have a 300% increase in website visits over a three-day period, it seems you must be doing something right.
 
warszawa
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 6:48 am

Quoting JMV (reply 0):
If they don't believe the pricing is smart, why the heck did they match it?


Continental has matched it in some markets, but from what I see, Northwest hasnt, at least from my experience searching for tickets from Florida. I was trying to get home TPA-FNT (one way ticket) in March and have been checking everyday since mid - January. I've come across Continental fares that were around $120 or so...and Deltas would stay around $114.70.

I preferred Northwest, which is why i didnt book. This Tuesday i gave up waiting, and booked Delta TPA-CVG-FNT for $114.70 One Way...still a pretty good price.

Over the time i compared fares since about mid-january, the cheapest i've seen TPA-FNT was $217 one way for Northwest, and that was an evening departure. For the morning flights (around 8am or so)... as of last Tuesday, Northwest wanted about $370 one way, totally ridiculous. Checked the seats on the 757 flight for TPA-DTW (not going to mention DTW-FNT since thats irrelavent to this topic), basically about 95-97% empty...pretty pathedic.

Didnt want to risk waiting longer so thats why i went ahead and booked Delta. But, anyways, like i said, Northwest from what i see hasnt really matched anything (in response to DL that is...they have in some AirTran markets out of FNT), at least in the Florida market.
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lawgman
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 6:55 am

I recommend everyone take a quick read of the following presentation given by Robert Milton of Air Canada back in November. I think it explains what Delta might be trying to do and what the legacies are doing wrong (though the presentation was primarily about Air Canada).
http://www.aircanada.com/en/about/me...ons/documents/041118_wingsclub.pdf
 
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casinterest
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 7:04 am

Delta's prime interest in this is to go ahead and get US air to go out of business. If Delta can
1. Lower fares
2. Increase plane utilization
3. Lower costs.

It has the chance to lower the revenue stream that US air is still depending on for it's survival.

Delta has help in this endeavor. Southwest starting service in Pittsburgh and Airtran in Charlotte. These moves going to start putting more pressure on US Air.

Also lately here in RDU, COMAIR has started adding more traffic to cities such as Tampa , Ft Lauderdale, New Orleans and Orlando, and actually connecting them through to Boston, New York, and DC. This is a bit of a change from what I thought was an O&D model for RDU. They are directly competing with a lot of US Airways Express routes. Slowly but surely US Air is going to go away. Or they are going to take a lot of other airlines down.
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panamair
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 7:06 am

Delta was simply looking into the future and realizing that the industry is not going to be able to offer walk-up fares of over $1000 much longer. As others have mentioned, it's mostly these walk-up fares that have been reduced; the advance purchase low fares are already so low in some markets that they simply cannot go much lower. Yes, this causes a revenue dip in the short term but not too many people were buying those $1000 fares anyway. The legacies cannot rely on those businessmen-gouging $1000 fares to subsidize their $99 fares any longer as WN, B6, and others are already offering business-friendly walk-up fares and starting to draw more and more of those customers away from the legacies.

Delta is in the middle of a very aggressive cost reduction plan that should allow them to support this kind of permanent fare structure in the future. The other legacies are only trying to delay the inevitable (eventually, some LCC will start infiltrating NW's markets and NW will have to face the music as well). DL is already battling with LCCs in 70% of its markets, anyway.
 
jetbluefan1
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 7:07 am

JetBlue's CEO, David Neeleman, renamed Delta Simplifares as "Simply Rip-off Fares" after explaining that the highest one-way fare between NYC and OKC is $499, -TYS $419, and -BWI $349.

I guess no airline is happy about this new fare structure, but it won't effect the LCC's in the least IMO. Therefore, the CEO's of the legacies - such as CO - have every right to complain.

JetBluefan1
 
OttoPylit
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 7:33 am

JetBlue's CEO, David Neeleman, renamed Delta Simplifares as "Simply Rip-off Fares"

Has anyone else noticed that since Delta announced the SimpliFares, so many LCC CEO's are shitting bricks and trying to talk them down?

Just like right after the SimpliFare announcement, FL had a half page in the Atlanta Journal Constitution with Joe Leonard talking about how Delta's move was revenue negative for them and was a mistake.

Now, lets look at that and use some common sense. Why would Joe Leonard be worried about that? Wouldn't he get a huge kick out of Delta shooting themselves in the foot? If DL's move is wrong, why not laugh if off, sit back, not say anything, and watch the circus unfold? Instead, both Leonard and Neeleman are trying to talk them down, trying to get some folks to believe it and put pressure on DL that the move is wrong.

Time will tell, but by taking a long look at the Simplifares strategy, I believe its here for the long run and will be a huge success, just not within the first quarter or two.
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QuestAir
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 7:37 am

It sounds like something that ex-CEO Bethune would say.
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DAL767400ER
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 7:39 am

Quoting OttoPylit (reply 23):
Has anyone else noticed that since Delta announced the SimpliFares, so many LCC CEO's are shitting bricks and trying to talk them down?

Just like right after the SimpliFare announcement, FL had a half page in the Atlanta Journal Constitution with Joe Leonard talking about how Delta's move was revenue negative for them and was a mistake.

Or the press release the put out over the net: "We have checked our fares, and we are still cheaper than Delta."
Well, duh, DL never announced lower fares just simplified fares.

Quoting JetBluefan1 (reply 22):
JetBlue's CEO, David Neeleman, renamed Delta Simplifares as "Simply Rip-off Fares" after explaining that the highest one-way fare between NYC and OKC is $499, -TYS $419, and -BWI $349.

And what is he trying to imply with that? I'm quite sure that JB also has some high one-way fares, though like those at DL they are not that often booked.
 
WindowSeat
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 7:41 am

Quoting JetBluefan1 (reply 22):
JetBlue's CEO, David Neeleman, renamed Delta Simplifares as "Simply Rip-off Fares" after explaining that the highest one-way fare between NYC and OKC is $499, -TYS $419, and -BWI $349


Easy for Neeleman to take pot shots at Delta and criticize them on routes that jetBlue does not fly on.

WAIT! You can't have it both ways. Either Delta's fares are ridiculously low to kill off the domestic structure (as NW, CO allege), or they are rip off fares as jetBlue alleges.

Delta is doing what the industry needs to do as a whole. They may not be selling $900 walk up fares, but they are not selling $200 coast to coast either. Their lowest T fares are no longer available on these routes or have been raised 10-25%. The other airlines can bitch all they want, customers are loving it and as demand is coming back, and lots of it, a straight-forward simple pricing approach is prudent. Hence SimpliFares.

cheers
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wjcandee
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 7:50 am

It's important for the LCCs to get out there and counter SimpliFares by saying, "Quite simply, OUR fares are lower. Our highest fares are lower, and our lowest fares are lower. If you want low fares and great service, then fly Airtran." Done. That would be a good message for them to send. For them to talk (in anything other than financial or airline industry forums) about how the fares are revenue-negative is idiotic. All it does is make people think as follows: "Delta is pricing under cost, therefore flying Delta must be a good value while Simplifares last."

For Continental to be out in public slamming Simplifares is also stupid, as above. It's not going to get Delta to change the fares, and all it does is make people think that Delta is providing some sort of great value. This thing has bought Delta a zillion dollars of free publicity.

All the best,

Bill
 
legendDC9
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 8:01 am

"Has anyone else noticed that since Delta announced the SimpliFares, so many LCC CEO's are shitting bricks and trying to talk them down?"

As much as I am impressed by the knowledge of the inner digestive workings of the CEO's, why can't their reaction just be concidered a standard business comment? Everyone knows that DL is in trouble with complicated fares, simplifares or no fares at all, they have a cost problem which is not going to get fixed by their pricing structure. The only way it will get fixed is if another major carrier folds and allows for higher revenue to be generated to the other carriers. That, combined with even deeper cuts in pay to the work force are the only things that are going to save Delta.
 
iowaman
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 8:10 am

Quoting 1MillionFlyer (reply 16):
Quoting LegendDC9 (reply 15):
Overcapacity is not a myth, it is alive and well. seriously, do we really need 80 daily flights between LAS and the LA area? or 60 between SEA and the bay area? These flights run at 50% capacity during the week, and if those pax paid more than $100 for their round trip, they probably just didn't look hard enough.


Thanks for that I totally agree. Overcapacity is really true, even for LCC's


No, loads are higher than ever.
 
B4REAL
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 8:15 am

Quoting JMV (reply 0):
Executives at NW and AA concur that the pricing program is harmful to their companies.


Funny how AA matched it then...
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ctbarnes
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 8:25 am

Stupid as compared to what? The current way the industry sets fares? Now THAT's stupid!

Charles, SJ
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legendDC9
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 8:40 am

Quoting Iowaman (reply 29):
Quoting 1MillionFlyer (reply 16):
Quoting LegendDC9 (reply 15):
Overcapacity is not a myth, it is alive and well. seriously, do we really need 80 daily flights between LAS and the LA area? or 60 between SEA and the bay area? These flights run at 50% capacity during the week, and if those pax paid more than $100 for their round trip, they probably just didn't look hard enough.


Thanks for that I totally agree. Overcapacity is really true, even for LCC's


No, loads are higher than ever.


Iowaman, it's not just about the loads, if the availability is there to fly for dirt cheap, then people will fly. But with such low yields, it doesn't matter. As an example, 100 people need to fly from A to B, but because the prices are so low, the aircraft fills up with what we can call "opportunity travelers". 150 people paying $59 for a round trip is exactly the same as 75 people paying $130 or 30 people paying $280. If there was less capacity, less flights, everyone needing to fly would be forced to pay more, and more revenue would be generated. you could charge the 100 people who need to fly $200 each, and the airline would be much better off.
 
1MillionFlyer
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 8:53 am

exactly LegendDC9

Iowaman, planes are full only because fares are so low. Again too many seats chasing too few passangers willing to pay a fare where the airlines will make a profit.

If DL was charging 200 dollars one way from Atlanta to Newark with a 100 seat aircraft that is 50% full on a 100 seat airplane that is $10,000 if they lower the fare to 110 dollars one way and fill the whole plane up is is still 11,000 dollars, they can not charge 200 dollars and make money on 50 seats since Air Tran is only charging 110, so they have no choice but to try to increase their yeild (amount they can make on any given flight in total) by lowering the seat price to get more bodies on the plane.

I hope that makes sense.
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FLYACYYZ
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 9:01 am

There is nothing innovative, nor revolutionary about DL's pricing structure. It is simply a carbon copy of AC's revamped North American pricing structure which is in response to the emergence and success of LCC's. The difference being, AC's costs have been adjusted to reflect the pricing strategies. Business articles, and periodicals in the US have clearly stated that AC is a full 2 years ahead of the pack against other North American legacy carriers. AC has been innundated by a slew of major airlines to discuss their revamped strategies.

Ultimately all of the airlines follow suit to get costs in line, whether your talking about bankruptcy filings, union conecessions, or buy on board meals. It's all about levelling the playing field.
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phollingsworth
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 9:18 am

Quoting LegendDC9 (reply 32):
Iowaman, it's not just about the loads, if the availability is there to fly for dirt cheap, then people will fly. But with such low yields, it doesn't matter. As an example, 100 people need to fly from A to B, but because the prices are so low, the aircraft fills up with what we can call "opportunity travelers". 150 people paying $59 for a round trip is exactly the same as 75 people paying $130 or 30 people paying $280. If there was less capacity, less flights, everyone needing to fly would be forced to pay more, and more revenue would be generated. you could charge the 100 people who need to fly $200 each, and the airline would be much better off.


Legend,

You have it pretty much correct. If you look at the $ yield per revenue passenger mile, in constant dollars, since 1978 you will notice that it has dropped steadily. It was approximately $0.15/rpm in 1978, it is ~$0.044/rpm now. If you look at the industry, including fuel price hedging, the total costs per rpm are actually higher than the revenue (remember when hedging works it just shifts the loss to another company, in the short term it is a zero-sum game). The only way to fix this is for demand to increase significantly, or supply to be constrained.

As for DL's simplifares. To understand them you need to look at where they came from. DL first tested simplifares in CVG. What DL noticed is that under their previous fare structure the O&D business travel at CVG was actually well below what studies showed the market would support. Consequently, the traffic out of airports like DAY and SDF were greater than they otherwise would be. If you looked deeper it quickly became evident that business travellers in and out of Cincinnati were traveling to DAY and SDF, which had LCC competition, to save money. DL then survey companies in Cinci to determine a what price point the elasticity curve changed shape. It was roughly at that point that the original simplifares were set.

Initial evidence from CVG showed that simplifares were actually a good revenue success. The reason for this was that business travelers started originating and departing from CVG, paying higher fares, and often traveling fewer miles, remember many of the SDF and DAY travelers connected through CVG. This meant that while peak yield decreased average yield increased.

So if simplifares worked well for CVG would they work well for the rest of the DL system? The answer is maybe, and it is not something that the other airline executives and managers can as of yet tell you, they just don't have enough information. There are several ways they can work.
1. As others have said it can lead to reduced capacity, and therefore, allow higher fares.
2. In markets where DL does not have to compete with an LCC it may actually increase yields.
3. It may actually shift the type of fare business travelers purchase, i.e., they may be more likely to purchase a higher yield fare.
4. If it increases the load factors it can increase the yield/asm while lowering the yield/rpm. Y/asm is Y per rpm * load factor. $1 * 0.75 = $0.75, while $0.90 * 0.90 = $0.81. If the cost structure stays the same this improves profitability. In the short term you would have to steal passengers from other airlines, in the medium term from other forms of transportation, and in the long term you may even induce new travel, e.g., the WN business case.

Of course non of the above may actually happen, only time will tell. You will have to wait several quarters to get a good feel. Regardless, no matter what happens to DL's yields they will have to get their cost, and more importantly their work rules under control.
 
legendDC9
Posts: 458
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 9:30 am

I really like how this thread became a yield analysis exercise.

Quoting Phollingsworth (reply 35):
If you looked deeper it quickly became evident that business travellers in and out of Cincinnati were traveling to DAY and SDF, which had LCC competition, to save money.


So in even simpler terms, DL lowered fares in CVG (which has been notorious for high O&D fares due to the lack of competition) in order to get closer to the fares that the LCC's were offering out of DAY and SDF. CVG is still a "fortress" for them, so did not need to match fares, just get in the neighborhood. There is nothing special in that, I just wonder why it took them so long.
 
WindowSeat
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 9:47 am

.



All these examples given above are classic Revenue Management. The key measure is your Revenue per Available Seat mile. This measure combines load factor with your Revenue per Flown/Occupied seat mile while eliminating the combined negating effect that they can have on Total Revenue.

I do Revenue Management for a living and I can assure you demand is back and back with a bang! Our company has done so well with travel rebounding that we have announced extra one-time bonuses for people not usually on a bonus plan. For the airlines the key now is capturing the higher yield passengers, but in this new "wise" economy, the realistic price point that even businesses will pay has changed, and Delta's Simplifares are designed to honor the same. Delta has seen the light of the day, how long will it take the rest to catch up is the real question.

cheers



.
I'm all in favour of keeping dangerous weapons out of the hands of fools. Let's start with keyboards.
 
tinpusher007
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 9:54 am

While I can appreciate CO and everyone else's contempt for DL depressing yields with Simplifares, I believe DL had no other choice. CO does not face nearly the amount of low far competition that DL does.

In EWR...CO doesn't have to deal with B6
In IAH...WN just left town.
In CLE...WN has a limited presence.

DL faces B6 in BOS, JFK and LGA....FL in ATL...and ever low fare carrier and their mothers in all of Florida which is HUGE for DL.

In CVG, DL was losing pax to surrounding cities and CVG is mostly connecting traffic anyway. Simplifares began there, but to keep it there and not elsewhere would only serve to piss of a LOT of pax who couldn't benefit. They HAD to take it nationwide to (1) be consistant and (2) to stem the massive encrouchment from all the LCC that are attacking them.

And frankly, why the hell would DL base its survival strategy on appeasing its peers?
"Flying isn't inherently dangerous...but very unforgiving of carelessness, incapacity or neglect."
 
WindowSeat
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 10:00 am

.



Delta has been brought up in many of our discussions in Revenue Management and how the principles are applied to businesses like the airline and hotel industry. Delta Airlines, for a while now, has had a Best Fare Guarantee on their websites. Although they don't advertise the fact as much as AA is doing it these days, tickets on delta.com have been consistent with any third party websites like Expedia or Orbitz (actually less because you don't pay booking fees of upto $10 a ticket on delta.com).



.
I'm all in favour of keeping dangerous weapons out of the hands of fools. Let's start with keyboards.
 
B4REAL
Posts: 2557
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 10:15 am

Quoting WindowSeat (reply 39):
Delta Airlines, for a while now, has had a Best Fare Guarantee on their websites.


What?? I'm a 4 year top level Medallion and have never heard of this. I know CO and AA have it.

Any links on this?
B4REAL, spelled like it sounds
 
artsyman
Posts: 4516
Joined: Wed Feb 28, 2001 12:35 pm

RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 10:16 am

CO does not face nearly the amount of low far competition that DL does.
****

Continental faces LCC price competition on 78% of their route network. I'd say that they are certainly affected.

The point being made by many is that Delta will not gain market share from this, everyone matched, so things are just the status quo, except that everyones revenue just tanked.

J
 
Tango-Bravo
Posts: 2887
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 10:22 am

Quoting Phollingsworth (reply 35):
It may actually shift the type of fare business travelers purchase, i.e., they may be more likely to purchase a higher yield fare.


Especially if Simplifares are unrestricted (ie fully refundable, no fee to change). Can someone confirm whether Simplifares give business travelers the flexibilities of refunds and flight date/time changes without paying a change fee or fare difference? (the latter assuming a coach seat is available on the new flight desired)

Having dealt with insanity at the high end of the fare spectrum, Delta's next pricing move needs to correct the insanity at the low end of the fare spectrum by ratcheting up discount fares -- a move the other legacies would also be likely to match if Delta refuses to cave in after 1-2 days because pricing hypocrites like NW fail to go along (as NW has historically done while in their next breath crying about depressed yields).
 
B4REAL
Posts: 2557
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 10:26 am

Quoting Tango-Bravo (reply 42):
Especially if Simplifares are unrestricted (ie fully refundable, no fee to change). Can someone confirm whether Simplifares give business travelers the flexibilities of refunds and flight date/time changes without paying a change fee or fare difference? (the latter assuming a coach seat is available on the new flight desired)


Simplifares do not imply unrestricted / refunable / no fee tickets. However, Y/B/M fares for coach are still available for sale.

[Edited 2005-02-18 02:27:15]
B4REAL, spelled like it sounds
 
wgw2707
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 10:36 am

CO is simply unhappy, because they do not want to face reality. CO's management is extremely inflexible and unwilling to change. While CO many be stronger now, if their management doesn't wake up and face reality, CO may find itself in real trouble.

Keep in mind, much of CO's success the past ten years had NOTHING to do with management skill. CO's management rode their extremely low-cost structure (caused by the 2 BK's in the early 90's) to financial success. Now, other airlines are lowering their costs (inside and outside of BK) and CO's management isn't quite sure what to do.


I have to disagree with you on this one. TWA went through a similiar set of circumstances, and look where they are now. Restructuring, especially in bankruptcy court, is not an easy task. Continental at one point in time saw their cash reserves dip to $40 million, which is horrifying when you consider that when US Airways filed for Chapter 11 protection last September, they still had over $650 million. I think that any management team that could first squeeze their way through that kind of cash crunch without immediately entering into liqudation, and who then could manage to turn their company around into an award-winning, arguably industry-leading enterprise, deserves praise. Remember, not only did Continental start making money again, they also started winning awards for fantastic service and began to substantially improve in DOT statistics (on-time performance, passenger complaints, mishandled baggage, etc). Now, they have one of the newest fleets in the industry, and have one of the most robust, cutting-edge business models. So I really don't think you can fault their management while maintaining a straight face.

Delta's Simplifares are a good idea for Delta, but no doubt they're going to annoy the heck out of other airlines. They do represent a shift in business models, and I think everyone in the industry is going to be annoyed by it, but the end result is going to be a more fair, balanced, value-driven fare structure, and this is something the rest of the industry, Continental included, needs to accept.

-WGW2707
 
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OzarkD9S
Posts: 4748
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 12:57 pm

Bottom Line:

Delta is trying to steady their own corporate ship. If others don't like it, too damn bad.

The folks at Delta aren't terribly concerned with how their restructuring affects their partners OR their competitors. They're in survival mode, plain and simple.

Delta execs do not get paid to make life easier for Continental Airlines.
Next up: STL-OAK-RNO-LAS-ICT-STL
 
MaverickM11
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RE: CO Exec Calls DL Pricing Stupid

Fri Feb 18, 2005 1:14 pm

"No, loads are higher than ever."

At average fares that are lower than ever... If fares returned to the average of 2000 tomorrow, that load factor would probably be halved.
E pur si muove -Galileo
 
Midway2AirTran
Posts: 847
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RE: CO Exec Calls DL Pricing Stupid

Sat Feb 19, 2005 3:26 am

Quoting MaverickM11 (reply 46):
"No, loads are higher than ever."

At average fares that are lower than ever... If fares returned to the average of 2000 tomorrow, that load factor would probably be halved.


If the majority of your passengers are actually paying more, the average fare will naturally become higher.

DL may have actually raised their own average fare with simpli-fares. The majority of passengers which are lower-fare classes are in a way picking up the tab for the lower walk-up fares and business fares.

Meanwhile at the same time they are drawing in more passengers for the higher fare classes too, since those fares are lower. Put this in together with a big PR bang showing fares being cut 60%(which is really only in the higher fare classes)and receive huge media coverage; it is a winning strategy. It works for now, but may need to be revisited later as more increasingly savvy passengers continue to look to LCC's for consistent all around lower fares.
"Life is short, but your delay in ATL is not."
 
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airportugal310
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RE: CO Exec Calls DL Pricing Stupid

Sat Feb 19, 2005 3:33 am

The armchair CEO-ing in the thread is at an all time high (or low).
I sell airplanes and airplane accessories
 
ckfred
Posts: 4714
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RE: CO Exec Calls DL Pricing Stupid

Sat Feb 19, 2005 4:08 am

I personally think DL made the right move, for the long run. There are times, as a leisure traveller, that I don't want to stay over a weekend. Maybe I have commitments on two subsequent Saturdays, and I can only go on vacation Sunday through Friday.

Under the old fare system, I was stuck paying a business fare, even though I wasn't flying for business and could book months in advance.

So, the choice was go some place that I could drive or fly an LCC. With the new system, I can now fly the airline of my choice.

This should also increase the fares paid by business travellers. My wife's company, which uses DL as its preferred carrier, used to encourage people to fly out Saturday for a Monday meeting. The cost of one or two additional nights in a hotel was cheaper than paying a walk-up fare.

With fares capped at $499 each way, a business flyer is more likely to buy an unrestricted fare, for the flexibility, rather than buy a leisure fare and then hope that the trip's dates aren't changed, necessitating the payment of an additonal fare and change penalty.

I know a lot of business people who have said that they would prefer to fly to a face-to-face meeting, then try to do business via speakerphone, video conference, e-mail, and faxes. My belief is that this new fare system will encourage more business travel.

So to sum up the opinions of management at NW, CO, and AA, of which I'm a shareholder, they have no clue what they are talking about.

As a large Chevy dealer in the Chicago area used to say, "Why are my prices so low? Volume, volume, volume!"

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