sccutler
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GWU Prof Report On US Airline Future- SWA Dominant

Sun Aug 27, 2000 12:37 am

Follows this link to a fascinating report of various scenarios for where the domestic airline market is headed. Can't say I agree with all of the premises therein, but as to the inevitable continued growth and success of WN, I concur.

http://www.gwu.edu/~media/pressreleases/flyinghigh.html

Comments from the gallery?
...three miles from BRONS, clear for the ILS one five approach...
 
txagkuwait
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Sun Aug 27, 2000 7:06 am

Funny, almost a year ago when I first started coming to this board I said pretty much the same thing, and a lot of people said I was stupid....

That "business travelers won't fly Southwest."

"Southwest only attracts lower class or leisure travelers who are only flying, rather than taking a bus, because of the price."

I said it then and I will state it again for the record:

If Southwest enters a market, it immediately becomes a lower yield market for everyone.

At least 95% of all travel, to include business, is price sensitive. If a business discovers it can cut its costs significantly (and add to its bottom line) by putting its employees on Southwest......guess what, the employees will be flying on Southwest.

I was a bit surprised at the true O&D numbers. I knew Southwest had encroached on United & American's passenger numbers...but I hadn't seen the true O&D so I did not know that the had overtaken them and were coming up on Delta. That does not come as a big surprise. In a way it is sort of funny.

And my advice to Southwest management and employees (I own a little stock) is to stop reading your press clippings and keep on acting like Braniff is trying to put you out of business....that you are on a CRUSADE to alter the airline industry.
 
goingboeing
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Sun Aug 27, 2000 11:04 am

Agreed, Tex. Nobody wants to admit that because theres no first class and no meals and no PTV's in the seatbacks and no boarding passes. Why, judging from several posts on this and other boards, NOBODY would fly them. Yet, there they are, filling up 737's all over the country. And if the economy burps even a little bit, all those "titanium" passengers whose companies are paying top dollar to send them first class will find their companies booking them on Southwest during their "austerity" programs. It will be hell going standby when that happens.
 
johnboy
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Sun Aug 27, 2000 12:43 pm

But on this board, it's mostly "Mommy or Daddy works for an airline and I got to fly First Class cuz they dressed me in my tie and jacket!" So I wouldn't rely on this board as a true indicator of the passenger flying Southwest.

I've flown them for years, as a matter of fact when I lived in Kentucky, I drove 2 and 3 hours respectively to fly them out of Indy and Nashville. They're here to stay, but (being the morbid person I am) I'm curious to forecast their direction "post-Herb".

Still, it's interesting to hear from a supposed expert. Nice job of posting for everyone to see.
 
Hamlet69
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Sun Aug 27, 2000 1:28 pm

Very good reading! The author has definitely done his homework. It was very interesting to read those possible scenarios, no matter how unlikely they may be. I must agree, however, with his two main points:

1) Southwest already is, and is going to be, one of the largest US airlines.

2) Without the merger, US Airways is on its last leg.

Thank you for providing this most enjoyable article.

Hamlet69
Honor the warriors, not the war.
 
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RayChuang
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Sun Aug 27, 2000 10:49 pm

Here in California, what WN did was to effectively almost take over most flights between northern and southern California.

The way they did it was to get into airports besides SFO and LAX that better served the needs of locals in the San Francisco Bay Area and the Los Angeles area: Oakland, San Jose, Hollywood-Burbank, Ontario, Orange County and San Diego. Why go to overcrowded SFO and LAX when these airports are more convenient?

And WN along with HP has become the most important tenant at LAS. WN has the majority of gates at Terminal C there.

The only reason why UA still has a massive presence in the intra-California market is their United Shuttle operation.

By the way, the WN flights between northern and southern California are mostly full of business travellers during weekdays. The flight into Burbank is especially popular with people in the entertainment industry becuase this airport is much closer to most of the movie and TV studios down there than LAX.
 
D L X
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Mon Aug 28, 2000 11:10 am

This post will probably be met with criticism, but what the hell.

I personally think this paper is very flawed. It refuses to compare apples to apples in many areas. For instance, it talks in a scenario of US and UA merging about how UA only has 330 narrowbody planes to combat a Southwest threat especially because WN is getting potentially 400 in the coming years. He doesn't take into account that UA has narrowbody planes on order, and US of course has a 412 narrowbody order as well.
He also uses the blatently misleading use of the CASM as a comparison on why WN and the rest of the airlines will run US out of business in the next few years. US labor costs are in line with the rest of the industry, by virtue of their very definitions. Inefficient planes are being removed from the fleet at a fast rate. WHy are the costs still higher than average? Because the northeast is a very expensive place to fly. As WN has began in the NE, they have found that their costs have risen while their punctuality has fallen.

For other reasons, I take this report as rather shallow. Perhaps he wrote this as a discussion topic rather than an official study piece.

(Also, if it is official, then why would he list his non-GWU email address?)
 
txagkuwait
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DLX: Not Criticism Per Se

Mon Aug 28, 2000 11:27 am

But when you state "as Southwest has begun operations in the Northeast their costs have risen"...or words to that effect....then you need to back that up with some statistical evidence.

As unreal as this may seem to you....if you take out the impact of fuel costs (which have caused everyone's ASM costs to rise) then Southwest's ASM cost has actually been dropping.

Despite the fact that they are paying out more in profit sharing and people are getting more senior with each day and hence making more money.

Despite the fact that their recent expansion has been primarily in the Northeast....resulting in a ever-increasing portion of their system costs coming form that section of our great country.

So, if what you say is correct...the fact that Southwest has more flights in the Northeast now than last year at this time...should have caused non-fuel costs to have risen on a unit cost basis.

That did not happen. Quit claiming that it did.

And then come up with a new theory.

 
goingboeing
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Mon Aug 28, 2000 12:07 pm

C'mon Tex, you KNOW those CASM's that are reported in the 10Q's are just like those non-ACARS on time reports. They don't mean anything. Heck just because the Costs are lower is no reason to think that Southwest is going to put a hurting on another airline. EVERYBODY understands that U has higher costs and has to charge a higher fare to make any money. People will pay, especially on those short hauls in the Northeast, where they get those "special" peanuts and single cup of coke during the flight. Something as minor as CASM's shouldn't be taken into consideration.

Blatantly misleading CASM's...I wonder, what DO we look for to determine the financial health of an airline...# of PTV screens per plane, perhaps?
 
D L X
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Mon Aug 28, 2000 1:20 pm

Tex, why is it remotely fair to take out fuel costs? Fuel is a big reason why the northeast is expensive. You've got a lot of sitting on the ground (with engines running) waiting for your turn to take off. You've got in-air slowdowns over NYC and other hotspots due to ATC. It's like highway mileage vs. stop and go mileage. The latter burns more fuel. If you are going to talk about CASM as a unit of financial health, you have to include the fuel costs of the area you do business in.

The major reason why CASM is not a good measurement on a national or global scale is that it does not take into account geographical concerns at all. It doesn't take into account stage lengths. Airlines that do a lot of business in the relatively cheap areas of the country will have a lower CASM than those doing business in the expensive areas. That does not necessarily mean the lower cost airlines is a more financially fit airline. I wonder where WestPac airlines compared with US, Midway, and other airlines.
 
goingboeing
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Mon Aug 28, 2000 7:53 pm

DLX, CASM has to be taken into account. And, for what it's worth, while SWA jets out of ISP or PVD are airborne and headed to their destinations, other jets are sitting in line at LGA or BOS, burning fuel and going nowhere. So, let's include fuel costs...SWA's CASM's are still lower. And if they fill planes out of those cities (which they are), it will put SWA at a competitive advantage.

There's lots of people who will consider LUV a non competitor until they start queueing up at LGA or ATL. LUV has succeeded by serving nearby airports that are not crowded. Still close enough to the "major" airports to draw traffic and avoid delays. It works, too. Look at the number of people who drive from MEM to LIT to fly SWA. Or that drive from the Atlanta area to BHM. There's no reason to change that.
 
D L X
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Mon Aug 28, 2000 9:03 pm

When you're comparing two companies with similar route structures, then it is appropriate to compare them by their CASM. No one is saying that WN's CASM is higher than US. However, that is a systemwide average. You simply can't compare a CASM heavily weighted by inexpensive flying in the southwest to a CASM heavily weighted by expensive flying in the northeast and say "See? The one with the lower cost is going to kick the other's butt."
Nobody (or at least not me) is saying that WN is a non-competitor. It is a niche-competitor, because it does not fly where people want to fly (at least in the east). Leisure travelers may fly out of LIT to avoid MEM, but high fare business travelers certainly will not. Same is true at BWI, ABE, PVD, MHT, and certainly ISP. For these reasons, WN will do well, but will still be a (successful) nuisance, not a killer, in the northeast.

How many airlines has WN run out of business again? I don't think Mr Jenkins did all his homework.
 
sccutler
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Interesting Points, And Comment To DLX

Mon Aug 28, 2000 10:07 pm

I agree that this report is clearly more a "talking points" report than a scholarly one. But it still makes for interesting reading.

But, DLX, you mused about how many airlines SWA has put out of business...

...you can certainly count AirCal and PSA (stay with me now...); before those two were sold to AA and US, they, together with UAL, dominated the California intrastate and north-south west coast market; at that time, WN was a bit player.

Within four years, WN basically shut 'em down. UAL still has significant volume in that markets, but AA and US don't.

WN also shut down Muse Air; granted, the younger Mr. Muse did his part by poor business decisions, but if Southwest hadn'y bought 'em, they would likely have shut down, anyway.

And, as WN opens up significant service in key corridors, less-efficient competitors tend to scale back their competing service, or dramitically reduce fares because of the market effect.

Finally, as a response to those who suggest that WN's impact isn't significant because they avoid the most crowded airports, that is naive in the extreme; you can bet that US and others are feeling the impact of WN's presence in the eastern market (regardless of which particular strips of concrete are being used for takeoff and landing), and the combination of (1) WN's better cost structure; (2) WN's greater efficiency and flexible work rules; and (3) WN's fortress-like balance sheet; assure that no other currently-existing airline (except, perhaps, JetBlue) will be able to genuinely compete with WN on its terms. WN can "starve them out" over the long-haul, and not even break a sweat doing it... their normal operations are just that much better-run than the others'.

You cannot dismiss WN because they don't have meals and assigned seats; they sell transportation, safest and best-run product of its type in the world, and business travelers will (overall) use the most efficient and reliable provider... PTV's and croissants notwithstanding.

...three miles from BRONS, clear for the ILS one five approach...
 
goingboeing
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Tue Aug 29, 2000 12:23 am

DLX, Please take off your "business is only conducted in the east" glasses. There's pretty significant business travel between Dallas and Memphis. A company in Memphis could pay an employees mileage to drive to Little Rock, and provide them with $200 to "thank" them for helping save money by flying southwest, and still save over $400 over the flights out of Memphis. It happens.

LUV has 33 daily flights between Dallas and Houston. The majority of folks on those weekday flights aren't flying home to see Grandma. They've got hourly flights from Washington DC to Boston, except that they call it BWI-PVD. They've got flights every 2 hours from Washington DC to NYC, except they call that BWI-ISP. They've got 9 daily non stops and 3 daily one stops between Washington DC and Chicago, going by the name BWI-MDW.

This is just the beginning of the Northeast market penetration, and when LGA starts backing up even more because the government doesn't yet realize that a regional jet takes up just as much space as a DC10, LGA will become less attractive because of delays.

Look, I'm in the midwest (hey they really DO have businesses here). If I have to fly to Boston, I could change in Ohare, or take a SWA nonstop to PVD. Wanna guess who I'll fly?
 
Guest

RE: GWU Prof Report On US Airline Future- SWA Domi

Tue Aug 29, 2000 12:36 am

Southwest=Greyhound with wings...it's a supersonic bus!!!
 
goingboeing
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Tue Aug 29, 2000 12:45 am

It may well be Surf, but this interesting little article at

http://biz.yahoo.com/rf/000828/pe2850755.html

Shows that Southwest is the 14th largest airline in the WORLD, based on passenger traffic. Not bad for greyhound, eh???
 
ScottB
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Tue Aug 29, 2000 1:10 am

I think DLX is also missing some important points of geography - he's clearly not from the Boston area...

Around here, most of the wealthy suburbs (i.e. where "business people" make their homes) are from 15 to 30 miles outside of Boston. (And don't forget that a lot of the wealth in the NYC area is on Long Island, where ISP is a very attractive alternative.) Logan Airport is right downtown (it was built on a few islands in the harbor, along with landfill). If you live more than ten miles from downtown, at most hours of the day, it's faster to drive to Manchester or Providence than it is to try to struggle to or from Logan. Imagine wanting to catch an 8 AM flight out, and fighting with all the rush hour traffic heading into the city - you'd have to be insane. And rush hour into Boston starts around 6 AM and lasts until 10 AM or so. Unless there's an accident on the Central Artery. I used to work 25 miles west of Boston (I live in the city though), and I'd often plan flights out Friday evening. I'd have to allow AT LEAST 1 hour and 15 minutes to get back into the city (not to mention getting to Logan from home on the subway). And parking in Providence and Manchester is CONSIDERABLY easier and more convenient. There are many, many cars in the parking lots of both airports with Mass. plates.

So, for people that don't want to fight Boston traffic, MHT and PVD are really *preferred* alternatives. Not to mention that both airports have nicer, newer, less congested terminals than Logan.

It's important to look at CASM's excluding fuel costs because the cost of jet fuel, per gallon, is substantially higher this year than last. And unless an airline had good hedging (i.e. maybe they'd be better off in the commodities business), their CASM will be skewed by fuel costs. If you want to include fuel and have it be a meaningful measure of how *efficient* the airline is from year to year, you need to factor in fuel cost in constant dollars. It doesn't make sense to say, I'm paying 50% more per gallon for gasoline for my car this year, so clearly my car is less efficient because my cost per mile travelled is up 2 cents.
 
Philly Phlyer
Posts: 356
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DLX: Save Your Breath

Tue Aug 29, 2000 2:42 am

DLX:

Save your breath with this argument. I own stock in LUV, AA and CAL. I also have stock in U, but I sold most of my stock and took profits last month. I am waiting on the sideline to see what happens next. If the merger does not go through, I'll buy more after the dust settles. I mention this to show that I'm not biased either way (for / against LUV).

On the Yahoo discuss board, I have pointed out many times that comparing LUV to many of the other airlines truly is an apples and oranges comparison. The reason I can own stock in LUV as well as AA, CAL and U is because I view their markets as overlapping, but distinct.

As I've pointed out on the other board, the parallel in the hotel industry is that full service hotels such as Marriott are more expensive to run and have a higher cost per room than does Fairfield Inns (Marriott owned budget property). Fairfield Inns is not going to run Marriott out of business since they are addressing different segments of the market. [And yes, just as business travelers fly Southwest, business people stay at Fairfield Inn.]

In aviation, full-service doesn't just mean you offer assigned seats, meals and PTV's (Jet Blue offers all that and it is a discount carrier). It's more a case of offering more service as far as market coverage and the business centers. Someone pointed out that in Boston, many people live in the suburbs which maybe more convenient to Providence. That is true, but if the business person is flying to Atlanta, New York, Philadelphia or Toronto, they are going to trek into BOS because they cannot get there on Southwest. Also, if I am flying from my office downtown for an afternoon meeting in DC, I'm not driving back to Providence, but will fly BOS to DCA instead of Providence to BWI. That doesn't even consider the small cities up and down the east coast that Southwest doesn't and never will serve because using a 737 on these routes isn't cost effectin\ve, even for LUV. For these, they will connect through a hub out of Providence (on CAL, U or DL) on a commuter using an RJ or turbo-prop.

As I've stated before on the other board, with the possible exception of Muse Air (which did enough damage on its own), I cannot name a carrier that LUV "ran out of business." LUV has had a major presence in St. Louis in competition with one of the most fiscally unstable airlines in the US industry (TWA) and they haven't run them out of business yet! To me, this is proof that LUV is not in the market of running others out of business. It is more in the market of creating business.

TxAgKuwait and other LUV booster are good guys, but I believe they sometimes have a bit of a chip on their shoulder because of a perception of lack of respect for LUV. As such, they are afraid to admit that LUV has a market segment that is different from some of the other airlines. U has a different market segment than AA or UAL. CAL has spent the last five years defining its market niche to one that is more profitable and abandoning the pieces (CAL Lite) that didn't fit. Its just a simple case of market economics. In a mature market such as the aviation industry in the US, the players identify and exploit their segment or niche and don't try to be everything to everybody.
 
sccutler
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Re: Phlyer's Last POst

Tue Aug 29, 2000 5:24 am

!Well Said!

Especially the point that, where WN flies, the market expands.

But, I stand by my observations about (for example) the California and western-states marketplace-

Nearly all of the service and market share that was AirCal's and PSA's have evaporated under AA and US. I guess it sort of begs the question, but WN would not have been able to take that share nearly so quickly (and maybe at all) if PSA and AirCal (as lower-cost and more flexible carriers) had remained independent.
...three miles from BRONS, clear for the ILS one five approach...
 
Philly Phlyer
Posts: 356
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Sccutler

Tue Aug 29, 2000 7:21 am

You raised a good point and I agree. Both PSA and AirCal west coast routes might have survived longer if they had they had not been acquired by AA and US. Both AA and US got outside their market seqments and got burned.

AA tried to expand into the west coast and east coast too rapidly and got burned in both places. They not only purchased the carrier on the west coast and tried to establish a hub in San Jose, but they also tried to establish hubs in Nashville and Raleigh. Being smart enough to recognize their mistake, they pulled back and cut their losses. US tried to purchase their way across the country and out of their east coast niche. They also got burned and had to go back to their original niche. In both cases, the two carriers tried too quickly to move into a market they did not know.

LUV was able to succeed because they grew into the west coast in an orderly fashion on their own. That has been one of their strengths. With the exception of the purchase of Morris Air (which was painful), LUV has grown internally.
 
txagkuwait
Posts: 1388
Joined: Fri Aug 27, 1999 7:39 am

No Chip On Shoulder

Tue Aug 29, 2000 7:23 am

and frankly, I am more amused than aggravated by people who don't take WN seriously as a competitor in the airline business.

Failing to take Southwest seriously is sort of like smoking Pall Mall. It's a fairly honorable, fairly sure, and relatively slow way to commit suicide (corporate or pulmonary).


I will buy the Muse, AirCal, and PSA arguments. And a lot of folks everyplace dispute my view that Southwest's rise is what ultimately did Braniff in.

Well, I have to admit Harding did a lot of stupid things and that helped out a lot. But you sort of see the rise of Southwest coinciding with the ebb of Braniff. What Southwest did was take away the traffic base. Once Braniff lost its captive Texas (read:super-lucrative) markets....an economic downturn was especially devastating since they did not have their bread and butter to count on for revenue.

Yes, Crandall and AA helped. Harding's overexpansion during the early days of deregulation helped. But the seeds of Braniff's destruction were planted when Southwest, with 3 airplanes and less than 200 employees...managed to wrestle Dallas to Houston away from them. And when Braniff lost SAT, AUS, LBB, AMA, OKC, TUL, MSY, CRP, and the Valley...well...to Braniff (and Southwest) those are all a whole lot more than nondescript and forgettable Texas towns.

Just my opinion, of course.
 
sccutler
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Joined: Thu Jan 27, 2000 12:16 pm

TxAgKuwait- My Final Word

Tue Aug 29, 2000 8:58 am

You wrote what I almost did- but held back. Your conclusions about BN are inevitable, and spot-on. One can say, of course, that the combination of (1) bad timing and (2) bonehead planning (those are related, one supposes...) ensured the ultimate demise of BN, and yet, WN took over that "safe" core of business which had been the roots of BN (and TxInt'l, too).

I remember choosing BN instead of WN because it was a "real" airline; well, now, when I need to be there, for sure, and have choices about when to get back, WN's the real deal. When you're traveling on your own time, and missing your family, the chance to get home sooner- maybe the ability to change flights without paying a massive penalty- THAT is the true luxury.

One last anecdote, then off to bed: couple of years ago, I was at a seminar in Austin and, after it ended, everybody there heads for the airport to fly home- Dallas, Houston, Corpus, El Paso, wherever- all Texas. Waiting in that tiny gate area at the old AUS was a prominent professional colleague (more successful, to be sure), whose father was the president of a large caarrier baased in the Daallaas aareaa (got it?); of course she was flying on Southwest. She didn't want to bother with DFW any more than the rest of us.

Warmest regards, /s/ SCCutler
...three miles from BRONS, clear for the ILS one five approach...
 
D L X
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Tue Aug 29, 2000 11:21 am

Wow, I go to work, and come back to a whole lotta D L X-haters. Even Philly Phlyer shunning me while agreeing with me. (At least I'm assuming that's what he means by 'save your breath.' Maybe I'm misinterpretting that.) What gives? Anyways, I've got responses a plenty.

First off, how many of you read the report by Daryl Jenkins? (And those of you who didn't, why do you feel you're qualified to respond to this thread?)

Second, I am sick of people putting words in my mouth. Especially GoingBoeing who routinely does this. I never said that WN is an entity not to be respected. My entire point on this thread is that Daryl Jenkins' argument is flawed in many areas. He naively suggests that because of WN's successes in the west, it is sure to run amock in the east and everywhere in between as well. As any good analyst will tell you, "past performance is not indicative of future returns." Foolishly, he suggests this WN conquest based mostly on costs. That is not a comparison of apples to apples for reasons stated before. Reasons which notably haven't been refuted, just ignored.

I also noticed that NOT ONE PERSON had anything to say about my first point. Silent agreement?

To Sccutler: WN did not kill PSA and AirCal. Unfortunately, US and AA did. When the economy got rough, and management at these places didn't do their homework, they both retreated to their core markets. Hell, PSA taught Herb everything he knows. [Read Hard Landing.]

To ScottB: I know a lot more about Boston than you think. Until this month, I lived in Shrewsbury. And before that, I spent 5 years in Cambridge. In all that time, I can say I've driven to Logan fewer times than I have fingers on one hand. (And I've nevah pahked ma cah theyah.) Taxis, water taxis, commuter trains, satellite park and ride from Framingham and Woburn, Cross town busses, and an 85c per ride subway affectionately called "The T" make Logan quite accessible (although the current heavy construction and the Big Dig are admittedly a great annoyance). With that said, I would note that I have used Manchester on occasion to get out of town when heading west (not on business). The fares are definitely cheaper there to California for instance. BUT, I would not consider driving to MHT or PVD to get home to DC. BWI is not DC. The high fare lawyers and financiers doing business in the golden triangle will not substitute BWI for Washington either. (More on that later.) Besides that, BOS-DC is not so expensive a route as WN backers sometimes lead you to believe. In all my time in Mass, I've never spent more than $150 RT to get to DC from Logan. (And yes, I have gotten that fare to DCA on occasion.)

Now, to your costs statement. Can you see how taking out fuel cost in the CASM nearly eliminates the cost associated with flying in the northeast? Do you still think it is an accurate measure? Removing the fuel cost is equivalent to saying "except for the cost of flying the plane, our cost have gone down." The actual price of the fuel is only a component of fuel cost. How you use it is important as well.

Surf: Whatever. You should see how well Peter Pan does in the northeast.

GoingBoeing: Take off your "Southwest is the airline of God" glasses. It is a good airline, and credit is due for its many successes. However their business model is a niche model, especially in the northeast. They will never topple the other majors unless they have a great change in their business plan. BWI is not Washington. ISP certainly is not Manhattan. PVD and MHT are not Boston. No matter how much you THINK, no business traveler in Boston will drive an hour to an hour and a half to get to PVD or MHT to catch a flight to ISP, and then drive another hour to an hour and a half to get to town. That's slower than the train, and including the cost of the taxi or rental car (not to mention the cost of lost time), it may be more expensive too. The market has been quite clear in this result. Note that WN in the NE is nothing new, but their presence in the northeast has had little to no effect on fares at DCA, LGA, PHL, BOS, and other airports. Why is that? Because the base of fliers that will pay those fares have voted with their pocketbooks: LGA is better than ISP.

To put all of this simply, Jenkins is wrong.
 
sccutler
Posts: 5556
Joined: Thu Jan 27, 2000 12:16 pm

DLX- Read Before Reacting

Tue Aug 29, 2000 4:38 pm

DLX- Look real quickly at my 8/28 post- you'll find that I agree with you as to AirCal and PSA; I have posited that WN took out the service that *had been* AirCal and PSA, NOT that WN had anything to do with the sales of those two fine outfits (on which I relied rather heavily when I lived in SoCal mid-80's).

AA's and US' inability to react to and cope with this type of efficient operation is what allowed WN to take that market share. I agree that, if PSA and AirCal had remained independent, WN's west coast ops would be very different today... and who knows what these two (esp. PSA) might have done?

By the way, off-topic, but I occasionally speculate about what might have been, had DOT allowed PSA to recapitalize BN in 1982; Braniff's base and good service reputation, the protection of the bankruptcy court from creditors, and PSA's good management might have been a formidable combination. Oh well.
...three miles from BRONS, clear for the ILS one five approach...
 
goingboeing
Posts: 4727
Joined: Sat Dec 04, 1999 1:58 am

RE: GWU Prof Report On US Airline Future- SWA Dominant

Tue Aug 29, 2000 4:58 pm

Gosh DLX, you're so sensitive. I don't hate you, and I really don't think I put words in anybody's mouth. Sure, I'm sometimes sarcastic, but it's in the genes. Anyhooo, here's a quote from you:

"It is a niche-competitor, because it does not fly where people want to fly (at least in the east). Leisure travelers may fly out of LIT to avoid MEM, but high fare business travelers certainly will not. Same is true at BWI, ABE, PVD, MHT, and certainly ISP."

To use the the favorite phrase of the Mclaughlin group - WRONG. Now, correct me if I'm wrong, but those words came from your "mouth" -

It does not fly where people want to fly (at least in the east). PVD is as far from Boston as Overland Park, Kansas is from MCI. The scale of distance in the Northeast is unusual. What passes for a normal commute most places is out of the question since the airport is in another state (BOS-PVD). Yet the BOS guys will catch a plane to LGA every day to go to work. Still can't figure that out. Anyhow, if it's within 50 miles of a major metropolitan center, it's considered a part of the major metropolitan center. BTW, OP Kansas is the fastest growing suburb of KC, MO and it is 60 miles one way to the airport. So, as a midwest businessman who is used to driving 60 miles to get to the airport, Looking at the old Rand Mcnally and seeing that PVD is only 56 miles from Boston, and knowing about the horror stories of getting in and out of Boston, then the answer is a no brainer - I'm headed for PVD.

I suppose your statement "high fare business travellers certainly won't" is correct. Southwest markets are comprised mainly of "low fare business travellers". Again, there is a lot of business between BOS and NYS, but there is also a lot of business between KC-BOS, STL-NYC, CLE-BOS, etc. You're citeing one route - Boston to New York. There's a heckuva lot more routes than that one.

Have a nice day...and I'm really a likable guy, ask Tex.
 
D L X
Posts: 11640
Joined: Thu May 27, 1999 3:30 am

RE: GWU Prof Report On US Airline Future- SWA Dominant

Tue Aug 29, 2000 9:42 pm

The blank-hater term is a fairly new piece of lingo. It doesn't really mean hate. However, "DLX, Please take off your "business is only conducted in the east" glasses," is quite antagonistic, don't you think? WHen did I say that the markets SW serves in the west were unimportant? I point out that the success in the west does not mean that that business model will run east coast airlines out of business? In fact I have pointed out many times that the market in the east is different than the market in the west.

Overland Park (according to mapquest) is 28 miles, or 39 minutes from the airport. That is half the distance between Boston and Providence, which really are two distinct cities. But that's neither here nor there. Let me see if I can be more clear. If you're conducting business in DC, you're not going to fly to BWI. Maybe you even live in Providence, or Manchester. To make a morning meeting in DC, flying into BWI is a major hindrance. Either you have to fly in the night before and rent a car to DC and pay an extra night's hotel, or you fly in that morning and waste business hours getting from the airport to DC (about 60-90 minutes). To extend to your markets, a person in KC will fly to Boston not PVD, a person in ST Louis will fly to LGA, not ISP, and a person in Cleveland will fly to BOS for the same reason.

BTW, did you read Jenkins' report?

To Sccutler: I can't quite see how you're in agreement with me in context to the argument against Daryl Jenkins' report. You've confused me when you start with WN beating AirCal and PSA. (And I also did not say that WN's effect is insignificant. I pointed out that it is not deadly as Jenkins suggests.)
 
sccutler
Posts: 5556
Joined: Thu Jan 27, 2000 12:16 pm

DLX And Business Travelers

Tue Aug 29, 2000 10:39 pm

DLX- you write:

>You've confused me when you start with WN beating AirCal and PSA. <

I didn't say WN beat AirCal and PSA; I said that, after US and AA took over those carriers' operations, WN then took, essentially, all that business away.

As I also stated, I don't think that would have happened had PSA and AirCal remained independent and (thus) committed to operating their business and defending that market well.

Final note- even in good times, there are not that many "high fare" business travelers- people whose business requirements allow them the luxury of paying significantly more for the same transportation. And, if (or, more appropriately, when) the economy slows somewhat, the most efficient carriers will be better situated to survive, and such propensity as there may be for business travelers to treat themselves to luxuries by flying more costly carriers, will evaporate. You'll then see a combination of (1) more travelers on low-fare airlines; and (2) high-cost carriers reducing their fares to fill seats, and thus losing margin.
...three miles from BRONS, clear for the ILS one five approach...
 
goingboeing
Posts: 4727
Joined: Sat Dec 04, 1999 1:58 am

RE: GWU Prof Report On US Airline Future- SWA Dominant

Wed Aug 30, 2000 12:28 am

Gosh DLX, according to the odometer on my car, it's 60 miles. See, I live in the southern section of the town (sprawl is I believe the term that is used to describe this), and while mapquest draws a fairly accurate map, you wouldn't want to go the way they suggest, and I can assure you it will take far longer than 39 minutes since most of their suggested route is under construction. I prefer the "western" route to get to the airport. Better road, less congestion. About an hour driving time (about the same as the mapquest suggestion)

And, coming from the midwest, where "rush hour" is like Sunday morning traffic in Boston, I wouldn't be looking forward to the horror stories of Boston traffic, particularly around Logan.

Sorry about the glasses remark, but a lot of people on either coast seem to forget that there's a lot of business in the other parts of the country.

As Scuttler points out, the REASON I say that CASM's are important is because if the economy burps and companies begin to look at ways of cutting costs, they will think long and hard about approving a high dollar airfare when a low fare is available and within 50 miles of the other airport. I know. I used to work for a company that was emerging from bankruptcy. The austerity program sucked big time (reciepts required for a Mickey D's lunch). Costs are watched like a hawk. If that happens, the other airlines will have to lower fares to compete. Lower fares equal lower profits, and may even equal a loss.

But I'd argue the point about who will and won't fly to BWI or ISP - First, I'd be hard pressed to make a morning meeting in DC by flying out of KC that morning...The earliest flight out wouldn't put me in DC until around noon, so I'd still have to fly out the night before and stay in a hotel to make a morning meeting. It'd cost me $1140 to do that tomorrow night. Now, I can put in a full day at the office, and head out to MCI to catch the 7:00 p.m. nonstop on Southwest. It costs $383. Now, I still have to fly there the day before, so how exactly do I tell my boss that I'd really rather fly into a different airport? Or, how do I tell the client that I am billing that I decided that it was worth another $750 for my convenience?

BTW, yes I did read the article.
 
ScottB
Posts: 5414
Joined: Fri Jul 28, 2000 1:25 am

BOS Vs. PVD/MHT

Wed Aug 30, 2000 1:56 am

To DLX-

I'm glad to hear you escaped from Shrewsbury...   I don't think I could bear living THAT close to Wuhstuh.      

You mentioned morning business meetings in DC. If a business person is trying to make it to a meeting in DC, and they live in the Boston suburbs, they're still going to have to fight Boston traffic (i.e. Southeast Depressway, Lower Deck, Mass. Pike, Rt. 2, etc. to make it into the city, deal with the parking lot a.k.a. the Central Artery, and then go through the Callahan tunnel). Coming from, say, Attleboro, Franklin, Andover, Salem NH, Acton, Westford, etc., I'd allow at least 1.5 hours to travel to Logan in the morning. Taking the airport bus from Braintree, Woburn, or Framingham might save you some frustration and some time, since they can use the Ted Williams Tunnel. Taking the commuter rail and changing to the subway is no time-saver either - at South Station, you go from train to red line to orange line to blue line to airport bus.
Even when I lived in Cambridge, I allowed at least an hour to get to the airport, since you never know how lucky you're going to be with the two subway line changes. The cross-town bus to and from the airport is a joke. And yes, I've taken it several times. It actually stops about 5 blocks from my apartment. HOWEVER, it sits at the Andrew Square station for 15-25 minutes while the bus driver takes a break. I can walk the 25 minutes from Andrew and make it home faster than if I'd stayed on the bus. At least it's cheap. The subway's going up to a dollar this fall, by the way. Still a "bahgin", tho.

Massport is also promoting the "satellite airport" concept (PVD, MHT, ORH) to take the burden off Logan. They'd promote BED as well if it weren't surrounded by wealthy suburbs.

On the other end in DC... I will agree with you whole-heartedly that DCA is far more convenient than BWI if you're heading into the District or the NoVa suburbs. But if you're going to the Maryland suburbs and all the development on that part of the Beltway, BWI is actually a better choice.

I agree with you completely that there will always be a premium for BOS-DCA flights - not because they cost the airline more, but because they offer better value for SOME people (not all) in the time they save. I took a look at the DOT traffic numbers for 4Q99 by city pair (O&D traffic), and it seemed pretty revealing to me. I'll group PVD and MHT as Boston "alternates." DOT groups DCA and IAD together (WAS).

PVD/MHT-BWI: 3527 passengers/day
BOS-WAS: 4052 passengers/day

Lower fares are stimulating a significant market, even for "less desirable" airports.

And though NYC and WAS are two of the largest markets from Boston, I doubt USAirways wants to become a glorified Trump Shuttle (though I'm sure it would be VERY profitable, Eastern and Pan Am made TONS of money on their shuttles). You can even get $99 roundtrip fares to DC from Boston if you watch for sales and book in advance, but you can get $70 roundtrips on Southwest to BWI (usually internet specials). The exact number of dollars won't make any difference to travelers where price is unimportant, but if you're a small business owner or self-employed consultant, and you're footing the bill, you might inconvenience yourself to save a couple hundred dollars or more on a full-fare ticket.

As to the fuel cost thing, it doesn't seem like you read my example. Yes, fuel cost is important - it's 10% or so of an airline's total costs. But no, you can't accurately compare an airline's *efficiency* quarter-by-quarter if you're basing some of your comparison on the price of a commodity. The comparison is accurate if you keep fuel costs *per gallon* constant. The most accurate comparison would be to factor out the difference in fuel costs per gallon and calculate CASM from that. And most airlines do put a figure for average cost per gallon of fuel in their financial statements. You just have to do the math to get the constant-fuel-price CASM.

FWIW, Southwest isn't marketing PVD-ISP service (here in Boston) as service to NYC, they're marketing it as service to Long Island. There are a lot of wealthy folks out there.

And yes, I did read the Jenkins article. I'm not sure I agree with many of his scenarios, but I do agree that Southwest will be one of the biggest players in 10 years.
 
D L X
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RE: GWU Prof Report On US Airline Future- SWA Dominant

Wed Aug 30, 2000 7:21 am

ScottB:
Hey, Shrewsbury was pretty damn cool. I had coyotes in my back yard to spot, eagles in the front yard, and stars at night. Quite relaxing, especially since I was "working at home." And as for Boston, I grew up in DC (well, actually VA; nobody is really from DC these days). A dollah won't get you in the door on the 'Tro.
BTW when the US F/As were threatening a strike, CNN reported that US's busiest routes were BOS-LGA, LGA-DCA, BOS-DCA, BOS-IAD, and BOS-PHL. The first 4 are the shuttle routes of course, and we know what they charge.

Sccutler:
Your point about fuel costs is well taken, and in my haste to write everything before I forgot stuff, I neglected to address that. Yes, the price of fuel has certainly gone up. That is a percentage that we can calculate. Of course, when airlines report their costs and the percent increase/decrease, it doesn't quite add up. The difference is in the how it is being used. Southwest's fleet didn't get less efficient (in fact the reverse is true with their newer jets coming online). Similarly, US' fleet became more efficient. Still, both airlines' costs went up because of the fuel price. So why did US' costs go up less than WN's? The way the fuel was being used changed for WN. Their continued expansion into the northeast has caused less efficient use of their fuel. (Southwest would do well to keep all of their less efficient planes in the Southwest where the effect would be lessened.) True, the changing price for jetA does screw with the analysis a good bit though.

GoingBoeing:
I recognized that WN has had many successes even with biz passengers in the west and lower-midwest. However, this report suggests that they will continue and kill off US Airways because of cost. US Airways does most of its flying in the east. This is why I'm talking mostly about the east. This is a major point in Jenkins' article that I do not agree with. He assumes that WN's strengths in the west will equate to success in the east (a plan that obviously worked well for US and AA in the last decade). Never mind that they fly relatively few flights to very few destinations in the northeast when compared to US, and even DL and UA, and under their current business model, which is the reason for their low costs, they won't ever fly to as many destinations and in the numbers of the other carriers. (He also notes that little JetBlue will obviously help the kill even though it has not even been around for 1 year.)

Also, please note what ScottB said (and I concur) that WN does not promote its PVD-ISP service as service to New York City. There are many better options than Southwest for getting to NYC from Boston.

With all this said, I don't doubt that you're a good guy. But you have to see that WN is a good airline, but it is still a nuissance, not a killer, to the incumbent airlines of the east.
 
Guest

RE: GWU Prof Report On US Airline Future- SWA Dominant

Wed Aug 30, 2000 7:29 am

Will someone tell me if WN picked ABE as a route and didn't let me know? The guy guessed about it a little TOO much. My favorite part was when he said that it would be the quasi-hub of the East. By 2005? So will they leave BWI by then, and, for the heck of it, move the Baltimore ops to ABE? I wouldn't be surprised at all if he said that he was from "Allentown, PA"