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flymco753
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Market Surpression within Markets

Fri Sep 13, 2019 3:32 pm

I think we all know that this is a thing, but what are some examples of true market suppression in markets you know of?

My example is, back when NW & FL flew SRQ-DTW, the market was over 300 passengers daily and both ways with a selection of 3 flights at peak. The market has since dwindled to less than 100 during peak with a single weekly flight priced regularly above $300 as opposed to the previous yield fare of about $170. This is an obvious example of market suppression.

After performing a QSI, it is determined that if an airline like NK adds 3x weekly flights, DL could respond in 2 ways: 1) they keep the status quo 2) go daily to maintain market share separation.

Both of these would result in a reverse method, pulling the market out of suppression and presumably grow a market.

My point is, what other markets in hub or non-hub markets experience suppression like this?
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GalaxyFlyer
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Re: Market Surpression within Markets

Fri Sep 13, 2019 3:43 pm

WTH is “market suppression”? Maybe the DTW retirees just died off or stayed in FL; maybe the market dwindled; maybe 300 per day is unprofitable while 100 per day at higher fares is. Airlines respond to the market, not the other way around.

GF
 
RJNUT
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Re: Market Surpression within Markets

Fri Sep 13, 2019 3:51 pm

DL more than likely now routes everyone to SRQ thru ATL and the local market has been possibly diluted by G4 with the likes of FNT-SRQ and GRR-SRQ . Also Detroiters may bleed over to cheaper flights to TPA or even MCO in order to get to SRQ
 
wave46
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Re: Market Surpression within Markets

Fri Sep 13, 2019 3:54 pm

If an airline loses money with 300 passengers daily at $170 a pop, what is the logical decision?

a. Continue losing money.
b. Increase fares
c. Decrease number of flights
d. A mix of b & c
 
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flyPIT
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Re: Market Surpression within Markets

Fri Sep 13, 2019 5:18 pm

PIT-PHL is another example. In 2010 PHL was PIT's second largest O&D market with over 500 pdew. Southwest competed with US Airways on the route with several daily flights. WN pulled out, US/AA jacked up fares (now routinely over $500 o/w), demand got suppressed by these high fares, and AA has now cut back to only 5 daily flights. PIT-PHL O&D is now only a fraction of what it was so yes, markets absolutely respond to airlines.
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MIflyer12
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Re: Market Surpression within Markets

Fri Sep 13, 2019 5:28 pm

flyPIT wrote:
PIT-PHL O&D is now only a fraction of what it was so yes, markets absolutely respond to airlines.


The correct way to state this is that travelers respond to prices. Anybody can fill planes on most any route with prices low enough. Sell Spokane to Rapid City for $1 way in February and people will decide they need to see Mt Rushmore. That doesn't mean the historical level of O&D is the 'right' level of O&D.
 
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flyPIT
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Re: Market Surpression within Markets

Fri Sep 13, 2019 5:39 pm

MIflyer12 wrote:
flyPIT wrote:
PIT-PHL O&D is now only a fraction of what it was so yes, markets absolutely respond to airlines.


The correct way to state this is that travelers respond to prices. Anybody can fill planes on most any route with prices low enough. Sell Spokane to Rapid City for $1 way in February and people will decide they need to see Mt Rushmore. That doesn't mean the historical level of O&D is the 'right' level of O&D.

Semantics much?

Who's to say what constitutes the "right" level of O&D? A specific fare might be profitable for airline A yet might be unprofitable for airline B.
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twicearound
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Re: Market Surpression within Markets

Fri Sep 13, 2019 5:41 pm

There is no such thing as "market suppression"
Your claim fails to see one gaping flaw. If an airline was "suppressing" the market on a particular route, wouldn't it behoove a competitor to come in and compete?
 
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flymco753
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Re: Market Surpression within Markets

Fri Sep 13, 2019 5:47 pm

I think a good point that was made here was profitability for airline A vs airline B. Lets say a low cost carrier were to initiate a route like SRQ-DTW or PHL-PIT (assuming said low cost carrier could profitably fly the route), either it's going to entice the hub carrier to respond in a way that is still profitable or not respond at all.

A good example of a legacy essentially "choking" a market was JAX-DTW prior to NK's entrance. It was only a few years ago that traffic never reached above 150 even during peak, and Delta flew a 6x weekly CRJ-700, they even cut it during January and February at one point. As NK announces daily flights on their already dense A320, DL responds with 2 of their A320's. I'm waiting to see what the DOT releases, but if my study is correct, local traffic would have grown over 45% and yield fares would have fell around $150 regularly. That's an effect that I think would happen if a ULCC were to enter a market like SRQ-DTW.
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FlyingElvii
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Re: Market Surpression within Markets

Fri Sep 13, 2019 5:58 pm

You worded it wrong, but I think the best recent example is what United did to Western Pacific.
The idea was to capture coast to coast traffic, basing in Colorado Springs, while also drawing from the DEN catchment area. Great operation, good management.

But United went nuts about it, saw it as a huge threat to the fortress hub they were building in Denver, and reacted severely to it. First, They flooded COS with seats from thier hubs, at one point running 10+ DC-10’s a week from Den-Cos, plus adds from other hubs.

United also found that WestPac’s business plan had a fatal flaw. To get the long range operational capability they needed to hub at 6200’ ASL COS, the only narrow body airplane that could do it, at that time, consistently, was the new 737-300. Once United realized this, they went out into the world market and bought up every single -300, and future delivery position, they could get thier hands on, many times at 2-3 times market rates, to deny them to West PAC. They even created an entirely new investments category called “Aircraft Financial Investment Instruments” to do it.
(These were a major contribution to United’s 2002 Bankruptcy, and were the first planes they cut loose after the filing. People that bought into these lost millions. After all, United could NEVER declare bankruptcy, could they?)

Can the case be made that United engaged in unfair competition and predatory pricing, in cooperation with several major investment banks? Sure... But that would be a very tough case to make in a US court.
 
FlyingElvii
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Re: Market Surpression within Markets

Fri Sep 13, 2019 6:03 pm

twicearound wrote:
There is no such thing as "market suppression"
Your claim fails to see one gaping flaw. If an airline was "suppressing" the market on a particular route, wouldn't it behoove a competitor to come in and compete?

Sometimes, yes, sometimes no. Delta has a long-time reputation of reacting very badly to new entrants in a hub market, flooding it with frequencies and undercutting fares.
 
airzona11
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Re: Market Surpression within Markets

Fri Sep 13, 2019 6:07 pm

If an airline suppressed the market, there would be unserved demand, another airline would enter. This would be the opposite of predatory pricing, it would, however, be harming the incumbent airline, if they were choosing not to serve demand that is not there. Long story short, not sure this is a thing.
 
DarthLobster
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Re: Market Surpression within Markets

Fri Sep 13, 2019 6:10 pm

This sounds like crap
 
Sokes
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Re: Market Surpression within Markets

Fri Sep 13, 2019 8:46 pm

Suppose a city pair has enough traffic at profitable pricing to fill three planes/ direction day.
A company needs to have staff at both airports. Customers would be lucky if at least two airlines share these three flights. But then if somebody needs a flight at a certain time?
The situation sounds like natural monopolies to me. It should be very profitable. That airlines often struggle to survive is contradicting evidence.
Where is my mistake?
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klm617
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Re: Market Surpression within Markets

Fri Sep 13, 2019 9:56 pm

twicearound wrote:
There is no such thing as "market suppression"
Your claim fails to see one gaping flaw. If an airline was "suppressing" the market on a particular route, wouldn't it behoove a competitor to come in and compete?


Not if the said carrier is powerful enough to run you out of the market when it want's to maintain it's passenger flows to suit it's needs rather than the needs of the customers in that market. No one with a straight face can tell me there is more demand from GRR, FNT or TOL to SRQ than there is from Detroit. I think DTW-London is one of these markets as well as DTW-ANC and VPS currently DTW-KEF is also one of these markets
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klm617
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Re: Market Surpression within Markets

Fri Sep 13, 2019 10:01 pm

airzona11 wrote:
If an airline suppressed the market, there would be unserved demand, another airline would enter. This would be the opposite of predatory pricing, it would, however, be harming the incumbent airline, if they were choosing not to serve demand that is not there. Long story short, not sure this is a thing.


Not true if you need capacity to fill your hourly flights from ATL to Florida you're going to want to force as many connections as you can over ATL to make sure your flights to Florida are going out as full as they can and both DTW to VPS and SRQ suffer because of this method that Delta uses when serving Florida.
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GalaxyFlyer
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Re: Market Surpression within Markets

Fri Sep 13, 2019 10:19 pm

They still get to their destinations, don’t they? DL is a profit making enterprise, you have to expect them to organize their services appropriately.

BTW, when an airline reduces service from 3/day to 1/day, they’re just shifting the supply curve to the left which creates a new equilibrium price for flying DL.
 
klm617
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Re: Market Surpression within Markets

Fri Sep 13, 2019 10:50 pm

GalaxyFlyer wrote:
They still get to their destinations, don’t they? DL is a profit making enterprise, you have to expect them to organize their services appropriately.

BTW, when an airline reduces service from 3/day to 1/day, they’re just shifting the supply curve to the left which creates a new equilibrium price for flying DL.


Yes but what might be a 2.5 hour flight turns into a 5 + hour flight which in turn throws in the possibility of a misconnect. Last I checked the airlines business is part of the service industry and the only way they are allowed to do this now is because of limited competition through consolidation and with fewer competitors there is less chance that someone will jump in and challenge them. You're opinion is not very customer friendly.
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airzona11
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Re: Market Surpression within Markets

Fri Sep 13, 2019 10:55 pm

klm617 wrote:
airzona11 wrote:
If an airline suppressed the market, there would be unserved demand, another airline would enter. This would be the opposite of predatory pricing, it would, however, be harming the incumbent airline, if they were choosing not to serve demand that is not there. Long story short, not sure this is a thing.


Not true if you need capacity to fill your hourly flights from ATL to Florida you're going to want to force as many connections as you can over ATL to make sure your flights to Florida are going out as full as they can and both DTW to VPS and SRQ suffer because of this method that Delta uses when serving Florida.


How is that suppressing a market? In your example, DTW to VPS/SRQ is the market, passengers have lower cost connecting options or higher cost non-stop options. The market is being served. If DTW to VPS/SRQ non-stop is underserved, WN/F9/NK/AA/UA or even DL would add the nonstops to meet the demand willing to pay for a nonstop.
 
cledaybuck
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Re: Market Surpression within Markets

Fri Sep 13, 2019 11:48 pm

Isn’t this whole thread a discussion of supply and demand?
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kavok
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Re: Market Surpression within Markets

Sat Sep 14, 2019 12:42 am

Suppression in air markets most certainly exists. I am surprised so many think otherwise.

A big reason is that you don’t have a true free market. In the US you only have 3 large legacy airlines that, outside a few large markets, don’t generally like to compete with spoke flights from an opponents hub. This means the only chance for a competitor is a LCC, who often obviously targets a different passenger set.

For instance, you would never see AA add IAH-ABQ. IAH is a United hub, and if anyone wanted to fly on AA between those cities, AA would connect them in DFW. Point being, hypothetically say there was 600 PDEW between IAH-ABQ (obviously an exaggeration) and UA only flew 1 daily ERJ on the route... would AA or DL add a direct flight because of unmet demand? The answer is of course no, and thus there is not true competition. The point is UA could fly as much or as little capacity on that route and the opposing legacies wouldn’t budge. That is why it is not a fair market (in most cases), and why you can’t use supply and demand.

Similarly, UA/AA would never add DTW-JAX/SRQ and DL would never add PIT-PHL. Case examples of where a deFacto monopoly exists.
Last edited by kavok on Sat Sep 14, 2019 12:54 am, edited 1 time in total.
 
klm617
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Re: Market Surpression within Markets

Sat Sep 14, 2019 12:45 am

airzona11 wrote:
klm617 wrote:
airzona11 wrote:
If an airline suppressed the market, there would be unserved demand, another airline would enter. This would be the opposite of predatory pricing, it would, however, be harming the incumbent airline, if they were choosing not to serve demand that is not there. Long story short, not sure this is a thing.


Not true if you need capacity to fill your hourly flights from ATL to Florida you're going to want to force as many connections as you can over ATL to make sure your flights to Florida are going out as full as they can and both DTW to VPS and SRQ suffer because of this method that Delta uses when serving Florida.


How is that suppressing a market? In your example, DTW to VPS/SRQ is the market, passengers have lower cost connecting options or higher cost non-stop options. The market is being served. If DTW to VPS/SRQ non-stop is underserved, WN/F9/NK/AA/UA or even DL would add the nonstops to meet the demand willing to pay for a nonstop.


That's not true at all Delta will not add nonstops in these markets because they want you to connect trough ATL to make their hourly service between ATL and SRQ more viable. As stated above when there was nonstop service between DTW-SRQ had 300 PFDEW when these was multiple daily flights but as others have said those people are now choosing to either fly from FNT or TOL to SRQ or fly into TPA because it's faster than a connection trough ATL.
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klm617
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Re: Market Surpression within Markets

Sat Sep 14, 2019 12:46 am

kavok wrote:
Suppression in air markets most certainly exists. I am surprised so many think otherwise.

A big reason is that you don’t have a true free market. In the US you only have 3 large legacy airlines that, outside a few large markets, don’t generally like to compete with spoke flights from an opponents hub. This means the only chance for a competitor is a LCC, who often obviously targets a different passenger set.

For instance, you would never see AA add IAH-ABQ. IAH is a United hub, and if anyone wanted to fly on AA between those cities, AA would connect them in DFW. Point being, hypothetically say there was 600 PDEW between IAH-ABQ (obviously an exaggeration) and UA only flew 1 daily ERJ on the route... would AA or DL add a direct flight because of unmet demand? The answer is of course no, and thus there is not true competition. The point is UA could fly as much or as little capacity on that route and the opposing legacies wouldn’t budge. That is why it is not a fair market (in most cases), and why you can’t use supply and demand.


Because everyone on here believes the a.net myth that if there was a market for a nonstop flight an airline would fly it. Thank you for this very on point post. This is the reality today and not what others would have you believe. DTW-KEF went from the 55th O/D market when there was no nonstop to the 5th most O?D when it had a direct link through WOW Air and with that much demand it is still going to go unserved for the foreseeable future.
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GalaxyFlyer
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Re: Market Surpression within Markets

Sat Sep 14, 2019 1:59 am

DTW-KEF is “underserved” because WOW went bankrupt trying to serve it and other underserved markets at bargain fares. DL wants pax to connect thru ATL because they cannot get pax to pay a premium to fly non-stop to SRQ, etc. There’s a large flow of New Englanders flying to/from Florida, but few non-stops to SRQ, RSW, JAX, MLB because no one will pay for the service.

A market is “underserved” for the simple reason that it is either unprofitable or carriers have better profit making use of assets elsewhere. It’s a business, not a charity.

GF
 
PSU.DTW.SCE
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Re: Market Surpression within Markets

Sat Sep 14, 2019 2:03 am

A few things here:

Using PDEW data from the FL era is inherently flawed; FL, like other new entrants was able to enter markets and offer un-sustainability low fares that artificiality increased demand in the market until the service ended. FL was able to leverage its low operating costs and cheap new-hire labor to fly an artifical, unsustainable business model. Needless to say for a variety of reasons FL is gone and so is much of the traditional traffic they carried on their network.

Secondly, many of these markets were the benefactors of being secondary airports the benefited from reverse leakage. You can't look at a market like SRQ in isolation without looking to the dynamics of the market at TPA and PIE. How much of that traffic that went to SRQ for artificially cheaper fares now is going to PIE or TPA again?

There have been numerous airlines over time that have found ways to stimulate traffic with lower prices, the question is to they have the means to operate as a going-concern?
The legacy airlines aren't necessarily trying to supress traffic, but they are going after a segment of the traffic that fits their business model.
Other competitiors, like G4 target other price-sensitive customers but may serve other non-traditional market pairs.
 
GalaxyFlyer
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Re: Market Surpression within Markets

Sat Sep 14, 2019 2:06 am

klm617 wrote:
GalaxyFlyer wrote:
They still get to their destinations, don’t they? DL is a profit making enterprise, you have to expect them to organize their services appropriately.

BTW, when an airline reduces service from 3/day to 1/day, they’re just shifting the supply curve to the left which creates a new equilibrium price for flying DL.


Yes but what might be a 2.5 hour flight turns into a 5 + hour flight which in turn throws in the possibility of a misconnect. Last I checked the airlines business is part of the service industry and the only way they are allowed to do this now is because of limited competition through consolidation and with fewer competitors there is less chance that someone will jump in and challenge them. You're opinion is not very customer friendly.


It’s not meant to be “customer friendly”; it’s meant to discriminate reality. Maybe it would be better to have 10 airlines all losing money like pre-consolidation, but offering all kinds of inefficient non-stops to meet your desires. Maybe they should have a plane waiting at your call. Oh wait, they do, it’s called a private jet.

GF
 
klm617
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Re: Market Surpression within Markets

Sat Sep 14, 2019 2:13 am

PSU.DTW.SCE wrote:
A few things here:

Using PDEW data from the FL era is inherently flawed; FL, like other new entrants was able to enter markets and offer un-sustainability low fares that artificiality increased demand in the market until the service ended. FL was able to leverage its low operating costs and cheap new-hire labor to fly an artifical, unsustainable business model. Needless to say for a variety of reasons FL is gone and so is much of the traditional traffic they carried on their network.

Secondly, many of these markets were the benefactors of being secondary airports the benefited from reverse leakage. You can't look at a market like SRQ in isolation without looking to the dynamics of the market at TPA and PIE. How much of that traffic that went to SRQ for artificially cheaper fares now is going to PIE or TPA again?

There have been numerous airlines over time that have found ways to stimulate traffic with lower prices, the question is to they have the means to operate as a going-concern?
The legacy airlines aren't necessarily trying to supress traffic, but they are going after a segment of the traffic that fits their business model.
Other competitiors, like G4 target other price-sensitive customers but may serve other non-traditional market pairs.



Yes but again your logic is flawed to say FNT has more O/D than DTW to SRQ is absurd yet it has more nonstop service. The only reason AirTran no longer exists is because they were bought out not because their business plan was flawed. Why should a traveler who's origin and destination is DTW and SRQ have to take a flight to TPA to get a decent airfare. Please that is market suppression at it's finest by Delta and no matter how much perfume you try to put on it still stinks.
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PSU.DTW.SCE
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Re: Market Surpression within Markets

Sat Sep 14, 2019 2:23 am

This is why we can't have a thread specific to DTW......
 
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flymco753
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Re: Market Surpression within Markets

Sat Sep 14, 2019 2:34 am

Klm617 has a very valid point. Delta clearly makes the statement that if you're visiting so called, "secondary" markets in the Southeast, there's a 90% chance that it'll be cheaper to connect in ATL instead of utilizing an RJ7/9 nonstop.

A good example was F9 adding MCO-PUJ. A market where nearly any Central Floridian will drive or connect in MIA to get to, or a nonstop to SDQ. F9 took the leap of faith to add 2x weekly flights to start and had AA dramatically reduce yields on MCO-MIA-PUJ. With MCO having no legacy hub carrier, AA competed by sending connects through MIA at a cheaper price. In a situation where a hub carrier is dominant, it's obvious that they would respond directly instead of indirectly.

A lot of these Allegiant markets suffered something similar prior to Allegiant. I dont think anyone would've thought of going from ELM-SFB for less than $100 one-way.

Suppressing a market isnt a bad thing for an airline, but where does this so called "ghost demand" come from sans JAX-DTW? JFK-ABQ? MCO-PUJ?
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jetblueguy22
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Re: Market Surpression within Markets

Sat Sep 14, 2019 2:35 am

klm617 wrote:
PSU.DTW.SCE wrote:
A few things here:

Using PDEW data from the FL era is inherently flawed; FL, like other new entrants was able to enter markets and offer un-sustainability low fares that artificiality increased demand in the market until the service ended. FL was able to leverage its low operating costs and cheap new-hire labor to fly an artifical, unsustainable business model. Needless to say for a variety of reasons FL is gone and so is much of the traditional traffic they carried on their network.

Secondly, many of these markets were the benefactors of being secondary airports the benefited from reverse leakage. You can't look at a market like SRQ in isolation without looking to the dynamics of the market at TPA and PIE. How much of that traffic that went to SRQ for artificially cheaper fares now is going to PIE or TPA again?

There have been numerous airlines over time that have found ways to stimulate traffic with lower prices, the question is to they have the means to operate as a going-concern?
The legacy airlines aren't necessarily trying to supress traffic, but they are going after a segment of the traffic that fits their business model.
Other competitiors, like G4 target other price-sensitive customers but may serve other non-traditional market pairs.



Yes but again your logic is flawed to say FNT has more O/D than DTW to SRQ is absurd yet it has more nonstop service. The only reason AirTran no longer exists is because they were bought out not because their business plan was flawed. Why should a traveler who's origin and destination is DTW and SRQ have to take a flight to TPA to get a decent airfare. Please that is market suppression at it's finest by Delta and no matter how much perfume you try to put on it still stinks.

Can you quit making every thread a DTW circle jerk? You act like SRQ-DTW is even relevant.

And not to mention the market to SRQ is substantially smaller than TPA, it doesn’t take a rocket scientist to figure out why it would cost more and require a connection. Scale helps lower prices, not just frequencies, and god knows TPA has the scale SRQ lacks.

You’d think Delta keeps kicking your puppy the way you talk about DTW.
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PSU.DTW.SCE
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Re: Market Surpression within Markets

Sat Sep 14, 2019 2:43 am

Markets will always be stimulated by lower fares.

Sometimes it takes a new entrant that can offer fares at a lower level to do so.. The industry is littered with examples of unsustainable new entrants who were able to stimulate demand with lower fares but ultimately were not able to operate the business as a going concern and/or were merged with larger entities.
 
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flymco753
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Re: Market Surpression within Markets

Sat Sep 14, 2019 2:49 am

Actually, my point was and is every intention to specifically pick on SRQ-DTW. To say klm617 is skewing the thread is nonsensical.

Here we go, SY adds twice weekly service from MSP to SRQ with affordable fares. A market, significantly smaller than the said market above. DL jumps on the market once a week using A319s. Keep in kind there's now 3 weekly flights on 2 different carriers with a sampled yield of $170.

Meanwhile, a larger market has once weekly 717s in January and February at peak with average yields over $400. How does this make sense?

It makes just as much sense as when JAX-DTW was a monopoly, it doesn't. Where was this unwarranted amount of passengers prior to NK's entrance? NK could easily launch SRQ-DTW 3x weekly and the market could react similarly to how JAX did.

Let's not act like DTW is the only problem in this thread. There are plenty of other routes that see this same affect. Does MCO-RDU signal any alarm? Where was that traffic before a ton of ULCCs added service and DL increased service to all mainline?

Airlines can most certainly control demand in a market by pricing.
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GalaxyFlyer
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Re: Market Surpression within Markets

Sat Sep 14, 2019 3:42 am

Airlines can most certainly control demand in a market by pricing.


Economic silliness. A carrier can only control the supply by how many seats they choose to put in a market. If they put lots of seats in the market, the price of those seats will fall. Wouldn’t it be nice if airlines or any firm could just rustle up more customers. Success would be assured.

GF
 
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aemoreira1981
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Re: Market Surpression within Markets

Sat Sep 14, 2019 4:00 am

I would imagine that United at EWR, a rarity of a fortress hub in the NYC market, does this a lot out of EWR, especially when you don't consider services to Florida.
 
airzona11
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Re: Market Surpression within Markets

Sat Sep 14, 2019 4:58 am

flymco753 wrote:
Actually, my point was and is every intention to specifically pick on SRQ-DTW. To say klm617 is skewing the thread is nonsensical.

Here we go, SY adds twice weekly service from MSP to SRQ with affordable fares. A market, significantly smaller than the said market above. DL jumps on the market once a week using A319s. Keep in kind there's now 3 weekly flights on 2 different carriers with a sampled yield of $170.

Meanwhile, a larger market has once weekly 717s in January and February at peak with average yields over $400. How does this make sense?

It makes just as much sense as when JAX-DTW was a monopoly, it doesn't. Where was this unwarranted amount of passengers prior to NK's entrance? NK could easily launch SRQ-DTW 3x weekly and the market could react similarly to how JAX did.

Let's not act like DTW is the only problem in this thread. There are plenty of other routes that see this same affect. Does MCO-RDU signal any alarm? Where was that traffic before a ton of ULCCs added service and DL increased service to all mainline?

Airlines can most certainly control demand in a market by pricing.


Willingness to pay and demand are controlled by the consumers. AIrlines control the supply. You are doing a good job that DTW based passengers are price sensitive and choose the lowest price option. Most travelers are and DTW to SRQ is leisure based, so it makes sense. The only point you are making is that you wish DTW had more nonstop flights, ignoring the economics/available substitutes of other airports and 1-stop connections.
 
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stl07
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Re: Market Surpression within Markets

Sat Sep 14, 2019 5:18 am

Why that every time someone mentions DTW, even when completely on the topic like flymco, does the airport and its people need to be bashed. Seriously, I see 10x more people complaining about/trolling DTW people than the DTW people acually posting ridiculous stuff
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Andy33
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Re: Market Surpression within Markets

Sat Sep 14, 2019 5:35 am

Sokes wrote:
Suppose a city pair has enough traffic at profitable pricing to fill three planes/ direction day.
A company needs to have staff at both airports. Customers would be lucky if at least two airlines share these three flights. But then if somebody needs a flight at a certain time?
The situation sounds like natural monopolies to me. It should be very profitable. That airlines often struggle to survive is contradicting evidence.
Where is my mistake?


But the idea of having staff at both airports is pretty much confined to the USA. Elsewhere they may have staff at one of the airports (if it is a hub) or neither (if it is a point to point airline). Instead they use third party ground handling contractors, whose staff go off and handle flights for other airlines in the gaps between the example three flights a day on the city pair.
Now in the US third party handling contractors have a poor reputation, mainly due to low pay and bad conditions not attracting the right sort of employees, but this isn't the case everywhere - they're rarely if ever as good as directly employed staff, but can make the difference between viable and not viable for a relatively infrequent route.
 
MSPNWA
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Re: Market Surpression within Markets

Sat Sep 14, 2019 6:41 am

GalaxyFlyer wrote:
DTW-KEF is “underserved” because WOW went bankrupt trying to serve it and other underserved markets at bargain fares. DL wants pax to connect thru ATL because they cannot get pax to pay a premium to fly non-stop to SRQ, etc. There’s a large flow of New Englanders flying to/from Florida, but few non-stops to SRQ, RSW, JAX, MLB because no one will pay for the service.

A market is “underserved” for the simple reason that it is either unprofitable or carriers have better profit making use of assets elsewhere. It’s a business, not a charity.


Talk about economic silliness. It's not that DL can't get PAX to pay a premium to fly nonstop to SRQ, it's that it's even more lucrative not to supply the option (there's a cost element here as well, not just revenue). There's no need for DL to fly a nonstop flight when there's little to no risk of spillage. "Underserved" is a matter of definition, but if we include any route that the profit-maximizing (not margin-maximizing) level of traffic is higher than the actual level of traffic, there's many, many routes that are "underserved". If the definition of "underserved" is limited to only those that don't make money with a higher supply (or fail to recoup the opportunity costs), that's a very airline-friendly definition, to put it mildly. A monopoly is a cruel business, and customers aren't flying as a charity donation to their favorite airline.

In the context of the OP, "market suppression" is a widespread phenomenon in the U.S. It's become markedly more common since the mega mergers eliminated competition.
 
Sokes
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Re: Market Surpression within Markets

Sat Sep 14, 2019 6:50 am

Andy33 wrote:

But the idea of having staff at both airports is pretty much confined to the USA. Elsewhere they may have staff at one of the airports (if it is a hub) or neither (if it is a point to point airline). Instead they use third party ground handling contractors ...


That makes sense. Thanks for the info.
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Midwestindy
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Re: Market Surpression within Markets

Sat Sep 14, 2019 12:49 pm

Market suppression isn't really a thing......airlines can't serve every single route that has demand for additional service, there aren't enough airplanes.

If we are being technical, virtually every route airlines operate would be considered "market suppression," considering the airline is geared towards generating revenue rather than capturing as many passengers as possible. They aren't charities

GalaxyFlyer wrote:
Airlines can most certainly control demand in a market by pricing.


Economic silliness. A carrier can only control the supply by how many seats they choose to put in a market. If they put lots of seats in the market, the price of those seats will fall. Wouldn’t it be nice if airlines or any firm could just rustle up more customers. Success would be assured.

GF


They are somewhat correct, airlines can control the quantity demanded by pricing. If you talk to anyone in Revenue Management or Network Planning of an airline, they will tell you that they could fill every single one of their planes every day for the right price.

Imagine carrier A is the only airline that serves airport XYZ. Carrier A has 1 route XYZ-ZYX, if that carrier decides to raise prices by $200 each way and keeps supply the same, customers willingness to pay for those exorbitant fares will go down. Therefore an airline can reduce the quantity demanded, by manipulating prices.
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GalaxyFlyer
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Re: Market Surpression within Markets

Sat Sep 14, 2019 1:34 pm

No, the carrier is offering to supply their services at their price level, consumers decide whether it is worth the money. That’s controlling supply, not demand. ECON 101 there.
 
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Midwestindy
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Re: Market Surpression within Markets

Sat Sep 14, 2019 1:51 pm

GalaxyFlyer wrote:
No, the carrier is offering to supply their services at their price level, consumers decide whether it is worth the money. That’s controlling supply, not demand. ECON 101 there.


Who cares what shifts the supply or demand curve, the point that was made was if you charge higher fares there are fewer people who will buy tickets for a certain route.
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CMHtraveler
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Re: Market Surpression within Markets

Sat Sep 14, 2019 1:53 pm

I can see the revised economics textbooks now:

Suppressed Market (n.) Origin: Anet - Any destination worldwide, including private airstrips and helipads, which has fewer than twelve roundtrip daily segments from DTW on a Delta A350.

Seriously though, one of the many failures of American capitalism is the lobbyist-owned government’s refusal to break up the virtual monopolies or duopolies that exist across industries, including airlines. Wealthy shareholders win, passengers lose.
 
sdh9
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Re: Market Surpression within Markets

Sat Sep 14, 2019 2:09 pm

CMHtraveler wrote:
Seriously though, one of the many failures of American capitalism is the lobbyist-owned government’s refusal to break up the virtual monopolies or duopolies that exist across industries, including airlines. Wealthy shareholders win, passengers lose.


In other industries, sure. But there’s no logical argument that can be made for anything but consolidation in the US market was a good thing for the industry. Airlines are very profitable, sure, but that profitability enables investment into the company, product, employees, and shareholders. This hasn’t really happened before, at least on as long of a scale.

We’re in a position where the US3 are projected to remain profitable in times of high fuel costs and recessions. That is unheard of for those of us that have been in the industry for a long time.
 
umichman
Posts: 47
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Re: Market Surpression within Markets

Sat Sep 14, 2019 2:56 pm

CMHtraveler wrote:
I can see the revised economics textbooks now:

Suppressed Market (n.) Origin: Anet - Any destination worldwide, including private airstrips and helipads, which has fewer than twelve roundtrip daily segments from DTW on a Delta A350.

Seriously though, one of the many failures of American capitalism is the lobbyist-owned government’s refusal to break up the virtual monopolies or duopolies that exist across industries, including airlines. Wealthy shareholders win, passengers lose.


Of course, it's too much to ask for a definition of a "virtual monopoly" and how, exactly, you would break it up. Just minor details, right? Why not just bring back the CAB? I'm sure they'll make everything perfect and bring us "true" competition.
 
Cubsrule
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Re: Market Surpression within Markets

Sat Sep 14, 2019 2:59 pm

airzona11 wrote:
flymco753 wrote:
Actually, my point was and is every intention to specifically pick on SRQ-DTW. To say klm617 is skewing the thread is nonsensical.

Here we go, SY adds twice weekly service from MSP to SRQ with affordable fares. A market, significantly smaller than the said market above. DL jumps on the market once a week using A319s. Keep in kind there's now 3 weekly flights on 2 different carriers with a sampled yield of $170.

Meanwhile, a larger market has once weekly 717s in January and February at peak with average yields over $400. How does this make sense?

It makes just as much sense as when JAX-DTW was a monopoly, it doesn't. Where was this unwarranted amount of passengers prior to NK's entrance? NK could easily launch SRQ-DTW 3x weekly and the market could react similarly to how JAX did.

Let's not act like DTW is the only problem in this thread. There are plenty of other routes that see this same affect. Does MCO-RDU signal any alarm? Where was that traffic before a ton of ULCCs added service and DL increased service to all mainline?

Airlines can most certainly control demand in a market by pricing.


Willingness to pay and demand are controlled by the consumers. AIrlines control the supply. You are doing a good job that DTW based passengers are price sensitive and choose the lowest price option. Most travelers are and DTW to SRQ is leisure based, so it makes sense. The only point you are making is that you wish DTW had more nonstop flights, ignoring the economics/available substitutes of other airports and 1-stop connections.


The substitute airport issue is significant with regard to SRQ. I had a period where I had a lot of work in Sarasota and points a bit south of there and without exception we flew to TPA because the dramatically higher number of flight options and availability of nonstops more than made up for the longer drive. Part of the issue is that Manatee County has pretty nasty traffic on the surface streets, so the drive from SRQ to somewhere like Siesta Key isn’t as much quicker as the drive from TPA as the mileage would suggest.
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umichman
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Re: Market Surpression within Markets

Sat Sep 14, 2019 3:04 pm

flymco753 wrote:
I think a good point that was made here was profitability for airline A vs airline B. Lets say a low cost carrier were to initiate a route like SRQ-DTW or PHL-PIT (assuming said low cost carrier could profitably fly the route), either it's going to entice the hub carrier to respond in a way that is still profitable or not respond at all.

A good example of a legacy essentially "choking" a market was JAX-DTW prior to NK's entrance. It was only a few years ago that traffic never reached above 150 even during peak, and Delta flew a 6x weekly CRJ-700, they even cut it during January and February at one point. As NK announces daily flights on their already dense A320, DL responds with 2 of their A320's. I'm waiting to see what the DOT releases, but if my study is correct, local traffic would have grown over 45% and yield fares would have fell around $150 regularly. That's an effect that I think would happen if a ULCC were to enter a market like SRQ-DTW.


Do you think NK has not studied this and other routes? One major thing to consider is that SRQ is relatively close to nearby TPA while JAX is far more isolated. This is one of many market dynamics which can affect the viability of a route.
 
kavok
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Re: Market Surpression within Markets

Sat Sep 14, 2019 3:05 pm

To be fair, you can still get from point A to point B on several different airlines. So there are options, even if the flight is not non-stop.

Almost every midsize and large US market is served by all 4 of AA, DL, UA & WN, and a good chance some others as well. Which means as long as you are starting and ending at a large or midsize market, you have at least 4 price options to compare from (albeit with connection(s) somewhere).

The OPs question is more geared toward suppression of direct flights, which is basically a guaranteed outcome of the spoke to hub system that is more-or-less operated by all of the US3. Pretty much any of the US3 hubs that either 1) has only one legacy carrier in the market, or 2) is not the mega-hub (ATL, DFW) will have these types of suppressed routes where pax have to connect. Also pax traveling between larger midsize spokes that don’t have hubs will also likely be forced to connect somewhere unless a company contract stipulates otherwise.

Point being, in a capitalistic market why should airline XX profitably fly you direct from YYY-ZZZ, If they could instead more profitably connect you at their hub knowing no other airline will give you a direct option on the route? In that case, there is more money to be made flying YYY-XXX-ZZZ, even if YYY-ZZZ would be totally profitable.
Last edited by kavok on Sat Sep 14, 2019 3:07 pm, edited 3 times in total.
 
afgeneral
Posts: 93
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Re: Market Surpression within Markets

Sat Sep 14, 2019 3:05 pm

I think it's more of an issue of price fixing. US airlines seem to refuse to compete on price and put a lot of effort into matching prices. They almost act as a cartel.
 
Cubsrule
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Joined: Sat May 15, 2004 12:13 pm

Re: Market Surpression within Markets

Sat Sep 14, 2019 3:10 pm

afgeneral wrote:
I think it's more of an issue of price fixing. US airlines seem to refuse to compete on price and put a lot of effort into matching prices. They almost act as a cartel.


I can’t prove it, but in competitive markets I feel like I see a lot less price matching than I used to. Full fares (like Y) often match but those fares represent a tiny fraction of tickets sold. UA now prices connections based on the length of the connection pretty aggressively and AA has priced connections at different hubs differently since around the merger, meaning that carriers often have price competition with themselves. Of course, revenue management also means that flights at less desirable times will quite often be cheaper.
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