UA:Goes Out Full But Either No $ Or Lots Of $$$$

VC10er · Sat Dec 10, 2011 4:20 pm

Hi, I am really wondering about this topic after reading about it so many times on A.net. I would appreciate your help in understanding. I would like to "suggest" using UA as an example because I fly UA very often (and I have been on many routes often that are always full but I'm told that "this route makes no money" often the same routes. But feel free to open it up to other carriers.

Here's the rub, countless times I have read a poster say "that flight always goes out full" implying it must be a money maker, and then another poster often says right after "full planes are not an indication that a flight is making money" in fact I often I read "in fact United makes little or no money on that route" I have read this about most airlines, but lately UA is a much discussed airline for obvious reasons, which is another reason I thought it "may" be good to use UA as an example.

So, which routes does United have that are always going out full but don't make money AND WHY? But which flights do make a big profit (full or not) that has driven United's very positive financial reporting AND WHY?

Big thanks!

lightsaber · Sat Dec 10, 2011 5:19 pm

Its all about the yield and auxiliary revenue. For example, I used to fly BDL-CVG. The 37 seat RJ (back then, not now) went out 70%+ full of $1,300 fare tickets (only sold as full fare refundable, back then). It was at an early time with low volume demand but extremely high yield. I would return on a 737 that was 80%+ full. However, the bulk of the traffic was low yield connecting traffic that was *far* cheaper (IIRC, $200 to $300).

Or 60%*$1,300=$780 per seat
70%*$250=$185 per seat

Every city pair has variation. The art of yield management is to ensure the customers willing to pay high fares do so. The issue for UA and other legacies is that with hubbing LCCs, high fuel prices, and the state of the economy it is tougher to extract that high yield traffic. I know my employer used to fly us all full fare refundable. Now it is always the cheapest fare with change fees paid (if required).

Lightsaber

b735 · Sat Dec 10, 2011 5:22 pm

SAS used to serve Los Angeles from Copenhagen. Flights was always full but SAS did not make money on it. In this case it was a combination of the length of the flight and the passenger mix. In other words, flight was always oversold in economy class and passengers had to be upgraded to business class. Consequently business class was full also, but with passengers only paying economy class fares.

B735

ILUV767 · Sat Dec 10, 2011 5:50 pm

Some markets are served because they provide revenue opportunities down line. For example, you might have a flight from DEN-MSP that looses money, but if you cut that flight now the DEN-SAN segment will loose money. Its a balancing act.

Pre-Merger UA had a capacity problem. Many markets were over-served or not correctly served. With CO, they now have a lot more flexibility in their schedule planning. They can "right-size" markets by adjusting capacity where needed.

AeroWesty · Sat Dec 10, 2011 9:08 pm

Quoting VC10er (Thread starter):
So, which routes does United have that are always going out full but don't make money AND WHY? But which flights do make a big profit (full or not) that has driven United's very positive financial reporting AND WHY?

Ohhhh, you're gonna stir up a hornet's nest now.

One word: Hawaii

It's natural around here for everyone to claim Hawaii is a "low-yield" market. Heck, some people can't even type the state's name without adding "a low-yield market" as if it was coming from a macro on their computer.

But why does UA keep throwing seats at their little corner of the world? Why does Alaska find it profitable to send a huge portion of their fleet out to the islands every day?

Because it's profitable. Many will deny it though. Don't know why.

Good thread.

micstatic · Sat Dec 10, 2011 9:12 pm

Quoting AeroWesty (Reply 4):
But why does UA keep throwing seats at their little corner of the world? Why does Alaska find it profitable to send a huge portion of their fleet out to the islands every day?

Because it's profitable. Many will deny it though. Don't know why.

Good thread.

Is it? Prove it

AeroWesty · Sat Dec 10, 2011 9:15 pm

Quoting micstatic (Reply 5):
Is it? Prove it

No need to. Refute it.

micstatic · Sat Dec 10, 2011 9:21 pm

Quoting AeroWesty (Reply 6):
No need to. Refute it.

he he. Sir, the burden of proof falls on the one who made the argument. In this case that is you.

AeroWesty · Sat Dec 10, 2011 9:25 pm

Quoting micstatic (Reply 7):
he he. Sir, the burden of proof falls on the one who made the argument. In this case that is you.

Not in this thread!

Let's get it right. The OP wants the people who refute a claim to say "WHY" when they refute it. So the burden is on you.

(That's why I think this is a great thread.)

yeelep · Sat Dec 10, 2011 9:29 pm

In the past few years Alaska has been well known for dropping routes, whether they are unprofitable or profitable, to utilize their aircraft for more profitable routes. The fact that they continue to convert existing -800's to ETOPS configuration is all the proof I need. They wouldn't do it if it didn't make economic sense.

Burkhard · Sat Dec 10, 2011 9:34 pm

On a big scale. Lufthansa will make many hundred million profit this year on the long range network - but they say they make a loss on the European network. If they end that - where to connect from FRA. My point: In the end it is a question of bookkeeping - airlines will make losses where taxes have to be paid and profits where they don't have to tax them...

HNLPointShoot · Sat Dec 10, 2011 10:34 pm

Quoting VC10er (Thread starter):
Here's the rub, countless times I have read a poster say "that flight always goes out full" implying it must be a money maker, and then another poster often says right after "full planes are not an indication that a flight is making money"

Any airline can fill a plane with passengers if the tickets are cheap enough; the question is if the total revenue from those tickets will cover the costs of running the flight, plus overhead to cover other business expenses. For example, Hawaii had a major fare war a few years ago over interisland flying when Mesa entered the market with dirt-cheap fares, and while no one had problems with planes flying nearly-empty (except Mokulele when they had the E-170s), no one was making money with $39 fares (note that a typical one-way fare now starts closer to $69 or $89.)

pnd100 · Sat Dec 10, 2011 10:44 pm

Quoting lightsaber (Reply 1):
Its all about the yield and auxiliary revenue.

Quoting lightsaber (Reply 1):
Every city pair has variation. The art of yield management is to ensure the customers willing to pay high fares do so.

Quoting B735 (Reply 2):
SAS used to serve Los Angeles from Copenhagen. Flights was always full but SAS did not make money on it. In this case it was a combination of the length of the flight and the passenger mix. In other words, flight was always oversold in economy class and passengers had to be upgraded to business class. Consequently business class was full also, but with passengers only paying economy class fares.

Good example.

Quoting micstatic (Reply 7):
Sir, the burden of proof falls on the one who made the argument.

LOL, I must agree that this is correct, it is the basic rules of debate!

Quoting Burkhard (Reply 10):
On a big scale. Lufthansa will make many hundred million profit this year on the long range network - but they say they make a loss on the European network. If they end that - where to connect from FRA. My point: In the end it is a question of bookkeeping - airlines will make losses where taxes have to be paid and profits where they don't have to tax them...

"You can use facts to prove anything even remotely true!" Homer Simpson

Quoting HNLPointShoot (Reply 11):
Any airline can fill a plane with passengers if the tickets are cheap enough; the question is if the total revenue from those tickets will cover the costs of running the flight, plus overhead to cover other business expenses.

To add to all of these answers is that despite the best armchair CEOs & fantasies of airline enthusiasts, many airlines operate the way they do because it is likely the most profitable way for them to conduct business. Everything from LCCs to Alliances to new aircraft / destination selection is about the bottom line. The heyday for us would have been the 1960s & 1970s when efficiency took a back seat to pride. The airline was seen as the face of the nation & therefore many elaborate (& expensive) routes were undertaken regardless of actual value. Those days are long over & routes must provide tangible financial benefit somehow.

[Edited 2011-12-10 14:54:03]

0newair0 · Sat Dec 10, 2011 11:36 pm

Quoting B735 (Reply 2):
SAS used to serve Los Angeles from Copenhagen. Flights was always full but SAS did not make money on it. In this case it was a combination of the length of the flight and the passenger mix. In other words, flight was always oversold in economy class and passengers had to be upgraded to business class. Consequently business class was full also, but with passengers only paying economy class fares.

American is in a similar situation with the 767s on the LAXNYC runs. They can go out full pax and full cargo and the flight will only make $200 profit. Lots of seats filled at very low fares... thank God for cargo.

VC10er · Sun Dec 11, 2011 12:32 am

Thanks to all, the fog is clearing a bit! I get the fact that UA may fly from here to there because they "need to" given connections or even just because they need to stay in that game not to loose pax etc and write off it's financial underperformance - but then for all the facts just mentioned...I would "assume" United must have some MEGA profitable routes to make up for it. I rarely ever read however that United's X route is hugely profitable and why? Because it's got such a large paying business clientele and not all non revs in F but actually much of F goes out with paid at $12,000 a pop? How about United's ORD to HKG on the 747 (to me) would seem like a big money maker, full fare C and some F, long enough to justify fuel burn and the cargo of a 747. BUT that's just the kind of flight where the next post will say "UA makes nothing on that flight" or ... perhaps my guess is right! But from me it would be a pure guess based on my experience as a pax and observation only. And for either, factually, which is true?

In an airline's annual report, do they identify their coveted routes?

Thanks again everyone!

AeroWesty · Sun Dec 11, 2011 12:50 am

Quoting VC10er (Reply 14):
And for either, factually, which is true?

You'll never know, because that's proprietary info. Another example of all of the above is that both AA and UA fly LAX-NRT. AA may credit all of the ticket revenue to the transpacific flight including short-haul connections, while UA may only credit a pro-rated amount of the ticket price to the flight. Without true insider access to these figures, which will never ever get posted on a.net, you can't factually say one flight is a money-maker or not (hence my example with Hawaii—often scorned as low-yield, but profitable airlines are willing to toss a lot of heavy metal its way).

koruman · Sun Dec 11, 2011 12:55 am

Quoting AeroWesty (Reply 4):
One word: Hawaii

It's natural around here for everyone to claim Hawaii is a "low-yield" market. Heck, some people can't even type the state's name without adding "a low-yield market" as if it was coming from a macro on their computer.

But why does UA keep throwing seats at their little corner of the world? Why does Alaska find it profitable to send a huge portion of their fleet out to the islands every day?

Because it's profitable. Many will deny it though. Don't know why.

I know why.

Because there is a strong correlation between the class of travel passengers pay for and the class of hotel which they stay in at their destination.

No-one denies that like everywhere else 80% of Hawaii's hotel rooms and airline tickets fall into economy classes.

But there are also more rooms at the premium end of the market (c.f. First Class) than in any other US destination apart from New York.

In line with this, airlines therefore sell far more First Class tickets to Hawaii than they do on virtually any other route. Think about it. Apart from the United ps routes, a very large proportion of First Class nationwide is occupied by upgraders. Yet upgrades to Hawaii are difficult to obtain, even though the vast majority of flights are operated by widebody aircraft with large First Class cabins.

This, incidentally, is a universal phenomenon. Australia's LCC Jetstar flies Sydney to Honolulu, which is a similar sector length to Chicago-Honolulu. And on Jetstar there is no way of upgrading except by buying up with cash. And how many Business Class seats does this LCC deploy on its flight to Honolulu? 36, no less!

At the end of the day, people staying at the St Regis, Four Seasons or Ritz-Carlton in many cases pay to fly in higher classes of air travel. That's why there are so many flights from the Mainland to Hawaii.

EricR · Sun Dec 11, 2011 1:13 am

I don't have information on which UA flights are or are not profitable, but I would assume some characteristics of profitable flights are those that:
A.) Have a monopoly or little competition such as IAH-EWR or ORD-BRU.
B.) Leverage relationships with Star Alliance partners.
C.) Have stage lengths below 10 to 11 hours.
D.) Carry a good amount of cargo.

I would be interested to know the profitability of UA's Middle East flights. The recent tag-ons (KWI-BAH & DXB-DOH) are interesting.

These are long flights that require more than one aircraft to fly the route. I wonder if the intent was to increase yields by driving off the lower yielding traffic on the N/S routes (KWI/DXB) and replacing them with PAX willing to pay a premium for one stop service to DOH/BAH.

[Edited 2011-12-10 17:33:09]

slvrblt · Sun Dec 11, 2011 1:20 am

Quoting AeroWesty (Reply 8):

Not in this thread!

Let's get it right. The OP wants the people who refute a claim to say "WHY" when they refute it. So the burden is on you.

stlgph · Sun Dec 11, 2011 2:58 am

Quoting AeroWesty (Reply 4):
Because it's profitable. Many will deny it though. Don't know why.

Good thread.

Agree it's a good thread. And going back to the Hawaii argument, or any route argument, routes are there for a reason -- branding and service ... and the overall bottom line. There are money-losing routes out there - but it's a given that an airline's internal data as to their customer stream proves the money-losing routes and services provide a positive for the money making routes. It's like some Dunkin Donuts and Starbucks stores .... some of the locations lose money, but they're kept open because of branding ... and they're seen as a positive for the nearby locations which actually make money.

AeroWesty · Sun Dec 11, 2011 3:19 am

Quoting stlgph (Reply 19):
routes are there for a reason -- branding and service ... and the overall bottom line.

A very important part of the scheme of things. When Pan Am sold their Pacific routes to United, they restored an LAX-HNL flight soon after—it was said at the time that it was done to keep frequent flyers in the fold who wouldn't have flown with PA on other routes without Hawaii as a reward flight option (apparently a high-margin subset of flyers).

Airlines should be looking at a set of route numbers and then ask what a route intangibly contributes to the overall goodwill between the customers and the rest of the network to understand its true contribution to the company's margin. Someone simply looking at the basic costs and revenue allocated to a route may not see that.

CALTECH · Sun Dec 11, 2011 3:20 am

Quoting VC10er (Thread starter):

Well, it's been said that Orlando is a low yield but high load factor destination, there is trouble flying in and out of Orlando as a non-rev. More leisure travellers than business folks it is said. But it is all about supply and demand. There was a fare to D.C. from Orlando for $85, but one week later D.C. to Orlando the fare jumped to $409. The fares are constantly changing.

N1120A · Sun Dec 11, 2011 4:23 am

Quoting lightsaber (Reply 1):

Its all about the yield and auxiliary revenue. For example, I used to fly BDL-CVG. The 37 seat RJ (back then, not now) went out 70%+ full of $1,300 fare tickets (only sold as full fare refundable, back then). It was at an early time with low volume demand but extremely high yield. I would return on a 737 that was 80%+ full. However, the bulk of the traffic was low yield connecting traffic that was *far* cheaper (IIRC, $200 to $300).

Well, CVG was also a major hub, so some of those people were probably not paying that money.

Quoting 0NEWAIR0 (Reply 13):
American is in a similar situation with the 767s on the LAXNYC runs. They can go out full pax and full cargo and the flight will only make $200 profit. Lots of seats filled at very low fares... thank God for cargo.

I doubt that is the case, given the yields they (and United) get on that route.

calpsafltskeds · Sun Dec 11, 2011 4:28 am

Quoting AeroWesty (Reply 15):

You'll never know, because that's proprietary info. Another example of all of the above is that both AA and UA fly LAX-NRT. AA may credit all of the ticket revenue to the transpacific flight including short-haul connections, while UA may only credit a pro-rated amount of the ticket price to the flight. Without true insider access to these figures, which will never ever get posted on a.net, you can't factually say one flight is a money-maker or not (hence my example with Hawaii—often scorned as low-yield, but profitable airlines are willing to toss a lot of heavy metal its way).

That is correct. Airlines have different ways of looking at markets. There's the on-board yield (or total fare), then they may look at contribution to the system (yield from other segments can be added to see if the flight is adding more revenue to the system than it costs to operate that segment.)
At CO when Al Feldman was CEO, we hired a number cruncher consulting firm that had worked for Frontier to do a "winner-loser" analysis of routes at DEN. They looked at the local revenue and the beyond revenue to see if the spoke route contributed more than it cost to operate. Due to yields and lower connection traffic, routes with high load factors did not guarantee profit. Of course using this method, there was a lot of double counting, but without the contribution numbers, a carrier may pull a route that then can remove traffic off other route, making them losers. In general, this method skews toward large hubs, which of course is what most carriers now operate.

And that was before FF programs, alliances, etc. to my knowledge. Today, FF and alliances must also be thrown into the mix to see if your carrier is losing loyal customers because you pulled out of market X.

While large O&D markets and/or leisure markets are flown (maybe at a loss), they can be considered critical to keep the FF base happy.

Quoting CALTECH (Reply 21):
Well, it's been said that Orlando is a low yield but high load factor destination, there is trouble flying in and out of Orlando as a non-rev. More leisure travellers than business folks it is said. But it is all about supply and demand. There was a fare to D.C. from Orlando for $85, but one week later D.C. to Orlando the fare jumped to $409. The fares are constantly changing.

A market like MCO and LAS are usually considered low yield and the airlines counter with the lowest cost per ASM aircraft they can find. MCO got tons of DL L1011s in the past, MCO now gets lots of stretched aircraft like the 753, 739 and other such aircraft.

gigneil · Sun Dec 11, 2011 5:24 am

Quoting CALTECH (Reply 21):
Well, it's been said that Orlando is a low yield but high load factor destination, there is trouble flying in and out of Orlando as a non-rev.

Low yield, high load factor can be made to work a la Delta and United's 753s and Delta's domestic 763 and even the 777 over the years.

There are ways to succeed in many differing types of markets.

NS

cslusarc · Sun Dec 11, 2011 9:50 am

Quoting koruman (Reply 16):

In line with this, airlines therefore sell far more First Class tickets to Hawaii than they do on virtually any other route. Think about it. Apart from the United ps routes, a very large proportion of First Class nationwide is occupied by upgraders. Yet upgrades to Hawaii are difficult to obtain, even though the vast majority of flights are operated by widebody aircraft with large First Class cabins.

This surprises me. Then why are most flights to Hawaii flown my high capacity, high density aircraft like domestically configured 757s and 777s. Given this new information, I would have thought that all flights from the Central and Eastern Time zone would support internationally configured aircraft like the Airbus 330 that DL flies on MSP/DTW-HNL and the 767-400ER that CO flies between EWR and HNL, but UA flies domestically configured 777-200As on ORD-HNL.with 36 domestic first class seats.

koruman · Sun Dec 11, 2011 11:21 am

Quoting cslusarc (Reply 25):
Given this new information, I would have thought that all flights from the Central and Eastern Time zone would support internationally configured aircraft like the Airbus 330 that DL flies on MSP/DTW-HNL and the 767-400ER that CO flies between EWR and HNL, but UA flies domestically configured 777-200As on ORD-HNL.with 36 domestic first class seats.

I'm not arguing that it is a super-high yield international-style market. I'm simply saying that in this case it is worth UA's while to send an ORD-HNL flight with 36 First Class seats rather than just put passengers on a flight to LAX or SFO followed by a 737 with around a dozen First Class seats.

36 First Class seats from Chicago is a decent number, especially when you consider that UA also operates widebodies into HNL and OGG daily from both LAX and SFO too, as well as 757s to Kauai and Kona.

They obviously think that they can sell well over 100 First Class seats per day to Hawaii.

VC10er · Sun Dec 11, 2011 11:27 am

Ok, some facts are just not obtainable. Darn!

But there are a few claims and actions that would point to certain things which are not only crowd pleasers but are clearly generating revenue. Eg: It is clear that E+ is both popular and a rev generator otherwise why would UA have promised it indstalled on all ex CO birds? Clearly p.s. worked or they would have reverted back to a safer place if it bombed...although I have always held the opinion that if you want to fly JFK to SYD in C or F that the 6 hour transcon needed to be at par with the newly configured 747 from SFO to SYD. My C tickets for about 7 or 8k included my 6 hours on ps. But when I book a RT on ps from JFK to SFO in C it is never cheap flight- ever! Luckily my company will pay for C (and when possible I do indeed use my regionals).

Someone above made a cute remark that UA was committed to being a 3rd class airline. Ha ha. But a long haul in the new F seat or C (either UA or CO seats) is worth the money. In fact, if your going to China and the seat comfort is paramount...they certainly beat angled seats- even on LH (until the get their new seats arrive on the 748) so United ain't so bad. Back to point has UA seen a rev uptick since the new seats have been installed?

So we may never really know if IAD to GRU (for example) is a big money maker, or not...but "question" do we have proof of certain actions where cleaner planes, better seats and products have factually proven to boost revenue?

Did BA see a rise in demand when they went to the new premium seats?

RWA380 · Sun Dec 11, 2011 12:56 pm

Quoting AeroWesty (Reply 20):
it was said at the time that it was done to keep frequent flyers in the fold who wouldn't have flown with PA on other routes without Hawaii as a reward flight option (apparently a high-margin subset of flyers).

This was the reason I beleive AS looked at the Islands originaly. I know as requests from frequent flyers, and surveys were received, Hawaii was on the top reward destination requested & desired. AS provided this on HA & NW at one time or another, now they can cover it themselves, and keep those dedicated travelers happy, while reaping the rewards of flying a great sized plane for the markets they serve. I also think their abiity and desire to enter the market and establish themselves before the arrival of G4 and WN was a beautifil manouver.

Islanders are aware of AS's presence as well, with AS providing departures for the West Coast from 4 different Islands, with great and convienient connections to the entire Northwest US & Canada, as well as regions in California with ease.
AS is getting mostly tourist & business travel from members, tourists and locals with great overall load factors.

JAAlbert · Sun Dec 11, 2011 3:39 pm

Quoting micstatic (Reply 5):
Is it? Prove it

Well, Hawaiian Airlines made $45.5 million profit in 2010 flying widebodies across the pacific. They aren't giving those seats away usually.

lightsaber · Sun Dec 11, 2011 4:59 pm

Quoting JAAlbert (Reply 29):
Well, Hawaiian Airlines made $45.5 million profit in 2010 flying widebodies across the pacific. They aren't giving those seats away usually.

As I pointed out before, it is a question of extracting the cash fro the potential yield. I suspect HA has a low fraction of their premium cabin on free upgrades. As I said before, the art of yield management is getting people who would be willing to pay high fare to pay those fares.

But there is also a reason AA dropped Hawaii routes from LAX. We have one airline up-gauging aircraft (HA to the A332 from the 763ER) and other dropping flights.

Quoting CALPSAFltSkeds (Reply 23):
And that was before FF programs, alliances, etc. to my knowledge. Today, FF and alliances must also be thrown into the mix to see if your carrier is losing loyal customers because you pulled out of market X.

Which just makes the AA restructuring that much more of a challenge. It is why when hubs are downsized, it is often dramatic in scope as once the cuts start, their natural conclusion is a far smaller network.

Lightsaber

Kiwinlondon · Sun Dec 11, 2011 7:09 pm

It's a bit like a supermarket. They will have "loss leaders" in order to sell something else. That "something else" might be the connections to a higher yield market which they simply would not get if they didn't have the "loss leader".

gigneil · Sun Dec 11, 2011 10:15 pm

Not to mention repeated comments from Arpey and others about how - clearly - they don't fly to Hawaii to cater to FFs and low yield passengers?

Hawaii is an expensive destination with expensive tickets.

NS

DiscoverCSG · Sun Dec 11, 2011 10:35 pm

Quoting AeroWesty (Reply 4):
One word: Hawaii

It's natural around here for everyone to claim Hawaii is a "low-yield" market. Heck, some people can't even type the state's name without adding "a low-yield market" as if it was coming from a macro on their computer.

But why does UA keep throwing seats at their little corner of the world? Why does Alaska find it profitable to send a huge portion of their fleet out to the islands every day?

Because it's profitable. Many will deny it though. Don't know why.

Quoting CALPSAFltSkeds (Reply 23):
While large O&D markets and/or leisure markets are flown (maybe at a loss), they can be considered critical to keep the FF base happy.

Quoting koruman (Reply 26):
They obviously think that they can sell well over 100 First Class seats per day to Hawaii

I don't know that anybody has yet mentioned another piece of the puzzle: Reward redemption. Some flights to leisure destinations don't make money in themselves, but airlines operate them in order to keep frequent flyers happy.

Example: Suppose I regularly fly DSM-DAY for business and two airlines operate decent/competitive schedules/prices on the route. If only one of them has a good number of reward seats to HNL, I'm going to choose that airline over the competitor whose miles can't bankroll the family vacation. What good does it do me to rack up hundreds of thousands of frequent-flyer miles on my weekly DSM-DAY travel if I can only redeem them to exotic places like MCI and SYR?

gigneil · Sun Dec 11, 2011 10:44 pm

Quoting discoverCSG (Reply 33):
Reward redemption. Some flights to leisure destinations don't make money in themselves, but airlines operate them in order to keep frequent flyers happy.

No, they don't. There are a few award seats per flight per market. They would not fly , as United does, 3 or 4 777s a day and as many 767s and a host of 757s to ONE city to please their frequent fliers.

It makes no sense and flies in the face of logic to believe that they would.

NS

N1120A · Sun Dec 11, 2011 10:53 pm

Quoting gigneil (Reply 32):
Not to mention repeated comments from Arpey and others about how - clearly - they don't fly to Hawaii to cater to FFs and low yield passengers?

Hawaii is an expensive destination with expensive tickets.

Didn't Crandall say that years ago? He'd rather put on another frequency to Hawaii than risk a marginal route.

koruman · Sun Dec 11, 2011 11:09 pm

Quoting discoverCSG (Reply 33):
I don't know that anybody has yet mentioned another piece of the puzzle: Reward redemption. Some flights to leisure destinations don't make money in themselves, but airlines operate them in order to keep frequent flyers happy.

Not at all.

A key aspect of yield management is controlling inventory of award or upgrade tickets - which means massively restricting availability.

A major reason why every mainland US airline has had to declare bankruptcy in the last decade is that they incorrigibly comp out upgrades to their elite frequent flyers, so they stop buying First Class tickets in the expectation of getting them free.

And a major reason why Hawaiian Airlines is a far more successful business than United or Delta or American or US Airways is because even elite frequent flyers can only access upgrades either by burning a lot of frequent flyer miles (50,000 to upgrade one-way from discount economy on mainland-Hawaii flights, or 25,000 if you bought a full economy fare) or by paying $500 at the airport for the privilege if a seat remains unsold.

So five unsold First Class seats on Hawaiian will still earn $2500 on the day of travel, whereas five unsold First Class seats on United will earn zilch as they are gifted away to elites.

Singapore Airlines and Qantas and Air New Zealand have pretty contented elite tier frequent flyers. But those people know that there are only three ways they can sit in Business or First Class.

Either:
1) They buy a ticket for that class of service, or
2) They redeem a lot of miles for an award ticket in that class, or
3) They redeem a huge number of miles for an upgrade into that class.

And, what is more, Qantas and Air New Zealand frequent flyers understand that a 24 seat premium cabin to Honolulu at most has two or three seats eligible for use for upgrades or awards. The other 85% of the premium cabin is accessible by paid purchase only.

gigneil · Sun Dec 11, 2011 11:17 pm

Quoting N1120A (Reply 35):
Didn't Crandall say that years ago? He'd rather put on another frequency to Hawaii than risk a marginal route.

Maybe it was CrAAndall and not AArpey.

Tee hee, that was fun.

NS

dfambro · Sun Dec 11, 2011 11:57 pm

Quoting koruman (Reply 36):
A major reason why every mainland US airline has had to declare bankruptcy in the last decade is that they incorrigibly comp out upgrades to their elite frequent flyers, so they stop buying First Class tickets in the expectation of getting them free.

OK we get it, you hate upgrades. Enough to place all the industry's troubles on them.

I'm sure glad you don't run United! Seriously, if you kill the upgrade, you kill the loyalty program. I have a ridiculous number of choices for an air carrier on my main routes - BOS to SFO, LAX, NRT, HKG. It's 1K status and its SWUs that keep me on UA.

Just because the rest of the world doesn't have this perk doesn't mean it makes sense to kill the perk in the US, too.

aloha73g · Mon Dec 12, 2011 12:17 am

Quoting discoverCSG (Reply 33):
I don't know that anybody has yet mentioned another piece of the puzzle: Reward redemption. Some flights to leisure destinations don't make money in themselves, but airlines operate them in order to keep frequent flyers happy.

Even though there may not be an exchange of money between the customer and the airline when miles are used to book a ticket, there is revenue recognized by the airline.

Frequent Flyer Miles live on the Liability side of an airline's balance sheet (at a cost of 1 or 2 cents per mile) and when they are used by a passenger the value of the miles are transferred off the liability side and recognized as revenue.

As for Hawai'i, it is likely not the most profitable destination for any airline (other than HA) but most carriers make money flying here...

For instance, I just searched a few transcon markets (LAX-JFK, LAS-JFK, LAX-BOS, SFO-JFK, SFO-BOS) and all were available for $250-280 roundtrip in economy. LAX-HNL is $380 for the same dates. I searched Wed 2/8/12 thru Wed 2/15/12.

$100 extra per economy passenger than transcon routes of similar length and competition is a pretty decent revenue premium....but I'm sure they're all bleeding cash as a result.

-Aloha!

koruman · Mon Dec 12, 2011 12:36 am

Quoting dfambro (Reply 38):
Just because the rest of the world doesn't have this perk doesn't mean it makes sense to kill the perk in the US, too.

Er, actually it does.

In most of the rest of the world, bankruptcy means mandatory liquidation, so airlines have to be run in a sustainable way. Everyone LIKES upgrades, just as I would like to receive a Lexus if I buy a Toyota Corolla.

But everything else occurring in the US aviation industry is meaningless unless the airlines knuckle down and start to earn some revenue from the pointy end.

The irony is that ALL passengers in the USA on full-service carriers currently have diminished service standards to subsidise the few who get upgrades.

In contrast with full-service carriers in similar sized nations like Australia and South Africa, Economy passengers in the USA have to pay for their bags and food in order to subsidise the people upgraded to the pointy end.

Meanwhile, the service for paying passengers in First Class in the USA is far below global norms for the same reason - the airline is giving most seats away free, so it ensures that the product is a big chair with legroom and catering more consistent with Premium Economy in other countries.

The paying Economy passengers lose. The paying First Class passengers lose. The shareholders lose.

FlyPNS1 · Mon Dec 12, 2011 1:13 am

Quoting koruman (Reply 36):
Either:
1) They buy a ticket for that class of service, or
2) They redeem a lot of miles for an award ticket in that class, or
3) They redeem a huge number of miles for an upgrade into that class.

And that's how it works on the international long-haul for the U.S. carriers as well. There are very few free upgrades on these routes.

U.S. domestic is quite different, but so is the short-haul flying on carriers like NZ and QF who are all but abandoning F class except on a few key routes.

koruman · Mon Dec 12, 2011 1:42 am

Quoting FlyPNS1 (Reply 41):
U.S. domestic is quite different, but so is the short-haul flying on carriers like NZ and QF who are all but abandoning F class except on a few key routes.

NZ isn't a valid comparison due to the short sector length - but Qantas and South African certainly are comparable to UA domestic.

All domestic jet services on both carriers have a premium cabin and have baggage and food and drink included in economy. And you only sit in Business Class if you have bought it with money or by redeeming tons of frequent flyer miles.

dfambro · Mon Dec 12, 2011 1:43 am

Quoting koruman (Reply 40):
In most of the rest of the world, bankruptcy means mandatory liquidation

This isn't true. Having a form of bankruptcy that allows re-org is not at all unusual. And of course the US also has a form of bankrupcty for liquidation as well.

Quoting koruman (Reply 40):
Meanwhile, the service for paying passengers in First Class in the USA is far below global norms

Completely not true in my experience. All my EU flying is on LH and intra-europe First (I think they call it Business, but I'm talking up front on their 2-class craft) is not as good as domestic F on UA. The LH seats up front are economy seats! They just block off the middle seat. The pitch is basically E+ on UA. The food is nothing special. No personal IFE. (And I've flown on all the varieties of LH intra-Europe metal. They were all the same). UA domestic F has a wider and better seat with a nice wide 2-person arm rest, and better seat pitch. As with LH, the food is nothing special and there is no personal IFE. Winner = UA.

As for the ancillary fees, it just means you pay only for the services you use, not one-price-for-all. Nothing wrong with that.

You may be under the impression that upgrades are more common than they actually are. For example, if you want an F seat on an overnight transcon, you generally have to buy it. Same goes for the popular times on big business routes, especially the international ones. Want a J seat to NRT, Sunday evening arrival? You gotta buy it.

koruman · Mon Dec 12, 2011 2:11 am

Quoting koruman (Reply 40):
Meanwhile, the service for paying passengers in First Class in the USA is far below global norms

Quoting dfambro (Reply 43):
Completely not true in my experience. All my EU flying is on LH and intra-europe First (I think they call it Business, but I'm talking up front on their 2-class craft) is not as good as domestic F on UA

We have had this discussion on a.net a million times. Intra-Europe flights are not a valid comparison because the distances are tiny - the average intra-europe Lufthansa flight is less than 600 miles.

In the USA domestic (lack of) service standards apply everywhere - even on flights from Chicago to Honolulu. And if you want a valid comparison, look at Australia or South Africa, as their distances are pretty much identical to those in the USA.

I do buy First Class tickets in the USA, probably around a dozen each year. I do so because I'm not used to the "standards" on offer in domestic coach in the USA, and because I get huge frequent flyer earning from my Star Alliance program because they treat those flights more generously than they would international business class on airlines with proper service standards. On that subject, it irks me that often I miss out on my choice of meal because some upgrader snaffled it and the airline is too cheap to load enough. But that's an argument for another time.

gigneil · Mon Dec 12, 2011 2:24 am

Again, I don't believe you know anything about what you're talking about here, and you're not contributing anything to the conversation.

Please stop. Get back on topic.

NS

koruman · Mon Dec 12, 2011 2:32 am

Quoting gigneil (Reply 45):
Get back on topic.

The topic is about how a full flight can either make profits or no profits. Which strikes me as being entirely a topic about yield management. Am I missing something?

dfambro · Mon Dec 12, 2011 4:45 am

Quoting koruman (Reply 44):
Intra-Europe flights are not a valid comparison

Of course it's a valid comparison, you just don't like it the results of the comparison. I buy and J seat to say, BOS - NCE, and that's the seat I get put in leaving FRA.

I'm glad things are better in Australia.

lightsaber · Mon Dec 12, 2011 8:32 am

Quoting koruman (Reply 36):
So five unsold First Class seats on Hawaiian will still earn $2500 on the day of travel, whereas five unsold First Class seats on United will earn zilch as they are gifted away to elites.

That seems quite a bit more 'wise' than the policy of 'giving away' J. If anything, give away Y+ and nothing more.

Quoting koruman (Reply 46):
The topic is about how a full flight can either make profits or no profits. Which strikes me as being entirely a topic about yield management. Am I missing something?

You are not missing anything. It is all about yield management.

Lightsaber

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