AirTran and Air Wisconsin Divorce

[~~~^~~~]

Except that in Q4-03 analysts said the bright star at DAL was DFW because of the high usage of RJs. It escapes me how using an airplane that costs more per seat-mile is more profitable. DAL obviously sees the benefit of the 100 seater with the recall of the 732s.

Because Delta is a network carrier and the RJ has a different role at Delta. 80% of ASA's passengers board Delta jets, even if the RJ's were losing money (which they aren't) it makes sense for Delta to get the passengers in the network so they can fill 757,767 and 777's. More often than not, the feed from an RJ is what makes a mainline flight marginally profitable. Without the feed, Delta bleeds. (I could be Johnnie Cochran with that one )

 

[wms]

Delta may go that route, but expect a battle since C2K scope language is going to be resolved in Court and the previous CY96 language had 100 seat jets operated at Connection carriers.

I wouldn't think we'd get 100 seaters, we'll be doing good to hang on to the 25 50 seaters. I would rather see them result in the furloughees getting recalled. But 100 seats is 100 seats, and if the proposal is made the demand for the pay should be the same whether mainline or WO.

 

[General Lee]

CarjCapt,

It is easy to make money for Comair when you put them on routes that really should support mainline aircraft. If we would have put a 737 or an MD-88 on that route--mama Delta maybe would have made MORE money. RJs limit the number of passengers that come into a hub. If you have 3 RJs a day from DEN to DFW--then you can only have 210 people coming to the hub a day( 3 RJ 70's I believe). What if you could have more during Spring Break or Summer? Sorry---they have to take AA or Frontier.

I agree with Fins that RJs do bring more profitable passengers from cities that do not have LCCs----like Peoria--and I have stated many many times in the past that this is our strategy----Song flies cheaper pax nonstop to FLA from the NE, and the RJs bring in premium passengers from smaller cites to fill our 764s in ATL to FLA. But, what about all of those larger cities--like DEN, ABQ, SNA, OAK, PHX, etc to DFW----why are those competing with LCCs and bringing less pax to DFW to connect. No wonder we downsized there---we don't have enough connections now to suport more mainline planes.....

Bye Bye--General Lee

 

[CarjCapt]

CarjCapt,

It is easy to make money for Comair when you put them on routes that really should support mainline aircraft. If we would have put a 737 or an MD-88 on that route--mama Delta maybe would have made MORE money.

General:

Key words "Should and Maybe".

You'd think that people in DAL Mgt would know more than us taxi and bus drivers on how to make money with what we drive. It seems to this uneducated person that if the routes would support a mainline bus vs a regional taxi they would have you driving your bus on those routes, but alas I'm doing it and making money.

On any route size does matter and that will change as needed. You know the ole supply and demand ecomics.

CarjCapt

 

[~~~^~~~]

If we would have put a 737 or an MD-88 on that route--mama Delta maybe would have made MORE money. RJs limit the number of passengers that come into a hub. Bye Bye--General Lee

Gen Lee is right. RJ's have low trip cost, but have even lower revenue potential when the market will support a larger aircraft.

 

[FLB717]

Fins,

You may be right in the suggestion that a E-170 is 15% more efficient, but how are you basing that. Is it on cost per hour. Because if so I would think that having 27 more seats would lower the CSM to a equal or lower point. If you have any references I would be glad to read them, if not I’m sure Lowcur would.

 

[FDJ2]

If the above is true, then why did CMR make 42 million the last quarter?

CMR made money because DAL paid all the bills except for operational costs. Michele Burns, DAL's CFO put it this way:

"Delta chief financial officer Michele Burns said Delta pays for all but operational costs for a Comair passenger, with such costs including the debt for new airplanes, marketing and distribution and other costs.

But she said the company could not say whether Delta makes money on Comair passengers, adding that such statistics were considered for the entire network"

If we are just talking operational costs, DAL mainline made over $400M last year, but there is alot more to running an airline than operational costs.

 

[FDJ2]

To answer the question why DAL can not make money with 717's, the answer is mainly infastructure. RJ's put 170 seats at a gate, and make rolling 40 minute turns. Crew costs are certainly another factor, with 100 seat 737 Captains making a quarter million a year....


RJs are not the answer with their fourty minute turns, even DAL can turn a 737 in 30 minutes, RJs are part of the problem. Airtran is able to put a far superior mainline product out there for far less by avoiding the use of RJs.

Here's a little excerpt from the Airtran 2Q:


"MICHAEL LINENBERG: Bob, as a follow-up and I know I wasn't clear when I initially articulated the question. When you look at markets, let' s throw a Newport News out there as an example, where Delta, I think, is flying the CRJ 700s, I guess its really a ComAir, or an ASA shell, at a market where you may actually be flying the 717. I'm curious about just what your performance revenue-wise has been in that market, you know, year-over-year because you have a business class cabin and they don't. I mean, is it possible that you could be generating premium revenue at least with respect to the local passenger in some of these markets? I mean, that is what I am trying to get at too?

BOB FORNARO: Ok. It is a two-step process. Generally when a competitor has capacity in the market, there always is an initial hit. Because that is what capacity does. But I will tell you in many of our markets, you know, we face RJs, we have by far superior ride.

You put a 717 with large bins, full-size cabin of business class, up against a 50 or 70 seat RJ. I mean from a product perspective it really isn't close. You know, we're seeing RJs flying 800 to 1100 miles, that's not a very good product. So I think eventually in some markets where we were in these markets initially, we're probably stronger today than we were three or four years ago. Because we have a superior product and we have certainly have brand loyalty in a market where we have been there first. So, I think all over time, again, we compete against all kinds of equipment. But, I think an RJ clearly is an inferior product. And I think again, the longer the routes these things are on, the more inferior it gets. You can't upgrade on an RJ. You can' t put your bag overhead and certain sized bags overhead. It really makes me wonder how effective RJs will be in the long run against the low-cost carriers.

JOE LEONARD: . I think the other thing I would add, Michael, is the beauty of the 717 is the plane mile costs are not that much different than an RJ. But, the seat mile costs are incredibly lower."

As far as crew costs go, a 12 year Airtran 717 CA will make $152/hr in 2004. DAL has current DLX 737 rates of $206/hr scheduled for the may pay raise available to management. If DAL pilots take just a 15% pay cut those rates drop to $175/hr. I would assume a 717 sized aircraft on mainline would pay less than a 737 and would be comparable to Airtran rates, so crew costs are not that much of an issue. Regardless, trying to compete against Airtran with CRJ50/70 aircraft is futile since the seat costs are nearly double and the 717 is a far superior product. JMO, but I believe that part of GG's strategic review will be a rethinking on how DAL is utilizing RJs.

 

[Freight Dog]

I recently flew on a 50 seat CRJ. WTFO?!?!?!?! Did they make windows for small Japanese women or kids?

If I may steal someone's phrase: I looked like I was trying to suck myself off by trying to look out the window.

.... and airlines fly that toy on routes that are 2+ hours long?!?! That's cruel and unusual punishment.

Bring out the narrowbodies...

 

[FlyComAirJets]

It's all in the [I]yield[/I], baby.

Why the fixation on CASM? I know the popular, yet uninformed, media is obsessed with that. It's not load factor, IFE, meals, fuel hedging, etc. ... it's all about yield -- what you get for what it costs ya. The difference gives you your yield.

 

[General Lee]

FDJ2,

Great post. I might have to steal it in the future to provide answers to Fins, Surplus1, and Medflyer. Thank you.

Bye Bye--General Lee

 

[FDJ2]

Re: It's all in the [I]yield[/I], baby.

it's all about yield -- what you get for what it costs ya. The difference gives you your yield.

The problem is the yield is going to Airtran because our RJs provide an inferior product at a higher cost. While CMR may post an operational profit, BTW mainline is profitable for operations also, CMR does not pay all of its expenses, DAL does.

"Delta chief financial officer Michele Burns said Delta pays for all but operational costs for a Comair passenger, with such costs including the debt for new airplanes, marketing and distribution and other costs.

But she said the company could not say whether Delta makes money on Comair passengers, adding that such statistics were considered for the entire network"

 

[Tim47SIP]

Where are the Pax?

General,
I agree with Fins that RJs do bring more profitable passengers from cities that do not have LCCs----like Peoria--and I have stated many many times in the past that this is our strategy----Song flies cheaper pax nonstop to FLA from the NE, and the RJs bring in premium passengers from smaller cites to fill our 764s in ATL to FLA. But, what about all of those larger cities--like DEN, ABQ, SNA, OAK, PHX, etc to DFW----why are those competing with LCCs and bringing less pax to DFW to connect. No wonder we downsized there---we don't have enough connections now to suport more mainline planes.....

I fly those routes you are talking about. The problem I see is that the flights are not full. Mostly around 75% or so average. Yes they are long, and I am sure the pax would certainly enjoy larger aircraft. But untill Delta can muster up the number of pax it needs to start replacing us on those routes, it is just the way it has to be. The only other option is to run one mainline flight per day to fill the plane, but those same pax would take another carrier with more frequency.
Take a look at VPS. Airtran moved out of there 2 years ago to PNS. Delta maintained frequency with RJ's and ATR's. They added one, then two MD80's. There are now 4 MD80's in there plus all of the ATR and RJ routes. Many people from PNS are traveling to VPS to fly on those MD80's, RJ's and the ATR's instead of Airtran because Delta has kept the costs competitive and maintained a greater frequency. Also, PNS to ATL now has 6 MD80's and 2 RJ's, but PNS to DFW has dropped it's 2 MD80's for several ERJ's and RJ's. With numbers increasing (some of our 50's are going to be replaced with 70's), eventually those MD80's will be back. We now have 4 flights a day from VPS to DFW with RJ service. This was done to relieve the ATL to VPS conjestion. It worked intitially, but the aircraft are filling to the point of possibly another MD80 in here next year. I know, I fly those routes there four times a week. When the other routes can again accomodate larger aircraft, it does not take a rocket scientist to decide that mainline needs to fly those routes.

 

[General Lee]

Tim,

I don't want Delta Mainline to replace all DCI flying. Places like Peoria will never be replaced. There are some routes that can only support DCI RJs---and they still bring in great revenue--usually at a higher premium since there are no LCCs that serve there. I am sure the fares out of Peoria are NOT cheap, and even a 75% load factor probably makes that service profitable for Delta. What I have been saying is that we cannot compete head to head with RJs and LCC mainline service. We will lose on that one. Look at the West Coast. We fly RJs from DFW to DEN(competes with Frontier), DFW to PHX (competes with America West), SLC to PHX (competes with Southwest and America West), SLC to BOI (competes with Southwest), etc...and the East Coast is going to get more and more competitive with Airtran growing and Jetblue getting EMB-190s soon. There will be plenty of over lapping routes where our smaller 50 seaters or 70 seaters will have to compete with nicer Airtran 717s--and the fares will be very low--limiting what we can charge---and limiting the profit potential for 50 seaters, and then 70 seaters. I never said we should park them etc...We have a lot of routes that the 50 seaters and 70 seaters can be uses on and probably do very well. I like the 70 seater route from CVG to Billings that will start soon. That will give those people the option to fly east from Billings on someone other than Northwest thru Minneapolis. I think that is a smart way to open up new routes and see if they are successful. But, what about the DFW--JFK service on the CR7? That is ridiculous. That is not your fault or my fault--that is a Marketing problem. I guess we cannot find more than 70 people a day to fly between those two large cities....They are both hubs too, with a lot of possible connections from DFW to our INTL hub at JFK.....I am not blaming you Tim or any DCI pilot, I just can't believe what is happening sometimes...Take care.

Bye Bye--General Lee

 

[Ty Webb]

Re: Where are the Pax?

This doesn't make sense . . . PNS to ATL has 13 flights, instead of the 9 that VPS offers . . . with greater frequency.

I don;t doubt that people from Ft. Walton, Destin, Crestview, and possibly Panama City are driving to VPS because it is convenient, but I don;t think you'll see a lot of Escambia county plates at VPS airport . . . . . although I haven't checked.

Bottom line- if AirTran pulled out of PNS tomorrow, fares at VPS and PNS woudl skyrocket and the number of flights would decrease significantly.

I recently met the Delta station manager for another Gulf Coast City, who told me she wished that AirTran would start service to her city, because it would result in MORE Delta service, which would be better for her, in terms of expandign her station and increased opportunities to non-rev.

How's that for irony?

 

[46Driver]

The only reason you are going to see Escambia and Santa Rosa liscense plates at Mobile, Panama City, or Fort Walton Beach is because every Pensacola flight is sold out - often for days at a time. As one who commutes out of PNS, it is a nightmare at times because the load factors are so high. Since AirTran was lured to PNS by the PNS Chamber of Commerce (due to Delta's airfares being obscene), PNS's number of passengers has increased by 33% while Mobile, Panama City, and Fort Walton Beach have dropped correspondingly.

 

[MedFlyer]

If you're a high cost carrier like DL, the only way you can support mainline in any given market is to have a large enough marketshare that you are the preffered carrier for business travelers (who contribute a higher yield).

That's why in places like PNS and VPS (which are relatively small markets), DL can fill up MD88's profitably even in the face of competition from Airtran. DL controls anywhere from 50-60% of the market in PNS and VPS which makes mainline viable. Even before Airtran came to PNS, DL flew 7 MD88s' to ATL (now DL flies 7 MD88's + 2 CR7's).

However, look at a market like BUF. DL faces competition from Airtran just like they do in PNS, but BUF is a purely RJ station for DL despite that fact that BUF is a substantially bigger market than either PNS or VPS. Because DL is such a small player in the BUF market, they don't get the lions share of the business travelers. So, DL was forced to downgrade the market to RJ's which ironically have a higher CASM than mainline, but require far fewer butts to fill.

This is partially why DL can't operate a mainline plane between DFW and JFK. AMR is the dominant carrier in DFW and even at JFK, AMR is larger than DL. So AMR gets the bulk of the business travelers on this route and DL gets the leftovers. These leftovers aren't enough to profitably fill an MD88, so it gets dumped to the CR7.

Airtran, with much lower mainline costs, doesn't rely on business travelers as much (although they still need some). Airtran can actually make money or at least breakeven on many leisure travelers. Airtran can make money even if they don't control the majority of the market.

Now with that said, I think Airtran will have a hard time keeping a few of the smaller markets now that they are dumping the RJ's. I wouldn't be surprised if ICT and TLH get the axe within the next year or two. It's going to be a struggle for Airtran to make money in these markets and eventually I think they'll find more profitable places to send the 717.

 

[Tim47SIP]

46 DOOD

PNS's number of passengers has increased by 33% while Mobile, Panama City, and Fort Walton Beach have dropped correspondingly.

I fully agree with what you are saying and did not mean to imply that Airtran was doing poorly as a result of Delta. On the contrary. But I can tell you unequovocally that VPS and PFN did NOT reduce by that percentage (maybe initially when Airtran first moved out). They have increased dramatically. The station manager in VPS (before he passed away a few weeks ago) told me that the loads have picked up dramatically as a result of traffic from PNS. The increased flights from DFW and CVG to PFN and VPS were to relieve the ATL to VPS routes. But with increased traffic from PNS, these routes have not relized the difference in capacity with all of the extra seats from CVG and DFW routes. We have more flights out of VPS and PFN than we ever had. This might also be true because of what the previous poster implied that a certain amount of individuals dont want to travel to PNS and it is simply more convenient to go out of VPS (and vise versa). It may also be because Airtran may be operating at full capacity on those routes and Delta is the only other way out. I just dont know.

Ty
This doesn't make sense . . . PNS to ATL has 13 flights, instead of the 9 that VPS offers . . . with greater frequency.

Sorry, I did imply something that I didn't mean to. You are correct. PNS is way bigger than VPS in terms of population. I guess what I am getting at is that VPS numbers are growing steadily even with Airtran doing so well in PNS. VPS will NEVER move more pax's than PNS. It is just an alternative to PNS. I know that VPS wants Airtrans back because they did provide a great service. Fortunately, Delta kept the ticket prices in line with Airtrans and the business is booming. I can only speculate that Airtran will offer even more frequency and service in PNS which Delta will have to contend with.


Gen,

We are both on the same sheet of music. I understand now what you are talking about in terms of direct competion with the LCC's. You are absolutely correct there. But I really cant see an alternative at the moment other than just simply matching equipement or size on those routes. But the problem here is flying the aircraft around less that half full with a great loss of revinue. I was using VPS as an example of what happened there in terms of 1) maintaining presence (with just DCI), 2) building market share, and 3) mainline moving into those markets replacing DCI. As far as launching direct competition with the LCC's, that is not really what we did in VPS (maybe indirectly), but your right, the RJ's are not the equipemnet to lure Pax over to our side. I just really don't know what a good alternative could be.

 

[Ty Webb]

Wow, intelligent discourse returns to the message board. I'm impressed.

Thanks, guys, for some interesting insight.

I think it proves that there is room for the products offered by AirTran and Delta.

Here's to the DAL furloughees geting back in the saddle, and the Airtran guys getting a real, live "major airline" contract in 2005.

 

[General Lee]

Ty,

I will agree to that.

Tim,

Well, at the moment we don't have any new orders for anything other than RJs (adding to our debt)---and until we get some pay cuts on the pilot side here, we probably won't hear anything about any new 100 seaters. I guess the RJs are better than not having competition against Airtran--but the passengers might notice eventually. I think there is a difference between the size of aircraft---and the only planes we could bring back that are still in the desert are the MD-11s.....The only other thing I had that bothered me about the RJs were the longer flights, and I have tried to explain my feelings on that. Anything over 2 hours is tough on pax, but there are some routes that probably could not support anything larger...I can understand that too. Also, as the cities in the panhandle grow---like VPS, PFN, and PNS--maybe again we can fill them with MD-88s from DFW....

Medflyer,

I know AA is larger in DFW and JFK---but our European destinations at JFK are a lot larger than AA's. And, DFW is one of our small hubs--with potential to bring lots of people from Texas, and the Southwest. We should be able to fill more than 70 seats---and we should probably advertise better in those areas.....We also probably have a lot of pilots trying to commute to JFK for those European flights----many senior DFW pilots who were displaced off of the DFW 757/767 bid INTL out of JFK---but I know, that isn't a reason to have an MD-88.....

Bye Bye--General Lee