Analyst says Fare Cut to hurt LCCs

[General Lee]

Fare cuts to hit low-cost carriers -analyst
Tue Jan 11, 2005 08:58 AM ET
NEW YORK, Jan 11 (Reuters) - Fare cuts in the U.S. airline industry pose a risk to low-cost carriers as they lose the "lowest-fare" incentive to lure passengers, a JP Morgan analyst said, cutting his rating on America West Airlines (AWA.N: Quote, Profile, Research) .



Delta Air Lines's (DAL.N: Quote, Profile, Research) move to slash unrestricted fares by half has been matched by most legacy carriers in the past week. JP Morgan analyst Jamie Baker said AirTran, ATA Airlines (ATAHQ.PK: Quote, Profile, Research) and America West Airlines will be the ones most negatively impacted by the fare cuts.

"When faced with price ubiquity, passengers will make their decision primarily based on schedule, network breadth and frequent flyer benefits," Baker wrote in a research note, adding that as nonstop fares decline, passengers will have no incentive to change planes at low-cost carrier hubs such as Midway, Atlanta or Phoenix.

JetBlue Airways (JBLU.O: Quote, Profile, Research) will be the "least" affected by the fare cuts as connections are not a large part of the carrier's business strategy, Baker said.

Baker, who has an "underweight" rating on JetBlue Airways, Southwest Airlines (LUV.N: Quote, Profile, Research) , AirTran Airways (AAI.N: Quote, Profile, Research) and Frontier Airlines (FRNT.O: Quote, Profile, Research) , on Tuesday cut his ratings on America West to "underweight" from "overweight."

Low-cost carriers, which largely served "overpriced and underserved" markets will now be serving just "underserved" markets, Baker said, and will see lower profit margins than what they had expected.

"As these returns fail to live up to expectations, we expect longer-term low-cost carrier growth rates to moderate, potentially coming in the form of aircraft deferrals or cancellations," Baker said.

Baker also said that while he thinks the reduced fares will erode industry revenue in 2005, shares of larger airlines -- such as American Airlines (AMR.N: Quote, Profile, Research) , Northwest Airlines (NWAC.O: Quote, Profile, Research) and Continental Airlines (CAL.N: Quote, Profile, Research) -- will end the year higher because of potentially slower growth rates at low-cost carriers and a more stable and healthy revenue environment in the industry.


Bye Bye--General Lee

 

[Sy-bill]

Good god! If its going to hurt the LCC's, then what is it going to do to the legacies!

Wait! Isn't Delta both a LCC (Song) and a legacy??

dum dum dumdum dum dumdum dumdum dumdum



Again, American did this in the early 90's and the whole industry lost billions. But not SWA.

 

[V2+10]

This can't be good

Armageddon is comming!!! And Song was doing so well...too bad.

V2

 

[habubuaza]

I believe that Delta's cost restructuring was created primarily to put Airtran out of business. Get rid of the competition in your back yard first then worry about everything else later. It's going to be a tough battle for Airtran.

 

[General Lee]

Sybill,

Re-read the article, especially the last part. And, Song already has very very low fares to compete with Jetblue. The fares wouldn't get any lower at Song because they were capped at $399 I believe, and that is better than the $499 for coach on mainline. Also, our Song flights are fairly full and we added seats to make up for the lower fares---199 seats on the 757. I think your DUM DUM DUM (dumb??) remark makes you look like the dummy.

V2+10,

Has that changed? Do you know? No, you don't. All I can say is that we are full on most flights. People really like Song, too. Have a great day.



Bye Bye--General Lee

 

[Sy-bill]

Sybill,

Re-read the article, especially the last part. And, Song already has very very low fares to compete with Jetblue. The fares wouldn't get any lower at Song because they were capped at $399 I believe, and that is better than the $499 for coach on mainline. Also, our Song flights are fairly full and we added seats to make up for the lower fares---199 seats on the 757. I think your DUM DUM DUM (dumb??) remark makes you look like the dummy.

V2+10,

Has that changed? Do you know? No, you don't. All I can say is that we are full on most flights. People really like Song, too. Have a great day.




Bye Bye--General Lee

Oh please you self-rightous boob. You can dish it out but you can't take it.

I'm going to start posting all the negative press on the financial future of Delta.

And for your information smart guy, full airplanes don't mean your making a profit. I think thats covered in airline fiance 101.

 

[Pimpin']

For Shizzle GL! Pretty defensive there brutha!

 

[General Lee]

Sy-bill,


Oh no! Please don't. You are the boob. Sure, I can take it, I get slammed all of the time, but it doesn't bother me like it does you. Sheesh.

And about Song, smart guy, you and I don't know the financials, but Grinstein does. Why would he add another 12 airplanes to Song? Why? Come on, you and I both may not know the "numbers", but it is his fiduciary responsibility to do what is best for the shareholders. He has also stated in public (in articles) that Song is profitable. Whether that is by one dollar, I don't know, and neither do you chief.
But, you obviously learned that in YOUR Finance 101 class..... Face it, these management guys have the big picture, and YOU AND I DON'T. Have a great one!


Bye Bye--General Lee

 

[Sy-bill]

Sy-bill,


Oh no! Please don't. You are the boob. Sure, I can take it, I get slammed all of the time, but it doesn't bother me like it does you. Sheesh.

And about Song, smart guy, you and I don't know the financials, but Grinstein does. Why would he add another 12 airplanes to Song? Why? Come on, you and I both may not know the "numbers", but it is his fiduciary responsibility to do what is best for the shareholders. He has also stated in public (in articles) that Song is profitable. Whether that is by one dollar, I don't know, and neither do you chief.
But, you obviously learned that in YOUR Finance 101 class..... Face it, these management guys have the big picture, and YOU AND I DON'T. Have a great one!


Bye Bye--General Lee

General,

You are way too easy of a target.

Management guys have the big picture.

I've seen way to many airlines grow to the furlough.

 

[V2+10]

V2+10,

Has that changed? Do you know? No, you don't.


Bye Bye--General Lee

General, you hit the nail square on the head. I'll be the first one to admit...I DON'T KNOW...jeez man, I'm a pilot for cyring out loud! The big picture however is...YOU DON'T KNOW EITHER! That's the problem with Song. NOBODY KNOWS!!!...and never will. I think there might be a reason for that, don't you? It makes you wonder...hmmmmm

V2

 

[bafanguy]

I think V2 + 10 is getting pretty close to the head of the nail here. Threads like this remind me of the John Godfrey Saxe poem, " The Blind Men and the Elephant ". The last two passages say it best:

And so these men of Indostan
Disputed loud and long,
Each in his own opinion
Exceeding stiff and strong,
Though each was partly in the right,
And all were in the wrong !

Moral:

So oft in theological wars
The disputants, I ween,
Rail on in utter ignorance
Of what each other mean,
And prate about an elephant
Not one of them has seen !

If they'd had the internet in the 1880's, Mr. Saxe would've been very happy.

 

[General Lee]

V2+10,


Ok, again re-read my last post to Sy-bill. Before you could tell me that I don't know what is going on, I said the same thing to Sy-bill. I know that. I drive the bus, I don't manage it. Timing is everything on this board.


Sy-bill,

I know I am a target on this board, and I don't mind that. I like good debates, and sometimes they get a tad bit personal----but no harm is really intended. My point was that I can only restate what I hear or read. I don't make stuff up, I am out there observing a lot of this----on my Song flights etc. I can listen to code-a-phones, and talk to chief pilots that probably have half of the real story. That's all I can do. Management has teams of people, like marketing teams, and operations teams, yeild management teams, etc---and they can piece together the puzzle. I know that. But, I can listen and give my own opinions, and hopefully back that up with written articles. That's about it.


Bye Bye---General Lee

 

[75M]

I'm a little confused at the logic behind the original argument of this thread. I get that the LCCs attract passengers based on price. The legacies attract them based on network, frequent flier programs and historically, ammenities such as lounges and full service flights. And I get that given the same price, a legacy would seem more desireable. But here's what I don't get...

If the LCCs are making money right now at the fares that are being charged by the LCCs, and the legacies were losing money while flying full prior to the fare cuts, then how will the fare cuts help the legacies?

How will the fare cuts hurt the LCCs? Are less people going to be flying? Probably not. I would guess that more people will fly. The LCCs will remain full or nearly full under the same fare structure that they have used in the recent past while the legacies continue to hemorrage cash a result of the new lower fares.

I don't think the fare war is an attempt to kill the LCCs. I think its an attempt to put the last nail in the coffin at US Airways.

 

[LJDRVR]

AIRLINE ANALYSTS?

If they said so it must be true. I'm selling all of my Southwest stock first thing in the morning.

 

[General Lee]

I didn't say the analyst was right, I just posted the article and even said it was stated by an analyst. If this guy is like Lowecur, an ANALCYST, then everything he says is subject to question.



Bye Bye--General Lee