[FONT=Tahoma, Verdan, Lucida]Hot Flash[/FONT][FONT=Tahoma, Verdan, Lucida] - February 27, 2006[/FONT]
[FONT=Tahoma, Verdana, Lucida]As The Media Parrots Will Be Headlining Soon...[/FONT][FONT=Tahoma, Verdana, Lucida]
Turbulence On The LCC Tarmac... Low-Fare Profits Not Taking-Off... Trouble In Low-Fare Paradise.. Discount Airlines Must Climb Higher For Profits...[/FONT]
[FONT=Tahoma, Verdana, Lucida]Just gotta love what's coming out of J-Schools these days.[/FONT]
[FONT=Tahoma, Verdana, Lucida]True, there are still the me-too stories in the media - including some the of the aviation media, which should know better - reporting that the low-fare airline model is the one to beat. [/FONT]
[FONT=Tahoma, Verdana, Lucida]More correctly, the fact is that it's getting beaten-up.[/FONT]
[FONT=Tahoma, Verdana, Lucida]Not that LCCs are going away... it's just that they're reaching the point that the easy, chop-the-fare, grab-the-traffic markets where 100-to-150 seat airliners can prosper, are getting tougher to find. Meanwhile, legacy carriers have shed huge cost structures, and have the ability to shed a whole lot more, helping to the make the field more level when the per-ASM bill come due. Toss in higher fuel expense, and the scorecard isn't costs any longer, it's revenue. [/FONT]
[FONT=Tahoma, Verdana, Lucida]Note that two of the largest LCCs, Southwest and jetBlue, both announced that they're planning fare increases in the near future. Both airlines are superbly-managed, and neither has a lot of excess operational-cost fat to cut. It's increased revenues that they need now. But just hiking fares is only a partial solution. The real challenge will be finding enough markets that can generate enough long green to support massive new LCC-model capacity coming on line over the next three years.[/FONT]
[FONT=Tahoma, Verdana, Lucida]It's The Revenue-Generating Machinery That Counts. Today, the usual suspects in the media, and some of the helium-weight Wall Street analysts, too, are still doing the mantra about LCCs having "one type of aircraft" which, for reasons they don't understand, nor would care to, somehow imparts a magic advantage on LCCs. (The "one-type" thing is more myth than fact. Take a look at the fleet operating under brands such as AirTran, Frontier, jetBlue, and even Southwest, which operates more than one distinct 737 variant.)[/FONT]
[FONT=Tahoma, Verdana, Lucida]But regardless of this, the fact is that legacies have the enormous advantage of superior fleet flexibility compared to LCCs. Airliners from roughly 34 to 350 seats, generally. Flexibility, say, like that of Northwest, where the airline has the ability to effectively mine cross-system revenues in markets from Bangor to Beijing - revenues which provide an on-board revenue premium in the DTW-LAS market. And the MSP-FLL market, and so on.[/FONT]
[FONT=Tahoma, Verdana, Lucida]Let The LCC Games Begin. From a competitive standpoint, the LCC segment of the industry is starting to play the airline version of bumper cars. Expansion moves seem to be aimed at countering one another, instead of taking aim primarily at legacy carriers.[/FONT]
[FONT=Tahoma, Verdana, Lucida]Example: jetBlue has announced entry into Portland, Maine, which, combined with their expansion at Boston, appears to be another encroachment on Southwest's peripheral city strategy in New England. AirTran has announced additional service at CLT, which is hands-down the most likely next expansion city for Southwest. For more insight regarding this trend, this week's Airport Forecast Flash is a must-read. Click Here.[/FONT]
[FONT=Tahoma, Verdana, Lucida]Wait and see. The rearview-mirror forecasters will "discover" these dynamics sometime later this year, and then will grandly "predict" what's been obvious for months, which is lots more 100-to-150 seat LCC airliners coming on-line, increasingly trying to grab traffic from each other. [/FONT]
[FONT=Tahoma, Verdana, Lucida]One danger sign already seen: the dreaded buzz-words. One of the investors in the proposed Virgin America operation was quoted in Forbes as stating the new carrier was planning on offering a better "value proposition."[/FONT]
[FONT=Tahoma, Verdana, Lucida]How 'bout "survival proposition."[/FONT]
[FONT=Tahoma, Verdana, Lucida]As The Media Parrots Will Be Headlining Soon...[/FONT][FONT=Tahoma, Verdana, Lucida]
Turbulence On The LCC Tarmac... Low-Fare Profits Not Taking-Off... Trouble In Low-Fare Paradise.. Discount Airlines Must Climb Higher For Profits...[/FONT]
[FONT=Tahoma, Verdana, Lucida]Just gotta love what's coming out of J-Schools these days.[/FONT]
[FONT=Tahoma, Verdana, Lucida]True, there are still the me-too stories in the media - including some the of the aviation media, which should know better - reporting that the low-fare airline model is the one to beat. [/FONT]
[FONT=Tahoma, Verdana, Lucida]More correctly, the fact is that it's getting beaten-up.[/FONT]
[FONT=Tahoma, Verdana, Lucida]Not that LCCs are going away... it's just that they're reaching the point that the easy, chop-the-fare, grab-the-traffic markets where 100-to-150 seat airliners can prosper, are getting tougher to find. Meanwhile, legacy carriers have shed huge cost structures, and have the ability to shed a whole lot more, helping to the make the field more level when the per-ASM bill come due. Toss in higher fuel expense, and the scorecard isn't costs any longer, it's revenue. [/FONT]
[FONT=Tahoma, Verdana, Lucida]Note that two of the largest LCCs, Southwest and jetBlue, both announced that they're planning fare increases in the near future. Both airlines are superbly-managed, and neither has a lot of excess operational-cost fat to cut. It's increased revenues that they need now. But just hiking fares is only a partial solution. The real challenge will be finding enough markets that can generate enough long green to support massive new LCC-model capacity coming on line over the next three years.[/FONT]
[FONT=Tahoma, Verdana, Lucida]It's The Revenue-Generating Machinery That Counts. Today, the usual suspects in the media, and some of the helium-weight Wall Street analysts, too, are still doing the mantra about LCCs having "one type of aircraft" which, for reasons they don't understand, nor would care to, somehow imparts a magic advantage on LCCs. (The "one-type" thing is more myth than fact. Take a look at the fleet operating under brands such as AirTran, Frontier, jetBlue, and even Southwest, which operates more than one distinct 737 variant.)[/FONT]
[FONT=Tahoma, Verdana, Lucida]But regardless of this, the fact is that legacies have the enormous advantage of superior fleet flexibility compared to LCCs. Airliners from roughly 34 to 350 seats, generally. Flexibility, say, like that of Northwest, where the airline has the ability to effectively mine cross-system revenues in markets from Bangor to Beijing - revenues which provide an on-board revenue premium in the DTW-LAS market. And the MSP-FLL market, and so on.[/FONT]
[FONT=Tahoma, Verdana, Lucida]Let The LCC Games Begin. From a competitive standpoint, the LCC segment of the industry is starting to play the airline version of bumper cars. Expansion moves seem to be aimed at countering one another, instead of taking aim primarily at legacy carriers.[/FONT]
[FONT=Tahoma, Verdana, Lucida]Example: jetBlue has announced entry into Portland, Maine, which, combined with their expansion at Boston, appears to be another encroachment on Southwest's peripheral city strategy in New England. AirTran has announced additional service at CLT, which is hands-down the most likely next expansion city for Southwest. For more insight regarding this trend, this week's Airport Forecast Flash is a must-read. Click Here.[/FONT]
[FONT=Tahoma, Verdana, Lucida]Wait and see. The rearview-mirror forecasters will "discover" these dynamics sometime later this year, and then will grandly "predict" what's been obvious for months, which is lots more 100-to-150 seat LCC airliners coming on-line, increasingly trying to grab traffic from each other. [/FONT]
[FONT=Tahoma, Verdana, Lucida]One danger sign already seen: the dreaded buzz-words. One of the investors in the proposed Virgin America operation was quoted in Forbes as stating the new carrier was planning on offering a better "value proposition."[/FONT]
[FONT=Tahoma, Verdana, Lucida]How 'bout "survival proposition."[/FONT]
