Boyd says LCC's have their problems approaching

[Palomino]

Posted on Sat, Feb. 04, 2006

Passenger traffic up for American

By DAVID WETHE
STAR-TELEGRAM STAFF WRITER

American and Southwest airlines both carried more passengers in January compared with last year, according to reports released this week.
Fort Worth-based American Airlines said its planes last month were an average of 75 percent full, up 1.8 percentage points from the same period in 2005.
Its overall passenger traffic grew 4.4 percent, thanks to a 1.9 percent increase in capacity.
American Eagle, the company's regional affiliate, reported a 28 percent increase in traffic from January 2005.
Dallas-based Southwest Airlines reported an 18 percent increase in traffic, with its airplanes flying 63 percent full, compared with seeing 59 percent of its seats filled in 2005.
Michael Boyd, president of the Boyd Group, a Colorado-based aviation consultant, said American's traffic numbers are sound.
"A lot of work's been done at American, and a lot more is going to get done," he said. "It clearly shows that as long as oil prices don't head further into the stratosphere, it's carriers like American that hold the future."
He expects 2006 to finally be a better year for legacy carriers such as American relative to low-cost carriers such as Southwest.
Although American never filed for bankruptcy protection, several other legacy carriers are reorganizing their burdening debts and higher costs through bankruptcy court, allowing for more effective competition with low-cost carriers.
"In nine to 12 months, we'll be talking about the problems of these low-cost carriers," Boyd said.
Shares of AMR Corp., American's parent, (ticker: AMR) fell 55 cents to $22.74 on Friday. Shares of Southwest (ticker: LUV) fell 9 cents to $16.43.
www.aa.com
www.southwest.com
David Wethe, (817) 685-3803 [email protected]

 

[OPECJet]

I just flushed something that had the mentality of this Boyd guy.....

Come to think of it, it was smarter. It didn't point out obvious crap before I flushed, and it was just as offensive.

 

[FlyBoeingJets]

"A lot of work's been done at American, and a lot more is going to get done," he said. "It clearly shows that as long as oil prices don't head further into the stratosphere, it's carriers like American that hold the future."

He expects 2006 to finally be a better year for legacy carriers such as American relative to low-cost carriers such as Southwest.

"In nine to 12 months, we'll be talking about the problems of these low-cost carriers," Boyd said.

I have read some good stuff from Boyd. This is not it.

He just looked at American's last quarterly report. He also looked at UAL's emergence and is judging it less than spectacular, like everyone else. American will be putting over $1B down on their $20B in debt. Smart move and a good sign.

American is doing doing better than DAL and NWA this year while they continue to shrink in 2006.

2006 will be a GREAT year for LCCs and, by the end of 2006, articles will be posted about LCC growth "in trouble". His prediction comes right after JetBlue and Frontier posted such losses. He is already right about some LCCs!! But this comes off of several "great years for LCCs" and the resurgence of the Legacy is long overdue and necessary for their survival. I would predict it to with their non-fuel CASMs as good as they are now. International routes are expanding and paying the bills while domestic is less of the operation and sucking much less cash. When was the last time you heard of a legacy paying a $1B for anything good let alone toward debt?? He is already right about American!!

Boyd is pretty much master of the obvious on this one....Again.

 

[YourPilotFriend]

People in the past have selected the LCC because of the $90 price tag verses the $500 from the legacy. If the legacy charges $90 people will select the legacy everytime. Why would I buy a ticket on SWA when I can buy a ticket on AA at the same price? There's a huge difference between "you are now free to move about the country" vs "you are now free to move about the world".

 

[radarlove]

Has he ever been right about anything? Or does he just spout and move on to the next thing?

Boyd just reads the paper and tells us what he thinks of the news.

 

[Dangerkitty]

Has he ever been right about anything? Or does he just spout and move on to the next thing?

Boyd just reads the paper and tells us what he thinks of the news.

From what I have seen Boyd is right many more times than he is wrong.

Of course he is very full of himself and very arrogant, but that is another story.

 

[canyonblue]

Why would I buy a ticket on SWA when I can buy a ticket on AA at the same price? There's a huge difference between "you are now free to move about the country" vs "you are now free to move about the world".

Because the majority of travelers don't fly enough to even earn a FF ticket. Trying to woo a passenger with the prospect of a free trip to Paris will only work if the person actually flies enough to even earn one. The bottom level for AA to Paris is 40,000 miles, 100,000 for unrestricted travel. So for the average person that travels 2 or 3 times a year it isn't even a reality. On the other hand if that same person were to fly just 8 roundtrips in 24 months on Southwest they will get a free roundtrip ticket, and mileage does not matter.

 

[radarlove]

Yeah, but those travelers that do fly enough to participate are also price-insensitive business travelers that provide the highest margin of profit to the airlines.

That's the trick to revenue management, get those to pay the top amoun they are willing to pay for the ticket. Lot's o' grandmothers paying $175 pay for the gas, then a couple of business whales paying $700 pays for the profits. I wouldn't dismiss FF programs, there are folks (fewer in the last couple of years, but they're coming back) who are willing to not shop for bargains.

 

[Tejas-Jet]

Why would I buy a ticket on SWA when I can buy a ticket on AA at the same price? There's a huge difference between "you are now free to move about the country" vs "you are now free to move about the world".

Funny you should ask, because that very option was given to many AUS-DAL travelers just a few years ago. Guess what? AA no longer competes on that route....what was it...27% ...or was it 37% load factors they had.

Now, yes...<yawn>...by now, we all know that you can get to London on AA, but you can't on SWA....OK. (Of course, when i fly to Europe, I'd rather go on CAL than on AA....I can discuss those reasons later).

SWA still shows profits and thats really all I care about. Lets rember, when AA and all the other legacies were showing profits ( you remember when that was), SWA was really raking it in....thats why I'm looking forward to the legacies showing profits again.

Tejas

 

[32LT10]

Because the majority of travelers don't fly enough to even earn a FF ticket. Trying to woo a passenger with the prospect of a free trip to Paris will only work if the person actually flies enough to even earn one. The bottom level for AA to Paris is 40,000 miles, 100,000 for unrestricted travel. So for the average person that travels 2 or 3 times a year it isn't even a reality. On the other hand if that same person were to fly just 8 roundtrips in 24 months on Southwest they will get a free roundtrip ticket, and mileage does not matter.

It is not just the tickets that the airlines want the people for. They want them for the credit card mileage promotions. I do believe even the likes of JBLU has a CC program. It is the smart traveler that decides to use the CC for travel and they choose to sign up with carriers that CAN take them to Europe, Asia, South America or just about any where on the globe. The LCC cards are for the most part worthless.

Of course if you eat 6 wendy burgers you get a ticket on Airtran. Do they get the biggie seat for the 8th burger? The depths of this industry in the LCC arena knows no limit.

 

[Blue Dude]

Why would I buy a ticket on SWA when I can buy a ticket on AA at the same price?

Depends on how many times he's received bad service on the legacy, too. They were misconnected, bags were lost, snarled at by a gate agent, etc. People remember, and purchase accordingly, especially if they don't care much about elite FF levels. They just want to get where they're going with a minimum of fuss. The carrier that provides that to them more consistently has an edge in getting their business next time.

 

[Ty Webb]

People in the past have selected the LCC because of the $90 price tag verses the $500 from the legacy. If the legacy charges $90 people will select the legacy everytime.

I often agree with your posts, but this one just demonstartes that you haven't flown on many LCC flights, or sat in the back of your own flights and actually talked to the people who are buying the tickets.

Every airline out there has a core of very pissed-off passengers. Whether their beef is really justified or not, who knows, but every time I commute, I have people tell me "I hate flying on ___(legacy)____airline. I NEVER fly on them if I have a choice because they (screwed me over, lost my bags, called my fat wife "fat", etc)". Almost every flight I commute on yields a passenger who just "has to tell" that he/she loves AirTran and will fly on us every opportunity they get because we (treat them well, have the best fares, never lost their bag, can cure cancer, etc) so don't count on passengers choosing Legacies over LCC's . . . . . . y'all just aren't that great.

Often, LCC's have service equal to or better than some Legacy airlines. If you go from ATL on Delta to a nearby city, such as Pensacola, Gulfport, Savannah, New Orleans, etc., you will likely be on an RJ, and even if you aren't, you probably won't even get a real beverage service, but on AirTran, you'll be in newer, possibly larger, aircraft, and will have full beverage service and XM Satellite radio, too.

 

[lifeguard]

Because the majority of travelers don't fly enough to even earn a FF ticket. Trying to woo a passenger with the prospect of a free trip to Paris will only work if the person actually flies enough to even earn one. The bottom level for AA to Paris is 40,000 miles, 100,000 for unrestricted travel. So for the average person that travels 2 or 3 times a year it isn't even a reality. On the other hand if that same person were to fly just 8 roundtrips in 24 months on Southwest they will get a free roundtrip ticket, and mileage does not matter.

If a passenger is only flying 2-3 times a year..he is going to have a hard time earning a ticket on Southwest too.

 

[abe44]

Lcc??

What is a LCC? If you ask most non-airline folks (or airline analysts) they will tell you that it's an airline that pays their empoyee's less.

They will point to "non-union" SWA as a great example of low cost. The thing is, SWA employees make more money than any legacy carrier employee that you can name....(and they are the most unionized airline in the US).

They will point to Airtran, with their "point-to-point" service and their low-paid employees. They don't realize that Airtran pays it's 717 Captains more than Delta or United or Northwest pays their widebody Captains. They also don't realize that Airtran is a Hub carrier just like Delta, Northwest and United.

They also will tell you that all LCC's are profitable. Not so, just look at Jet Blue's recently reported loss......or Airtran's latest quarter and 2006 estimate....or SWA's 2005 performance (minus their fuel hedges).

What am I saying with all of this?? Things will be very interesting in the next few years for "so-called" LCC's and "so-called" legacy carriers!

LCC's are no longer "low-cost" and "legacy" carriers (for the most part) are becoming "brand new" in the way they do business.

Abe44

 

[boeing747-800]

THE LCC craze is OVER! Get ready for big competition from those who've been in this business over 75years and counting...

 

[GuppyWN]

Bring it on. The way I see it, once the legacy carriers regain profitability, the employees (managers) will just choke the life out of the operation. Again.

Gup

 

[800Dog]

Bring it on. The way I see it, once the legacy carriers regain profitability, the employees will just choke the life out of the operation. Again.

Gup

Spoken like a management love child! If the legacies go away, how do our troops get to and from the theater? LUV, Jetblue, AirFrance, Lufthansa?

 

[YourPilotFriend]

How did the employees choke the life out of it? SWA has the highest paid employee's in the industry. Don't worry GuppyWN you can join the rest of us here in the paycut world soon. In my opinion, SWA will be in or near bankruptcy by 2008-2009.

 

[Skyguy]

Management and Pilots

A man is flying in a hot air balloon and realizes he is lost. He spots
a
man down below and lowers the balloon to speak with him. The balloonist
gets
close enough to speak with the man on the ground and shouts down to him,
"Excuse me, but maybe you can help me. I promised my friend I would meet him
half an hour ago, but I don't know where I am."

The man on the ground responds, "No problem; you are in a hot air
balloon
hovering about 30 feet above
this field. You are located at 26' 04.4 North Latitude, and 80' 09.2 West
Longitude and drifting slowly south."

You must be an airline pilot, says the balloonist.

"I am, how did you know?" replies the man on the ground.

"Well," says the balloonist, "everything you have told me is technically
correct, but I have no idea what to make of the information you gave me. I
am
still lost, so you have done absolutely nothing to help me!"

The man on the ground says "You must be in airline management."

"I am" replies the balloonist, "how did you know?"

"Well"; says the man on the ground, "you do not know where you are or
where
you are going. You have made a promise that you cannot keep and you expect
me
to solve your problems for you. The fact is that you are in the exact same
position you were in before we met, but now it is somehow my fault."

Ain't this the truth!

 

[abe44]

Bring it on. The way I see it, once the legacy carriers regain profitability, the employees (managers) will just choke the life out of the operation. Again.

Gup

Guppy,

I tend to agree...just thank your lucky stars that you have a management group that knows what the hell is going on! I work for a legacy management.....I, and the rest of the employees here have sacrificied big-time and now are paid much less than you and your co-workers. Everyone at my company is paid less than SWA, except our senior managers!

Not counting the huge bonuses/stock options that they will make after we exit BK, our senior managers already make a lot more than yours! (and their performance shows that they should be earning about 1/10 or your top guys/gals).

My hope is that we get rid of our "dead weight" as we restructure here. If I were in charge I would bring over some intelligent SWA managers (at double their current salary...still less than our worthless managers) and give them total power to clean house. (I work for Delta, by the way).

Either that, or just re-hire the folks who ran this place before the bean counter, Harvard MBA's took over.

My prediction (you heard it here first!) is that LCC pilots/flight attendants/mechanics/gate agents/etc will be crying about their company coming to them for givebacks in the near future because they can't compete with the so-called "legacy" carrier costs.

It's an easy prediction to make, because the time is NOW!

Abe44