[font=verdana, arial, helvetica]We all know Mike Boyd is not a big fan of the RJ. So, he lets us know about it in relation to the Independence Air startup. Interesting comments about potential problems with the high-frequency model and the Northeast ATC problems. Any thoughts - do you agree with him? Read below:[/font]
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[font=verdana, arial, helvetica]Can Independence Air Pull It Off?
Moving beyond sunshine studies that hype the wonder and glories of RJs, the open question is whether ACA can transform itself from a small jet provider into to an independent carrier operating over 80 50-seat jets.
Some observations...
That Scraping Sound Really Was An Iceberg. First, the carrier is visionary in recognizing that the SJP segment of the industry is in decline. Being a supplier of lift to United would not continue to provide growth, nor even long-term stability to the company. A shake-out is coming in the SJP segment. Without question, there will be a need for SJPs, but only the strongest will survive. Mesa, Skywest, and Air Wisconsin are hands-down choices as long term players. Beyond these, some of today's current SJPs won't be in the game in ten years, at least not in their current forms. And one of the most lucrative future real estate investments will be desert property - to park retired RJs.
So, ACA moving from being an SJP to an independent airline shows innovation.
But, The Costs. Forget the smoke being blown around about 50-seat jets. Their ASM costs are high, and going higher. But on short stage lengths, the necessary fares to get into the profit column are not high in terms of dollar amounts. Figure IAD-RDU, for example. If that CRJ has ASM costs in the, say, 16 cent range, the carrier can charge a base fare of around double that and still stay at or under $100 each way.
Conclusion: at least on paper, the high costs of RJ flying may not be as onerous as they look for I-Air.
But, Airlines Fly In The Sky, Not On Paper. A key component of the Independence Air plan seems to be offering very high frequencies in RJ-served markets. Unfortunately that sky is managed by an incompetent and rickety air traffic control system. The FAA's bailing-wire ATC system could toss a huge monkey wrench into the airline's plan. With six to twelve daily round trips in every market, even a minor glitch could cause big time operational chaos and significant spikes in operational costs.
Remember, despite what the FAA puts out in press releases, it is NOT weather that is the major cause of delays, particularly on the East Coast. It is the inability of the outdated and mis-managed ATC system to keep up with weather conditions.
Other frequency-related questions:
Open question: Can places like Lansing support six flights a day to IAD?
Question: The carrier intends to bring total ASM costs down by flying the airplanes gazillions of hours each day. Just how much traffic is there to and from IAD in the shoulder hours - departures before 7AM and after 6PM?
Question: With what are expected to be materially lower fares, how much traffic stimulation is possible in some of these markets? Fares between Washington and places such as Lansing (which, by the way has never had nonstop service to Washington) have historically tended to be just slightly lower than the sticker price on a new Lexus. With higher frequencies, nonstop service, and cheaper fares, it is entirely possible that some of these markets could see huge traffic spikes.
The Long-Haul Flying. Independence Air plans on adding A-319/320 service to points in the West from IAD. The vulnerability lies in how United, JetBlue, America West, and perhaps other carriers react. Obviously, with over 300 daily flights, I-Air will be the dominant player at IAD, and for that matter, Washington itself, which can give it an advantage. But that advantage is predicated on the airline's ability to gain quick and very strong consumer brand loyalty.
And That Brings Us To Brand Loyalty. As a United Express provider, ACA was carrying United's passengers, not their own. As Independence Air, brand loyalty will the the maker or the breaker of the airline's future. That means that its customer service absolutely must be lights-out, professional, exceptionally trained, and top of the industry. The days of being able to get away with the seven-flights-departing-at-once, escape-from-Saigon boarding process are over. If the customer gets the impression that I-Air is just a commuter airline, with load-'em-up-and-head-'em-out service, the airline will torpedo its own future.
Summary. The success of Independence Air will ultimately depend on things beyond just having lower fares. Three components must fall into place.
The schedule reliability cannot be unduly affected by ATC or other operational factors.
There will need to be substantial traffic stimulation in many of their markets (which is entirely possible, but not guaranteed.)
The I-Air customer must be treated so that he or she really would like to fly the airline again.
Washington/Dulles represents a unique and one-off opportunity for an SJP to attempt to break into the world of being a stand-alone airline. This summer should be an interesting one on the East Coast.
(c) 2004, The Boyd Group/ASRC, Inc. All Rights Reserved[/font]
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[font=verdana, arial, helvetica]Can Independence Air Pull It Off?
Moving beyond sunshine studies that hype the wonder and glories of RJs, the open question is whether ACA can transform itself from a small jet provider into to an independent carrier operating over 80 50-seat jets.
Some observations...
That Scraping Sound Really Was An Iceberg. First, the carrier is visionary in recognizing that the SJP segment of the industry is in decline. Being a supplier of lift to United would not continue to provide growth, nor even long-term stability to the company. A shake-out is coming in the SJP segment. Without question, there will be a need for SJPs, but only the strongest will survive. Mesa, Skywest, and Air Wisconsin are hands-down choices as long term players. Beyond these, some of today's current SJPs won't be in the game in ten years, at least not in their current forms. And one of the most lucrative future real estate investments will be desert property - to park retired RJs.
So, ACA moving from being an SJP to an independent airline shows innovation.
But, The Costs. Forget the smoke being blown around about 50-seat jets. Their ASM costs are high, and going higher. But on short stage lengths, the necessary fares to get into the profit column are not high in terms of dollar amounts. Figure IAD-RDU, for example. If that CRJ has ASM costs in the, say, 16 cent range, the carrier can charge a base fare of around double that and still stay at or under $100 each way.
Conclusion: at least on paper, the high costs of RJ flying may not be as onerous as they look for I-Air.
But, Airlines Fly In The Sky, Not On Paper. A key component of the Independence Air plan seems to be offering very high frequencies in RJ-served markets. Unfortunately that sky is managed by an incompetent and rickety air traffic control system. The FAA's bailing-wire ATC system could toss a huge monkey wrench into the airline's plan. With six to twelve daily round trips in every market, even a minor glitch could cause big time operational chaos and significant spikes in operational costs.
Remember, despite what the FAA puts out in press releases, it is NOT weather that is the major cause of delays, particularly on the East Coast. It is the inability of the outdated and mis-managed ATC system to keep up with weather conditions.
Other frequency-related questions:
Open question: Can places like Lansing support six flights a day to IAD?
Question: The carrier intends to bring total ASM costs down by flying the airplanes gazillions of hours each day. Just how much traffic is there to and from IAD in the shoulder hours - departures before 7AM and after 6PM?
Question: With what are expected to be materially lower fares, how much traffic stimulation is possible in some of these markets? Fares between Washington and places such as Lansing (which, by the way has never had nonstop service to Washington) have historically tended to be just slightly lower than the sticker price on a new Lexus. With higher frequencies, nonstop service, and cheaper fares, it is entirely possible that some of these markets could see huge traffic spikes.
The Long-Haul Flying. Independence Air plans on adding A-319/320 service to points in the West from IAD. The vulnerability lies in how United, JetBlue, America West, and perhaps other carriers react. Obviously, with over 300 daily flights, I-Air will be the dominant player at IAD, and for that matter, Washington itself, which can give it an advantage. But that advantage is predicated on the airline's ability to gain quick and very strong consumer brand loyalty.
And That Brings Us To Brand Loyalty. As a United Express provider, ACA was carrying United's passengers, not their own. As Independence Air, brand loyalty will the the maker or the breaker of the airline's future. That means that its customer service absolutely must be lights-out, professional, exceptionally trained, and top of the industry. The days of being able to get away with the seven-flights-departing-at-once, escape-from-Saigon boarding process are over. If the customer gets the impression that I-Air is just a commuter airline, with load-'em-up-and-head-'em-out service, the airline will torpedo its own future.
Summary. The success of Independence Air will ultimately depend on things beyond just having lower fares. Three components must fall into place.
The schedule reliability cannot be unduly affected by ATC or other operational factors.
There will need to be substantial traffic stimulation in many of their markets (which is entirely possible, but not guaranteed.)
The I-Air customer must be treated so that he or she really would like to fly the airline again.
Washington/Dulles represents a unique and one-off opportunity for an SJP to attempt to break into the world of being a stand-alone airline. This summer should be an interesting one on the East Coast.
(c) 2004, The Boyd Group/ASRC, Inc. All Rights Reserved[/font]
