Jump in Air Fares?

[pilotyip]

My wife travels to DTW to ABQ on regular basis. Checks fares every week looks for a deal 6-8 weeks out and then buys a ticket. For the last year she has been doing round trip for around $200. She flew NWA, SWA, AAL, and Frontier. Now everyone, except Frontier, has raised their fares to around $400 round trip. Even SWA cheapest ticket through October was $435 RT. Three weeks ago that ticket was around $187. I wonder how this will effect load factors?

 

[Paul R. Smith]

Its probably a result of the load factors.

 

[ualdriver]

My wife travels to DTW to ABQ on regular basis. Checks fares every week looks for a deal 6-8 weeks out and then buys a ticket. For the last year she has been doing round trip for around $200. She flew NWA, SWA, AAL, and Frontier. Now everyone, except Frontier, has raised their fares to around $400 round trip. Even SWA cheapest ticket through October was $435 RT. Three weeks ago that ticket was around $187. I wonder how this will effect load factors?

$400 round trip for a journey of that length sounds pretty reasonable to me. Maybe those airlines are starting to get smart and price their tickets to actually cover their costs!! Maybe my airline will get smart and do that too!

 

[pilotyip]

Consumer view

$400 round trip for a journey of that length sounds pretty reasonable to me. Maybe those airlines are starting to get smart and price their tickets to actually cover their costs!! Maybe my airline will get smart and do that too!

But I am consumer who purchases that product, I only have so much money to spend. I will travel less at higher prices. Fewer passengers, fewer flights, fewer pilots, etc.

 

[filejw]

But I am consumer who purchases that product, I only have so much money to spend. I will travel less at higher prices. Fewer passengers, fewer flights, fewer pilots, etc.

But if the airline doesn't make any money at that 189$ fare they will not be around to carry anybody for long and none of them do on that length of trip at that price.....BTW what companies have done is reduce capacity to create a bit of demand. Kind of like a sold out ball game. I didn't think it would work but it has to a point.

 

[pilotyip]

I agree

But if the airline doesn't make any money at that 189$ fare they will not be around to carry anybody for long and none of them do on that length of trip at that price.....BTW what companies have done is reduce capacity to create a bit of demand. Kind of like a sold out ball game. I didn't think it would work but it has to a point.

But the point is, higher prices = fewer passengers. The cheap fares are the advance purchase fares, purchased by people who don't really have to travel if it is not convenient or economical. I agree the jury is still out on how this will effect load factors. BTW Frontier is still doing the $189 RT DTW-ABQ, so she bought her next ticket for her trip to visit the grandkids in July. If the $189 fare was not available she would not make the trip again until September.

 

[ualdriver]

But I am consumer who purchases that product, I only have so much money to spend. I will travel less at higher prices. Fewer passengers, fewer flights, fewer pilots, etc.

And that's the problem. The consumer (you) has been trained to think that $189 is what it costs to travel across the continent. I doubt that fare from DTW to ABQ is profitable for anyone, advance purchase or not, especially if that fare included taxes and fees which the airline doesn't get. Higher fares will probably be less pilots and airplanes, which I think is already happening/already happened for most airlines. I guess grandma had better get used driving to ABQ or seeing less of her grandkids!

 

[av8tor76]

or use amtrak or greyhound...

 

[pilotyip]

missing the point

And that's the problem. The consumer (you) has been trained to think that $189 is what it costs to travel across the continent. I doubt that fare from DTW to ABQ is profitable for anyone, advance purchase or not, especially if that fare included taxes and fees which the airline doesn't get. Higher fares will probably be less pilots and airplanes, which I think is already happening/already happened for most airlines. I guess grandma had better get used driving to ABQ or seeing less of her grandkids!

I am not the problem, I know the airlines can not cover costs at $189. But to fill 10 seats that would otherwise be empty on Tuesday at 0600 with a $189 fare used to be a good business model. Time will tell if not having that seat filled with a $189 fare makes sense. I think you are also missing the point, it does not matter if grandma drives or elect not to visit as often. The point is she will fly less at higher prices, people flying less will effect load factors. There is cause and effect in every economic action. Will 4 of those 10 seats be filled by a $400 fare to provide the revenue for that flight at 0600 on Tuesday? Things will not remain status quo. I not saying this is right or wrong.

 

[dispatchguy]

I am not the problem, I know the airlines can not cover costs at $189. But to fill 10 seats that would otherwise be empty on Tuesday at 0600 with a $189 fare used to be a good business model.

No, it was a broken bidness model.

You wanna be on my airplane, fine, then pay the fare that is commensurate to the costs incurred in providing the transportation, and a reasonable return on investment.

Other businesses do that, it costs X to create a widget, they price it at X plus a few for profit; thats one helluva-an idea, I think youre on to something there. Price a fare, now follow me here, that PAYS the costs involved.

Wow, thats just friggin brilliant!

 

[ualdriver]

The point is she will fly less at higher prices, people flying less will effect load factors. There is cause and effect in every economic action. Will 4 of those 10 seats be filled by a $400 fare to provide the revenue for that flight at 0600 on Tuesday? Things will not remain status quo. I not saying this is right or wrong.

I think the airlines are starting to realize that (well, at least most airlines except those like Virgin America). It almost seems as if the airlines collectively are starting to come to their senses and realize that $59 fares to grandma's or Disney aren't profitable. So except to compete with airlines like the aforementioned, they're starting to charge fares that actually will make a profit. Further, since they realize that means less people fly, they've stopped irrational growth and/or shrunk their fleets. Heck, even SWA is doing it. So maybe that Tuesday 0600 flight doesn't exist anymore in the future so they don't need to charge cheap fares to fill it. And maybe there are less $189 fares to ABQ and we're starting to see that.

 

[ualdriver]

There is cause and effect in every economic action.

True. Which is why maybe the stores near your wife's house will be happy! Maybe now that she can't find $189 airfares, she'll feel bad for not wanting to spend 100 bucks more to visit her grandkids and instead buys them some toys and mails them to her grandchildren. Then the local store makes money they otherwise would not have made. So does the cargo aircraft that carries the toys to your grandkids. Maybe that store and cargo company need to hire more employees because less guilty grandmas are flying to visit their grandkids and are buying them presents instead. So maybe a cargo pilot flying job at UPS comes open for a furloughee because of increased cargo demand.

 

[pilotyip]

In the end the consumer of your services no matter what business you are in will determine the success of your business.

 

[ualdriver]

In the end the consumer of your services no matter what business you are in will determine the success of your business.

Yup, couldn't agree more. Market forces (i.e. what the consumer demands) are far more powerful than any union or CEO.

 

[dispatchguy]

In the end the consumer of your services no matter what business you are in will determine the success of your business.

That is very true, but if we do not price the product to where we can make a return on investment - then all the consumers dont mean anything if the airline, or the business, ceases to exist.

I mean, should we purposefully price our product to where we are loosing money every time someone sits on a seat?

The airline biz has been doing that long enough; lets hope that carrier managements have pulled their head out and have decided to price their product to where there is a little return on their costs. I mean, if it costs $375 to produce that seat out of ABQ, then what legitimate justification is there to sell it at $189???

You say you have limited resources; fine. But why should I lose $186.00 to put a butt in the seat??? I didnt know that airlines were in the business of charity.

 

[pilotyip]

The unknown

You say you have limited resources; fine. But why should I lose $186.00 to put a butt in the seat??? I didnt know that airlines were in the business of charity.

But what no one knows will there be more empty seats that could have made an additional $189?

 

[ualdriver]

But what no one knows will there be more empty seats that could have made an additional $189?

So what's grandma going to do? Stay home with you or visit the grandkids? We're all wondering.....

 

[pilotyip]

travel less

So what's grandma going to do? Stay home with you or visit the grandkids? We're all wondering.....

go 1/2 as often, we are on a budget.

 

[andyd]

and so are we. we are tired of subsidiing grandma's visit with our paycuts and pensions. i could care less if she see's the grandkids again....if it means that we have 60% load factors and are PROFITABLE. travel is NOT a right, it is a priveledge for those who can afford it WITHOUT my help. rant over....

 

[pilotyip]

Missing the point

we have 60% load factors and are PROFITABLE. travel is NOT a right, it is a priveledge for those who can afford it WITHOUT my help. rant over....

You are missing the point, that 60% LF will be on fewer flights because there will fewer passengers, fewer flights means fewer A/C, fewer capts, and fewer pilots. The question is, will the airlines be better off with an empty seat, or $189 to put a bottom in that empty seat. It my be that smaller airline industry will be more profitable, but who will be the first to give up market share for the good of the industry.

 

[dispatchguy]

But what no one knows will there be more empty seats that could have made an additional $189?

But, assuming that a butt in the seat costs 375 to put there, then how is putting a butt in the seat at 189 a good thing???

 

[lineflyer1]

You are missing the point, that 60% LF will be on fewer flights because there will fewer passengers, fewer flights means fewer A/C, fewer capts, and fewer pilots. The question is, will the airlines be better off with an empty seat, or $189 to put a bottom in that empty seat. It my be that smaller airline industry will be more profitable, but who will be the first to give up market share for the good of the industry.

Bankruptcy courts will decide who gives up market share. For too long airlines have been undercutting each other hoping some of the others don't have enough cash to win the fight.

While grandma may not go if it costs more, there are people who currently pay $189 that will go even if it costs more. For too long the airlines have been underpricing their product. You can get an airline ticket for the price of a Greyhound ticket.

 

[IAHERJ]

We need to re-regulate the industry. There is another start up supposedly in EWR flying to a few small cities with 737's. This is SkyBus part II and this airline is yet another unnecessary airline. We should not be allowing new carriers in this already oversaturated industry. We need about 3 Global airlines with 2 LCC and about 10 regional carriers in this country. I know, I know, that means another round of mergers etc.(which will negatively affect me), but I think it will stabalize the industry in the long run.

 

[dispatchguy]

Pay the costs to cover the transportation - its not that difficult. Cant pay that much fine, I am sure someone else (Amtrak, Greyhound) can for that cheap.

Would u fly in an airplane as well maintained as the average car on the road? Hopefully not, airplanes arent cheap, and you need to pay a fare that covers the costs involved.

 

[tomgoodman]

Law of unintended consequences

The question is, will the airlines be better off with an empty seat, or $189 to put a bottom in that empty seat.

If the only effect of a cheap fare were that an otherwise-empty seat would be filled, it makes sense. But all customers become aware of the existence of cheap fares, and many of those previously willing to pay more now become unwilling. Sensing a chance to increase market share, some carrier offers more of the cheap seats. Refusing to yield market share, the original carrier matches or exceeds this, and so on...
The problem is that when you attempt to change the behavior of a few people, you end up changing the behavior of a lot of people.

 

[pilotyip]

Empty seat = no money from a perishable asset

But, assuming that a butt in the seat costs 375 to put there, then how is putting a butt in the seat at 189 a good thing???

Filling the seat at $189 is a good thing if the seat would remain empty. It is $189 the airline would not have. Grandma has budgeted $2400 to travel to ABQ, at $189 per seat she fills a seat 12 times, at $400 she fills it 6 times. There are many people who react like grandma. Time will tell if the seat remains empty or is filled with a $400 fare. Consumer demand for seat is marginally elastic. I am betting higher fares fewer seats filled. BTW I am not saying it is right or wrong only that things will change and perhaps not for the better. Adam Smith, smart dude from the 1780’s worte "Wealth of Nations" said any change in pricing will effect the marketplace.
Flash news Grandma just bought a RT ticket on Frontier DTW-ABQ for $219, guess she will be flying Frontier all the time now, marketplace in action.

 

[ualdriver]

There are many people who react like grandma. Time will tell if the seat remains empty or is filled with a $400 fare. Consumer demand for seat is marginally elastic. I am betting higher fares fewer seats filled.

Flash news Grandma just bought a RT ticket on Frontier DTW-ABQ for $219, guess she will be flying Frontier all the time now, marketplace in action.

I hope Frontier is still there to fly Grandma when she travels. It seems that they have had a little trouble finding exit financing and just recently received an extension from the bankruptcy court. I trust you put that fare on your credit card?

Regardless, I don't think the seat will remain empty. Rather, the seat will simply no longer exist. On the Bureau of Transportation Statistics website, they state that ASM's year over year for FEB '09 show a decline of around 10% which roughly matches the drop off in traffic- this would keep LF's roughly the same. So it seems Grandma doesn't want to buy $400 tickets, and good thing because her $200 seat theoretically doesn't exist anymore!

 

[pilotyip]

see above

So it seems Grandma doesn't want to buy $400 tickets, and good thing because her $200 seat theoretically doesn't exist anymore!

Grandma will still buy tickets @ $400 but just fewer of them

 

[dispatchguy]

Flash news Grandma just bought a RT ticket on Frontier DTW-ABQ for $219, guess she will be flying Frontier all the time now, marketplace in action.

Then I guess the dude that writes fares at Frontier is an idiot, or their costs are so ridiculously low that the 219 still covers their costs, while providing a small profit on that seat.

But I still ask, if it costs me 375 to put a butt on a seat in fuel, crew salaries, maintenance costs, etc, then why should I give it to you for 189?? Why is my losing $186 on that seat a good thing? I still fail to see how my loss is a good thing for me??? Even if it costs 250 for me to put a butt on that seat, any seat, then why would my selling it to you, or anyone, for less than that be good? How is my selling that seat below my costs to produce the seat be good for my airline????

Yes, the fare structure is screwed up; always has been. HOWEVER, airlines need to price their product at a price which provides an economic incentive for there to be a seat in the future. You want to travel by air, fine. Then, you need to pay an airfare that completely covers the costs involved in providing the transportation. Grandmas effective yield needs to cover all of the costs involved. Increased load factors are nice, but the effective YIELD those LFs provide is much more important to an air carriers bottomline.

At her 219 RT, I doubt the effective yield will be enough to cover the costs involved, and itll be another loss to the airline. They wouldve been better off without her.

 

[ualdriver]

Then I guess the dude that writes fares at Frontier is an idiot, or their costs are so ridiculously low that the 219 still covers their costs, while providing a small profit on that seat.

But I still ask, if it costs me 375 to put a butt on a seat in fuel, crew salaries, maintenance costs, etc, then why should I give it to you for 189??

Nah, I doubt it's covering their costs. They're in bankruptcy and they need cash NOW so that they can exit bankruptcy. Then they can worry about the seats they sold below cost LATER. That's why you have seen some airlines that are "circling the bowl" offer ridiculous fare sales. Sometimes they just need cash NOW at any cost in order to get over some sort of short term financial hurdle (a loan covenant, for example) so that they can live LATER to fight another day.

I think the logic for selling a seat "below cost" comes from the practice of an airline trying to cover most of their flight's cost with premium passengers who are paying, on average, well above their "fair share" because they purchased a first class seat or purchased their ticket closer to departure time. If you have enough of those types of passengers, you can charge whatever you want for the balance of the available seats on your airplane and it's all gravy no matter what the airline charges because your premium passengers have paid for the flight already. I think, however, since the early 2000's and the rapid growth and public acceptance of LCC's, fewer and fewer of those premium passengers exist which makes it harder for an airline (like United, for example) to offer many seats that are "below cost" because premium passengers are fewer in number AND are paying less of a premium in the first place.

Airlines like UAL, AMR, DAL, etc., will never be able to match the costs of a JetBlue or Virgin America or AirTran. However, they hope they can capture a disproportionate share of premium passengers so that those passengers can help subsidize the seats they have to sell at JetBlue prices in order to compete with them.