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LCCs could lose big from Delta fare action, analyst predicts
Dateline: Thursday January 13, 2005
Delta Air Lines' domestic fare reform, although it has yet to be embraced widely by other network carriers, "poses a unique risk to low-cost operators," according to JP Morgan's Jamie Baker.
In a report released yesterday addressing the impact of Delta's week-old fare action, Baker estimated that "legacy carriers need to recover an estimated $2.1 billion in lost revenue, with 60% of that amount likely to be recovered quickly at the expense of LCCs," particularly those such as AirTran and America West that derive a large part of their revenue from connecting traffic.
Baker noted that most LCCs generate a "disproportionate" share of revenue in their one-stop markets by undercutting nonstop fares offered by the Big Six network airlines. AWA generates 24% of passenger revenues from connecting traffic, AirTran 18% and rapidly shrinking ATA Airlines 23%. "As nonstop fares decline, so too will the economic incentive to change planes at LCC hubs," he suggested. Baker also expects Southwest Airlines to take a hit as passengers who formerly drove to Southwest airports to begin their air journeys now take a shorter car trip to their local hub airports. The carrier could lose up to $180 million in what he describes as "drive-diversion demand, while JetBlue, which follows a similar strategy in some markets (Long Beach instead of LAX, Ft. Lauderdale instead of Miami) could lose $50 million."--Perry Flint
LCCs could lose big from Delta fare action, analyst predicts
Dateline: Thursday January 13, 2005
Delta Air Lines' domestic fare reform, although it has yet to be embraced widely by other network carriers, "poses a unique risk to low-cost operators," according to JP Morgan's Jamie Baker.
In a report released yesterday addressing the impact of Delta's week-old fare action, Baker estimated that "legacy carriers need to recover an estimated $2.1 billion in lost revenue, with 60% of that amount likely to be recovered quickly at the expense of LCCs," particularly those such as AirTran and America West that derive a large part of their revenue from connecting traffic.
Baker noted that most LCCs generate a "disproportionate" share of revenue in their one-stop markets by undercutting nonstop fares offered by the Big Six network airlines. AWA generates 24% of passenger revenues from connecting traffic, AirTran 18% and rapidly shrinking ATA Airlines 23%. "As nonstop fares decline, so too will the economic incentive to change planes at LCC hubs," he suggested. Baker also expects Southwest Airlines to take a hit as passengers who formerly drove to Southwest airports to begin their air journeys now take a shorter car trip to their local hub airports. The carrier could lose up to $180 million in what he describes as "drive-diversion demand, while JetBlue, which follows a similar strategy in some markets (Long Beach instead of LAX, Ft. Lauderdale instead of Miami) could lose $50 million."--Perry Flint
