some easy reading for the armchair experts
source
The New Airline & Air Service Strategy Metrics
American Airlines is dropping SFO-Honolulu this fall. Earlier this year, the carrier dropped Boston-SFO.
The good-ole-boys network on Wall Street attributed this to AA being driven out by low-fare competition.
"AA can't compete with those low-cost guys, like Southwest." they'll pontificate, not having a clue about the subject matter. Not a clue about data like pay rates for an American Airlines 777 captain are less than for a Southwest 737 captain. Or, that in the SFO-BOS market, comparing LCC jetBlue and American, AA was the strongest of the two carriers carrier in the game.
It's yet another example proving that a Ouija Board is often a better source of aviation investment advice than what comes from some of the gurus on the 'Street. They tend to be consensus-dwellers. Looking at hard data is not their M.O.
Whole New Metrics. The fact is that both of these markets pushed 80% load factors for American in 2010. Boston was 84.1% and they had almost 20% of the total market, the largest single share between the two carriers (AA & B6). Not only that, but AA commanded a $40 fare premium over jetBlue.
So, why yank flights when they were essentially full?
Because in today's airline business, it's not "more passengers" or "market share" that are on the scoreboard anymore. It's maximizing return on resources - i.e., putting planes where they leverage the airline's brand and alliance power to the maximum. American gets nearly zip on-line feed at Boston or SFO. So, if the system contribution is less than in other applications of the same aircraft. it's bye-bye for the service. If that means ceding traffic territory to other airlines in order to get higher returns, so be it.
All Carriers Are Moving Away From Just Market Share. It's across the entire airline industry. The traditional strategy of operating some markets just to maintain brand presence in a metro area is a luxury that airlines can no longer afford.
For examples, Southwest is dropping out of two major commuter markets - Spokane-Seattle and Philadelphia-Pittsburgh. In both markets WN underperformed vs. "legacy" carriers. In PHL-PIT, Southwest clocked in at a 54.5% load factor v US Airways' 75.%. While Southwest carried slightly more passengers than US Airways (due to aircraft gauge), its paper-thin market edge (40% of the market v US Airways 37%) came at an expensive 11% yield disadvantage.
When go-juice is costing $3+ per gallon, that's not affordable any more. It's great to tell the city that the airline has a "commitment" - but that doesn't include losing money just to show the colors on an important route.
The GEG-SEA market, Southwest had a tough go against Alaska Airlines, which kept 78.0% of its seats full in the year ending 1Q 2011. Southwest? 54.4%. Yup, the route is an important market for building consumer loyalty in both SEA and GEG, but it's one where Southwest has found it can make more $$ by moving its lift elsewhere.
Next to watch: PHL-BOS. It's a big half-million O&D market. Southwest is getting a 48.1% load factor. US Airways is at 76.9%. Not only that, but US Airways - which still captures almost two-thirds of the traffic - has a whopping 40% yield premium on the route compared to WN. That's not a typo: it's 48.9 cents for US Airways v Southwest's 34.3 cents. (Just in passing, this is the type of analysis subscribers to Aviation DataMiner can do in a snap, and get a real indication of what air service direction airlines may be taking in specific markets.)
Point: Southwest is the best at what it does, but its product fits in some markets and not as well in others. So, like other carriers, it will take its airplane marbles out of games where it can't win. Or where it can't win as much as in other places. It's the new planning dynamic for American and every other US carrier, too.
Air Service Planning: It's Knowing The Carrier's Strategy First. What this means for airports trying to build - or just keep - air service is that the #1 issue is knowing what the airline's overall market strategy will be in the future.
Wasting money on surveys, doing gee-look-at-all-the-lost-traffic leakage studies, and inflicting gigantic 50-slide presentation decks on glazed-over airline planners won't do diddly in the future to move the airline decision-needle. It's knowing what the target carrier's future revenue strategies will be, and matching the community's opportunities (if they actually exist) to them.
It also renders useless the oft-pushed schemes at small cities to chase after "that low fare carrier we deserve." The fact is that without an A-380 load of cash - like millions that small communities can't afford - it is not going to happen. Look at it this way: if Southwest can't make a go of Philly-Pitt, it has zero chance of considering a small town in Montana. It would violate Southwest's non-compete with Mother Theresa. She agreed not to go into the airline business, and Southwest agreed not to do charity work.
