RJ Economics

[General Lee]

Were the Airtran people incorrect here?


"The move to end JetConnect service comes after the airline performed an economic analysis and determined it could operate the Boeing 717 more efficiently than the Canadair regional jets in short-haul markets."


Larger planes are needed to compete against the LCCs. Sure, we must get our costs down also, but this should also show that using RJs to compete directly with LCC service will not bring in the desired revenue. RJs have their place though, as new market testers, and filling in for some frequency---but not going head to head with LCCs on their routes. They also bring in great revenue from cities that LCCs will not fly to--like Peoria and Des Moines. Let's all watch NBC nightly News tonight with Tom Brokaw and see the "lies" for ourselves.....

Bye Bye---General Lee

 

[MedFlyer]

You are right, General. The RJ's are NOT effective tools to fight the LCC's.

Unfortunately, DL is bleeding heavily flying mainline planes. Replacing a mainline plane with an RJ reduces the bleeding. Instead of losing $2,000 a flight, you might only lose $1,000.

It's not a good long term strategy, but until DL can get its mainline product in order it will have to suffice. If DL had Airtran's cost structure, I'm sure DL wouldn't be ordering so many RJ's.

 

[General Lee]

Medflyer,

Maybe you haven't been on our Mainline jets lately, but most are FULL. I told you before that we were waiting for a good Spring and eventual Summer--and it is here now. We have been jammed full since President's Day. Even Song is mostly full---everyone going to warmer FLA. I look at our Travel.net at the lounge and look at the flights---even those good ole European flights from JFK and ATL and stuffed. An example, I looked at last Sunday's JFK-Madrid flight---5 open seats up front (out of 36), and -20 available in the back. (minus 20) Those aren't cheap either. Why are we still "bleeding"? We have too many RJs on mainline routes and can't bring in any more revenue--we restrict the number of connections---and then we would even be more full and would probably have to bring back the MD-11s too. The RJs restrict the number of passengers you can bring into the hub--it is a fact. (From Micheal Boyd himself)

We also are bleeding from our debt problem. Guess what? We just added to it with your 25 RJs at ASA----thanks a lot..... And most passengers hate them--especially the 65% of Americans who are FAT. Enjoy!

Bye Bye--General Lee

 

[46Driver]

Delta was jam full last year too - seems like every flight I tried to commute on was full - sometimes for days.

 

[General Lee]

Normally that is good news, but fuel prices are still way too high (we have 58% hedged for this quarter and 38% for the rest of the year---thanks OPEC---jerks) and fares are lower. Yes, I still think we should give them some pay cuts--but we need to negotiate.......

Bye Bye--General Lee

 

[bvt1151]

I'm sure you're all intelligent enough to understand how planes can be full and still lose money, so I'll save the yield speech.

RJ's have their place, and many can argue that the RJ's haven't been used to their full potential yet. A 737 had close to the highest CASM in the 70's, yet Southwest created arguably the most successful strategy using what was then the smallest jet economically available. 50-seaters may be a stretch, but if the EMB-170/190 series delivers on promises, Southwest could be exposed in perhaps the only place it's vulnerable, its underbelly.

Now that Delta has announced it will impose a fee for a passenger to connect lends even more credence to point to point service with small jets. Why are you charging passengers more for something they don't even want to do...connect? We all know how the majors have to connect to serve the smaller communities, however its rediculous, not to mention more expensive, to take 50 people in LGA who are going to MCI and send them all through CVG when you have a 50-seat aircraft available. Demand is higher for nonstop service, and I'd be willing to bet the higher CASM of the RJ is more than offset by the cost of operating a super-hub.
Unfortunately the majors seem to be caught in self-induced runaway over-capacity. For every RJ that runs point to point, it takes that many people out of the 757 that runs hub to point. The load factor on the 757 is protected with a higher priority than the RJ is, so point to point RJ service is abandoned. As more routes connect to the hub, more passengers fill the 757, which is eventually upgraded to a 767...In order to ensure optimal load factors on the 767, point to point service is avoided. The hub grows, costs increase, and the cycle continues. For a perfect example, look at Delta's ATL-TPA and ATL-MIA routes.

Airtran is trying to use RJ's strictly as connecting passengers to ATL. While the RJ has been proven economical in this situation, Airtran's route structure is too small to realize the full benefit of 50-seat contract connections. Especially when operating the 717...almost an RJ itself. However, if Airtran were to operate the RJ's in thinner O&D markets, instead of connecting almost 100%, they would find the RJ much more economical. Unfortunatly using a contract carrier narrows the operating margin which once again negates the advantages of using RJ's point to point. This is why contract carriers will not participate in the RJ point to point revolution, but that is for a different thread.

I predict the future of the industry is in smaller planes...including RJ's. Even Boeing is developing the first "international RJ." Granted it's not a true RJ, however the philosiphy is there; Skip hubs on long thin routes. Domestic 777,767, and MD-11 service will probably never return like before...replaced by the smaller 757, A320 and MD-80's when demand is low, and higher frequency (as opposed to larger aircraft) when demand increases.

But if I truly knew what was going to happen, I would have bough AMR at $2 a share.

 

[Russ]

Don't tie load and profitability together. A plane full of bargain hunters doesn't do much to improve the bottom line of mother D.
That said, I agree that RJ's are not being employed for what they were designed for.

 

[~~~^~~~]

General :

You ever seen the numbers for CVG when Comair went on strike? You should say little prayers of thanks every time one of those RJ's goes by carrying passengers to your airplane. Eighty percent of ASA's pax connect to Delta....

Perhaps what you should concentrate on is your economics without the RJ feed. Take 15% of the pax load off the 757 and 22 to 35% off your international flights and see how long Delta remains at its current capacity levels.

 

[jrcpilot]

Medflyer,

Maybe you haven't been on our Mainline jets lately, but most are FULL. I told you before that we were waiting for a good Spring and eventual Summer--and it is here now. We have been jammed full since President's Day. Even Song is mostly full---everyone going to warmer FLA. I look at our Travel.net at the lounge and look at the flights---even those good ole European flights from JFK and ATL and stuffed.



General,

I'd like to counter your view somewhat. You are right planes are full thank god. That is good news. But our CASM is still high and the RASM's are not where they need to be. The revenue yield right now is hovering around 1.2% of RASM's. Revenue management has made numerous attempts to raise fares to improve yield. However as other airlines follow suit carriers like Northwest don't match and then we start to see the dilution. It's hard to believe but I encourage anyone at any airline especially pilots to go into their revenue management department and watch the effect of price changes. I was an account manager for DL for a while and became intimately familiar with this phenomenon. It hurt my territories performance whenever pricing was manipulated to raise fares. It is not perfect and its like playing poker. You never know exactly how the market is going to react to the changes. Price IS the number one driver in purchase decisions among 80% of our customers. The premium Delta holds are these.

1. Market Reach
2. Choice of destinations and schedules
3. Frequent Flyer program
4. First/Business Class
5. A global network with our SkyTeam partners.

You would think with these advantages over most carriers we could command a premium. Well the bottom and most frustrating part of that is that we can't. Not to the massess anyway. We can and are getting a premium from frequent flyers and business travelers who want the advatages that we offer. That premium is slim but they finally found the bottom of it and are trying to get it back up to about 10%. Service is lacking and we have to get that back soon. Hopefully Grinstein will address that.


An example, I looked at last Sunday's JFK-Madrid flight---5 open seats up front (out of 36), and -20 available in the back. (minus 20) Those aren't cheap either.

Actually they are cheap. But we are making money across the Atlantic now and that yield is slowly rising. Don't be fooled by what the normal fare may show you when you price a ticket on-line. Airline ticket pricing is still one of the most confusing and frustrating things for passengers. A full B777 will usually yield passengers paying up to 15-20 different fares for that leg. Its gotten better but its still complexed.

We have too many RJs on mainline routes and can't bring in any more revenue--we restrict the number of connections---and then we would even be more full and would probably have to bring back the MD-11s too. The RJs restrict the number of passengers you can bring into the hub--it is a fact. (From Micheal Boyd himself)

Here you are 100% correct. However here is the problem network management has. How can you right size a market when you don't have an airplane of the right size to deploy there? Now one of the argument I hear from a lot of pilots is well why don't you increase the block hours on say the MD88 or the B737 and put it in that market? Well its not that easy. You have to factor a lot of things there. Cycle times, MTC issues, Crew issues, Aircraft size, stage length, and a myriad of other things. Our problem we have is we don't have a 100 seat airplane to right size that market gap. They are struggling with that now. The EMB190 is a good airplane for that as you already know. But for many of the network analyst who crunch the numbers, thats the challenge and many times in a lot of the examples shown to me its either spill revenue on a market or loose the yield by upgrading the equipment. Right now we can't afford to loose revenue so we use the RJ and spill customers over to our competition. Not a good business practice and they will openly admit that. But it is the lesser of the 2 evils since it is at least generating revenue just not what we could be capturing.

btv1151 makes some very valid points. We are diluting our own revenue yield when we fly point to point in certain markets that takes away from the feed to the hub. The hub and spoke model works but only to a certain level. When you have Song flying ATL-JFK we are diluting our own revenue. We command that market. Here is an interesting fact that many people in our industry don't know. Delta Air Lines is the largest discounter in the world when it comes to air fares. Yet we are not perceived in that manner. It's simple really, we offer more seats therefore we offer more discounted seats than anybody else. There is no easy answers but the more we as pilots educate ourselves on the problems the better we become at finding correct soultions that protect us in the profession and the airlines health.


Thanks to all. Finally a thread that is worth responding too.


Regards