General Lee
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Southwest Airlines isn't usually the cheapest airline, analyst says
Terry Maxon --dallasnews
3:19 PM on Tue., Aug. 16, 2011
Airline analyst Bob McAdoo of Avondale Partners took a look at 70 Southwest Airlines routes out of seven cities, and found that more often than not, Southwest had the higher fares for tickets bought on short notice.
On 20 of the routes, the results weren't conclusive. For 40 of the other 50 routes, Southwest Airlines fares were higher. For 10 routes, Southwest was cheaper. "When Southwest was more expensive, it was, on average, a $134 higher fare-- a 26.4% premium," McAdoo stated in a report Tuesday. "We obviously don't know whether this pattern is driving the slower business travel on Southwest. Nonetheless, there is clearly a trend that we will continue watching in coming months."
McAdoo said two things prompted his review.
One, Southwest chairman and CEO Gary Kelly's comments July 21 that growth in unit revenues had slowed in July and that fares seemed to have gone as high as they could.
Two, McAdoo flies out of Kansas City, and he was finding that Southwest's competitors were usually offering the cheaper fares.
His study originally including an eighth market, Seattle-Tacoma. However, he excluded the findings there because, he said:
"Upon review of the data, it seems Southwest has a different pricing regimen against Alaska Airlines in Seattle than in the other cities. Southwest seems to be more aggressive in pricing below Alaska."
The markets he did include were Baltimore; Kansas City; Las Vegas; Columbus, Ohio; Jacksonville, Fla.; Raleigh-Durham, N.C.; and Albuquerque, which he said he picked to get a mix of big and small markets for Southwest. McAdoo indicated he was glad that Southwest (ticker symbol: LUV) planned to restrain its flying capacity.
"Perhaps the success of 'Bags-Fly-Free,' likely more important to leisure travelers, is pushing the need to raise fares on the somewhat less price-sensitive business traveler," he wrote. "If, as indicated, these trends are now resulting in less planned LUV capacity growth, we're glad to see it. A lid on LUV growth should be good for LUV and for all airlines."
Speaking to analysts and reporters on a July 21 call to discuss Q2 earnings, Kelly said that demand from business travelers, those people who buy the highly profitable last-minute tickets like McAdoo was measuring, had flattened out.
Southwest CFO Laura Wright said 19 percent of Southwest's tickets were full-fare in the second quarter, down three points from a year earlier.
Kelly had noted that there had been at least seven fare increases in 2011 and "we think we pushed fares about as much as we should right now to be productive."
Bye Bye----General Lee
