The Tulsa World has provided an excellent and concise overview of the state of the airline industry...
The Tulsa World has provided an excellent and concise overview of the state of the airline industry...
"United Continental Holdings, Inc. formerly UAL Corporation, announced today that a wholly owned subsidiary has merged with Continental Airlines, Inc., and that Continental Airlines and United Air Lines, Inc. are now wholly owned subsidiaries of United Continental Holdings, Inc., creating a world-class global airline. Today, the common stock of United Continental Holdings, Inc. begins trading on the New York Stock Exchange under the symbol UAL."
Read the rest of the official press release here.
We received this email from Robert:
"I read with great interest the comments on your website today regarding the upcoming acquisition of Air Tran by Southwest Air. While I realize that Springfield's airport doesn't set the prices for flights out of Springfield - surely somebody there with leverage could push for lower prices. As much as possible I choose to fly out of other airports (Tulsa, St. Louis, Fayetteville) for business/pleasure, simply because it's so expensive to fly from Springfield. My wife and I flew to Denver last month. We chose to drive to Tulsa and fly Southwest direct - and saved over $490.00 (including fuel & parking)- - I've included a screen shot from your website about 'more together time' - - which is a misnomer, considering that our trip actually took less overall time, even with the drive to Tulsa, than it would've to fly out of Springfield. Plus, we were together the whole trip! I flew out of Fayetteville 2 years ago to Louisville, the price difference was over $600.00 to fly Northwest. I've had to fly out of Springfield 4 times in the past 4 years for business on short notice - - each time the costs were exorbitant. I'm thankful I didn't have to personally pay for the flight...Hopefully, someday Springfield will give us more options and lower costs for flights (I'm not talking about Allegiant Air either)."
Robert... I understand your frustration; we live with it everyday. My desk is covered with stacks of analytical data showing the fare difference between Springfield and bigger air markets. We’re aware that some people drive to other markets to fly (in the jargon of the industry it’s called “leakage”). We also know that their numbers have declined over the years.
Leakage studies done in 1997 and 2005 showed that 30 percent of potential customers left the market to fly from other airports. A 2008 study showed an 18 percent decline in the number of customers leaving the market. In other words, airlines in Springfield were capturing 88 percent of customers that could be expected to fly from Springfield. This told us that Springfield fares were still high, but not as high as they used to be. It also said that the vast majority of customers had decided the difference in price wasn’t worth the drive to other airports.
The 2008 study was performed before the recession. If we did one today, it would almost certainly show worsening leakage. While 2009 blessed this market with a 22.3 percent decline in fares, 2010 has brought fare increases. Throw in customer leakage to the Branson airport and I’m sure that leakage is higher than it was in 2008.
I’m not trying to snowball you with a bunch of statistics, I’m just making the point that we know what’s going on. Here’s data concerning one-way fares in Springfield and Fayetteville (XNA). It reflects the first and second quarters of 2008:
While I would never claim that fares are always lower at SGF, I will say that on average, Springfield and XNA fares are roughly equal. I suspect that you always comparison shop, but I just want to make sure that you don’t fall into the trap of assuming that your $600 savings at XNA is always going to be the case.
You said, “While I realize that Springfield's airport doesn't set the prices for flights out of Springfield - surely somebody there with leverage could push for lower prices.”
Thank you for the realization, but you’re still blaming the airport for the realities of small market air service. There is no magic leverage. Forgive the analogy, but this is like blaming Simon Property Group (the owner of the Battlefield Mall) for the cost of designer socks at the department store.
Here’s the reality: we’re a small market airport. Ticket prices tend to be higher in small markets and cheaper in larger markets. Remember the economics law of supply and demand? The larger the supply of seats, the cheaper the price; the smaller the supply of seats, the higher the price. Airports like Tulsa, Kansas City, St. Louis have a larger supply of seats than we do. There are other economic factors at work, such as competition (or the lack of it), but supply and demand are a large part of the equation. Check out the total 2009 passenger numbers (read supply and demand) for the following airports:
Yes, we are a small market. I stress this point only because I run into people all the time that think we have passenger numbers on par with Tulsa and Kansas City.
There are no magic bullets. Simply put, there are three main things an airport can do to increase the supply of seats in the market (hence, bring down fares): 1) maintain a low cost environment from which the airlines can operate, 2) encourage incumbent (already in the market) airlines to add flights and destinations, 3) encourage new airlines (new to the market) to fly from Springfield.
Item #1 is easy. #2 is harder. #3 is the real trick: we can plead with airlines. We can tell them that this is a wonderful place to live and work and that we deserve their service. We can offer them breaks on landing fees and money for advertising (we do). We can fall on our knees and beg. But in the final analysis there’s only one thing that matters: does the airline think it can sell enough seats in the market, at the price that it wants, to make the service worth its while?
(Check out this story from the Tampa Tribune: it's a good overview of what publicly owned airports can and cannot do to attract airlines.)
There are other questions airlines ask… Does the city wanting the service fit well into the airline’s network? “Network” refers to the different routes the airline flies and how those routes connect to one another via the airline’s hub airports.
What sort of revenue quality does the city offer? Here’s a simple example of revenue quality: can the airline fill every seat in a 50-seat airplane and charge $100 a seat…or can it fill the same airplane to 60 percent capacity and charge $250 a seat? The plane that’s 60 percent full has better revenue quality. Airline math gets even more complicated…
Here are some other airline revenue measurements:
Airlines also want to know about the area:
I’ll leave you with one final thought…and I’m going to pick on United to make the point…
Right now I’d wager that the highest average roundtrip from Springfield is the United service between here and Denver. Lately it’s always been $600 plus. It doesn’t matter if you book the day before or six weeks out. Here’s the point: United customers are paying $600 plus to fly to Denver and back. The planes leave Springfield nearly full and the revenue quality is apparently peachy. The airline has no incentive to lower fares. That’s the reality of a small market airport.
We've received several questions about the day's big business news: Southwest Airlines (SWA) is buying AirTran for $1.4 billion. "Mizzou" posted this:
"Can you discuss the merger of Southwest and AirTran? I cannot believe it but this means that Branson Airport is going to get Southwest Airlines before we do. It also probably means we will never get Southwest with them flying into an airport an hour away. This seems like a very unfortunate turn of events for SGF and the greatest news possible for Branson. I realize that we are still years away from this playing out, but how do you think this affects our airport? Will it be good due to increased competition or will it be bad as more people may drive to Branson for Southwest? How do you think the Continental and United merger will affect us? I could see that possibly being a good thing for our market as I speculate that we may get flights to Houston out of the merger."
Let's start with the Southwest news; it generates lots of questions. There are no clear answers, but here's our best analytical stab at it... The best thing that could possibly happen is that SWA would keep Branson in its network. Hopefully that would bring down the cost of fares in Springfield (finally!) because the airlines serving Springfield would face some very real brand competition from SWA. That being said, there are many issues that have to be resolved first:
If SWA continues service in Branson, what impact would it have on Springfield?
When will the merger be a done deal? We'd guess the second quarter of 2011.
Mizzou... there have been people in the community predicting the demise of the Springfield airport since they first started talking about building an airport near Branson. At the risk of being too blunt, they simply don't understand how airlines and airports work. The economics are enormously complicated; airlines operate on business models that are counterintuitive to most of us–there are folk who are so misinformed they think airports set ticket prices. Here's the bottom line: if SWA flies into Branson it will not spell the end of the Springfield airport. It could definitely cause changes in the market, but the airports will co-exist. And hopefully, the airlines serving Springfield will lower fares. That would be a win-win.
In case you haven't heard, today is Mad as Hell Day — as in, "are you mad as hell about hidden airline fees?" Mad as Hell is "is an initiative of the American Society of Travel Agents (ASTA), Business Travel Coalition (BTC), and Consumer Travel Alliance (CTA), three organizations that represent nearly every segment of the traveling public, from leisure and business travelers to corporate travel departments and online and offline travel agencies." That's what is says on the Mad as Hell web site.
Some of you may remember one of these three organizations, the Business Travel Coalition. This organization fabricated a report a couple of years ago declaring that Springfield was going to lose most of its air service. But I digress...back to the subject at hand!
Many people are mad about airline fees and who can blame them? We all understand that airlines need to make money, but when will they get serious about customer service? Take, for example, the fees for checked bags. You pay to have the bag put on the plane, but the airlines are generally unresponsive if the bag is damaged or lost. The fact that you paid to have that bag put on the plane is irrelevant. The airline response is basically, "too bad."
Airlines are their own worst enemy...
And then there's the issue of "hiding the fees." Check out this quote from a story earlier this week, in Bloomberg News: David Castelveter, a spokesman for the Air Transport Association trade group in Washington, said in an e-mail that fee information is already available on carrier Web sites. "Airlines fully support price transparency," he said.
Are the fees prominently displayed at ticket counters? Is there a big red button on airline home pages that says, "Fee Info Click Here?" Where can you find information about "telephone reservation fees, checked baggage fees, seat reservation fees, carry-on luggage fees, special seating fees, get-on-the-plane early fees, pillow-and-blanket fees?" If you find the information on an airline web site it's because you spent 15 minutes drilling down into the site, sometimes going through the process of making a reservation before the fees revealed themselves. It's easy to conclude that the airlines don't think it's in their interest to be transparent. It's mind-boggling. If customers knew about the fees before hand wouldn't there be less anger? More than anything, it's the SURPRISE that really infuriates.
Here's the really sad part...
The airlines have a story to tell. It's a compelling one that does make business sense and it fully explains why they feel fees are necessary. Do they tell it? No, they just continue to shoot themselves in both feet.
Here's their story, in a nutshell...
As an industry, the airlines have been losing money since the turn of the century. First came the events of September 11, 2001. Just as the industry was finally recovering from that came the energy price spikes of 2007-2008. Remember when oil hit $150 a barrel? The airline business plans were equipped to deal with prices at no more than $50-$60 a barrel. They were bleeding money and raising fares. Customers pushed back and then came the Great Recession. In response, the airlines cut service and fares across the board. The Air Transport Association (ATA) now refers to the first ten years of this century as the "Lost Decade." In a recent press release, the ATA said this:
"Domestic seating capacity dropped 7 percent in 2009, the sharpest decline in 67 years. The cuts in 2008 and 2009 erased 10 years of industry growth, leaving domestic seating capacity 1.3 percent below 1999 levels…" In case you're wondering, this quote from the ATA does pass the smell test. It's been confirmed by numerous independent analysts.
Here's the real kicker. Despite the rise in fares this year, the average domestic fare, when adjusted for inflation, is the same, or less, than it was 20 years ago. Study after study has found this to be true for at least the past five years.
The airlines have learned that we Americans are stubbornly resistant to paying fares that actually pay for the cost of running an airline. This is why the airlines began charging fees. Airlines look at fees this way: you, dear customer, have a cheap fare. And you don't have to pay these fees; that's your choice. You don't have to check those three 60 pounds bags for a weekend trip to Las Vegas...
That's the story the airlines could tell, but they don't. Instead, they hide fees and lose that bag you paid $60 to check.
Not only are airlines their own worst enemy, they are completely tone deaf.