Flight Blog

Mar 24 2009 Airline Woes Amplified BY adminTAGS Airlines

 

wingsdollarsThe economy is really starting to do a number on the airlines.

 

"The International Air Transport Association had estimated in December the industry would lose $2.5 billion in 2009." Now world "airlines are set to lose $4.7 billion this year as a result of the global recession that has shrunk passenger and cargo demand." That's the essence of a story today by Reuters.

 

The news doesn't get any better. OAG reports, "Global airline schedules for the first quarter 2009 have dropped by 6.7%, or 491,000 fewer flights. This is the first time we have seen a downturn in Q1 figures since 2002, when the industry was absorbing the double impact of 9/11 terrorist attacks on the U.S. and an economic meltdown from the burst of the dot.com bubble. Capacity for this quarter also has fallen by 4.4%, representing a reduction of 38.6 million seats."

 

For those of you wondering what OAG is, it's essentially a company that gathers and reports on aviation related data and intelligence. We use OAG to provide the flight arrvial/departure data on the airport web site.

 

If all this bad news seems contrary to what you may have been reading in the business press, that's because the business press has been missing the boat on airline health since about the 4th quarter of last year. Just the other day I was reading a business story that babbled on-and-on about how the airlines were awash in money since the price of oil has dropped. Excuse me? The airlines weren't doing well back when oil was $50 a barrel. And that just happens to be what it is selling for right now. The typical airline business model doesn't deal well with oil that high! But I digress...

 

Is there a silver lining to all this? You bet, if you're a customer!  The airlines are responding to poor advance bookings by offering mega sale prices. Check out this overview from CNN/Money: Fly the dirt-cheap skies...

0 Comment(s) | Add comment

 

Mike blogs this:

 

"Hey what’s going on? I hear about Branson getting AirTran with service to Atlanta and Milwaukee. Now they got Sun Country airlines with service out of Minneapolis on a 737s and to add AirTran uses 717s. What do you think will happen? Do you think their fares will be consistently lower b/c they use large aircraft? Are any of the airlines at SGF talking about lowering prices?"

 

Let's cut to the chase and then explain why. We don't think the airport south of Branson will have much impact on our airport. Why? Because it caters to a very select crowd and the service will be very limited (in terms of options that if offers customers).

 

There will be SW Missourians who use it, but probably not in significant enough numbers for Springfield airlines to notice. If (and it's a big if) significant competition does emerge, it's likely that Springfield airlines will respond by cutting fares. And that would be good for customers at both airports.

 

Mike...I'm not picking on you, but I need to challenge a couple of your assumptions. First of all, a larger airplane does not, in and of itself, mean lower fares. Fares are determined by the fare structure, or, if you will, the business model being used by the airline. Simply put, an airline can have "low fares" on either big planes or small planes–depending on the business model and fare structure that the airline uses. There are dozens of variables that an airline juggles that help determine fares. The variables include the average distance traveled on an airline's route system, the size of its route system, the cost of fuel, the cost of labor, the cost of airplane maintenance, airport fees and charges, and, in the case of Branson, the amount of compensation received from the airport. The list goes on.

 

I sense that you're assuming that fares will be lower at the Branson airport and that they will be consistently lower. That's a huge assumption.

 

With all airlines prices go up and down. They have fire sales. They have introductory fares. And then there are the factors that customers sometimes forget about. For example, let's suppose you see an advertisement for AirTran that says you can fly from Branson to Atlanta for $79 one way. Well, that's good if you just want to go to Atlanta. But what if you're ultimate destination is somewhere else? Let's say you want to go to San Francisco. What's it going to cost you to fly to San Francisco from Atlanta? Is the total cost of flying from Branson to San Francisco less than the cost of flying from Springfield to San Francisco? Probably not. Of course, right now, we don't have anyway of knowing because the Branson service doesn't have a track record.

 

Now let's talk a little bit about what we do know about: the service in Springfield.

 

Our airport has non-stop service to 12 destinations (on May 3, when we start service to Los Angeles, we'll have 13 non-stop destinations). Five of those 13 destinations are on a low-cost airline, Allegiant Air. It's not unusual to find roundtrip fare on Allegiant for less than a hundred bucks. That means that sometimes you can go to Las Vegas, Orlando, Phoenix, Tampa/St. Petersburg and Los Angeles for less that $100.

 

As for the other three airlines in Springfield (American, Delta/Northwest and United), there are good deals out there. In the past week I chatted with someone who found roundtrip fare between Springfield and Cozumel, Mexico for $330. That's on American! Another person told me about just booking roundtrip fare between Springfield and Seattle for $340.

 

Don't believe it? Check out one of those web sites that hunts for low fares. Here's some of what airfarewatchdog.com found on Friday:

 

  • $185 roundtrip to Chicago O'Hare on American. No minimum stay.
  • $213 roundtrip to Houston IAH on American, No minimum stay.

Or how about the weekend sales? Here's a sampling:

 

  • Albuquerque, NM   $202 roundtrip. United.
  • Chicago O'Hare $186 roundtrip. United.
  • Dallas/Ft. Worth, TX $200 roundtrip. American.
  • Manchester, NH $264 roundtrip. United.
  • Missoula, MT $266 roundtrip. United.
  • Spokane, WA $274 roundtrip. United.
  • Washington Dulles, DC $220 roundtrip. United.
  • White Plains, NY $250 roundtrip. United.

People who say fares are always higher in Springfield are out-of-touch!

 

That’s probably more answer than you wanted Mike; I hope it all made sense within the context of your questions.

0 Comment(s) | Add comment

 

As many of you know, Allegiant Air announced on Wednesday that it will provide our airport with non-stop service to Los Angeles International Airport, beginning May 3.

 

What you may not know is that Allegiant is also providing the LA service to 11 other small cities like ours: Bellingham, WA, Grand Junction, CO, Monterey, CA, Billings, MT. McAllen, TX, Sioux Falls, SD, Des Moines, IA, Medford, OR, Fargo, ND ,Missoula, MT and Wichita, KS.

 

Hang with me here, there's a reason why I'm telling you this! We just found out from Allegiant that we "have the best early bookings of all markets!"

0 Comment(s) | Add comment

Feb 18 2009 Springfield Lands LAX !!! BY adminTAGS Delta

 

Destination Ceremony image

Yes, it's true. Beginning May 3 Allegiant Air begins non-stop service between Springfield and Los Angeles International Airport. The introductory fare is $99 one way. The new destination means that five of Springfield's 13 destinations are now provided by a low-cost airline: Allegiant.

 

When the service begins it will be the airport's first regularly scheduled flight to the West Coast. It will also be the longest regularly scheduled flight in the airport's history: 1,425 miles.

 

From a "big picture" perspective, the new service is very important—when you look at a map showing our destination cities, there are two obvious gaps in our service: the upper East Coast and the West Coast. The new LAX service will fill that West Coast gap. 

 

In the photo, Doug Pitt, past chair of the Springfield Chamber, and Gary Cyr, director of the Springfield Airport, announce the new service to Los Angeles

0 Comment(s) | Add comment

Jan 19 2009 Airline Fare Structures BY adminTAGS Airlines

 

Charles has posted this response to a blog entry from June of last year:

 

"I fly to Austin and Dallas on a regular basis. On very rare occasions I fly out of Springfield. Typically I can fly out of Fayettebille-Bentonville (XNA) for an average $700 less. I just booked a flight to Austin from XNA at $422 for next week; the cost out of Springfield would have been $1373. Driving time is an extra 3.5 to 4 hours. The question of lack of demand and lack of competition have both been raised as reasons for high fares out of Springfield. Has anyone investigated how many people would fly out of Springfield instead of surrounding airports if we had competitive prices? Maybe a market study could show that we are a much better market than current travel patterns show. Springfield businesses can not be as competitive as companies out of Tulsa and Northwest Arkansas because of higher ticket prices."

 

I understand your point Charles, but we don't need an investigation to figure out that more people would use the airport if fares were cheaper. It's a given. After all, our passenger high watermark was in 2005—the very year that fares were at historical lows (when adjusted for inflation). There was just one problem: the airlines weren't making much money. They responded In the second quarter of 2006 by cutting capacity across the country (seats in the air). They've been doing it ever since. Here's the deal...

 

We know that more people would fly if fares were cheaper. And from the airport's point-of-view, and from your point-of-view, that would be a good thing. Problem is, it doesn't work for the airlines. It doesn't fit their business model and/or their fare structures. When the airlines set capacity and fares they are balancing a multitude of factors. Here's one example: let's suppose that Airline XYZ decides to provide us with three flights a day to Denver. Each airplane has 50 seats. So that's 150 seats a day to Denver. The airline then has to set the fare. But before it does, it has to figure out the following: 1) how much will fuel cost for the three flights? 2) How much will labor cost for the three flights? 3) What is the maintenance cost for the three flights? This list is longer, but you get the idea. The airline will set a fare that will pay all the operating costs, plus make a profit (at least that's what it wants to do!).

 

Now think about this: what's going to happen if the airline lowers the fare and causes demand to go up? It will have to add a flight. And what does that do? It drives operating costs up. Here's the question for the airline: if we add a flight, thereby causing costs to go up, will we still make money? Capacity and fare. The airline is trying to find that fine balancing point where the combination of capacity and fare will cover operating costs, and make a profit. One more thing: the airline is performing this balancing act in every market it serves—not just ours. It gets very complicated. When the balancing point is found in one market, it may cause the scales to tip in another. Airline math gives me a headache. Hope all this makes sense. It's not easy to explain.

 

January 20 

 

Bill follows up with questions: "I read your response. My question is, why can the airline fly so much cheaper from another airport and not SGF? And I recall you saying that in the past. Flying out of XNA as mentioned in the original post is $800+ cheaper, the airline has almost the same cost for that flight as they would out of Springfield? Please elaborate more, as many of us feel that SGF fares are just unreasonable."

 

As I mentioned yesterday, airlines try to balance capacity and fare so that they can cover operating expenses and make a profit. What I didn't talk about is the proverbial monkey wrench that throws the scales out of balance: competition. Competition is the difference between XNA and SGF for flights to Texas. That's why there's a disparity in Texas fares. At XNA, American and Continental provide direct flights to Texas. At SGF we only have American providing direct flights to Texas. To put it bluntly, American charges more here because it can; it has a monopoly on Texas service.

 

0 Comment(s) | Add comment