Flight Blog

Jan 19 2009 Airline Fare Structures BY sgf-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.

 


Dec 16 2008 Woes at NW Arkansas BY sgf-adminTAGS Airports

 

The Irony Gods are at work at the NW Arkansas airport (XNA).

 

The Benton County Daily Record reports that Wal-Mart  "recently launched a companywide initiative to book associate business flights out of Tulsa International, Fort Smith or other airports if ticket prices at XNA are higher."

 

XNA was built about ten years ago—largely due to the urging and political influence of Wal-Mart. It's probably fair to say that the airport would not exist if Wal-Mart hadn't pushed for it. Remember that Arkansas Democrat who occupied the White House in the 1990s? NW Arkansas had political horsepower in spades.

 

The headline on the newspaper's web site alludes to that horsepower: "Forcing the airline's hand? : Wal-Mart considers more flights from Tulsa."

 

Forcing the airline's hand? How's that? The headline writer overestimates available horsepower.

 

Airlines don't care what market they sell the seat in. What matters, from the airline's point-of-view, is that the seat is sold. Doesn't make any difference if it's sold at XNA or Tulsa. The economics driving the airline's fare structure is simple: they charge higher fares in smaller markets because there's less competition and a smaller supply of seats. Those rules of airline/airport economics are something that Wal-Mart can't change.


Dec 12 2008 Branson Day 2: Buying Service? BY sgf-adminTAGS Branson airport

 

Mike poses an astute question : "Are you certain they [the Branson airport] are subsidizing [AirTran]? USA Today quotes, “We’re not writing a check for $5 million or anything crazy like that. That’s all I can say” To me, when you are talking millions, even $2 million is pretty crazy."

 

It may not be "a check for $5 million," but you can be sure that AirTran isn't doing it for free. Consider the case of Gulfport, Miss. AirTran is ending its service to the casino laden area in January. Here's what the Atlanta Business Chronicle had to report on December 3: "It is an unfortunate but necessary decision to discontinue AirTran Airways’ service to Gulfport-Biloxi,” AirTran said in a statement. “We have flown under a contract with the casinos since we began the market in 1999, since that is the bulk of the business flying into the market. The casinos have made the decision to operate without a contract for flying, and the market is just not financially viable for us without that support especially in today’s volatile economic times."

 

Does it sound to you like the casinos were buying (AKA: subsidizing) the service? Look, it's in the airline's best interest to take a deal if it's offered. After all, AirTran reported a net loss of $107.1 million in the 3rd quarter. Today its stock closed at $3.64. That compares to American at $9.53. United at $9.94. Delta at $10.50. Allegiant at $43.08. Southwest at $7.30. JetBlue at $5.55. Alaska Air at $26.48. As I look at a list of airline stock closings, it appears that only Frontier closed lower: 0.185 ! 

 

 


Dec 11 2008 More Branson Comments BY sgf-adminTAGS Branson airport

 

We've received comments from Marc:

 

"I have a friend flying to my home in Wichita from Phoenix for Christmas. We are going to Branson after Christmas to spend time in my second home there. She is flying home and leaving from Springfield. The ticket costs $170.00 one way from Phoenix to Wichita and $765.00 one way to return from Springfield to Phoenix. I have read that Springfield is planning to build a 150 million terminal and Branson has built an entire airport for 150 million...."

 

Marc, your friend could fly from Phoenix to Springfield for a base fare of $129. I just looked it up on the Allegiant Air web site. That's leaving on the 24th from Phoenix-Mesa Gateway Airport and departing Springfield on the 31st.

 

As for the cost of the terminal, the total of cost of our new terminal project is $117 million — not $150 million. While I understand your logic in attempting to tie the cost of the project to the price of tickets, it is based on faulty assumptions. The existence of $129 roundtrip fare from Springfield to Phoenix proves my point.


Dec 11 2008 Branson Comments BY sgf-adminTAGS Airports

 

Carl writes in with this:

 

"This is nothing but spin tactics by SGF–Just last week, you were saying this was never possible. You even brought in your big Shot from Boyd Aviation to tell us, “Write this down” “No” Branson is not going to get a mainine low cost carrier. SGF is still a joke and always will be. You should close shop and send all of your flights to BBG."

 

That's not right Carl. We never said it wasn't possible. In fact, if you go back through this blog's postings, you'll find that we mentioned the possibility of subsidized service several times.

 

As for aviation analyst Michael Boyd, who visited Springfield on November 19, here's what he said about AirTran: "...unless someone is going to pay them a lot of money, it's just not going to happen." Click the link and listen for yourself—Boyd pegged it.