Southwest Airlines isn't usually the cheapest airline, analyst says | Airline Biz Blog | dallasnews.com

By Terry Maxon/Reporter [email protected] | Bio

3:19 PM on Tue., Aug. 16, 2011 | Permalink

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) plans 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."

 

Where do you get the update. I didn't see it on the website

 

Like 9 (or is it more?) flights a day LAX-SEA? We can't do several of those? We can't do ONE of those? Really?

Like 2 BOS-SEA? We can't do one of those?

Like LAX-SFO and many others? We can't do any of those?

I get that the over all AK code share feeds our network and I also get that it wouldn't work to instantly capacity dump an entire duplicate route system with our own planes. Some of the stuff they do is truly niche like flying that we would never do especially at the mainline. But the code share over all is flat out being abused. CBA compliant? Sure, unfortunately. But we should prioritize making appropriate changes in C12K that reigns in the abuse. Some of their flying we can clearly be doing ourselves. The code share we allowed provides too much leeway and its time to reign it in.

I wonder if we have to "meet and confer" with AK if we tighten up that code share too?

 

If this is happening to them, it is probably happening to us as well.

 

Probably to some extent it is. But the point was that for the vast majority of travelers who are not "HVC's" SWA's ingrained perception of them being the cheapest is simply false and people are starting to finally take notice.

Our HVC network is an ace in the hole for us on this one. First class is another. Crown Rooms are another, and on and on. So even if SWA's "business" traffic is flattening, it doesn't mean ours is falling.

But if it is, then it probably is for everyone and we have to adjust for it. One thing we need to do is a campaign for the coach leisure/super frugal business pax. Yes ticket prices are the most important thing, but there is some degree of loyalty in there as well. Some people fly SWA or JB just because they like how they are treated (SW) or they like getting the best coach product in the industry (JB) or even the close second (VA). We are pretty behind in that regard and IFE is only one part of it. Better legroom, fresher looking interiors and better attitudes from check in to flight to baggage claim are improvements that NEED to happen.

HVC's are great, but we simply can not win in the long run without being among the best for everyone else like we used to be. Coach pax really used to go out of their way to fly DL. Not every single time all the time of course, but many did when they could as long as the fare was close.

Airlines can take the "riff raff" in the back for granted at their own peril if they want to, but we are talking about the vast majority of travelers. Leisure and frugal business travelers. You can run a large successful airline on nothing but that. You can not run a large successful airline only on HVC pax. Not even close.

Besides many HVC's sit in coach a lot anyway. When first is full its full. So buffing our coach offering benefits them too.

 

Tools/add-ons/update in Firefox

 

Thanks. That worked!

 

^^^^^ Agreed 100%. While I was reading this report, I had to keep scrolling to the top to remember whether it came from management or our union. It's management's job to take the leeway our PWA gives them and make a profit. It's our union's job to improve our pay, QOL, etc and prevent management from taking advantage of us. I don't need my union selling me on the profitability of something that keeps my QOL from improving.

I'm not sure I was here when the hard sell came from ALPA on "Trust us, RJs will be good for Delta and thus they will be good for you." But, I bet it read A LOT like this codeshare analysis piece.

Hopefully everyone noticed how much farther this thing could go before coming anywhere near the allowed PWA limits. I remember seeing 5-30% seats where the contract allows 50%. We had better hope they don't get widebodies.

 

Very well said.

The other day I was flying EWR to SLC. We had three Diamond level Medallion frequent fliers sitting in first class that had ordered Kosher meals ahead of time. Our caterers delivered one. The F/C flight attendant called catering almost an hour prior to departure to get the missing meals. They brought three Kosher coach snacks. When called again they claimed they didn't have any first class Kosher meals.

The pax were connecting to TWF (Twin Falls, ID) on SkyPest.

Delta's response was to give them meal vouchers for SLC. So where is one supposed to find a Kosher meal in the SLC airport?

One of them was pi**ed. He told the flight attendant (very sharp,BTW) they flew this route more than once a month and the Kosher meals were frequently screwed up.

My impression is that as pilots we are held (by Delta) to a very high standard of performance but they tolerate almost anything from their suppliers... as long as they are the low bidder.

PLEASE correct me if I'm wrong (and provide examples).

 

Great post!