sulkair

American Airlines to Engage in Price War with Low-Cost Rivals - October 26, 2015 - Zacks.com

Please don't take this as a snotty post from some ULCC pilot, honestly it is not. I want every pilot to prosper, and I don't begrudge any Legacy pilot for making a better living than me. I'm simply thinking out-loud and hoping some wiser thoughts than mine follow.

I've read several articles like this one. I have a few questions. In order for Legacy airlines to compete for the low-cost passenger, don't they have to essentially subsidize a portion of the low cost passenger's ticket with revenue from business travelers paying normal legacy prices?

In other words, the model isn't set up to succeed at low-cost. CASM is too high, so they have to take it in the shorts to keep passengers they might not really want in the first place? No?

It strikes me as odd. It would be like if Nordstrom was wringing their hands because people were choosing Walmart over them, so they carve out half of their store and run some blue-light specials. Talk about an identity crisis.

What happened to the concept of niche? Isn't it smarter for Legacies to to stay in their niche? Remember Song and Ted? Or is it that Parker is smart enough to realize the whole paradigm of air-travel is shifting, and Legacies may one day face similar challenges as that of Barnes & Nobel?

Or is it simply a maneuver to use deep pockets to bleed the ULCCs dry overtime?

So many questions, brain too small.

Moose

Read "Hard Landings" to gain a better understanding of the business side of the airlines. It may be a bit old, but it is a solid read. It will show American's history of gaining marketshare and also what it did to gain an edge on the cheap-ticket charter services. I really hope they do a Vol II to that book because a lot has happened since 1997!

Autothrust

They don't need a price war. The big three just need to do a few months of preferential hiring from the LCC's. It would only take a few months at 100 per the big 3 before they seriously hurt the LCC's ability to expand.

ShyGuy

Spirit has gone deep into DFW, ORD, and FLL/MIA market which are all strong AA hubs. What do you expect, AA sit back and not compete?

JoeyMeatballs

Sadly, I'm not so sure. They could hire anyone with ATP mins to fly an Airbus

JoeyMeatballs

Man you just loooooveeeee to comment on everything Spirit ehhh?

ShyGuy

Is that not what this thread was about? AA's competitive reaction to NK?

sulkair

Shy, I understand, but if you read the articles, there are a lot of mixed feelings from a lot of people with a lot of money at stake. I'm trying to understand the subtleties.

Lobaeux

Yes, it is.

The question is, does Scott Parker have enough time and leeway to absorb criticism about lower ticket prices, lower perceived RASM and decreased expectations, EVEN if the number of seats and routes that will compete with the ULCCs is relatively low. It will be interesting to see the following results and expectations AFTER this is initiated, although I would expect there to be NO breakout on the effect this strategy has to lower revenues.

If the perceived affect of this change in strategy (which I believe will actually be small, regardless of amount of press this is getting) lowers expectations, revenues and therefore affects the stock, he may not be in a job for too long.

Maybe I'm missing something, but I really see this as more of a "story" than anything else. The amount of seats being offered at this price will probably be low and will have virtually little affect on Spirit or Frontier.

Now, if American prices EVERY seat on EVERY route that it competes with an ULCC, that would be something, but IMO you're going to see no more than 5 to 10 of available seats, but maybe less available at these prices.

TallFlyer

While from a regulatory standpoint you're right, I'm curious what the LCC's insurance underwriters would have to say on that.

Learning all about airline flying and CRM is one thing on an 60-76 seat aircraft that actually has a direct connection from the yoke to the control surfaces, perhaps entirely another in Fifi with 200 people in the back.