When I did airline pricing at America West a decade ago, I found that just about everyone I met thought they could do a better job than I. “Why are fares so high? If you lower fares, you could get more people to fly and make more money.” Now US Airways has decided to let people prove that they’re right by lowering fares in Rochester, New York.
In general, it makes sense that if you cut fares, you should have more people flying and then hopefully you’ll make more money. Even if your planes are full, you can cut walk-up fares and sell more of those and less of the leisure seats. The ultimate result is that profit would go up and that’s good.
The problem is that is doesn’t usually work this way. Often the fare cuts won’t bring enough extra to make up for the loss in revenue per customer.
US Airways is going to test this out in Rochester by cutting fares and seeing what happens. It looks like walk-up fares (purchased on the day of departure) will be going down anywhere from 31 percent (in Melbourne, Florida) to a whopping 76 percent (in Jackson, Mississippi). Here’s a chart with all the cities that are getting lower fares:
Cities Seeing Decreased Fares To/From Rochester
|Akron/Canton||Bangor (Maine)||Birmingham||Charleston (South Carolina)|
|Charleston (West Virginia)||Columbus||Fort Walton Beach/Destin (Florida)||Gainesville (Florida)|
|Hartford||Huntington (West Virginia)||Huntsville||Jackson (Mississippi)|
|Louisville||Melbourne (Florida)||Montgomery (Alabama)||Myrtle Beach|
|Sarasota||Washington/National||West Palm Beach|
But it’s not just walkup fares. Other fares are being reduced as well. To Philly, a key market because it’s nonstop, leisure fares will drop 48 percent, for example. That ain’t bad. Down to $198 roundtrip from $378 roundtrip.
I like this move because it effectively tells people . . . “You think you know how to price? Great. Now put your money where your mouth is.” The residents of Rochester now either have to put up or shut up.
It’s also important to note that this was being done in partnership with Rep Louise Slaughter (D-NY) who has Rochester in her district. She’s the ranking Democrat on the House Rules Committee, so I imagine that it can’t hurt for US Airways to build up a little political capital there.
So now it’s up to the people of Rochester. Your fares are now lower by far, but will more of you fly? Will it stick?
US Airways says it will examine results over the next couple of months. For those cities that don’t see a revenue increase, the old fares will come back. For the successful ones, those will stay.
Anyone want to guess which markets will keep the fare cuts?
I would like to think that the DCA fares will stay lower. I travel DCA-ROC for leisure every few months (family in upstate NY). The fares were so outrageous — $700+ roundtrip a month in advance — that I was driving up to BWI to take the AirTran BWI-ROC nonstop. When the fares dropped, I booked a US ticket. (I am willing to pay somewhat of a premium for DCA, because you eliminate the inconvenience of getting to BWI plus several days of parking cost.) When I first saw this in a local Rochester publication, it noted that many with business in DC were driving to BUF. Fingers crossed…
It’s not just the difference of selling 20 people a $200 ticket or 28 people a $150 ticket, it’s also the added bag fees, meal purchase, and whatever other fees they charge. The flip side means more people, more bags, more weight equals more fuel needed so that cuts into the higher profit. It’s a tough balance to work out.
I would think Ft. Walton might keep the lower fare since Niagra Falls isn’t really that far away and that would keep people from driving there to use Vision Airlines.
I’m not sure if this is going to bee a successful venture do to increasing fuel costs, fewer fliers do to job losses & other unintended consequences from both outside the airline industry & within it.
Oh yeah you can point out how full the flights are, but are the passengers generating enough revenue? In adition the planes are getting smaller wich distorts the sence of being full since there are fewer seats on each plane & route.
An unintended consequence may be that people in those selected cities will take advantage of the fare discounts to get to PHL, CLT, or DCA (if they’re purchasing a one way ticket and getting off at the hub). I guess the airline would have to weed out this dilution factor.
That’s hidden city ticketing, which is illegal on all airlines except Southwest and AirTran. (AirTran will even reticket bags for you).
As for the fare difference itself, my simple check of Kayak seems to show reasonable fares of $200 r/t ROC-CLT (one stop on either AirTran and Continental). I don’t think the difference is drastic enough to entice people to book a connection and throw away legs, particularly leisure travelers who probably won’t do things like that.
the laws of economics sometimes defy the law of gravity with airlines…in the 60’s and 70’s airlines had expensive tickets…load factors barely reached 50%…BUT the airlines WERE more profitable back then…today load factors are usually above 90% and except for the last couple quarters…usa airlines have some of the oldest fleets in the world and have usually been loosing money ever since 9/11…I am almost sure if airlines tripled their fares TODAY…load factors would plumet to 50%…BUT their revenues would increase….why? because it is a lot easier/cheaper to operate a plane at a lighter load
This’ll be interesting to watch. I thought US Airways had done this previously on a grand scale?
CF, also the table was a bit confusing at first, I thought it was more than just a list of cities, and I was trying to figure out why Hartford and Birmingham would connect through Huntsville.
Even if your planes are full, you can cut walk-up fares and sell more of those and less of the leisure seats.
I think that’s where the airlines dont get it. Charging hundreds of dollars for an hour flight is gouging the business traveler. But, in the airlines defense, they’re holding seats til the day of departure at great expense, if those seats dont sell and they go empty.
Is this Simplifares part deux?
US benefits from added fees in addition to the higher revenue, assuming they get the added passengers, but there are also added costs. There can be airport handling costs (SMF charges a flat $12 per passenger for terminal and office rent,) higher distribution costs, catering etc.
Have to agree with Dan here, airline economics is something else. Adjusted for inflation operating an aircraft is a helluva lot more expensive now than it was then, yet fares have gone done hugely.
I believe that David is not taking into consideration that those prices already include the expenses for each passenger. the 4200 will be full gains. On the other hand, what happens if the company only sells 24 tickets?… It’s better than they’re faring now, but they profits will be a lot less than now.