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Fare Deals.
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Author: Bond, David1
Section: WORLD NEWS & ANALYSIS
Low-cost airlines can play the yield game, too, JetBlue and America West strategists show
A technique not often
associated with low-cost, low-fare carriers â€" yield management â€" is
behind profitable second-quarter operations at JetBlue Airways and
America West Airlines.
Issuing financial
reports for the quarter, both airlines said they overcame higher fuel
prices in large part by increasing their yields, the amount they
received from passengers per mile flown. And both attributed the yield
increase to a better mix of fares rather than to increases in the fares
themselves. That is, fewer passengers on a given flight were allowed to
buy the cheapest tickets.
JetBlue CEO David
Neeleman said his carrier, like all others, increased fares during the
quarter, but was cautious about doing so because it wants to remain a
low-fare leader in its markets. It leaned heavily on yield management
in place of further fare increases. It was much the same at America
West â€" CFO Derek Kerr said the carrier was more aggressive during the
past three months than previously about managing yields on peak travel
days. At one point, America West had blacked out its lowest fares for
every day in June.
Each airline also
reported yield improvements from different approaches to
transcontinental flying, which suffered until recently from a glut of
capacity and, as a result, fierce fare competition. America West helped
itself by cutting back in or pulling out of transcon markets. And as
America West and others reduced capacity, relieving the glut, JetBlue
remained and prospered.
JETBLUE IS GROWING
yields from its expansion into Newark, N.J., a Continental Airlines
hub, even in service from there to Florida, Neeleman said. JetBlue
fares to Fort Myers, Fla., from Newark average $158, compared with $102
from its bastion at New York Kennedy. The carrier's average fare to all
Florida markets is $133 from Newark, $102 from JFK. Continental has
added service and reduced fares in competitive markets, but Neeleman is
sanguine. "There's going to be plenty of business there for both of
us." JetBlue's presence at Newark never will be massive, he adds,
because gates are limited there.
An airline's unit
revenues â€" revenue per available seat mile â€" comes from its load factor
as well as its yields, and both carriers filled up their airplanes
spectacularly in the second quarter. With record traffic and capacity,
up 30.2% and 25.5% respectively, JetBlue's load factor increased 3.2
percentage points to 87.7%. In mainline operations, America West's
traffic growth also outpaced capacity, 8.0% to 2.7%, and the load
factor gained 4 points, reaching 82.2%.
AS A RESULT,
each carrier overcame record-high fuel costs â€" America West's exceeded
personnel expenses â€" to post profits for the quarter. JetBlue's
operating profit, $39.1 million, was 9.1% of operating revenue, close
to the double-digit margin it targets. Its operating margin in the
second quarter of 2004 was 14.1%. America West's operating profit was
$30.3 million, up from $25.8 million a year earlier.
In America West's
conference call with securities analysts, CEO Doug Parker was limited
in answering questions about his carrier's merger agreement with US
Airways because the deal is in registration, and still is expected to
close early this fall. He made news earlier, however, in a weekly
question-and-answer exchange with employees.
Announcing the deal,
the carriers said the merged company could be profitable with oil
prices at $50 per barrel. He was asked, What about the recent price of
$60 per barrel?
"Realistically, it
will be difficult for any airline to operate profitably with fuel at
$60 a barrel," Parker replied, "and if fuel were to stay at these
prices, there would likely be several Chapter 11 filings by other
airlines and possibly even liquidation for some. If that were to occur,
our revenue situation at the merged carrier would improve
proportionally, but again, that assumes that some capacity comes out of
the current system. We believe that, as a combined company, the new US
Airways can be a survivor, even in a world of $60 fuel, and if capacity
reductions occur as rapidly as we believe, then we could even
potentially operate profitably in that environment."
PHOTO (COLOR):
America West improved its yields and unit revenues by pulling down
transcontinental service, withholding lowest fares in peak travel
periods.
~~~~~~~~ By David Bond, WASHINGTON
Some items on this website are used by permission granted
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