DAL Widebody RFP....

Maximillian_Jenius said:
What makes a small city like AUS get that kind of service. Phoenix is like the fifth largest city in the country, and we don't have much Atlantic international destinations. If any Pacific destinations. BA has a once daily 744 to LHR, but that's pretty much it. Besides Airways, and their very limited Mexico and Central American destinations.
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At it's core - whichever city has the strongest demand and/or inventive package for new service. See below for the long-winded answer.

Although AUS may not be the same size as PHX, it's growing at nearly twice the rate, fueled largely by the tech and business booms in the city. Given the nonexistant capacity in the AUS-International market, it's an attractive opportunity for a carrier like BA to enter and try to capture the market as it grows, before anybody else does. Couple these facts with an exceptionally attractive incentive package from the AUS (read: revenue guarantee), and it becomes pretty close to a risk-free opportunity. My guess would be that load factors and fares are strong enough in LHR-AUS that BA wants the extra cap for margin expansion - the 777 upgauge brings a nice decline in unit costs (say, 25% hypothetically - would need to see the actual numbers), while they can stimulate incremental demand with lower fares, in the hopes that their unit revenue decline is less than the unit cost decline (say unit revenue goes down 15%). Unit costs down 25% + unit revenue down 15% = margin expansion of +10 pts over today's service. This is all assuming, of course, that they can pick up the incremental traffic. If the upgauge hurts your RASM more than helps your CASM, it's all for not.

From the airline perspective, the major drivers when evaluating a market would be:

1. Passenger/fare data: how strong is the local O&D market, and what are the fares (or daily revenue) in the market? The latter is largely determined by capacity. But having a strong mix of business and leisure traffic, coupled with the numerous events over the course of the year in AUS, make it a great market.

2. How much capacity does the market have? PHX-LHR already has 1x daily BA service - on a 744, no less - so any incremental service is likely to saturate the market. The only way for a new carrier to make it work is either: a) stimulate new demand in the market with low fares (probably unsustainable for larger carriers, this is more of an LCC play) or b) shift share from the incumbent carrier with a combination of lower fares, superior product, and/or better schedules (this is what DL will try to do in PHL-LHR with their growing FF base on each side). If PHX were a huge market, Airways/American would certainly be flying it. Probably not a good two-carrier market.

3. Equally important, when deciding on several options at once, is who puts forth the best incentive package to mitigate your risk. As an airline, you're taking all of the risk on new markets - and, in the case of LHR-AUS, you might be building the market from something close to scratch. Without an incentive package, the market will hemorrhage money as the carrier is trying to build awareness and get folks in seats. If the airport team is willing to help offset some of these losses in the early years, you stand a much better chance at sustained service in perpetuity. My guess would be that of all the cities in North America that BA would consider for new service (RDU, CLE, PIT, CMH, etc.), AUS presented the best incentive package.
 
Seggy said:
When I was on the Austin Airport Advisory Commission they were trying to get that route hard as their market data showed that was the largest international destination from AUS. @Murdoughnut can probably talk about that more and the need for longer thinner routes.
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The long-thin routes are indeed profitable under the right circumstances - a lot of it comes down to fare premium as you might imagine, as well as filling the front of the plane. Recently it's been business heavy markets that have flourished post-recession that seem to be attractive - markets such as AUS, TPA, PIT fit that bill for sure. If you can show that a market is already paying a premium for connecting service and sustaining some minimum PPDEW (pax p/day each way) while doing it, then that makes a strong case for introducing these routes to non-hub markets. Cost p/enplanement (CPE) is also a factor. Ours is about $5 p/pax. By comparison, MIA's is over $20. If you can cut one flight from a high cost market and increase demand, it makes sense to run that plane to a secondary market and collect that premium as well.

Right now our international service is wide body (BA 777-200 to LGW and Edelweiss A340 to ZRH) with the exception of Copa running a 737 or 738 into Panama. Our long-thin routes are really west coast - as Mark and I have chatted about, TPA-SFO is the largest unserviced market in the US at 200 pax p/day each way. Alaska runs daily to SEA on a 738, but the way things have been going, their ideal capacity is probably something like 1.5 flights p/day, which would be ideal for a 75 if they had them.

I would say our best international long-thin market opportunity is probably in Brazil. A lot of that traffic gets diverted to MIA and we could capture it back with direct service for sure, and at a premium, but we wouldn't be filling a 747 by any means.
 
Ecl!pse said:
At it's core - whichever city has the strongest demand and/or inventive package for new service. See below for the long-winded answer.

Although AUS may not be the same size as PHX, it's growing at nearly twice the rate, fueled largely by the tech and business booms in the city. Given the nonexistant capacity in the AUS-International market, it's an attractive opportunity for a carrier like BA to enter and try to capture the market as it grows, before anybody else does. Couple these facts with an exceptionally attractive incentive package from the AUS (read: revenue guarantee), and it becomes pretty close to a risk-free opportunity. My guess would be that load factors and fares are strong enough in LHR-AUS that BA wants the extra cap for margin expansion - the 777 upgauge brings a nice decline in unit costs (say, 25% hypothetically - would need to see the actual numbers), while they can stimulate incremental demand with lower fares, in the hopes that their unit revenue decline is less than the unit cost decline (say unit revenue goes down 15%). Unit costs down 25% + unit revenue down 15% = margin expansion of +10 pts over today's service. This is all assuming, of course, that they can pick up the incremental traffic. If the upgauge hurts your RASM more than helps your CASM, it's all for not.

From the airline perspective, the major drivers when evaluating a market would be:

1. Passenger/fare data: how strong is the local O&D market, and what are the fares (or daily revenue) in the market? The latter is largely determined by capacity. But having a strong mix of business and leisure traffic, coupled with the numerous events over the course of the year in AUS, make it a great market.

2. How much capacity does the market have? PHX-LHR already has 1x daily BA service - on a 744, no less - so any incremental service is likely to saturate the market. The only way for a new carrier to make it work is either: a) stimulate new demand in the market with low fares (probably unsustainable for larger carriers, this is more of an LCC play) or b) shift share from the incumbent carrier with a combination of lower fares, superior product, and/or better schedules (this is what DL will try to do in PHL-LHR with their growing FF base on each side). If PHX were a huge market, Airways/American would certainly be flying it. Probably not a good two-carrier market.

3. Equally important, when deciding on several options at once, is who puts forth the best incentive package to mitigate your risk. As an airline, you're taking all of the risk on new markets - and, in the case of LHR-AUS, you might be building the market from something close to scratch. Without an incentive package, the market will hemorrhage money as the carrier is trying to build awareness and get folks in seats. If the airport team is willing to help offset some of these losses in the early years, you stand a much better chance at sustained service in perpetuity. My guess would be that of all the cities in North America that BA would consider for new service (RDU, CLE, PIT, CMH, etc.), AUS presented the best incentive package.
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A more elaborate explanation of what I was trying to get at (wish I had a RASM curve handy I could throw up here to demonstrate).

I didn't mention incentives because there are still some carriers that don't really care one way or the other, but it was instrumental in our capturing Edelweiss to ZRH. They have two long-haul aircraft, and were running a flight into MCO that wasn't working for them. Our incentive package convinced them to move next door for a year, and by that time we were the most profitable route in their system.
 
Seggy said:
Why do all the more 'leisurely' routes go into LGW as opposed to LHR?
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I think BA likes to use LGW for flights with few connecting pax. I forget what percentage of our BA pax are O&D, but it's pretty high. International connecting pax still generally flow through the US hubs.
 
Seggy said:
Why do all the more 'leisurely' routes go into LGW as opposed to LHR?
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Without having any of the hard numbers in front of me - I would wager a guess that LGW is significantly less expensive to operate from, which is the catalyst that makes the leisure routes profitable. With LHR being closer to downtown London and slot-controlled (+ less slots available at any given time due to demand), carriers are serving it for their business customers and higher-yielding leisure/connecting customers to maximize returns. If DL chose to serve only LGW instead of LHR, they'd lose a significant chunk of their London revenue (business folks) to carriers that serve LHR.

I see the LHR/LGW dilemma as a somewhat similar scenario as DCA/IAD (minus the perimeter restrictions), LAX/LGB, ORD/MDW, IAH/HOU, or MIA/FLL dilemma. Generally speaking, LCC's will use the cheaper airports (IAD, BWI, LGB, HOU, MDW, FLL, etc.) due to the lower operating costs - knowing that this can swing the needle to operate leisure routes profitably.
 
ATN_Pilot said:
I was actually born in Charleston, WV. And I realize that that isn't any better. :)
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I live in Best Virginia within spitting distance of West Virginia. All the road signs around here seem to have the distance to the WV border...it really seems like a warning more than anything else.

One of the few state lines you can cross and notice a discernible difference in the world around you.
 
Screaming_Emu said:
I live in Best Virginia within spitting distance of West Virginia. All the road signs around here seem to have the distance to the WV border...it really seems like a warning more than anything else.

One of the few state lines you can cross and notice a discernible difference in the world around you.
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The first thing you notice is proper speed limits. VA has refined roadside revenue generation to a black art. WVA still allows a man to properly enjoy a twisty road on a motorcycle within the confines of the law. VA sends you to jail for it.

Murdoughnut said:
I was in Charleston for a wedding a few years ago. Seemed like it had some potential to be a cool, kitchy town - I mean back when you could drink the water.
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I've been pleasantly surprised by Charleston. My job has me there on a fairly regular basis. It's quite a beautiful area, and the people I work with over there are fantastic. The downtown area has some really cool stuff going on, too.

Poverty and its concomitant brother, crime - are the major issues right now. They have a tremendous problem with meth and meth labs out there.
 
killbilly said:
The first thing you notice is proper speed limits. VA has refined roadside revenue generation to a black art. WVA still allows a man to properly enjoy a twisty road on a motorcycle within the confines of the law. VA sends you to jail for it.
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I dunno, I have mixed feelings on that. I used to live in MD where they have a low speed limit, lots of police, but a huge sliding scale. I've driven by police going 20 over with nothing happening.

In VA the speed limits (especially on highways) seem to be higher, but held to a much stricter tolerance. I'd much rather know exactly how much I can get away with (about 5 over) than really have no idea where the line is.

Also, I've found most of the fun twisty roads are 50-55mph which given my great skill in hitting deer, is just about where I feel comfortable.
 
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