Southwest Airlines raises fares

[Aero_Engineer]

Southwest airlines has decided to raise their fares up to $10.00 one way to meet the raising cost of fuel up to $600,000,000.00. Here is the link:


http://news.yahoo.com/s/nm/20060313/bs_nm/airlines_southwest_dc

Kinda sad to say this, but I am happy they did, so the competition now will be healthy and real.

 

[SeanD]

Honestly I have never really found SW fares to be that low cost anyway.

 

[meritflyer]

I think this was a bold, good move that sends a message out to other airlines. Instead of trying to cut wages and other concessions, SWA said to the public and other airlines "This is what is costs us to run our business, pay our employees (Pilots), and cover our overhead." If you can afford to fly, you can afford an extra $20 for a round trip. I think this is very positive news for the airline industry.

If other airlines would take similar actions instead of trying to make flying as cheap as riding Greyhound, we may not be in this huge labor mess.

 

[mtsu_av8er]

I think this was a bold, good move that sends a message out to other airlines. Instead of trying to cut wages and other concessions, SWA said to the public and other airlines "This is what is costs us to run our business, pay our employees (Pilots), and cover our overhead."

Pssst . . . there are quite a few SWA haters on this forum. If Southwest did it, then it must be wrong. Remember, according to some, companies like Southwest wrecked the industry after all!!

 

[jtrain609]

The people that think Southwest has destroyed the industry don't realize that Southwest has IGNORED the rest of the industry and taken care of it's business, charging what it needs to charge and doing what it has to do so that it survives.

I think the current claim that the industry is falling apart is with Mesa and pilot mills.

 

[Champcar]

I think SW is doing a damn good job. They offer reasonable fares. The have more point to point service than any other airline. There carefull about what markets they enter and they charge what it costs to run the airline. Not too mention they have one of the lowest unionized pilots base.

For some reason people and the industry have a problem with a different business plan that works.

Its the trend bargining of the Unions that is one of the reasons why the whole industry took a dump.

 

[Adam2006]

Go Southwest! Let's raise all the fares, ppl will still fly, and we definatly need the money.

 

[MQAAord]

Southwest is what it is, I really don't think it's necessarily good nor bad!

But, to see them raise fares instead of coming after employees paychecks is a very, very good thing.

 

[jtrain609]

Southwest is one of the most heavily unionized carriers in the country, try again.

 

[Brazilian_Pilot]

We just have to hope that the other low cost airlines also raise their fares, instead of keep cutting employees paychecks in order to increase their market share.

 

[Timbuff10]

Southwest airlines has decided to raise their fares up to $10.00 one way

Wow, $10 on a fare, praise the lord, this industry has been saved!

You could classify me as a not being overly fond of Southwest, but that is nice that they are raising prices rather than coming after employee salary. Not that you can get blood from a turnip anyway (excluding their pilots)

What would be really nice is if this was the beginning of a trend in this industry!

 

[JaceTheAce]

Yet another business decision that Southwest gets right! :rawk:

 

[flyover]

....... but that is nice that they are raising prices rather than coming after employee salary.

What would be really nice is if this was the beginning of a trend in this industry!

Just to double check again. Everybody here knows that fare increases do not necessarily mean revenue increases, right?

 

[meritflyer]

Pssst . . . there are quite a few SWA haters on this forum. If Southwest did it, then it must be wrong. Remember, according to some, companies like Southwest wrecked the industry after all!!

SWA has the right just like any other company in the US to run it how they want. I thnk that it was a smart move to choose to raise ticket prices. There is a basic business model that says you have to charge what you are worth and SW did just that. They offer a service for a fee. The thing that ruined the aviation industry was getting rid of the in-flight meal :nana2: .

 

[SteveC]

Just to double check again. Everybody here knows that fare increases do not necessarily mean revenue increases, right?

$5 says that will go right over at least 50% of their heads.





(edit it add: that was kind of a weird way to word that thought Steve....)

.

 

[tonyw]

Just to double check again. Everybody here knows that fare increases do not necessarily mean revenue increases, right?

With 80 percent plus load factors, I would say that means demand is high, and we know what economics 101 teaches about that.

I could be wrong. This price hike might make people desert SWA in droves.

I doubt it, though.

Actually, it probably won't matter because the other airlines will raise their fares as well. You still gotta get to Redding to see your friend get married, so you'll pay.

Even if you feel the pain of a $806 plane ticket!

 

[SteveC]

With 80 percent plus load factors, I would say that means demand is high, and we know what economics 101 teaches about that.

I could be wrong. This price hike might make people desert SWA in droves.

I doubt it, though.

I'm thinking that they only need to lose about three people per plane to completly negate the added income brought by a $10 fare increase.

Here's an example for you. Assume a 137 seat aircraft at 80% load = 110 passengers. If the average price paid were $375 dollars per person, SWA would gross $41,250. If the price goes up $10, but they lose 3 people, they will only gross $41,195.

I'm not sure I'd call a 3% drop in load factor "droves". And if you don't think that they will lose at least that many people (assuming the competition across the field is still charging $375), then you might need to take a good look around you the next time you fly commercially.

But (you might say) surely the competition will gladly raise their prices to match, since it means more income for them, right? Well, why should they raise their prices when they can increase their gross by capturing those three pax that SWA just lost (3 x $375 = ) $1,125 without raising prices? At best, if they do raise their prices to match and the load factors stay at the original levels their gross income will only increase by (110 x $10 = ) $1,100. Shoot, they make more money by staying at the lower price!

Obviously real world is much, much more complicated than this example, but the basics hold true. Flyover said it succinctly: "...fare increases do not necessarily mean revenue increases...".

 

[tonyw]

I'm thinking that they only need to lose about three people per plane to completly negate the added income brought by a $10 fare increase.

Nice analysis.

Now, here's the question. Do you think people will notice? Because that's the kicker. If they don't notice, and just pay up, Southwest wins. I think it is likely that will happen.

If they do notice, and stop flying, then it's a net loser. But I don't think that's going to happen. Hell, man people will pay $5 for a beer on that flight, I don't think they'll even notice.

Although I did go out Friday and see some dude act like a $5 cover was the end of the world, so maybe I'm just crazy.

 

[SteveC]

Nice analysis.

Now, here's the question. Do you think people will notice? Because that's the kicker. If they don't notice, and just pay up, Southwest wins. I think it is likely that will happen.

If they do notice, and stop flying, then it's a net loser. But I don't think that's going to happen. Hell, man people will pay $5 for a beer on that flight, I don't think they'll even notice.

Although I did go out Friday and see some dude act like a $5 cover was the end of the world, so maybe I'm just crazy.

You really don't think that they'll notice?

Do you really believe that SWA (and every other airline out there) are just leaving money on the table? Do you really believe that all they have to do is raise their ticket prices and they'll make more money? I think that you are starting to believe the propaganda about airline managements' intelligence, or possible lack thereof.

The people running airlines are not stupid, and I can guarantee that they analyze ticket fares to death, and are working to maximize every last penny. As circumstances change each airline plays games with fare adjustments to try and eek another dollar here and another dollar there. Their competition plays the same what-if games and makes moves to try to counter. I'm sure that there are some big-butt computers somewhere just crunching numbers, analysing what could or might or will happen with every possible combination of fare increases or decreases.

SWA is taking a gamble that this fare increase will result in increased revenue. It is, by no means, a sure thing. There is a very good chance that their revenue will go down because of it, but their crystal ball is telling them that now is the time to take the chance, and they are hoping that the other players will respond in a way that makes the whole thing work out. But it's still a crap shoot no matter how you figure it.

It is never as simple as "just raise ticket prices".

 

[tonyw]

SWA is taking a gamble that this fare increase will result in increased revenue.

Well, given their track record, I think they know something's up and they can pull this off. Whether it's because people don't notice, or because people do and don't care, or because they've done a lot of analysis and see that most people just go to their website and book and don't comparison shop because they've got the "low fare" aura associated with them, I don't know.

But they are smart, they are successful, and their gambles tend to pay off.