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manwest

Lcc Shuts Down

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The three cool cool cool symbols has been my signature at the end to all my posts. Has been for years.

:cool: :cool: :cool:

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Iceberg straight ahead.....

Further evidence that it isn't as easy as it looks to start and maintain a profitable LCC.

:cool:

Edited by Thebean

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Kingfisher and Vision aren't long for this world either....

http://travel.usatoday.com/flights/post/2012/02/vision-airlines-future-called-into-question/634324/1

I am perpetually amused by those who believe that starting a LCC is a no brainer.

Very few people have ever been successful in doing so.

Many successful LCC ventures were started by people who started or had significant early involvement with other successful LCC ventures. In North America, one has to pay attention to the "family tree" of successful LCC's and the same key names pop up over and over. Conversely, these names seem to never pop up when one looks at the people involved with the unsuccessful ventures.

A reasonable conclusion could be is that new LCC ventures should figure out what names seem to be consistently associated with successful LCC's, and figure out how to take advantage of what ever it is they've seemed to have bottled.

Slightly off topic, I'm very intrigued by what's going on at Frontier. It's early days now, but I like the direction they are headed, and who've they've brought in to get it done. Experienced ULCC guys. If they can't make it work, no one can.

B)

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I would like to know...what is so attractive about LCC's? Just about everything possible has been wrung out of those few remaining "flexible" areas of cost (employees, pensions, training & standards, resorting to bankruptcy as a way of financing cost control). "LCC" is now the new legacy carrier, so where to from here? Why would anyone actually believe that the LCC model will work in such an environment? How cheap can this industry go before the industry itself is no longer viable?

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Bean's correct however, his little darling is going to become Canada's new 'legacy' carrier, complete with all the attendant 'new' high cost employees. Next?

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Here's an interesting stat.

In 4Q 2006, WJ's calculated unadjusted for stage length casm was 41.9% lower than its principle competitor and it's rasm was 21.7% lower.

In 4Q 2011, WJ's calculated unadjusted for stage length casm was 35.9% lower than its principle competitor and it's rasm was 20.4% lower.

By this measurement, there's been a narrowing of the gap, but not as much as one might assume.

Do the math adjusting for ASL, where ASL is calculated for both carriers using identical methodology and the numbers become even more deflating.

Oh, and by the way, I'll bet a Greyhound bus gets 40mpg, but only when they start calculating mileage from the top of Rogers Pass to Revelstoke. You don't want know the mileage the other direction. Alas, the bus has to travel both ways so the costs of doing both directions have to be included in the final mileage calculation.

Greyhound can't simply take the costs they want to include and ignore the ones they don't want to include when calculating their overall mileage. Similiarly, if they don't include the costs of going up hill, they can't include the revenues either....

B)

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Be wary of buying into the concept that legacy airlines are the new LCC.

They aren't.

Sorry, perhaps I wasn't very clear. My point wasn't that "legacy airlines are the new LCC", it was precisely the opposite: With the ongoing slow disappearance or restructuring of the old "legacy model", LCC's are already becoming the new "legacy" carriers, "going forward". Stated differently, the bar is set at "LCC" now, and by LCC I mean carriers that originally defined themselves as such, like Southwest, WJ and the host of other new entries since deregulation.

The point more important to me was, What now? With pensions all but gone, wages at generally unattractive levels already and benefits the responsibility of each employee, will New Legacy airlines continue to come to their employees for profitability? The early-investor or profit-sharing models cannot by themselves sustain an employee wage level. The original question remains - with all that can be extracted from fixed prices and fixed, structural processes, regulatory requirements and navigation/airport/government "service charges", where will continued savings and/or significant efficiencies be found such that the business is viable, and provides a career/profession rather than a McJob?, (I say "McJob" not unkindly because $16,000/year wages for a Q400 First Officer are a reality in the LCC world, at Colgan Air, for example).

Edit to add:

Bean, it has never been explained why costs to operate five types/nine variations of type* on a large domestic and international route structure should be the same as a domestic carrier flying one fleet type with three variations. True the pension costs are higher and wages, due to fleet types, are higher on the larger Airbus and Boeing aircraft. While we can argue whether that should be the case or not but this isn't the point.

To me, the Greyhound bus thought experiment doesn't explain this aspect of costs because WJ is not exposed to higher British, European, Chinese, Russian, Japanese and Australian costs of operation and are not exposed to staffing, maintenance, parts, tooling, STCs etc required to operate a fleet of nine aircraft types. The cost of doing business is simply higher in such an operation yet the downward pressure on wages etc is there. Again, employees are just about the only "flexible" cost.

While I know there are currently some exceptions with bragging rights, it seems to me that most carriers surviving these days have extracted every dime they can and still can't make money for their investors. If labour gave it all back and worked for food, that wouldn't solve the profitability problem. What am I missing about missed efficiencies and outright cost-savings?

Regards,

Don

*http://www.aircanada.com/en/about/fleet/index.html

Edited by Don Hudson

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The successful LCC's were able to exploit the cavernous gap between the cost structures of legacy airlines and themselves. Some succeeded, most failed.

Consolidation and rationalization has narrowed the gap to a certain extent in some, but not in all regions. As legacies cut costs, so too have LCC's, but because they were already profitable, their efforts rarely made headline news.

ULCC's have appeared in the marketplace, but largely in densely populated regions with, compared to Canada, far lower inflationary taxes to drive up prices. They rely largely on big markets and "oh my gosh" pricing. Anyone can throw a $59 fare into the market to garner attention and stimulate demand. The key is to abide by what I call "Hersh's Rule". ULCC's have done so, often with "ancilliary revenue".

I don't see a new generation of ULCC's arriving in the Canadian marketplace anytime soon, be they Cdn based or US based.

The day a new venture can produce a stage length adjusted CASM 20% lower than an incumbent, (and not as a result of densing up airplanes, which can easily be matched by existing airlines not operating at max seat capacity), in exploitable markets is the day we'll see the potential of a viable new entrant in Canada.

WJ's reported plan is to take their model and replicate it with 75 seat (give or take) turboprop aircraft. I've a had a wee bit of experience in this area and am quite comfortable in saying that, theoretically, it will work.

The key, as is always the case with start up LCC's, will be impeccable execution.

Edited by Thebean

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Comparing airlines by CASM is a waste of time and only has relevance with people om Airliners.net.

In the real world using that measurement between an airline that only operates in the North American sphere with aircraft that cannot fly more then 6 hours to an airline that operates flights to 5 continents and sectors that are up to 13 hours in length is a waste of time. They are too dissimilar

Stage length adjust to your hearts content but it means nothing.

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Comparing airlines by CASM is a waste of time and only has relevance with people om Airliners.net.

In the real world using that measurement between an airline that only operates in the North American sphere with aircraft that cannot fly more then 6 hours to an airline that operates flights to 5 continents and sectors that are up to 13 hours in length is a waste of time. They are too dissimilar

Stage length adjust to your hearts content but it means nothing.

Yes, that is my sense of the comparison which is constantly made between the two carriers and that is why I asked my question, which was not answered in the post by Thebean. I'm just interested in understanding and believe me I'm even more interested in hearing about ways to reduce costs that don't leave employees in the same straits as many of our U.S. counterparts. There can't be many true secrets out there and there is no royal jelly in this business so I would like to know why the continued comparisons and listings of this and that when it's apples and pomegranates and each must solve its own unique problems in ways best suited to each.

Don

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There was a time when that opinion was joyful music to my ears.

Now, after almost 20 years it's a little sad to see that there are still those out there that continue to deny the obvious.

It's the basis of the fundamental economics that have resulted in LCC's growing from modest beginnings everywhere to near domination of and the driver of change the marketplace.

There's a good reason why you've never seen a start up with 10 Dash 8's, 10 737's and 10 A330's. The costs would be out of this world.

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Once again Beano has diverted from the discussion.

No one talked about a startup LCC with a diverse fleet.

Reread the thread and you'll see the point I am reinforcing.

There are some who still can't seem to grasp the concept that a business that is able to focus all it's efforts on a particular niche is going to be miles ahead, and have far lower unit costs than the business that tries to focus its efforts on all niches.

LCC unit costs are achieved not by accident, but by design.

By the way, I'll guarantee you that the CASM on a 777 or A380 flying across the pacific is dramatically lower than any LCC's casm over an asl of about 950 miles. How does that jibe with your theory that the costs of international flying are so much higher than domestic / transborder / medium haul international?

Edited by Thebean

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By the way, I'll guarantee you that the CASM on a 777 or A380 flying across the pacific is dramatically lower than any LCC's casm

In many cases you would be wrong.

If the segment is long and the seating density is low then the CASM calculations come very close to each other. We see it many times where a particular airline has 737's (700's and 800's) and long range aircraft like 772-ER.

This business is changing all of the time and what you read 20 years ago does not always pertain to today.

The reasons are:

- The high cost of fuel

- The carry cost of long range flights

- Double flight crews onboard

- Extensive catering and amenities

- Low density of seats on longhaul aircraft

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If the casm of a 777 operating a 10+ hour sector is anywhere close to a 737-800, you better run, not walk to the exits.

Then again, if they were, you'd see all kinds of 737NG's operating YVR-ANC-PKC-NRT and YVR-SFJ-LGW....

B)

Edited by Thebean

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Thebean;

I understand that single fleet domestic operations is cheaper to operate - that is simply logical. Therefore I understand that LCC costs are achieved by design and not by accident. In fact I understand that business is never done "by accident", especially this business. Displacing rationality in favour of gut-feelings would be a quick fiscal end in this business. My original point concerned the operation of a number of multi-fleet, domestic/international carriers which continue to operate successfully throughout the world even though their struggles are different than LCCs. One counterexample is sufficient to alter the argument but there are many examples which reify the original point and question. Further to the point, there are not many successful one-fleet-type, scheduled, international LCC-model carriers by which more realistic comparisons may be made.

Re, "By the way, I'll guarantee you that the CASM on a 777 or A380 flying across the pacific is dramatically lower than any LCC's casm over an asl of about 950 miles. How does that jibe with your theory that the costs of international flying are so much higher than domestic / transborder / medium haul international?"

No disrespect and you may well be right because you know far more about such things than I ever will but a personal guarantee is not an argument nor a source of data.

Regarding the actual point, I don't know any "asl" on the Pacific that a T7 or A380 flies that is "950nm". That's more like Allegiant's or other domestic carriers' scheduled asl's, so is that the point...compare equal stage lengths? If so, are we comparing actual costs over a stage length that these aircraft would normally do, (say, 4000nm asl) and still saying that they would be lower than any LCC's?

The question returns to the observation above regarding the low number of successful single-fleet international LCC carriers and so needs to be clarified to ensure we're talking about the same things: - In your 950nm asl example, are foreign route, airport and navigation costs (along with the usual capital costs, crewing costs, maintenance, taxes etc) built into the CASM?

Thanks,

Don

Edit: Reading the exchange above...fascinating.

Re, "If the casm of a 777 operating a 10+ hour sector is anywhere close to a 737-800, you better run, not walk to the exits.

Then again, if they were, you'd see all kinds of 737NG's operating YVR-ANC-PKC-NRT and YVR-SFJ-LGW...."

I take it you're saying the casm for a B737-800 is higher on a 10hr sector (as per your example) than a B772's? Following on your point then, is there any other reason (other than the difficulty of starting up and sustaining!) that there are so few successful single-fleet international LCC carriers?

Edited by Don Hudson

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There is extensive information available on this subject matter.

There are entire sections written on it in both WestJet's and jetBlues businessness plan. Herb Kelleher has referred to it on countless occasions.

Short haul flying incurs considerably higher unit costs than long haul flying. Conversely, the longer the flight, the lower the unit costs.

A 350 seat B777 operating YVR-SYD will produce 2,714,950 asms. That's a ton of asm's to amortize costs over, but only incur the selling costs of 350 seats and one take off and landing. It's a given that bigger aircraft will burn more fuel per hour, but so too do they carry more passengers and cargo.

By way of comparison, WJ would have to incur the costs of 47 flights between YYC and YVR to generate that many ASM's. 47 take off and landings, 47 landing fees, selling costs on 6,392 seats, 47 passenger loads of glasses of coke, bits and bites, it goes on and on.

We all know that the purchase price / lease cost of a 777 is no where even remotely close to 47 times the cost of $275,000 a month or so for a 737-700NG.

That's why even with fuel surcharges, it's easy to buy a ticket to Australia for a little over 10 cents a mile and the corporation can be quite profitable in doing so, even though it's system wide casm is over 18 cents a mile.

Conversely, Chorus reported its casm last quarter at 26.2 cents, but has an asl of 373 miles. WestJet's was 13.55 cents with an ASL around 975 miles.

The calculation that is most relevant to most people is the Canadian version of what's on page 16 below.

http://www.oliverwym..._2012_FINAL.PDF

Edited by Thebean

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I had read the first link posted before (the one you removed) and the second one is nice to skim read but it does not address my point about longhaul flying that is being severely affected by fuel cost due to the cost of carry (and increased labour costs).

It still remains that it is a waste of time to compare airlines by CASM and doing the average stage length adjustment. Leave it to the academics.

Graphing the change of CASM at a particular airline has real life value and the second article shows that quite well.

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