Chapter 1895 Price Reduction May Not Be Effective

These established strategic plans were announced to all shareholders at the year-end meeting, so there is no problem of leaks. Yang Cheng said directly, "In the next few years, we plan to spend more time at the old LaGuardia Airport. $3 billion, $2 billion spent at Los Angeles International Airport on terminal renovations and more.

I'm afraid it can no longer handle the competition from Philadelphia International Airport, sorry Mr. Tyrrell. "

This was rejection, Tyrell understood, but he couldn't give up easily. After all, the plane had just taken off and there was still more than an hour of flight left.

“But once low-cost airlines take over, Delta will lose this important hub in Philadelphia, which will definitely be a huge blow to Delta in the northwest airspace.

And I don't think Delta can underestimate the huge impact that low-cost carriers can have on certain routes. "

Yang Cheng immediately retorted, "If you ask any of the four major airlines this question, I'm afraid the answers will be similar. Large airlines like United Airlines and American Airlines will not compete with low-cost airlines like Frontier and Spirit for every category. travelers.

The lucrative corporate travel business is monopolized by large airlines. Business people will not choose to fly on low-cost airlines. They usually pay high prices at the last minute to buy tickets that best suit their schedules. The same is true for Delta Air Lines. "

Tyrrell said, "Nevertheless, budget airlines have forced the major airlines to find a way to attract the most fare-sensitive segment of the market, haven't they?"

Yang Cheng spread his hands and admitted. There is no doubt about this. Passengers who are very sensitive to fares will repeatedly compare prices online in order to buy the cheapest air tickets. Moreover, the number of such consumers is very considerable, so large airlines Companies cannot ignore their existence and needs.

"Yes, this type of passenger is indeed very important. Major airlines have responded to changes in the market and have taken various actions to try to attract this group of passengers."

Tyrrell added, “Delta Airlines, for example, as well as American Airlines and United Airlines, have all begun to launch basic economy class.

The price of this kind of air ticket is very close to that of low-cost airlines such as Spirit and Frontier, so it has strong market competitiveness.

However, passengers in basic economy class cannot enjoy various services common on ordinary flights, such as advance seat assignment and refund services before departure.

That being the case, why don’t this particular type of consumer simply choose cheaper low-cost airlines?

in my opinion,

This strategy of the four major companies is not suitable for the current situation. "

Yang Cheng was helpless, feeling a bit like a chicken talking to a duck. The two sides had different positions and the communication was not on the same channel. Even though he knew it was a friendly discussion, he still felt helpless as his fist was punching the air.

"Okay, let's get straight to the point, what do you think Delta should do?"

Tyrrell had already prepared, "The most direct way to deal with the threat of low-cost airlines is to lower prices, and United Airlines does this best."

Yang Cheng knew why he said this, because among all the major airlines, United Airlines was the one that cut prices the most.

Especially after the new chairman of the other party took office, he began to implement a low-ticket business strategy.

Wall Street wants the airline industry to control total capacity, but United is going in the opposite direction.

They have increased capacity on many major routes across the country. United has replaced many small planes with large planes in the hope of increasing the number of available seats. At the same time, they have also lowered fares to keep their ticket prices in line with low-cost airlines. consistent.

By expanding capacity, United hopes to regain so-called "natural market share" on certain routes, and they plan to fully increase capacity in the U.S. domestic market.

Compared with last year, they hope to increase their transportation capacity this year by 4.5%. Of course, Delta Air Lines has a similar plan, but it is relatively more conservative. The capacity increase is expected to be 2%. However, another old rival, American Airlines, has not launched it yet. Plans to increase capacity.

I'm afraid this is what Tyrell is worried about. Who has allowed his territory to be monopolized by American Airlines?

However, if an apology is useful, why should JC do it? In the same way, if price reduction is effective, why use low-cost airlines?

Lowering prices does not fundamentally solve the problem.

In fact, the problem is not the superficial price. A closer analysis shows that although both are airlines on the surface, their operating models are fundamentally different. The operating conditions of traditional airlines fluctuate greatly with the macro economy. Only Strong profitability can only be achieved when oil prices and exchange rates rise;

However, low-cost airlines have much less fluctuations in passenger load factor and fares. Even when the economy is good, they do not have the flexibility advantage of large airlines in passenger load factors. On the contrary, when the economy is weak, the elasticity provided by oil prices is greater than the fluctuation of passenger load factors, so the economy is weak. is often a good time for low-cost airlines to expand.

Therefore, although they are both airline companies, from a business logic perspective, they are not the same business at all.

From the perspective of civil aviation, traditional airlines are full-service airlines, commonly known as large airlines; while low-cost airlines are low-cost airlines.

The world's first low-cost airline was Southwest Airlines, founded more than 40 years ago. By using all smaller Boeing 737 aircraft and stricter cost control, it was able to launch cheaper air tickets to attract passengers, thus triggering a revolution in the air transportation industry. , low-cost airlines such as Ryanair in Europe and AirAsia in the Asia-Pacific have emerged one after another.

For passengers traveling in economy class, the obvious difference between large airlines and low-cost airlines may lie in fares and services.

The price difference is about 40%-50%. In addition to the fare, whether free meals are provided during meal times is still a direct feature that distinguishes low-cost airlines from traditional airlines.

Although in the United States, traditional airlines have long become like low-cost airlines and do not provide free meals other than snacks to economy class passengers on domestic routes.

But for airline operations, the biggest impact is not a meal, a bottle of water, or the choice of aircraft.

At present, international mainstream civil aviation passenger aircraft can be roughly divided into three categories:

Wide-body passenger aircraft, such as Boeing 787 and Airbus A350, have two corridors in the cabin, carry more than 250 passengers, and are designed to fly routes of at least 3,000 kilometers. However, in recent years in country Z, the three major airlines have An increasing proportion of this type of large aircraft are being used on domestic short- and medium-haul routes to popular cities.

The second type is narrow-body passenger aircraft, which are the most common Boeing 737 and Airbus A320. The cabin has only one corridor and can carry between 100 and 200 passengers. It is designed to fly short and medium-distance routes within 5,000 kilometers.

Finally, there are the increasingly rare double-decker giant passenger aircraft, Boeing 747 and Airbus A380. I heard that the 380 will be discontinued.

Traditional airlines basically have a variety of aircraft, while low-cost airlines basically use a single model, either a fleet of Airbus or a fleet of Boeings. Southwest Airlines, the originator of low-cost airlines, only has Boeing 737s.

The difference in aircraft determines that the passenger load factor and fare of traditional airlines fluctuate greatly, while the passenger load factor and fare of low-cost airlines are more stable.

Why are low-cost airlines’ passenger load factors and fares more stable, while traditional airlines cannot?

This is why there are many benefits to using one type of aircraft. For example, all airports only need to consider maintaining one type of aircraft, and civil aviation pilots basically only fly one type of aircraft, let alone aircraft from Airbus and Boeing.

The design problems of the Boeing 737 MAX also stem from Boeing's requirement to enable old 737 pilots to fly the new aircraft without complicated training.

Having only one type of aircraft means that low-cost airlines do not need to consider how to arrange routes at specific airports when scheduling. As long as there are pilots, they can fly.

Traditional aviation needs to consider whether the idle pilots in each city can fly the current models. This is related to the operational efficiency of civil aviation companies.

Moreover, low-cost airlines only have economy class and paid catering services, which means that meal preparation is simple and the kitchen usage rate is low. This can compress the kitchen space at the rear of the aircraft and increase the original design from 180 seats to 186 seats. One flight costs 6 more seats. A ticket, where is class 10?

In addition, traditional aviation is greatly affected by the economic cycle. People who are originally willing to buy high-priced tickets may buy cheaper tickets due to economic fluctuations, but people who only buy the cheapest tickets will still buy the cheapest tickets as long as they go out.

This is particularly obvious in country Z. Therefore, domestic low-cost airlines can be said to perform better than traditional airlines in certain periods of time in terms of the number and stability of occupancy. Moreover, high occupancy not only means that they get more money from passengers. More income also means more subsidies from the airport and local governments.

In the past decade or so, cities in Country Z have invested a lot of money in building infrastructure such as airports and highways. Once built, they must be used as much as possible. Therefore, in some second-, third-, and fourth-tier cities, local governments and local airports will provide certain routes to airlines. Subsidies and reductions in take-off and landing fees will attract them to open local routes, similar to the traffic subsidies used by Internet companies when promoting.

In addition, if the number of seats installed on the aircraft is 10% higher than the average number of domestic airline seats, and the flight passenger load factor is not less than 85%, the passenger service fee item of the flight landing fee can enjoy further discounts on the original basis, among which , if the flight passenger load factor is between 90% and 95%, the passenger service fee can be further discounted by 25% according to the prescribed standards.

With such a subsidy policy, subsidies account for a high proportion of profits for domestic airlines.

In nature, local government subsidies for airlines are just like the purchase of cameras by traffic control departments. They are closer to "income-generating means" rather than "operating costs." The growth in throughput of trunk and branch airports means that the arrival of a large number of passengers will promote local economic development.

In some economically developed provinces, the density of airports is very high, and all localities need to compete for the traffic brought by airlines. As local governments and airports, they would rather default on other subsidies or debts than pay traffic subsidies in advance. airline.

As reflected in the airlines' financial reports, the airlines' accounts receivable dragged down by the government are generally very low.

Other government-subsidized industries, such as environmental protection companies, often experience large-scale capital turnover difficulties due to changes in government subsidies.

Therefore, from this perspective, the survival pressure of domestic low-cost airlines is much less than that of foreign airlines!

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