Chapter 1896 Why Is There a Price War if You Have More Money?

Let’s not mention the pressure on low-cost airlines for now. After all, no matter how much pressure there is, low-cost airlines can still make money because they control costs to the extreme and it is really difficult to lose money.

But traditional airlines are different. A big company has a big business. Once it starts a price war with low-cost airlines, it cannot be said that it will lose.

Of course, price wars are not impossible, but must be moderate. For example, last year, major U.S. airlines, including American Airlines, United Airlines and Delta Air Lines themselves, tacitly launched a price war against low-cost airlines in an attempt to suppress these Passengers will benefit from the overall decline in economy-class fares in North America due to the rising popularity of low-cost competitors, but it will put huge pressure on airline revenue.

What pressure? Of course, it is the pressure from the board of directors and shareholders. They are all listed companies. For management, if the performance targets cannot be achieved, or the performance declines, the shareholders will not care about your strategic intentions. As long as they lose money, they will blame you without discussion. .

Under such pressure, the management of the three major traditional airline companies cannot stand it at first. How can they continue to fight in the long run?

Even though Yang Cheng has told Bastian not to care about temporary revenue, Bastian still has to be responsible to other directors and employees of the entire company. He has been holding on for a long time, but the other two companies obviously don't have him. With such strong support, it would be pointless to retreat first, leaving only the Delta family to hold on.

The key is that the current environment is too friendly to low-cost airlines. With the reduction of fuel costs and the increase in the number of airline flights and aircraft seats, these ultra-low-cost low-cost airlines have been able to expand rapidly. Their momentum is so strong that nothing can stop them. The kind you live in.

Spirit Airlines has doubled the number of seats on its planes taking off and landing in Chicago and increased its seats in Dallas by 27%. Southwest Airlines, the long-standing discount giant, has also significantly increased its capacity in the hub city of Dallas.

The trend has doubled the pressure on the nation's three largest airlines by passenger volume.

In the past, these large airlines usually avoided price wars with new competitors. Now, encouraged by low fuel costs, they have room for maneuver and have begun to adopt strategies to fight back.

Three years ago, Delta Air Lines began to offer low-cost air tickets on some routes that overlapped with low-cost airlines. The prerequisite for the low price was that passengers could not change tickets or select seats in advance. As of now, Delta has provided low-cost air tickets on more than 450 routes. strip.

American Airlines and United Airlines began offering low-cost tickets without many additional services last year to compete with low-cost airlines for customers.

Not to mention, at the end of December, the cheapest leisure travel fares dropped by an average of 24% from the same period last year, and fares from Chicago, Philadelphia and Dallas dropped by 54%, 48% and 40% respectively.

The three major airlines have previously been criticized by economists and consumer groups for using concentrated market power brought about by industry consolidation to maintain high fares.

Although this is indeed the case, what triggered them to make adjustments this time was market dynamics, not so-called entertainment criticism. In the face of the "American knife", what does criticism count? Not as destructive as a hurricane!

And for the three major airlines, even if there are sufficient business passengers to support their revenue, most of them are customers who only fly once a year or less, and this group that is extremely price-sensitive contributes nearly half of the total. Revenue, their presence and importance cannot be ignored.

In addition to lowering fares, the three major airlines have also tacitly adopted the method of increasing seats to reduce costs.

But adding seats reduces a key metric - unit revenue, which is how much revenue an airline earns per passenger traveling one kilometer. Unbeknownst to other airlines, Delta's unit revenue in the fourth quarter will be 5% lower than a year ago. %-7%.

That sparked immediate concern among some investors, even as Delta reported record profits.

However, this hemorrhage has had a certain effect on the revenue of low-cost airlines. Looking at their stock prices, we can see that Spirit Airlines, which is in the spotlight, has been cut in half from US$88 at the beginning of the year to US$37 now. .

But it is a pity that the three major airlines themselves cannot sustain it. Otherwise, if this price war continues, low-cost airlines may have no choice but to kneel down and call daddy.

But at the same time, the three major airlines are probably not in the mood to recognize these godsons. After all, they can't afford to live anymore, so how can they have extra rations to share with outsiders?

After all, who wins and who loses this battle?

Having said all this, just to prove one thing, Tyrell suggested continuing the price war. This method will not work!

In Yang Cheng's view, when it comes to fighting, whether it's a real battlefield or a business war with no smoke on the surface, if you want to win, you must make full use of your own advantages.

Regardless of the other two airlines, what are Delta’s advantages?

Lots of money!

It's a bit cheesy, but it's a fact. Delta Airlines has the largest amount of funds in the world. Can low-cost airlines compare with it?

In this case, why bother engaging in a wasteful price war? Why not just buy it directly?

Although Delta Air Lines has continued to acquire other airlines before, it did not have a clear strategic plan.

A hammer in the east and a mallet in the west, a bit like trying to make up for the situation after a desperate situation, or purely out of interest.

Since low-cost airlines have brought about a sense of crisis, why not take advantage of their financial advantages, go all the way, buy them all and turn them into subsidiaries or subsidiary companies, and dump the pressure on other competitors?

You must know that the tacit understanding between the three major airlines may be broken at any time, and the unanimous agreement will turn into a chaotic battle among the heroes. No one will mind doing anything that can cause trouble for the opponent.

Not to mention that besides the big three, there are also princes coexisting. These companies, which are between large airlines and low-cost airlines, have never given up chasing the leading companies.

Not just last month, Alaska Airlines, which has been competing with Delta Air Lines as the best airline in the United States, completed an acquisition worth US$2.6 billion, and the acquisition target was the famous Virgin America.

For this deal, Alaska did not just throw away the pot, but at least it incurred a lot of money. Not only did it owe a lot of debt, but it also drained the company's cash flow.

In Yang Cheng's view, the deal was a bit worthless. During the bidding process with its rivals, Alaska Airlines paid a premium of more than 80% and achieved a bloody victory.

However, Alaska Airlines finally acquired Virgin America and surpassed JetBlue to become the fifth largest airline in the United States in terms of carrying capacity. It is typical to smash your teeth and swallow it in your stomach, even if you are wearing a tattered vest or pants underneath. It also needs to be a custom-made suit outside, at least to look shiny on the outside.

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