Wirraway
9th Mar 2004, 15:11
Washington Post
Posted on Sun, Mar. 07, 2004
Why the low-cost airlines are soaring
BY KEITH L. ALEXANDER
Washington Post
The nation's low-cost carriers are profitable even as the venerable "legacy" airlines barely tread water. How can they make money while offering fares that are 40 percent to 70 percent lower? The reasons are many -- cost of labor is a big one -- but here are 10 major differences between the cheeky upstarts and the big boys.
1.3 million
That's the minimum number of potential annual airline passengers a city must offer before a low-cost carrier will consider it as a destination. Airline industry consultant Michael Boyd of the Denver-based Boyd Group says low-cost carriers avoid smaller cities and target only those areas where they can get the highest revenue.
Low-cost carriers, Boyd says, have no plans to take their large jets into such cities as Ithaca, N.Y., or Lubbock, Texas. "All these small communities want low-cost carriers, but they're more likely to get a moon launch than service from one of these airlines," he said.
84.6
That's the number of employees per aircraft at Southwest Airlines. And it's the figure the industry uses to measure employee productivity.
Compare that with 116 employees per plane at United Airlines, a number the airline achieved last year during its bankruptcy reorganization. The United number had been 173 in 2002, said airline analyst Vaughn Cordle of Airline Forecasts.
2 percent
That's the percentage of ticket sales JetBlue Airways makes through traditional travel agents. By contrast, travel agents sell 61.2 percent of US Airways tickets. The number is about 50 percent for American Airlines.
Selling airline tickets via the Internet, on an airline's site or on a site like Expedia.com is the lowest-cost channel for an airline -- and that's where the majority of low-cost carriers do most of their business. It costs an airline only about 1 percent of the ticket price to sell it online.
While legacy carriers have drastically reduced commissions to travel agents, selling the traditional way remains the most expensive method -- costing the airline 7 percent to 9 percent of the ticket's value.
40 percent
That's the percentage of American Airlines passengers who connect to another flight to reach their final destination. The number is significant because routes that include connections are more expensive than direct, nonstop flights.
In general, the low-cost carriers have set up their schedules to focus on point-to-point flights. Southwest Airlines calculates that only 10 percent of its passengers connect to another flight to get where they're going, in large part because the airline focuses on flights to and from destination cities. In essence, the burden for onward travel is on the passenger, not the low-cost carrier.
As they grow and add destinations, low-cost carriers such as Southwest and AirTran will offer more connections. And airline consultant Boyd says that as the connecting flights increase, so will costs.
23 and 0
This is the number of U.S. cities and foreign countries served by JetBlue Airways, the nation's 11th-largest carrier. It's a far cry from the 109 cities and 23 foreign countries reached by the nation's second-largest airline, United, and that's without counting United's code-sharing alliances with other airlines.
By focusing routes on U.S. flights, low-cost carriers avoid the costs associated with flying into foreign countries. These longer-distance flights require larger, more expensive aircraft. Also, the airline's workers at a foreign destination are governed by that country's labor rules, some of which, in Europe especially, restrict hours and call for generous benefits.
$215,000 a year
That's the average salary for a captain at Delta Air Lines. Captains at low-cost carrier AirTran earn, on average, $135,000 a year, although they also receive stock options.
Overall, pilots are the highest-paid labor group in any airline, and labor represents the biggest cost for a carrier. Salaries are often based on a pilot's seniority. Delta's 7,500 pilots -- 3,500 of whom are captains, the highest rank -- range in seniority from five years to 35 years, said Delta spokeswoman Karen Miller. By contrast, the majority of low-cost carriers are less than about 10 years old. The average seniority for AirTran's entire work group is two years, said spokesman Tad Hutchinson.
$9.99 an hour
Of the industry average total compensation of $31.23 an hour, $21.24 represents wages and $9.99 benefits, according to compensation consultants Watson Wyatt, based on Bureau of Labor Statistics data.
Bureau statistics show that in general industry, benefits put an employee's total compensation 38 percent above his or her wage base. In the airline sector, in general, benefits add 47 percent to salary.
Employee benefits obviously affect every company's bottom line, and the older airlines simply offer more. Delta, for instance, offers medical benefits and a 401(k) savings plan in addition to a traditional pension plan.
The low-cost carriers generally do not have traditional, defined-benefit pension plans, but most offer medical insurance and 401(k) plans, which are far cheaper than pensions.
Zero
The number of downtown ticket offices operated by low-cost carriers such as Southwest, JetBlue and AirTran. US Airways alone has 13 such offices.
The majority of legacy carriers -- Delta, American, Continental and United -- run these ticketing offices, where passengers can purchase tickets, make travel changes or just get information. US Airways said it costs about $2 million a year to operate the offices.
$21 an hour
This is the average base pay, excluding benefits, of one of US Airways' 1,930 telephone reservation agents. Before the Sept. 11, 2001, terrorist attacks, US Airways had 3,762 reservation agents.
The average pay for one of JetBlue Airways 700 reservation agents is $8.25 an hour. JetBlue's agents also receive benefit packages that include a 401(k) plan and medical insurance, but they work from home, saving the airline rent on a reservation center.
1
This is how many types of planes JetBlue flies -- the Airbus 320 jet, period. In 2005, however, the airline will begin taking delivery of 100-seat Embraer 190 regional jets as the airline begins flying into secondary markets.
Delta flies 16 kinds of aircraft.
Long-haul travel, such as transcontinental and international flights, calls for larger, more expensive planes. So the equipment is inherently costlier.
In addition, moving a pilot from one category of plane to another requires about eight weeks of training. That entails the cost of training the pilot as well as the cost of covering the pilot's existing route during training. Because the low-cost carriers have only one type of aircraft, they require little additional training.
=======================================
Posted on Sun, Mar. 07, 2004
Why the low-cost airlines are soaring
BY KEITH L. ALEXANDER
Washington Post
The nation's low-cost carriers are profitable even as the venerable "legacy" airlines barely tread water. How can they make money while offering fares that are 40 percent to 70 percent lower? The reasons are many -- cost of labor is a big one -- but here are 10 major differences between the cheeky upstarts and the big boys.
1.3 million
That's the minimum number of potential annual airline passengers a city must offer before a low-cost carrier will consider it as a destination. Airline industry consultant Michael Boyd of the Denver-based Boyd Group says low-cost carriers avoid smaller cities and target only those areas where they can get the highest revenue.
Low-cost carriers, Boyd says, have no plans to take their large jets into such cities as Ithaca, N.Y., or Lubbock, Texas. "All these small communities want low-cost carriers, but they're more likely to get a moon launch than service from one of these airlines," he said.
84.6
That's the number of employees per aircraft at Southwest Airlines. And it's the figure the industry uses to measure employee productivity.
Compare that with 116 employees per plane at United Airlines, a number the airline achieved last year during its bankruptcy reorganization. The United number had been 173 in 2002, said airline analyst Vaughn Cordle of Airline Forecasts.
2 percent
That's the percentage of ticket sales JetBlue Airways makes through traditional travel agents. By contrast, travel agents sell 61.2 percent of US Airways tickets. The number is about 50 percent for American Airlines.
Selling airline tickets via the Internet, on an airline's site or on a site like Expedia.com is the lowest-cost channel for an airline -- and that's where the majority of low-cost carriers do most of their business. It costs an airline only about 1 percent of the ticket price to sell it online.
While legacy carriers have drastically reduced commissions to travel agents, selling the traditional way remains the most expensive method -- costing the airline 7 percent to 9 percent of the ticket's value.
40 percent
That's the percentage of American Airlines passengers who connect to another flight to reach their final destination. The number is significant because routes that include connections are more expensive than direct, nonstop flights.
In general, the low-cost carriers have set up their schedules to focus on point-to-point flights. Southwest Airlines calculates that only 10 percent of its passengers connect to another flight to get where they're going, in large part because the airline focuses on flights to and from destination cities. In essence, the burden for onward travel is on the passenger, not the low-cost carrier.
As they grow and add destinations, low-cost carriers such as Southwest and AirTran will offer more connections. And airline consultant Boyd says that as the connecting flights increase, so will costs.
23 and 0
This is the number of U.S. cities and foreign countries served by JetBlue Airways, the nation's 11th-largest carrier. It's a far cry from the 109 cities and 23 foreign countries reached by the nation's second-largest airline, United, and that's without counting United's code-sharing alliances with other airlines.
By focusing routes on U.S. flights, low-cost carriers avoid the costs associated with flying into foreign countries. These longer-distance flights require larger, more expensive aircraft. Also, the airline's workers at a foreign destination are governed by that country's labor rules, some of which, in Europe especially, restrict hours and call for generous benefits.
$215,000 a year
That's the average salary for a captain at Delta Air Lines. Captains at low-cost carrier AirTran earn, on average, $135,000 a year, although they also receive stock options.
Overall, pilots are the highest-paid labor group in any airline, and labor represents the biggest cost for a carrier. Salaries are often based on a pilot's seniority. Delta's 7,500 pilots -- 3,500 of whom are captains, the highest rank -- range in seniority from five years to 35 years, said Delta spokeswoman Karen Miller. By contrast, the majority of low-cost carriers are less than about 10 years old. The average seniority for AirTran's entire work group is two years, said spokesman Tad Hutchinson.
$9.99 an hour
Of the industry average total compensation of $31.23 an hour, $21.24 represents wages and $9.99 benefits, according to compensation consultants Watson Wyatt, based on Bureau of Labor Statistics data.
Bureau statistics show that in general industry, benefits put an employee's total compensation 38 percent above his or her wage base. In the airline sector, in general, benefits add 47 percent to salary.
Employee benefits obviously affect every company's bottom line, and the older airlines simply offer more. Delta, for instance, offers medical benefits and a 401(k) savings plan in addition to a traditional pension plan.
The low-cost carriers generally do not have traditional, defined-benefit pension plans, but most offer medical insurance and 401(k) plans, which are far cheaper than pensions.
Zero
The number of downtown ticket offices operated by low-cost carriers such as Southwest, JetBlue and AirTran. US Airways alone has 13 such offices.
The majority of legacy carriers -- Delta, American, Continental and United -- run these ticketing offices, where passengers can purchase tickets, make travel changes or just get information. US Airways said it costs about $2 million a year to operate the offices.
$21 an hour
This is the average base pay, excluding benefits, of one of US Airways' 1,930 telephone reservation agents. Before the Sept. 11, 2001, terrorist attacks, US Airways had 3,762 reservation agents.
The average pay for one of JetBlue Airways 700 reservation agents is $8.25 an hour. JetBlue's agents also receive benefit packages that include a 401(k) plan and medical insurance, but they work from home, saving the airline rent on a reservation center.
1
This is how many types of planes JetBlue flies -- the Airbus 320 jet, period. In 2005, however, the airline will begin taking delivery of 100-seat Embraer 190 regional jets as the airline begins flying into secondary markets.
Delta flies 16 kinds of aircraft.
Long-haul travel, such as transcontinental and international flights, calls for larger, more expensive planes. So the equipment is inherently costlier.
In addition, moving a pilot from one category of plane to another requires about eight weeks of training. That entails the cost of training the pilot as well as the cost of covering the pilot's existing route during training. Because the low-cost carriers have only one type of aircraft, they require little additional training.
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