UPS is not riding high either …
Source: http://www.newratings.com/new2/beta/article_708270.html
UPS only bought this hub in December of last year. Now they are closing it. So why are they tossing $260 million away in less than three months?
I agree it’s interesting, but the telephone is on its way out, at least for the mundanaties of sales. The European low-cost airlines make nearly all their sales online, and some (particularly Easyjet) are considering moving to internet-only sales.
Pure-play cargo airlines go bankrupt or even out of business all the time for some of the same competitive reasons which are currently pressuring passenger airlines. Off the top of my head, Evergreen spent a couple of years functionally bankrupt (long story) and there was a drag racer who owned a cargo airline which I think went out of business entirely – what was that guy’s name? Ken something, ran mostly DC-9s I think.
Companies like UPS and FEDEX are not really airlines, they just have a bunch of airplines. What they really are is logistics companies. Their lasting value proposition is in their fleet of ground drivers and the massive logistical infrastructure which allows them to meet the demanding schedules of business customers. An airline passenger looks at flight schedules and picks on price and schedule; they’ll very often balance the two to lower the price. Package shippers expect the shipping company to come to them, pick the thing up and get it to a precise destination (as opposed to “the nearest airport”), a service which is much less price-sensitive.
As to their flying costs, they lower their overall costs by using swing capacity – they rent time on the pure-play cargo players during the holidays, they move cargo in the bellies of passenger airliners during other business peaks, etc. This gives them an effective capacity larger than their fleets’ rated capacities. The airlines, on the other hand, have lower effective capacities than rated capacites, despite overbooking. Imagine showing up at O’Hare for your Delta flight and having them tell you they’re gonna stick you in a cab and take you to Midway for a flight on an airline you’ve never heard of. Now imagine that it happens a lot. You wouldn’t put up with it, but packages don’t care. Finally, they tend to buy used aircraft, which have higher operating expenses but much lower capital expenses so it hurts less to ground planes when business is slow.
Dewey Finn You got it. Their key to success is to keep those planes moving. I don’t have a cite with me but the number of air miles Southwest puts on a plane in a single day is way more than the hub and spoke airlines. Another key to both Southwest and JetBlues success is the purchase and operation of the same type of airplane for their entire fleet.
It is no coincidence that Southwest and JetBlue have similar successes. An airline that Southwest bought (Morris Air) and JetBlue where started by the same guy, David Neeleman. He also helped start WestJet, Canada’s fast growing and second largest airline.
Wasn’t there a similar problem with passenger trains? I believe that historically, the railroads made little or no money on their passenger trains, and usually ran these operations at a loss. They made almost all of their money on freight, even when they were the only option for long-distance travel.
All of the above, and then some. Here is a list of cost advantages of boxes over humans:
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Cost-efficient scheduling is easier. Compared to people, boxes have a greater leeway of missing the arrival time. Thus, boxes don’t complain if they’re bumped to a flight that leaves 4 hours later.
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Cost-efficient routing is easier. Boxes don’t prefer a 2-hour nonstop over a 10-hour multi-stop flight. Boxes don’t mind being driven a few hours to a more favorable airport. Boxes don’t get sick if you fly through too much choppy air. Most boxes travel 1-way.
Points #1 and #2 guarantee more full seats on the flight, thus better margins.
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The sales process is more efficient. No ticketing, fewer gate agents, boxes don’t decide they want to spent an extra day in Aruba and haggle over the cost of fares. You can weigh a box and assign a weight-appropriate faire without it ending in tears. Compared to people, boxes generally don’t book a flight and not show up at the appointed time, necessitating complex overbooking strategies.
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It’s cheaper to keep the customer happy. Boxes don’t need drinks or peanuts, hence no need to hire labor to serve them. Boxes don’t get insulted by surly gate agents and demand free passes to the Business Elite lounge. Come to think of it, there’s no business elite lounge. Boxes usually don’t have accompanying baggage or boxes. Even if they do, who cares if they arrive a day or so apart?
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Security is cheaper. Boxes don’t get angry when you poke them, prod them, or fondle them.
All things considered, you can see how it’s much more preferable to deal with a box than your average airline passenger.
Yep thats the first thing I thought of when I opened this thread.
Yeah, but they get all soggy when you buy them a drink.
My wife is a flight attendant for Pinnacle Airlines. Most people know them as Northwest Airlink, but it is a completely separate company that went public a couple of years ago. When she started working for them almost 7 years ago they operated SAAB twin prop planes, only out of Memphis. They only had a couple of flights out of the southeast. Today they are all jet (another company operating also as Northwest Airlink took over the SAABs). Instead of just operating out of just Memphis they now fly out of Minneapolis and Detroit. I could get on her airline and fly to Nova Scotia or Nassau without flying on “Big Northwest”. My wife is in Toranto tonight. Pinnacle adds two new jets every month. Northwest still dictates where they fly and if business gets good enough they take back a route, but there doesn’t seem to be any limit to new places they can fly. Even though they are still operating out of Northwest’s hubs, their success is an indication that the business is going away from hubs and to smaller planes. So “yes” there are other airlines besides Southwest that are making money.
Southwest will not be taking over “every route”. First note the fact that they fly large planes. Secondly, Southwest cherry picks the airports they operate out of such as Love Field in Dallas and Hobby in Houston. These are old airports which are cheaper to fly out of. If they took over “every route” they would have to move to the larger more expensive airports. Southwest is successful because they are a niche airline. Have you ever watched Airline on A&E? Every show has them throwing a drunk off a flight or charging a fat passenger for an extra seat. What’s with that? Who is it that runs their public relations?
Lastly, the large airlines are partly in trouble because they bought too many large airplanes and are still committed to paying for them. To do that they need to fill more seats than they are filling. Cash flow is the problem.