Chapter 1895： Price cuts are not necessarily useful

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

I'm afraid I can't deal with the competition at Philadelphia International Airport anymore. I'm sorry Mr. Tyrell. "

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

"However, once low-cost airlines take the first step, Delta will lose Philadelphia, an important hub station. This will definitely be a huge blow to Delta Air Lines in the northwest airspace.

Moreover, I think Delta Air Lines cannot underestimate the huge impact that low-cost airlines have on the market on certain routes. "

Yang Cheng immediately retorted, "If you ask any of the four major airlines for this question, I am afraid that the answer will be similar. Large airlines like United Airlines and American Airlines will not compete with budget airlines like Frontier and Spirit for every category. Travelers.

The travel business of profitable companies is monopolized by large airlines. Business people do not choose to take low-cost airlines. They usually spend high prices at the last minute to buy air tickets that best suit their schedule, as does Delta Air Lines. "

Tyrrell said, "Nevertheless, low-cost airlines are forcing large airlines to figure out a way to attract the most ticket-sensitive passengers in the market, don't they?"

Yang Cheng opened his hand and admitted that there is no way to question 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 large. Therefore, large airlines Companies cannot ignore their existence and needs.

"Yes, this type of passengers is indeed very important. Large airlines have responded to changes in the market, and major companies have worked hard to take various actions to try to attract these passengers."

Tyrrell said, "For example, Delta Air Lines, American Airlines and United Airlines have all begun to introduce basic economy class.

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

However, basic economy class passengers 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 consumer directly choose cheaper low-cost airlines?

In my opinion, this strategy of the Big Four does not apply to the current situation. "

Yang Cheng felt helpless, a little bit like talking with a duck. The two sides had different positions, and the communication was not on the same channel. Even if they knew it was a friendly discussion, there was still a sense of powerlessness as a fist hit the air.

"Well, let's be straightforward, what do you think Delta should do?"

Tyrell has long had a draft, "The most direct way to deal with the threat of low-cost airlines is to reduce prices. This is what United does best."

Yang Cheng knows why he said that, because of all the major airlines, United Airlines is the one with the most severe price cuts.

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

Wall Street hopes that the airline industry can control total capacity, but United Airlines chose to go the other way.

They increased capacity on many major routes across the country. United Airlines replaced many small aircraft with large aircraft, hoping to increase the number of seats available for sale. At the same time, they also lowered the ticket prices to keep their ticket prices in line with budget airlines. Consistent.

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

Compared with last year, they hope that this year’s transportation capacity can be increased by 4.5%. Of course, Delta Airlines has a similar plan, but it is relatively conservative. The capacity increase is expected to be 2%. However, another old rival, American Airlines, has not yet launched Plan to increase capacity.

I'm afraid this is where Tyrell is anxious. Who makes his own territory monopolized by American Airlines.

But why does JC still need to apologize if it works? In the same way, why do low-cost airlines use lower prices if they are useful?

Price cuts will not fundamentally solve the problem.

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

The passenger load factor and fare fluctuations of low-cost airlines are much smaller, and even when the economy is good, they do not have the advantage of passenger load factor flexibility of major airlines. Conversely, when the economy is weak, fuel prices provide more flexibility than passenger load factor fluctuations, so the economy is weak It is often a good time for low-cost airlines to expand.

Therefore, although both are airline companies, from the perspective of business logic, the two are not the same kind of business at all.

From the perspective of civil aviation, traditional airlines are full-service, also known as Dahang; and low-cost airlines are low-cost airlines.

The world’s first low-cost airline was Southwest Airlines, which was founded more than 40 years ago. By adopting all smaller Boeing 737 aircraft and stricter cost control, it was able to introduce cheaper air tickets to attract passengers, which triggered a revolution in the air transportation industry. , Low-cost airline companies such as Ryanair in Europe and AirAsia in Asia Pacific have appeared one after another.

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

The price difference is about 40%-50%. In addition to the ticket price, whether to provide free meals 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 cabins with a capacity of more than 250 passengers. They are designed to fly routes of at least 3000 kilometers. However, in country Z in recent years, the three major airlines have The proportion of such large aircraft being invested in popular domestic short- and medium-distance routes is increasing.

The second type is narrow-body passenger aircraft, the most common Boeing 737 and Airbus A320. There is only one corridor in the cabin, and the passenger capacity is between 100-200 people. It is designed to fly short- and medium-haul routes within 5000 kilometers.

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

Traditional airlines basically have all kinds of aircraft, while low-cost airlines basically use a single model, either a team of Airbus or a team of Boeing. Like the originator of low-cost airlines, Southwest Airlines only has a Boeing 737.

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

Why is the passenger load factor and fare of low-cost airlines more stable, while traditional airlines cannot?

This is because there are many advantages 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, not to mention the aircraft of Airbus and Boeing.

The design problem of Boeing 737MAX also originated from Boeing's requirement that old 737 pilots can open new aircraft without complicated training.

Only one type of aircraft means that low-cost airlines do not need to consider how to arrange routes at a particular airport when scheduling them. As long as there are pilots, they can definitely fly.

In traditional aviation, it is necessary to consider whether the idle pilots in each city can fly the current models. These are related to the operational efficiency of civil aviation companies.

Moreover, low-cost airlines only have economy class and paid catering services mean simple meal preparation and low kitchen utilization. This can reduce the kitchen space at the rear of the aircraft, increasing the original design from only 180 seats to 186 seats, and one flight will sell 6 more seats. What about class 10?

In addition, traditional airlines are more affected by the economic cycle. People who were willing to buy high-priced tickets may buy cheaper tickets because of economic fluctuations, but those who only buy the cheapest tickets will still buy the cheapest tickets as long as they go out.

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

In the past decade or so, cities in Country Z have invested a lot of money in the construction of airports, highways and other infrastructure. After completion, they must be used as much as possible. Therefore, in some second, third, and fourth-tier cities, local ZF and local airports will provide airlines with certain routes. Subsidies and reductions in take-off and landing fees attract them to open air routes locally, similar to the traffic subsidies when Internet companies promote.

In addition, if the number of seats installed in the aircraft is 10% higher than the average number of seats in domestic airlines, and the passenger load factor of the flight is not less than 85%, the passenger service fee items of the flight take-off and landing charges can enjoy further discounts on the original basis. , The passenger service fee of whose passenger load factor is between 90%-95% can be discounted by 25% according to the prescribed standard.

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

In nature, local government subsidies to airlines, like the procurement of cameras by traffic control departments, are closer to "revenue-generating means" rather than "operating costs." The increase in throughput of trunk and branch airports means the arrival of a large number of passengers, which will promote Local economic development.

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

Reflected in the airline's financial report, the accounts receivable that the airline is dragged by ZF are generally very low.

However, other ZF subsidized industries, such as environmental protection companies, often experience large-scale funding difficulties due to changes in ZF subsidies.

Therefore, from this perspective, domestic low-cost airlines have much less pressure to survive than foreign ones!

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