There are the obvious comparisons that will be made between ExpressJet and
Atlantic Coast/Independence Air. There is something that also must be said about their route system in general. The important part of all of this is that there are a bunch of familiar airline mistakes being made here that should be noted, if for no other reason than to have the list ready to compare which of these potential problems is the one that ends the carrier.
First, we have to ask where are these passengers coming from? Before we delve into this aspect of the problem, I think it is only fair to make the same assumptions I believe that ExpressJet has made.
DEN=COS
SMF=SFO/SJC/OAK
ONT=LAX/LGB/BUR/SNA
TUS=PHX
BHM=ATL/HSV
SDF=CVG/LEX
RDU=CLT/GSO
Now before you laugh too loudly, this is not necessarily invalid. There is a general assumption in airline planning that a certain number of passengers drive to an airport with more service or better fares or a different frequent flyer program. So it might be safe to say that some portion of the Phoenix market is made up of passengers who actually live closer to Tucson and might be persuaded to catch planes closer to home if the right service combination were to exist. I believe that the Southwest Effect might have a large component of this, with multiple cities involved. Nashville may have drawn from Memphis, Knoxville, Chattanooga, Huntsville, and even Lexington. And who knows where else.
Back to the carrier at hand. Let’s assume they made some of these same assumptions. These are necessary assumptions because, on the surface, some of these markets do not make a lot of sense. MSY-RDU, MCI-JAX; these are not large markets. There must be an underlying assumption of some other traffic being in the market. On the surface Los Angeles to Tulsa, San Francisco-Oklahoma City, Denver-Los Angeles, Tucson-San Francisco, these all seem like reasonable niche markets. Certainly Cincinnati needs a discount carrier somewhere in proximity to it to relieve the high Delta fares. So
ExpressJet is just using a slightly different airport to serve some key markets. Sounds good so far.
The problem is that those segments represent about half of what they are doing. And that is the good half. Note what was mentioned earlier in describing drive markets. Frequency, Fare, Frequent Flyer. Those each come into play. The reason people drive to a better airport is to get one or more of those things. And there are probably many people who find Ontario a much better experience than LAX, similar Sacramento compared with Oakland or San Jose. But unless there is sufficient frequency and reasonable fare, ExpressJet won’t be able to persuade people to stay close to home.
Now, let’s add another factor to this. The aircraft type. 50-seat Embraers. Not a bad plane, but it is a small plane. First, there is no first class. That is great if your segment is less than 2 hours. Some of the segments in this operation are over three hours. It is a plane of choice only if the other choice is a turbo-prop (other than the Dash-8/Q-400). Given a bigger jet, most passengers will choose the bigger jet. First class makes a difference in some cases with that flight length. And it certainly makes a difference to the business passengers who have come see First Class upgrades as a right instead of an occasional perk. This lack of a front cabin is acceptable when there is no nonstop alternative – if your time is important to you. But again, how much does your time have to be worth to accept what could be perceived by some as an inferior product? And while I am not endorsing frequency levels the likes of which Independence Air tried to start with, there has to be a threshold level of service to make it worth the while. This sounds good and workable until you think of the fact that some of these markets, even with the drive traffic included, might still be rather small. Maybe a single 50-seater is too much service, but more has to be offered for the business passengers to be interested. And these are mostly business markets.
I mentioned fare before. Here is where the true paradox comes into play. To get some of the drive traffic back to their original primary airport, ExpressJet may have to offer at least some discount fares. ExpressJet is not the only carrier that has tried to build a business from service second-tier markets. Nor are they the most successful. A carrier by the name of Southwest has been doing this for over 30 years. The problem for ExpressJet is that these are high CASM aircraft. It’s easier to cover costs offering low fares when you have 150 seats to play with, as opposed to having only 50 seats. Bringing the passengers to them requires a lure. Frequency, Fare or Frequent Flyer. None of these appear to be in their favor.
What they have are non-stops where there aren’t currently non-stops, at least in theory. And what they also have are a bunch of Southwest markets. Of the 23 markets on their route map, only Monterrey, Bakersfield, Colorado Springs, and Fresno are not currently served by Southwest. If we consider Denver and Colorado Springs to be co-terminals, then that knocks one more into the Southwest category. Even if they operate non-stops where Southwest does not operate them, Southwest still sets the fare. Southwest controls average fares against United and Delta and Continental in competitive markets. Don’t think that ExpressJet will be able to truly determine fares in competitive markets. That said, with just 50 seats worth of revenue per segment to cover costs, it’s going to be interesting. Can ExpressJet get a premium in some markets? Maybe. But it won’t be much. Again, if then fare is too much higher, the passengers in these markets will stick to their current habits.
That is the most baffling part about this operation. Sure, it is hard to find parts of the country where there is not a heavy discounter/LCC presence these days, but they are literally right in Southwest’s home turf. Sure, ExpressJet cannot compete with Continental, and probably cannot directly compete with fellow SkyTeam members Delta and Northwest, but that still leaves a few markets that don’t set them up for Armageddon. So many of the markets in which they are offering service are tainted by Southwest that it just seems they are asking for trouble. Why not try to carve out a niche in the Pacific Northwest or even the Midwest or selected parts of the Eastern Seaboard. Sure, they might run into other LCCs, but they won’t be in Southwest’s home turf. The region they seem focused on is Southwest’s! There are so many examples of things that just don’t seem right that it seems they are trying to hurt themselves. It makes me question the process through which they picked routes.
Which brings me to New Orleans. Traffic-wise, it is still below pre-Katrina traffic levels. One would think that maybe the ExpressJet planning experts looked at pre-Katrina traffic statistics to find markets with the most passengers and no non-stop service. That explains service to Kansas City (always a market that had traffic potential from New Orleans, but never sustained a carrier presence consistently). However, Birmingham and Jacksonville were Southwest nonstop markets. So, if the route selection process worked like it does at many carriers, they simply looked for markets that had high traffic and limited capacity. Of course, they would use data from before Katrina to get a better view of MSY traffic levels.
The problem is, Southwest may eventually (Soon?) come back to these routes. And worse yet, the traffic levels noted may be more tied to the fares in the markets than the actual presence of a market. Was Jacksonville-New Orleans viable before Southwest offered it at $79 each way? Does the market still exist if it is priced at twice as much? If the level of traffic assumed only works with Southwest fares, then is ExpressJet really taking an honest look at the market size?
How about some odd paradoxes? No Omaha-Sacramento? There’s a market with no non-stop presence? Yet they are operating Omaha-Ontario and Omaha-San Diego, but nothing to the Bay Area? I would think that OMA-SFO/SJC/SMF/OAK would be a larger composite market size than San Diego.
It’s also interesting that they are building a transcon carrier, but with an equipment type that is not compatible with transcon service. Will anyone truly take a trip RDU-ONT via AUS with 50-seaters on both legs? 6 hours of flying with limited food and no front cabin. And lots of competition. Would it have made more sense to concentrate service in one or two corridors? The ONT sector looks the most promising. What is so compelling about the markets east of the Mississippi River? Frankly, looking at the route map, that portion of the map looks like an add-on.
Another curiosity; Oklahoma City and Tulsa to San Antonio and Austin. This is just asking for Southwest competition. Granted, over a segment that short a nonstop has marked benefit over a connection, but the fares are so low that this should be a hard route on which to generate some revenue. Again, maybe the route can support one or two trips, but on a short segment, there has to be some level of frequency to get passengers not only off the more convenient multiple connection opportunities, but maybe out of their cars.
Louisville-Kansas City? Has Southwest pricing all over it. El Paso-Ontario? Is there a niche here? Or is ExpressJet in this one simply because Southwest controls all of the Los Angeles-El Paso seats and they viewed this as one market they could share?
Are they going to run a connecting hub at Ontario or San Diego to feed the Bakersfield and Monterrey and Fresno trips? Again, without sufficient frequency, long connections could exist and that would make those connections very unattractive. Plus, if they are banking on connections, they are really mining tiny market sizes. Chicago-Fresno is a relatively small market size. Think about how small Omaha-Bakersfield must be.
Now, let’s leave the routes aside for the moment. What was the biggest problem with Independence Air? Not the concept. Not the leadership. It was the size, with timing coming in a close second. First, they started too big. Second they were too big too soon. They went from feeder to one step shy of major carrier overnight. There are things that are going to wrong when a carrier is just getting off the ground. Braniff II started in 1984 with 20 markets and 30 aircraft and no feel for how many passengers they could get. They were quickly forced to retrench and shrink. And as we know, the ability to cut revenue (seats) is a much easier and faster process than cutting the associated costs that that revenue cut is tied to. In other words, you can cut a flight, and thus the money coming in, but there are costs associated that do not get eliminated in the same cycle. Is Expressjet starting too big without a good handle on just how well, or not well, the acceptance of their product and service will go? Sure, you have to be a certain size to be relevant in the market, but many more US airlines have gone out of business by expanding too quickly than have gone under for being too small. Independence had problems early on, and they were magnified by their size. If they had started slower and smaller, it might not have fully utilized the aircraft they suddenly had to find homes for, but it could have given them a chance to more cautiously spool up their operation. They went in with multiple frequencies to become relevant in the market. Business passengers want frequency. Washington DC is a major business market, thus the frequency seems logical. By the time they realized that the 50-seat Canadairs weren’t drawing passengers, they had committed to so much service that it was hard to retrench effectively. Again, as noted above, frequency is important. But it is important to deploy that frequency in markets that actually are markets. Five-a-day IAD-LAN? 6 to Dayton? Almost hourly to Atlanta and Chicago? Let’s be reasonable! They did not have a gauge on demand, or made very liberal assumptions, especially regarding stimulation. One has to believe that they viewed Dulles and Reagan-National as interchangeable airports. Sound familiar? Perhaps the drive was too long for many DC-area passengers. Maybe the lack of a frequent flyer program? Good fares alone didn’t save Independence Air.
Which brings us back to ExpressJet. Sure, the non-stops to Ontario/Los Angeles from various Southwestern markets look good, but do they have a handle on whether these markets can support the service? They’ve built a transcon carrier that will be at its full size over a 120-day period. Most of the markets are shared with Southwest, and while they put a few non-stops in places that do not have them, I don’t see them bringing very much to the table. Thankfully they have the rest of their fleet still deployed with Continental and that will give them a cash cushion to keep this folly from ending their existence.
One fun consideration in this plan. If it doesn’t work well after a few months, will ExpressJet offer to put the CO code on these flights to see if things improve?
Paris Tyler
