B6 Continues to Blame DL for Over-Capacity

[B.O.B.]

BOB, WT, Diversion -
I would invite you to look back on some of the earlier posts that Ch 12 and I had on this thread. We discussed a lot of this earlier...and I believe the arguments that B6 is responsible for "excess" capacity didn't hold water.

First, define excess capacity. I've done it. No one else on the board has challenged that defintion or come up with a better one. If you have 100 flights a day on a particular route, is that overcapacity? I would argue that it's not *IF* the flights have a good load factor and are actually there to make money.

Since B6 is running its NYC to Florida flights with a load factor of more than 85% AND is commanding a revenue premium (i.e. - getting a higher ticket price than Delta and the other carriers), AND until the most recent quarter has actually been making money, how is that excess capacity?!

My distinction on overcapacity is simple. If flights are thrown onto a route with no rational plan to make money and solely to attack a competitor then that's excess capacity. A few examples:
- AA at Long Beach in response to B6
- AA at DAL in its fight with SW
- DL in Akron in response to FL
- Song

If flights are launched with a rational plan to actually turn a profit, then it's not overcapacity, it's legitimate competition!...and, yes, in legitimate competition, sometimes there are winners and losers.

If my memory serves me correct...Neelman did say he needs to raise the fares about $10 per ticket to make a profit. Go ahead and do that! Just remember that AA is the 500lb GorillAA and we will undercut your price. That means JB will have to once again lower the price and not be profitable. Neelman said it's a must to raise the prices $10 or JB will not make a profit!

Don't forget about all of the C-Checks now due on those Tonka Toy French made plastic Airbus 320's. C-Checks are not cheap and it will cost JB dearly.

Oh yeah one more thing...JB just added a second fleet type and this plane is not all that great as Neelman thought it would be.

 

[TechBoy]

If my memory serves me correct...Neelman did say he needs to raise the fares about $10 per ticket to make a profit. Go ahead and do that! Just remember that AA is the 500lb GorillAA and we will undercut your price. That means JB will have to once again lower the price and not be profitable. Neelman said it's a must to raise the prices $10 or JB will not make a profit!
is not all that great as Neelman thought it would be.

And we all know just how profitable AA has been lately.

This thread has lost almost all rational argument. Why don't you guys just slap them on a table and pull out a ruler to see who's the big guy?!?

Despite some of its recent troubles, B6 has costs far, far below the majors. The majors can keep B6 from making much of a profit, but they will lose much more themselves. Which is why no sane person should invest long term in the airline industry. In the meantime, the LCCs will continue to take market share in the domestic market for the foreseeable future.

A couple of mergers among the majors could succeed in pulling down a couple of unnecessary hubs and reduce some high cost flying (particularly small RJs), which would go a long way to bringing domestic ops closer to profitability for the majors. But that will probably take closing 4 or more hubs and cutting 200+ RJs. The good news is that it would mean more mainline service into the surviving hubs -- with lower seat mile costs -- and potentially bringing the industry back into the black.

 

[Ch. 12]

And we all know just how profitable AA has been lately.

This thread has lost almost all rational argument. Why don't you guys just slap them on a table and pull out a ruler to see who's the big guy?!?

Despite some of its recent troubles, B6 has costs far, far below the majors. The majors can keep B6 from making much of a profit, but they will lose much more themselves. Which is why no sane person should invest long term in the airline industry. In the meantime, the LCCs will continue to take market share in the domestic market for the foreseeable future.

A couple of mergers among the majors could succeed in pulling down a couple of unnecessary hubs and reduce some high cost flying (particularly small RJs), which would go a long way to bringing domestic ops closer to profitability for the majors. But that will probably take closing 4 or more hubs and cutting 200+ RJs. The good news is that it would mean more mainline service into the surviving hubs -- with lower seat mile costs -- and potentially bringing the industry back into the black.

What you fail to note is that for every seat taken out by a legacy, at least one is put back in by an LCC. With 100's (maybe collectively thousands?) of aircraft on order for FL, B6, WN, NK, and F9, they will continue to force them into the domestic system and keep yields low. So why should all legacies marginalize themselves just to allow these carriers to add seats and keep the over-capacity issue alive?

 

[insp89]

What you fail to note is that for every seat taken out by a legacy, at least one is put back in by an LCC. With 100's (maybe collectively thousands?) of aircraft on order for FL, B6, WN, NK, and F9, they will continue to force them into the domestic system and keep yields low. So why should all legacies marginalize themselves just to allow these carriers to add seats and keep the over-capacity issue alive?

Ch. 12, Well said.....Also, as time marches on, The LCC's cost advantage will continue to narrow.

 

[Busdrvr]

Techboy,
there is one HUGE differance between an airline MAINTAINING a route and an Airline BUYING jets to flood a route.

Lets say we have two airline
Airline D and Airline J
J has costs that are 10% cheaper than D so J figures it can grow like mad and takeover the world. Sounds reasonable, right? But it's not, and here's why.
You must look at the elements of the cost and consider the sunk costs. Lets say both airlines have 10% of their cost in equipment and both airlines will be ammortising the cost of bringing in a new employee and training them to operate each flight on the route. Airline D HAS ALREADY PAID THOSE COSTS. If they drop the route, they would STILL have to pay those costs. It's "SUNK". So really, on that route, airline D has LOWER costs thn airline J, and by going out and borrowing money to buy a new jet and sinking costs at Airline J, they are ensuring that BOTH airlines will lose money.

 

[Ch. 12]

FL Adds Service From CHI to NYC

I'm sorry, Titan...what were you saying about the LCCs making wise decisions and not flooding markets in reaction to competition. Didn't DL announce this route several weeks ago??

Please add positive spin to this...

 

[Flying Titan]

No, as far as I can see, there is only one other airlne flying MDW-EWR, and that's CO. DL does not serve this route. While I'm not sure that I would have made this move because the other metro-area airports have historically been preferred over this route, I don't think this is some plan to irrationally attack CO (or any other carrier) while throwing money away on a route that can't possibly make money. If it's a loser, I would imagine FL will drop it, but maybe they see a possibility for profit there.

 

[Ch. 12]

No, as far as I can see, there is only one other airlne flying MDW-EWR, and that's CO. DL does not serve this route. While I'm not sure that I would have made this move because the other metro-area airports have historically been preferred over this route, I don't think this is some plan to irrationally attack CO (or any other carrier) while throwing money away on a route that can't possibly make money. If it's a loser, I would imagine FL will drop it, but maybe they see a possibility for profit there.

EWR=LGA. MDW=ORD. These aren't really different markets but nice spin. You count LGA flights as competing with JFK when it suits your argument but not EWR vs LGA?! If anything, those two airports are much more aligned than LGA/JFK. Thanks for credible spin, though.

 

[Flying Titan]

Ch 12,
No, earlier in this thread you were the one who insisted that LGA and JFK were the same thing when I pointed out that DL added a lot of Florida flying in response to B6. You said the Song flights didn't represent big additions in capacity since DL traditionally had flights from LGA and shifted some of that capacity to JFK. I made the argument that those new flights were indeed additions...not merely more of the same.

Further, I don't consider EWR to be the same as LGA or JFK. Ask anyone who lives in north Jersey if they even consider going to one of the other two metro airports given the high tolls and awful (and frequently unpredictable) traffic. Likewise, I don't know anyone in Queens or on Long Island who would go to EWR for a flight. For those in Manhattan, yes, they could go in either direction...but even there there are differences. If I'm downtown, I may choose EWR. If I'm uptown, I'm headed for LGA.

Seems consistent to me.

 

[Ch. 12]

Further, I don't consider EWR to be the same as LGA or JFK. Ask anyone who lives in north Jersey if they even consider going to one of the other two metro airports given the high tolls and awful (and frequently unpredictable) traffic. Likewise, I don't know anyone in Queens or on Long Island who would go to EWR for a flight. For those in Manhattan, yes, they could go in either direction...but even there there are differences. If I'm downtown, I may choose EWR. If I'm uptown, I'm headed for LGA.

Thanks for proving my point. LGA and EWR are much more complimentary than LGA/JFK. So Airtran going from chicago to EWR when DL announced chicago to LGA IS a direct attack on DL's new service. Trust me...CO doesn't have a hub in EWR b/c nobody from NYC goes through there...they do it b/c it IS a great alternative. I don't care about those from LI. They will go to JFK or ISP if they are really far out. For the bulk of the population/business, though, which centers around Manhatten, it is a toss-up between LGA and EWR.

Back on topic, ignore as you may this move by FL since it seems to refute your argument that LCCs are impervious to blame in the excessive capacity issue but they clearly added capacity to this new route simply b/c DL is flying it. And just as you draw the assumption that DL was trying to put US out of business, isn't it obvious that B6 and FL are trying to do the same to DL? But that is OK, right? As long as you continue to exonerate B6 you can sleep well at night. Whatever makes you feel better. Most of the rest of the intelligence around here, though, can see what is going on. Perhaps b/c we don't wear the rose-colored glasses. You should try taking them off sometime and think objectively.

BTW- I have been trying to get the ASM data by carrier over the past 5 years to illustrate which carriers are truly adding the system ASMs but unfortunately the BTS data seems to currently be unavailable. Rest assured that the numbers will be quite interesting when I do get them. I thought I'd give you a headstart on concocting a story that can refute the numbers showing that B6 has added an immense amount of ASMs while carriers like DL have not. Good luck on building the story. You can paste links from all of the B6-hired consultants and analysts that you want but the data won't lie.

 

[Flying Titan]

Ch 12-
Not sure how that proves your point. I just noted that most of NYC would NOT go to EWR for a flight to Chicago. As I am sure you are aware, there are five boroughs. I cited one that may have a population split on which airport it would use. Bronx, Brooklyn, Queens, SI = LGA. Manhattan = uptown/downtown split. And again, certainly there is noone in Jersey driving to LGA for a flight to Chicago. Yes, there are a few million people living in Jersey, too. Same market? I don't think so. Some overlap, yes, but mostly drawing from different pools for pax. However, even if it were, where is the evidence that EWR-MDW is an overserved route (or NYC-MDW) is overserved for that matter?

As for your trip through BTS data, enjoy. I look forward to seeing what you come up with.

 

[767jetz]

Despite some of its recent troubles, B6 has costs far, far below the majors.

But they also have revenue far below the majors. Cost is only one part of the equation. Additionally, the leagacy airlines have more room to reduce costs. (Granted, it does take a long time to implement) B6's costs really can only go one direction... Up. And those costs rise very sharply around the 5-6 year mark.

Timing is everything. Just like B6's had great timing entering service as a "newbie" with very low costs just as the economy was slowing and others were losing traction. Now the timing is not so good, and B6 has significant bumps in cost, just as oil prices have spiked and the competition is learning new cost saving tricks.

Sure, raising prices will help. It would have helped everyone over the last 5 years. B6 will soon find out that raising prices only works if everyone follows suit.

In the meantime, the LCCs will continue to take market share in the domestic market for the foreseeable future.

Not necessarily true. Look at DEN as an example. UA now has 2 lcc's to deal with, yet it is still taking market share back.

The good news is that it would mean more mainline service into the surviving hubs -- with lower seat mile costs -- and potentially bringing the industry back into the black.

I wouldn't count on mergers and liquidations to "bring the industry back." This is a dangerous and risky bet. Look at NWA. Their entire strategy for 4 years was to turn the screws to UA and watch them bleed to death. The thinking was that with one competitor out of the way, everything would return to ops normal. We all know how good that worked for them.

 

[TechBoy]

Not necessarily true. Look at DEN as an example. UA now has 2 lcc's to deal with, yet it is still taking market share back.

True. But what are the yields on that market share and how profitable are those flights. We'll never really know b/c UA doesn't break out those details, but I suspect that UA's DEN operation is running a substantial loss.

Perhaps the majors can turn it around, but they have been losing collective market share at a consistent rate for a number of years and I don't see anything changing that trend. In fact, the first thing a major does in BK is cut domestic capacity. I'm sure that we'll reach an equilibrium at some point, but I'm guessing that it won't occur until the LCCs take 50% of the domestic market.

 

[767jetz]

True. But what are the yields on that market share and how profitable are those flights. We'll never really know b/c UA doesn't break out those details, but I suspect that UA's DEN operation is running a substantial loss.

I disagree. Everything I've heard internally is that Ted is profitable.

 

[B6Busdriver]

I disagree. Everything I've heard internally is that Ted is profitable.

Yeah and so is/was Song.