Delta Exec Says Airline Losing $5M a Day (AP)

[DAL_Scope]

Delta Air Lines Inc. is losing $5 million each day, much of it due to high jet fuel prices, as it tries to stay afloat, the company's chief financial officer testified in bankruptcy court Thursday.

http://us.rd.yahoo.com/finance/news/rss/st...uptcy.html?.v=4

 

[Deleted by Moderator]

Waiting to hear WT spin this.

 

[WorldTraveler]

no spin....I'll just note that $1B in extra fuel costs per year is nearly $3M per day. DL was burning $5M per day a year ago before fuel prices soared. Just says they have cut an aweful lot but it obviously isn't enough. And all of the cuts being implemented now will not bear fruit for months... some of it not until next summer when all of the new transatlantic routes start kicking in. DL's best hope is that it will be really cold and expensive to heat homes in the NE this winter and folks decide to head south as often as they can.

 

[Dea Certe]

WT,

With four airlines in bankruptcy, maybe it's time the industry, including Delta, kick up its fares a buck or two. I'm not advocating gouging customers. How long can a business sustain itself by selling its product for less than it cost to make?

And, if people are having to pay so much more for their heating budget, do you really think they will find the money to fly anywhere for a vacation?

Yikes.

Dea

 

[aafsc]

no spin....I'll just note that $1B in extra fuel costs per year is nearly $3M per day. DL was burning $5M per day a year ago before fuel prices soared. Just says they have cut an aweful lot but it obviously isn't enough. And all of the cuts being implemented now will not bear fruit for months... some of it not until next summer when all of the new transatlantic routes start kicking in. DL's best hope is that it will be really cold and expensive to heat homes in the NE this winter and folks decide to head south as often as they can.

Wouldn't a really cold winter cause a surge in demand for heating oil and thus increase the price of crude oil as well as increase the crack spread for jetfuel (Jetfuel competing with home heating oil in the refineries)? Also, the vast majority of people in the cold climates can only afford a week or two in the warm areas. Don't forget that the price of logding and food increases significantly in the warm areas this time of year.

 

[DL Gold Medallion]

With four airlines in bankruptcy, maybe it's time the industry, including Delta, kick up its fares a buck or two.

Perhaps you forgot about the airlines with lower cost structures. Do you think they'll play along and raise fares too?

You should know that the airline industry is so elastic that even a tiny fare increase will drive traffic elsewhere. Efficiency is the only way to go for long-term success.

 

[Ch. 12]

Perhaps you forgot about the airlines with lower cost structures. Do you think they'll play along and raise fares too?

You should know that the airline industry is so elastic that even a tiny fare increase will drive traffic elsewhere. Efficiency is the only way to go for long-term success.

Amen. And Dea Certe, reading in the news, you would know that the airlines have raised fares. Actually...despite the news reporting this, the fares have not gone up much at all (they report "12 fare increases" but leave out the 12 fare decreases...i.e. net 0 fare increases) and that alone has already got the travelling public in a fury with many seeking other avenues of transportation.

I wish the people would try to grasp airline economics and elasticity of demand before stating over and over that it is simple to raise fares. Highly inelastic...fuel. We all keep buying even when it's double last year. Highly elastic...airfares. Everybody stops buying just b/c the news reports that airfares have gone up (even if they haven't).

 

[KCFlyer]

Perhaps you forgot about the airlines with lower cost structures. Do you think they'll play along and raise fares too?

You should know that the airline industry is so elastic that even a tiny fare increase will drive traffic elsewhere. Efficiency is the only way to go for long-term success.

Why is it then when I see airlines offering $198 fares and losing money prior to bankruptcy, then enter bankruptcy, gain concessions, throw out contracts, trash pensions and get costs to a level to support $198 transcons...why is it that they all of the sudden start offering $150 transcons?

 

[Dea Certe]

Certainly the airlines need to be efficient. As a customer, you know most airlines have cut way back on the amenities like food, pillows and blankets on most flights. Staffing has been cut to the bone. Pay and benefits have been cut drastically. Yet, most airlines are not turning a profit.

It seems to me that the industry has a suicide pact going in its drive for market share. I'm hearing load factors are at an all-time high.

What needs to be done, in my opinion, is rationalization of fares. Quit gouging the business travelers to subsidize the leisure markets.

There's an insanity in charging far less than it takes to operate.

I don't think we'll ever see a return to the golden days of civilized air travel. But we do need to figure out a way to make air travel more comfortable for the frequent flyers who typically spend the most for their tickets. Raising the fares a few dollars on leisure tickets may be the only way any airline is going to survive.


Dea

 

[Ch. 12]

KC- I cannot comment b/c I don't see that happening. I have not noticed UA, DL, or NW having lower fares now except for UA out of IAD and that is b/c they have to compete with an atrocity (DH) that is only there to dilute UA's revenue. It may seem to you that this is happening but I truly do not see anything concrete and trust me... out-of-BK carriers are not keeping their fares up b/c of costs. They are just as likely to have loss-leader fares than those in BK. Don't see where you keep getting this argument from.


Dea-

It's not as simple as bringing leisure fares up and biz fares down. In fact...that would be a horrible choice. The biz pax are inelastic...they are not very affected by changes in fares (i.e. you would not pick up much more traffic just by lowering their fares) and are more interested in schedules. The leisure pax...the VAST majority of airline pax...are HIGHLY elastic and a $1 fare increase (or as I stated...even the perception of a fare increase) will wreak havoc on demand. So...lower it for you biz pax and you dilute revenue b/c they would have travelled either way. raise it for leisure pax and you lose pax in droves...even if ALL carriers collude. The car is a mighty competitor.

I don't necessarily think that biz fares need to be as high as many legacies tend to think but again...bringing them way down is pointless.

This is where I keep getting frustrated that so many of you truly over-simplify airline economics. It's not the oil industry where any price can be charged and demand stays the same (and congress grants you tax breaks when you make record profits).

 

[KCFlyer]

KC- I cannot comment b/c I don't see that happening. I have not noticed UA, DL, or NW having lower fares now except for UA out of IAD and that is b/c they have to compete with an atrocity (DH) that is only there to dilute UA's revenue. It may seem to you that this is happening but I truly do not see anything concrete and trust me... out-of-BK carriers are not keeping their fares up b/c of costs. They are just as likely to have loss-leader fares than those in BK. Don't see where you keep getting this argument from.

Go out on travelocity and compare fares. Invariably, you will find the bankrupt carriers offering fares that are less, sometimes considerably less than the non bankrupt airlines. I understand getting costs down. But I certainly have noticed that fares are way lower than they used to be. My brother in COS said that invariably United has lower fares than anybody else out of Denver.

It's not as simple as bringing leisure fares up and biz fares down. In fact...that would be a horrible choice. The biz pax are inelastic...they are not very affected by changes in fares (i.e. you would not pick up much more traffic just by lowering their fares) and are more interested in schedules. The leisure pax...the VAST majority of airline pax...are HIGHLY elastic and a $1 fare increase (or as I stated...even the perception of a fare increase) will wreak havoc on demand. So...lower it for you biz pax and you dilute revenue b/c they would have travelled either way. raise it for leisure pax and you lose pax in droves...even if ALL carriers collude. The car is a mighty competitor.

I've always been a fan of Crandalls idea of value pricing. You raise the lowest fares some...but not enough to send droves of people to their cars. Then you simplify the pricing. And part of that is dropping "biz" class airfares. Back when the value pricing experiment was dropped, I happened to have flown Delta from MCI-DFW at the last minute...the fare was about $750. Value pricing dropped that fare to $500. Yet the advance purchase fares remained attractive to those who wanted to buy them.

 

[FWAAA]

Not all bankrupt carriers are offering $150 transcons, but over the past 3+ years, there have been plenty of cases of UAL and USAir offering rock-bottom fares in their desperation to raise cash. Cost levels no longer matter when you fear running out of cash.

Now that the cash positions of UAL and USAir have stabilized, I doubt that either airline is cutting fares like they did during their darkest hours. But watch out for NW and DL this winter. After the holidays, both may deeply cut fares in a bid to keep enough cash coming in to avoid shutdown. On the other hand, perhaps both have enough cash to avoid such discounting. We'll see come February.

 

[Ch. 12]

Go out on travelocity and compare fares. Invariably, you will find the bankrupt carriers offering fares that are less, sometimes considerably less than the non bankrupt airlines. I understand getting costs down. But I certainly have noticed that fares are way lower than they used to be. My brother in COS said that invariably United has lower fares than anybody else out of Denver.

I've often agreed with you in the past but still cannot come up with anything here. I checked some UA markets out of DEN and they are always in line with AA and CO. Data please. Trust me...there would be many pricing employees at non-BK carrier w/o jobs if they weren't being competitive with UA and the likes. I'd be more than happy if you provided specifics where this happens consistently. I'm sure I could search and search and find an instance of both BK and non-BK carriers offering lower fares but without concrete evidence that the BK carriers are constantly offering lower fares has to be dismissed as an assumption based on isolated observances if nothing more is provided than hearsay.

I've always been a fan of Crandalls idea of value pricing. You raise the lowest fares some...but not enough to send droves of people to their cars. Then you simplify the pricing. And part of that is dropping "biz" class airfares. Back when the value pricing experiment was dropped, I happened to have flown Delta from MCI-DFW at the last minute...the fare was about $750. Value pricing dropped that fare to $500. Yet the advance purchase fares remained attractive to those who wanted to buy them.

As I stated...it doesn't even take a real fare increase to send away droves of people. The funny thing is that if pricing in one of the most elastic industries out there was as simple as so many state...many people would be rich today and the airlines would be as profitable as the oil companies. The economic reality (as I explained in detail in my last post) is that it ain't that simple. And as far as the biz fares...you flew at both levels so that is why I say that the carrier would have diluted their revenue by $250 (33%!) by offering the lower fare. The last minute business traveller is there no matter what. The airlines aren't in the position to offer 33% off to a group that would buy either way. That's like offering major tax cuts to the wealthy (let the rich get richer) and saying that will cut the deficit. Oh but I digress...

 

[WorldTraveler]

KC,
I will reiterate again that the US DOT said in its report on the airline industry released in Sept that there is no evidence that bankrupt carriers are pricing their products lower than than non-bankrupt carriers. You can certainly find instances here and there but that does not make a complete trend. Given that UA is the dominant carrier in DEN, it is very likely that they have some flights in every market that have more capacity than needed and thus low fares will be offered. Part of that is the result of the hub and spoke system and the inefficiencies that it creates. LCCs typically have far less capacity in markets where legacies dominate and thus skim off the best revenue.

Fares actually have been successfully raised a number of times this year; the increases in RASM that every airline is reporting is evidence that real fares are going up. Again, there are hefty discounts but by and large fares are going up - as they should. And they likely will continue to go up given only WN is well hedged into 2006 and they simply are not big enough to force fares down throughout the country. However, fares cannot be raised much without pulling down capacity - something that is almost impossible for a non-bankrupt airline to do and only slightly possible for bankrupt airlines. We have seen over and over that lessors would rather take a haircut on their leases w/ bankrupt airlines than let them dump the aircraft. Given that the legacies have hundreds of 10 plus year old aircraft which will not be snapped up by anyone, the leases will come down dramatically but the planes will remain in service. DL's estimate of cutting lease rates by $400M or more per year is indication that many current leases are too high.

The only real solution to making legacy airlines profitable is to cut costs pretty close to LCC levels, fly as much where LCCs don't, and then remove as much capacity as can be done in order to push fares up (primarily connecting capacity for the legacies) - all at the same time realizing that there is alot of capacity coming online from the LCCs and the legacies will have to vigorously compete w/ them or be relegated to history's junk pile.

 

[WorldTraveler]

aafsc,
actually it has been shown that bookings do increase when cold weather moves into the NE. Yes, even people in the NE have budgets but there is something irrational that happens when a city has to deal with a foot of snow and several days of sub-freezing temperatures. but yes, prolonged cold temperatures would send oil prices up. Perhaps the better strategy is 10 days a month of very cold temperates and abundant snow....

by the way, I hear meteorologists are looking at a tropical system that could hit Florida as a hurricane next week. Maybe the Floridians will have to head back north for safety. unbelievable.