Airline Stupidity

[700UW]

Every business in America passes on increases in goods and services to the consumers.

For some reason the airlines don't believe in passing on the huge increases in jet fuel costs to the passengers. That is the most asinine way of doing business.

Groceries, tires, gasoline and anything that relies on petroleum has increased except ticket prices.

The business model is doomed to fail since the airlines will not pass on the fuel increases to the passengers, this simple act could help the industry, but I guess the executives are too stupid to figure out it is the simple things needed to be done to fix one of the major problems.

This might seem callous, but it is not meant to be, but I for one will not subsidize ticket prices with my salary, pension and benefits so someone can pay the same price for a airline ticket.

 

[Segue]

The airlines WOULD LOVE to pass on costs to the consumer, but they can't. Its too competitive and the price bar has been lowered by the LLCs.

People ARE paying less for tickets, and I'm sorry to say, its coming from your pocket. That's the cold, hard reality of a competitive market.

Some more reading for you courtesy of the GAO:

http://www.gao.gov/new.items/d04836.pdf

 

[USAir757]

The problem is the LCC's can absorb much more of the fuel cost increase, and still remain competitive and profitable. US isn't even profitable to begin with, and while it remains competitive, revenues keep coming in. Adjust ticket prices proportionally with increasing fuel costs and you'll lose lots of people in the transfer.

 

[ITRADE]

Its abolsolutely a LCD issue. Southwest and AirTran and JetBlue can charge less because it costs them less to operate their planes. Other carriers must match or lose customers.

 

[RDUSWF]

700UW, you are missing the point altogether. The reason why the industry cannot raise prices (they have tried several times) is because we now have a competitive landscape. Someone (the LCCs) have figured out how to make money, without raping their best customers, and at the sametime provide comparable service. It is not an entire industry issue only a legacy carrier issue. Blame it on mgmt for not having the foresight to see that the industry has changed for good. The fact remains that if the LCCs were not able to be profitible in this environment then prices would certainly go up, but then again not enough to support the higher cost structures of the legacy carriers.

 

[ITRADE]

How is management stupid when they recognize that since revenue (i.e., ticket prices aren't going to increase) and decide that costs have to decrease. They immediately meet resistance from the work groups when they attempt any work improvements, efficiencies, or concessions?

 

[700UW]

If all the majors raised their prices for fuel, it would not drive away passengers if they stuck to it and all raised. A $10 increase in a round trip if WN, AA, DL, UA, US, NW and CO raised it would not drive away passengers.

You can't sell something for less then what it costs to produce, that business model is doomed to failure.

That is how management is stupid.

 

[ITRADE]

$10 increases have been tried, and have mostly failed. One carrier will not go along with the fare increase. You simply assume that everybody (the major carriers) is going to play along. They don't.

And even if they did, B6 or FL is not going to.

A $10 increase on a $500 round trip is not a lot, but a $10 increase on a $79 round trip is and enough folks are sensitive enough to be deterred.

Conversely, a $10 increase will help cover the costs of a short flight, but when you're losing $100 on a transcon flight (fuel), a $10 increase still yields a $90 loss.

As to operating below cost, that is what most all the major airlines have done. Using your rationale, all six of them should just cease operations since their CASM is vastly outstripping RASM.

 

[700UW]

$As to operating below cost, that is what most all the major airlines have done. Using your rationale, all six of them should just cease operations since their CASM is vastly outstripping RASM.

[post="179963"][/post]​

The business model is a failure, because they will never make a profit if they cannot cover their costs.

And no amount of employee concessions will save an airline.

If it costs you $10,000 to produce an automobile, you can't sell it for $7,500 and expect to stay in business, can you?

 

[ITRADE]

The business model is a failure, because they will never make a profit if they cannot cover their costs.

[post="179964"][/post]​

And that is why they have attempted to work to reduce costs. Revenues aren;t going to rise.

 

[mrfish3726]

No they build the vehicle for 10K and sell it for 30K, same way the legacy carriers screwed the business flyer. I don't care what kind of a vehicle it is I wouldn't pay more than 16K for a vehicle. Houses in the Denver area being built for MAYBE 80 to 100K, then selling for 250 to 300K, its robbery :down: . But, they say the increse is simply for supply and demand! This time of year there is plenty of supply (capacity) but not much demand in the next few months. It should be interesting for ALL.

 

[FWAAA]

Being 80% hedged for this year's fuel needs (and 80% hedged for next year) means that WN has everyone else over a barrel. Their costs are already very low (CASM one of the lowest in the industry) and now the sky-high price of fuel affects them less than everyone else. Fuel goes up, WN's futures contracts become all the more valuable.

Don't think they realize this? WN execs know that this is the time to kill off a couple of the weaker members of the herd, and by not demonstrating price leadership (and raising fares) they are helping accelerate that process of death. It's not pretty, but it's what happens in markets with lots of competition.

Everyone likes the idea of competitive markets in the abstract, but nobody wants to see the gruesome result of competiton: Sometimes competitors lose and go out of business. It's hard to watch, but what did everyone expect? That all the legacy airlines would survive forever? This is just a continuation of the process begun in 1978 with deregulation. I'm just surprised that more of the legacy airlines haven't failed so far.

 

[sfb]

For some reason the airlines don't believe in passing on the huge increases in jet fuel costs to the passengers. That is the most asinine way of doing business.

Groceries, tires, gasoline and anything that relies on petroleum has increased except ticket prices.

The problem with the analogy here is that groceries, tires, gasoline, electricity, heating oil, etc. are all (mostly) necessities. Regardless of the price of gasoline, people still need to drive to work, the store, to pick up the kids, etc. While public transit is an option for some (like me), most people in this country are reliant on their cars. People need to eat and heat their homes, so they buy groceries and heating oil.

Air travel, on the other hand, is not a necessity for most people; there are alternatives which include driving, videoconferencing, the telephone, or simply choosing not to travel at all. For a family of four or five thinking about going to see Mickey, an increase of $40 or $50 in total airfare may well mean that they drive instead. For business travelers who must fly anyway, an extra $10 on a $500 ticket doesn't make a big difference, as stated by ITRADE. The problem is that the demand for air travel tends to be extremely elastic at lower price levels.

The problem with your suggestion that "WN, AA, DL, UA, US, NW and CO" raise their fares is that WN specifically doesn't have to. They're about 80% hedged with a strike price around $25 per barrel. As a matter of fact, Southwest did raise fares (citing high fuel costs) by a buck or two this summer, and they were matched by most of the competion. Southwest doesn't price or act as part of the cartel, and they're not looking to help protect the legacy network carriers from their own bloated cost structures.

 

[luvn737s]

So what I'm hearing is that if the tickets were raised $10 that there would be no passengers on a flight. The aircraft would be completely and totally empty, even on routes where no LCC's fly. Furthermore, Southwest would tell Boeing to deliver 30 more 737s tomarrow to carry all the passengers who bought tickets at Southwest.com when they heard US was raising prices? Is this reasonable?

 

[mweiss]

luvn, I think you're hearing something that isn't being said.

What you need to look at is the total revenue generated by moving an aluminum tube from Point A to Point B.

A $10 increase in airfares will shift your customers further down the demand curve. This means that fewer (not zero) butts will be in the seats, particularly if the competition is sticking with the pre-increase fares. Even with the increase in the average fare, the upshot resulting from a smaller number of flying passengers is less revenue for the flight than there would have been without the fare increase.

This is why simply raising the fare is not enough.