funguy2 said:
I was purposefully being simple, so as to not write 10 pages of postings on why airlines cannot increase fares 😛
Touché.
😀 But I figured it had to be done eventually...how on earth do you describe the elephant of the industry by talking about the rope, tree trunk, snake, or wall?
However, after re-reading your post from the other thread, I can only conclude that a $10 fare increase, whether due to increased taxes for the gov't or increased revenue for the airline, would not affect all airlines equally.
On a
macroscopic level, it would affect them
roughly equally. But on a
microscopic leve, you're absolutely right.
Because it changes the demand curve.
Well, sort of. Depending on where you stick the taxes, it would shift either the supply curve or the demand curve (or both). Regardless, it would certainly shift both the microscopic and macroscopic equilibrium points.
We know that, absent a catestrophic failure, that system capacity will not be reduced, that doesn't mean that capacity won't be reduced in individual markets.
Depending on how the taxes would be applied, it may or may not have an effect here. For instance, if the tax is applied per segment, one would expect a slight increase in demand for nonstops relative to connections. If applied per ticket, that effect should be negated.
It's unlikely that other circumstances would reduce capacity in all but the shortest markets (e.g., Houston-Austin), where the competition is the car. Even then, the high gasoline prices are counteracting this effect right now, since the high fuel prices have yet to be reflected in the ticket prices (as we've noted several times).
As such, if the fare increase on all tickets reduces demand such that one producer with lower costs can force out a higher cost producer... Well, then, the outcome is not roughly equal.
Ahh, but there's the rub. You're not likely to force a competitor out of the specific market, since they have to move the metal somewhere else...where else are they going to move that has better results?
If a high cost producer is forced out of several such markets, and cannot find successful redeployment of the aircraft, then this would indeed create the catostrophic failure.
Exactly. That's traditionally been the end-game of deregulated airline down cycles.
Because, as we have seen in this industry, the airlines WILL NOT be able to pass the additional cost to the customer, whether its fuel or tax.
I'd caution you against this overgeneralization. Both can be passed on, depending on the economic forces at work. WN has thus far absorbed these, but they don't have to. And if they choose not to, the rest of the market will necessarily respond.
If the airlines cannot get a $10 fare hike to work, why would the gov't be able to make it stick?
Because it has to be in the interest of every airline individually, not all airlines collectively, to charge the extra $10. If the tax is applied to all airlines equally (on a per-ticket basis), it becomes in the individual
and collective best interest to pass this along directly.
Similarly, a reduction in taxes to the airline ticket, would create a revenue surprise for the airlines. Prices would not drop, but the airline would keep a higher percentage of the sale price of every ticket.
That
can be true, and it has
sometimes been true in the past, but it is not
always true.
And this $10/ticket tax will impact different airlines differently.
...in terms of percentage tax. A per-segment tax, which hits connecting fares more than through fares, would also affect the airlines differently. So would a per-dollar tax, which hits the higher fares (in dollars) more than the lower fares. "Equal" is in the eye of the beholder when it comes to taxation.
