Got A Great Idea!

[410OhOne]

I got a great Idea!

Lets raise fares!

And, I don't have a MBA from Harvard, I just turn a wrench!

What, people gonna just quit flying?

Airline management, not just AA....I have to wonder!

 

[FWAAA]

It's one thing to publicly announce multiple $10 - $20 fare hikes; it's quite another to actually GET that additional money. The yield and RASM declines at most all legacy airlines suggests that the current glut of seats (overcapacity) is what drives prices of perishable airline seats, not managements' wishful thinking about how much they would like to charge.

We'll see in July (when we see Q2 numbers) whether these hikes have any positive effect on revenue. If UAL and/or USAir fold, then the hikes have a much better shot at actually producing more money.

 

[TWAnr]

What, people gonna just quit flying?

[post="265519"][/post]​

No, they will simply switch to the competition.

 

[Fly]

If UAL and/or USAir fold, then the hikes have a much better shot at actually producing more money.

[post="265528"][/post]​

Or perhaps if AA folds, we may have a much better shot!

 

[FWAAA]

Or perhaps if AA folds, we may have a much better shot!

[post="265539"][/post]​

Keep hoping. Maybe it will rain $100 bills today, Fly. 😀

 

[goingboeing]

Or perhaps if AA folds, we may have a much better shot!

[post="265539"][/post]​

What have you been smoking today?
UAL will be long gone before AA because AA has been taking money from its employees for a long time.

AA will be 1st in line to buy UAL assets[routes] when the selloff begins.

I'm glad to see you posting on the AA threads.

 

[Connected1]

No, they will simply switch to the competition.

[post="265537"][/post]​

Because the competition doesn't use jet fuel? Yes, even Southwest feels the full effects of the rising price of oil and even they will have to raise prices one day.

 

[limit]

If UAL and/or USAir fold, then the hikes have a much better shot at actually producing more money.

Or perhaps if AA folds, we may have a much better shot!

[post="265539"][/post]​

Fly: After 9/11 AA management was convinced that UA and USAir will go out of business. In a gross miscalculation the waited almost two years before they realized they were wrong. Some still do not. I am not so sure UA will liquidate.
If it happens, blame the price of oil, not anything else.
As for AA they can blame themselves.

 

[410OhOne]

Again, I dont think $10 is going to stop the family from going to Disney to blow $2,000. Hell we go to the ATM daily and pay up to $3 to access our own money. Raise the damn prices provide a good service turn a profit. It is that simple. What, do you think SWA is buying burnable peanut juice or something. Let them continue to give away their product. We will see come 2nd Q.

 

[will fix for food]

Again, I dont think $10 is going to stop the family from going to Disney to blow $2,000. Hell we go to the ATM daily and pay up to $3 to access our own money.  Raise the damn prices provide a good service turn a profit. It is that simple. What, do you think SWA is buying burnable peanut juice or something. Let them continue to give away their product. We will see come 2nd Q.

[post="265585"][/post]​

American jacked fares today. Let's see who will follow. So far it is Continental, Delta, and Northwest.

http://biz.yahoo.com/ap/050429/american_fares.html?.v=2

 

[Bob Owens]

It's one thing to publicly announce multiple $10 - $20 fare hikes;  it's quite another to actually GET that additional money.   The yield and RASM declines at most all legacy airlines suggests that the current glut of seats (overcapacity) is what drives prices of perishable airline seats, not managements' wishful thinking about how much they would like to charge.

We'll see in July (when we see Q2 numbers) whether these hikes have any positive effect on revenue.   If UAL and/or USAir fold, then the hikes have a much better shot at actually producing more money.

[post="265528"][/post]​

There we go again with the overcapacity BS line.

This thing has been repeated so often that most simply accept it as fact without any question.

The fact is that there has never been a real shortage of airline seats. Overcapacity has been a chronic condition for this industry, even during the days of the CAB. Overcapacity became a big problem as the 747 came into service in the 1970s.

The fact is that load factors are at historic levels. Unless you are running a charter operation its normal in all modes of transportation to have a certain amount of overcapacity. Do we expect every city bus or subway train to be at max capacity all the time? Or is it accepted and expected that the operator provides enough service so that at peak times no one is left behind?

As FWAAA and other keep citing overcapacity as the reason for the airlines miserable performance, they ignore the fact that we have seen these cycles before, however we have not seen these load factors. In other words there has always been overcapacity, and there were periods of fare wars before, and times when the airlines filled up seats for next to nothing. However load factors did not vary all that much between the good times and the bad. In the present case the highest load factors(least amount of overcapacity) are coinciding with the worst performance.

The amount of overcapacity that the industry produced was not the sole driving factor of whether or not the industry turned a profit. FWAAA claims that if USAIR liquidates that the reduced capacity will drive up prices. This is a changed approach. Before it was claimed that low cost carriers like SWA and Jet Blue were to blame yet now they have switched their focus to USAIR, a legacy carrier, they say, needs to liquidate. Before they claimed that carriers like JetBlue set the price and that was it, passngers would not be willing to pay more, now they are claiming that if we reduce capacity a little that they would.



How much capacity would USAIR actually liquidate? Would all those aircraft dissappear or would they be picked up by other carriers? And if they are picked up then how would USAIRs liquidation reduce capacity?

It seems the answer we get to this question depends on the context under which it is asked. If its a question of a labor struggle the aircraft would be released right away, if its a question linked to overcapacity they would dissappear and solve all our problems, or at least mitigate them.

If the load factors for the industry are at around 80% would USAIRs demise eliminate that 20% overcapacity?

Lets say USAIR eliminates 10% of the industries capacity, that all the aircraft they have are either parked in the desert or shipped out to foreign markets. My guess is this that 10% is a gross exaggeration but lets just use it for illustration purposes. Then the airline industry still has an overcapacity of 10%. And the claim is that as long as you have overcapacity, even historically low rates that passengers are not willing to pay more. Then they throw in "quantity demanded" as opposed to demand. That if the airlines charge $10 to $20 more that they will opt to either stay home or find other means or transportation. Well if USAIR dissapeared why would this alter quantity demanded?After all there is still overcapacity.

Its obvious that when you look at the facts that the overcapaqcity claim is simply a lie. The fact is that load factors are at historic levels. The problem is the fares. The airlines are not charging enough. Its as simple as that, The reasons why get complicated but to make it sound like it all boils down to overcapacity is purposely misleading.

They have yet to find the point at which to price their tickets. They claim that if they raise the fares that people will stay home, well that depends on how much they raise them. If USAIR dissapeared then this is no longer the case? Rediculous!Airfare is a means to something else, so price is not the sole factor, people do not purchase airline seats to consume airline seats like they would when they buy clothes or food, they buy airline seats as a means to something else, like the way we buy gasoline to get to work. Despite the fact that gasoline has doubled we are still buying the same amount, because in order to get to work we have to buy the gas. As prices climb eventually useage will be reduced but as we have seen with gasolene(I admit that airfares may not enjoy the same amount of price elasticity as gasoline)the price can vary a huge amount.

The claim that the airlines can not change prices much is a complete falsehood after all look at the fact that on the very same flight the price paid by two passngers sitting right next to each other on the same flight can vary by more than 100%! Compare the price paid by coach and first class on the same flight to the same place and you could see vary over 500%! Granted there may be different circimstances but the point is that the amount of change in ticket prices needed is probably minute compared to the differences we alreadyy see people pay for essentially the same thing. To claim that minute changes would result in huge changes in the load factors id very unlikely.

If we look at AAs losses of $200 million or so last quarter and divide that by the number of passengers flown, then we can see how much more AA would have had to charge per passenger to break even. Is that amount a huge disparity that would force people to stay home? I doubt it.

The fact is that for some reason the airlines have yet to figure out what to price their tickets at. They spin and spin and switch from one cause to another but in the end it still comes down to not pricing your tickets high enough to cover your costs. There will always be a certain amount of overcapacity. If there wasnt there would be Congressional investigations and so forth. The public will not tolerate a transportation system that limits the opportunity to travel because that system expects that every seat made available must be sold.

 

[Decision 2004]

I find it amusing how AA supporters and AA management complain about the "glut of seats" and "over capacity", while at the same time adding seats back to aircraft and inflating seat numbers in our own system.

It is like the TWU complaining about AMFA lay-offs while they have thousands on the street too.

 

[Ch. 12]

There we go again with the overcapacity BS line.

[post="265851"][/post]​

This is a rather simple explanation but no matter how many times it is explained, there are non-believers.

Yes...the airlines have too much capacity.
Yes...if ALL carriers raised fares (even just $5/route), demand would drop significantly. $5 can be 10, 15% of the current fare...that makes a difference.
Yes...loads are very high...BECAUSE OF FARES.
Yes...capacity would have to be cut back if fares were increased.

Folks, this is basic economics and even if you know nothing about econ, you should know the relationship of price on supply and demand.

Price goes up, demand goes down, supply must go down (which it will not in this industry)
Price goes down, demand goes up, and you have 80% LFs are you do now.

So PLEASE get off the raise fares issue b/c what you don't realize is that airline passengers - in this day and age - are EXTREMELY price sensitive and it's not a matter of changing carriers...it's a matter of flying at all. $5-$10 WILL stop people from flying...trust me.

And yes, Bob, the issue truly is over-capacity. B/C there is so much capacity, it needs to be filled and carriers had to lower fares to do this. You are right that you must have enough capacity at peak times, but that means match your supply with your demand. Don't fly 76's 12 times a day just b/c the 5pm has alot of demand.

Fix the supply issue and the prices will work their way out naturally. This isn't BS that I feed you...it is reality...and BASIC economics.

 

[Bob Owens]

This is a rather simple explanation but no matter how many times it is explained, there are non-believers.


Yes...the airlines have too much capacity.

And what do you base this claim on? The fact that there is less excess capacity than ever before? Basic economics would lead you to believe that if there is less capacity that prices could be higher.

Yes...if ALL carriers raised fares (even just $5/route), demand would drop significantly. $5 can be 10, 15% of the current fare...that makes a difference.
Yes...loads are very high...BECAUSE OF FARES.


Bull, that might be true in the case of goods such as clothes or food but not with airline tickets. As 410ohobe cites a change in $20 is not going to prevent the consumer from dumping $2000 on vacation. Perhaps if you were saying $100 or $200 you may have a point but not $10 or $20, people pay more than that to park their car at the airport. They pay $5 for a cup of coffee or a stale doughnut without the bat of an eye. You are saying that for a difference of $5 thats droves would stay home? Rediculous! No matter how low you make the fares unless the people have some other reason to fly, besides the price of airline tickets, they are not going to fly.As I said before, people dont buy airline seats in order to buy airline seats, they buy them as a means to something else.

Yes...capacity would have to be cut back if fares were increased.

Why? Doesnt basic economics demand that you decrease capacity if prices are reduced and increase it as much as you can when they increase, at least to the point where they cause a decrease in pricing?

Folks, this is basic economics and even if you know nothing about econ, you should know the relationship of price on supply and demand.

Price goes up, demand goes down, supply must go down (which it will not in this industry)
Price goes down, demand goes up, and you have 80% LFs are you do now.

Ok, explain the fact that gasoline prices have doubled but so far demand has not gone down. It seems that your simplified basic law of supply and demand is not a complete explanation for what we see with gasoline. Economics is in fact a science on the study of one part of human behavior and no matter how you try to simplify it it remains complex. It tries to explain what humans will do or explain what they did in the past. But at best is still just educated guessing and by no means foolproof. The fact is that you do not know how the public would react to a $5 increase and the facts dispute your claim. The fact that we already have people paying hugely different rates for the same exact product already shows us that despite your claim that pricing is set, it is in fact very variable.



So PLEASE get off the raise fares issue b/c what you don't realize is that airline passengers - in this day and age - are EXTREMELY price sensitive and it's not a matter of changing carriers...it's a matter of flying at all. $5-$10 WILL stop people from flying...trust me.

Why should we? Its an absurd claim to think that $5, the price of a cup of coffee at the airport, would force a significant number of people to stay home. Would it force you?


And yes, Bob, the issue truly is over-capacity.

No, its the issue of choice that the carriers are chiming in on at the moment.

B/C there is so much capacity, it needs to be filled and carriers had to lower fares to do this.

So the airlines create additional capacity so they can lose money trying to get rid of it? How much lower are you talking here? Oh yea, $5 to $10 right? Sorry, I'm not buying it.

Fix the supply issue and the prices will work their way out naturally. This isn't BS that I feed you...it is reality...and BASIC economics.

Well the fact is that no single carrier can "fix" the supply issue, I think you mean excess supply, of which is proportionately lower today than ever before.

According to the way you are presenting the supply and demand theory price and demand have a defined link and that varying one will automatically vary the other. Thats not always true. Demand is limited, and price is simply one of the factors. If I offered richshaw service between Patchogue and Manhattan no matter what price I offered it at demand would likely be non-existant. However if I offered rickshaw service within midtown Manhattan I could probably get a good price for it. In fact the price I could get could vary at different times of the day and different days of the week. The point is that trying apply a basic theory to all applications does not work. Charging less may not always result in getting more business.

 

[410OhOne]

Bob Owens

I am impressed, absolutely impressed. I printed out your replies and I am going to take them to class for further discussion on two topics we are debating right now. One is the airline industry (reregulation), and the other is gas prices (what does CARTEL really mean?).

Thanks for the info


CH12

I can't believe you are buying the hype and bull the airlines are selling right now. Terrorism, gas prices, whats next? All the while people still continue to fly to make the business meeting to close that deal, and summer, well it will still come every year.

Thanks as well