How Many Chances Does Usair Get?

[Bob Owens]

MWEISS; They've gone up in some markets, and down in others. On average, they have fallen somewhat...if you count the effects of inflation. If you don't, they've remained about constant, on average.

And in your opinion should such effects be counted or not?

 

[mweiss]

And in your opinion should such effects be counted or not?

[post="239320"][/post]​

Depends on what you're using the statistic for. That's why I provided both ways of looking at it.

 

[sfb]

There is a further difference. The gas tax was not added to the cost of a gallon of gas during a downturn in the demand for gas. The airlines had to add this cost of "security" when they were dealing with record losses post 9/11. IMHO, the airlines were forced to chop the cost of flying to deal with an increasing amount of skittishness on the part of the public. They cut the cost of flying to create demand and now with the growth of low cost competition almost 5 years down the road we are still dealing with it.

Well, this is only partially true. While the security fee was indeed added during a severe downturn for the industry, the airlines were relieved of the direct cost of providing security screening at airports, which they had paid before September 11. I will not argue with the fact that they face other new security costs behind the scenes, though. However, I'd imagine that the airlines COULD have lobbied for a security tax that was based on a percentage of the cost of the ticket, rather than on the number of connections. Then again, this sort of scheme would have favored the LCC's with their lower average ticket prices. It seems ridiculous, though, to pay twice the security fee for a connecting itinerary when one rarely has to re-clear security at any major or LCC hub.

And the low-cost competition was there five years ago. WN invaded BWI well over a decade ago, AirTran/Valujet had a significant presence on the East Coast five years ago, and jetBlue was starting out and clearly had very strong backing. They're not going away, their costs are lower and will likely continue to be lower (in spite of pontifications to the contrary by certain pilots), and that is reality. jetBlue and Southwest make money on $99 trans-cons when you adjust their CASM for stage length.

As far as them raising fares, I think the airline business is heading more and more into a "commodity" pricing environment. If all the airlines raised fares $20 bucks with 500 million travelers per year equals $ 10 bil in revenue. That makes the industry profitable. Now I am not advocating the poor bastard who pays $2000 to go from PHL-LAX pay an extra 20. I am advocating that the lowest leisure fares come up to a level that will support the industry. Will you lose a few passengers? Possibly, and even probable. Since the airlines will have to increasingly depend on the leisure traveller to make a go of it, they will have to start to provide some service as well.

For many people, air travel always has been a commodity -- the primary concern is getting from Point A to Point B safely and on time. In-flight amenities can justify some premium (more on longer flights), but many of the folks paying for expensive tickets only do so when they themselves are not footing the bill. And the cutbacks by the legacy carriers have put their service on the same level as Southwest (or lower) aside from the dubious advantage of seat assignments.

And yes, you will see significantly fewer people traveling if you were to raise all tickets by $20. For a family of four, that $80 difference might well make them choose to drive instead, or a college student might take one fewer trips home given a limited budget. Raising fares by $20 on a route like the Shuttle would basically be equal to giving more passengers to the Acela.

In any case, the other legacy carriers have little interest in helping out US Airways or each other, since it is clear that there must be some consolidation in the market in the medium term.

 

[Bob Owens]

Depends on what you're using the statistic for. That's why I provided both ways of looking at it.

[post="239323"][/post]​

Ok in the way that Captain Boomer was using it.

Could you clarify what you mean by "somewhat" ?

 

[SpinDoc]

But, again, the meat of this conversation is going on in the AA thread.
That's called collusion, and it's illegal.

[post="239317"][/post]​

[/quote]

Well, what might NOT be collusion would
be if all of the U.S. legacy carriers got
together to hedge fuel costs as a group.
The ATA (Air Transport Association) could
be the purchaser of the hedges and the
carriers could fund the hedges. With the
risk spread among many carriers instead
of individual carriers, maybe the cost of
hedging would come down to the point
that they could compete with the LCC's.

Any derivatives experts out there that
could shed some light on this? Would it
be possible to do something like this?

 

[CaptianBoomer]

All:

It is not collusion if one raises fares and the others follow. It certainly isn't illegal to raise fares to cover the cost of rising raw materials. (jet fuel)

I think the most critical factor is the growth in LCC competition. This is key because every LCC will lose money at these revenue levels. JBLU will probably eek out a small profit due to the drop off in fuel costs and we know LUV is hedged. But in 12 months, if nothing changes, all we will have is more airlines in BK and maybe one or two gone. But that will not change the fundamental problem. The airlines that are left will circle the wagons and invest capital to gain market share if one airline collapses. This will only serve to exacerbate the problem going forward. From my perspective, if fuel stays this high, the airlines will have no choice but to raise fares to compensate.

In fact, the industry cannot stand going forward with the conditions that exist today. High fuel prices and low industry yields cannot co-exist for many years. Even with a reduction in available seats (which is the same as leaving the seats the same and raising fares from a supply/demand perspective) the almighty market share bloodbath will continue.

Now that airline employees are all working for less (sans LUV), it will come down to efficiency and service.

Boomer

 

[a320av8r]

"It is not collusion if one raises fares and the others follow. It certainly isn't illegal to raise fares to cover the cost of rising raw materials. (jet fuel)"

When a gas station on he corner raises their price, guess what, the one across the street does too. Is that collusion? :blink:

 

[Bob Owens]

"It is not collusion if one raises fares and the others follow. It certainly isn't illegal to raise fares to cover the cost of rising raw materials. (jet fuel)"

When a gas station on he corner raises their price, guess what, the one across the street does too. Is that collusion? :blink:

[post="239351"][/post]​

I think its only illegal if they contact each other and say, "you raise yours and I'll raise mine tomorrow".

 

[mweiss]

Ok in the way that Captain Boomer was using it.

[post="239326"][/post]​

He was unclear in his usage...another reason why I provided it both ways.

Could you clarify what you mean by "somewhat" ?

The answer should have been pretty clear in the context. If the nominal fares have remained roughly constant, then the inflation-adjusted fares have dropped by about the rate of inflation, or at a rate of ~3%.

 

[mweiss]

It is not collusion if one raises fares and the others follow.

No, it is not. But this is where game theory is a great thing to learn. It is not in the best interest of all players to raise fares. It is in the best interest of most players if all players raise fares. But, since it is against the best interest of some players to raise fares, and it is only in the best interest of most players if all players raise fares, the ones to whom it is against their interest will not raise fares...thus no longer making it in the best interest of the others to raise fares.

That sounds more complicated than it is.

I think the most critical factor is the growth in LCC competition. This is key because every LCC will lose money at these revenue levels.

When WN's hedge runs out, it will be in their best interest to raise fares (for many, many reasons). At that point, it will also be in the best interest of all other players to raise fares, and so they probably will rise.

Now that airline employees are all working for less (sans LUV), it will come down to efficiency and service.

In many ways, it always did.

 

[WorldTraveler]

Rico,
your devotion to your company is commendable but it really is in your best interest to look at the whole picture. If you're not willing to do that, I surely don't want to look at your portfolio. There is alot of money tied up in the airline industry and in your personal future; it behooves you to be able to look at the industry and your company with both eyes open and the lights on.

You will note that I used the word "legacy" in my statement about who has applied for government loan guarantees. By most assessments I have seen, America West is not considered a legacy airline. I suppose you could say UA tried to use the ATSB loan process but they still weren't successful.

Rico,
Please look at the financial results of the airline industry as complied by the US government and tell me how US will get the kind of costs that will turn US into the fighting machine you claim US will be? www.bts.gov
Count up the concessions US employees have given and tell me how US has reduced its costs. I'm not baiting you but you seem to blindly think US is going to do something now that it has been unable to do in 3 years and 2 trips through bankruptcy. You'll also notice that AA has done the best job in the industry of reducing its costs and it did it OUTSIDE of bankruptcy.

Once again, I think I'd refrain from calling every other airline dinosaurs and out of touch with reality. All those surplus RJs at AA, CO, and DL have been artfully used to pick off and invade many of US' key markets.

I fully support you fighting for your company and keeping the faith that things will get better. Just do it with your eyes wide open.

 

[WorldTraveler]

Spin Doc,
Hedges cost money to purchase. The ATA is a trade group and doesn't have near the financial resources necessary to engage in fuel hedging. It makes far more sense for alliances to purchase fuel jointly and hedge but alliances are not for the most part financial risk sharing endeavors (although KL/NW moved the farthest down that road). Lufthansa is simply not going to commit the resources necessary to reduce US' fuel bill. Neither is any other US airline that can afford hedges.

 

[goingboeing]

Why do the employees at other carriers wish the death of US Airways so much?  Do you honestly believe in your right mind that a US Airways demise is going to stop the LCC phenomenon?  Get real.  Reality is, paycuts and benefit changes are coming to every carrier whether US Airways survives or not.

[post="237719"][/post]​

Pay increases are coming at SWA LCC!

Why do you think that the American taxpayer should continue to support a FAILED airline business model?
If Joe's wheel alignment operates very long with losses his creditors will close him down.
I think that ALL AIRLINES that continue to LOSE MONEY should be shut down and that includes AA where I work!
It is WRONG to expect the American taxpayer to reward incompetence.

How long do you think a baseball owner would keep a pitcher that has a 6.50 ERA and loses 20 games a year? Incompetence should not be rewarded at any level in our U.S. economy and that includes airlines.

All the experts and most airline CEO'S agree that EXCESS capacity is a major problem in the airline business.Stop the chapter 11 CPR and a lot of the problem would be cured.
This is only part of the equation as the legacy carriers are still going to have to become MORE EFFICIENT for long term survival.

 

[Walmartgreeter]

Pay increases are coming at SWA LCC!

Why do you think that the American taxpayer should continue to support a FAILED airline business model?
If Joe's wheel alignment operates very long with losses his creditors will close him down.
I think that ALL AIRLINES that continue to LOSE MONEY should be shut down and that includes AA where I work!
It is WRONG to expect the American taxpayer to reward incompetence.

Yeah. We all know about the failed business model...the one that did not take into account airplanes flying into buildings. Don't be like Gangwal at U and cheer the event, much less forget it's effect. This is indeed all business 101...but business 101 does NOT include WAR...in fact all normal insurance policys exclude it. An employee of AA should be the LAST one to forget all this. Best Greeter. (tired of the healthy just wishing for the sick to die off so they can "get on with it.") not any ill will to you personally..just venting a little.

 

[CynicalResAgent]

How Many Chances Does Usair Get?

We're the Ben Aflleck of the Airline Industry.....we look good on paper but in retrospect it was always a bad idea.