Jetblue May Post 1st Time Loss

[Dizel8]

The only problem with raising fares, is that someone will not do it, hoping to gain marketshare. Now we have two more airlines in Ch.11, they will be keeping fares low, to encourage people not to book away.

As for jetblue in particular, they have strong price competetion from Song, who seems unwilling to raise fares.

 

[FWAAA]

If all carriers raise fares accordingly, I don't think anyone is going to lose passengers. I doubt if people are going to start driving up and down and across country instead of flying. Especially with fuel prices where they are.

You can't have every aspect of the economy raising prices except airlines.

[post="303490"][/post]​

Your post (above) explains why no airline has hired you to make pricing decisions.

JetBlue's impending loss is due to overcapacity - with too many seats to command fares that are profitable, the price for the seats is bid down to try to fill them.

JetBlue has just about the lowest costs (excluding fuel) in the industry yet it is having trouble charging people enough money. That's because it and WN have added far too much capacity, especially given the too-small reductions of capacity by the legacy airlines.

Remove some capacity, fares rise. Simple as that.

I'm gloating - even though I'm a B6 stockholder. B6 has failed in its attempts to charge people enough money to cover its extremely low costs - and I'm always happy to see blowhards brought down to size. Neeleman said he could make money at $80/bbl - what a buffoon.

 

[Dizel8]

"B6 has failed in its attempts to charge people enough money to cover its extremely low costs".

Shouldn't that reaslistically be the industry as a whole. After all UAL, U, ATA, NWA and DAL are all operating in Ch.11, clearly none of those were able to cover their cost, although that did not stop them from keeping fares down. NWA has been the perennial spoiler of fare raises and now they reap what they have sown, well, actually labor gets to reap what management has sown. Needless to say, a bad harvest.

DAL has Song, an entity which may or may not be profitable depending on who you listen to. My opinion, biased as it is, is that Song is losing money, yet they are willing to depress fare levels below theirs and others cost.

Is there to much capacity, well, that depends who you ask and the time of year. Almost all airlines were posting record loadfactors over the summer months, although far from record profits.

The Bankrupcy laws are severly flawed, one can operate, at present, almost in perpetuity under protection. UAL for 38 months, U twice within two years, NWA and DAL filed before the new laws took effect, think they will be there for a while?
In the case of NWA, some people speculate that it was almost a preemptive filing, iow, they filed before it was really needed. However, now they get to cut debts, slash contracts, negotiate leases etc, something the would have been unable to do otherwise, a brilliant way to lower cost.

GE has further muddled the water, since they have pumped millions into failing airlines in order to protect their investments, needless to say, they would rather lose millions than billions, the alternative would be having airplanes returned in a very depressed market with low lease rates, that is if there are any takers. Better for them to prop up an airline, good for them, not for the remaining airlines.

AS for Neeleman, yes I am sure he regrets making that comment, however, I doubt he cold foresee the excruciatingly rapid rise in jetfuel, after Katrina it went up 25% in a mere two days, however although the cost of oil is down a bit, jetfuel, due to refining capacity, is staying high.

 

[Flying Titan]

Also, last I heard B6 continues to command a fare premium over its competition on its NY to Florida routes...making it difficult to increase fares by any significant amount. While the fares may not be what they want, these flights are still hurting B6 less than they are the competition. Look for B6 to add even more northeast-to-Florida flights over the winter.

 

[FWAAA]

Is there to much capacity, well, that depends who you ask and the time of year. Almost all airlines were posting record loadfactors over the summer months, although far from record profits.

[post="303512"][/post]​

I agree that all airlines have failed to cover their costs. As for the quoted portion above - the high load factors at most airlines simply shows consumers' willingness to fill airplanes when the fares are low enough. In order for airlines to become profitable, those fares must rise, and that will happen with less capacity. Some of those pax will be priced out and have to stay home. That's the unfortunate reality.

To illustrate the overcapacity, AA is actually showing ads right now showing how cheap it is to fly for frivilous reasons. One spot shows a guy surprising his wife with an impromptu dinner out of town (flying AA to get there) and another spot shows a computer consultant "making himself invaluable" at his client's site by flying there frequently due to the insanely low fares.

Load factors don't tell us whether there is overcapacity or too little capacity - load factors simply tell us how many seats had a behind in them.

Unit revenue (Yield and PRASM) are much better indicia in determining whether there is overcapacity. When unit revenue at low-cost airlines fails to cover those low costs, that unit revenue is too low. And that unit revenue will rise when there are fewer seats.

 

[wings396]

If you are one of the Majors that are trying to compete with the LCC's, then raising your fares would backfire. Since JB is one of the LCC's, who is going to undercut them? I'm sure that SWA at some point is going to have to rasie their fares to cover cost's, even though they are hedged on fuel for now.

 

[Hopeful]

Your post (above) explains why no airline has hired you to make pricing decisions.

JetBlue's impending loss is due to overcapacity - with too many seats to command fares that are profitable, the price for the seats is bid down to try to fill them.

JetBlue has just about the lowest costs (excluding fuel) in the industry yet it is having trouble charging people enough money. That's because it and WN have added far too much capacity, especially given the too-small reductions of capacity by the legacy airlines.

Remove some capacity, fares rise. Simple as that.

I'm gloating - even though I'm a B6 stockholder. B6 has failed in its attempts to charge people enough money to cover its extremely low costs - and I'm always happy to see blowhards brought down to size. Neeleman said he could make money at $80/bbl - what a buffoon.

[post="303502"][/post]​

My comments about all airlines raising fares are directed at offsetting fuel costs. Of course, over capacity is a longer term issue than fuel, but you can't NOT raise fares as they go up up and away!

 

[bwipilot]

If all carriers raise fares accordingly, I don't think anyone is going to lose passengers. I doubt if people are going to start driving up and down and across country instead of flying. .

[post="303490"][/post]​

"I don't think"--I agree with that part and "people may not start driving"--but they may stay at home if they can't afford the ticket. There is a price point and good revenue management is more than a guess. I think it's nieve to assume that airlines are under pricing their product. Like another poster stated--max total revenue is the goal--not higher ticket prices.

 

[Hopeful]

"I don't think"--I agree with that part and "people may not start driving"--but they may stay at home if they can't afford the ticket.  There is a price point and good revenue management is more than a guess.  I think it's nieve to assume that airlines are under pricing their product.  Like another poster stated--max total revenue is the goal--not higher ticket prices.

[post="303571"][/post]​

So you mean that people will not take the 7 day Disney Cruise for about $1000 per person because the plane ticket is going from $129 to $139?

Better yet, the $10 increase in a roundtrip ticket is going to keep a family of four home for a week when they were ready to spend a few thousand dollars for a week in the carribean?

 

[FWAAA]

So you mean that people will not take the 7 day Disney Cruise for about $1000 per person because the plane ticket is going from $129 to $139?

Better yet, the $10 increase in a roundtrip ticket is going to keep a family of four home for a week when they were ready to spend a few thousand dollars for a week in the carribean?

[post="303582"][/post]​

I'm certainly not saying that the $10 per person will cause those people to stay home and not fly. The examples in your post would fly even if fares were $50 or $100 more.

What I am saying is that the price people pay is dependent on the supply of seats, and the current overcapacity of legacy domestic seats is causing pax to bid the price they are willing to pay.

Announced price increases are numerous. Every few weeks airlines say they have raised tickets by $5 or $10. But the aggregate revenue numbers reported at the end of the quarter never seem to support the notion that the announced fare hikes have actually caused people to pay more.

I agree that tickets need to increase in price. The spot price for JetA on the east coast and the gulf coast is currently FOUR times the price AA paid in 1999. Tickets need to be much higher. Nobody disagrees.

But the only way the price for tickets goes up is if there are fewer seats being sold by desperate cash-poor airlines. Reduce that supply, and the remaining seats will go for more money. Simple as that.

Simply announcing another $10 fare hike doesn't change what people are willing to pay, and the desperate airlines (especially those in Ch 11, like UAL, NW and DL) will continue to accept less for those extra seats than they should because some cash is better than no cash for that perishable inventory.

For 4 years now, there have been airlines in BK that are desperate to raise whatever cash they can, and that desperation has helped drag down the price for tickets. It ain't just WN and B6 - it is US and UAL. And now, DL and NW join them. When those airlines refuse to cut capacity further (they have all made small cuts), even non-BK airlines like AA have to get in the bidding war also.

WN and B6 (and others) have added much more capacity than the legacies have removed, and the last seats in this race are sold at the lowest prices. Much more capacity has been added than GDP growth would tell us the economy can absorb (at profitable prices). So those excess seats are auctioned down to whatever people will pay. It has to stop, and will stop when some capacity is reduced. Somebody's gotta fail.

 

[Dizel8]

Your argument, and I agree, is supply and demand, less seats could command higher price, however, if the customer is forced to pay more, will he go?

My answer would be yes and therefore, relistically, the airlines could probabl raise fares at this moment. $20-30 per ticket is not going to be the difference between going and staying home, for a family of four that would only be $240 r/t. The probelm is that here is always a hold out, ie NWA or a company that is willing to lose on tickets for marketshare ie Song or just intense, if irrational competetion, ie AA vs UAL.

I think, if all the airlines went along, that a fare increase wouldn't make a dent in peoples travel patterns. We heard exactly the same with gas prices and how they would change peoples driving habits. Now it may have, but certainly not by much, sure, they may accelerate a bit easier and be grumpy at the pumps, but we have not seen the "steep" dropoff that some predicted.

 

[Bob Owens]

I'm certainly not saying that the $10 per person will cause those people to stay home and not fly.  The examples in your post would fly even if fares were $50 or $100 more.

What I am saying is that the price people pay is dependent on the supply of seats, and the current overcapacity of legacy domestic seats is causing pax to bid the price they are willing to pay.

Announced price increases are numerous.  Every few weeks airlines say they have raised tickets by $5 or $10.  But the aggregate revenue numbers reported at the end of the quarter never seem to support the notion that the announced fare hikes have actually caused people to pay more.

I agree that tickets need to increase in price.  The spot price for JetA on the east coast and the gulf coast is currently FOUR times the price AA paid in 1999.    Tickets need to be much higher.  Nobody disagrees.

But the only way the price for tickets goes up is if there are fewer seats being sold by desperate cash-poor airlines.  Reduce that supply, and the remaining seats will go for more money.  Simple as that.

Simply announcing another $10 fare hike doesn't change what people are willing to pay, and the desperate airlines (especially those in Ch 11, like UAL, NW and DL) will continue to accept less for those extra seats than they should because some cash is better than no cash for that perishable inventory.

For 4 years now, there have been airlines in BK that are desperate to raise whatever cash they can, and that desperation has helped drag down the price for tickets.  It ain't just WN and B6 - it is US and UAL.  And now, DL and NW join them.    When those airlines refuse to cut capacity further (they have all made small cuts), even non-BK airlines like AA have to get in the bidding war also.

[post="303594"][/post]​

The simple fact is we really dont know what people are "willing to pay".

Load factors continue to be high and the difference between a loss and breaking even amounts to only a few dollars. So charge the extra few bucks, they cant all get on Jet Blue.

If SWA adds capacity in a previously unserved or underserved market, as they often do it throws your whole theory out of whack.

 

[Bob Owens]

Your argument, and I agree, is supply and demand, less seats could command higher price, however, if the customer is forced to pay more, will he go?

My answer would be yes and therefore, relistically, the airlines could probabl raise fares at this moment. $20-30 per ticket is not going to be the difference between going and staying home, for a family of four that would only be $240 r/t. The probelm is that here is always a hold out, ie NWA or a company that is willing to lose on tickets for marketshare ie Song or just intense, if irrational competetion, ie AA vs UAL.

I think, if all the airlines went along, that a fare increase wouldn't make a dent in peoples travel patterns. We heard exactly the same with gas prices and how they would change peoples driving habits. Now it may have, but certainly not by much, sure, they may accelerate a bit easier and be grumpy at the pumps, but we have not seen the "steep" dropoff that some predicted.

[post="303633"][/post]​

Well with the price of gas we may be coming into a time where even if they gave the tickets away people will not be travelling as much.

$3/gallon gas will start to suck the life out of the economy, even if the effect is delayed due to easy credit. While the amount of fuel sold may not change much other parts of the market will be affected by the huge increase in the price of fuel. With new bankruptcy laws in place people will continue to spend until they panic when they realize they simply dont have enough money coming in.

 

[FWAAA]

The simple fact is we really dont know what people are "willing to pay".

Load factors continue to be high and the difference between a loss and breaking even amounts to only a few dollars. So charge the extra few bucks, they cant all get on Jet Blue.

[post="304174"][/post]​

Today, AA announced that its unit revenue in the 3d quarter is gonna end up about 12% higher than last year, so it looks like the price increases are finally beginning to stick.

AA has a very good idea what people are willing to pay. Fares change constantly, as AA raises and lowers fares to try to get people to buy them.

I know you don't believe it - but high load factors aren't necessarily indicative of strong demand at profitable prices. They indicate strong demand at the very low prices being charged. Planes are full because airlines are desperate for any revenue they can get.

 

[Bob Owens]

Today, AA announced that its unit revenue in the 3d quarter is gonna end up about 12% higher than last year, so it looks like the price increases are finally beginning to stick.

AA has a very good idea what people are willing to pay. Fares change constantly, as AA raises and lowers fares to try to get people to buy them.

I know you don't believe it - but high load factors aren't necessarily indicative of strong demand at profitable prices. They indicate strong demand at the very low prices being charged. Planes are full because airlines are desperate for any revenue they can get.

[post="304179"][/post]​

If SWA adds capacity in a previously unserved or underserved market, as they often do it throws your whole theory out of whack.

If people are flying they have money to spend. People dont hop on a plane to just go for a ride. If the difference between profit and loss is $6 then raise them $6.