Low-fare Carriers Call For United Cuts

[mweiss]

I could and do shave about 45 minutes off of the timing you set up. If you're renting a car, how about just joining the expedited service club (e.g., Hertz #1 Gold) for free so you just go straight to your car and drive off? These days, I check in for my flights before leaving home as well. And I aim to be at the gate 30 minutes prior to departure.

Turns out, I'd now be saving 1:15 by flying. Considering that driving is four hours, and flying is two hours and 45 minutes, you'd have to work pretty hard to convince me to drive it.

When I was living in Houston, I actually chose to drive once to Austin instead of flying, based on that very argument. Even for that one, as close as the two cities are, driving ended up taking sufficiently longer than flying that I never bothered doing that again. SAT-AUS, sure. But that'd pretty much be it for me.

 

[WorldTraveler]

The low cost carriers are not the only ones that think the ATSB should not bail out UAL.

Wall Street Journal: ATSB should reject UA bailout

An editorial in The Wall Street Journal Friday said the Air Transportation Stabilization Board (ATSB) should reject United Airlines' (UA) request for $1.6 billion in federal loan guarantees. UA applied in December 2002 and declared bankruptcy soon after the ATSB denied its initial loan request.

"United is back for a second try, this time requesting $1.6 billion to help it out of bankruptcy," the article said. "That would be a major error."

The ATSB demanded a tough restructuring program before granting US Airways a $900 million loan guarantee, the article said, "but even that hasn't been enough to make US Airways competitive against the likes of Southwest."

The Wall Street Journalsaid the government should not give UA or other airlines more money to help them compete with low-cost carriers.

"Another $1.6 billion for United will only delay the inevitable day of reckoning," it said.

While I personally agree w/ the WSJ, we all to recognize that the ATSB is 2/3 made up of Bush cabinet officials and the outcome of the ATSB decision will be influenced by the fact that this is an election year.

The reality is that the government has never let commerical aviation be truly deregulated even though deregulation occurred over 26 years ago. The best thing the government in the US (and the ones in Europe and Canada dealing w/ their failing airlines) is to allow failing airlines to fail. It is not right that the LCC's have been blessed and allowed to prosper while the legacy carriers have had unbelievable government regulations and taxes thrown at it. At the same time, LCC's do not have free access to any airport in the country because the legacy carriers control the access; until every carrier is free to enter and exit markets at will, the government will likely put onerous restrictions on the legacy carriers and give the green light to the competition just as it has done in the telecom industry. Nonetheless, no carrier is being singled out and ultimately some carrier (several actually) need to die. There is no way the US can support six network carriers plus four current LCC's w/ nationwide coverage and the promise of a couple more on the way. At some point, something has got to give.

UAL's ATSB decision is one of very few decisions in the industry that has drawn strong responses from people within very different camps. Even if the ATSB grants UAL a loan guarantee, it will likely come with very strong provisions that may well make UAL wish they had tried to emerge from bankruptcy solely with private sector financing.

Do not underestimate the impact that the next round of LCC growth will have on UAL. American's CEO has said that the LCC's were responsible for cutting AA's yields in transcon markets by ~25% in one quarter alone. New York has been the most impacted (where AA is stronger than UA) but IAD is coming and the impact will hurt UAL far more. Further, ORD has very few LCC's because of facility and capacity constraints. DEN is an expensive airport (which is why WN and other LCC's have not come there) but they will be willing to come if they think they can take a piece of UA's hide. History shows that UAL will face very intense competition once/if UAL emerges from bankrtupcy. Other carriers know that it is not worth trying to wrestle a giant while they are protected by bankrtupcy but all bets are off once they are forced to compete on the same grounds as everyone else. Your partner USAirways can tell you how much competition comes out of the woodwork when you least expected it. There is no doubt UAL will face the same thing.

 

[mweiss]

It is not right that the LCC's have been blessed and allowed to prosper while the legacy carriers have had unbelievable government regulations and taxes thrown at it.

Could you cite some specific examples of regulations and taxes applied to the legacies that were not applied to the LCCs?

 

[Fly]

Wow World Traveler.....you showed us an EDITORIAL....duhhhhhh. Editorials are opinion pieces....did you submit it? Thanks for posting, have a nice day!

 

[atabuy]

ELP_WN_Psgr

Leave office parking lot: 0800 hrs
Arrive parking lot, Dallas Love Field 0820
Arrive terminal - 0835
Check in for flight - 0840
Flight departs - 0930
Flight arrives Houston Hobby - 1025
Procure rental car - 1045
Leave rent car lot - 1100
Arrive destination downtown - 1125 hrs

Not only can you save some time with the car rental, but you have a few hours to catch up on your paperwork or prepare for your meeting. Just a thought.

 

[Whadayano]

Besides having some time to catch up on whatever on the plane, another reason for the high frequency is the comfort of knowing that you don't have to worry about looking up the schedule. If you end up too late for one flight, there's another one at most 30 minutes away, often less. So you don't have to think about it the way you would if the next one was 2 hours away. However, if there was a train, then LUV would have a problem. I don't know the stats but I would bet that Amtrak in the Boston-NY corridor, and even more in the faster Washington-NY route, give U and DAL serious pain. I know executives who haven't flown to Washington for years. And if you want to get worked up about subsidies--the federal government is essentially doubling the ticket price Amtrak receives for every passenger through the subsidies it hands over.

 

[mweiss]

Actually, as I understand it, the BOS/NY/DC and LA/SAN corridors are profitable. The subsidies are for the rest of the system.

 

[WorldTraveler]

Could you cite some specific examples of regulations and taxes applied to the legacies that were not applied to the LCCs?

Yes, I can.

The airline passenger transportation tax structure has been overhauled in the last 10 years. Previously, air transportation was taxed at a flat 10%. Now it is a combination of a percentage on the value and segment or airport based taxes. This type of system benefits point to point carriers and is detrimental to network carriers that provide connecting service. While not discriminatory per se, the tax changes have certainly favored point to point carriers - which is descriptive of the LCC's.

As for regulations, the ban on mail since 9/11 has disproportionately hurt the network airlines since LCC's generally do not compete in the freight business. Proposed stricter regulations on cargo screening will hurt network airlines more than LCC's.

Finally, I find it offensive that the FAA is telling AA and UA alone to reduce flights at ORD to reduce delays. While managing delays is necessary, the LGA ATC debaucle of a couple years ago showed that the government opened the flood gates in order to justify adding service to new cities and allowing new carriers in but then pulled back, disproportionately targeting the incumbent carriers for reductions.

However, read these comments in the context of my overall bent that the network carriers have to adapt to the changing business environment, something that have resisted doing instead asking for the government to repeatedly bail them out. At the same time, the government and consumer groups have vastly oversimplified the task the network carriers have to do and seriously underestimate the importance of a strong, viable network transportation system - something no LCC will ever be able to replicate.

 

[mweiss]

The airline passenger transportation tax structure has been overhauled in the last 10 years.

The tax is applied in exactly the same manner to all carriers. No matter how one structures taxes, they will always cost one party more than others, depending on the metric used, and less than others based on different metrics. That's hardly a "regulation or tax applied to the legacies that is not applied to the LCCs."

As for regulations, the ban on mail since 9/11 has disproportionately hurt the network airlines since LCC's generally do not compete in the freight business. Proposed stricter regulations on cargo screening will hurt network airlines more than LCC's.

No, see, a "regulation applied to the legacies that is not applied to the LCCs" would mean that United is prohibited from carrying the mail, but Southwest is permitted to do so.

Finally, I find it offensive that the FAA is telling AA and UA alone to reduce flights at ORD to reduce delays.

Actually, they're asking them to do so, and only because the two of them make up such a substantial percentage of the ORD market that asking other carriers for reductions would have minimal impact. And it applied to two airlines, not all legacy carriers. And there is minimal LCC service at ORD anyway.

...the government and consumer groups have vastly oversimplified the task the network carriers have to do and seriously underestimate the importance of a strong, viable network transportation system - something no LCC will ever be able to replicate.

This one is rich. You honestly believe that if the legacies all disappeared tonight that a year from now you wouldn't be able to find a US-based airline to serve LHR? Or serve JFK-LAX? Or any of the other major markets?

 

[FWAAA]

I'm thoroughly confused as to how the federal excise taxes on aviation tickets (7.5% plus $3.10 per segment, IIRC) benefits LCCs at the expense of legacy network carriers.

When the per-segment tax was introduced, it was strongly supported by UAL, AA, NW, DL, US and the others, while WN lobbied heavily against the segment tax.

The segment tax drives up the percentage on low-cost tix (like those sold by WN) while reduces the percentage for higher priced legacy extortion fares (like those sold by the legacy carriers).

How exactly does the segment tax favor the LCCs??

 

[WorldTraveler]

Segment taxes penalize connecting carriers, not LCC's per se because LCC's keep their costs low by predominantly siphoning off the most lucrative passengers which can be served on a nonstop basis. Network carriers are left to carry the connecting passengers that are taxed at a higher percentage rate than a nonstop passenger. The current tax rate favors carrying a passenger on a nonstop basis which is fine if the market will support it but over 15,000 markets in the U.S. will never support nonstop service.
The mail ban works the same way - the LCC's don't want expensive widebody aircraft that require connecting passengers to fill and have lots of belly space that can accommodate mail and cargo; network airlines do have those kinds of planes and are being hurt by the mail ban more than the LCC's.
And yes, the network carriers supported the tax changes but that doesn't mean they are not being negatively impacted by them. And no, the government didn't craft the tax system to favor LCC's but that doesn't change the fact that it does in fact favor carriers that can provide nonstop service in a market.

And yes, Mr. Weiss, the government will always find airlines willing to fly JFKLHR and JFKLAX but what about serving the customers who want to fly AUSLHR (Austin-London) and GSPLAX (Greenville/Spar.-Los Angeles) just to name a few markets? Those are the markets the network carriers serve and which the LCC's won't serve because if they did they would no longer be LCC's but would become HIGH COST network carriers instead. When/if USAirways ceases operation or is dramatically restructured, the people in places like Wilmington, NC and State College, PA will understand the value of network carriers as their air travel choices will dramatically shrink.

 

[ELP_WN_Psgr]

You are forgetting one thing:

It was the so-called legacy carriers that pushed the segment tax.

Whined and cajoled and donated their way to see this legislation implemented.

At the time they did this, it was very true that WN from coast to coast was often a 3 or 4 stop affair.

Corpus Christi to Los Angeles could be done via single plane: CRP-HOU-AUS-LBB-ELP-ABQ-PHX-LAX.

You had to want to get to LAX in the worst way, because trust me, it was.

Now.....you really didn't think that WN would sit idly by and watch taxation impact their revenue into perpetuity, did you?

No. The guys with the ugly planes started connecting the dots. You can't get from CRP to LAX nonstop (yet) but you can do some rather interesting and otherwise not readily available routings......LAS to MAF, LBB, and AMA come to mind. LIT to PHX. ABQ to MCI.

I guess those are some of those "cherry picked" routes.

At any rate, this whole tax deal ought to be a lesson to UA and the rest of the legacies....namely, be careful what you ask for, you might get it.

If the change in taxation was so abhorrent and immensely harmful to their hub-and-spoke systems, why were they so dead set on implementing it?

 

[Busdrvr]

"It was the so-called legacy carriers that pushed the segment tax.

Whined and cajoled and donated their way to see this legislation implemented.

At the time they did this, it was very true that WN from coast to coast was often a 3 or 4 stop affair."

True, the bigs wanted a segment tax, but unfortunately, Wn's lobbying won the day. The segment tax is CAPPED at two segments, so it had little negative effect on Wn.

 

[mweiss]

Even if it weren't capped, WN would still win the day. Or can you not see that?

 

[Busdrvr]

"Even if it weren't capped, WN would still win the day. Or can you not see that?"

Hmmm, add $5 to $10 bucks to just about every trip of significant distance... Hmmm. What was Wn's margin in Q1? What would a few percent added to the cost of a ticket (that the comp wouldn't be paying) do to that margin? Oh I think I get it, Wn would just raise fares, right..? Nobody would mind. . Do you not see that this is a VERY tight industry and a $5 to $10 cost disadvantage is HUGE. Oh never mind...