Major Carriers May Fail In 05

[Winglet]

The fact is that the RJ operations are subsidized by mainline under these lucrative fee-for-departure schemes that guarantee RJ operators a profit regardless of if they fly 1 person or 45 people on the aircraft.

My point is that if they operate un-subsidized, they will lose money. CASM can be as much as 35 cents. Smaller city service would be very very expensive to unsubsidized RJ outfits. Oh, and Independence Air is doing so well, right?

 

[JS]

It is true that Albuquerque isn't close to much aside from El Paso, Amarillo, and Lubbock. But you also have to figure that there's SOME reason that over 1300 people per day fly between ABQ and PHX while only 64 travel between GSP and DCA/IAD (as of 1Q04, Independence has probably changed this number). The driving times are pretty similar. But if people from the GSP area are driving to other airports to save money, they're certainly not driving to Charlotte (maybe Atlanta).

Delta's CEO said today that SimpliFares at CVG have increased traffic there by about a third. I suppose the bigger question is what sort of effect there has been on revenue.

[post="229237"][/post]​

I live near GSP, so allow me to explain. Other than GSP, there are five other airports that are within a three hour drive -- CLT, AVL, CAE, FLO and ATL. Of those, AVL and CAE are considerably more expensive, while ATL, CLT and FLO can be less. FLO is pretty tiny, so it's basically CLT and ATL.

I know a lot of people, myself included, who have driven to CLT in order to fly. For one thing, the parking is less than half, and often CLT has lower air fares than GSP. Other people have driven to CLT just to get a non-stop flight (personally I don't care about that, but some people care and are afraid of turboprops).

ATL is further away but has more non-stop markets and more markets that are cheaper, and in some cases you have no choice (e.g., Korean Air flight bought by a travel agent too stupid to use the Delta codeshare to tack on the GSP-ATL connection ... grrr.... )

My mother lives in Aztec, NM, and has driven all the way to ABQ (three hour drive) for a flight rather than fly out of FMN or DRO for a cheap flight to HOU. While there aren't all that many people in New Mexico who are closer to an airport other than ABQ, I think it might be constructive to compare populations on that basis.

Besides ABQ, there are only seven airports with scheduled flights in the entire state of New Mexico, which is not much considering its size (though probably plenty considering the population) -- SAF, CNM, CVN, FMN, HOB, ROW, and SVC. Most of these airports are served by Mesa B1900 that aren't even codeshares.

Also, the geography of New Mexico makes driving to one's destination a bit trickier than from Greenville, SC. From Greenville, the toughest drive would be over the mountains to Knoxville or Nashville, and that's nothing like the Rockies.

 

[WorldTraveler]

Bear96,
pardon the delayed response. I didn't say that Delta has done everything right. I did say that RJs are a big reason why DL has managed to keep it's head above water alot longer than some of the other legacy airlines. Delta's mainline fleet has not shrunk over the years as it has built its RJ fleet. DL knows how to use RJs to grow its network, not replace mainline flying. While Delta used RJs to replace mainline flying in the past couple years, it is now increasing utilization of its mainline fleet while using its RJs to pick off top non-hub markets, esp. within and to/from the SE. Given that DL is the stronger of the two airlines with hubs in the SE, siphoning off traffic hurts US more than it hurts DL since DL can replace that traffic as it grows its Atlanta hub.

Let's not forget that a big reason Independence is in deep doo-doo is because they dumped a ton of capacity in markets which couldn't support it. Their problem is revenue - which is exactly what any airline will get with 40% load factors. It also didn't help that they thought they could ditch the entire traditional distribution system and go only with web-based bookings for a brand new airline. It has not taken very many months for them to realize the error of their ways.

Let's get over this idea that there are revenue and cost conspiracies going on just because RJs are involved. Companies of all kinds do not separately report every item for wholly owned subsidiaries. Neither do they detail every expense involved in contracted services. Some of you will undoubtedly go to your grave convinced that US Airways manipulated its finances in order to make its regional jet operations work. Given the huge amount of revenue that is generated by regional jets by many carriers and the fact that individual market financial results are sent to the DOT where they can be viewed by anyone, it would be pretty apparent if mischief was going on. It's not. RJs just happen to be less expensive to operate in some markets but they don't work everywhere. It all depends on how management uses them.

 

[WorldTraveler]

Thanks for the welcome back, Greeter. I wish you and yours the best this holiday season. Keep the faith! There is a better world coming.

 

[Bear96]

Let's get over this idea that there are revenue and cost conspiracies going on just because RJs are involved. Companies of all kinds do not separately report every item for wholly owned subsidiaries. Neither do they detail every expense involved in contracted services. Some of you will undoubtedly go to your grave convinced that US Airways manipulated its finances in order to make its regional jet operations work. Given the huge amount of revenue that is generated by regional jets by many carriers and the fact that individual market financial results are sent to the DOT where they can be viewed by anyone, it would be pretty apparent if mischief was going on. It's not. RJs just happen to be less expensive to operate in some markets but they don't work everywhere. It all depends on how management uses them.

[post="229272"][/post]​

Not sure if that last bit is directed towards me, but unlike many (most?) mainline legacy employees I understand the economics of RJs, how they make more sense than 737-sized equipment on many routes, and how they are an important and even necessary part of many hub-and-spoke networks.

Again my main point is a simple one: I found it amusing that you seemed to be saying "DL is doing it; therefore it must be a good idea," when DL is hardly a model of financial perfection right now. Better than UA and U, certainly, but I still found it humorous-- as I do much of your spinning to make DL look perfect with consistently wise management no matter what, when if U or UA had been presented with the same set of circumstances and made the same choices, you would be on here arguing how stupid they are.

It reminds me of that A320 guy. A year or so ago, both UA and U cut some international routes or other within several weeks or a couple months of each other (I forget which did it first or which routes were involved) and sold some minor asset or other. With the U announcement, A320 was on here crowing about how it was such a smart move on the part of U management to be allocating their equipment to the most profitable routes, and how wise they were to be doing this to save money, how brilliant it was to get rid of unwanted / underused assets and how it bodes well for the future that they were being so smart. When UA did it, he was on here pointing out how such cutbacks obviously meant the imminent liquidation and demise of UA and how it showed how poorly managed UA was because they had been running such unprofitable routes in the first place.

I got a chuckle out of that too.

 

[WorldTraveler]

Bear 96,
Glad we could make you laugh. Never said DL did everything right; I have also commended UA and US for several of the postiive steps they have made. However, I don't think anyone can argue that DL has totally gotten RJ strategy right. Maybe they'll bottom out at some point and will become worthless but I'm sorta doubting it. DL is now saying they are considering selling their owned regional operators, ASA and Comair - a move I and others including analysts on Wall Street have mentioned they should do more than once. If they manage to have ridden out the worst down cycle in the industry partly because of their regional jet management strategy and still manage to divest themselves of them now, I would call that very astute management.

No, nothing is directed expressly toward you. I just hear alot of employees willing to blame everyone else for their problems. It would be far better if there was a good understanding of what is causing problems and work to develop solutions that address them.

I was one of the few that said DL knew what they were doing by flirting so close to bankruptcy and that they would successfully get the cuts they needed. They are now in the rebuilding phase - the same place American was in 18 months ago and they are now considered one of the more stable legacy carriers now.

I consider your comparison to A320 captain to be an insult of the highest magnitude. Please don't do it again or I'll have to get really nasty. java script:add_smilie(":rant:") There's a difference - I don't have an agenda that requires that I step on everyone in my way for starters.

:rant: :rant: :rant:

 

[Bear96]

I consider your comparison to A320 captain to be an insult of the highest magnitude. Please don't do it again or I'll have to get really nasty. java script:add_smilie(":rant:") There's a difference - I don't have an agenda that requires that I step on everyone in my way for starters.

:rant: :rant: :rant:

[post="229412"][/post]​

You're right; sorry. An insult like that in the form of a direct comparison should only be reserved for the most egregious of cases and certainly this ain't it.

(However there are a few parallels: the poster's airline of choice is always portrayed in the sunniest possible light, with UA getting kicked at every opportunity-- although what is posted may be technically accuate, the poster(s?) occassionally seem to take a bit too much enjoyment from it though they maintain to be just reporting the facts. At least that is my perception.)

 

[michael707767]

Bear96 DL knows how to use RJs to grow its network, not replace mainline flying.

[post="229272"][/post]​

Thats the best joke I have read on this forum!!

 

[WorldTraveler]

Michael,
Perhaps you would like to post Delta's mainline scheduled block hours in 1996 and 2004. Then we'll determine what's a joke. DL has added hundreds of RJs to its fleet in the past 8 years but its mainline fleet is still pretty close to 550. Doesn't sound like replacement to me.

 

[Cosmo]

... and the fact that individual market financial results are sent to the DOT where they can be viewed by anyone ...

WorldTraveler:

Sorry to go somewhat off-topic here, but I've worked with DOT O&D, Onboard (T-100) and Form 41 domestic and international data for over 30 years and I'm not aware of any reports that provide financial results (I'm assuming you mean P&Ls with revenues and expenses) by individual market -- certainly none that are available to the public. Would you be so kind as to enlighten me?

 

[WorldTraveler]

I have used both types of DOT data as well.

I didn't say P&Ls; instead, segment revenue information is provided as is aggregate cost information. Those two pieces of information are enough for any analyst of the industry to be able to determine with a reasonable degree of accuracy whether a carrier is making money. Combine that with CRS data and there are few secrets in this industry.

One of the best things the government could do to enhance competition is to get itself out of the business of collecting and distributing at least T-100 data. All it does is provide information used by competitors. In a free market, there is no need for the government or competitors seeing what other airlines get for segment revenue or how it is generated (what flows over what leg). If there is a case for knowing what is needed for a specific city or segment due to competitive concerns, the government could make provision of the information necessary on a sealed case basis. There's something absurd about allowing airlines to protect the details of their contracts but requiring them to divulge their revenue data at a pretty specific level as well as their cost information.

That being said, it is very obvious from DOT data that DL has used RJs to maintain its revenue base in the face of declining yields. Every legacy airline today is faced with the mandate to work harder for the same or a lesser amount of revenue. For the last several years, DL, CO, NW, and AA have done that by adding RJs to their fleets with DL by far adding more new service than replacing mainline service. UA and US have and continue to use RJs to replace mainline flying, a proposition that will lead to decreased revenue at least on the domestic system. AA and DL esp. are building their transformation plans around flying more domestic seats with the same or fewer employees and aircraft in order to offset the decrease in yield and to force unit costs down. UA is actually shrinking system capacity by 3%, a task that is a bit easier for them since they are in bankruptcy and can shed costs easier than can the solvent airlines. Ultimately, it is much harder for total revenue to increase when 65-70% of UA's revenue base as domestic traffic is decreasing in yield while 30-35% is growing; the percentage for US is about 20% international so the hurdle is even greater and they don't have access to the Pacific markets which are some of the strongest in growth. There's alot greater chance of AA and DL turning themselves around by at least stabilizing and potentially growing domestic revenue at the same time they are growing internation revenue.
The point is still that domestic revenue has to be stabilized and at least maintained, something UA and US have not incorporated in their strategy.

 

[JS]

We have all the information in the world when it comes to the stock market (second by second prices), but I don't see every NYSE company going down the tubes.

One piece of information that airlines do not share is seat inventory (other than the 9 seat limit on a CRS, which isn't terribly useful). Revenue for a particular route is merely the sum of fare/booking class times number of seats in the booking class. Most of the fares are published, but by not having the number of seats in each booking class, it is difficult for airlines to tell how many seats in each booking class a competitor has.

Managing seat inventory, both in terms of maximizing revenue and minimizing oversales, is key to yield management, and it's not public information. I wouldn't worry about the DOT reports being responsible for airlines' financial problems.

 

[WorldTraveler]

JS,
perhaps you're not familliar w/ the reports airlines file with the DOT. Airlines file on a quarterly basis revenue for each segment it flies along with the origins and destinations that fly over it. Average fares for each segment can be calculated. It is precisely with this data that airlines know which O&Ds are most valuable to a specific carrier and how much local revenue exists on each segment. CRS data is not as much about the actual availability of seats in each booking class (although there are models that calculate that) but the amount of seats that are sold in each O&D at each fare class that allow revenue to be calculated. There are also fairly sophisticated models that combine CRS data with DOT to "true up" CRS data to the actual amount of revenue on the flight since all carriers obtain differing amounts of revenue from their own websites and internal reservations systems which can not be "seen" by other airlines. As fares are rationalized, fewer and fewer unpublished fares are sold. Airlines also report data to the ATA and to the DOT that provide yield trending information. Despite your belief to the contrary, other airlines and Wall Street analysts are capable of projecting an airlines revenue to a pretty high degree of accuracy.

The practical outworking of this reality is that other airlines have known with a very high degree of accuracy where US is vulnerable and have been able to monitor just about in real time the success of their efforts.

 

[TheLazarusman]

Wow! Thanks guys. For once I've stumbled on to a really informative and enlightening thread. Instead of a lot of name calling and mud slinging you're countering each other with facts and figures and this forum member appreciates that. It's a departure from what I normally find in most of these forums. Or I should say its rare to see a thread stay on this level without degressing to something more primitive. And I'm usually as guilty as anyone in helping a thread turn in that direction with the comments I make. So thanks again for tweaking my brain with something intriguing and interesting to read.