March Traffic Slide

[pilot]

I find in very interesting no one has yet commented on the March traffic numbers published yesterday by U. 81% load factor for March on an 11% decrease in RPM's.

Where's the profit? Someone show me the profit. 81% load factor and we still cannot charge enough to cover the costs. Is someone out there in charge?

pilot

 

[flyingcat]

Well if you look a little closer yes RPMs are down. However so are ASMs which considereing the fleet reducation is consistents, however ASMs are down further than RPMs. That is a good thing if RPMs as a percentage went down further than ASMs it would be really bad. Over all we are making more money per reduced ASM than before.

 

[FCYTravis]

Dozens of former US and HP planes are now parked in the desert. It's hardly shocking that fewer planes = fewer passengers. But the planes they have are fuller, which is better.

 

[SoftLanding]

I find in very interesting no one has yet commented on the March traffic numbers published yesterday by U. 81% load factor for March on an 11% decrease in RPM's.

Where's the profit? Someone show me the profit. 81% load factor and we still cannot charge enough to cover the costs. Is someone out there in charge?

pilot

pilot,

1st quarter report will be out in a few weeks from most of the airlines. Believe US Airways will report in mid-May timeframe.

Time will tell if high loadfactors equals profits. High jetfuel prices, though, might be a difficult hurdle to overcome.

SoftLanding

 

[careerfurloughee]

Dozens of former US and HP planes are now parked in the desert. It's hardly shocking that fewer planes = fewer passengers. But the planes they have are fuller, which is better.

Just think how much money we would make if we had just one airplane.

 

[BoeingBoy]

I think it was sfb that pointed out that year over year unit revenue comparisons are a little misleading - early 2005 East numbers were depressed from early 2004 due to the BK, talk of liquidation, etc.

For the East part of the operation, it takes double-digit improvements in unit revenue just to get back to 2004 numbers.

Jim

 

[flyingcat]

Just think how much money we would make if we had just one airplane.

#1 reason that small airlines frequently burn out in expansion. Eventually you get large enough that you attract the attention of the big boys which can lead to expensive fare wars. Another reason is think that you can consistently be profitable with every airplane you add. If you can make money with 1 plane why not a dozen or 50. Same thing happened to People express and could possibly happen to jetblue.

 

[RowUnderDCA]

Easter in March last year.... in April this year.

 

[FWAAA]

When FlyI was reporting net losses in excess of its entire quarterly revenue, wasn't its "breakeven load factor" north of 100%?

Full airplanes would be great if everyone were paying full Y or more. But at today's fares, they suck for everyone involved. No empty seats means the pax are packed in like sardines. No empty seats means there's nowhere to move to escape a problem seat-opponent or in case your seat breaks. No empty seats means the FAs have lots more work to do (all those sodas and coffees compared to a 67% load factor). And no empty seats means that a cancelled flight means a possible stranding instead of a simple re-book on the next one or the prior one. I'll take a profitable 67% any day over a money-losing 81%.

 

[pilot]

Folks:

My point is a simple one. Higher jet fuel prices have nothing to do with it.

If you own a sandwich shop and the cost of ham goes higher you have to charge more for the sandwich. Otherwise, why in the world would you be wasting time making sandwiches?

We have THE lowest labor costs going. If the cretins don't understand they have to charge more to compensate for the higher fuel then why in the world are we wasting time flying jets?

And don't be telling me about the fear of losing pax with higher fares. The demand is out there. 81%. Jeeeeeeez. When, oh when, will this company have the guts to charge enough to make a profit? Anyone?

pilot

 

[FWAAA]

Folks:

My point is a simple one. Higher jet fuel prices have nothing to do with it.

If you own a sandwich shop and the cost of ham goes higher you have to charge more for the sandwich. Otherwise, why in the world would you be wasting time making sandwiches?

We have THE lowest labor costs going. If the cretins don't understand they have to charge more to compensate for the higher fuel then why in the world are we wasting time flying jets?

And don't be telling me about the fear of losing pax with higher fares. The demand is out there. 81%. Jeeeeeeez. When, oh when, will this company have the guts to charge enough to make a profit? Anyone?

pilot

My point is similarly simple. Load factors have nothing to do with profits.

There are too many sellers of ham sandwiches right now. Especially those with inefficient and expensive cost structures. Sure, their employees have suffered lots of paycuts, but there are still sandwich shops with lower overall costs. And their ham that tastes just as good.

The ham goes bad if not sold by an arbitrary time each day, so the sandwich shops that are desperate for cash keep discounting the ham until they sell as much as they possibly can. Problem is, at the end of the day, the mix of prices doesn't cover the cost of the ham and all other expenses.

Yeah, your load factors are 81%. That's evidence of nothing except that you're selling most of your ham before it goes bad each day. Selling 81% of your ham, on average. At average fares that don't cover your costs. The seats are being filled because the fares are so low (due to the overcapacity of high-cost seats). Just like the price of oil having nothing to do with profits, load factors similarly have nothing to do with profits.

Do you think that management at every major airline in the country is intentionally not raising prices as much as they could? I could buy an argument that management at one or two airlines was that stupid and incompetent, but all of them? Their problem isn't some imaginary refusal to raise prices; their problem is a glut of high-priced ham sandwiches.

 

[RowUnderDCA]

Also, the barriers to exit from the airline industry are higher than the barriers to exit (or transformation) from the sandwich shop business. USAirways exited a lot of markets and transformed its product as much as it could considering it still has aircraft and not macaroni in inventory.

 

[sfb]

I think it was sfb that pointed out that year over year unit revenue comparisons are a little misleading - early 2005 East numbers were depressed from early 2004 due to the BK, talk of liquidation, etc.

I did and I think I got slammed for being a "naysayer" or something similar... 🙄

1Q2005 consolidated passenger RASM was down 9% year-over-year at pre-merger US Airways; mainline RASM was up 7.8% at pre-merger America West. As a comparison, Continental was up 3.8% in consolidated RASM in the same period. Still, if West got RASM up 20% on a lower load factor and over numbers that were pretty good last year, I'm seriously impressed. A 20% improvement on top of a 9% decline in 2005 for East is a 9% improvement over 2004; a good performance but probably not enough to get to a profit yet. I'd imagine that the demise of FlyI and Delta's cutbacks helped.

It's good that East got the load numbers up on lower capacity; I'd be very worried if both numbers were down. I'm a bit surprised that West's load factor was down on marginally higher capacity; Southwest posted a higher load factor on nearly 9% more ASM's.

 

[BoeingBoy]

sfb,

There's one thing I wonder about when our PRASM "guidance" is given.....

In all the SEC financial filings - 4Q05, annual report - they use West plus East since merger, unless you dig down to find the separate numbers for East/West.

So I wonder if the PRASM increase they mention is combined 2006 vs West only in 2005. Given East's traditionally higher unit revenue, that would sure make the comparison look good - at least till 4Q06.

If they're talking combined vs combined year over year change (apples to apples), a 20% increase in PRASM should be close to if not profitable. There wasn't that big a difference between CASM & RASM last year, at least I don't think so.

Any idea?

Jim

 

[Barbell]

And don't be telling me about the fear of losing pax with higher fares. The demand is out there. 81%. Jeeeeeeez. When, oh when, will this company have the guts to charge enough to make a profit? Anyone?

Unfortunately, pilot, you're wrong here. There is a point where the vast majority of pax will just simply not fly when the fare hits a certain point.

The trick of being an LCC is to price yourself low enough to stimulate demand, while not setting too-low of an expectation, ala jetBlue or airTran. I had a very interesting conversation with one of FL's pricing folks about a year ago as they were heavily expanding the CAK hub. They did an internal study and found that for every $1 increase in fare, 10 people simply don't fly. That's the quickest way to tank an 81% LF.

The other end of the spectrum is if you come out and say, "Hey, Everybody, look over here! We've lowered our fares! You won't believe how low they are!" ala Delta, then you realize you went too low and aren't stimulating enough demand to cover the cuts, you gotta raise fares. Then everybody else says, "Well, gee Madge, I thought them there Delta lowered their fares, but look at how high they are!"

I guarantee you that you'll be regretting this post once 1Q05 results are announced. And when you see 2Q, you'll flip your lid and wonder what you were thinking.

However, if pricing an airline is so easy, there are a few guys I'm getting ready to push out the window, so feel free to get your resume updated...

There's one thing I wonder about when our PRASM "guidance" is given.....

It's all a lot of smoke and mirrors, really. However, my understanding internally is that we are now going apples to apples in the guidance because it better clarifies the revenue synergies and helps sell more stock. More stock means higher stock price, means higher options. You know who you are. 😛h34r:

Accounting mumbo jumbo will still be reported separately.