Stop The Madness!

[Hopeful]

Now that the airline 2004 results are coming in, you will notice that, as expected, the major "legacy" carriers are drowning in losses. America West just announced a loss. Southwest announced a profit, but less than estimated. One day, SWA's fuel hedging expire, then what? Airline analysts say that even JetBlue and AirTran might post 2004 4th QTR. losses.

How long are all these airline CEO geniuses willing to sustain losses?

I don't think you need to be have an MBA from the Wharton School of Business to know that it's time to raise fares. If ALL airlines raise fares the same amount, it would help ALL their bottom lines. It seems all this madness will soon take its toll on even the LCC's.

 

[mweiss]

If ALL airlines raise fares the same amount, then you have collusion, which is illegal.

Southwest has significant reason not to raise fares, especially if everyone else does it. This will change when their hedges expire, and fares will naturally rise at that point. Even so, it's not like they'll be profitable for the legacies.

And while you don't need a Wharton MBA to recognize the value in increased fares, a Wharton MBA would help you understand why it's not happening, and why it's not going to happen yet.

 

[FWAAA]

It doesn't take a Wharton MBA (or even a high school diploma) to know why all airline fares are too low and need to increase. And it isn't entirely the fault of "airline CEO geniuses" that fares are too low.

Why are they too low? Because there are too many seats chasing too few people willing to pay profitable fares for them. Overcapacity. Too much supply.

Why else? Because UAL and USAir need to shut down and reduce some of the overcapacity. Perhaps HP should soon be added to that list. Bankrupt businesses need to shut down before their pricing practices drag everyone else down with them.

WN is now hedging 2007, 2008 and even some of 2009 fuel needs. WN would love to raise fares, since their 2004 profit is almost entirely due to fuel hedging gains. But their hedges aren't gonna run out any time soon.

 

[mweiss]

Why are they too low? Because there are too many seats chasing too few people willing to pay profitable fares for them. Overcapacity. Too much supply.

[post="240933"][/post]​

This is an oversimplification. Certainly there is too much supply to cover business travel, but there has always been too much supply to cover business travel, even in the regulated days.

To suggest that the problem is simply too much supply is to overlook the fact that every airline has a different shape to its supply curve. The fact is that the fares are being set according to Southwest's supply curve; the other airlines have little choice but to match. WN's hedging is the reason that the supply curve is so low. Take that away, and a new market equilibrium results from WN's higher demand curve.

In other words, WN is profitable now with the hedging, and WN will be profitable later without the hedging. To say that WN is only profitable because of the hedging is to miss the broader picture of how the hedging has impacted the market.

 

[FWAAA]

This is an oversimplification. Certainly there is too much supply to cover business travel, but there has always been too much supply to cover business travel, even in the regulated days.

To suggest that the problem is simply too much supply is to overlook the fact that every airline has a different shape to its supply curve. The fact is that the fares are being set according to Southwest's supply curve; the other airlines have little choice but to match. WN's hedging is the reason that the supply curve is so low. Take that away, and a new market equilibrium results from WN's higher demand curve.

In other words, WN is profitable now with the hedging, and WN will be profitable later without the hedging. To say that WN is only profitable because of the hedging is to miss the broader picture of how the hedging has impacted the market.

[post="240934"][/post]​

Hell yes, it's an oversimplification; I'm responding to someone (hopeful) who thinks if all airlines got together and raised fares, everything would be ok. 😀

I agree with you except your assertion that WN's fuel hedging is causing the current supply curve position. Even before fuel increased dramatically in price (like in 2001, 2002 and early 2003), B6 was willing to sell seats at yields even lower than WN, and that continues to this day. True, B6 can't satisfy all of the country's demand for cheap seats (neither can WN), but B6 pricing policies are hurting the majors just as WN's pricing policies are hurting everyone.

I didn't mean that WN was profitable only because of the hedging; I pointed it out as evidence that even WN would like to raise fares. Their CEO has said so during 2004, just like Arpey has said so about AMR. I don't believe that WN is on a strategy right now to use its favorable fuel hedging to drive everyone else out of business with low fares; some people do think that is the plan.

 

[Winglet]

I comes down to the problem of way too much capacity. The dying companies need to be allowed to die and not be put on endless life support by company judges.

 

[FWAAA]

I comes down to the problem of way too much capacity. The dying companies need to be allowed to die and not be put on endless life support by company judges.

[post="240938"][/post]​

I agree 100%

It won't guarantee long-term success for the survivors (legacies not currently bankrupt) but if the bankrupt aren't allowed to die, all of them will probably fail.

 

[Winglet]

We can probably survive inflation, but the severe deflation in the industry is something that is much more destructive. Bush is so drunk with spending money and blood in Iraq that the government has little interest in saving an entire industry . . . as long as they can provide the cheap-ticket soma to the masses.

 

[mweiss]

The dying companies need to be allowed to die and not be put on endless life support by company judges.

[post="240938"][/post]​

The judges' jobs are to maximize the bondholders' return. They cannot look at how their decisions affect the other players in the industry. Nor should they; the long-term negative repercussions to corporate credit would be substantial.

Bush is so drunk with spending money and blood in Iraq that the government has little interest in saving an entire industry . . . as long as they can provide the cheap-ticket soma to the masses.

[post="240945"][/post]​

It wouldn't matter who was President, or if Iraq were a total non-issue. There's really not much that could be done by the feds to address this, short of going back to 1977...and I think that would be far more destructive to our economy.

 

[AA717driver]

"Dying companies need to die..."

I'm sure when it's AA's turn you'll be the first to call for them to shut the door. I guess it's ok to penalize the employees for management's mistakes just as long as it's not you. <_<

The days of a few "top-tier" airlines with pay and benefits to match are gone. Many other industries have gone through what the airlines are doing now and it has come down to lower prices at the cost of lower service levels.

I would imagine USAir will be able to pull through and will move on to be a low cost/low service carrier. UAL is eaking out an existance because of its international service.

My company airlines us on Frontier, SWA and ATA. Outside of ATA's cramped seating they all have the same or better service levels than the legacy airlines. If I want to pay $5 I can watch Direct TV on Frontier and the FA's were really nice and made multiple passes through the cabin with drinks on the way from IND to DEN. SWA crews have always treated me well whether I was commuting on them or as a paying customer. ATA's kind of a cattle car but their people have always been nice.

The legacy carriers are at a crossroads. They can't make money supporting their infrastructure and they can't raise fares because of the competition. Even if they raise fares, the LCC's will make a profit and have access to capital markets to expand while the Legacies will just break even.

JMO. I'm just a stupid ex-airline pilot. B) TC

 

[DFWCC]

We can probably survive inflation, but the severe deflation in the industry is something that is much more destructive.  Bush is so drunk with spending money and blood in Iraq that the government has little interest in saving an entire industry . . . as long as they can provide the cheap-ticket soma to the masses.

[post="240945"][/post]​

:bleh: :bleh: :bleh: Wah! Wah! Wah! Get real stop your cry baby Bush bashing. Remember it was Gore (Dem) who cast the deciding vote in a tied senate to pass NAFTA. Then it was Clinton who signed NAFTA into law. He could have vetoed it. There would not have been a 2/3 majority to overide his veto. Thus I blame the Democrats on that one. Go back further. It was good ol Democrat Jimmy Carter who deregulated the airlines. Seems the dems have hurt the working man's wages.

 

[mwa]

don't forget - it was Teddy who sponsored the bill for deregulation.

 

[The Dissident]

They need to change the bankruptcy laws concerning Airlines. No more chapter 11 reorginization if an airline declares bankruotcy they should go immediatly to liquidation. Do not pass go do not collect 200 dollars. This prevents the unfair advantages that bankrupt airlines have over solvent ones and will stabalize prices instead of having the fare wars we are having now.

 

[goingboeing]

"Dying companies need to die..."

I'm sure when it's AA's turn you'll be the first to call for them to shut the door.  I guess it's ok to penalize the employees for management's mistakes just as long as it's not you. <_<

The days of a few "top-tier" airlines with pay and benefits to match are gone.  Many other industries have gone through what the airlines are doing now and it has come down to lower prices at the cost of lower service levels.

I would imagine USAir will be able to pull through and will move on to be a low cost/low service carrier.  UAL is eaking out an existance because of its international service.

My company airlines us on Frontier, SWA and ATA.  Outside of ATA's cramped seating they all have the same or better service levels than the legacy airlines.  If I want to pay $5 I can watch Direct TV on Frontier and the FA's were really nice and made multiple passes through the cabin with drinks on the way from IND to DEN.  SWA crews have always treated me well whether I was commuting on them or as a paying customer.  ATA's kind of a cattle car but their people have always been nice.

The legacy carriers are at a crossroads.  They can't make money supporting their infrastructure and they can't raise fares because of the competition.  Even if they raise fares, the LCC's will make a profit and have access to capital markets to expand while the Legacies will just break even.

JMO.  I'm just a stupid ex-airline pilot. B) TC

[post="240956"][/post]​

I'm a 19 year AA employee who thinks that ANY business in C11 protection that continually LOSES MONEY should be put out of business AND THAT INCLUDES AA if they end up in C11[very probable].
How long is long enough to prop up incompetent management? Here we are at AA almost 2 years after concessions and overall[a few minor changes] AA is still doing the same old crap the same old way.And they still can't figure out why they lost over 700 million dollars last year?
The politicians and Wall Street are propping up and rewarding CEO's that are incompetent at running anything,especially an airline.

It is easy to blame everything on competition for your failures to fix your own problems.AA is losing money because of its OWN failure to correct its problems in a timely manner.
SWA pays their AMT's much more than AA pays its AMT's and they still make it profit.It is because of their operating effiency and productivity of their employees,not because their employees are UNDERCOMPENSATED.

 

[WingNaPrayer]

If ALL airlines raise fares the same amount, then you have collusion, which is illegal.

Yet when one airline lowers their fares, and every other airline matches it, that's not collusion? Go figure. Collusion is not a one way street, it works both ways . . . except in the airline industry.

Over supply is hardly what's keeping the airlines in the red. If there were too many seats to sell, then AA wouldn't be stranding hundreds upon hundreds of passengers at MIA due to overbooking, then holding up the "NR" sign when they complain and tell them to go sleep on the floor and they'll put them in a seat when they're damn good and ready.

Lower fares does do one thing for certain, it brings out a lower class of people, sad to say - and it's evident every time you step on one of AA's filthy #### boxes these days which, thanks to depeaking, also get a sporadic cleaning at best.

CRAF flying is going to quadruple in 2005, that'll put some money in the airline's pockets!