The Problem Is Not Their Business Model,

[USA320Pilot]

Conference Conclusion

ARLINGTON (theHub.com) - Fast-growing low-cost carriers will continue to put intense pressure on major carriers, with a number of experts predicting additional bankruptcies and consolidation over the next few years, according to media reports of an airline conference yesterday.

"The problem is not their business model, the problem is the costs," said Daniel Kasper, a transportation analyst at consulting firm LECG. Kasper was one of the speakers yesterday at a Washington conference organized by Embry-Riddle Aeronautical University and attended by more than 100 reporters and industry watchers.

"It's a cost solution," said Gary Chase of Lehman Bros. He said traditional airlines will have to continually work to cut their expenses as average airfares continue to drop around the country.

Several speakers pointed to the growing costs for pensions and health benefits as additional worries for the legacy carriers, already squeezed by a shrinking share of revenue.

Unless costs are brought under control, (major airlines) "are icebergs drifting south," said Michael Levine, a former Northwest executive and now an adjunct professor at Yale Law School. "We all know what happens to icebergs moving south."

 

[autofixer]

Hummm...in my business model (plan), cost were a fundamental part. JMHO

 

[SVQLBA]

I agree with auto-fixer. The business model (the over focus on hubbing, complex fare structure, complex product etc.) all contribute to th lack of productivity, hence the cost difference. And it is everything -- from the network, to te aircraft scheduling, to the price structure, to the FFP that are all contributing.

Doesn't mean U has to become Southwest -- but it does have to bcome much more productive and change some ingrained habits and beliefs in several departments.

 

[AP Tech]

[

Several speakers pointed to the growing costs for pensions and health benefits as additional worries for the legacy carriers, already squeezed by a shrinking share of revenue.

Maybe this is what Dave has in mind for his "Going Foward Plan". All we have to do is eliminate all pensions and healthcare for our senior and retired workers. Great idea, it will save U millions!!! When your parents get old and feeble and cannot care for themselves....put them on the street....you can save a bundle in costs!!!

 

[NeedForSpeedNFS]

I agree with auto-fixer. The business model (the over focus on hubbing, complex fare structure, complex product etc.) all contribute to th lack of productivity, hence the cost difference. And it is everything -- from the network, to te aircraft scheduling, to the price structure, to the FFP that are all contributing.

Doesn't mean U has to become Southwest -- but it does have to bcome much more productive and change some ingrained habits and beliefs in several departments.

Interesting quote, but could you be more specific? What departments? Change what habits and/or beliefs?

 

[NeedForSpeedNFS]

[

Several speakers pointed to the growing costs for pensions and health benefits as additional worries for the legacy carriers, already squeezed by a shrinking share of revenue.

Maybe this is what Dave has in mind for his "Going Foward Plan". All we have to do is eliminate all pensions and healthcare for our senior and retired workers. Great idea, it will save U millions!!! When your parents get old and feeble and cannot care for themselves....put them on the street....you can save a bundle in costs!!!

Ap, with all due respect, this is a PURELY "emotional response". Look around all industry/companies, not just ours. The move is to move away from health care and pensions, the two most costliest factors for an employer. Costs that you and i cannot even begin to fathom!! We have been raised to believe, get a good job, with good benefits/pay,work 30-35 years, retire comfortably, and live happily ever after, until you die. I always thought this to be the norm, but unfortunately,times are changing. Do i like this new trend??? NO!! The problem is, it's coming and we need to be prepared. My only concern, is that people who have "paid their dues", and are retired, or soon to be, need to be protected!! But for those employees that are younger, or who have another 20 years to go before retirement, need to prepare. This is not France or Germany where you are protected till you die, by the government! This is the USA, where it's up to the INDIVIDUAL to secure your well being! Our government gives you the OPPERTUNITY to do that, and we need to seize on one or more of the many oppertunities available to secure our future!! Comforting????? NO....... Fact???? YES. GOOD DAY......MORE LATER

 

[PITbull]

NFS,

My opinion....

As long as I pay the taxes I do through my wages and anything I own or buy, I expect the government to PROTECT JOBS, AND ENSURE THEY ARE LIVABLE WAGES.

If they aren't able to do this, or can't find a way, those folks need replaced. WE need a grass roots movement and it may come to a "revolution" to ensure jobs stay in America. That to me is the "one or more ways to secure our futures".

Are you game? Or are you preparing to suck up what the "elistists" dish out to you and call it the "new reality"?

 

[ktflyhome]

If indeed it is up to the Individual and no longer any protection from the government on jobs, then give me my social security that I pay each month and let Me decide how I will invest or use that money. A long with my taxes, thank you.

 

[deltawatch]

Quote "The move is to move away from health care and pensions, the two most costliest factors for an employer. Costs that you and i cannot even begin to fathom!!"

CWA lost / gave their pension years ago ... we have nothing left and Dave's back for more, you better think about that before you give up yours. He now wants to cut our pay another $7.00 an hour (MAA) to $13.05 an hour. I will be on welfare when I retire.

 

[OldGuyinPA]

When we retire....


Just remember 2 words.............Soylent Green......


Scary isn't it.

 

[whatkindoffreshhell]

NFS,

My opinion....

As long as I pay the taxes I do through my wages and anything I own or buy, I expect the government to PROTECT JOBS, AND ENSURE THEY ARE LIVABLE WAGES.

If they aren't able to do this, or can't find a way, those folks need replaced. WE need a grass roots movement and it may come to a "revolution" to ensure jobs stay in America. That to me is the "one or more ways to secure our futures".

Are you game? Or are you preparing to suck up what the "elistists" dish out to you and call it the "new reality"?

Jeepers lady truly you have lost touch with reality!

Why should Joe Consumer fork over more bucks just to keep your carcass employed at what you consider a livable wage??

Did you or any of your brethern give the slightest damn about ridiculously inflated airfares for the past twenty years?

Now you all long for Southwest-style wages --- but prior to 9/11 NONE of you would have touched that model because you were fat and happy!

Always blaming somebody else cause you played your bet too long.

Move on already.

 

[mweiss]

...give me my social security that I pay each month and let Me decide how I will invest or use that money. A long with my taxes, thank you.

Social security is not, nor has it ever been, a pension. It is a pyramid scheme, pure and simple. The current payments come from the current workers' contributions. As such, the first recipients of social security payments did not pay a single dime into the system. Thus, eventually, the last people to pay into the system will not receive a single dime back.

And do you truly believe that your life would be better if you paid no taxes? Would you be better off without firefighters, police, roads, water, etc? Did you know that you live in country with the lowest taxes of any industrialized nation?

 

[mweiss]

Why should Joe Consumer fork over more bucks just to keep your carcass employed at what you consider a livable wage??

The only acceptable reason is if the cost to society as a whole is higher than if Joe Consumer did not.

This is the primary issue I have with the Wal-Mart model. They don't provide health insurance because their employees can just go to the hospital emergency rooms and be a burden on taxpayers instead of costing Wal-Mart anything. There are two possible solutions to that problem: either force all employers to provide health insurance, or go to a nationalized system. The latter would provide more coverage than the former, as it would cover people who, for various reasons, are currently unemployed.

The problem with going through the privately funded model (i.e., payed by employer) is that the employer is then forced to charge higher prices to support their higher costs. This pushes demand for their products down, which slows the economy as a whole. It's the other side of the traditional Reaganomics argument that lower taxes improves the economy (which, incidentally, is only true in a first-order analysis; second- and third-order conditions are significant enough to show that below a certain point lower taxes actually hurt the economy). The power of centralized government control on many of these types of services is substantially better bargaining power, which lowers the costs overall.

 

[SVQLBA]

I agree with auto-fixer. The business model (the over focus on hubbing, complex fare structure, complex product etc.) all contribute to th lack of productivity, hence the cost difference. And it is everything -- from the network, to te aircraft scheduling, to the price structure, to the FFP that are all contributing.

Doesn't mean U has to become Southwest -- but it does have to bcome much more productive and change some ingrained habits and beliefs in several departments.

Interesting quote, but could you be more specific? What departments? Change what habits and/or beliefs?

Last month's Airline Business profiled the turnaround at Aer Lingus. One of the big changes -- the traditional "planning department" is pretty much disbanded.

The problem at U, UA, DL and others is they are still planning the network and the operations, based on planning models that no-longer accurately represent reality. Hence why in the press you have seen over the last several years quotes from these airlines that "if you change the pricing structure we will lose revenue." HP has shown this is not true, and other experiments in simplified fares have also shown this to be wrong, yet the people in charge of planning at the majors are still basically the same people relying on the same models as they have for decades. Example: most legacy planning models show that a reduced connection time increases share of revenue in a connecting market. In the days when most travel was booked by travel agents using CRSs, flights were shown in order of least elapsed time -- lower connection times -> less elapsed time -> higher display position -> more sales. But today, the % of travel booked by a TA via a CRS screen biased in terms of elapsed time is miniscule compared to wat it was. Yet, planning models still claim the effect exists almost undiminished.

"Planning" at most of these carriers covers everything from pricing strategy to network strategy to scheduling, and in so doing has a huge influence on the productivity of the airline. These carriers need to toss out the models (or at least put them aside) and focus on planning for efficiency, and then use pricing and marketing to shift demand as needed across the flights offered. Once planning starts planning for cost efficiency, that then liberates operations to do the same, rather than focus on meeting impossible pax connections etc, and the effects ripple out throughout the org.

Lastly, here's a statement made to me (not second hand) from a current SVP Planning at a US major who shall remain nameless. "We don't see jetBlue and Southwest as threats because they mainly fly from secondary cities. We see AirTran and Frontier as greater threats because they fly from hubs." This was a quote from just a couple of months ago. Very, very scary that this attitude still exists and is still widespread.

 

[SVQLBA]

And it is everything -- from the network, to te aircraft scheduling, to the price structure, to the FFP that are all contributing.

Hopefully we can slay the dragon of lies and myths over FF programs being a drain on legacy carriers!

[snip]
Please do not continue to perpetuate a myth that is well documented as being totally and false. Notice when I mention this the CCY lurkers NEVER Challenge me! Because I'm right on this and they know it.

PB

I didn't say they were unprofitable or that they should be got rid of. What I did say is that they (among many things) affect workload and hence productivity of the operation. As I'm sure you know, it's very difficult to capture cost of complexity. I haven't seen an FF P&L but I'd be very surprised if it captures the complexity cost driven into the airlne (though I'm sure it has the marginal and opportunity costs from the reward travel.)

My point is that the FF program, upgrade rules, benefits etc. should be designed to be delivered efficiently. AirTran, jetBlue and others are demonstrating that you can provide "frills" such as assigned seating and business class seating very efficiently. The same thinking (how do I provide the passenger segment I'm targeting with the "frills" they value as efficiently as possible) should underlie everything the legacy carriers are doing.

Let's once and for all slay two dragons: (1) that getting a competitive cost structure depends on salary reduction -- it's productivity that's the difference between jB, SW and the others and (2) you can still have "frills" and deliver them very cost effectively.