Why Don't The Airlines Just Raise Fares?

[mweiss]

Seniority is as much of a curse as it is a virtue

Of course it is. But, more importantly to the point at hand, it's the reason that you don't move around, but everyone else does.

Sure they do [deliberately reduce fares to extract concessions]. The fact is that if Jet Blue has the capacity to fly 200 people to LAX from JFK but on avergage 1000 people a day need to go there then Jet Blue can take their 200 at $69 dollars and AA can charge the other 800 what they want.

That's not how it works. As soon as we can get past this impasse with the fundamentals, I'll be happy to show you how.

Thats rediculous. In other words you will not move on unless its by your rules.

The reason for this is quite simple. There are only so many balls that one can keep in the air in a discussion. To discuss how it is that little B6 can dictate pricing to great big AA requires that the foundation be established, or we'll be in the weeds for months.

I truly would rather see the company close their doors permanently than accept those terms.

Lucky for you, you get a vote on that very issue. Just out of curiousity, on how many concessionary TAs did you vote "yes?"

Now you come here and claim that there is no conspiracy, well perhaps its because you have not seen what I've seen over the last twenty five years.

Not so fast. I claim that there is no conspiracy to charge less than the cost of providing the transportation. I said nothing about the desire of the airlines' management to counter the traditional power of the labor unions.

Should we as workers be willing to earn less so the company can pay a lower interest rate?

If you understood finance better, you'd understand that the decision to keep the cash around in order to get the lower interest rate did not, in fact, reduce your wage.

Do you really think that if we went below that figure that the bank would demand all their money back knowing that we would go into BK or would they simply renegotiate the deal at a higher interest rate?

Given that we're talking about money, not airplanes, I'd say from past experience that they would call the loans. These are banks we're talking about; they have little difficulty finding other places to put the cash.

The fact is we dont know do we but we do know that despite all the BS that USAIR and UAL are both still flying.

Yes, they are. Funny thing about those two airlines; neither of them defaulted on the loan covenants. Instead, they defaulted on the aircraft leases. There's a reason for that.

Big deal, and they have around $18 billion/year in revenue and $30 billion in assetts. So thier total debt is lower than one year of revenue. Compare that to the average person who takes out a mortgage that is three times his annual earnings.

There's a big difference between secured credit on appreciating assets and secured credit on depreciating assets.

All of a sudden you want to stay on topic?

All of a sudden? I've been trying to do it the whole time, but you seem to feel compelled to go off in the weeds.

Speaking of the topic, I'll return to it:

I claim that the supply curve is easily determined by the airline for any flight. Do you agree that this is true? If not, why not?

I claim that the demand curve can be experimentally determined by the airline for a given city pair and time served by the airline. Do you agree that this is true? If not, why not?

I claim that, provided you know the supply curve and demand curve, you can determine an optimal price in a single-price model. Do you agree that this is true? If not, why not?

I claim that, provided you know the supply curve and demand curve, and you are able to differentiate among the characteristics of different passengers, you can determine a series of optimal prices in a multi-price model. Do you agree that this is true? If not, why not?

 

[TWAnr]

"This is the song that doesn't end
Yes, it goes on and on my friend.
Some people started it
Not knowing what it was.
And they'll continue singing it forever just because
This is the song that doesn't end....."

- by Shari Lewis

 

[Bob Owens]

mweiss,Feb 24 2005, 04:00 PM]
Of course it is. But, more importantly to the point at hand, it's the reason that you don't move around, but everyone else does.

The world is not just black and white.


The reason for this is quite simple. There are only so many balls that one can keep in the air in a discussion. To discuss how it is that little B6 can dictate pricing to great big AA requires that the foundation be established, or we'll be in the weeds for months.

So in other words you just want to play with your balls.

Lucky for you, you get a vote on that very issue. Just out of curiousity, on how many concessionary TAs did you vote "yes?"

None.

Not so fast. I claim that there is no conspiracy to charge less than the cost of providing the transportation. I said nothing about the desire of the airlines' management to counter the traditional power of the labor unions.



If you understood finance better, you'd understand that the decision to keep the cash around in order to get the lower interest rate did not, in fact, reduce your wage.

Oh no? Well the threat was that unless we maintained the $1 billion that they would go BK and seek $500 million more in concessions, but wait, they didnt go BK, now the banks want $2 billion and they are seeking another $500 million in concessions!!! What the original intent was is not important, but the fact is that it was used as leverage to get us to agree to concessions.

Given that we're talking about money, not airplanes, I'd say from past experience that they would call the loans. These are banks we're talking about; they have little difficulty finding other places to put the cash.

Yes but in BK they would have difficulty recovering their cash. The banks would have a strong incentive not to have the company go into protection.

Yes, they are. Funny thing about those two airlines; neither of them defaulted on the loan covenants. Instead, they defaulted on the aircraft leases. There's a reason for that.

What were the covenants over there? Were they $1 billion in cash?

There's a big difference between secured credit on appreciating assets and secured credit on depreciating assets.

And what does that have to do with your statement that AMR has so much debt? Are you saying that none of AMR assetts are apreciating or expected to ever appreciate?

All of a sudden? I've been trying to do it the whole time, but you seem to feel compelled to go off in the weeds.

Speaking of the topic, I'll return to it:

I claim that the supply curve is easily determined by the airline for any flight. Do you agree that this is true? If not, why not?

I claim that the demand curve can be experimentally determined by the airline for a given city pair and time served by the airline. Do you agree that this is true? If not, why not?

I claim that, provided you know the supply curve and demand curve, you can determine an optimal price in a single-price model. Do you agree that this is true? If not, why not?

I claim that, provided you know the supply curve and demand curve, and you are able to differentiate among the characteristics of different passengers, you can determine a series of optimal prices in a multi-price model. Do you agree that this is true? If not, why not?

Like I said before state your case. You seem to feel the need to turn this debate into an interrogation.

 

[mweiss]

...the threat was that unless we maintained the $1 billion that they would go BK and seek $500 million more in concessions, but wait, they didnt go BK, now the banks want $2 billion and they are seeking another $500 million in concessions!!! What the original intent was is not important, but the fact is that it was used as leverage to get us to agree to concessions.

No. The money wouldn't have been there if there weren't additional loans, which come with additional covenants.

Yes but in BK they would have difficulty recovering their cash. The banks would have a strong incentive not to have the company go into protection.

Exactly. The covenants are there so that the loan gets called before the airline files.

What were the covenants over there? Were they $1 billion in cash?

US's was less, but the airline also had less debt, fewer airplanes, a smaller route structure, etc., etc. Proportionally, theirs have been in line with AA's.

And what does that have to do with your statement that AMR has so much debt? Are you saying that none of AMR assetts are apreciating or expected to ever appreciate?

Some will appreciate, but most will not.

Like I said before state your case. You seem to feel the need to turn this debate into an interrogation.

Not at all. This is the beginning of my case. If we can't reach agreement here, we're certainly not going to get agreement on the conclusion.

One more time:

I claim that the supply curve is easily determined by the airline for any flight. Do you agree that this is true? If not, why not?

I claim that the demand curve can be experimentally determined by the airline for a given city pair and time served by the airline. Do you agree that this is true? If not, why not?

I claim that, provided you know the supply curve and demand curve, you can determine an optimal price in a single-price model. Do you agree that this is true? If not, why not?

I claim that, provided you know the supply curve and demand curve, and you are able to differentiate among the characteristics of different passengers, you can determine a series of optimal prices in a multi-price model. Do you agree that this is true? If not, why not?

 

[Bob Owens]

mweiss,Feb 26 2005, 01:35 AM]
If we can't reach agreement here, we're certainly not going to get agreement on the conclusion.

No kidding.

 

[mweiss]

Great. So how about answering the four simple questions?

 

[Bob Owens]

Sundays NYTIMES had an article "Airline Profits So Close yet still so far"


Despite the fact that fuel increased , what? 25%? the industry as a whole only needed to generate 6% more revenue to break even. For AA the figure was 3.4% or $6.24 per passenger.


Now lets imagine that AA was not continueing to spend billions on new terminals and equipement, plus all the money they dump into marketing when the common claim is that now everyone shops on the internet and simply chooses the lowest fare.
Perhaps AA could have broke even without the extra $6.24!

Do you suppose that if AA had charged $6.24 more per ticket, the cost for a slice of Pizza and a drink at the airport, that millions of people would have stayed home?


Note that the figures are for passenger revenue, I see an awful lot of cargo come off these planes too.