Allowing Bk Carriers To Destroy The Industry

[mweiss]

BTW, I think you'll all find the LCCs only compete on fraction of the legacy routes so there's plenty of pricing power left.

[post="254590"][/post]​

It's not that simple. Everywhere that LCCs do compete with legacies, the legacies have to choose between maintaining the route at a loss, or ceasing to serve the route.

If they maintain the route, we already know what happens. The yields drop, and the losses mount.

If they kill the route, they reduce their network effect (i.e., economies of scope) that are critical to be able to continue to serve places like Missoula. In other words, cutting some routes will reduce the feed to other routes, changing them from marginal to losing. Then you're left with the same choice of maintaining those other losing routes or pulling the plug on them. If you pull the plug on them, a whole new round of marginal routes become losing routes...

This effect is exacerbated by the effects of long-term leases, furlough language, and simple reduction in economies of scale.

 

[UAL_TECH]

Shortly we (AMFA) at the 'Lazy U' will be facing 'Da Judge' once again and I have little doubt that when they ask for capitulation for our pensions that they will once again be shown our backsides!!!

So much for that game plan.

U.S. to Assume United Air Pension Plan :down:


I feel the 'Love' now!!!

B) UT

 

[UAL_TECH]

You're drawing a causal relationship where there's only a correlative one.

[post="254664"][/post]​

It may seem 'casual' to you but when they take 9.8% of my salary and have a fare sale a few weeks later, it's a little more than just 'casual'.

B) UT

 

[Bigsky]

It's not that simple. Everywhere that LCCs do compete with legacies, the legacies have to choose between maintaining the route at a loss, or ceasing to serve the route

mweiss
It is that simple an apparently NWA finally agrees as they just hiked fares again.

Take the Missoula to Mumbai example. There are only three choices and they are all legacy carriers, United, Delta and Northwest. Okay how about something more realistic like Missoula to Orlando. Still only three choices (UA, DL and NW) and if you go on travelocity you'll find the fares for a round trip MSO to MCO are ridiculously low from around $280 to $325. No LCC competitor in sight and the fares are still dirt cheap. Jack up the fares and you'll find most will still elect to take the vacation. It the pricing, you have to charge enough to cover your costs. BUsiness 101.

 

[North by Northwest]

Northwest Air Hikes Fares Again $5-$10 Each Way >NWAC

(ROUND FOUR) #1 Simpli Stupid Fares, #2 NWA Fare Hike, #3 Ual/U Desparte Sale, #4 NWA Hike...AGAIN,

Friday March 11, 11:36 AM EST


NEW YORK (Dow Jones)--Northwest Airlines Corp. (NWAC) hiked most of its fares again Thursday, the second increase from the carrier in the past two weeks.

Northwest spokesman Kurt Ebenhoch said the Eagan, Minn., airline increased fares by $5 each way on flights shorter than 1,000 miles, and by $10 each way for longer flights.

Two weeks ago, the airline hiked all fares by the same amounts. The new hike is on top of the latest increase. The difference is that Northwest made more exceptions to the hike this time, refraining from increasing its highest business fares and some top leisure fares.

The back-to-back increase by Northwest marks a turn in the generally depressed fare environment. Last year, a number of airlines attempted to instigate fare hikes, but nearly all attempts failed due to stiff competition. In fact, Northwest was often accused of spoiling those attempts by not matching some of the increases.

 

[whlinder]

mweiss
It is that simple an apparently NWA finally agrees as they just hiked fares again.

Take the Missoula to Mumbai example. There are only three choices and they are all legacy carriers, United, Delta and Northwest. Okay how about something more realistic like Missoula to Orlando. Still only three choices (UA, DL and NW) and if you go on travelocity you'll find the fares for a round trip MSO to MCO are ridiculously low from around $280 to $325. No LCC competitor in sight and the fares are still dirt cheap. Jack up the fares and you'll find most will still elect to take the vacation. It the pricing, you have to charge enough to cover your costs. BUsiness 101.

[post="254757"][/post]​

UA, DL, NW, CO, AS, and HP all publish fares ORL-MSO.

 

[FWAAA]

mweiss
It is that simple an apparently NWA finally agrees as they just hiked fares again.

Take the Missoula to Mumbai example. There are only three choices and they are all legacy carriers, United, Delta and Northwest. Okay how about something more realistic like Missoula to Orlando. Still only three choices (UA, DL and NW) and if you go on travelocity you'll find the fares for a round trip MSO to MCO are ridiculously low from around $280 to $325. No LCC competitor in sight and the fares are still dirt cheap. Jack up the fares and you'll find most will still elect to take the vacation. It the pricing, you have to charge enough to cover your costs. BUsiness 101.

[post="254757"][/post]​

You're assuming that airlines can unilaterally cause people to pay more money for seats when the number of seats has not been reduced. You admit that the fares are already dirt cheap without any LCC competition in sight.

All of a sudden, like magic, the three airlines will actually collect more revenue for these flights? I'm skeptical. It would be nice if it happened, because all airlines need more revenue, but I don't think these $10 fare hikes actually change the revenue bottom line. I hope to be proven wrong.

 

[Bigsky]

UA, DL, NW, CO, AS, and HP all publish fares ORL-MSO.

Codeshares don't count. If you look at the CAL fare it will say "Operated by Northwest Airlines."

 

[whlinder]

Why not? They can't collude on fares. CO is one more competitor in the market.

 

[Bigsky]

All of a sudden, like magic, the three airlines will actually collect more revenue for these flights? I'm skeptical. It would be nice if it happened, because all airlines need more revenue, but I don't think these $10 fare hikes actually change the revenue bottom line. I hope to be proven wrong

My point is that in the post 9/11 world the focus has been to get people flying again and load factors seem to have been the big stat everyone was concerned about. Finally they started talking about yields. There are indeed several markets where if an airline raises fares 5 or 10 bucks they are going to be sending out jets on those routes half full as the LCCs are alive and well doing their cherry picking routine. Examples the transcons and North South routes along both coasts. But both UA and NW offer nonstop service to several lucrative markets domestically that are unchallenged by the LCCs. Remember the WN Greyhound Express only flies to 50 cities. Then there's the international markets. How about the Pacific. Can you imagine if UA and NW actually set fares on these routes that could turn a profit. The demand is there in the Pacific as load factors at both UA and NW are at record levels. Time for the fares to match the demand.

cheers

bigsky

 

[Cosmo]

How about the Pacific. Can you imagine if UA and NW actually set fares on these routes that could turn a profit. The demand is there in the Pacific as load factors at both UA and NW are at record levels. Time for the fares to match the demand.

According to the most recent DOT Form 41 data that I've seen (for the 3rd quarter of 2004), both NW and UA DID "turn a profit" on their Pacific operations. The problem for those and other carriers is the losses on their domestic operations, which are likely to continue despite the recent fare increases.

 

[uafa21]

They may have made a profit on the Pacific routes but guess what? That's only a smaller percentage of their busiess. They need to figure how to make a profit on each route.

 

[mweiss]

It may seem 'casual' to you but when they take 9.8% of my salary and have a fare sale a few weeks later, it's a little more than just 'casual'.

[post="254746"][/post]​

I didn't say "casual." I said "causal." That wasn't a typo.

 

[mweiss]

It is that simple an apparently NWA finally agrees as they just hiked fares again.

It's still not that simple. Which fares were increased? Every fare, in every market?

...Missoula to Orlando...from around $280 to $325.  No LCC competitor in sight and the fares are still dirt cheap.  Jack up the fares and you'll find most will still elect to take the vacation.

[post="254757"][/post]​

Depends on who you consider to be an LCC. AS serves the route, and they have certainly been pricing like an LCC for a while now.

Moreover, you assume that the demand for this route is highly inelastic. I'd like to see the evidence to support that argument.

 

[Busdrvr]

It's still not that simple. Which fares were increased? Every fare, in every market?

Depends on who you consider to be an LCC. AS serves the route, and they have certainly been pricing like an LCC for a while now.

Moreover, you assume that the demand for this route is highly inelastic. I'd like to see the evidence to support that argument.

[post="255360"][/post]​

For the industry, i submit, it is inelastic, for an individual company it is completely elastic. But if you claim it is elastic at that fare level, then a reduction in the confiscatory tax level the government charges WOULD strongly benefit the airlines. which is it? does the tax matter or not?