August Load Factor!

[mrplanes]

I hate to sound like a broken record here but this needs to be drummed into everyone's head as often as possible. U just reported an August load factor of 80%. Let me repeat that: 80%!!!!!!!!! Yet we cannot make money. Why? How is it that a management group that has told us of the lingering effects of the Iraq war has held down traffic can record that kind of load factor and not be profitable? What gives? If an airline has that kind of load factor what could possibly prevent profit unless the management was so inept they couldn't make a profit with ANY amount of butts in the seats? Unless of course, the goal was just to generate revenue and NOT make a profit. I am totally lost on this one. Giving tickets away to fill seats is just plain foolish.

Lets see. I have a lemonade stand and it costs me 10 cents to make a glass of the stuff. I sell it for 12 cents and make a profit but only sell 100 cups a day. If I lower it to 9 cents I sell 500 cups a day but lose money. But boy I am busy and I generate enough cash to buy more lemons and sugar to continue to spin my wheels while I lose money. But the lemon and sugar suppliers are happy. And the kid down the street sees all my customers and gets the idea that he wants to buy my lemonade stand because of my 500 customers. So he offers me some cash for my stuff and I sell it to him. I make a tidy profit but my buddies who work for me are now out of work and the lemon and sugar supplier lose a customer. But I have some cash in my pocket. Maybe I'll try it with an airline next week.

mr

 

[DLFlyer31]

Keep in mind, that the only reason U's LF is up is because U has slashed capacity heavily. This is true for most of the other majors as well except for WN, HP and CAL.....although few carriers have slashed domestic capacity as much as US.

 

[Jon153]

Does anyone know if there is a breakeven load factor for the entire airline? Is there such a thing or is it too difficult considering the different aircraft. It would be interesting if the company some how develop a breakeven load factor for the airline as they do for individual aircraft.

 

[JS]

Does anyone know if there is a breakeven load factor for the entire airline? Is there such a thing or is it too difficult considering the different aircraft. It would be interesting if the company some how develop a breakeven load factor for the airline as they do for individual aircraft.

Break-even load factor is very easy to calculate. Take CASM and divide by yield.

Second quarter 2003 yield was 13.10 cents, and CASM (excluding unusual purchases) was 12.20 cents. Break-even load factor was 12.2/13.1 = 93%. 93% is very difficult to obtain unless you lower lots of fares, but then revenue goes down as well.

If you take CASM including unusual items, it's only 10.83 cents, which implies a break-even load factor of 83%.

I don't know what these "unusual" items are. See the press release for yourself:

http://www.usairways.com/about/press/earnings.pdf

I've never heard of a breakeven load factor for individual aircraft. It doesn't make any sense. Revenue comes in for air transportation, and different types of aircraft are used. Allocating revenue to the aircraft type sounds useless.

 

[ITRADE]

I don't know what these "unusual" items are. See the press release for yourself:

1) Aircraft lease/order cancellation penalty (about $34MM) and a $214MM payout by Uncle Sam.

 

[Formatman]

I'm no rocket scientist...but if it costs you 10 cents to make something and you sell it for nine cents, it doesn't matter how many you sell...you're gonna' lose money!
I don't understand why the people running this ourfit can't grasp that. I know their standard reply is "if you raise prices you're going to drive away customers". But there has to be a point somewhere after some customers leave and you've raised prices...that you begin making money.

 

[Art at ISP]

The problem is that the whole fare structure is broken--and no one wants to be bold enough to try and fix it. If the company took the lead of HP and others, and made a RATIONAL business fare structure, while at the same time abandoning some of the super low fares (let them go to WN), the AVERAGE RSM would increase, and at some point there could be a profit.

The low end of the fare range definitely needs to come up a bit, BUT the high end needs to take a significant drop as well. Charging $1,000 for an LGA-CLT same day r/t is pure gouging. Also, $782 for ISP-PHL and back is ridiculous, when you could continue on to LAX for about $200! It makes no sense.

To do some simple math: the mileage between LGA and CLT is about 525. If the CSM is $0.108, then the actual cost of transporting a passenger 525 miles is about $56.70. Therefore, charging anything over this amount is theoretically profit. The one way fare could be $99-$119 with restrictions and $199-$249 without restrictions, and you'd still be making plenty, and you'd be offering VALUE to the customer. There is no justification to charge $494.50 for the same flight.

Now I realize I am over simplifying but let's get real--I would gladly pay a FAIR price for my air travel. I would gladly pay more than $69 one way to Florida, but I would not pay $1000 either.

It appears that the company is more concerned about the once a year vacation or priceline passenger than it is with the core business travelers who provide most of the revenue. But who makes the biggest stink when there's an irregular op? Who is first to wag his finger in front of a frustrated agent's face when a flight cancels or they misconnect. I can tell you that it is NOT usually a US1, 2 or 3. It's more often than not the priceline guy. And I am usually the guy trying to help the agents out when I can.

Please understand--I am NO expert in the airline business, but I am a business man, and I DO understand profit and loss. The insane business fares serve no purpose than to subsidize Joe Priceline, and that has to stop.

Show some guts Dave and Ben (yeah right)!!!

 

[deelmakur]

Just think, if you went to 100 planes in the fleet, you could probably drive it to 99%.

 

[OldGuyinPA]

As usual ..Art at ISP makes sense. What we need is leaders running us ...not managers. Unfortunatley we are lacking vision. You go Crystal Palace.

 

[Doc]

Now I realize I am over simplifying but let's get real--I would gladly pay a FAIR price for my air travel. I would gladly pay more than $69 one way to Florida, but I would not pay $1000 either.

It appears that the company is more concerned about the once a year vacation or priceline passenger than it is with the core business travelers who provide most of the revenue. But who makes the biggest stink when there's an irregular op? Who is first to wag his finger in front of a frustrated agent's face when a flight cancels or they misconnect. I can tell you that it is NOT usually a US1, 2 or 3. It's more often than not the priceline guy. And I am usually the guy trying to help the agents out when I can.

Please understand--I am NO expert in the airline business, but I am a business man, and I DO understand profit and loss. The insane business fares serve no purpose than to subsidize Joe Priceline, and that has to stop.

Show some guts Dave and Ben (yeah right)!!!

I have to say if airlines and I mean real airlines not the ones thay pay there employee's 8.50hr......If we charged $69.00 for our fares there would be no seat for the business man at the end of the week when your boss says you got to go.
because it would be full of butts not helping the bottom line.

But I do agree that the business man has been taken for granted never the less when you call for a flight there are seats for you because we take the risk of not selling that ticket and you pay for that but you also get certain things for that you can cancel with no problems go to another airline with that ticket and they get the money......So when the fare structure changes and it is going to change don't cry when your boss says did you book your flight and you call at the last minute and low and behold sorry sir that flight is full I do have a seat next month center last row..........

 

[TomBascom]

If we charged $69.00 for our fares...

Art didn't suggest that -- he said that was too low.

there would be no seat for the business man at the end of the week when your boss says you got to go.
because it would be full of butts not helping the bottom line.

But I do agree that the business man has been taken for granted never the less when you call for a flight there are seats for you because we take the risk of not selling that ticket and you pay for that but you also get certain things for that you can cancel with no problems go to another airline with that ticket and they get the money......So when the fare structure changes and it is going to change don't cry when your boss says did you book your flight and you call at the last minute and low and behold sorry sir that flight is full I do have a seat next month center last row..........

If you change the fare structure (as suggested) and the planes are full they will be full of profitable fares. And if that happens you will simply add capacity.

 

[Twicebaked]

Keep in mind, that the only reason U's LF is up is because U has slashed capacity heavily. This is true for most of the other majors as well except for WN, HP and CAL.....although few carriers have slashed domestic capacity as much as US.

Correct me if I am wrong, but isn't that part of the "master plan"?
Reducing the capacity WAS so that we could make a profit. If you are not flying those planes then you are not paying those people to run that plane (pilots, fA, agents, rampers etc.). Therefore, if you match demand with the capacity the result IS a higher load factor.
In Davey's message on Friday, he said the load factors were up but........
When is there going to be NO but!!!
It is simple business 101....reduce your over head cost. Reducing the fleet IS. in the airline sense. reducing the over head.
With "supply and demand" where it should be, there should be NO MORE BUTS!!!!
Why is there always an excuse to paint a negative picture when ALL media keeps saying factors are up? IS U missing something?

 

[mrplanes]

Precisely my point twicebaked. The reductions were so we could MAKE money. And yes, U is missing something. A management that has the ability to understand HOW to make money.

mr

 

[JS]

The airlines do not operate in a vacuum. Like all rational businesses, every airline sets their prices as high as the market will allow. The market allows for much higher fares when there is little to no competition. The market allows for lower fares when there is competition.

When there is no competition, such as LGA-CLT, the fares they charge will be the monopolistic fare. When there is heavy competition, such as ISP-LAX, the fares they charge will be much lower.

We can talk until we're blue in the face about the cost of flying the LGA-CLT route, but US Airways will never lower their fares unless there is competition. If you pick out one route, systemwide average cost means nothing with respect to fares.

Why do you think AirTran charges low fares out of ATL? Just to be nice? No! They want to take Delta's passengers. Delta wants them back, so Delta charges "AirTran" fares. Some people fly AirTran, and some people fly Delta. That is the way it is supposed to work.

Remember when AirTran flew PIT-LGA and PIT-PHL? Like Delta, US was inviting competition because they were charging outrageous fares. A few people flew AirTran, but most people continued to fly US. Result -- AirTran drops the route, and US jacks up the fares back to sky-high levels.

Regarding America West -- they may have rationalized fares in some markets, but it's not all of them. They aren't a charity nor are they stupid; they will charge outrageous fares if they can get away with it. For example, I recently needed to fly DFW-PHX at the last minute. I checked the fares, and AA, DL, and HP all wanted the same outrageous fare of about $750 roundtrip (with a Saturday night stay for crying out loud). I would have driven there if I had the time, but I didn't, so I burned 25,000 DL miles.

 

[stewbear]

The airlines do not operate in a vacuum. Like all rational businesses, every airline sets their prices as high as the market will allow. The market allows for much higher fares when there is little to no competition. The market allows for lower fares when there is competition.

When there is no competition, such as LGA-CLT, the fares they charge will be the monopolistic fare. When there is heavy competition, such as ISP-LAX, the fares they charge will be much lower.

We can talk until we're blue in the face about the cost of flying the LGA-CLT route, but US Airways will never lower their fares unless there is competition. If you pick out one route, systemwide average cost means nothing with respect to fares.

Why do you think AirTran charges low fares out of ATL? Just to be nice? No! They want to take Delta's passengers. Delta wants them back, so Delta charges "AirTran" fares. Some people fly AirTran, and some people fly Delta. That is the way it is supposed to work.

Remember when AirTran flew PIT-LGA and PIT-PHL? Like Delta, US was inviting competition because they were charging outrageous fares. A few people flew AirTran, but most people continued to fly US. Result -- AirTran drops the route, and US jacks up the fares back to sky-high levels.

Regarding America West -- they may have rationalized fares in some markets, but it's not all of them. They aren't a charity nor are they stupid; they will charge outrageous fares if they can get away with it. For example, I recently needed to fly DFW-PHX at the last minute. I checked the fares, and AA, DL, and HP all wanted the same outrageous fare of about $750 roundtrip (with a Saturday night stay for crying out loud). I would have driven there if I had the time, but I didn't, so I burned 25,000 DL miles.

Just what the hell would you have done if you didn't have the FREE miles. Did you REALLY get them from flying or from a credit card the wife charges groceries on? So you went for free...WHOOah. It costs $$ to do anything...do I think my utilitie bills are fair? Are my car repairs resonable? GET OVER IT.... If you don't like the damned price...drive and stay in a hotel and look like crap when you get to the destination. These airlines are not buying a/c for the price of a minivan. And by the way...the less you spend ...the more of a pain in the ass you are...I'm not working for free for your comfort and enjoyment, and you probably sat there stewing on the Delta flight....cause u had to pay WHAT IT WAS WORTH...gIVE ME A BIG DISCOUNT THE NEXT TIME...AND LET THE BOSS TAKE IT OUT OF YOUR POCKET..WHINER.