New Twist on the Fare Debate

[KCFlyer]

[P]
[BLOCKQUOTE][BR]----------------[BR]On 11/19/2002 8:44:48 AM DLFlyer31 wrote:
[P]
[BLOCKQUOTE]How about Chapter 7? [/BLOCKQUOTE]
[P][/P]----------------[/BLOCKQUOTE]
[P]IMHO, the squeezing blood from a turnip tactics that are being used right now are heading U straight to Chapter 7 anyways. I'm usually viewed as the anti labor poster boy on these boards, but U's unions have given as asked. They are asked to give again. And again. When will they be satisfied...when labor comes to work for free? As frugal flyer said - U has absolutely nothing to lose.[/P]

 

[DLFlyer31]

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On 11/18/2002 7:06:39 PM MrMarky wrote:

6) Don't you think that if it were simply so easy as filing lower fares to become profitable that every carrier would be doing it? It's not that simple.

Everybody is doing it except AA, UA, DL, NW, CO and US. And most of the others that are doing it are either profitable or getting much closer to it. I'm not only referencing B6, WN, AirTran and the like here, but AWA, ATA, and Alaska, as well. In terms of international, how about high-cost BA and LH? Why are they profitable and UA and AA are losing on Trans Atlantic, etc???

Take care,

Marky

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However, you conveniently fail to mention that B6/WN/FL/F9/HP/TZ all have a massive cost advantage over AA,DL,NW,CO and US. If you gave these low-fare guys the same cost structure that the big guys have, their entire fare structures would collapse around them and they would bleed big time. AAI (for example) is just barely making a profit...now imagine if overnight AAI's cost structure shot up 35% bringing it up to DL's level. Do you think AAI would survive?

ALK is successful not because of their low walk-up fares (walkup fares on FAI-SEA are $1300!!!), but because of their niche. They have a cash cow in the state of Alaska where they derive 25% of their revenue and have virtually no competition.

I'm not saying last minute fares shouldn't come down. Some of the last minute fares are ridiculous and stupid. But simply saying that because the low-fare carriers have low walk-up fares means the network carriers should, is foolish.

 

[DLFlyer31]

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On 11/18/2002 8:34:37 PM FrugalFlyer wrote:

Whatever the outcome would be there would be no harm done as the company is in chapter 11!

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How about Chapter 7?

 

[N305AS]

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On 11/19/2002 902 AM KCFlyer wrote:



[BLOCKQUOTE]
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On 11/19/2002 8:44:48 AM DLFlyer31 wrote:



[BLOCKQUOTE]How about Chapter 7? [/BLOCKQUOTE]


[/P]----------------[/BLOCKQUOTE]


IMHO, the "squeezing blood from a turnip" tactics that are being used right now are heading U straight to Chapter 7 anyways. I'm usually viewed as the "anti labor poster boy" on these boards, but U's unions have given as asked. They are asked to give again. And again. When will they be satisfied...when labor comes to work for free? As frugal flyer said - U has absolutely nothing to lose.[/P]
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I thought you were viewed as Herb Kelleher's lap dog, more than anything else...but that's not the point.

Dave has little wiggle room, here. He can't start overtures of wholesale changes to the pricing structure, since NW and a few other bigger carriers would have to go along with it. Since these other carriers could possibly make money in a world without U, it's not in their best interest (in the short term, anyway) to go along with such a move. They're all hoping they can hold out until U is forced to liquidate, leaving a void to be filled. No one likes to see a carrier fail, but when overcapacity is a big problem, this would be a meat-cleaver solution.

Of course Dave can't start a fare war either, since this further erodes already anemic yields. He's got few cards (if any) to play now. The employees already gave him the packages he begged for. He's renegotiated terms with aircraft lessors. He's done just about everything, save for asking for exemption from taxes. Of course, that would be something the entire industry could benefit from, and it's just about his only option left before he watches the sand slowly run out of the U hourglass.

If (and this is a huge if) any carrier were to attempt to revamp the overall pricing structure nationwide, it may require a six month trial period, with ALL carriers participating, along with a promise from the DOJ not to prosecute the carriers for collusion during this shakeout.

 

[UAL777flyer]

Greetings MrMarky,

Yield is not a fixed constant. It is determined by taking the average segment fare and dividing it by stage length. But yield is misleading. It tends to be much higher on short haul due to shorter stage lengths. But it is going to depend largely on the average segment fare being paid for everyone onboard. Yield is not an indicator of whether a flight is full or empty. It merely represent the average amount being paid by1 passenger to travel 1 mile.

RASM isn't that simplistic to say that given a constant number of passengers, RASM will be higher on a smaller aircraft. Sometimes that is indeed the case. But think about something like a 3-class widebody. If you're able to get a decent amount of passengers paying business and first class fares, your RASM could go up. But of course, chances are flying 100 passengers on a 3-class widebody will lose money whereas flying 100 passengers on an A320 will make money, all things being equal. Not sure if you remember, but up until a couple of years ago, UA was flight B744's between JFK-NRT that were configured with 36 F/123C/142Y seats. The revenue from the business class cabin paid for the entire flight. Unfortunately those days are gone. But I'm sure you can understand the illustration.

CASM is tough to calculate simply because there are so many things that go into it, such as: flight officer and flight attendant salaries, maintenance expenses and fees, aircraft servicing fees, food fees, fuel, insurance, aircraft ownership, facilities, landing fees, distribution costs, etc. Fully allocated costs contain all those items and more. So it's a tougher calculation than yield and unit revenue.

CMI stands for competitor market initiative I believe. It's a pricing term. Think of it as a quasi tap on the shoulder by carrier A to carrier B letting them know they're not happy with the fares carrier B filed in some of carrier A's markets. It's a pricing game and it gets played every day.

ATPCO stands for Airline Tariff Publishing Corporation. It's the clearinghouse for all airline fare activity. When airlines file new fares and fare basis codes, they do it to ATPCO. Those changes than get loaded into a tape that gets released to all airlines 3 times each day. So airline pricers always scrutinize these tapes when they're loaded to see what the other airlines have done with their fares.

Basically, as KCflyer and TomBascom point out correctly, the current fare structure is ridiculously flawed. Too many fares at grossly different ends of the dollar spectrum. Too many restrictions, etc., etc. I wasn't arguing over the need for change, I was merely trying to point out that it's not that easy, especially in this environment. I think fare rationalization will happen. It has to. Airlines simply cannot support this current structure and turn things around. But steps are going to be taken slowly. Testing is taking place each day in many markets. You just don't always hear about it in the press. But things have to change and they will. High-end fares and low-end fares do need to be rationalized.

As for your question about why high-cost BA and LH are making money on the trans-Atlantic and UA isn't, I can't completely answer that question because I don't have access to BA and LH numbers. But I know the numbers I see each month at UA. And they are downright ugly. High operating costs and low fares make for a bad combination. That's why I've always been amazed at how the large majors operated under the assumption that the business traveler would forever subsidize their costs of operation. Bethune is right. This industry at times is run by stupid people.

Good talking to you again MrMarky. Your boy Gore gonna run again?

 

[KCFlyer]

[P]
[BLOCKQUOTE][BR]----------------[BR]On 11/19/2002 11:37:49 AM N305AS wrote:
[P][/P]I thought you were viewed as Herb Kelleher's lap dog, more than anything else...but that's not the point. [BR]
[P][/P]----------------[/BLOCKQUOTE]
[P]If I were Herb Kellehers lap dog, I'd be congratulating U managment for all their hard work to bring costs under control, and sit back and watch as U marches onward to Chapter 7. As it is, I spent an awful lot of time trying to get accross the idea that tunnel visioin on the cost front is preventing the implementation of other methods that might help stem the flow of cash.[/P]

 

[MrMarky]

Hi UAL777Flyer--

Thanks for the quick course in airline economics. United needs to make better use of you -- time to kick you upstairs!

I hope all is well with you and the family. As for Gore, he was on Baba Wawa's 20/20 last week and I think he said he'll make a decision by the end of the year.

I have PM'd the rest of my thoughts to you in order to avoid turning this thread into an unneeded political debate.

Take care,

Marky

 

[UAL777flyer]

MrMarky,

If you sent your PM, I didn't get it.

 

[whlinder]

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On 11/19/2002 12:06:56 PM UAL777flyer wrote:

ATPCO stands for Airline Tariff Publishing Corporation.
[/blockquote]
Airline Tariff Publishing Company

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It's the clearinghouse for all airline fare activity. When airlines file new fares and fare basis codes, they do it to ATPCO.
[/blockquote]
And rules and footnotes and routings and distribution changes...

[blockquote]
Those changes than get loaded into a tape that gets released to all airlines 3 times each day. So airline pricers always scrutinize these tapes when they're loaded to see what the other airlines have done with their fares.


Basically, as KCflyer and TomBascom point out correctly, the current fare structure is ridiculously flawed. Too many fares at grossly different ends of the dollar spectrum. Too many restrictions, etc., etc. I wasn't arguing over the need for change, I was merely trying to point out that it's not that easy, especially in this environment. I think fare rationalization will happen. It has to. Airlines simply cannot support this current structure and turn things around. But steps are going to be taken slowly. Testing is taking place each day in many markets. You just don't always hear about it in the press. But things have to change and they will. High-end fares and low-end fares do need to be rationalized.

As for your question about why high-cost BA and LH are making money on the trans-Atlantic and UA isn't, I can't completely answer that question because I don't have access to BA and LH numbers. But I know the numbers I see each month at UA. And they are downright ugly. High operating costs and low fares make for a bad combination. That's why I've always been amazed at how the large majors operated under the assumption that the business traveler would forever subsidize their costs of operation. Bethune is right. This industry at times is run by stupid people.

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Sure the majors are constantly changing fares/rules. But I don't see any evidence of trying to move toward a WN/B6/FL pricing structure with 6 or so fares on a city pair. Making the pricing structure more convoluted with private distributions and different rules for everything doesn't seem to be the answer. It doesn't has to be as simple as WN but the number of fares is just amazing. And if that is the best formula for maximizing revenue you might as well shut down...

 

[MrMarky]

Sorry UAL777,

I decided it wasn't worth PMing about.

If you would really, really like a PM, I will send you one, though.

Doc E[img src='http://www.usaviation.com/idealbb/images/smilies/11.gif']

 

[Tango-Bravo]

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On 11/19/2002 12:06:56 PM UAL777flyer wrote:

...That's why I've always been amazed at how the large majors operated under the assumption that the business traveler would forever subsidize their costs of operation. Bethune is right. This industry at times is run by stupid people.
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[/blockquote]

Perhaps the best point ever made in the fewest words by UAL777flyer on the subject of pricing. Nonetheless, evidence is compelling that the buffoons who call the shots at the Big Six are so stupid as to imagine in their delusionary stupor that the day will return when they can wantonly gouge business travelers to make up for the loss-leader fares they offer to pack their planes. It ain't gonna happen.

Even as the full-service airlines were reporting record profits during 1999, they were sowing the seeds for their record losses that followed two years later (and would have even if 9/11/01 did not happen) by their sheer folly in developing business plans based on the assumption that business travelers would go along with the pricing insanity forever. It didn't suprise me at all when the ill-advised pricing shenanigans of the U.S. cartel airlines began to collapse -- months before 9/11/01.

Yes, Bethune is right, but not 100% IMO -- he would be if he had said the industry is run by stupid people at virtually all times.

 

[Oliver Twist]

It seems the original question is valid. Fares ARE crazy and way out of line. But I still contend, you have to begin somewhere with a rational fare system. One or a few selected markets to test the idea and expand if it works. We have little to loose on such a small test and the upside is wide open.

 

[TomBascom]

If it works is a key phrase. Too many of the experiments seem to be designed to prove that it won't work.

HP went out on a limb and committed to the change. AA, by going public, might be giving it a chance (but there is still plenty of wiggle room for them). U does seem to have been quietly trying things out here and there -- but being quiet about it really smacks of see! we told you it couldn't work! we tried it and nobody bought them... Well, gee, nobody knew they were there and you relentlessly steer us to the lowest price at all times -- what do you expect?

 

[UAL777flyer]

Oliver Twist,

That is EXACTLY what UA is doing now, and has been doing for several months.