Record Profits?

[mweiss]

...makes it sucky when a pax rants and bitches about poor service, or a lost bag.. Hell, for what these people are paying to fly, most of em are lucky to make it to the proper final destination. But you can't blame the pax, they are price takers.. Blame the pricing department.

Funny how WN and B6 seem to be able to get them to their proper destination with their bags. I mean, come on, you can't blame your own company's shortcomings on the customer.

 

[mweiss]

My take on this is that airlines have done a few things over the years to compensate:

Good, comprehensive list. That pretty much covers it.

Beyond that, what else can the airlines do to continue to lower costs?

• Have the airplanes in the air more (reduce turn times, start flying earlier, stop flying later)
  
• Simplify fleets (CO and AS are perhaps the best examples)
  
• Have eight or more flights per day go through each gate
  
• Jettison any remaining unused gates after above
  
• Make online checkin be able to handle all itineraries
  
• Drop service to all unprofitable cities

How many other products/services can you buy for the same price as 1978? Ok, gas may be one

And it's an important one. That's the second biggest cost an airline incurs. The fact that fuel prices have remained remarkably constant has a lot to do with ticket prices doing the same.

 

[funguy2]

Good, comprehensive list. That pretty much covers it.

• Have the airplanes in the air more (reduce turn times, start flying earlier, stop flying later)
• Simplify fleets (CO and AS are perhaps the best examples)
• Have eight or more flights per day go through each gate
• Jettison any remaining unused gates after above
• Make online checkin be able to handle all itineraries
• Drop service to all unprofitable cities
  
  And it's an important one. That's the second biggest cost an airline incurs. The fact that fuel prices have remained remarkably constant has a lot to do with ticket prices doing the same.

• 
  mweiss:
  
  Your list of things the airlines can do to further cut costs is
  1. a little more specific than what I was thinking
  2. already been done or being accomplished by the more successful airlines today
  
  (I guess I am big on lists today).
  
  You know, my gas comment was more about consumer spending... So gasoline for cars... But you make a good point. And, I'll add to it... Since the airlines have already taken out all the other costs, have more efficient fleets, and still cannot pass the increased cost of fuel along to the consumer, that again suggests fares must rise.
  
  Think back a few years, to around 1998, when I remember getting gas at $0.98/gallon... Now gas is around $1.99/gallon... or double... Think of how that fly vs. drive decision looks now... Certainly, the pain of renting a car at your destination, spending a day or two in the car, and similar points that kept some folks in their cars starts to swing the pendulem the other way, when the price of gasoline doubles, yet airfares remain static.

 

[mweiss]

Your list of things the airlines can do to further cut costs is
1. a little more specific than what I was thinking
2. already been done or being accomplished by the more successful airlines today

3. Missing an end tag. I fixed that. Anyway, while it was, indeed, more specific, those increases in efficiency are certainly available to varying degrees at all legacy carriers.

Since the airlines have already taken out all the other costs, have more efficient fleets, and still cannot pass the increased cost of fuel along to the consumer, that again suggests fares must rise.

Probably true, although WN seems to be able to pretty much break even at current prices, suggesting that only a little increase is necessary. My sense is that air travel elasticity isn't so great that a $10 increase would have a substantial impact, assuming that it were implemented by everyone.

 

[funguy2]

I think you are right... But, I guess the carriers which have blocked the recent attempts at fare increases (usually NWAC) would disagree with you.

 

[mweiss]

I think there's more at play there.

In any case, NW has not been playing odd man out lately. In fact, they are the only airline to appreciably increase both their yield and load factor this year. It's an impressive showing, and I'm curious as to how they've pulled it off when their competitors (even WN and B6) have not.

 

[Cosmo]

Two words -- Pacific operations!

And you need to include United in that "higher yield/higher load factor" category this year, for largely the same reason.

 

[mweiss]

I could include UA, but their yields are up only slightly, as are DL's and CO's. NW's is up significantly.

See for yourself.

 

[TomBascom]

... Prices simply have to go up, eventually. How many other products/services can you buy for the same price as 1978? Ok, gas may be one , name another.

Virtually any technology related item now costs a fraction of what it did X number of years ago.

Actually a great many things are cheaper today than they were then.

 

[Cosmo]

I could include UA, but their yields are up only slightly, as are DL's and CO's. NW's is up significantly.

mweiss:

I see now. You were referring to domestic results while I was referring to systemwide results for the first quarter of 2004. But even if you look just at the domestic results shown in the linked table, United was the only other network carrier besides Northwest to show a first quarter year-over-year increase in yield. Thus, I think it's justified to mention United in the same breath with Northwest in this case.

And I believe that a year-over-year comparison is more valid than a quarter-by-quarter comparison (which I think you were using) because the latter doesn't take into account differences in (1.) seasonal service levels, (2.) seasonal demand levels, (3.) weather-related impacts on operations, and (4.) the ratio of business to leisure travel, among other things.

 

[BoeingBoy]

funguy2,

I pretty much agree with your list as it applies to "airlines" in the generic sence. All "legacy" carriers have done many of these things, some have done all of them.

However, #3 (become more efficient) seems to escape this companies attention - unless you mean paying less and having less people do more.

The operation (a/c utilization, gate utilization, etc) is just as inefficient as it ever was.

Jim

 

[funguy2]

Virtually any technology related item now costs a fraction of what it did X number of years ago.

Actually a great many things are cheaper today than they were then.

Tom, naturally you are correct. Generally as technology evolves, that includes technology to reduce production costs, thus lowering the price of the product to the end consumer and opening up new markets by price level...

So yes, this is true of anything technology related... TVs, phones, cell phones, DVD/VCR, computers, etc.

I was thinking more along the lines of perishable commodities, which is where the airline seat market is headed... Are oranges as cheap as they were in 1978? Milk? Grain? Clothes/fashion? Like I said earlier, the only consumer commodity that I could think of where the price had not changed was gasoline... And that is something that may be undergoing a fundamental shift currently.

Even some items, which arguably are technology related, have not been reduced in price over the years... aircraft and automobiles... Even PC's seem to have bottomed out around $500 in the last several years, as now the price cannot continue to decline because of the additional technology required to "keep up" has replaced cost-reduction in computers (in the last several years anyway, I am sure computers are cheaper now than 1978.)

 

[funguy2]

funguy2,

I pretty much agree with your list as it applies to "airlines" in the generic sence. All "legacy" carriers have done many of these things, some have done all of them.

However, #3 (become more efficient) seems to escape this companies attention - unless you mean paying less and having less people do more.

The operation (a/c utilization, gate utilization, etc) is just as inefficient as it ever was.

Jim

Boeing Boy:

I cannot disagree with you... I think that is the only thing left for US Airways to do to be on par with everyone else. And yet management resists this change. In fact, when given an opportunity to become more efficient (like acquire one type of 70-seat RJ) it does the exact opposite. It does not make sense to me.

Are things a little bit better than some number of years ago? Yes. Fokkers are gone. MD-80s are gone. 727s are gone. But at the end of the day, US Airways has 2 fleet types for every 1 mission (just my biggest example of inefficiencies within the system). I am sure there are facilities issues up and down the east coast because the departures from BUF to PIT, PHL, and CLT are all based on a bank system that says leave the NE around 7am and leave the South Florida at 7am, and build banks at hubs around that...

 

[BoeingBoy]

funguy,

You're right, and I owe you something of an apology. I've been to recurrent training the last three days and was catching up on my reading. Got to the bottom of the first page of posts in this thread and jumped in without reading the 2nd page. You and others covered pretty much everything I said.

Jim

 

[TomBascom]

Tom, naturally you are correct. Generally as technology evolves, that includes technology to reduce production costs, thus lowering the price of the product to the end consumer and opening up new markets by price level...

So yes, this is true of anything technology related... TVs, phones, cell phones, DVD/VCR, computers, etc.

I was thinking more along the lines of perishable commodities, which is where the airline seat market is headed... Are oranges as cheap as they were in 1978? Milk? Grain? Clothes/fashion? Like I said earlier, the only consumer commodity that I could think of where the price had not changed was gasoline... And that is something that may be undergoing a fundamental shift currently.

Even some items, which arguably are technology related, have not been reduced in price over the years... aircraft and automobiles... Even PC's seem to have bottomed out around $500 in the last several years, as now the price cannot continue to decline because of the additional technology required to "keep up" has replaced cost-reduction in computers (in the last several years anyway, I am sure computers are cheaper now than 1978.)

I disagree that an airline seat is "perishable". The position in the queue for a seat is what is being sold. I believe that the difference, while subtle, is important.

I would also point out that much of what the LCCs have done is to "open new markets". Masses of people who never would have flown now do so without a second thought -- this never would have happened without the LCCs. "The Southwest Effect" isn't just about lowered fares -- it's also about huge increases in traffic.

As for oranges et al... I don't know for sure. I don't have data or sufficient memory of prices readily available. But offhand my grocery bill doesn't feel any more painful this year than it did a few years ago. And I'm pretty sure that I get a much higher quality selection and a lot more variety than I used to get.

One more point about technology -- prices for "a PC" may have bottomed out at $500 (or whatever) but the value that you get for that $500 continues to improve exponentially. The $500 PC of 2002 is half the $500 PC of 2004. And so forth.

In contrast the "value" of a seat on an airplane has taken significant steps backwards. Less room (pitch), more crowded (load factors are sky high), fewer flights, smaller, planes, long lines, no food, nusiance fees, pages of rules and restrictions, bad service... And for all the talk of "low fares" business fares have certainly *not* been on a downward trend.