The View From The Passenger's Seat.

[deano]

Deano, you clearly are missing the key point here.

The customer always has the final say as to whether the transaction is completed. If the customer irritates you tremendously but breaks no laws, you are still obligated to serve the customer. On the other hand, if you irritate the customer even slightly, the customer is not obligated to ever give you (via your employer) another cent.

That is business.

[post="235151"][/post]​

And exactly why after working in the public sector many years ago I vowed NEVER to do it again and haven’t. I would not only be giving them a piece of my mind but a piece of my fist, and why I'm not there.

 

[mweiss]

my point here is that a new airline was not created, not since jetblue has one of size been created.

[post="235142"][/post]​

And that's been a whole...four and a half years! Meanwhile, demand fell shortly after B6's entry and has only recently returned to the nearly the same levels. Gee, I wonder why nobody new has shown up? That hardly passes for evidence that we're done seeing new airlines.

In response to my question about why air service to the Podunks is important, you said

Reliable safe airtransportation system according to the US government is a national security requirement (don't ask me why this was put forth post 9/11 hearings ) a like a stable auto industry of the 80s was needed....

This hardly explains why we need service to tiny towns. If anything, it argues why we don't.

In response to my observation that CO makes money on TATL and NW makes money on TPAC, you said:

Acutally NWAC lost money in 2004 and took bigger hits due to SARS which was localized in the Far East CO is not profitable either and since they already filed 2 bankruptcies they (by the new law written post Lorenzo) can not file for a 3rd reoganization they would infact have to immediately go chap 7 .

Yes, SARS hurt TPAC profitability. However, that's in the past, and traffic has been picking up significantly. NW's losses are more due to lack of domestic pricing power.

As for CO, they are right on the cusp, but the first two past bankruptcies doesn't count toward the "three strikes," since it occurred prior to the law's passage.

You then went on to say

AA is not profitable either at this point. having lost money in 2004 Europe is not profitable due to the collapse of the dollar vs the Euro. which also weighs on the airline business even if they can sell the ticket at a profit the exchange rate can make it a loss similar situation caused NWAC to almost claim BK in early 90s to to collapse of the yen.

So, let me see if I get this straight...if the dollar does well against the foreign currency (e.g., the "collapse of the yen"), the US airline does poorly. If the dollar does poorly against the foreign currency (e.g., "the collapse of the dollar vs the Euro), the US airline does poorly. Sounds like making excuses to me. :huh:

After I noted that the only airlines in a shambles are those with broken business plans, you responded

SWA and Jetblue are the ONLY 2 airlines in the black for 2004

First of all, I'd counter by saying that those two airlines have the most solid business plans today. However, there are a handful of others that didn't lose much in 2004 and have good reasons to believe that things will be getting better. It costs a lot of money to change business plans, as AS and HP have been doing. Being on the cusp is a good sign for such a company.


On to your predictions.

In response to my observation that there have always been regional strengths among the airlines, you responded

The trunks had that "clearly defined routes" because the CAA awarded them to airlines

Well, duh. But that doesn't explain why that remains true today, despite shifts in those regions (e.g., HP replacing WA, CO shifting east).

in the late 80s was the only other period of time in airline history that was as bad as it is today. and i quote warren buffet at DUKE luncheon....

...blah, blah, blah...
Yes, there have been a few bad cycles, mostly fed by the legacy carriers' addiction to high fares. This may well finally be changing for good. And it's about time.

Speaking of which, you took my "about time" comment out of context. I specifically used it to refer to it being about time that the legacies take advantage of their strengths. And then you replied to it as if I were disparaging the front line employees, who are (generally) doing the best they can with what they have. Please don't do that again.

So then I point out that the "truce" you allude to is not likely to happen soon, and you respond with

SWA JB have high utulization and quick turns. but put them in a LGA? JB goes there but very limited amount why? why does SWA shy away from ORD and use MDW

Leaving aside that your response has little to do with my allegation...
Serving places without congestion is a no-brainer. Delays cost money. But if the yields are there to cover the increased costs of the delays, it's worth it to serve those airports, too. That'll happen, necessarily, after the low-hanging fruit are gone.

After pointing out that B6 can run rings around US, you reply with stuff about B-scales...so let me put it in clearer terms.

It ain't the fares. It's the value. As long as you can justify higher prices to the consumers, you can get the fares. As long as the legacies try to look like WN, they're going to lose against WN, just like nobody can beat Wal-Mart at Wal-Mart's market.

 

[javaboy]

[

It ain't the fares. It's the value. As long as you can justify higher prices to the consumers, you can get the fares. As long as the legacies try to look like WN, they're going to lose against WN, just like nobody can beat Wal-Mart at Wal-Mart's market.

[post="235321"][/post]​

[/quote]

actually i think we agree in principle in many (say 85%) of things and picking at each others examples might give a different impression. my comment on bscales vs b6 simply is another way of comparing a young airline to a mature airline all of UAIR employees are TOS while less than 5% of B6s are. in 10 years UAIR will still have all employees at TOS but then so would B6 (ie their costs will rise)

beyond that the above quote from your post, is exactly right, more over what i have claimed still exsists a lack of pricing power in the industry period. todays latest is CAL confirming this.


CAL Unit Revenue Delcines


Thus i agree you can offer a premium product but in the immediate enviorment you probably can not charge a premium price for it. (see DELTA annoucement this week forthcoming)

B)

 

[mweiss]

i think we agree in principle in many (say 85%) of things...

[post="235571"][/post]​

Yeah, probably.

my comment on bscales vs b6 simply is another way of comparing a young airline to a mature airline

Yes, but a mature B6 would still outperform the mature US. TOS accounts for some of the problems at US, but far from all of them.

Nonetheless, you are correct that there is a problem with airline payscales in general. What should happen, in order to maintain a long-term healthy airline, is for wages to rise in accordance with increased productivity. That is, if you get paid twice as much at year 10 as you do at year 4, you'd better be producing twice as much. Clearly, that ain't happening.

Instead, what we're getting is wages that rise faster than productivity...at all airlines. This becomes a Ponzi scheme whereby airlines find themselves forced to grow in order to stay solvent. Unless that growth occurs more slowly than the growth in demand, the net result is an industry filled with bursting bubbles.

Now, here's a place where unions deserve some serious slapping. If they cared about the long-term health of their membership, they'd push hard for such rational wages. It's not happening, and it's not going to.

But back to B6 for a moment. For a significant segment of the market, live satellite television increases the utility of the trip. By how much would require research that I have neither the time nor the infrastructure to ascertain, but it's something greater than zero. For that segment of the market, they can charge higher fares and get away with it.

This leads into your comment about...

...a lack of pricing power in the industry period. todays latest is CAL confirming this.

Calling it a lack of pricing power is a gross oversimplification. Where the legacy industry continues to run into trouble is the need to serve business passengers in order to remain profitable.

Business passengers typically look for a small number of amenities, but these are crucial to them:

• On time arrival. This is important because punctuality is important in business. True, a business passenger could simply leave earlier (e.g., the day before), but that incurrs significant additional costs. Given the choice between a cheaper unreliable carrier and a more expensive reliable carrier, business customers will choose the more expensive carrier...provided that the difference in cost doesn't exceed the cost of traveling the day before.
• Bags arriving with the passenger. This is of less importance only because most business passengers avoid checking luggage at all costs. Nonetheless, it is common for them to need to check items, particularly A/V equipment. Those simply must arrive with the passenger, or the entire cost of the trip is wasted. Such business customers will be willing to pay more for this...as evidenced by the increased frequency with which they turn to FedEx instead.
• Minimized waiting in lines. Time is money. Kiosks and online checkin may be bad for CWA employees, but they're great for business travelers. Couple those with express lanes at security, and you can turn "arrive 90 minutes before departure" into "arrive 30 minutes before departure." That's huge, particularly for road warriors.

The problem is that, in terms of business passengers, the industry has far too much capacity. That is what is reducing the pricing power of the legacies. There are simply not enough business passengers around to support AA, CO, DL, NW, UA, and US. In fact, there's probably enough to profitably support only two, maybe three, of them. This is why we need attrition.

See, the problem with trying to describe what's wrong with the industry is it's like the Arabian Nights story about the blind men and the elephant. It's hard to describe it all succinctly. Not that it stops people around here from pointing at one thing (usually that dreaded "management") and blaming that one thing on the industry's woes.

 

[LaBradford22]

Yeah, probably.
Yes, but a mature B6 would still outperform the mature US. TOS accounts for some of the problems at US, but far from all of them.

Nonetheless, you are correct that there is a problem with airline payscales in general. What should happen, in order to maintain a long-term healthy airline, is for wages to rise in accordance with increased productivity. That is, if you get paid twice as much at year 10 as you do at year 4, you'd better be producing twice as much. Clearly, that ain't happening.

Instead, what we're getting is wages that rise faster than productivity...at all airlines. This becomes a Ponzi scheme whereby airlines find themselves forced to grow in order to stay solvent. Unless that growth occurs more slowly than the growth in demand, the net result is an industry filled with bursting bubbles.

Now, here's a place where unions deserve some serious slapping. If they cared about the long-term health of their membership, they'd push hard for such rational wages. It's not happening, and it's not going to.

But back to B6 for a moment. For a significant segment of the market, live satellite television increases the utility of the trip. By how much would require research that I have neither the time nor the infrastructure to ascertain, but it's something greater than zero. For that segment of the market, they can charge higher fares and get away with it.

This leads into your comment about...

Calling it a lack of pricing power is a gross oversimplification. Where the legacy industry continues to run into trouble is the need to serve business passengers in order to remain profitable.

Business passengers typically look for a small number of amenities, but these are crucial to them:

• On time arrival. This is important because punctuality is important in business. True, a business passenger could simply leave earlier (e.g., the day before), but that incurrs significant additional costs. Given the choice between a cheaper unreliable carrier and a more expensive reliable carrier, business customers will choose the more expensive carrier...provided that the difference in cost doesn't exceed the cost of traveling the day before.
  
• Bags arriving with the passenger. This is of less importance only because most business passengers avoid checking luggage at all costs. Nonetheless, it is common for them to need to check items, particularly A/V equipment. Those simply must arrive with the passenger, or the entire cost of the trip is wasted. Such business customers will be willing to pay more for this...as evidenced by the increased frequency with which they turn to FedEx instead.
  
• Minimized waiting in lines. Time is money. Kiosks and online checkin may be bad for CWA employees, but they're great for business travelers. Couple those with express lanes at security, and you can turn "arrive 90 minutes before departure" into "arrive 30 minutes before departure." That's huge, particularly for road warriors.

The problem is that, in terms of business passengers, the industry has far too much capacity. That is what is reducing the pricing power of the legacies. There are simply not enough business passengers around to support AA, CO, DL, NW, UA, and US. In fact, there's probably enough to profitably support only two, maybe three, of them. This is why we need attrition.

See, the problem with trying to describe what's wrong with the industry is it's like the Arabian Nights story about the blind men and the elephant. It's hard to describe it all succinctly. Not that it stops people around here from pointing at one thing (usually that dreaded "management") and blaming that one thing on the industry's woes.

[post="235748"][/post]​

mweiss,

First of all, good to have you back. I must have missed your grand return. Secondly, that was probably the best description of fundamentally what's wrong with this industry right now that I've seen, and I work in management for an airline so I read stuff like this all the time from various analysts. The one thing you're missing is the price of oil. A lot of people miss the fact that, but for oil, at least two or three of the legacy carriers would have been reporting modest net profits for 2004, even with a stagnant revenue environment. And, but for hedging, even WN, the king of the LCC's, would be marginally profitable at best.

 

[mweiss]

First of all, good to have you back. I must have missed your grand return.

[post="235758"][/post]​

Thanks. I'm only back for a bit...things are ramping back up at work. Mostly, what prodded me back was an email from a past professor about some research we had been doing.

BTW, there was nothing "grand" about my return.

The one thing you're missing is the price of oil.

Missed, but not forgotten. There are all sorts of externalities that affect profitability. Oil's one of them, but so is the overall economy, and air disasters, and terrorism fears, and several other things. Of course, oil's the only one on that list that affects the cost, rather than revenue, side of the equation.

Not much that can be done about that one. Maybe Lockheed can revive their hydrogen-fueled L-1011 project?