Us Airways' Near-miraculous Survival Plan
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Walmartgreeter
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- Mar 6, 2003
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It was a few moments of turbulence that bounced the airlines around
Words escape me. I guess I am done with this thread. Greeter
Words escape me. I guess I am done with this thread. Greeter
as a matter of fact i tested some last night....monEl Gato said:drug test monday dude....we'll see about this.....
Delldude, did you even bother to read the entire post. You expose yourself as ignorant when you behave like this. Sounds like you may need the "test".
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All that means is that WN has a temporary, unsustainable advantage that is temporarily depressing industry revenues. WN is using this temporary advantage to provide the muscle necessary to move into new markets that could otherwise be owned by other LCCs.dbcwaar said:
It's a shrewd move on WN's part.
Meanwhile, once their hedges run out, their costs will become more in line with the other LCCs (though still lower than the legacies). At that time, the fares will rise somewhat, and demand will fall somewhat from the levels at which it would be were the airfares not to rise. That demand is still likely to be higher than it is now, however, due to other external forces.
So what this means is that the other LCCs are willing to take a small loss today in order to be around when WN's hedges run out. I suppose the same could be said for the legacies, but one needs to apply a little bit different analysis to them.
That's a gross oversimplification on several levels.goingboeing said:
Except that the legacy carriers are systems. One of the side effects of this is an inability to easily separate the two markets. For example, if you draw down the domestic market, you necessarily have to pull out of some markets altogether. If you do, you necessarily reduce the feed to your international gateways. If you do, your international routes are no longer profitable.
So, instead of a lot of hand-waving, how about you provide a detailed explanation of how to maintain the international profitability without losing money domestically.
Another gross oversimplification. While I could make a reasonable economic argument that would support that first sentence, I'd have to ignore a couple of very important factors. So how about you make a reasonable economic argument to support that first sentence?
As for your second, I strongly disagree. The actual product of selling seats is not a big money loser. Rather, it's approaching a break-even proposition.
While it's hardly the most sensitive way of describing it, he's certainly correct from an economic/business perspective.Walmartgreeter said:
The legacies are not losing money today because of September 11, 2001. But if it makes you feel better to believe that US would be making billions of dollars each week today if it weren't for Al Qaida, knock yourself out.
CaptianBoomer
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To quote on of the best airline CEO's out there.....
"We are as an industry only as smart as our dumbest competitor."
The airlines, LUV included, will all lose money with $1.50 fuel and the yields out there right now. One of two things have to happen and they are directly related/opposites.
If 10% of the capacity in the industry disappeared, that would give the airlines some pricing power. This is a stupid assumption. If a major disappeared tomorrow, the others would all be scrambling for their assets to ADD capacity to their own systems.
or
Fares must come up. Not substantially, just 10 bucks per one way and 20 bucks r/t. This will happen no matter what if fuel stays high. Even LUV will have to raise fares to remain profitable. The rub for the industry is that when this happens, if LUV doesn't raise fares enough, they will make some money and most others will not. So the legacies must become more efficient to make up the difference.
The irony is that the airlines could raise fares right now. They have the ability, they have the reasons. They just won't do it because they are all hoping for the demise of U, UAL, ATA, and others. If this doesn't happen, they are putting their financial house in jeopardy.
Boomer
"We are as an industry only as smart as our dumbest competitor."
The airlines, LUV included, will all lose money with $1.50 fuel and the yields out there right now. One of two things have to happen and they are directly related/opposites.
If 10% of the capacity in the industry disappeared, that would give the airlines some pricing power. This is a stupid assumption. If a major disappeared tomorrow, the others would all be scrambling for their assets to ADD capacity to their own systems.
or
Fares must come up. Not substantially, just 10 bucks per one way and 20 bucks r/t. This will happen no matter what if fuel stays high. Even LUV will have to raise fares to remain profitable. The rub for the industry is that when this happens, if LUV doesn't raise fares enough, they will make some money and most others will not. So the legacies must become more efficient to make up the difference.
The irony is that the airlines could raise fares right now. They have the ability, they have the reasons. They just won't do it because they are all hoping for the demise of U, UAL, ATA, and others. If this doesn't happen, they are putting their financial house in jeopardy.
Boomer
goingboeing
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MWEISS,you have made some very good counter points to my postings and I like someone who is a thinker. Your postings are thought provoking.
Walmartgreeter,you seem like a VERY NICE person who cannot let go of 9/11.
I'm very sorry if you lost a friend or family member because of the attacks.
And by the way,AA put pictures and bios of my fellow AA employees who were on the 2 AA aircraft that were lost.I sat there with tears in my eyes as I schrolled the webpages and read each bio and saw a face with the name.
We have been discussing business problems with the legacy carriers and not the PERSONAL losses of 9/11.
I'll stand by my original statement that 9/11 was just a few moments of turbulence in the airline business.
To everyone else:
I'm not offended at all if someone calls my postings dumb because after all they are just opinions.
Walmartgreeter,you seem like a VERY NICE person who cannot let go of 9/11.
I'm very sorry if you lost a friend or family member because of the attacks.
And by the way,AA put pictures and bios of my fellow AA employees who were on the 2 AA aircraft that were lost.I sat there with tears in my eyes as I schrolled the webpages and read each bio and saw a face with the name.
We have been discussing business problems with the legacy carriers and not the PERSONAL losses of 9/11.
I'll stand by my original statement that 9/11 was just a few moments of turbulence in the airline business.
To everyone else:
I'm not offended at all if someone calls my postings dumb because after all they are just opinions.
That's only a partially true statement, but he does have a valid point. The years between 1980 and 1990 were some critical years for the industry. Had the game been played with a bit less ego and a bit more of an eye to the future, we'd be in a very different place today.CaptianBoomer said:
Which is pretty much what I said above.
Enough to make the LCCs profitable, but not enough to make the legacies profitable with their current models.
Certainly history would suggest this. It's the basis for Bethune's comment.
Well said. And competitive pricing theory would dictate that this is exactly what will happen. Incidentally, WN won't be the cost leader once those hedges run out. What WN has going for it is a much more robust network that will keep the cost differential vis a vis B6 et al less significant. In other words, while WN doesn't have the lowest cost without the hedge, they're close enough that the effects of their network overcome what would otherwise be a substantial competitive disadvantage.
But it's worth noting that this is precisely the same argument that the legacies had for years to support their higher costs relative to WN. It's a mid-term sustainable advantage, but it goes away in the long term.
Sure they can. But they don't need to raise fares, they need to raise revenues...or more precisely profits. The only way that raising fares will increase profits is if they all do it in concert. WN has disincentive to raise fares, and as long as there's at least one significant holdout, raising fares will not raise profits. Of course, beyond a certain point, raising fares in concert will also lower profits...but I don't think we're at that point.
Many say that, but the evidence doesn't back up this argument.
Thanks. I try.goingboeing said:
Let's face it...this is an extraordinarily complicated industry. Anyone who thinks that these complex problems can be solved with simple solutions is kidding themselves. We sit around flapping our fingers and mostly talking about the elephant by arguing about the rope, snake, wall, and tree trunk...this forum makes it incredibly difficult to ever really talk about the elephant.
Walmartgreeter
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goingboeing said:
If a business in NYC was being run poorly, does it "deserve" to be given special assistance in survival because the entire block around it was destroyed? No.Walmartgreeter said:
Either way, it deserved to leave the scene because it was being run poorly. The extra circumstances are just that...extra circumstances. They don't change the fundamentals.
Walmartgreeter
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extra circumstances are just that...extra circumstances. They don't change the fundamentals.
Ok, one more step. A family who lost a loved one in 911 was loaded with debt, and about to forclose on their home. Weaklings by business standards, failures at life? The government paid them over a million because they lost a member in the attack. Extra circumstances indeed. The finest democracy and pro business country in the history of the world had the logic to see such an event was NOT the luck of the draw and a bump in the road. That is the way I see it too, so we can just agree to disagree. Best. Greeter.
Ok, one more step. A family who lost a loved one in 911 was loaded with debt, and about to forclose on their home. Weaklings by business standards, failures at life? The government paid them over a million because they lost a member in the attack. Extra circumstances indeed. The finest democracy and pro business country in the history of the world had the logic to see such an event was NOT the luck of the draw and a bump in the road. That is the way I see it too, so we can just agree to disagree. Best. Greeter.
Many posts have noted that the playing field will even out when SWA's fuel hedges run out--but when is that?
SWA has stopped hedging. SWA is still using hedges to control fuel costs. The hedges are not as cheap as they used to be--but there's still a sizeable difference in locking in fuel prices down the road. If oil prices became very stable then hedging would be harder with small margins.
Two things could happen to change the playing field:
1. Heating oil (hedge) prices falling rapidly--so fast SWA gets trapped with hedges more expensive than open market. In this scenario, SWA could be a loser.
2. Fuel prices fall to low levels allowing all lower prices. In this scenario, SWA would lose its advantage and more airlines could make money at current yields.
SWA has stopped hedging. SWA is still using hedges to control fuel costs. The hedges are not as cheap as they used to be--but there's still a sizeable difference in locking in fuel prices down the road. If oil prices became very stable then hedging would be harder with small margins.
Two things could happen to change the playing field:
1. Heating oil (hedge) prices falling rapidly--so fast SWA gets trapped with hedges more expensive than open market. In this scenario, SWA could be a loser.
2. Fuel prices fall to low levels allowing all lower prices. In this scenario, SWA would lose its advantage and more airlines could make money at current yields.
