Why Don't The Airlines Just Raise Fares?
- Thread starter FWAAA
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Ken MacTiernan
Veteran
Buck said:
With a mad dash to send a/c to overseas 3rd party facilities how many passengers will we lose when an aircraft is lost due to unskilled labor?
LCCs? Jetblue is a paper airline. They fly airbus crap and do 0% overhaul. Compare apples to apples. If airline management today wants to compare the majors to LCCs then everyone should fly one type of a/c and contract out most all employees for next to minimum wage.
Face it, labor is NOT the problem with the airlines woes today. How long should an airline remain in BK? How many VPs does it take to run an airline? How many times should an airline take concessions from their workers before the doors close? The system is broken. Management will not fix it because THEY are the problem. It is time that ALL airline labor groups brushed off the dust from our sleeping bodies and fight for what is right. If we don't we can look forward to many more years of speaking out loud, "Thank you sir, may I have another!".
Bob Owens: Your viewpoint is a very simple one: Increase fares = Increased profit. The problem is that the industry is much more dynamic than that.
The fact is that an extra $20/ticket roundtrip is a big deal to some passengers. We are talking about people who clip coupons to save $0.50 cents on a 12pack of Pepsi, shop at Super Wal-Mart, "dollar" stores, and drive 10 miles out of their way to find gasoline that is $0.10/gallon cheaper.
If discretionary spending was INCREASING, then these folks would probably be willing to pay more. Or, said another way, a fare increase would not decrease demand very much. However, in today's economic environment, I think its fair to say that discretionary income for most folks is either flat or down, simply based on the price increases of every day items (milk, gasoline, heating oil, vegetables, etc). Folks who are on the bubble between taking a vacation and not, probably won't if fares increase. This is an economic fact.
If the airlines could raise fares so easily, I think it would be done tomorrow. The fact is, they seem to feel that they cannot based on the history of attempted fare increases (how many failed in the past year or two?).
I think fares will eventually increase as capacity decreases... Supply and demand... Thats how it works. But for now we are in a holding pattern, waiting to see how capacity is decreased.
The fact is that an extra $20/ticket roundtrip is a big deal to some passengers. We are talking about people who clip coupons to save $0.50 cents on a 12pack of Pepsi, shop at Super Wal-Mart, "dollar" stores, and drive 10 miles out of their way to find gasoline that is $0.10/gallon cheaper.
If discretionary spending was INCREASING, then these folks would probably be willing to pay more. Or, said another way, a fare increase would not decrease demand very much. However, in today's economic environment, I think its fair to say that discretionary income for most folks is either flat or down, simply based on the price increases of every day items (milk, gasoline, heating oil, vegetables, etc). Folks who are on the bubble between taking a vacation and not, probably won't if fares increase. This is an economic fact.
If the airlines could raise fares so easily, I think it would be done tomorrow. The fact is, they seem to feel that they cannot based on the history of attempted fare increases (how many failed in the past year or two?).
I think fares will eventually increase as capacity decreases... Supply and demand... Thats how it works. But for now we are in a holding pattern, waiting to see how capacity is decreased.
Thomas Paine
Veteran
- Sep 4, 2003
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funguy2 said:
Where is all this surplus capacity? The planes look pretty full to me.
Sounds like someone needs an economics refresher course. Its called elastic demand.
Try....
http://www.digitaleconomist.com/elasticity.html
JS said:
Absolutely incorrect!!!! Business make decisions on price all the time, however the difference with the cargo carriers is that the business has no choice because the costs are relatively the same across the board because the cargo carriers have pricing discipline. They refuse to sell their product below cost, period. Unless the pax airlines wake up and figure this out, their will continue to be downward pressure on fares, and they will continue to come back to the employees for more concessions because they are only addressing one side of the revenue, cost equation. When pax airlines continue to undercut each other by a few dollars to gain market share, the end result is an inability to lower costs to gain a profit. We all have seen over and over the lowering of fares and negiating any cost savings. In fact I just read last week that fares are 11% lower compared to last year with fuel cost being higher.
- Thread Starter
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- #23
AAmech said:
You are correct - the LCCs will replace the seats lost if UAL and/or USAir fails. But they won't be the same seats.
Your post assumes that AA's problem right now is the LCCs. I have long believed (and posted) that AA's big problem (for the past 3 or 4 years) isn't AirTran or Frontier or jetBlue or even Southwest.
AA's real problem is that it is sharing the dwindling pool of high-fare passengers (those who still pay full Y or B and even J or F) with too other many full-service airlines.
Think of AA as an expensive department store in a crowded market of upscale department stores (including DL, NW, UA, US and CO). Wal-Mart isn't the primary enemy right now; it's that the market may not be able to support all of the Macy's, Bloomingdale's, Saks, etc. If one or two of the chains folded, the remaining high-spenders (the snobs who would never set foot in Wal-Mart or K-Mart) would provide enough cash to keep the business model afloat for a few more years.
Plenty of pundits disagree, but AA still has plenty of "I'd never shop at Wal-Mart or fly a discount airline" snobs. I'd say I'm one of them but I've been known to shop at those stores. And I do occasionally fly WN. But I like sitting up front, and for that I pay AA more $$$, consistently for many years now. And the trendy airline de jour (today, probably WN or B6) doesn't change my champagne taste when I fly. And I'm not alone.
B6 reduced transcon coach yields. WN has brought down short haul last minute yields. The LCCs will continue to nibble away at yields. But the real issue is that too many full-service (high-cost) seats are chasing the remaining high-yield passengers.
Time to toss someone out of the lifeboat so that the others may live.
FWAAA: Once again, we agree...
AAMech: Its a matter of timing... If US Airways stops service in February (a possibility, definitely not certain), those seats vanish instantly. The 400 LCC aircraft won't appear immediately, but rather over the next year or two... Thus allowing the market to contract initially, then expand again over the next couple of years. Plus, as FWAAA points out, the seats added by the LCC's won't be the same seats removed by US Airways' potential collapse.
FWAAA: I love your comments about Wal-Mart. There was recently an episode of South Park on Comedy Central that hit the Wal-Mart nail on the head... Everybody opposes Wal-Mart coming to town, and they make a big fuss, etc, but in the end, many of the opposition must shop there, otherwise the store would fail and be closed down. I personally shop at Wal-Mart, but generally only for certain types of products... I think lots of "wanna-be's" will do that in the future... Shop discount for certain products and high-scale for others... I'll note that the high-end hotels still seem to do well in the travel industry, even though the high-end airlines do not. Why? Because you'll shop at Wal-Mart for a garden hose, but you'd never think of buying your new living room set there... Well, you want to get to your vacation as cheaply as possible, but when you get there, you want a nice hotel on the beach, in downtown, or whatever, not a Motel 6 50 miles away next to an interstate.
AAMech: Its a matter of timing... If US Airways stops service in February (a possibility, definitely not certain), those seats vanish instantly. The 400 LCC aircraft won't appear immediately, but rather over the next year or two... Thus allowing the market to contract initially, then expand again over the next couple of years. Plus, as FWAAA points out, the seats added by the LCC's won't be the same seats removed by US Airways' potential collapse.
FWAAA: I love your comments about Wal-Mart. There was recently an episode of South Park on Comedy Central that hit the Wal-Mart nail on the head... Everybody opposes Wal-Mart coming to town, and they make a big fuss, etc, but in the end, many of the opposition must shop there, otherwise the store would fail and be closed down. I personally shop at Wal-Mart, but generally only for certain types of products... I think lots of "wanna-be's" will do that in the future... Shop discount for certain products and high-scale for others... I'll note that the high-end hotels still seem to do well in the travel industry, even though the high-end airlines do not. Why? Because you'll shop at Wal-Mart for a garden hose, but you'd never think of buying your new living room set there... Well, you want to get to your vacation as cheaply as possible, but when you get there, you want a nice hotel on the beach, in downtown, or whatever, not a Motel 6 50 miles away next to an interstate.
AAmech said:
Who cares if the LCCs will or will not be able to replace the capacity? Fact is that the LCCs are efficient and can make profits on less revenue than the legacy capacity that would be lost.
As FWAAA and Funguy point out, the issue isn't as simple as over-capacity in general, but moreso over-capacity of an increasingly lower demand segment of the industry...the high-needs pax that the legacies cater to. The legacy cost structure won't permit them to compete adequately with the LCCs for the growing segment of the industry and this is why a one for one replacement of legacy capacity with LCC capacity would be beneficial and not detrimental.
Buck said:
Southwest seems to do well with decent paying jobs (although not universally the highest paid). Productivity of labor is just as important as cost per employee. And by "productivity" i am referring to revenue per employee. I'll bet that Southwest has the highest amount of revenue per employee than any airline. Maybe I'll look into that later when I have more time.
Wretched Wrench
Veteran
- Apr 21, 2003
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funguy2 said:
It is interesting to note that Southwest is the most highly unionized and perhaps best-paying of the airlines. Ane their unions are not known to be "compliant", as with the TWU.
So, one could infer that neither unions nor labor costs are the problem with the struggling legacy carriers.
- Thread Starter
- Thread starter
- #30
Wretched Wrench said:
Exactly!
With one caveat: The problem with the legacy airlines is a shortage of money. Too little cash. The cause of that cash shortage is that too many of them are chasing a shrinking pool of higher-yield revenue passengers. Unfortunately, none of them appears willing to roll over and liquidate, which forces each of them to demand other cost savings (or else run out of cash), and the employees have proven a better mark from whom to demand those savings than, say, the oil companies. Some of them, like UAL and USAir, keep going back to their employees again and again and again. Time for them to shut down.
I take no pleasure in wishing job losses on the employees of those companies, but somebody's gotta eat, and it might as well be AA's employees, as far as I'm concerned.
Uhh, doesn't the TWU represent some of the WN employees?
