Why Don't The Airlines Just Raise Fares?

[Oneflyer]

Problem is they do not have the balls to do it.

Maybe they're just not that stupid.

What are you going to get out of an airline that doesn't make any money? Lets say you go on strike, what happens?

A. Airline plays hard ball and doesn't budge. Company goes out of business and everyone loses their jobs. Maybe you feel better, but I'm guessing your family thinks you're pretty stupid.

B. Airline gives in to your demands. Higher labor costs, along with higher fuel costs, and low cost competition force the company into bankruptcy. Either it goes out of business or your new contract gets disolved anyway. Again, you lose.

C. Airline plays hard ball and union gives. Again you lose, while looking really stupid.

Tell me where I'm wrong here.

 

[Bob Owens]

Maybe they're just not that stupid.


What are you going to get out of an airline that doesn't make any money? Lets say you go on strike, what happens?

A. Airline plays hard ball and doesn't budge. Company goes out of business and everyone loses their jobs. Maybe you feel better, but I'm guessing your family thinks you're pretty stupid.

B. Airline gives in to your demands. Higher labor costs, along with higher fuel costs, and low cost competition force the company into bankruptcy. Either it goes out of business or your new contract gets disolved anyway. Again, you lose.

C. Airline plays hard ball and union gives. Again you lose, while looking really stupid.

Tell me where I'm wrong here.

[post="228730"][/post]​

No they are worse than just stupid, they are greedy and stupid.

And yes you are wrong here.

I'm not talking about just one airline, I'm talking about all of them that have unions.

The fact is that even though the airlines are not making money a lot of industries that rely on the airlines are.

The people that own the planes and lease them to the airlines are making money.

The people that own the bonds that built the airports are making money.

The people that sell the fuel to the airlines are making money.

The people that sell the airlines parts, supplies and other material are making money.

The hotels and resorts that rely on the airlines to bring the people there are making money.
The list goes on. No matter how much the airlines lose as long as they continue flying people around everyone else is happy.

Why do you think that bankrupt airlines continue to fly so long? Why dont they simply shut down like most money losing companies?

The only way for us to put a stop to this is to shut it all down, now all those people who are making money off this industry will no longer be making money off this industry.

Then it will be up to the government to fix it. Either make it public transportation or shut it down and whoever feels like flying can jam themselves onto Jet Blues 60 airplanes.

You may call it stupid, I call allowing your wage to continue to decline while delivering increased productivity because the management feels like spending billions on unneeded terminals, convenience mods, expensive ticket counters, ads on sports arenas etc stupid.

 

[beatupxaa]

Or until the unions start acting like unions and shut the whole thing down.

[post="228715"][/post]​

hard to do with a twu no strike clause in our contract

 

[Bob Owens]

hard to do with a twu no strike clause in our contract

[post="228742"][/post]​

Its very existance just goes to show that the TWU is not much of a union.

 

[Oneflyer]

And yes you are wrong here.

How does what you are proposing help the average union worker?

1. It won't ever happen so it is pointless to even discuss it.

2. What is the outcome you're looking for, a reregulated airline industry? Are you smoking crack? That is a terrible idea for everyone not working for an airline. P.S. it would be a bad a idea for most airline employees, because the industry would shrink dramaticly if it happened.

Look there are three things the average union worker can do to help themselves.
1. Encourage those working around you to leave the industry.

2. Write your Congressman to promote legislation changing the bankruptcy laws so that airlines can not stay in bankruptcy indefinately.

3. Find an alternative source of oil other than the middle east.

 

[Drippy Quill]

How does what you are proposing help the average union worker?

1. It won't ever happen so it is pointless to even discuss it.

2. What is the outcome you're looking for, a reregulated airline industry? Are you smoking crack? That is a terrible idea for everyone not working for an airline. P.S. it would be a bad a idea for most airline employees, because the industry would shrink dramaticly if it happened.

Look there are three things the average union worker can do to help themselves.
1. Encourage those working around you to leave the industry.

2. Write your Congressman to promote legislation changing the bankruptcy laws so that airlines can not stay in bankruptcy indefinately.

3. Find an alternative source of oil other than the middle east.

[post="228751"][/post]​

Uhhh..the average union worker out looking for alternative oil sources? Not sure where to place that in my schedule, before or after picking the kids up from school or feeding the livestock?

I'd say your #2 may have some merit but #'s 1 and 3 show proof you're the one with the crack pipe...HAHAHA!!!

 

[Bob Owens]

Oneflyer,Dec 14 2004, 03:25 AM]
How does what you are proposing help the average union worker?

It helps the average union worker because it expands this whole mess to a crisis where we are not the only ones affected. Under the current conditions everyone else is doing well off our labor. The only ones suffereing are airline workers. The public is enjoying cheap air travel at our expense. We need to cut off that benifit to force a fair and resonable solution.


1. It won't ever happen so it is pointless to even discuss it.

Under the current union structure you're probably right.

2. What is the outcome you're looking for, a reregulated airline industry? Are you smoking crack? That is a terrible idea for everyone not working for an airline. P.S. it would be a bad a idea for most airline employees, because the industry would shrink dramaticly if it happened.


Oh really? And what do you base that on? The fact is that under regulation real airfares continually decreased, the industry grew and each year more and more people flew. Flying continually became more accessable to more and more people. The problem with regulation was that it did not provide the opportunity for speculators to make huge sums of money. People are misled to believe that under deregulation air travel shot up but the fact is it pretty much continued along the same trajectory it had prior to deregulation.

Either the government should step back and allow the industry to assume its natural deregulated path-consolidation, or regulate it. Its government interference, (along with lack of union leadership) through blocking consolidation and the abuse of bankruptcy laws that has put airline workers in an intolerable situation. The reason why the government has blocked consolidation is because it will lead to higher prices, the reason why they allow bankruptcy to be abused is because it keeps prices low. Who pays the price? The workers in this industry.

 

[funguy2]

Oneflyer:

I would add that you should write your congressman and lobby for less taxes on the airline tickets. I mean, we pay a percentage tax, and segment tax, and a PFC on almost every ticket. But the percentage tax was supposed to pay for the items now paid for by the PFC's. The problem is that the feds diverted that revenue from its intended funding of new aviation infrastructure. The result is that airline services are among the most heavily taxed.

Bob Owens:

While things are looking tough for US Airways, why should the market be re-regulated? Seems to me like some companies are able to be successful in spite of all the difficulties. And its not just Southwest... America West, Air Tran, and jetBlue have all had profitable quarters since 9/11/01.

KMart went recently went bankrupt (and since emerged) Are we supposed to regulate all retail just because one company in the industry was poorly managed for years and went belly up? After all, KMart provides a very important public service of bringing essential products to consumers, right? Lots of other companies made money off of BK KMart (like store leasing companies, trucking companies, product manufacturers, wholesalers, etc)

What the government needs to do is to get out of the way and allow the market to work. This will result in winners and losers. That's how capitalism works.

 

[markkus757]

Somebody tell me how the government reregulates the airline industry. There are too many people, planes, and routes involved for it to happen. Competition would shrink dramatically and so would all of the airlines. You fail to comprehend the fact that if there were significantly less supply of seats in the marketplace, the airlines could make money, but only as smaller enities. No airline right now wants to concede markets to another. Until that changes, no one can raise fares because the demand does not exist for higher prices. Check your economics books. They talk about supply versus demand all the time.

 

[Bob Owens]

Oneflyer:

I would add that you should write your congressman and lobby for less taxes on the airline tickets. I mean, we pay a percentage tax, and segment tax, and a PFC on almost every ticket. But the percentage tax was supposed to pay for the items now paid for by the PFC's. The problem is that the feds diverted that revenue from its intended funding of new aviation infrastructure. The result is that airline services are among the most heavily taxed.

Bob Owens:

While things are looking tough for US Airways, why should the market be re-regulated? Seems to me like some companies are able to be successful in spite of all the difficulties. And its not just Southwest... America West, Air Tran, and jetBlue have all had profitable quarters since 9/11/01.

KMart went recently went bankrupt (and since emerged) Are we supposed to regulate all retail just because one company in the industry was poorly managed for years and went belly up? After all, KMart provides a very important public service of bringing essential products to consumers, right? Lots of other companies made money off of BK KMart (like store leasing companies, trucking companies, product manufacturers, wholesalers, etc)

What the government needs to do is to get out of the way and allow the market to work. This will result in winners and losers. That's how capitalism works.

[post="228911"][/post]​

Well the fact is that the airlines are and will always be subject to regulation. If you want the government to step away then fine, dont complain when union workers say they want to strike.

While some small airlines are showing a profit, although JetBlue's margins are sinking, these are not the carriers that move most of the people. If its ok to let the market "work" and you go out and plan your trip only to find out that the carrier folded the night before, and no other carrier will honor the ticket, because after all they did not sell it to you, once again dont complain.

Competition eventually comes to a conclusion, and that conclusion is a monopoly, well when that happens and ticket prices triple, because we let the "market" work, dont complain.

Now of course you will say that if that happens others will start up, but there is one thing that your little market theory ignores, its the fact that a major can simply underbid a smaller rival until that rival runs out of money, the major can make up for its losses on routes not served by the small start up. So when the industry ends up as a monopoly and triples the fares, dont complain, because the market works, right?

 

[Bob Owens]

Somebody tell me how the government reregulates the airline industry. There are too many people, planes, and routes involved for it to happen. Competition would shrink dramatically and so would all of the airlines. You fail to comprehend the fact that if there were significantly less supply of seats in the marketplace, the airlines could make money, but only as smaller enities. No airline right now wants to concede markets to another. Until that changes, no one can raise fares because the demand does not exist for higher prices. Check your economics books. They talk about supply versus demand all the time.

[post="228929"][/post]​

Reregulate? The fact is the government never stopped regulating the airlines. Or dont you remember the failed attempt by USAIR and UAL to merge? Dont you remember Bush's numerous PEBs blocking airline workers from striking? The government has prevented the "market" from taking its course, which would be consolidation. Instead, through blocking mergers and the abuse of bankruptcy they have created a vicious cycle where the employees of the industry bear the brunt of the pain.

The airlines would shrink? Check your facts, the airline industry grew at a steady rate while it was regulated. Real prices continually declined under regulation. The only problem with regulation was that it did not allow the airlines to make huge profits. You see, the huge swings between losses and profits that have been typical since deregulation provides opportunity for some to make huge gains. That did not exist before.

If demand exists then prices can be raised. People are not going places just because the fares are cheap, they have spend money when they get to where they are going. Besides is it reasonable to be expected to be transported 3000 miles in 5 hours for less than the cost of a tank of gas?

 

[JS]

If demand exists then prices can be raised. People are not going places just because the fares are cheap, they have spend money when they get to where they are going. Besides is it reasonable to be expected to be transported 3000 miles in 5 hours for less than the cost of a tank of gas?

[post="229068"][/post]​

Airlines don't need government approval to raise prices, so apparently sufficient demand does not exist to raise prices.

Regarding your comparison to the cost of a tank of gas, that is irrelevant. They both use petroleum-based fuel, but the comparison ends there as airlines don't drive people in individual automobiles upon purchase of a ticket.

 

[funguy2]

Well the fact is that the airlines are and will always be subject to regulation.

Absolutely. And I believe that the airlines should be subject to safety and security regulations. That is imperitive. However, the airlines should not be subject to market regulation.

While some small airlines are showing a profit, although JetBlue's margins are sinking, these are not the carriers that move most of the people.

Last time I heard, Southwest was the number 4 airline in terms of passengers boarded, and they dominate something like 75% of the top 100 O&D markets. Southwest alone serves a large portion of the market. You are correct, they do not serve the "majority" of travellers. However, they do show that transporting people via aircraft can be a profitable business, and not just a path to profits for all the other companies you listed (aircraft lessors, hotels, tourist attractions, etc).

If its ok to let the market "work" and you go out and plan your trip only to find out that the carrier folded the night before, and no other carrier will honor the ticket, because after all they did not sell it to you, once again dont complain.

Well, first of all, congress has passed the bill that requires other airlines to accept the tickets of a failing carrier again. This legislation had recently expired, but will be renewed. I am not 100% up on its process through the legal system, but its difficult to imagine "W" using his first veto on this.

In fact, I had this event happen to me. It was a pain. I worried about it. I was accomodated on another carrier and my trip went as planned. Folks buying a ticket on US Airways, United, and ATA are taking a risk. They should know that.

Competition eventually comes to a conclusion, and that conclusion is a monopoly, well when that happens and ticket prices triple, because we let the "market" work, dont complain.

Can you name one industry in which "Competition eventually came to a conclusion" and has lead to a monopoly?

Now of course you will say that if that happens others will start up, but there is one thing that your little market theory ignores, its the fact that a major can simply underbid a smaller rival until that rival runs out of money, the major can make up for its losses on routes not served by the small start up. So when the industry ends up as a monopoly and triples the fares, dont complain, because the market works, right?

Well, lets face it. The strategy you have described has partially led to the problems faced by the legacy carriers today. LCC's are attacking the legacies on multiple fronts... Remember "fortress" hubs like ORD and DEN and ATL and STL and DFW and PHL, which today all have LCC competition. Remember when the legacies were able to bank on their long-haul services, like transcons, to remain profitable. Remember when legacies could count on sky-high fares in small towns like ERI to remain profitable. The LCC's have collectively removed those profitable operations, so now their are no profits to subsidize the loss makers. That is a bad business strategy.

5 years ago, the majors could underbid rivals. However, todays rivals are the best financed start-ups in history. jetBlue had the most investment capital of a start-up since deregulation, and ACA/Independence Air was able to open a hub with 300 flights/day in two months. These airlines are not the under-funded 3 airplane start-ups of 10 years ago. And in fact, we have Sir Richard, "waiting in the wings" so to speak, to start another well-financed lean LCC machine. These are not the rinky-dink start-ups of years past, and thus far, the legacies have not been able to "crush" them despite their best efforts (like Song, Ted, MetroJet, fare wars, rolling hubs, and if you call ERJ's on LGA-BUF a best effort to crush jetBlue).

If demand exists then prices can be raised. People are not going places just because the fares are cheap, they have spend money when they get to where they are going. Besides is it reasonable to be expected to be transported 3000 miles in 5 hours for less than the cost of a tank of gas?

Last time I checked in Econ 101, prices of any product are function of both demand and supply. Demand at "profitable" price-points for the legacy carriers has dried up. Meanwhile, there seems to be an unlimited supply of low-fare seats by the LCC's and Legacies combined. Prices will not increase on demand alone... If demand is increasing and supply is increasing at the same rate, fares will remain the same. And the last time I checked, the LCC's collectively have something like 400 airplanes coming into the USA system in the next few years.... Supply will increase. In fact, supply might increase faster than demand, depressing prices even further... I encourage you to look into Econ 101, because these are really the basic concepts, and they really do apply.

 

[Oneflyer]

The airlines would shrink? Check your facts, the airline industry grew at a steady rate while it was regulated. Real prices continually declined under regulation. The only problem with regulation was that it did not allow the airlines to make huge profits. You see, the huge swings between losses and profits that have been typical since deregulation provides opportunity for some to make huge gains. That did not exist before.

This is a huge distortion of the facts. Airplane technology and economic growth were the real drivers of growth in the airline industry before deregulation. Growth exploaded after deregulation and prices dropped rapidly. People will never stand for the government telling them when and how much they will pay to travel between to cities. What you are proposing is not only incredibly bad for the consumer, it would be bad for the majority of airline employees.

 

[WorldTraveler]

It is time to let market forces work. The primary reason the government has not let them work in the past is because resources were still concentrated in the hands of too few players. That is no longer the case since the government has forced open access for new entrants to the most limited access airports. Keep in mind that an LCC doesn't need very much market share in order for it affect the pricing in a market.
I have a feeling, and other people seem to believe it too, that the low cost segment has grown large enough that there are no longer fears that consolidation in the legacy segment will result in higher fares. In the 4 years since UA and US attempted to merge, LCCs have doubled their market share (partly accelerated because the legacy carriers have shrunk). Some legacy carriers like American and Delta are VOLUNTARILY restructuring their fares. I don't think it's a mistake that the two airlines that will most likely lead industry consolidation are the same two that are voluntarily reducing fares and have assets which can be used to improve their balance sheets and/or accelerate consolidation.

Look also at the telecommunications industry. For years, it has faced brutal competition and overcapacity. Today, the industry is consolidating and some of the combined companies will have market shares above a third in some markets. Because radio frequencies are similar to airport capacity when it comes to the ability of new entrants to compete, the expectation is that the FCC and DOJ will act only where one carrier will possess too much capacity to allow another competitor to have a meaningful presence. I expect the same principle will apply for airline consolidation.