If it's of vital importance to have such service, do what's done with the telephone and postal services. Put a tax in there, and have the feds subsidize the service. Yes, some of that is done today. So if it's really that critical for all the others, I'm sure WN will be happy to provide the service...if the feds will pick up the tab.
Would A Stronger United Mean A Weaker Industry?
- Thread starter Wretched Wrench
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WorldTraveler
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Michael,
this discussion is paralleling the discussion on the US Board about city closings.
It isn't necessary to use taxes to subsidize low fare service. Another alternative is to limit the amount of seats that can be sold at or below a certain price point that is deemed necessary to support network service. Hypothetically and for an example, the government could say that they will not allow more than 20% of the seats between LAX and JFK to be sold for fares lower than $250 roundtrip because that market is critical enough to the legacy carriers who will match fares to protect market share and who also will take passengers from Binghamton to LAX which has been deemed as an essential market that must be served but relies on a legacy carrier hub for service. The numbers and cities are all hypothetical but the point is that whether a market will receive service at reasonable fares can be determined by supply and demand and not taxation.
However, we are likely to never get to that point because there will failures and mergers among the legacy carriers first and other legacy carriers will change their business model. US is trying to get out of the network carrier game or at least change the proportion of connecting vs. local traffic. They will probably fail but another weaker play, like United, might get it right and transform themselves into a predominantly point to point carrier. There will be a market for at least two major nationwide hub and spoke airlines. If a rationalized fare structure (no huge spread between walkup and leisure products) is introduced nationwide, there will be several airlines perhaps including CO and UA that will say it is no longer in their interests to carry connecting passengers given the strong local traffic in their hubs (UA and CO hubs are in the largest cities in comparison w/ DL and US at the opposite end, AA tends to be closer to UA, NW is mid-range and the fleet mix (CO has few domestic widebodies, UA does but as I've mentioned elsewhere their hubs esp. ORD are congested and not as suitable for carrying connecting traffic). DL has tons of domestic widebodies which are dependent on connecting traffic.
My prediction: AA and DL will continue as the remaining hub and spoke airlines while US will probably fail. CO and NW are tossups but one or both may be involved in merger activity as part of the industry strategy to eliminate hub and fleet capacity through mergers and acquisitions.
this discussion is paralleling the discussion on the US Board about city closings.
It isn't necessary to use taxes to subsidize low fare service. Another alternative is to limit the amount of seats that can be sold at or below a certain price point that is deemed necessary to support network service. Hypothetically and for an example, the government could say that they will not allow more than 20% of the seats between LAX and JFK to be sold for fares lower than $250 roundtrip because that market is critical enough to the legacy carriers who will match fares to protect market share and who also will take passengers from Binghamton to LAX which has been deemed as an essential market that must be served but relies on a legacy carrier hub for service. The numbers and cities are all hypothetical but the point is that whether a market will receive service at reasonable fares can be determined by supply and demand and not taxation.
However, we are likely to never get to that point because there will failures and mergers among the legacy carriers first and other legacy carriers will change their business model. US is trying to get out of the network carrier game or at least change the proportion of connecting vs. local traffic. They will probably fail but another weaker play, like United, might get it right and transform themselves into a predominantly point to point carrier. There will be a market for at least two major nationwide hub and spoke airlines. If a rationalized fare structure (no huge spread between walkup and leisure products) is introduced nationwide, there will be several airlines perhaps including CO and UA that will say it is no longer in their interests to carry connecting passengers given the strong local traffic in their hubs (UA and CO hubs are in the largest cities in comparison w/ DL and US at the opposite end, AA tends to be closer to UA, NW is mid-range and the fleet mix (CO has few domestic widebodies, UA does but as I've mentioned elsewhere their hubs esp. ORD are congested and not as suitable for carrying connecting traffic). DL has tons of domestic widebodies which are dependent on connecting traffic.
My prediction: AA and DL will continue as the remaining hub and spoke airlines while US will probably fail. CO and NW are tossups but one or both may be involved in merger activity as part of the industry strategy to eliminate hub and fleet capacity through mergers and acquisitions.
In the past there was a tremendous stigma about an airline going Chap 11. Airlines instead sold off their assest piecemeal. No Airline would ever again do that. Passengers really don't care if an airline is in the middle of a reoganization.upsilon said:
One problem the LCC's face is over time their costs will go UP. The Rah Rah, Us-against-them stuff does work. But as we see with a "mature" LCC SW, it does and will wear off. And as the "legacy" carriers fade away its harder to Rah Rah your employees against an Airtran.
WorldTraveler
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and to echo AAMech, the reason the LCCs have been able to grow so much is because they offer value that travelers want. LCC costs will go up as AAMech notes and if the legacies can quit allowing the LCCs to grow to keep their costs down, they can win. Legacies costs are going up because they are not growing while LCCs low costs are staying low because they do grow. That paradigm has to be reversed if the legacies have a chance at survival.
HGIEFOswitch
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D. Parker (AWA) announced yesterday that they may be in the negative at the close of 2nd qtr. AWA also had the benefit of an ATSB loan. ATA almost went bankrupt a few months ago. They've also announced future losses. In other words, the LCC aren't out of the woods. As the legacies continue to lower costs they will soon edge closer and closer to LCC's. When this gap closes enough, the overall network and scope of an AA size operation will overshadow many LCC's. This will be heightened if the Gov't stays clear (as they should) and allow consolidation/liquidation to begin.
WorldTraveler
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I'm sure there are alot of people in Texas that are breathing a bit easier now that UAL's loan application has been denied. I would keep an eye on your pensions, however.
Wretched Wrench
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I'm not in Texas, and I'm not breathing easier, either. If UAL goes Chapter 7, maybe I will then breathe easier, but if they continue to limp along, cutting employee pay and benefits even further, then AA will do likewise, claiming the need to compete.WorldTraveler said:
It is a race to the bottom, until we are all the equivalent of Walmart employees.
I believe Crandall said something about the airline business being the only one where the standards are set by the dumbest competitor. In this case, the standards are set by the airline that cuts employee costs the most. He should know, as AA set the B scale standard, as well as many, many others.
