Yet ANOTHER fare increase

[ualdriver]

http://biz.yahoo.com/ap/060313/air_fares.html?.v=2

I think this is the 2nd or 3rd fare increase this year alone. On top of serveral from last year. More fare increases to follow in my opinion, even if this one fails........

It's interesting to note that UAL has received much criticism from the "naysayers" for basing its post bankruptcy exit plan on $50 oil. "Too low an estimate," we all read repeatedly. However, its also interesting to note that UAL's post bankruptcy exit plan DOES NOT take into account "significant" YOY increases in revenue, either. In fact, they're quite modest YOY revenue increases. Especially considering that, in the past, legacy airline revenue growth was often correlated with U.S. GDP YOY growth and our future revenue increase estimates are much less than recent historical U.S. GDP growth. Hence my opinion of "modest."

So yup, UAL is using $50 oil going forward but WAS NOT counting on fare increases, either. Assuming nothing significant happens this year (terroist attacks, crazy ayatollahs, hull loss, etc.) and our competitors raise prices just a little more to cover $60 oil/JetA, might we (UAL and probably all other legacies) see *gasp* a NET profit for 2006?

 

[767jetz]

http://biz.yahoo.com/ap/060313/air_fares.html?.v=2
might we (UAL and probably all other legacies) see *gasp* a NET profit for 2006?

What would all the "analysts" complain about then???

 

[jimntx]

You know, if we are all not careful, we might actually start charging people more than it costs to transport them from point A to point B.

 

[KCFlyer]

You know, if we are all not careful, we might actually start charging people more than it costs to transport them from point A to point B.

That would throw the US Airline industry into turmoil, wouldn't it? B)

 

[FWAAA]

Announced price increases are one thing; additional revenue at the end of the quarter/end of the year is quite another. Airlines are currently raising their "ask" but it remains to be seen whether the pax raise their "bid" for those seats. Unless substantial capacity is removed from the domestic network, fares will end up at whatever level pax are willing to pay, not necessarily what the airlines ask when they announce fare hikes with grand fanfare.

Sure, fares are going up by small percentages, but the domestic capacity is growing by much larger percentages. We'll see at the end of each quarter and at the end of the year whether this "fare increase" actually put more money in the register at the ailing legacy airlines.

 

[767jetz]

Announced price increases are one thing; additional revenue at the end of the quarter/end of the year is quite another.

Well, I guess that's a true statement. In UA's case, with record load factors I can't see the argument that UA has too much capacity. If Someone doesn't want to pay a few extra dollars to go from A to B, they will stay home and the airline will sell their seat to someone who does.

Supply and demand ratios are changing. And with the traditional "low cost" airlines raising fares, and all other airlines matching those increases, consumers will not have a choice.

IMO it is long overdue. There is not one other industry that I can think of that doesn't pass the cost of doing business on to the consumers. Just like people have adapted to $2.50/gallon gas, they will have to adapt to higher airfares.

The only thing that kept it from happening in the airline industry was the low price seats on the market, from airlines with disproportionate cost advantages due to temporary circumstances. (ie: new workers, new planes, fuel hedges, etc.) Now that those advantages are evening out, prices will steadily climb, and airplanes will continue to be full.

 

[FWAAA]

Well, I guess that's a true statement. In UA's case, with record load factors I can't see the argument that UA has too much capacity. If Someone doesn't want to pay a few extra dollars to go from A to B, they will stay home and the airline will sell their seat to someone who does.

You and I draw two completely different conclusions from those load factors.

I see high load factors combined with net losses (like at UA and nearly every other airline lately) and conclude that the airline is selling the seats at whatever it takes to fill them in an attempt to minimize its losses due to its high fixed costs. And I look at the low fares as a direct result of too much domestic capacity. People are filling those seats because fares are just so cheap, IMO. But I may be wrong.

You see high load factors as evidence that there's not a lot of excess domestic capacity and that squeezing an extra dollar or three from each of them is the ticket to profitability.

Problem is, unless B6 has slowed down its aggressive delivery schedule of A320s and E190s, domestic capacity just keeps on growing. Oh, plus those guys in Dallas that take delivery of something like three new 737s each and every month. That's a lot of new capacity. Maybe they will slow their growth. Maybe the legacies will remove additional domestic capacity. Either would be very good for the profitability equation.

 

[ualdriver]

Announced price increases are one thing; additional revenue at the end of the quarter/end of the year is quite another. Airlines are currently raising their "ask" but it remains to be seen whether the pax raise their "bid" for those seats.

That's very true. However, I don't think we're filling our seats at whatever fare it takes to fill them. We're matching the lowest fares (in general) of our competitors. If the floor of these lower fares starts to come up over the year to truly reflect fuel prices AND these higher prices do not start to price our customers out of the market of airline seats, I think we might start looking at NET profits for the year, barring anything major going on.

You mention the large domestic capacity increases that we're going to see. Certainly a consideration and something that is popular in the press. If you're concerned about them, what are they going forward, YOY, for this year and the next year or two, NET? Do you have the numbers? I haven't seen NET gain U.S. domestic ASM numbers for this year and a few years going forward, but they must be out there somewhere.

 

[TechBoy]

You mention the large domestic capacity increases that we're going to see. Certainly a consideration and something that is popular in the press. If you're concerned about them, what are they going forward, YOY, for this year and the next year or two, NET? Do you have the numbers? I haven't seen NET gain U.S. domestic ASM numbers for this year and a few years going forward, but they must be out there somewhere.

That's a very good question, but difficult to answer. We know what the new aircraft delivery schedules are. But we don't know how many planes DL and NW are going to return in BK. And we don't know whether AA will park more MD-80s in the desert. We also don't know how many planes that currently fly mostly domestic routes could be moved to international routes, or vice versa.

 

[boeing787]

I see high load factors combined with net losses (like at UA and nearly every other airline lately) and conclude that the airline is selling the seats at whatever it takes to fill them in an attempt to minimize its losses due to its high fixed costs. And I look at the low fares as a direct result of too much domestic capacity. People are filling those seats because fares are just so cheap, IMO. But I may be wrong.

You see high load factors as evidence that there's not a lot of excess domestic capacity and that squeezing an extra dollar or three from each of them is the ticket to profitability.

Problem is, unless B6 has slowed down its aggressive delivery schedule of A320s and E190s, domestic capacity just keeps on growing. Oh, plus those guys in Dallas that take delivery of something like three new 737s each and every month. That's a lot of new capacity. Maybe they will slow their growth. Maybe the legacies will remove additional domestic capacity. Either would be very good for the profitability equation

Yeah maybe the legacy carriers should remove more capacity so the Low Cost Crap carriers can just take more market share...sounds like a great idea to me...NOT!

 

[KCFlyer]

Yeah maybe the legacy carriers should remove more capacity so the Low Cost Crap carriers can just take more market share...sounds like a great idea to me...NOT!

Has market share ever insured a profit?

 

[FWAAA]

Chasing market share isn't the key to profits, IMO. The way to bring UA and other majors back to profits is to consolidate the remaining high-yield pax on fewer flights. We no longer need six different airlines flying domestic F seats. Once DL and NW are consolidated with UA and AA, respectively, both airlines can turn away some of the cheapest passengers, raising their average unit revenue.

The time has come (actually, it's long overdue) for legacy airlines to stop trying to be all things to all people and focus instead on profitable customers. Market Share? I thought only GM and Ford cared about that anymore. You need to be able to fire your low-profit customers to make room for more high-profit customers.

 

[ClueByFour]

IMO it is long overdue. There is not one other industry that I can think of that doesn't pass the cost of doing business on to the consumers. Just like people have adapted to $2.50/gallon gas, they will have to adapt to higher airfares.

The only thing that kept it from happening in the airline industry was the low price seats on the market, from airlines with disproportionate cost advantages due to temporary circumstances. (ie: new workers, new planes, fuel hedges, etc.) Now that those advantages are evening out, prices will steadily climb, and airplanes will continue to be full.

The only reason for record load factors today is the low fares. People are not going to fly in these kinds of numbers for the fares charged in the late 1990s. Take it to the bank.

 

[767jetz]

The only reason for record load factors today is the low fares. People are not going to fly in these kinds of numbers for the fares charged in the late 1990s. Take it to the bank.

Never said they will. But they certainly will keep flying at those load factors even if prices climb 10-15%, as long as everyone matches the fares.

You can take that to the bank.

 

[ualdriver]

Another fare increase, this time by Delta. I guess Delta's really going to try to make those unrealistic YOY revenue projections! Even their buddy at JetBlue matched the fare increases.



http://biz.yahoo.com/rb/060317/airlines_de...fares.html?.v=1

NEW YORK (Reuters) - Major U.S. airlines raised fares on most domestic routes by $5 each way on Friday, matching a fare hike pushed through on Thursday by bankrupt carrier Delta Air Lines Inc. (Other OTCALRQ.PK - News).

Continental Airlines (NYSE:CAL - News) Inc., US Airways Group Inc. (NYSE:LCC - News), JetBlue Airways Corp. (NasdaqNM:JBLU - News) and Northwest Airlines Corp. (Other OTC:NWACQ.PK - News) all said they had matched the Delta increase.