Sponsor Message:
Civil Aviation Forum
My Starred Topics | Profile | New Topic | Forum Index | Help | Search 
Why Not Simply Charge A Profitable Fare?  
User currently offlineDavidlc3 From United States of America, joined Jun 2007, 341 posts, RR: 0
Posted (6 years 7 months 6 days 22 hours ago) and read 10293 times:

After 20+ years in this crazy business there is one question I have never understood....why don't the airlines simply charge a fair fare that covers their cost and gives them a reasonable profit?

Back in the days of 70% LFs I understood why they had to fight for every pax. But these days, where would pax defect to? There simply aren't that many seats in the sky anymore. Sure cheap-ticket-seekers might go for the 3 stop, 12 hour trip from DFW to Chicago but is their business really worth fighting for?

So you raise the lowest fares to a profitable level and you lose the bottom 10% of pax to the competition. What you have left are the folks that are booking for convenience, FFP, etc and won't chase a $50 difference.

Take DFW as a sample market....AA traditionally offers really ridiculous fares of $129 or so then their next fare level is $400-$500 for the exact same flight. Why not hit in the middle?

And, at the current price of fuel, how much does it cost to transport a cheap-fare pax? Do the lower fares really make sense?



(let the flood gates open....... Smile )

84 replies: All unread, showing first 25:
 
User currently offlineZrs70 From United States of America, joined Dec 2000, 3205 posts, RR: 9
Reply 1, posted (6 years 7 months 6 days 22 hours ago) and read 10293 times:

Interesting post.

People so often complain about how high fares are. But they were higher 30 years ago.



14 year airliners.net vet! 2000-2013
User currently offlineFruteBrute From , joined Dec 1969, posts, RR:
Reply 2, posted (6 years 7 months 6 days 22 hours ago) and read 10271 times:



Quoting Zrs70 (Reply 1):
Interesting post.

People so often complain about how high fares are. But they were higher 30 years ago.

The problem is the airline vacilates between giving a fare away, and scalping at the same time.

Frankly, airlines have only themselves to blame for the current state of affairs in the airline industry today. They are reaping what they have sown. For 90% of the flying public choosing an airline is a commodity choice. They (legacies) all pretty much suck. You choose the one that sucks least for the fare. Airlines are like cellular phone carriers. Is there really any difference between Tmobile - Sprint - AT&T - Verizon on a macro scale? Nope.


User currently offlineDavidlc3 From United States of America, joined Jun 2007, 341 posts, RR: 0
Reply 3, posted (6 years 7 months 6 days 22 hours ago) and read 10235 times:



Quoting FruteBrute (Reply 2):
You choose the one that sucks least for the fare

As a business flier I choose the one that gets me there quickest and, honestly, the one that lets me into F/C so I can have room to work (and bill my client) while stuck in the tube. When AA still had "More Room" I flew them exclusively as there was sufficient space for me to use my laptop without sticking my knees in my ears...


User currently offlineRbgso From United States of America, joined Jun 2006, 599 posts, RR: 0
Reply 4, posted (6 years 7 months 6 days 22 hours ago) and read 10219 times:



Quoting Davidlc3 (Thread starter):
why don't the airlines simply charge a fair fare that covers their cost and gives them a reasonable profit?

Here here! Couldn't agree more. Fares these day seem to be without reason on both the top and bottom end. A Y seat on a cross country trip could cost anywhere between $100 up to $1,000. Calculate whatever you need to make money, price in a narrow band around that number, and be done with it.

Now before the flaming starts, I realize it is not quite that easy and straightforward. But at the same time, it does not need to be as cumbersome as it is now.

If you ever have insomnia, try reading the fare rules an airline publishes. Where do they find the crazed individuals who write these things?


User currently offlineHinckley From United States of America, joined Jan 2006, 127 posts, RR: 0
Reply 5, posted (6 years 7 months 6 days 22 hours ago) and read 10190 times:

As a business person, I've been asking the same question for years. The current business model simply doesn't make sense and yet no one changes it.

I've thought that maybe the LCCs have such significantly lower cost structures that they can undercut the legacy guys. So the legacy guys keep prices low to compete and to stay in business. But with all the cost cutting over the past several years, there can't be that significant a cost difference, so that argument just doesn't cut it.

Then I think that if one airline increases fares and the others don't follow, the airline looses too much business and can't survive. But the global economy is too efficient a marketplace for that to go so far as to take down a whole airline.

So I guess my answer is - I have no idea why the airline business is such an inefficient market and why the airline business model simply does not make economic sense. I'm dying to hear a good explanation . . .

[Edited 2008-04-24 12:43:13]

User currently offlineJayDub From , joined Dec 1969, posts, RR:
Reply 6, posted (6 years 7 months 6 days 22 hours ago) and read 10175 times:

Because that would make too much sense.

User currently offlineTu154m From United States of America, joined Oct 2001, 683 posts, RR: 5
Reply 7, posted (6 years 7 months 6 days 21 hours ago) and read 10166 times:

Go to the UPS website. There is a link for fuel surcharges. About half way down there is a chart showing jet fuel prices, and according to the current price, they charge a fuel surcharge percentage. They even give a link to show the current price.........BRILLIANT!!!!!!!!!!!!!!!! 26.5% is the highest on the chart................UPS can raise their fares 26.5% and their business doesn't slow and these airlines can't even raise the fares 10% without everyone pissing and moaning. Maybe the airlines need to follow suit................show the public why the fares NEED to be raised by 30% or more!!!!!!!!!


CEOs should swim with cement flippers!
User currently offlineDavidlc3 From United States of America, joined Jun 2007, 341 posts, RR: 0
Reply 8, posted (6 years 7 months 6 days 21 hours ago) and read 10166 times:



Quoting Hinckley (Reply 5):
Then I think that if one airline increases fares and the others don't follow, the airline looses too much business and can't survive

A few years ago I would agree...but how many vacant seats are out there anymore? So what if AA lost the bottom 10% of their pax...

1. How much money would they save on fuel by not carrying those pax?
2. AA carries what, 300K pax a day? If 30K left where would they find seats on airlines that are 90%LF?
3. Corporate contracts are all powerful and would keep the upper echelon of fliers onboard and the airlines comfy


User currently offlineFruteBrute From , joined Dec 1969, posts, RR:
Reply 9, posted (6 years 7 months 6 days 21 hours ago) and read 10152 times:



Quoting Davidlc3 (Reply 3):
As a business flier I choose the one that gets me there quickest and, honestly, the one that lets me into F/C so I can have room to work (and bill my client) while stuck in the tube. When AA still had "More Room" I flew them exclusively as there was sufficient space for me to use my laptop without sticking my knees in my ears...

Same premise different measuring stick. You don't care if it's NW, DL, CO, or VX so long as you get into FC. I can't blame you. But that's still a commodity purchase. You are purchasing a "bigger" seat regardless of carrier.


User currently offlineEA CO AS From United States of America, joined Nov 2001, 13704 posts, RR: 61
Reply 10, posted (6 years 7 months 6 days 21 hours ago) and read 10132 times:
Support Airliners.net - become a First Class Member!



Quoting Davidlc3 (Thread starter):
why don't the airlines simply charge a fair fare that covers their cost and gives them a reasonable profit?

Because in this industry, you're only as smart as your dumbest competitor when it comes to pricing discipline. No one wants to raise fares and watch their bookings fall off a cliff while customers flock to the competitor who refuses to raise fares in the hopes of capturing more market share.



"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan
User currently offlineFruteBrute From , joined Dec 1969, posts, RR:
Reply 11, posted (6 years 7 months 6 days 21 hours ago) and read 10057 times:

Quoting EA CO AS (Reply 10):
Because in this industry, you're only as smart as your dumbest competitor when it comes to pricing discipline. No one wants to raise fares and watch their bookings fall off a cliff while customers flock to the competitor who refuses to raise fares in the hopes of capturing more market share.

*sigh*

That's the exact attitude that has gotten airlines into the jam they are in. In business some of the best customers for you are the ones you send to your competitor. I work for a company where our products and services are about 20% higher than the lowest provider usually. We win bids all the time even though we are not the low cost provider. We offer a better product for the money.

[Edited 2008-04-24 13:03:07]

User currently offlineDavidlc3 From United States of America, joined Jun 2007, 341 posts, RR: 0
Reply 12, posted (6 years 7 months 6 days 21 hours ago) and read 10020 times:



Quoting FruteBrute (Reply 11):
We win bids all the time even though we are not the low cost provider. We offer a better product for the money.

Amen!

I would GLADLY pay an extra few hundred clams to be treated well, sit comfortably, have a decent meal, etc.


User currently offlineBond007 From United States of America, joined Mar 2005, 5434 posts, RR: 8
Reply 13, posted (6 years 7 months 6 days 21 hours ago) and read 9993 times:



Quoting EA CO AS (Reply 10):
Because in this industry, you're only as smart as your dumbest competitor when it comes to pricing discipline

Somewhat true. Unless you can justify higher prices for better service .... which of course, none can.

What is impossible to calculate, but must be significant, is the costs involved in maintaining and configuring some of these airline's pricing programs.

We should learn from those LCCs that have simple pricing matrices ...and not coincidentally, are the ones making more profit (or less loss). If you really still want to encourage folks to book in advance, then still have a couple of prices per flight. When one price 'runs out' you charge the higher one. Having twenty different fares per flight, that change every hour, is nothing but ridiculous.

You can be competitive all you like, but there are limits that do not appear to be realized. Losing some customers on some routes, because you are charging more than your competitor, is far better than losing everything when you enter Chapter 11 yet again because of your loss making fares.


Jimbo



I'd rather be on the ground wishing I was in the air, than in the air wishing I was on the ground!
User currently offlineWarszawa From United States of America, joined Nov 2003, 727 posts, RR: 6
Reply 14, posted (6 years 7 months 6 days 21 hours ago) and read 9938 times:

It's just not that simple to "just raise fares". Theres a lot more to it. You raise fares, depending on the margins you do so, you'll reduce passengers (primarily leisure passengers to most destinations, Johnny going to go see his Grandma in Wichita for the weekend, etc). In this economy, the effect is much greater than it'd be in a normal economy. No more Vegas trips 3x a year, now it'll have to be 1x a year, etc.

As a result, airlines have to cut and/or lower capacity on certain markets. This involves parking aircraft (Victorville, Marana), deferring deliveries, returning to lessors, discontinuing certain routes, slowing expansion, and such. Which, is why you hear recent announcements of Continental, American, and other carriers whom will be parking aircraft in the coming months, AirTran deferring deliveries, and more.

Bottom line is, they are (and have) raised fares, just at a gradual basis. However you cant just tack on an extra $100 to every flight nationwide, otherwise you'll quickly find your airline in an even worst position financially than before. What needs to be done is a gradual introduction of increased fares (which they're doing), and what really needs to be done, IMO, is airlines need to outline what you're paying for, so people can understand what they're paying for, to offset the sense that they're getting ripped off.

You, I, and others here on airliners.net understand current fare prices and increased fares. However, the everyday Johnny going to see Grandma will think its outrageous to now pay $330 to fly to ICT when only last summer he paid $260. As a result? He simply wont go.

Outling what people are paying for I think is definitely something airlines need to do (some airlines already do this - most dont). Popping once $250 fares at $350 saying "Includes taxes & fees", IMO, will turn a lot of people away (and/or tick them off). You make a $350 fare a $350 fare by starting it at $250 "Doesnt include taxes or fees", then informing the passenger as they prepare to purchase that there are $30 in taxes, and a $70 fuel surcharge, so they get the sense of an "Aha, I understand, fuel is expensive, I *get* the fuel surcharge". People dont know whats included in the fare as most airlines simply state "Includes taxes and fees", they'll never think of fuel costs, and if a once $250 fare is now $350, they'll believe the airline is trying to rip them off, not trying to charge a profitable fare. People want to know what they're paying for. If theres $250 fare and people notice there is a $70 fuel surchage and $30 in the standard taxes, they'd justify it and understand, as everyone understands the current cost of fuel. However, as I mentioned, place a new fare at $350 and not outline what someone is paying for, just say "Includes taxes & fees"? Expect a lot of angry travellers. Whom are they angry at? The airlines whom "are trying to rip us all off by charging these insane fares". Outline the expensive fuel costs, taxes, etc., and you'll likely increase bookings, and offset any angry travellers whom, if still annoyed at what they paid, will be annoyed at the oil industry, not XXXX airlines for that "highway robbery" fare that they just paid.

A lot of companies already seperate the base costs from the surcharges - not just the airlines, but any company that uses fuel as transportation. UPS, Fedex and DHL all employ this technique when checking package rates on their website, and it works well. They each outline exactly what you're paying for, so you understand. A few airlines also use such techniques, seperating base fares and adding adjustable fuel surcharges and taxes *not* included in their base fare.



Flying a plane is no diff. from riding a bicycle. Its just a lot harder to put baseball cards in the spokes. -'Airplane'
User currently offlineFlighty From United States of America, joined Apr 2007, 8708 posts, RR: 3
Reply 15, posted (6 years 7 months 6 days 21 hours ago) and read 9934 times:

Airlines are not dumb. They charge as much as they possibly can every single day of the year including Sundays.


Airlines sometimes cut prices because it results in more cash going into their bank account. In fact, airlines have invented the science of revenue management, in order to do this.


Airlines would charge an extra billion dollars per year and erase these losses IF it were not a competitive marketplace. Since this is the USA and not a command economy, we have banks willing to lend money to airlines. We have airplane sellers willing to sell for cheap. The result is, weak competitors stay in business because it's good for the American economy. We all get cheap flights. Who cares if the airlines lose some money? It's not my money they are losing. So why on Earth would I care?

Airlines are still carrying people safely and fairly on-time. At least, the delays have nothing at all to do with financial troubles. So why all the crying? Even employees are not paying the price. Many of you employees only have a job at all because weak competitors are kept alive by banks, Boeing, local municipalities, politicians etc.

This is a closed system and an orderly system. It is working fine. Airlines are continuing their 25-year old price war. Why don't they call a truce? Because if they did, a new upstart airline would come in and kill them. It's America, and maybe we can be happy for a change? Just a thought.

The airline CEOs just operate the companies. They do not control the industry or the pricing. That falls back to the real money in this world. Airlines do not have real money. Look elsewhere for the "real" explanation. Banks, hedge funds, PBGC, municipal government loans. That is why the airlines don't raise fares. Because if they did, their competitor would utilize the above sources of capital, start a price war and kill them.

It's all good, the US airline industry is incredibly stable. Passenger traffic levels are rock solid. Who flies those pax is of no particular societal concern. They will be carried. The corporate success of airlines is not really important as long as people get carried. Even if CO, DL, AA, UA all die, those planes will still carry pax. Everything would be fine.

GECAS and IFLC control the airline world far more than the airline CEOs. It's true. Airline CEOs are dancing a mandatory tango and if they stop, they will die. To blame them for doing things they must do is not the real answer. They have very few choices. Doug Steenland for example, has done his job perfectly. But another guy would have done the exact same thing. There were no choices and no options.


User currently offlineBond007 From United States of America, joined Mar 2005, 5434 posts, RR: 8
Reply 16, posted (6 years 7 months 6 days 21 hours ago) and read 9909 times:

Quoting Warszawa (Reply 14):
A lot of companies already seperate the base costs from the surcharges - not just the airlines, but any company that uses fuel as transportation. UPS, Fedex and DHL all employ this technique when checking package rates on their website, and it works well. They each outline exactly what you're paying for, so you understand. A few airlines also use such techniques, seperating base fares and adding adjustable fuel surcharges and taxes *not* included in their base fare.

In the USA for domestic flights, you cannot do this for fuel surcharges. You can only exclude government or regulatory imposed fees, taxes, and charges. Everything else must be included in the base fare that is advertized.

Quoting Flighty (Reply 15):
Airlines are not dumb.

In any other industry, companies that continually lose millions of dollars are commonly called words such as 'dumb'.

Quoting Flighty (Reply 15):
It is working fine.

If you mean the fact that most of the legacies have been through Chapter 11 at least once, and still continue to lose money, as 'fine', then I guess so. Most people in the business world would disagree strongly.

Jimbo

[Edited 2008-04-24 13:31:18]


I'd rather be on the ground wishing I was in the air, than in the air wishing I was on the ground!
User currently offlineDavidlc3 From United States of America, joined Jun 2007, 341 posts, RR: 0
Reply 17, posted (6 years 7 months 6 days 21 hours ago) and read 9910 times:



Quoting Warszawa (Reply 14):
They each outline exactly what you're paying for, so you understand

I truly agree with everything you said.

The only exception is to the statement, "As a result, airlines have to cut and/or lower capacity on certain markets"

1. How much will the airline SAVE by not transporting that pax
2. Where else will Johnny go to get a cheap fare? If cheap-seat-capacity is squeezed there will be fewer and fewer cheap fares to grab. Even if AA does raise fares and DL/CO/NW/UA do not...there are only so many cheap seats for those fleeing to grab.


User currently offlineFATFlyer From United States of America, joined May 2001, 5843 posts, RR: 28
Reply 18, posted (6 years 7 months 6 days 20 hours ago) and read 9769 times:

Here is what Allegiant's CEO Maurice Gallagher said a couple of weeks ago about this:

Quote:
People tell us, "Well Maury, if the price of gas is going up, just raise fares." And you go [slaps his forehead], "Damn, why didn't we think of that?" That's what we do all day. The simplistic approach that you can just raise a fare or that you've not optimized your fares with the capacity that's in there is not very logical. So to raise fares practically, you have to cut capacity. Air travel in this country has been the best bargain over the last 20 years. On an inflation-adjusted basis, it's down 50 percent in real terms since the 1970s. You're going to see fares go up. They have to, to offset the cost of gas. That's the foreseeable future.
http://www.inbusinesslasvegas.com/2008/04/11/qanda.html




"Travel is fatal to prejudice, bigotry, and narrow-mindedness." - Mark Twain
User currently offlineN202PA From United States of America, joined Jun 2000, 1562 posts, RR: 3
Reply 19, posted (6 years 7 months 6 days 20 hours ago) and read 9770 times:



Quoting Davidlc3 (Reply 17):
2. Where else will Johnny go to get a cheap fare? If cheap-seat-capacity is squeezed there will be fewer and fewer cheap fares to grab. Even if AA does raise fares and DL/CO/NW/UA do not...there are only so many cheap seats for those fleeing to grab.

So Johnny doesn't choose to fly, and the airlines lose another customer. Or a new LCC starts up and serves Johnny's business for low-fare service and puts another legacy out of business.

I find it sad that so many people on this forum seem to be almost gleeful that airlines are raising fares in the wake of the increasing cost of oil. It almost smacks of elitism - those who can afford to pay high fares without batting an eyelash will continue to do so and claim that the problem is low fares, without realizing that by increasing those fares, you're going to be killing your leisure travel market.

While it may be true that airfares are more affordable now, even raised, than 30 years ago, the difference is that consumer preferences have changed. The flying public expects low fares these days as a matter of course, rather than seeing them as an oddity - even more these days, with the cost of everything increasing around us, from food to heating bills, to health care. If Johnny is going to fly somewhere for vacation, it's got to be affordable or he's not going to go at all and just pocket the money. And who wins then? The airline industry loses a customer, loses revenue, and they're right back where they've started. (And we haven't even investigated the likelihood that by increasing fares, companies will continue to exploit new technologies for meetings and business operations that avoid travel - teleconferences, 3D imaging, etc.).

I say this as a consumer who is trying to take his family of 3 on a summer vacation right now. I'm Joe Average - I work hard all year, and want my 2 weeks off to be in an enjoyable place. I don't make a whole lot of money, but enough to get by. But I can't afford to spend $3,000 to take my s/o and young one on vacation. If fares go through the roof to that level, I'm going to either say, "Forget it, let's drive" or "Forget it altogether, let's just sit in the backyard and buy an inflatable pool". The airlines don't win then, they lose. I would also say that my view, as a consumer, is likely to be more common than not among leisure travelers.

I get the sense that some of you want to "re-train" the flying public as if people are drones that can be programmed to behave in a certain way (in this case, to accept what they perceive as high fares for bad, infrequent service). The problem is that people act according to their best interests in any capitalist economy (certainly in ours), and more specifically in their own financial interests. If they're having trouble keeping up with the mortgage, or have to pay for the kids' braces, or have to pay increasing gas prices, a vacation is low on the totem pole in terms of priorities. If prices double overnight, or even over a couple of years, people are going to walk. It's just basic economics.

Also basic economics is the fact that what is "a profitable fare" is not a static quantity. If you raise your fares to what is profitable today, 25% of your customers may bolt, and all of a sudden, you're unprofitable again tomorrow. Put simply, raising fares is not a quick fix for what ails this industry. And I'm not sure that there is one, either.


User currently offlineBond007 From United States of America, joined Mar 2005, 5434 posts, RR: 8
Reply 20, posted (6 years 7 months 6 days 20 hours ago) and read 9734 times:



Quoting N202PA (Reply 19):
But I can't afford to spend $3,000 to take my s/o and young one on vacation. If fares go through the roof to that level, I'm going to either say, "Forget it, let's drive" or "Forget it altogether, let's just sit in the backyard and buy an inflatable pool". The airlines don't win then, they lose.

It's all very good what you're saying, but the airlines don't exist so that Joe Average can buy the cheap fares that he expects and want. They exist to make a profit.... they are a business. If they can ONLY do that by charging higher fares, then that's what they simply must do.

Airlines can do one of two things ... continue to charge low fares so that Johnny can get the prices he expects, then lose $500 million a quarter (sound familiar), OR ... they can raise fares to a profitable level, Johnny can take it or leave it, they might lose him as a customer, BUT they might also make more money for those that don't expect 1980 prices. When airlines are dropping like flies, and those that are still in business are losing millions - what Johnny 'wants' is almost irrelevant.


Jimbo



I'd rather be on the ground wishing I was in the air, than in the air wishing I was on the ground!
User currently offlineN202PA From United States of America, joined Jun 2000, 1562 posts, RR: 3
Reply 21, posted (6 years 7 months 6 days 20 hours ago) and read 9696 times:



Quoting Bond007 (Reply 20):
It's all very good what you're saying, but the airlines don't exist so that Joe Average can buy the cheap fares that he expects and want. They exist to make a profit.... they are a business. If they can ONLY do that by charging higher fares, then that's what they simply must do.

But you're making the assumption that by increasing fares, they can make enough money off of the people who absolutely MUST fly to stay in business. Because that's what's going to happen if you do change the pricing structure, at least in the short term - prices are going to continue to escalate as higher and higher prices bleed off those who don't absolutely HAVE to fly, in order for the airlines to make a profit or just break even. Meanwhile, they'll have to cut routes and downsize - as they have in recent years - because the demand just isn't there for the prices they're charging.

My point in bringing all of this up is that it sounds well and good to just raise fares to solve the problem, but the market clearly doesn't work that way. Any good business will try to get as many customers as possible paying as much as possible to maximize revenue. But if raising fares means that their business actually has to contract and winds up making them less money, who does that hurt? The flying public, and certainly the airline itself. (Don't forget that by dramatically increasing fares in the short term, it makes it more likely in the long term that the saps who are paying high fares for bad, inconvenient and frustrating service won't be around to pay said high fares).

I haven't even mentioned the possibility that Congress will step in if high fares start hurting commerce and becomes a hot-button political issue with voters who are getting increasingly frustrated with the airline system. That's something that none of the current airlines (certainly not the legacies) really wants.


User currently offlineBond007 From United States of America, joined Mar 2005, 5434 posts, RR: 8
Reply 22, posted (6 years 7 months 6 days 20 hours ago) and read 9649 times:



Quoting N202PA (Reply 21):
But you're making the assumption that by increasing fares, they can make enough money off of the people who absolutely MUST fly to stay in business. Because that's what's going to happen if you do change the pricing structure, at least in the short term - prices are going to continue to escalate as higher and higher prices bleed off those who don't absolutely HAVE to fly, in order for the airlines to make a profit or just break even. Meanwhile, they'll have to cut routes and downsize - as they have in recent years - because the demand just isn't there for the prices they're charging.

I think you need to face reality here. This isn't textbook business 101, where you have stable businesses wanting to make more money, and then deciding on prices.

These are airlines that are losing millions and millions ... this is reality.

There is no status quo where they can stand still and continue to make small margins. They simply have to make changes, and charging higher prices is one of them.

Cutting capacity and losing Johnny and his 3 kids just might be acceptable in this case.

Jimbo



I'd rather be on the ground wishing I was in the air, than in the air wishing I was on the ground!
User currently offlineFlighty From United States of America, joined Apr 2007, 8708 posts, RR: 3
Reply 23, posted (6 years 7 months 6 days 19 hours ago) and read 9623 times:



Quoting Bond007 (Reply 16):
In any other industry, companies that continually lose millions of dollars are commonly called words such as 'dumb'.

Airlines are not an industry. If you want to talk about business, at least talk about the businesses that call the shots in the airline world -- Boeing, IFLC and GE Capital, plus hedge funds. They are profitable.

Airlines are a shell operation to support banks, and things of that nature. It is not necessary for the airlines to make money, and never has been. While it may be their "goal," it has not been achieved and nor can it be.

Airlines are very close -- within 2 to 3% -- of their max effectiveness. It is not possible to get more ASMs or more pax trips out of that money than the airlines already do.


User currently offlineDavidlc3 From United States of America, joined Jun 2007, 341 posts, RR: 0
Reply 24, posted (6 years 7 months 6 days 19 hours ago) and read 9614 times:



Quoting N202PA (Reply 19):
It almost smacks of elitism

Your statement could be the theme of the past 20 years for Americans....everyone wants to be able to do what everyone else does. Everyone wants to drive a Lexus even if they are a server at Bennigan's and everyone wants to take the kids to Orlando for a week even if they don't have the money.

I'm all for the American dream and I'm all for people getting what they want as long as they work for it....unfortunately, as our current credit crisis proves, no body works for things anymore, they just take the free credit that is sent to them with every postal delivery and they get what they want - no waiting.

So demand increases and pushes down costs even further so the small guy can't compete because everyone is trying to sell a product that Johnny wants right now instead of trying to build a product that is good. To build that product the factory ships the work overseas so Johnny's dad gets laid off and now he can't afford the toy or the trip.

Bottom line - we need to build a decent product and charge a fair price for it.

(gee that was alot of role playing..  Smile )


25 AirNZ : With all due respect, and this is in no way personal against you and I'm just curious more than anything else, but all your posts on this subject see
26 N202PA : Then the entire industry goes down the tubes as prices go higher and higher. The natural result, then, is that the government has to step in in some
27 Bond007 : Hmmmm.... not sure what you're smoking, but it's better than what I have. Boeing, IFLC, and GE are not airlines, and are not part of the airline indu
28 SEPilot : The primary problem is that there are too many people who would rather run airlines than make money. The result is overcapacity, and so we have consta
29 N202PA : Because in doing so, you're pricing out your leisure market and, to some extent, your low-end business market. You seem to think that airlines can ex
30 FruteBrute : Congress won't be dictating fare increases anytime soon. Congress' meddling has already caused issues with revolving Chap. 11 filings and bankruptcy
31 Davidlc3 : You make a very fair assessment and I apologize for giving the impression of elitism. Let me clarify my positon.... I have no problem buying a cheap
32 Nwaflyer : All, I purchased a ticket last night to TPA from MSP along with the return. I leave next Wed (4/30) and return on Fri (5/2) I will also say that the p
33 FruteBrute : A.) That's a 7 day advance fare, not "last minute". B.) Looking at that $333 fare NWA.com shows $ 42.77 in "taxes and fees" which is like 13% of the
34 MoMan : It's just a HIGH/LOW pricing scheme. They hope 2-3x will buy full fare F/C tickets and allow them to cover fixed costs, sell a couple last minute far
35 N202PA : You may think so. And that is the case. However, the American flying public seems to disagree with you these days. If anything is clear about modern
36 N202PA : Here's my response to you: Do you honestly believe that if Discount Johnny was kicked out of the plane and there were no more low fares, that civilit
37 FruteBrute : I'm sorry but you are dreaming. The CEO has to answer to his board far more readily than "the American population". Congress isn't going to do anythi
38 Tdscanuck : Because the fare that provides reasonable profit to one airline doesn't break even at another, but the airlines have commoditized their service so ba
39 FruteBrute : In addition I firmly believe that the unionization of the airline business is just as fundamentally devastating to it as union shops are in the auto i
40 FreequentFlier : Just a point I'd like to make that I don't think I've seen touched on before: Since 9/11, I believe the US airline industry has been in a constant gam
41 N202PA : How have the flying public "made their bed"? By accepting in a free-market economy the prices that businesses are willing to offer? We're not talking
42 Cubsrule : There's another structural problem buried in there, I think. It's people's conception of what a "low" fare is and the fact that this doesn't correlat
43 Nwaflyer : OK I will give the 7 day. I have seen fares all over the map two weeks prior. I did overdo the tax. I looked at my ticked and all involved it is 17%
44 Luv2cattlecall : I'm sure I'll get alot of heat for this, but B6 is great for having enough room to work - especially since they're offering 38" for $20 or so more -
45 Bond007 : I agree, but for some of the airlines, the ones losing millions, it's not a question of if "they actually can", since they cannot continue much longe
46 Spacecadet : I basically agree with what you're saying. The public has simply decided that the service the airlines provide is worth the bare minimum that they ca
47 DLPhoenix : The fundamental problem of the US airline industry is that it is now at the tail end of a bubble. To many entities had an oversuply of money that they
48 Avek00 : There is so much BS in this thread it can make one's head spin: 1. Across the board fare hikes rarely work. 2. Overcapacity is a myth that's further u
49 FruteBrute : I hear this often, but I don't buy it at all. Airline execs all claim that if the overcapacity goes away, somehow their business models will work. I'
50 MarcoPoloWorld : I have been saying for awhile now that the full-service carriers need to accept the new realities and cede the bottom end market to LCCs. For a number
51 Tdscanuck : They shouldn't be in the business. Those carriers who are losing millions competing against profitable carriers with the same fares are doomed. Tom.
52 Boeingluvr : I think if most airlines raise their fares, there will still be some lcc's who decide to keep em low and in that case, still keep the high loads, at l
53 BillReid : This is economics 101. If you raise the average price of the seat by lets say $20. Great Idea but would it work mathematically? Lets say the average f
54 MoMan : No, it's economics. I'll explain this and write back with questions if you don't understand. There is an inverse demand curve and for every point alo
55 Jetdeltamsy : What do you mean, "why not hit in the middle?" the $129 fares are generally to compete wtih Southwest or some other LCC (but mostly Southwest). When
56 FruteBrute : Moman, thank you for explaining the "curve theory" to me but I do hold an MBA degree. Needless to say the airline industry has been using this curve t
57 Davidlc3 : OH how i dream of having B6 in DFW! When Song was flying I found it to be among the saviors in the sky but they, too, never flew into the Devil's Lai
58 MoMan : Thanks for brining up Behavioral differentiation. I'm not well versed in it and will look into that. I certainly agree with you here. Unfortunately,
59 Bond007 : Yes, but this book includes many theories. Most of them assume you sell products at a profit ... at least on average. I could also use the same argum
60 SlcDeltaRUmd11 : The vast majoritiy of Americans would never agree with this statement. For the casual traveller who is going on vacation and probably flies once a ye
61 Manfredj : I would gladly pay more for a seat as well. It's not always about what's right for us....it's about what's right for the company as well. If you are
62 Davidlc3 : With the brain power in this forum I'm hoping someone can calculate this for me (and yes, I've asked this multiple times...) What is the cost to trans
63 Rbgso : As would I. Here is another problem. Most of the legacies claim to be "full service" carriers, however lately they have been acting like LCC, and in
64 Bond007 : Well, the best you'll probably get, is a CASM value. A typical CASM for a US Major is approximately 10 or 11 cents/mile, with the fuel portion of tha
65 RyeFly : I think most people that are for dramatic fare increases are most likely either flying non-rev, parents paying for them, burning FF miles, or company
66 Bond007 : Right, but that's the point. Many think that it should cost the same to fly somewhere in an hour, as it does for 2 tanks of gas and driving all day.
67 Access-Air : I am going to answer your question based on not reading any of the previous posts... I have been a Travel Agent since August of 1989. I am unanimous i
68 Bond007 : You fail to explain anywhere WHY a travel agent is better than the internet, and WHY it caused prices to fall or remain static. I think the reason wh
69 Tango-Bravo : As obsessed a airlines seem to be with reducing aircraft weight by as little as 200# in the interest of conserving fuel, it would seem reasonable to
70 Davidlc3 : EXACTLY!!!! I was hoping someone would find the logic behind my chatter....What would happen if an airline cut the bottom feeder fares and, maybe, re
71 Bond007 : Well, at $99 for a 1000mi e/w trip, they most probably don't. But there are more costs they need to cover which are still proportional to number of p
72 Mnik101 : It is a price war, plane and simple. They are vicious cycle for any business and are incredibly hard to end. Only the very strongest will survive them
73 Davidlc3 : Someone earlier in this thread (sorry, I'm too lazy to troll for it) referred to the all -premium airlines which have popped up and failed (I've worke
74 Maskeer : At the beginning of my phd I sat a class on pricing methods, and what LCCs use is quite a complex algorithm, estimated on each route. Plotting the pr
75 FlyingCrown : it's all about traditional ethical standards in this industry; other businesses would say, 'here's why we have to raise prices, and we're really sorry
76 Bond007 : I don't doubt that how they get there is quite complex. But the end result is usually a simple matrix, based on very few fare classes, with far less
77 Access-Air : Back before Internet, ALL airlines' airfares were the same blanket 10% agent commissons off the base fare...across the board from one airline to anot
78 Maskeer : I'm no ticket pricing expert, as my knowledge is limited to just part of a course (though the professor is a consultant on the subject). What I mean
79 FruteBrute : Yet it still fails to deliver consistent profitablity to its respective airliner.
80 Maskeer : Miracles ain't of this world. Price discrimination lets you squeeze more $$ from customers, but the average price you get goes down with the number o
81 Flighty : That a trick question because airlines are free to drop money losing routes. They very often do. And they are free to launch gravy train money making
82 Crewchief : Here's a dozen thoughts for debate: 1) Passengers buy tickets according to the value they place on the service. The value they perceive has absolutely
83 Davidlc3 : I challenge that there is one other card in play in that the airlines offer the same service for multiple price levels which creates an even further
84 Cubsrule : The disparity between price levels is about more than service differences, though. It's also about flexibility differences, and that's tough to value
Top Of Page
Forum Index

This topic is archived and can not be replied to any more.

Printer friendly format

Similar topics:More similar topics...
Why Not Include Orange County In WN Fare Sales? posted Wed Mar 20 2002 10:12:43 by Johnboy
Why Not L1011 Frieghters? posted Mon Mar 24 2008 23:32:25 by UAL727NE
Thai Airways - SFO To BKK - Why Not? posted Mon Mar 10 2008 07:51:08 by Goomba
Why Not Open Skies Between US And Most Places? posted Thu Mar 6 2008 07:36:42 by CODCAIAH
Russians Widebody Twins? Why Not? posted Fri Jan 25 2008 08:45:31 by EA772LR
Why Not Iberia Cargo? posted Thu Jan 3 2008 15:04:25 by JMULAH
Why Not An A330-500 And 600 posted Mon Dec 31 2007 08:09:32 by Carls
Why Not Reduce Required Safety Distance? posted Fri Nov 16 2007 01:09:52 by B777A340Fan
Virgin Atlantic Why Not In SkyTeam? posted Wed Nov 14 2007 09:24:30 by JFK787NYC
Tu-334 And An-148. Why Not In Service Yet? posted Mon Nov 5 2007 06:47:42 by SIBILLE