Davidlc3 From United States, joined Jun 2007, 233 posts, RR: 0 Posted (4 months 2 weeks 22 hours ago) and read 6505 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?
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.
Davidlc3 From United States, joined Jun 2007, 233 posts, RR: 0 Reply 3, posted (4 months 2 weeks 21 hours ago) and read 6447 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...
Rbgso From United States, joined Jun 2006, 296 posts, RR: 0 Reply 4, posted (4 months 2 weeks 21 hours ago) and read 6431 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?
Hinckley From United States, joined Jan 2006, 60 posts, RR: 0 Reply 5, posted (4 months 2 weeks 21 hours ago) and read 6402 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 . . .
Tu154m From United States, joined Oct 2001, 592 posts, RR: 4 Reply 7, posted (4 months 2 weeks 21 hours ago) and read 6378 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!!!!!!!!!
Davidlc3 From United States, joined Jun 2007, 233 posts, RR: 0 Reply 8, posted (4 months 2 weeks 21 hours ago) and read 6378 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
FruteBrute From United States, joined Apr 2008, 196 posts, RR: 0 Reply 9, posted (4 months 2 weeks 21 hours ago) and read 6364 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.
EA CO AS From United States, joined Nov 2001, 9184 posts, RR: 67 Reply 10, posted (4 months 2 weeks 21 hours ago) and read 6344 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?
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
FruteBrute From United States, joined Apr 2008, 196 posts, RR: 0 Reply 11, posted (4 months 2 weeks 21 hours ago) and read 6269 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.
Bond007 From United States, joined Mar 2005, 4232 posts, RR: 5 Reply 13, posted (4 months 2 weeks 21 hours ago) and read 6205 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!
Warszawa From United States, joined Nov 2003, 678 posts, RR: 4 Reply 14, posted (4 months 2 weeks 21 hours ago) and read 6150 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'
Flighty From United States, joined Apr 2007, 2861 posts, RR: 3 Reply 15, posted (4 months 2 weeks 21 hours ago) and read 6146 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.
Bond007 From United States, joined Mar 2005, 4232 posts, RR: 5 Reply 16, posted (4 months 2 weeks 21 hours ago) and read 6121 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.
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!
Davidlc3 From United States, joined Jun 2007, 233 posts, RR: 0 Reply 17, posted (4 months 2 weeks 21 hours ago) and read 6122 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.
FATFlyer From United States, joined May 2001, 4427 posts, RR: 23 Reply 18, posted (4 months 2 weeks 20 hours ago) and read 5981 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
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