brilondon From Canada, joined Aug 2005, 4488 posts, RR: 2 Posted (2 years 10 months 3 weeks 4 days 16 hours ago) and read 17440 times:
Given the current talk about AA merging with (insert airline of the day here), I was wondering if the current and foreseeable future market is too small for the number of airlines all vying for passengers and what the right number of airlines would be if you could have the right number?
MountainFlyer From United States of America, joined Jul 2005, 487 posts, RR: 0
Reply 8, posted (2 years 10 months 3 weeks 4 days 15 hours ago) and read 17078 times:
Quoting DLPMMM (Reply 1): There is room for 3 legacies, 3 large LCCs, a couple of specialized regionals like HA and AS, then some commuters.
So, are you saying basically what there is now (assuming US and AA merge)?
I don't know that you can put a number and say there should be XX number of airlines for XX size market. There are so many factors involved such as airline efficiencies and business models. If you would have asked the same question twenty years ago, who would have guessed that TW, NW, CO, HP and others would be gone now, and that we'd have B6, VX in the mix?
slider From United States of America, joined Feb 2004, 7033 posts, RR: 33
Reply 9, posted (2 years 10 months 3 weeks 4 days 15 hours ago) and read 17048 times:
I think the root question is specious. The issue isn't if there are too many or too few US carriers. The issue is whether they can all profitably and reasonably co-exist, no matter the number.
History hasn't really given us an answer to that one yet, but it would seem as if domestically, they've found religion in capacity restraint and pricing discipline (as well as cost discipline by and large).
par13del From Bahamas, joined Dec 2005, 8064 posts, RR: 8
Reply 10, posted (2 years 10 months 3 weeks 4 days 15 hours ago) and read 17013 times:
I think the issue in the USA is why consolidation is taking place, namely to reduce competition allowing increase yields and revenue, providing service to the customer is way down the list.
Since the market is open and the merged carriers have not been able to get laws passed to limit competition, a continuous cycle will exist. As the massive carriers make their money and do not provide service to a number of areas, business options are presented and savy and dumb investors will jump in to the market creating new airlines.
The savy ones will create airlines like NK, B6, AS etc. and eventually in the next cycle after their growth period will become candidates for mergers, the dumb ones will get crushed by the majors and their nefarious activities.
When customers around the country are complaining about monopoly service and high prices its hard to pick a number and say 3 legacies, 3 LCC's etc. My opinion is the USA from a pax perspective needs more commuter airlines who operate like WN or NK, no alliance, just charge pax for travel from A to B, in some cases combining all services into one creates more system problems than it solves, let pax find their own way to hubs, share the business versus trying to control everything from curb to curb.
Just a thought.
ItalianFlyer From United States of America, joined Nov 2007, 1131 posts, RR: 2
Reply 11, posted (2 years 10 months 3 weeks 4 days 15 hours ago) and read 17005 times:
I love this kind of topic..because I am a contrarian to the B-school, hedge-fund driven mantra that consolidation will solve everything. The mathematic and statistical models say that consolidating the US marketplace into 2 or 3 network mega carriers with 1 or 2 LCCs will give the industry pricing traction to sustain profits and a return on capital. In a vaccuume I'm sure it does...but the airline industry is not the utility or railroad industries. The aforementioned are not subject to external shocks that impact airlines: geopolitics, plague/disease and economic flux in far away places.
When we put our national transportation system in a few baskets, we get into a 'too big to fail' scenario.....and that is counter intuitive to the free market mechanism. (see the financial industry in 2008 as exhibit A) Second, domestic capacity is already tight. If AA (or DL,US, UA) were to fail and close today, there is no way the surviving carriers could absorb the demand. Imagine face to face business meetings being put off because there are no seats available from SFO to ORD until next Thursday. Extrapolate that scenario a few thousand times and you are looking at serious national economic consequences.
Finally....global network carriers cannot be all things to all people. It has been done several times and failed (PS>UA>Ted, DL>DLExpress>Song,CO>COLite, everybody>regional partners). I personally think that there is no magic number, per se, that will lead to industry stability. I believe the key is capacity discipline, finding your market niche, sticking to it and serving it well.
Just my .2....Im sure some will tear it apart...just keep it respectful lol
N202PA From United States of America, joined Jun 2000, 1563 posts, RR: 3
Reply 13, posted (2 years 10 months 3 weeks 4 days 15 hours ago) and read 16920 times:
IMO, there are way too FEW airlines. Not enough choice for consumers. Too much control of the industry locked up in the hands of a few companies. As a consumer, who are you going to threaten to take your business to when an airline screws you over if there's only 1 or 2 alternatives that treat you the same way? Our government has failed us in allowing these mergers to continue to occur and letting airlines become too big - all the while allowing the environment for competition to dry up.
It's not surprising, though - it's a reflection of what our government has allowed over the past 10 years with corporations in general. Our landscape is dominated by a few mega-players in most industries who have little incentive to serve the consumer well now that they've eaten up all the competition. While the corporations profit and the politicians get fat off corporate dollars, the American people are the only ones that lose out - in the airline industry or otherwise.
mogandoCI From , joined Dec 1969, posts, RR:
Reply 14, posted (2 years 10 months 3 weeks 4 days 15 hours ago) and read 16909 times:
Quoting yegbey01 (Reply 2): Compare the US market with that of Europe...and you will get your answer.
IMO, the US could easily have more airlines.
Difference is that in Europe, all the large carriers are 100% fortress hubs. BA/IB vs. AF/KL vs. LH/LX don't overlap a single core hub. Intra-Euro fares are extreme - the Big 3 gouge you on the upfront fare, while Ryanair trap you on fees.
In the US, we have all airlines fighting to death over limited space. LAX has 3 airline hubs (UA, AA, WN), 1 focus city by DL, and another focus city/hub down the road at LGB. Chicagoland has 3 (if you exclude MKE). NYC has 4 airlines hubbing. Even freaking DEN has 3 airline hubs. The consumer wins, but all the airlines price war into Chapter 11.
"A lot of people came into the airline business. Most of them promptly exited, minus their money"
I forgot about that one, but it is very true. It certainly corroborates the following too:
Quoting SPREE34 (Reply 12): Not too many airlines. Too many seats being flown below cost.
It's not as if the U.S. industry suffers a want of creative ideas and solutions, it's just that so many faily disastrously. It seems like every cute new idea ends up failing that basic test of somehow trying to rationalize (on the books) being able to fly too many seats below cost.
ItalianFlyer From United States of America, joined Nov 2007, 1131 posts, RR: 2
Reply 17, posted (2 years 10 months 3 weeks 4 days 15 hours ago) and read 16807 times:
Europe also has an efficient and comprehensive rail system and a much smaller land mass with shorter distance between population and economic centers. Despite what the high speed rail fanboys say..connecting ATL to NYC/ DC or CHI to NY or DAL via rail will never happen. Rail makes sense in a handful of places in the US.
klwright69 From Saudi Arabia, joined Jan 2000, 2189 posts, RR: 3
Reply 18, posted (2 years 10 months 3 weeks 4 days 15 hours ago) and read 16807 times:
Quoting MountainFlyer (Reply 8): If you would have asked the same question twenty years ago, who would have guessed that TW, NW, CO, HP and others would be gone now,
Actually 20 years ago most of the above carriers were in big trouble: CO and TW were operating under bankruptcy protection, and maybe HP also. A consolidation of the industry was coming, and everybody knew it. In 1992, some of my friends at CO were predicting they were going to merge into NW, since NW had a stake in CO. PA and EA had recently vanished.
True, but since deregulation carriers have come and gone. No one ever predicted no new airlines would be created.
I vividly recall the industry 20 years ago. Then it was considered novel and strange to be an airline in bankruptcy, and the general thinking was no airlines every successfully survived a chapter 11 filing. Therefore I think the biggest surprise would have been that CO would still be around as an independent carrier for 20 more years.
It is hard to say the ideal number of airlines. Airlines that are loosing money hand over fist can hang on for a long time.
TecumsehSherman From , joined Dec 1969, posts, RR:
Reply 19, posted (2 years 10 months 3 weeks 4 days 15 hours ago) and read 16700 times:
Quoting brilondon (Thread starter): Given the current talk about AA merging with (insert airline of the day here), I was wondering if the current and foreseeable future market is too small for the number of airlines all vying for passengers and what the right number of airlines would be if you could have the right number?
Depends how you look at it. It very well be there were too many Legacy carriers, which is why consolidation has been moving fast and furious for the past five years, with DL/NW, UA/CO and, AA and most likely US.
But there is obviously room for regional, mostly LCC carriers. Aircraft are going out very full this summer on everyone, so there certainly aren't too many seats to handle the demand.
And even as you have consolidation, there's no doubt that, in the future, you well see new start up carriers. Some may last a very short time, and some may make it. But in the U.S., I don't think there's too many carriers.
tdscanuck From Canada, joined Jan 2006, 12710 posts, RR: 80
Reply 20, posted (2 years 10 months 3 weeks 4 days 15 hours ago) and read 16648 times:
Quoting ItalianFlyer (Reply 11): Second, domestic capacity is already tight. If AA (or DL,US, UA) were to fail and close today, there is no way the surviving carriers could absorb the demand. Imagine face to face business meetings being put off because there are no seats available from SFO to ORD until next Thursday.
But that's not what would happen.
If a major shut down today, the surviving carriers would immediately hike their prices up to restore supply/demand balance. You'd still be able to go SFO-ORD when you wanted to...it would just cost you more. As it should.
Aesma From Reunion, joined Nov 2009, 7636 posts, RR: 14
Reply 21, posted (2 years 10 months 3 weeks 4 days 15 hours ago) and read 16563 times:
Quoting yegbey01 (Reply 6): Not really....There are no high speed trains in the US that compete with airlines on a large scale
They compete on some routes, complement each other on others. But I'd say the difference between the US and EU is that in EU you'll tend to use airlines available at the nearest hub of your country, not changing planes at a hub in another part of the EU, when in the US changing planes at a hub is very common. So, the US airlines compete on the same market whereas the EU airlines are more side by side.
New Technology is the name we give to stuff that doesn't work yet. Douglas Adams
DocLightning From United States of America, joined Nov 2005, 21579 posts, RR: 60
Reply 23, posted (2 years 10 months 3 weeks 4 days 14 hours ago) and read 16261 times:
Quoting yegbey01 (Reply 2):
Compare the US market with that of Europe...and you will get your answer.
IMO, the US could easily have more airlines.
Yup. The issue isn't how many airlines, but how many ASM's and how many aircraft.
Quoting Aesma (Reply 21): They compete on some routes, complement each other on others.
The only US route system that has any "HSR" competition (and I use the term "HSR" very loosely) is the North-East Corridor. Boston-NYC-DC. Even then, the average line speed of Amtrak's Acela is only about 80MPH. The Acela takes 3.5 hours from Penn Station to Boston, while the normal train takes just under 4. Really, the only advantage to Acela over regular train is the nicer interior. That said, I always used the train on those routes even though door-to-door time was a bit longer than a flight because the overall experience was just so much less stressful.
Quoting Aesma (Reply 21): But I'd say the difference between the US and EU is that in EU you'll tend to use airlines available at the nearest hub of your country, not changing planes at a hub in another part of the EU, when in the US changing planes at a hub is very common.
To some degree, yes. But probably not as much as you think. Most major US cities have a hub. If you live near that hub, you will tend to use the hub airline(s) available there. Of course, there might not be a non-stop to where you are going (say you want to fly DTW-RNO), in which case you will choose any airline that can get you there in one stop. It is far less common for someone living in Detroit to insist on flying UA or AA and connecting through ORD.
The difference, I think, is with national identity. If you live in Grand Rapids, MI, and want to get to SFO, you won't necessarily fly DL through DTW. You could go US or AA through Chicago, or you could fly DL through MSP. If you live in Lyon, France and want to get to GLA (assume ML is off-season), you could choose AF, KL, BA, or LH among the majors. But most Frenchmen would probably choose AF. That said, on an individual level, and leaving FF programs aside, my guess is that a Frenchman is just as likely as an American to go with the cheapest and most convenient itinerary.