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Lufthansa Must Increase Fares  
User currently offlineEugdog From United Kingdom, joined Apr 2001, 518 posts, RR: 0
Posted (12 years 6 months 1 week 3 days 8 hours ago) and read 1228 times:

A German court has ordered Luthansa to raise prices on its Frankfurt Berlin Route by about $30.

The judge rules that Lufthansa was using predatary pricing to drive out Germania - a no frills airline.

Luftansa slashed its prices from 400 euros to 200 euros on that route only. The judge pointed out that on the Frankfurt - Munich route it has maintained its price of 400 euros (where there is no competion). The judge also pointed out that Luftansa practices act as a huge disincentive to other airlines to start up competiton!

Nice thougts but $30 is not going to make a difference.

What Germania should do is appeal to the German business comunity to support the airline. Either they go on Germania now or go on Luftansa, force out Germania and then Luftansa will jack up their fares to the old tarrif.

Richard Branson is doing the same tactic in Australia.

What would sink Lufthansa is if the British based discounts airlines began to make a move into the German domestic market! They could easily match Luftansa predatroy prices!

12 replies: All unread, jump to last
 
User currently offlineNdebele From Germany, joined Apr 2001, 2899 posts, RR: 23
Reply 1, posted (12 years 6 months 1 week 3 days 7 hours ago) and read 1157 times:

It's true that LH's FRA-TXL fares are unrealistic, compared to other short-hauls like the FRA-MUC route you mentioned. And although the judge's order means a regulation (in a deregulated market), I must say that I agree with the judge - an unrealistic low fare on one route always means unrealistic high fares on other routes, because LH is forced to earn more money on other routes as soon as they start to sell FRA-TXL tickets for 200€ (for a return ticket!).
Germania, on the other hand, is a real low-cost, with charter-configuration, selling Germania tickets for 198€ return (or sometimes only 138€ return) is reasonable, although they probably won't make a big profit. In a newspaper article posted last week by B737-700(the a.net user), they wrote that there is quite a huge percentage of business men on Germania's FRA-TXL flights.

"British based discount airlines" i.e. Ryanair have already began to make a move into the German market, and imho it's only a matter of time until they start HHN-SXF. But this would never "sink" Lufthansa, much more likely is a sort of British-Airways-effect, remeber BA replaces the 757 with A319/320, in order to shrink the market, leave the cheap tickets for the no-frills, and sell their own tickets on a reasonable fare. In case FR starts HHN-SXF, I guess we won't see LH operating A300s on FRA-TXL any more, but we will see LH operating B737s/A320s instead. Everybody who is willing to drive 80+ km from Frankfurt City to HHN for cheap tickets will fly Ryanair, but business men (and women) will still prefer to fly from FRA. You can't sink a Lufthansa.


User currently offlineEugdog From United Kingdom, joined Apr 2001, 518 posts, RR: 0
Reply 2, posted (12 years 6 months 1 week 3 days 7 hours ago) and read 1146 times:

I would not bet on that! Remember that profits are made at the margins. ie it is the last 10% of passengers that contribute to profit. If Luftansas lost 5-10% of its business passengers then it would almost certainly wipe out profits.

I was not thinking so much about Ryannair but more Go and Easyjet who operate from "normal" airports (esp Easy Jet). The real risk is not the erosion of low yield leisure travelors but the loss of buisness travellers. According to the Sunday Time 60% of all new business on Go are business passengers.


User currently offlineAirsicknessbag From Germany, joined Aug 2000, 4723 posts, RR: 34
Reply 3, posted (12 years 6 months 1 week 3 days 6 hours ago) and read 1123 times:

Hmm, I somehow don´t get it - when LH lower their ticket prices it´s "predatory" and "only to force out competitors" but when other airlines offer tickets with which no profit is made that´s a great step towards bringing the established airlines´ high price cartel down.

And 200 EUR for a domestic German return flight is not really cheap. Add another 60 EUR and you´re at an absurdly high price level.

Daniel Smile


User currently offlineEugdog From United Kingdom, joined Apr 2001, 518 posts, RR: 0
Reply 4, posted (12 years 6 months 1 week 3 days 5 hours ago) and read 1100 times:

The trouble with airfares is that because all costs are fixed - any seat sold at any price is profit no matter how low the price is (until costs of catering are reached). So an airline can justify selling a ticket at $10 say. An automobile company will not sell a car at $100 because the cost of steel etc is far more then that!

However if a airline has a dominant market share and it suddenly slashes prices in response a new comer - then that is predatory pricing if the intent is to drive out the rival airline. This is illegal under most competition laws in US and in Europe. It is very difficult to prove it though. Perhaps a thorough full coast analysis can be used to prove predatory pricing - ie if the airline is loosing money at the current revenue streams then it is guilty!

A new comer might charge below cost introductory fares to gain market share - but this is not predatory pricing because it is not intending to drive out competitors. There is the difference!


User currently offlinePatroni From Luxembourg, joined Aug 1999, 1403 posts, RR: 14
Reply 5, posted (12 years 6 months 1 week 2 days 23 hours ago) and read 1081 times:

Hello,

From what I had heard in the news it was not a court, but rather the German Federal Cartel Office which ordered LH to increase their prices on the TXL-FRA route to a level of at least 35€ above the Germania Price.

As far as I remember, Lufthansa was so kind to deliver the route cost studeis by themselves : A few years ago, when LH was still alone on the TXL-FRA sector, the Federal cartel office started a case against Lufthansa's high prices on this route, which were much higher than on similar routes like TXL-MUC/CGN/STR/DUS, where they had competition by Deutsche BA. Of course LH claimed that they are not ripping off their customers on the TXL-FRA route, but that the higher price is of course based on the higher cost for LH to operate between TXL and FRA compared to the other routes which are cheaper to fly. They submitted calculations to prove how much their own cost are for the TXL-FRA fligts and that every reduction in price would force them to sell below cost. Back then, the case was closed as LH could prove their point.

Now, after a competitor has come on the TXL-FRA market, LH *suddenly* has the idea to lower their prices as well? To me - and as it seems not only to me - this smells pretty much like predatory pricing.... What a pity however that LH itself had given the detailled calculations for their cost structure on the TXL-FRA route to the competition authority before....So well done, Cartel Office!!!

Tom


User currently offlineLowfareair From , joined Dec 1969, posts, RR:
Reply 6, posted (12 years 6 months 1 week 2 days 22 hours ago) and read 1074 times:

>>Hmm, I somehow don´t get it - when LH lower their ticket prices it´s "predatory" and "only to force out competitors" but when other airlines offer tickets with which no profit is made that´s a great step towards bringing the established airlines´ high price cartel down.

And 200 EUR for a domestic German return flight is not really cheap. Add another 60 EUR and you´re at an absurdly high price level.<<

The difference is that LH is lowering their fare just to get the other carrier out of the market.

For example, Vanguard used to fly MCI-MSP. Right before they entered the market, the lowest return fare was about $200. When they came in, it dropped to $80. When Vanguard dropped the route, NW immediately raised the lowest return fare back to $200.


User currently offlineUdo From , joined Dec 1969, posts, RR:
Reply 7, posted (12 years 6 months 1 week 2 days 14 hours ago) and read 1054 times:

And some people still defend LH here...must be either rich or getting free tickets from their company...

User currently offlineAirsicknessbag From Germany, joined Aug 2000, 4723 posts, RR: 34
Reply 8, posted (12 years 6 months 1 week 2 days 10 hours ago) and read 1044 times:


But that´s competition - if you have a monopoly you charge high prices, if there´s a new entrant into your market you try to match his fares. And if that new competitor´s product is convincing it will stay in the market, if not it won´t. That´s how capitalism works and it´s fine with me.

>>>The trouble with airfares is that because all costs are fixed - any seat sold at any price is profit no
matter how low the price is (until costs of catering are reached). So an airline can justify selling a
ticket at $10 say. An automobile company will not sell a car at $100 because the cost of steel etc is
far more then that!

Don´t forget fuel - the fuel that the increased weight caused by an additional passenger consumes costs more than 1 cent on the HHN-FRA route (just an example  Smile/happy/getting dizzy). These ARE double standards - imagine LH offering that fare between FRA and TXL...

Daniel Smile

P.S.: Why is all the fuss made about FRA-TXL, but CGN-TXL is never even mentioned?


User currently offlineLowfareair From , joined Dec 1969, posts, RR:
Reply 9, posted (12 years 6 months 1 week 2 days 9 hours ago) and read 1041 times:

But Ryanair's(I assume that's who you are talking about) revenue comes more in the form of duty-free, insurance, food/drink, etc. than in the fare.

User currently offlineEugdog From United Kingdom, joined Apr 2001, 518 posts, RR: 0
Reply 10, posted (12 years 6 months 1 week 2 days 9 hours ago) and read 1040 times:

"But that´s competition - if you have a monopoly you charge high prices, if there´s a new entrant into your market you try to match his fares. And if that new competitor´s product is convincing it will stay in the market, if not it won´t. That´s how capitalism works and it´s fine with me. "


The airlines are a poor example of capitalism because there are physical barriers to entry into the market for new comers. Lufthansa had been subsidized for decades and did not have to worry about cash flow on start up . More over they have all the good slots at the major airports. New comers have to worry about cash flow and are shut out of many airports. Moreover the huge cash piled up by Luftansa through decades of subsidies and monopoly/cartel trading allow them to last longer in a price war then its new comer.

A new born baby does not have a chance against an adult who has had the best upbring possible.



Capitalism is only benifical if there is full and fair competion. Profits generated through cartels and monopoly does not benefit society as the profits do not indicate "value added" to the economy. In the case of airlines the monopoly induced profits are swallowed by by Unions - despite the high growth and non-competitive trading enviroment no full cost airlines has really turned a consistant profit. According to Warren Buffets the US airlines have had a zero rate of return in the last 50 years - terrible is'nt it.



User currently offlineJohnnybgoode From Germany, joined Jan 2001, 2187 posts, RR: 6
Reply 11, posted (12 years 6 months 1 week 1 day 8 hours ago) and read 1003 times:

Capitalism is only benificial if there is full and fair competion.
well said!!!!

i think the problem is not Lufthansa lowering its fares, they are free to lower their fares whenever they wish to. the point is they´re lowering the fares to a degree at which they cannot make money with the flights and so it´s obvious that´s only a measure to get rid of the competition.
to my understanding they can lower the fares up to the point at which they earn zero money. and i believe that´s were the ordered 30euro come into the picture.
everything below that, in this particular scenario, is to crush Germania.
so i do agree that this is predatory pricing.

nice day
daniel



If only pure sweetness was offered, why's this bitter taste left in my mouth.
User currently offlineFlying-Tiger From Germany, joined Aug 1999, 4161 posts, RR: 36
Reply 12, posted (12 years 6 months 1 week 1 day 3 hours ago) and read 977 times:

If we now assume that 100 Euros are an adequate price for a 250 NM-segement within Germany for a low-cost carrier can we apply this to other routes, too? If we do so for example on the Munich-Hamburg flights and Ryanair really starts domestic flights in Germany on the Luebeck (near Hamburg) - Manchingen (near Munich) run, does this mean that FR or any other low-cost carrier has to apply some kind of similar fare (and thus destroying the image of a low-fare carrier)? That would mean that Germany becomes re-regulated on most segments were some kind of competition is, a weapon for both types of carrier:
- the low-cost carriers can insist on a lower-then-major price
- the major can insist on a price comparable to the FRA-TXL´s prices Germania has, thus destroying the image of the low-cost carrier (if the court rules once this way it has to rule the same way all other times, too, otherwise it is attackable)

Just curious what you think about this issue.

Regards
Flying-Tiger
http://fly.to/rorders



Flown: A319/320/321,A332/3,A380,AT4,AT7,B732/3/4/5/7/8,B742/4,B762/763,B772,CR2,CR7,ER4,E70,E75,F50/70,M11,L15,S20
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