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The Meaning Of Airtran's Expansion To The Majors

Thu Jul 03, 2003 12:57 am

With Airtran so boldly on the move, and joining Southwest, Jetblue and ATA as significant players, I keep asking myself, will the LCC's eventually come to dominate the domestic market? What place will there be for the majors, who are over capacity as is, and still in the red? Will the majors eventually become internationally focused brands, shedding domestic capacity for an area still uncolonized by LCC's?

I ask because in my experience as a traveler, I use the major airlines within the US (as long as I can get a competitively priced ticket) mainly because I use them and their partners internationally. In other words if United didn't fly to Europe or Asia, I wouldn't fly them to Boston, and conversely, if Southwest flew abroad...I might fly them all the time domestically as well.

In other words I think the majors are slowly losing out, and I wonder if intl. service is enough to save them. I also wondered what people thought of the idea of an international LCC, a Southwest model that flew only internationally on only 7E7's or A332's for example.
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RE: The Meaning Of Airtran's Expansion To The Majors

Thu Jul 03, 2003 1:03 am

The majors need to right size themselves, which with all the parked aircraft they have started to do this. The current model if not broken is seriously flawed and fixing needs to be done. First airlines that do that will be the ones here for the long term. The high end Business travelers are not coming back as in the past. That revenue will no longer prop up the seats you are giving away to compete with the LCC's and the sooner you realize that the better!
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RE: The Meaning Of Airtran's Expansion To The Majo

Thu Jul 03, 2003 1:15 am

I have to sort of disagree with Luv2fly. I don't think the majors need to right size themselves. After all, if the LCC's are growing and even major airline flight loads are high (which they are), then the demand is still there. However, I would agree that the issue is the high end business traffic, which will never come back the way it was in the 1990's. The major's cost structures and networks revolved around this. I will take a shot at the unions of those airlines, because they certainly added to it. The airlines themselves are certainly responsible for continuing to charge fares that are too high. We are starting to seen and end to that. Delta has switched its fare structure at SLC, and will probably do so throughout the rest of its domestic system. If they can all get their costs down to compete with the likes of JetBlue, SWA, and Airtran then they will be viable competitors. They have the infrastructure to do so. I think we are beginning to see them fight back. Song seems to be working. Delta is holding its own against Airtran in the ATL-NYC and ATL-LA markets. We'll see what comes out of the the negotiations with the pilots' union, as that will have a lot of impact on Delta's competitiveness.

Also, Airtran and Jetblue are still relatively new. Jetblue is certainly experiencing a honeymoon without labor unions or without heavy maintenance on its planes. Airtran has been very lucky with union relationtions so far, and is also enjoying a maintenance holiday. At some point, all these new planes will have to have major maintenance. The major airlines have huge infrastructures to support this. They don't have to go to Boeing or Airbus for every little thing that goes wrong. This saves them a lot of money, but also costs a lot of money. At some point, JetBlue and Airtran will have to develop this. When labor and maintenance start getting more expensive, then the competitive edge that the two have will begin to slip away. The traditional majors have to find a way to flourish and survive until then.

SWA, Jetblue and Airtran are here to stay, I think. I agree with Leo Mullin that at least 2 of the current 6 traditional majors will fade away. But they will still exist and they will find a way to compete.
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RE: The Meaning Of Airtran's Expansion To The Majors

Thu Jul 03, 2003 1:23 am

It means the "Songs" and the "Starfishes" need to figure themselves out pretty quick before the "AirTrans" of the market turn them into the next "Vanguards" of yesteryear.

Ding! You are now free to keep supporting Frontier.
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RE: The Meaning Of Airtran's Expansion To The Majors

Thu Jul 03, 2003 1:50 am

You are right the loads are there, tho they are giving it away and that right there tells you that the capacity is still to much, less capacity means you can charge more for the same seats. It does not matter if the planes are flying full if you are not making a dime.

Also JetBlue has the cash once the honeymoon is over for the maintenance of the aircraft kicks in, I am sure they have planned for it from day one, after all they have the honor of being the only new carrier to start with the financial backing that they did. And right now they do have a good relationship with there workers, and who says it has to change? Delta still has managed to keep the unions at bay, so far only the pilots.
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RE: The Meaning Of Airtran's Expansion To The Majors

Thu Jul 03, 2003 2:04 am

Southwest, JetBlue, and AirTran are leading the restructuring of US domestic air travel that began with deregulation and was delayed by a) aggressive FF programs and predatory tactics by the Cartel-network carriers; and b) greedy employee unions who didn't accept that deregulation changed the economic ground rules. The free market, not collective bargaining agreements, should determine the cost of air travel. Sept. 11 merely accelerated the process.

LCC's will probably grow from their current 20 percent of USA domestic air travel to somewhere around 40-55, I think. The current six cartel-network carriers will be reduced to four in the next few years, and the survivors will be those that can get their CASM into the 9-cent range. The survivors will continue to provide the product they do best-network coverage of all sizes of markets; first-class travel where feasible; and international travel. But much domestic travel will go to the LCC's, who can provide it for 6.3-8.5 cents per mile. As it should.

As Luv2fly notes, today's LCC's are run by highly competent managers; we can be sure JetBlue, for example, has planned for the maintenance schedule for its fleet. Also, Southwest is over 30 years old and clearly has not lost its 7.5-cent CASM due to the maintenance of older a/c.

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RE: The Meaning Of Airtran's Expansion To The Majo

Thu Jul 03, 2003 2:29 am

JIm and Luc2fly:

I think that you both read things into my post that weren't there. I would fully expect that Jetblue and Airtran have planned for higher maintenance costs in the future. My point was, and maybe I should have made it clearer, was that their costa advantage would lessen with maintenance costs. I didn't say, and don't think, that maintenance costs would kill those airlines. Far from it. But there expansion is in part fulled by the funds that they don't have to spend on it.

As for labor costs, Delta has kept unions at bay. One of the ways they have done this has been to match and then add 1% to the highest paid workers in the industry. The wages of flight attedants, ground workers, and mechanics are all set by the wages negotiated by unions at other companies. It has given them more flexibility, and thus lower costs. However, the times have changes and the wages are too high. At some point, Jetblue and Airtran may be faced with the same decision: higher wages, or unionization.

As for the major's load factors, they are filling up by matching the fares of the LCC's. Logically, then if they can lower their costs to something competitive to LCC's and realizing that the LCC's costs will go up as they get older, then they will be able to compete with them. That is what I meant by pointing out that the demand is there. They are faced with a completely different supply vs. demand model than when their structures were put together. Now they are having a hard time adjusting, in part because of union contracts, in part because of corporate culture. But if they could lower their costs to match the current supply and demand situation, they wouldn't have to reduce capacity. Rather, they could increase it.
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RE: The Meaning Of Airtran's Expansion To The Majors

Thu Jul 03, 2003 2:54 am

All I keep hearing is the wages are too high. I'm sorry they are not. I'm an aircraft mechanic for DL. I'm about half way through the seniority based step wage which right now topps out at $72K. Many of the mechanics I work with refrain from telling salesmen who they work for. The salesmen always perceive we are rolling in cash. One was a little put off when he over heard is insurance salesman talking about how it was a bad year and he will ONLY make $90K. Now what does this guy do. He looks up rates on a computer and when you have a claim he makes sure someone else looks at your car and pays you. He works from 9-5 mostly, with weekends free in a dry heated and airconditioned office. Now I don't mean to pick on insurance salesmen there are many other professions out there that make a lot more money than I do for a lot less responsibility and adversity. We won't even go after the sports stars we all love.

Why can't we accept that people in aviation should make a fair wage. I guess that would be right up there with allowing teachers, police, fire, and military to get paid what they are worth. Ok rant over.
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RE: The Meaning Of Airtran's Expansion To The Majors

Thu Jul 03, 2003 4:14 am

Why aren't the majors making money?

It's their cost structure, pure and simple. The reason we now call them LCCs instead of "Low-cost/Low-fare" is that the majors are matching LCCs prices. What they can't match is costs. We hit this same bump in the road back in the early 1980s, when Air Florida and PeoplExpress were big names and American was sinking fast. Now, who do you fly?

The difference now is that the LCCs are incredibly well managed and lead, compared to PeoplX and AirFl. And the majors are well managed, usually, but poorly lead. Don Carty is an excellent example of a good manager who is a horrible leader.

Besides, in a few years (anywhere from 2-15), the economy will be back on track, and the majors will be the majors again, just like they were in the '90s. We may see a few new names, like AirTran and JetBlue, but we saw that in the '90s, with USAir. We'll probably see a few of the majors disappear, like United and American seem likely to do, but we saw that, too, with Pan Am and Eastern.

And no, I don't think we'll see a return to Domestic-only and International-only carriers. Pan Am could do this under regulation, but now that the airlines have been deregulated, we'll not see a return to this kind of carrier.

Those who fail to learn history are doomed to repeat it in summer school.
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RE: The Meaning Of Airtran's Expansion To The Majors

Thu Jul 03, 2003 6:40 am

I see the AirTran order and future expansion as a shot across the bow of not the usual suspects (Delta, American, Northwest, Continental, United, and US Airways) but of Southwest. AirTran is going to prove the Southwest model is outdated, and that you need a mixed fleet (done in the right proportions) in order to serve your markets to the maximum profit potential. AirTran would have to take some giant steps to catch Southwest, but AirTran and Southwest by 2010 will be among the top 5 airlines in the US (I'm guessing WN @3, AirTran @ 5)

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