FrequentFlyKid
Topic Author
Posts: 1097
Joined: Thu Nov 22, 2001 5:04 am

The State Of The Airline Industry

Tue Nov 25, 2003 1:29 pm

There are countless numbers of stories and post on this forum relating to varying aspects of the airline industry. The one question that comes to mind everytime is will it be possible for the airlines to return to profitability while keeping some level of service, offering a premium cabin, paying employees a fair salary (I know this is very subjective), and keeping fares reasonable (I know this is also subjective). I know there is a debate going on about WN and the other US LCC's. Like them or hate them they are making money and the majors aren't. Is that the future? On the flip side WN doens't get a lot of the premium, high yielding business travel. Where the future for that? What is the consensus as to where the middle ground is going to end up? This isn't meant to be a major vs LCC arguement. Just used the example.
 
tcfc424
Posts: 444
Joined: Mon Nov 17, 2003 11:56 am

RE: The State Of The Airline Industry

Tue Nov 25, 2003 1:35 pm

If LCC's are the future, or atleast the idea of all cattle class...with slightly better room, would it be more likely for an all-first or all-business class airline (much like the LH flights to EWR from DUS, et al) to become a major airline for business travelers or is there not enough demand?
 
Sydscott
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RE: The State Of The Airline Industry

Tue Nov 25, 2003 1:37 pm


The best example is QF. They run a large international network, full service domestic network and full regional service. They also run a successful scheduled international low cost leisure carrier plus a New Zealand subsidiary and they do it all profitably.

The future for QF is the domestic Cityflyer full service carrier maintaining the full service and Premium cabins between major cities and a low cost domestic carrier everywhere else. I think thats going to be the future for a lot of airlines. Where they can they will run a full service especially between major cities that justify a premium service they will. But everywhere else is going to have a low cost carrier with variable types of service. For the US I think this will require some consolidation of the industry to allow the majors to get larger economies of scale to justify a premium service over low cost.
 
TG992
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RE: The State Of The Airline Industry

Tue Nov 25, 2003 1:52 pm

Err.. the New Zealand subsidiary profitable?
-
 
Sydscott
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RE: The State Of The Airline Industry

Tue Nov 25, 2003 1:56 pm


Well with the New Zealand subsidiary of QF now flying trans-tasman its profitable. I read it in a UBS research note on QF. Of course with transfer pricing and exchange rates etc I'm sure QF can make it look hideously unprofitable if it wanted to. There are plenty of ways to do it.
 
RiverVisualNYC
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Joined: Fri Nov 07, 2003 4:11 am

RE: The State Of The Airline Industry

Wed Nov 26, 2003 2:40 am

The problem with comparing the US airlines to QF is that there's less competition in Aus, and Aussies are legendary international travelers - especially to other parts of Asia and the UK. QF can pretty much rely on this longhaul part of the business to keep things going. Americans are very reluctant international travelers, and were even before 9/11 and the war. Combined with the perception that foreign airlines offer better longhaul service, AA, DL, UA etc can't depend on these sort of routes supporting the business model. For the US majors to succeed, they have to win the battle vs the LCCs on the domestic high-frequency routes like transcon, florida, intercity business routes etc....
 
Matt D
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RE: The State Of The Airline Industry

Wed Nov 26, 2003 2:47 am

State of the airline industry today:
 
goingboeing
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RE: The State Of The Airline Industry

Wed Nov 26, 2003 3:31 am

On the flip side WN doens't get a lot of the premium, high yielding business travel. Where the future for that?

Beg to differ here. Southwest gets an enormous amount of business travel...it's been that way from day one. Witness half hourly flights between Dallas and Houston as one example. The difference is that they don't "force" the yields to a sky high level. Example....a businessman in Dallas could get a call telling him to get the presentation down to the client in Houston tomorrow morning, and get back to Dallas that night. It'd cost him $193 to make the trip. Compare that to a businessman in Philadelphia who has to get the same presentation to their client in Pittsburgh, and be back home that evening. $688. Or the businessman in Atlanta who needs to get the presentation to their client in Nashville tomorrow morning, and back that night. $916. Is the business between the Texas businessmen any less important that the other guys?

So the future for that is - value pricing. The current airline managment teams still focus on costs as the holy grail - when what they need to focus on is revenues - instead, they offer money losing low fares to leisure travellers and try to rape the business traveller with "high yield" fares. The days where they could do that are over. Airline managment needs to recognize that.
 
RiverVisualNYC
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Joined: Fri Nov 07, 2003 4:11 am

RE: The State Of The Airline Industry

Wed Nov 26, 2003 3:47 am

Funny how the WN fans always cite business travel between two cities in Texas as an example for how the rest of the country should travel. No offense to the proud Texans, but here in the northeast, people tend to drive or even take the train between cities. This is because it often takes a couple of hours to get to an airport, through security (which we take very seriously up here), and onto the plane, and at the other end, it can take an hour or so to get into the city center from the airport. When you put it all together, the train or driving is often not only cheaper but FASTER. Even the famed LGA-BOS-DCA shuttle has lost alot of passengers lately (hence DL's downsizing of the aircraft used).
 
airbazar
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RE: The State Of The Airline Industry

Wed Nov 26, 2003 3:55 am

Let me speak from personal experience. Due to issues out of my controll we couldn't book our trips to Europe over the holidays until this week. To my surprise, we couldn't find a single seat from BOS to MUC short of full fare, and that's still 3-4 weeks down the road. How can airlines complain if they're not making seats available for people to buy?
 
RiverVisualNYC
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Joined: Fri Nov 07, 2003 4:11 am

RE: The State Of The Airline Industry

Wed Nov 26, 2003 3:59 am

Very simple. They've cut back on the number of seats and flights available, to get premium prices on the ones that are available. When there isn't much demand, you cut the supply way down and watch demand for it go up. I guess the question is, do you define industry success as bottom line profits, or as a growing industry that employs lots of people.....
 
BeltwayBandit
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Joined: Tue Mar 11, 2003 4:25 am

RE: The State Of The Airline Industry

Wed Nov 26, 2003 4:00 am

At least in the US, I cannot think of an industry that is more viciously competitive and efficient, which means that the industry is what we (the traveling public) have made it.

We have sent the message (with our $$$) that view air travel as a fungible commodity, distinguishable only by price -- and we prefer lower prices. So, to sell seats, pricing must meet or beat competition, and to survive, costs must be lowered. The natural conclusion (the "bottoming out") occurs when costs just can't get lower, and load factors cannot get higher. I think we're just about there, and we are starting to see the next level of thinking.

Starting with jetBlue, airlines are starting to think creatively about ways to distinguish their product on bases other than price, and others (like Spirit) are finding that folks will pay a walk-up charge ($40) to get a first-class seat. I think the next 5 years will reveal a more creative side of the industry.
 
RiverVisualNYC
Posts: 926
Joined: Fri Nov 07, 2003 4:11 am

RE: The State Of The Airline Industry

Wed Nov 26, 2003 4:06 am

Beltway: Sure hope you are right! The travel business as a whole has been no fun since the '90s, as tapped out consumers and costcutting businesses relentlessly seek out lowest price no matter what, even if the savings aren't that big and the end result doesn't make much sense. Hopefully people will return to taking a more holistic, value-oriented approach to travel...
 
airbazar
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RE: The State Of The Airline Industry

Wed Nov 26, 2003 4:18 am

RiverVisualNYC, that could work. In my case they'll lose my money but they might not be interested in a small profit from people like me. I'd pay $600-$700 to go spend the holidays in Europe. Not exactly a cheap ticket. I will not pay $1200-$1300. Instead I'll just wait until February and pay $350.
 
goingboeing
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Joined: Sat Dec 04, 1999 1:58 am

RE: The State Of The Airline Industry

Wed Nov 26, 2003 4:18 am

Sorry rivervisual...this may come as a surprise to you, but there's 2,500 miles of land to your west where a lot of folks live. While y'all may take the train, most of the rest of the United States doesn't. So...let me toss another example at you that doesn't use Texas. Back before SWA served MCI, the round trip fare to STL (4 hours by car...5 hours by train, if you were lucky enough to need one when they ran) was over $500 on TWA. Southwest brought that down to $162. Bear in mind that SWA is now the exclusive nonstop service provider between the two cities, and the fare remains $162. Or...we could look at MCI-Chicago - it's a 10 hour drive or a 12 hour train ride. Southwest charges $220 for the round trip.

One of the reasons many of us cite Texas is because everybody seems to think that Southwest caters to the leisure market rather than the business market. Now...there've been a few defections of corporate headquarters in NYC to the city of Dallas, so there MUST be some kind of business going on down there - and I'd hardly call Houston a big time leisure destination. It's also a relatively short flight, so that's why I pick two cities rather close together to illustrate what's wrong with current airline pricing structures. Delta could fill 737 every hour with traffic from Atlanta to Nashville if they'd offer a "business" fare somewhere south of $900.
 
RiverVisualNYC
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Joined: Fri Nov 07, 2003 4:11 am

RE: The State Of The Airline Industry

Wed Nov 26, 2003 4:21 am

"there've been a few defections of corporate headquarters in NYC to the city of Dallas"
-then they are missing out on the LCC of the 21st century, jetBlue, which is proudly based, as we say, RIGHT HEEEH!!!!
 
goingboeing
Posts: 4727
Joined: Sat Dec 04, 1999 1:58 am

RE: The State Of The Airline Industry

Wed Nov 26, 2003 4:24 am

-then they are missing out on the LCC of the 21st century, jetBlue, which is proudly based, as we say, RIGHT

One of those defections flies big airplanes with a silver liver and an eagle for a logo. I doubt they'd give JetBlue much business if they were based in NYC.

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