Topic Author
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Answer This About The Majors

Sat Oct 23, 2004 7:55 am

Okay. We keep hearing the majors (i.e., Delta) bellyaching that a big reason they have worse financial problems than the LCCs is the overhead involved -- flying worldwide operations takes its toll on the bottom line.

So why maintain all those worldwide operations? Why not cut your losses and bring operations down to a more fiscally manageable level? Why not just focus on markets where you are making money?

Heck, there's so much codesharing and alliance-building going on now that a particular airline doesn't even have to put metal in the air to serve a city. I just flew back from the Czech Republic to Atlanta, all ticketed through Delta, without even seeing a Delta plane at all.

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Joined: Mon May 10, 2004 3:36 am

RE: Answer This About The Majors

Sat Oct 23, 2004 8:18 am

No, because those routes do make money. For example, EWR-EDI on the 757, that makes money, right. You have to put a plane that the market can handle, so it would not make sence if CO put in a 777.

Sorry, I was on the landline
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RE: Answer This About The Majors

Sat Oct 23, 2004 8:21 am

You actively have their objective backwards...

...the international/intercontinental market is where the money's to be made. The question and challenge for the Legacy carriers is how do they profitably address that international market without losing their shirts on their domestic operations.
Faire du ciel le plus bel endroit de la terre c'est impossible sans Concorde!
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RE: Answer This About The Majors

Sat Oct 23, 2004 8:34 am

Oh, if it were only that simple....

Part of the problem is that major carriers, or network carriers, have complicated route systems based on hubs, and while each individual route into a certain hub may not be a profit center, only if the hub as adequate mass (ie, lots of flights in and out to lots of destinations) will the hub really work. If DL, for example, would cut a lot of short, not very profitable routes in and out of ATL, then DL could not keep all of those flights to Europe fill and profitable. Of course, very poorly performing routes are discontinued, and many smaller routes are now flown by regional affiliates with smaller aircraft in an attempt to cut costs, but if a hub cannot offer a large amount of destinations and endless connection possibilites, it will not work and become very unprofitable. DL recently decided to close down its hub in DFW altogether since it could no longer offer the connection possibilities, and did not have enough O&D traffic to make DFW work anymore.

Major carriers also offer benefit from offering a variety of services to both major centers and smaller cities and towns - the whole is greater than the parts. If a pax is interested in flying from NYC to FLorida, then there are many many choices and LCCs may be the answer, but if a pax needs to fly to FLorida one week, Paris the next, then to Latin America, and next month to a small city in Texas, an airline like AA has a lot to offer.

One of the biggest arguements against LCCs is that they only pick and chose the routes with the most potential - JetBlue for example now flies lots of routes to FLorida and California from the Northeast where there is a lot of traffic, but passengers also need to get to places like Nashville, DesMoines, Columbus and El Paso.

While major airlines are re-thinking their route systems in an attempt to make more money, the route systems are not the real problems (although an arguement can be make that the USA has too many hubs and too many connection points)......airlines like US Airways is looking to expand into Central America and the Caribbean and CO is building up service to Europe since there is less competition on those routes, no LCCs to deal with, and some money can be made. The real problem is that the legacy carriers have far higher costs that the newer airlines.....their labor costs and obligations and the fixed costs of running their networks are very high, time will tell if the legacy carriers can revise their business plans and if labor will agree to many of the changes required to exist in this enviornemnt, and the other question is if LCCs can keep their costs low as those airlines mature and expand and develop into larger airliners......Southwest seems to have figured out how to do it, lets see if the others also can keep costs under control.

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