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The United States Airline Industry

Wed Nov 17, 2004 6:24 am

Alrite. I realize the topic of this thread is extremely broad, however i could not figure out a better title for this thread, as this will most likely become an in depth discussion of the United States Airline Industry. read on

I have become much more acquainted with the airline industry in my 3+ months here as an intern at Southwest Airlines. Not only from observing the day to day operations that all airlines need to work through, but i have also traveled more, with crews, and as a passenger (free travel has many benefits). I have started noticing a few things, a lot of it in my own feelings but also in that i see others feeling the same way, and what i observe in the news regarding airlines, etc...

It appears the Airline Industry has changed as we know it. Obviously that is not a bombshell to anyone and it is a correct statement. However, i believe that the industry has changed not only in how the airlines operate (pricing, salaries, cost structures, etc...) but also in how society as a whole travels and functions as a dynamic entity (forever changing).

It is my opinion that the airline industry, within 3-5 years at the least, will become a lot smaller than it is today, unless drastic changes can be made. The successful airlines, such as Southwest, JetBlue, AirTran, etc.... Will obviously be the main players. As it is right now, costs at the major airlines or legacy carriers are too high for prices as low as they are today. You can't run a successful airline business like United or American offering $200 roundtrips that are easily accessible by anyone. The costs for these carriers are too high, and i believe they are going out the door sooner then everyone thinks. I know i am not stating any earth shattering announcements here.

The true purpose of this topic (for me at least) is to ask you all a question. Do you (all of you mostly intelligent and somewhat in the know aviation posters) think that the level of price expected by people for an airline ticket is too low? For instance, the price i am willing to pay for a ticket is around $250. However i can go a bit higher, as i bought a ticket for SFO from DFW for $318 (after finding a $240 fare and thinking about it for 2 hours, i came back and tried to purchase the fare, only to find out that it was unavailable, and the cheapest roundtrip for those flights were $318....sigh).

Have the airline fare wars of the 80's and 90's (and today) spoiled the american public into only flying on fares that they considered cheap ($300 or less). did this help propel the industry into the sharp downturn that we are experiencing today? Planes that are nearly full (75%+ loads) but not making any money? If so, is there anyway to go...backwards, in essence, and get people to expect to pay a higherfare?

Im interested to see the responses.

edited for misstypes

[Edited 2004-11-16 22:29:11]
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RE: The United States Airline Industry

Wed Nov 17, 2004 6:32 am

Sounds like an elitist column I was reading today....

Basically, he thinks that people are flying who otherwise should not be--snobbery is what it is. I think what people fear is that spotting will be reduced to watching a series of mustard and blues streaming into the runways across the USA.
Keep on truckin'...
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RE: The United States Airline Industry

Wed Nov 17, 2004 6:50 am

Here's a post I made a LONGGG time ago concerning US' situation and I feel that it will touch on a few point that you are speaknig about.

God if 9/11 didn't happen I would be interested as hell to see the out come of things. Even before 9/11 the UA buying US was slight but still it would be funny to see how that one turned out. I think it's just that these are great airlines but they only shine when people are willing to spend $$ and with today's economy that's not going to happen.

In the end they offer what all the other majors don't thus causing a major decline in their numbers. And I think it will take shutting down for them to see that they can't be who they want to be.

The whole thing with UA and their "Ok let's cut costs here and there". Yet at the same time they counter strike with New routes, "Flowers in first", New colors. All the wrong things they need to get out of CH.11 successfully. US is facing this same issue as well.

UA had a leg up to start with b/c they are much larger but they will in the end be sitting there together at the end of the race sitting at the bank wondering why it says $0.00 and sometimes -$$. They used to be the big fish in the small pond but the pond just got a whole lot bigger and it looks like these guys are about to be eaten.

AA is just too friggen big to take down. CO has a good mix of a/c and routes but nothing over the top. NW is borderline good or bad for the next few years (we'll see by the end of Q2 of 2005).

US has bitten too much off and they can't take it. UA has the right stuff to be successful in what they want but just don't know how to go about it. CO is great where they are. NW too. AA is just always going to be good. DL is trying too much at once w/o the right stuff.

Therefor can we say that DL, UA, NW, AA troubles started... almost 20 years ago..? Then can we say that it has taken 20 for the "Legacy" carriers to self destruct.. A slow painful death of an old business model.....???

No we can't say that. The buying and building off of the little guys finally set in during the mid-90's say 10 year's ago. The only issue is that once they grew they didn't want to stop. If anything it's a quick death. 9/11 crippled the aviation industry sense day one. It's just that I think the airlines thought it was going to improve over time thus they kept doing what they wanted thinking that the travelers and economy would pick up.

But when you're running one direction and the banks going another you're SOL. If these airlines all had expandable sources of $$ then they'd be fine. Sure in a few years it'll pick back up but the airlines won't be there any more. New guys on the block will be there eating off the remains of the other guys. I can say that we can expect a surge of new airlines in about 5 years and then in a about 20-30years these new guys will be out and then another surge and then over and over again. Like one big food chain.

10 years from now will be very very interesting. All of the out comes of this will happen in the next 1-3 years but it will take 7 years for the repercussion of the results to finally set in................ Aviation as we know it has changed forever.

Sry if my info is off or off track. IM JUST A 14year old COMMENTING ON A BIG KID WORLD!



Hope that helps a bit!

Thanks again and Take Care!

"It wasn't raining when Noah built the ark."
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RE: The United States Airline Industry

Wed Nov 17, 2004 7:03 am

If fuel prices weren't so high then the legacies would be making money. Its not the model thats broken.
While I admire the LCC business model most of the country would be without airservice if all airlines followed this model. Not to mention we wouldn't be able to travel out the country. Its the LCC that are keeping fares too low.
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RE: The United States Airline Industry

Wed Nov 17, 2004 9:04 am

If the service is the same, the experience is the same, and everything else is the same, why would you pay more for one airline than another. The question isn't shouldn't the public spend more, it's should the airlines offer more.

The fact is that for the vast majority of the traveling public, there really is little difference between the low cost carries and the mainline carriers. The service has become comparable, so why spend the extra money? The big problem facing the industry today is that they refuse to differentiate their product in any meaningful way. Sure, some try little things such as frequent flier programs and such, but nothing that is substantial enough to make them want to spend the extra money. People hate flying now. It's a chore, it's a hassle, it's unpleasant. So they are not going to spend any more money on it than they have to.

If the regular carriers want to improve their revenues, then they have to do something to draw in the travelers. This cost cutting and red tape is short sighted and hurts revenue far more than it lowers costs.

Sure many savings only save a few pennies per passenger, but add up to a whole big chunk of savings. Well, so do those bits about cutting back service - sure it only looks to affect each customer a little bit, but when added together it really hurts the airlines reputation.
"Six becoming three doesn't create more Americans that want to fly." -Adam Pilarski
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RE: The United States Airline Industry

Wed Nov 17, 2004 9:42 am

I see it as a fairly simple but gut wrenching (for the older career people) rite of passage since several factors have begun. It's the final results that will be ironic.

1. Deregulation
2. LCCs
3. Fuel costs

Since the inception of #1 most established carriers have had a rough road transitioning from this very cushioned if still shocking change of business plans. Some were too slow and intransigent to move in time to catch up to, or get out of the way of, the ever speedier juggernaut of changed rules, financing, pricing, and employee work concepts. This is still evolving and makes a slippery bedrock to base a business.

The LCCs of course were a product of that evolution when the Legacies model could not adapt fast enough. The population increase and lower fares in the largest air transport market in the world met in the middle to transform a privilege used by few into a mass commodity demanded by all. Styles and needs, expectations and reality, collided in friction to make up the cauldron we have now. Something new will be forged from that heat. Foundries are not clean businesses.

The world market based price of fuel has caused another seachange. It will never go back to what it was because of the increased demand by increasingly industrious third world nations in their quest for change. (Not to mention now busy producing what we used to make but can no longer afford) Prices will be ragged for awhile until an outside stabilizing force comes into play. Eventually it will be realized that energy companies make more money as long as the barrel prices keep going up but loose that edge when it stabilizes. Governments will probably have to step in when it's finally realized that this is unsustainable and protect all the other industries. Timing of this depends on the intertwining of government and those same companies. This uncovers another problem with the US market. The reliance on short term gain for share profit. Long term investments have to be made for long term stability. Risk has got to be cushioned by the reality of long term profit. Boeing and the US aviation/technology already know that but have been arguably helpless to do it for a myriad of reasons of which public greed for fast investment profit is the most guilty. Perhaps Airbus/EADS and the governments of the countries where they are established have already learned that lesson. The never ending argument about subsidy by any name is perfect proof. Long term investment for national good and stability is not a dirty phrase. When we realize it depends on the power of Wall Street and corporate lawyers. How to implement it within the legal sanctions we've blocked ourselves in with is the shaky keystone.

Now for the ironic part. After all the blood is shed and lives and lifestyles are decimated, lost, and destroyed something will be realized. Once the older higher priced (structure and debt load) carriers are brought to their knees and are no longer a market factor (how close are we to that now?) will the LCCs keep the fare structure the same? I strongly doubt it. Far too late after the bloodbath governments will step in and say this can't keep happening in such a vital industry. Stability will be enforced by both market factors and law. A seat will have to be priced at what it costs to provide. By then the remaining carriers debt will have increased, although probably much slower depending on things like maturation of aircraft costs. Will Airbus keep prices low after Boeing is gone? Same scenario as above. Fare will rise and unless it all starts over again with new LCCs this would have only two outcomes. This constant evolution just boils change but no stable product and the process becomes the norm. We are right back where we started. Lifetime careers become a thing of the past because we've all had to become entrepreneurs with individual short term employment or society gets damn tired of this and demands that same investment we spoke of before. Sounds like a societal change doesn't it. Can we ever become structured and mature enough to make it happen? Before you answer that think long and hard about your own long term desires, abilities, and time left.

Less sarcasm and more thought equal better understanding
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RE: The United States Airline Industry

Wed Nov 17, 2004 10:07 am

I hear fuel costs wont be coming down anytime soon.

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RE: The United States Airline Industry

Wed Nov 17, 2004 12:41 pm

This was not meant to be elitest in anyway (nor can i find any notion of that in my statement) i was just saying that do people expect to pay less than they should for an airline ticket? Should people be expected to pay an extra $50 on each ticket they buy? broken down that is mainly the root of the topic at hand. Not "only people with lots of money should fly" or anything like that.
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RE: The United States Airline Industry

Wed Nov 17, 2004 12:56 pm

Dude fix the caps lock... it is annoying as hell.

This was not meant to be elitest in anyway (nor can i find any notion of that in my statement) i was just saying that do people expect to pay less than they should for an airline ticket? Should people be expected to pay an extra $50 on each ticket they buy?

Legacy's are battleing each other just as much as they are the LCCs.... the LCCs also have nearly everything going for them. They have young work forces, brand-new airplanes with lower fuel burn and maintenance, and the energy of being new and hip.

Not all the legacy's are flaling around. AA ratched down cost in amazing time. They reduced 14 fleet types to 7 in less than 2 years, matched pay rates of other airlines, increased international destinations, ect. They would be doing ok-ish if fuel were not killing them.

What many fail to realize, is that it takes money to save money. You need money to buy winglets, you need money and credit to secure fuel hedging, and you need money to buy modern planes.

WN has over 1.8 billion dollars in cash on hand at this very second, they have the lowest debt ratio of any airline in North America, and they have the highest credit rating of any airline in North America. They were only able to hedge 80% of their 2005 fuel at $25 a barrel, and 60% of their 2006 fuel is hedged at $32 a barrel.... their huge financial resources allow them to be even more profitable...
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RE: The United States Airline Industry

Wed Nov 17, 2004 12:58 pm

The American public is opting for the cheaper alternative and you really cant blame them. The LCC's don't have the route structure of the majors but are driving the prices of tickets way down, LCC's generally pay their employees less with not as many benefits, the internet has led to easy access to cheap tickets, the whole industry has been mismanaged... Including some LCC's, and the industry has changed with security regulations and other unpleasantries that make flying a chore.

I don't think southwest, jetblue, or ATA (all lcc's from the original poster) are in a fantastic position either. jetblue for instance is going to have to start paying back the leases on its aircraft and with its crews getting more and more experience you will see more and more of them demanding higher salaries. Will they be able to keep their prices low? The industry as a whole isn't in good shape so I wouldn't expect any drastic moves from the LCC's for the next couple of years until they have a stable base market. Jet blue did want to start with the embrear's but I haven't heard much about that yet for some reason and I am wondering if it is going to happen anytime soon. Southwest has always had a pretty decent game plan going and their management has always been excellent but they have somewhat strayed from that with the start up of service to Philly. It will be interesting to see who survives in the near future. Maybe this is a survival of the fittest and the streamlined LCC's will keep the pressure on until the majors are out of their way and a thing of the past. But will the majors after going through bankruptcy court and being restructured and having more aircraft, larger route structures, and in some cases a better service be able to play hard ball against the LCC's when the industry does come around?
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RE: The United States Airline Industry

Wed Nov 17, 2004 1:08 pm


That is quite an article you have there... that is guy expresses very snobbish opinions... flying is only for businesspeople... sheesh, and businesspeople are the biggest leeches in aviation! Certainly their companies pick up the tab for their overpriced tickets and they use their free air travel to get free upgrades to so they can sit in first class for free while some people have to pay their way. Certainly if the author of that article can get the sort of travel subsides for those he describes as "tank-topped, flip-flop-wearing passengers" that he frequently enjoys from his employer, then all is well.

I tell you, if the guy wants to pick on the common folk then that was my 2-cents for him, PERIOD.
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RE: The United States Airline Industry

Wed Nov 17, 2004 10:32 pm


i said AirTran not ATA
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RE: The United States Airline Industry

Thu Nov 18, 2004 1:49 am

In my opinion, the best thing the majors can do is expand what United and Delta are playing with.

United should concentrate on international flights, and use Ted for their domestic service and to feed the international hubs. Same for Delta - use Song for domestic flights and keep Delta for international flights.

Offer a LCC for domestic flights with some first/business class seats for business travellers, while offer a full service on their international flights. This would protect their brands, and if they ran them as two airlines, keep the cost structures competitive enough to make some money.

The risk would be spread across the two airlines and they would provide the products that are now being demanded in the industry.

However, the biggest problem is still overcapacity, so all of the major legacies should cut back their domestic operations if this isn't done for them through US and United dying first...just my 2p.
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RE: The United States Airline Industry

Thu Nov 18, 2004 3:17 am

Planespotting, there is one airline you left out as being a major player in the next 3-5 years - America West. While I've never been a big fan of HP, largely due to the company's past history of screwing its employees, under the current leadership this airline has made a strong turn-around and is competitive with WN on many of the routes it shares with Southwest.

I would agree with those who attribute part of the current crises to increasing fuel costs, but this is not the first time the industry has battled through such a situation. Spikes in fuel in the early 70's and early 90's should have taught the legacy carriers a valuable lesson - be proactive. WN and a few others learned this lesson and hedged oil futures.

When jet fuel does spike, as it has in recent weeks, how are the legacy carriers reacting? Are they flying more fuel efficient aircraft? Are they utilizing smaller jets? Are they decreasing flight frequency? The airlines can control their fuel costs in any number of ways. They can limit the impact that fuel spikes have on their operating expenses.

Growth patterns have also impacted the industry. Some carriers, such as America West, attempted to grow too fast in the late 80's and early 90's. HP's rapid growth contributed to their bankruptcy in 1993. Other airlines, such as PeoplExpress and Braniff, attempted to cash in on deregulation, adding dozens of new routes as well as 747's. They both bit off much more than they could chew, so to speak.

Increasing labor costs have had a significant impact on the industry. Wage reductions obtained in recent months by United, Delta and USAirways are evidence that Newton's law of gravity also applies to the labor market. Neither the unions nor management of our nation's larger carriers have reacted well to changes in the economy. There is a growing divide between labor and management in the airline industry and I predict that the gap between the two will likely claim more victims (airlines) along the way before both sides finally "see the light" and begin working together instead of against each other.
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RE: The United States Airline Industry

Thu Nov 18, 2004 3:27 am

I think that the US airline industry is just going through a phase in which the healthier carriers will survive and the more weak ones will unfortunately go under. It is just part of the system that we have here and part of the economic cycle. I don't forsee the airlines' woes going on forever; It is just going through a period of "reshuffling." I think Southwest will become more of a major player in the coming years while some of the legacy carriers either go out of business or emerge more smaller and profitable airlines. It will take some time...probably a couple of years before the airlines get out of the slump they are in. That is just my 2 cents.  Smile
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RE: The United States Airline Industry

Thu Nov 18, 2004 3:37 am

Sorry bud, but I really think your living under the WN rock.

WN will be successful as will Air Tran, jetBlue is iffy, Spirit is the same now that they bought too many planes.

This is a proven phase of the industry, look at history and it repeats itself, currently things are improving more in favor of the Legacy carriers in good or better shape.

This LCC thing is a phase, it has always does this when the economy is in the Sh**tter.

Give it another year and you'll be looking at the late 1990's as far as air travel goes.

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