FokkerVII
Topic Author
Posts: 47
Joined: Fri Feb 25, 2005 4:54 am

Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 9:11 am

With all the stories floating around of bankruptcies of US carriers it made me wonder who is actually making all the money? There are so many people flying in the USA these days that someone (besides just Southwest) must be making money. OR are the prices just so low that no one can make money regardless?

Cheers
 
aaflt1871
Posts: 2166
Joined: Fri Dec 24, 2004 7:29 pm

Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 9:12 am

I would think JetBlue and Airtran
Where did everybody go?
 
alb222
Posts: 217
Joined: Thu Jan 27, 2005 9:16 am

Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 9:19 am



Quoting FokkerVII (Thread starter):
are the prices just so low that no one can make money regardless?

Low prices, high cost of doing business= loss
 
Rydel
Posts: 30
Joined: Sat Aug 07, 2004 12:35 pm

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 9:35 am



Quoting AAFLT1871 (Reply 1):
I would think JetBlue and Airtran

I agree, those seem to be pretty profitable airlines. I think TransMeridian (if you call them an airline) has been doing pretty good lately.
 
FokkerVII
Topic Author
Posts: 47
Joined: Fri Feb 25, 2005 4:54 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 9:44 am

So it is only the (old) full service airlines that are losing out? Is there a chance of LCCs becoming the only type of airline available? Here in Europe the LCCs are doing very well but there still seems to be enough market for the old guys to make a living.
 
bravo7e7
Posts: 1162
Joined: Sun Jul 18, 2004 1:43 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 9:47 am

I have a feeling that when Southwest's fuel contract runs out in June(I think), that they will be in a completely different ballpark. Wink
 
SonOfACaptain
Posts: 1695
Joined: Thu May 27, 2004 5:36 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 9:54 am



Quoting Bravo7e7 (Reply 5):
I have a feeling that when Southwest's fuel contract runs out in June(I think),

I can not wait until that day when WN starts losing money and everybody realizes that the industry is in a crisis. For some reason, some people think that just because WN is making money, that everybody should be and that they are the problem. Hopefully that will be a wake call for some.

-SOAC
Non Illegitimi Carborundum
 
OPNLguy
Posts: 11191
Joined: Tue Jun 15, 1999 11:29 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 10:06 am

Quoting Bravo7e7 (Reply 5):
I have a feeling that when Southwest's fuel contract runs out in June(I think), that they will be in a completely different ballpark.

Actually SWA has fuel hedges in place for varying costs and percentages all the way out to 2009...

From SWA's 4th quarter report...

"Although we are 85 percent hedged in first quarter 2005 with prices capped at $26 per barrel, based on current market conditions, we presently expect first quarter 2005 average jet fuel cost per gallon to exceed fourth quarter 2004's 89.1 cents. We are 85 percent hedged for the remainder of 2005 with prices capped at $26 per barrel; 65 percent in 2006 at $32 per barrel; over 45 percent in 2007 at $31 per barrel; 30 percent in 2008 at $33 per barrel; and over 25 percent in 2009 at $35 per barrel."

(Those percentages/costs will change with time...)

[Edited 2005-03-10 02:09:09]
ALL views, opinions expressed are mine ONLY and are NOT representative of those shared by Southwest Airlines Co.
 
atrude777
Posts: 4258
Joined: Wed Aug 13, 2003 11:23 pm

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 10:30 am



Quoting SonOfACaptain (Reply 6):
I can not wait until that day when WN starts losing money and everybody realizes that the industry is in a crisis. For some reason, some people think that just because WN is making money, that everybody should be and that they are the problem. Hopefully that will be a wake call for some.

typical for a WN hater probably lol. if Southwest Airlines is still a LCC which they are and are able to have money then great. i am not saying if WN can do it then the others should. the legacies have put themselves in a position to where they are now. I bet you, if Southwest and all the LCC left..the only people flying would be business flyers and VERY VERY rich people, because we are so adapted to low fares. i hope southwest lives forever and forever, it is because of southwest i am also able to fly on American and other legacy because they are keeping it low.
Alex
Good things come to those who wait, better things come to those who go AFTER it!
 
User avatar
EA CO AS
Posts: 13438
Joined: Wed Nov 14, 2001 8:54 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 10:35 am

Fact of the matter though is that WN would be bleeding red ink like a stuck pig if not for their fuel hedges - something they're more easily able to do than other carriers thanks to their financial position up to now.

If oil remains this high - and odds are it won't go down anytime soon - they'll have to raise fares to stay afloat, since no Jet-A provider worth their salt will enter into a fuel contract with WN for anything less than $48/bbl going forward.
"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan

Comments made here are my own and are not intended to represent the official position of Alaska Air Group
 
atrude777
Posts: 4258
Joined: Wed Aug 13, 2003 11:23 pm

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 11:03 am



Quoting EA CO AS (Reply 9):
Fact of the matter though is that WN would be bleeding red ink like a stuck pig if not for their fuel hedges - something they're more easily able to do than other carriers thanks to their financial position up to now.

also not true. Southwest would still be making alot of money, just not as high as ith the hedged fuel. it could be questioned in the future but they still would have made quite a bit of money. but the fact is..Southwest hedged, others didn't and it counts. so...Southwest can STILL make money because MGMT was smarte enough to do so. thats called smarts, and they know how to run an airline.
Alex
Good things come to those who wait, better things come to those who go AFTER it!
 
ScottB
Posts: 5446
Joined: Fri Jul 28, 2000 1:25 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 11:04 am

Quoting EA CO AS (Reply 9):
Fact of the matter though is that WN would be bleeding red ink like a stuck pig if not for their fuel hedges

Actually, their operating loss would have been somewhere in the neighborhood of $30-40 million (I don't know the exact amount since part of the hedging gain goes to the employees in profitsharing) for the fourth quarter of 2004. Even absent their hedges, Southwest would have been profitable in the third quarter. A loss of $30-40 million would represent an operating margin of negative two or three percent -- hardly "bleeding like a stuck pig" in comparison to the rest of the industry.

Having carried 17.7 million revenue passengers in the quarter, a fare increase of an average of a dollar or two would have made LUV profitable in the absence of hedging. And Southwest has been moving to reduce their fuel expenses in the future by adding blended winglets to the fleet.

When Southwest starts losing money, you can bet that things are even worse for virtually everyone else in the industry (aside from, perhaps, fee-for-departure regionals).

[Edited 2005-03-10 03:06:14]
 
SonOfACaptain
Posts: 1695
Joined: Thu May 27, 2004 5:36 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 11:54 am



Quoting Atrude777 (Reply 8):
typical for a WN hater probably

Yeah, naturally I dislike WN, but only because they are a competitor of "my" airline. It's a friendly hatred, just like with people who dislike rival sport teams because they're not theirs. My dislike for WN affects none of my opinions of the airline industry.

Quoting Atrude777 (Reply 8):
if Southwest Airlines is still a LCC which they are and are able to have money then great. i am not saying if WN can do it then the others should

Yeah, but others are. I find it from mostly the media.

Quoting Atrude777 (Reply 8):
the legacies have put themselves in a position to where they are now.

Yeah I agree with this. They didn't adapt to change quick enough, and that has hurt them. However, most of the lagacy carriers have indeed changed that in normal situations, they would be making money. It's the damn fuel that's killing them.

Quoting Atrude777 (Reply 8):
I bet you, if Southwest and all the LCC left..the only people flying would be business flyers and VERY VERY rich people, because we are so adapted to low fares.

Then what we have now is the "glory days" of commercial aviation, when customers decided on what airline to fly by how thick the their steak was, not how cheap their airfares were. Airlines would then be in excellent shape. It wouldn't benefit you, the typical American, but it would defiantly benefit the airlines.

Quoting Atrude777 (Reply 10):
also not true. Southwest would still be making alot of money

Hahaha, yeah I don't think so. They MAY be making money, but not a lot.

Quoting Atrude777 (Reply 10):
thats called smarts, and they know how to run an airline.

No use in arguing about this. I will admit that WN is beautifully run.

Quoting ScottB (Reply 11):
Actually, their operating loss would have been somewhere in the neighborhood of $30-40 million

I'm not sure about this, but I too have heard that WN would be losing money if they didn't hedge. If either of you could provide "hard" evidence, that would be great.

-SOAC
Non Illegitimi Carborundum
 
qxq400
Posts: 250
Joined: Thu Dec 23, 2004 1:42 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 12:41 pm

Well we at Alaska/Horizon just received our profit sharing checks. Very small check, but still a check. eyebrow 
Welcome baby Madison Renee
 
atrude777
Posts: 4258
Joined: Wed Aug 13, 2003 11:23 pm

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 12:48 pm

sonofacaptin- more respect to you. your on my list.

i agree with alot of what u said. I understand what you mean by friendly hate. for some reason i have this utmost hate against NWA even tho I have never flown and should keep my mouth shut until I have but something about NWA just irks me lol.

you mentioned fuel. yes thats correct, nothing to do with Southwest Airlines like most people are saying. so someone tell these people to stop blaming Southwest, it isnt helping them for Southwest to be there admittidaly BUT it is not the fault or anything wrong with it.

with WN running mgmt being smart-- naturally. they take risk, and they took a risk in hedging fuel and it has worked perfectly for them. they seem to know the inside and out and where to pick the profitable route. southwest isnt hurting airlines it is doing business, i dont understand how if southwest goes into a war with us airways they say they are killing them but if AA goes into DAL to fight WN people would call it "business" and not killing Southwest. what makes that difference?!?!

you asked for proof about hedging i cannot find it at the moment but i myself have heard Southwest would have still made about 5 million dollars without hedging. ill keep looking
Alex
Good things come to those who wait, better things come to those who go AFTER it!
 
User avatar
mariner
Posts: 18169
Joined: Fri Nov 23, 2001 7:29 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 2:02 pm

SOAC:

Sorry, but your defence of the legacy carriers has elements of fine bologna.

We've just had the first successful, across the board, NWAC included, fare hike in some time.

So what does United do? United is losing money like a stuck pig loses blood.

So they lower fares.

Like that makes a whole heap of sense.

cheers

mariner
aeternum nauta
 
SWALoveField
Posts: 151
Joined: Mon Jan 10, 2005 2:49 pm

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 2:06 pm

This is ridiculous. To say, "If WN hadn't hedged fuel.....blah, blah, blah."

You could say that about any airline, but they DID hedge fuel and therefore are smarter and profitable.

Its like saying, "If they didn't make smart management decisions they would NOT be making a profit." Duh, look at the legacies. How can you expect ANY company to make a profit by making "dumb" decisions.

You can take that to the bank and make a deposit. Legacies keep borrowing and borrowing and borrowing. WN keeps growing and growing and growing.

Regards,

Robb
Dallas, TX

"You can't spell win withouth WN!"
 
SonOfACaptain
Posts: 1695
Joined: Thu May 27, 2004 5:36 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 2:30 pm



Quoting Mariner (Reply 15):
We've just had the first successful, across the board, NWAC included, fare hike in some time.

So what does United do? United is losing money like a stuck pig loses blood.

So they lower fares.

Since when did the actions of one speak for the whole. I am sure UA lowering ticket prizes has a reasone, for no airline bleeding that much would do it for the "fun of it".

Quoting Mariner (Reply 15):
Sorry, but your defence of the legacy carriers has elements of fine bologna.

Can you please point this out to me? Maybe I could defend myself if I knew what you were talking about.

Quoting SWALoveField (Reply 16):
This is ridiculous. To say, "If WN hadn't hedged fuel.....blah, blah, blah."

All we are trying to say is that the industry as a whole is going through a crisis, and that even WN would be losing money if it hadn't done some amazing planing. You know an industry is in trouble when in normal cases, everybody would be losing money.

Quoting SWALoveField (Reply 16):
Legacies keep borrowing and borrowing and borrowing. WN keeps growing and growing and growing.

It's hard to go on the offensive, when you need to play defense.

-SOAC
Non Illegitimi Carborundum
 
AeroWesty
Posts: 19551
Joined: Sat Oct 30, 2004 7:37 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 3:02 pm



Quoting EA CO AS (Reply 9):
since no Jet-A provider worth their salt will enter into a fuel contract with WN for anything less than $48/bbl going forward.

EA CO AS - I don't mean to single you out, it's simply that the wording of your post easily lent itself to an example of how misunderstood the futures market is on these boards.

There is a 100% certainty that you could buy an unlimited quantity of Jet-A at $25/bbl for future delivery as soon as the financial markets open in the morning. You may not like the premium you'd have to pay for it, but if you wanted it, there'd be someone who'd make a market for you. In its most simplest terms, the futures market is like buying and selling options in the stock market, except it's for delivery of fuel or orange juice or pork bellies at a set price on a certain date, rather than if your stock option is in or out of the money on the expiration date. You pay a price (aka the "premium") for this contract, it's not free.

Note ScottB stated in Reply #11: "part of the hedging gain goes to the employees in profitsharing"

If hedging was just a set of direct contracts with fuel suppliers, there would be no profit to share, it would simply be the fulfillment of a contract.

Hedging in the quantities of fuel Southwest requires, over the time span stated in their quarterly report, shows significant sophisticated investment strategies that are developed over time, and by more than just a couple of executives taking a lunch break from stealing passengers from other airlines, and involve hundreds of millions of dollars put at risk.
International Homo of Mystery
 
User avatar
mariner
Posts: 18169
Joined: Fri Nov 23, 2001 7:29 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 3:29 pm

SOAC:

"However, most of the legacy carriers have indeed changed that in normal situations, they would be making money."

(i) If you subtract the additional cost of fuel several of the legacy carriers would still be losing a very great deal of money.

Just for the record, how much did United lose in January? It was considerably more than their additional fuel cost.

And how much cash did US Airways burn through in January?

Please note that is OUR money now - US Airways has dipped below the ATSB threshold and is actually using taxpayer guaranteed money to survive.

(ii) It wasn't just United. I believe US Airways started a system wide fare sale at the same time as United.

(iii) Continental announced today that Delta's previously announced fare cuts would cost them (Continental) an additional $50 million in revenue - on top of the $150 million in lost revenue they had already announced.

Since even Delta admits they're going to be losing (even more) money with their new fare structure, I fail to see the sense of it.

(iv) You and I have discussed US Airways new FLL mini-hub before. How much did certain of those routes cost them to establish, routes abandoned within weeks of starting?

I could go on, but I don't see the point. I find it difficult to see how the legacy carriers have changed to the point that, in normal circumstances, they would be making money.

However, I agree with you on one very important point - the industry, the entire industry, is in crisis.

But how it is that airlines like Qantas and Cathay Pacific are reporting record profits in spite of the cost of fuel?

When the day comes that some of the US legacy carriers abandon the obsession with market share and go for profits (or at least break even) instead, then we might get somewhere.

cheers

mariner
aeternum nauta
 
mrniji
Posts: 5382
Joined: Sun Feb 29, 2004 11:51 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 3:35 pm



Quoting Alb222 (Reply 2):
Low prices, high cost of doing business= loss

very good and valid point.. overcompetition forces them to dump their prices for every sake, so no wonder many of them dump every product and service and face bancrupcy now.. this happens in a less-regulated market. A standartization of products and 'perfect competiton' (i.e. price), and the loss of every particularity... in the long-term, the social costs hill be high and the prices will rise, too (but esp the former is scarry)

Quoting FokkerVII (Reply 4):
So it is only the (old) full service airlines that are losing out? Is there a chance of LCCs becoming the only type of airline available?

I hope not... LCC are boring, have no love and are only good in the short-term... transport is so important that we need to ensure that overcompetition does not kill or negatively alter the sector
"The earth provides enough resources for everyone's need, but not for some people's greed." (Gandhi)
 
SonOfACaptain
Posts: 1695
Joined: Thu May 27, 2004 5:36 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 3:52 pm



Quoting Mariner (Reply 19):
And how much cash did US Airways burn through in January?

I am not sure about UA, but I do know that US WOULD have made money this past year if fuel was not so high.

Quoting Mariner (Reply 19):
It wasn't just United. I believe US Airways started a system wide fare sale at the same time as United.

When you are desperately in need of money, you do desperate things.

Quoting Mariner (Reply 19):
And how much cash did US Airways burn through in January?

You can't judge how much an airline makes in a year over the typically worst month for an airline.

Quoting Mariner (Reply 19):
Please note that is OUR money now - US Airways has dipped below the ATSB threshold and is actually using taxpayer guaranteed money to survive.

What's with all this hatred towards US, you are going to get your money back, even if US goes out of business.

Quoting Mariner (Reply 19):
Since even Delta admits they're going to be losing (even more) money with their new fare structure, I fail to see the sense of it.

I'm still convinced DL did this to put US out of business. This is MY personal opinion though.

Quoting Mariner (Reply 19):
You and I have discussed US Airways new FLL mini-hub before. How much did certain of those routes cost them to establish, routes abandoned within weeks of starting?

I liked the fact that US was willing to take a risk to find some new revenue. In normal cases US would still be flying these routes today. However, because US doesn't have the cash to support a new struggling route, they couldn't afford to keep with it.

Quoting Mariner (Reply 19):
I find it difficult to see how the legacy carriers have changed to the point that, in normal circumstances, they would be making money.

How can you not see!!! Legecy carriers have transformed themselves to be more competitive. You can't see this because you are only thinking near-future. You assume that just because they are losing money, they haven't changed at all. But the truth is that have.

Quoting Mariner (Reply 19):
But how it is that airlines like Qantas and Cathay Pacific are reporting record profits in spite of the cost of fuel?

How many $25 fares do you see at Qantas and Cathay Pacific. The reason they are making money is because they are "allowed" to pass the prize of the raw goods to the ticket prizes. US legacy carriers can't because of the competition of LCC. They can't even charge $200 fares anymore because all their customers would flock to other carriers.


Quoting Mariner (Reply 19):
When the day comes that some of the US legacy carriers abandon the obsession with market share and go for profits (or at least break even) instead, then we might get somewhere.

Wow. Are you telling me that UA and US aren't worried about making a profit, that they only care about market share. You need to wake up and realize that the legacy carriers are DESPERATELY searching for profits.

-SOAC
Non Illegitimi Carborundum
 
OPNLguy
Posts: 11191
Joined: Tue Jun 15, 1999 11:29 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 4:14 pm

>>>You need to wake up and realize that the legacy carriers are DESPERATELY searching for profits.

I think Mariner has been "awake" long enough to know what's what...  sarcastic 
ALL views, opinions expressed are mine ONLY and are NOT representative of those shared by Southwest Airlines Co.
 
User avatar
mariner
Posts: 18169
Joined: Fri Nov 23, 2001 7:29 am

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 6:13 pm

SOAC:

In order, by numbers:

(i) I did not say otherwise.

(ii) When you are desperate in need of money you cut fares so you get even less money. That is not what I would call sound airline management. Consequently, I have little sympathy for managements who do it.

(iii) That's not my point. My point is that US is burning through cash at an alarming rate. Alarming to me, at least. I am glad you are not alarmed.

(iv) I don't "hate" US. I don't hate anyone or anything, how can I possibly "hate" a corporation?

I do think that US has suffered through stupid management, and continues to suffer through stupid management. The difference is that now they are doing it with my money.

And at this rate, I (we?) am not going to get my taxpayer money back. US is below the threshold.

(v) I think DAL / KDAL), USA - Texas">DAL / KDAL), USA - Texas">DAL / KDAL), USA - Texas">DAL would rather put Airtran out of business.

(vi) If you don't have the cash to support a struggling new route, you don't start it. Very few new routes make money from Day 1, most take several months to break even.

So, we squander what money we have on routes that will lose us more money. Yep, that's a good plan.

Beyond which, the natural head turn for people from Panama City - which does not have a great tourist trade, for obvious reasons - is to the US west coast, not the east coast.

And why set up a mini-hub at a congested airport likr FLL? Any delays, and the whole hub system is up the creek.

(vii) I'm thinking short term? At the start of this, you said "when you are desperate you do desperate things" but now you say that I'm the one thinking short term?

(viii) Qantas has just reported a record profit of half a billion dollars in six months - despite the success of Virgin Blue, a ruthless LCC.

Cathay Pacific has no domestic routes, all it's routes are competitive with other international airlines, including the US airlines, who will, as we know, undercut their mother in law to get someone in a seat.

(ix) So we come full circle. The legacy carriers cannot make money at the present fare levels, so several of them cut fares.

Why?

Obviously it isn't to make a profit, since they can't. I can see that, and I don't have a Harvard MBA.

Therefore it is about market share.

And, SOAC, believe me, it isn't the LCC's who are leading the fares down.

cheers

mariner

[Edited 2005-03-10 10:14:34]

[Edited 2005-03-10 10:21:35]
aeternum nauta
 
cornish
Posts: 7651
Joined: Fri Feb 18, 2005 8:05 pm

RE: Who Of The US Airlines Is Making The Money?

Thu Mar 10, 2005 6:54 pm



Quoting SonOfACaptain (Reply 21):
Quoting Mariner (Reply 19):
But how it is that airlines like Qantas and Cathay Pacific are reporting record profits in spite of the cost of fuel?

How many $25 fares do you see at Qantas and Cathay Pacific. The reason they are making money is because they are "allowed" to pass the prize of the raw goods to the ticket prizes. US legacy carriers can't because of the competition of LCC. They can't even charge $200 fares anymore because all their customers would flock to other carriers.

Yes but some of the major European carriers are making money and they have to deal with the fuel situation and major LCC competition (and the lo-cos over here very publicly said they weren't going to add fuel surcharges to tickets)

It is easy for the legacy carriers to blame the fuel situation, but there is far more to look at than that. Those huge losses posted by the likes of DL are not about fuel. Yes the fuel makes it worse, but is not the whole story. They are still suffering from the excess of 2000, when they placed huge aircraft orders, agreed large pay deals with the workforce and the like, prior to the US economic downturn of 2001.

Additionally, thanks to Ch.11 in many ways they are dragging each other down. They can reorganise, push through wage/labor reform, lower fares, etc that hurt those carriers that are not in Ch.11. This then weakens them and drags them down to the same level. That's not blaming any particular carriers - they've got to save their business and if that means taking advantage of Ch.11 then the option is there. But it does mean that it tends to keep some weak carriers alive to the detriment of the other carriers.

In the current climate, there are too many legacy carriers in the market to make any of them remotely healthy.
Just when I thought I could see light at the end of the tunnel, it was some B*****d with a torch bringing me more work
 
icebird757
Posts: 421
Joined: Sat Feb 17, 2001 7:53 pm

RE: Who Of The US Airlines Is Making The Money?

Fri Mar 11, 2005 2:13 am

The only 3 airlines here in the US that are making a profit are Southwest, JetBlue and AirTran. Most everyone else is losing money.
LGB....where you can watch the grass grow because the traffic is so slow.
 
User avatar
coronado
Posts: 1139
Joined: Sat Jun 26, 1999 9:42 am

RE: Who Of The US Airlines Is Making The Money?

Fri Mar 11, 2005 3:04 am

I dont think fuel has as much to do with the losses of the legacy carriers as their management would like us to think. Pure and simple their losses are created in great part by very high interest expenses on debt levels that are incredible. And I mean both on balance sheet debt which for every legacy carriers is higher than their assets but also on the off balance sheet debt in the form of the interest rates built in to their lease costs. As their credit ratings drop their interest expense goes up. While most of corporate America has been able to borrow in last 3-4 years at 3-4%, the legacy airlines are full of 9-12% notes.

A 20bn debt load at this interest rate alone costs a Delta 2bn per year in real and inputed interest expenses.

A 3bn debt level for WN (at a much lower interest rate!) is manageable.

Is it any wonder DL looses money?

Ever since the days of the leveraged buy out of NWA when NWA went from having a very small debt to a mountain of debt they have struggled to make ends meet. Same for the other legacy carriers. All their management thinks of is in terms of borrowing all their funding. When they did have profits they use them to buy back stock.

A lot of you will say that their interest expenses for some of the legacy carriers are not as high as I say. People seem to forget that one of the largest components of lease payments are built in high interest rates.

As long as WN keeps intact its aversion to too much debt they will keep the pressure on the legacy carriers. Even bankruptcy only gets rid of relatively small amounts of debt because everything an airline ''owns'' is secured by debt. Sure a bankruptcy can let you get rid of an aircraft lease and the debt load or an aircraft loan and its debt load, but then you are shrinking yourself and less able to support the remaining debt load--eg US Air.

But it is easier to blame fuel and hope for government relief and or employee wage concessions instead of managements decision to leverage the heck out of their airline--.

J
The Original Coronado: First CV jet flights RG CV 990 July 1965; DL CV 880 July 1965; Spantax CV990 Feb 1973
 
N1120A
Posts: 26467
Joined: Sun Dec 14, 2003 5:40 pm

RE: Who Of The US Airlines Is Making The Money?

Fri Mar 11, 2005 3:16 am



Quoting Icebird757 (Reply 25):
The only 3 airlines here in the US that are making a profit are Southwest, JetBlue and AirTran. Most everyone else is losing money.

Alaska also turned a profit, as do several regionals
Mangeons les French fries, mais surtout pratiquons avec fierte le French kiss
 
goingboeing
Posts: 4727
Joined: Sat Dec 04, 1999 1:58 am

RE: Who Of The US Airlines Is Making The Money?

Fri Mar 11, 2005 4:01 am



Quoting Mariner (Reply 23):
Therefore it is about market share.

Ah...the quest to be number 1 in market share. What the legacies don't see in the LCC's is that the LCC's are quite content to be number 2 in market share and making a profit.

Quoting Mariner (Reply 23):
And, SOAC, believe me, it isn't the LCC's who are leading the fares down.

Agreed - what's leading the fares down is a legacy responding to $29 fares with $25 fares....responding to $150 fares with $130 fares. You see it all the time on this board..."Southwest isn't the cheapest". Nope, they aren't the cheapest every time. But they are profitable. What part of that concept are the legacies missing?
 
MidnightMike
Posts: 2810
Joined: Thu Mar 06, 2003 10:07 am

RE: Who Of The US Airlines Is Making The Money?

Fri Mar 11, 2005 4:49 am



Quoting EA CO AS (Reply 9):
Fact of the matter though is that WN would be bleeding red ink like a stuck pig if not for their fuel hedges - something they're more easily able to do than other carriers thanks to their financial position up to now.

Southwest has been making a profit for the past 20-30 years, fuel is the cost of doing business, whether high or low. If the fuel prices are high, then it is the responsibilty of the airline to adjust ticket prices accordingly.
NO URLS in signature
 
SonOfACaptain
Posts: 1695
Joined: Thu May 27, 2004 5:36 am

RE: Who Of The US Airlines Is Making The Money?

Fri Mar 11, 2005 8:56 am

Quoting Mariner (Reply 23):
When you are desperate in need of money you cut fares so you get even less money.

Yeah, when you are in the slowest season and nobody is flying. Every year around this time airlines always make a price cut to try and lure passengers.

Quoting Mariner (Reply 23):
Alarming to me, at least. I am glad you are not alarmed.

Trust me, I'm A LOT more alarmed than you lol.

Quoting Mariner (Reply 23):
And at this rate, I (we?) am not going to get my taxpayer money back. US is below the threshold.

Trust me, you will get your money back. If US goes out of business when they are "below" the threshold, the gov. will get the money back through assets. I am not totally convinced they are even below the threshold because of the Air Wisconsin deal.

Quoting Mariner (Reply 23):
I think DAL / KDAL), USA - Texas">DAL / KDAL), USA - Texas">DAL / KDAL), USA - Texas">DAL would rather put Airtran out of business.

I am assuming you meant DL, so I will answer it that way. I am sure DL would want to put FL out, but it's impossible. They are in too good of a shape to mess around with. US on the other hand......

Quoting Mariner (Reply 23):
If you don't have the cash to support a struggling new route, you don't start it. Very few new routes make money from Day 1, most take several months to break even.

Usually, yes, however US has been having so much success in the Caribbean and Latin America that this risk made sense. Unfortunately it didn't work out.

Quoting Mariner (Reply 23):
And why set up a mini-hub at a congested airport likr FLL? Any delays, and the whole hub system is up the creek.

Ummm, do you think Miami is a better choice?!?!

Quoting Mariner (Reply 23):
I'm thinking short term? At the start of this, you said "when you are desperate you do desperate things" but now you say that I'm the one thinking short term?

I think we are talking about two separate things here, because your not making much sense and I bet I'm not either lol.

Quoting Mariner (Reply 23):
Qantas has just reported a record profit of half a billion dollars in six months - despite the success of Virgin Blue, a ruthless LCC.

Virgin Blue maybe ruthless, but I guarantee that Qantas is NOT going through the same competition with LCC has US legacy carriers are going through.

Quoting Mariner (Reply 23):
Cathay Pacific has no domestic routes, all it's routes are competitive with other international airlines, including the US airlines, who will, as we know, undercut their mother in law to get someone in a seat.

Same as with above. I'm sure it does happen, but not to the extent that it is a major issue.

Quoting Mariner (Reply 23):
So we come full circle. The legacy carriers cannot make money at the present fare levels, so several of them cut fares.

Why?

Already explained.

Quoting Mariner (Reply 23):
Obviously it isn't to make a profit, since they can't. I can see that, and I don't have a Harvard MBA.

Therefore it is about market share.

Well it is a good thing you don't have a Harvard MBA because it is NOT about market sure. Legacy carriers are looking for new ways to find profit, even if it means playing the LCC games. (Which they have to do out of necessity)

Quoting Coronado (Reply 26):
I dont think fuel has as much to do with the losses of the legacy carriers as their management would like us to think. Pure and simple their losses are created in great part by very high interest expenses on debt levels that are incredible. And I mean both on balance sheet debt which for every legacy carriers is higher than their assets but also on the off balance sheet debt in the form of the interest rates built in to their lease costs. As their credit ratings drop their interest expense goes up. While most of corporate America has been able to borrow in last 3-4 years at 3-4%, the legacy airlines are full of 9-12% notes.

A 20bn debt load at this interest rate alone costs a Delta 2bn per year in real and inputed interest expenses.

A 3bn debt level for WN (at a much lower interest rate!) is manageable.

Of course there are more factors than fuel, but fuel has been the biggest pain. Airlines can plan for debt, but the can't plan with confidence with fuel.

And of course Legacy airlines are going to have more debt. THEY ARE OVER 70 YEARS OLD!!!! Show me a company that old that doesn't have some debt. WN has only been really growing in the past decade.

Quoting Goingboeing (Reply 28):
Ah...the quest to be number 1 in market share. What the legacies don't see in the LCC's is that the LCC's are quite content to be number 2 in market share and making a profit.

I am sure US will be mighty happy with 7th place as long as they are making money.

Quoting Mariner (Reply 23):
And, SOAC, believe me, it isn't the LCC's who are leading the fares down.



Quoting Goingboeing (Reply 28):
Agreed - what's leading the fares down is a legacy responding to $29 fares with $25 fares....responding to $150 fares with $130 fares. You see it all the time on this board..."Southwest isn't the cheapest". Nope, they aren't the cheapest every time. But they are profitable. What part of that concept are the legacies missing?

HAHAHAHAHA o HAHAHAHAHAHA!!!! Sorry if I find this humorous, but guys, look at what you just said. This has got to be the first time I have ever heard anybody say this.

Okay, this is what I want you guys to do. Find a seat. The chair you are probably sitting on right now will do the trick. No go into deep concentration, AND THINK ABOUT WHAT YOU SAID! Legace carriers are the ones driving down prices!!!! I guess I will have to show you a model over two made up airlines- One legacy, and what LCC.

Story
Airline 1- Legacy Carriers Air (original, yes I know) has been flying from city A to city B for over 50 years now. They have always charged $300. However, on one fine day, airline 2- LCC Air- decides to do a little growing. So they start flying from city A to city B, with a introductory fare of $30. Legacy Carriers Air thinks to itself "Hmmm this is bad. They will take all the passengers away from us because of the lower fare." So in response they charge a fare of $25, to be more competative. Even though it is really hard to make money off of these fares, they HAVE too to keep passengers in their aircrafts.
End of story

Now do you want to tell me that legacy carriers are bringing down the fares, when they only went down $5, whereas the LCC went down $270!!!!  banghead  If you still believe this, then we got issues.

Quoting MidnightMike (Reply 29):
If the fuel prices are high, then it is the responsibilty of the airline to adjust ticket prices accordingly.

This is the problem with the airline industry. It is the only industry that does not base its ticket prices on the raw goods.

-SOAC
Non Illegitimi Carborundum
 
A332
Posts: 1421
Joined: Wed Feb 02, 2005 3:58 am

RE: Who Of The US Airlines Is Making The Money?

Fri Mar 11, 2005 9:22 am

The reality of today's airline industry around the globe is frequencies and low fares... that's what the people want. If the majors can't cut it and can't make it work with the new business strategies of today, then I'm afraid it's curtains for the weak links.

The airline industry is once again in a major revolution... what once was a luxury is now everyday life... the low-cost carriers are successful because they are planned and executed with today's realities in mind.

I feel sorry for employees of the major carriers... until a few of them bite the dust, we are forever going to be arguing about the same issue...
Bad spellers of the world... UNTIE!
 
goingboeing
Posts: 4727
Joined: Sat Dec 04, 1999 1:58 am

Is It Really That Funny?

Fri Mar 11, 2005 10:23 am

Quoting SonOfACaptain (Reply 30):
HAHAHAHAHA o HAHAHAHAHAHA!!!! Sorry if I find this humorous, but guys, look at what you just said. This has got to be the first time I have ever heard anybody say this.

Okay, this is what I want you guys to do. Find a seat. The chair you are probably sitting on right now will do the trick. No go into deep concentration, AND / KAND), USA - South Carolina">AND / KAND), USA - South Carolina">AND / KAND), USA - South Carolina">AND / KAND), USA - South Carolina">AND / KAND), USA - South Carolina">AND / KAND), USA - South Carolina">AND / KAND), USA - South Carolina">AND THINK ABOUT WHAT YOU SAID! Legace carriers are the ones driving down prices!!!! I guess I will have to show you a model over two made up airlines- One legacy, and what LCC.

In between your fits of laughter, think a moment. Southwest enters the PIT / KPIT), USA - Pennsylvania">PIT / KPIT), USA - Pennsylvania">PIT / KPIT), USA - Pennsylvania">PIT / KPIT), USA - Pennsylvania">PIT / KPIT), USA - Pennsylvania">PIT / KPIT), USA - Pennsylvania">PIT / KPIT), USA - Pennsylvania">PIT market. They offer a promotional fare of $29. U beats that. Southwest has an advance purchase fare (that makes them a profit, but it won't make U a profit), and U undercuts it. Now...when the LCC is charging a higher fare than the legacy, then who exactly is driving the price down? OF course, they still try to make it up on the routes where they don't have LCC competition, but US's straits are so dire these days, they are filling planes by selling every seat at a loss. Sorry SOAC, but that's chasing market share...and driving prices down. Heck, that may be why Delta's looking at Chapter 11...it's about the only way they know to "level the playing field".

[Edited 2005-03-11 02:24:01]

[Edited 2005-03-11 02:24:37]

[Edited 2005-03-11 02:25:13]
 
User avatar
coronado
Posts: 1139
Joined: Sat Jun 26, 1999 9:42 am

RE: Who Of The US Airlines Is Making The Money?

Fri Mar 11, 2005 11:53 am

Son of a Captain

what the heck does the age of a corporation have to do with their debt level. Have you looked at a balance sheet for a company like 3M? They are over a 100 years old and have not played financial games with taking on leverage for the sake of leverage. That is the same story for successful airlines that have been around almost as long such as BA, Cathay, Lufthansa.
There are plenty of old corporations that have run their business prudently and built up capital reserves.

Unfortunately the airline industry seems to have attacted a bunch of financial whiz kids starting with dear old Frank Lorenzo who saw debt as good and capital reserves as bad. Read up on the era of the leveraged buy outs and the intense stock buy back activities so as to give turn money back to the shareholders to the detriment of the company.

My point is Herb Kelleher has instilled (and I hope it does not change) a prudent financial posture keeping debt down to a very low level. this reduces the relative interest expenses and keeps WN able to really pressure the legacy carriers on fares. If one Airline plans for low debt and the other airlines plan for high debt and this is fact they planned for high debt, when times are tough who do you think is in the drivers seat when it comes to determining profitable fare levels?

You wrote--Of course there are more factors than fuel, but fuel has been the biggest pain. Airlines can plan for debt, but the can't plan with confidence with fuel.

And of course Legacy airlines are going to have more debt. THEY ARE OVER 70 YEARS OLD!!!! Show me a company that old that doesn't have some debt. WN has only been really growing in the past decade.
The Original Coronado: First CV jet flights RG CV 990 July 1965; DL CV 880 July 1965; Spantax CV990 Feb 1973
 
OPNLguy
Posts: 11191
Joined: Tue Jun 15, 1999 11:29 am

RE: Who Of The US Airlines Is Making The Money?

Fri Mar 11, 2005 12:07 pm

>>>WN has only been really growing in the past decade.

Really?
ALL views, opinions expressed are mine ONLY and are NOT representative of those shared by Southwest Airlines Co.
 
atcrick
Posts: 719
Joined: Mon Jun 28, 2004 1:05 pm

RE: Who Of The US Airlines Is Making The Money?

Fri Mar 11, 2005 12:15 pm

Quoting Icebird757 (Reply 25):
The only 3 airlines here in the US that are making a profit are Southwest, JetBlue and AirTran. Most everyone else is losing money

I agree that most airlines are losing money but to state that WN, B6 and FL are the only carriers making a profit here in the US is incorrect. Alaska showed a profit, as did Allegiant Air.


Atc Rick
natch!!
 
User avatar
mariner
Posts: 18169
Joined: Fri Nov 23, 2001 7:29 am

RE: Who Of The US Airlines Is Making The Money?

Fri Mar 11, 2005 12:37 pm

SOAC:

Once again, by the numbers:

(i) No. Everyone else - in this slow season - raised prices. Even NWAC.

(ii) You cannot be more alarmed than I. You put "lol", which, I believe, means "laugh out loud."

The present US airline situation is not something I can laugh about.

(iii) Below the threshold? They've been below the threshold since they renegotiated the ATSB deal the first time around - down from $900 million to about $700 million (it may have been $750 million, but what's $50 million between friends?).

Since they now have $500 million (approx) in the bank, then even if you add the Air Wisconsin money, they are way below the threshold.

(iv) Yes, I meant DL. But if you read the press release today, you would see that it is more - much more - than the "damn fuel" that is hurting Delta.

(v) Sorry, but that is the point. In US Airways situation, no risk makes sense.

(vi) No, I don't think Miami is a better choice. I think the whole south Florida hub is/was a bad idea.

But especially at FLL / KFLL), USA - Florida">FLL / KFLL), USA - Florida">FLL / KFLL), USA - Florida">FLL. Why would you put a hub/mini hub/focus city - which, by definition, relies on connections - at an airport that has one effective runway?

(vii) "Desperate action" is short term thinking. See "risk" at (v) above.

(viii) I think you should study what happened between Qantas and Virgin Blue. Not hard to do - look on the internet.

(ix) No US carrier had to contend with the SARS disaster at it's principle, its only, hub (on top of 9/11, LCC's in Asia, etc). Cathay Pacific did, and has fought back to profit.

(x) Already explained? When?

What you have never explained is how any airline expects to be profitable when it is pricing its product below cost.

Let me say that again - how does any airline expect to be profitable when it is pricing its product below cost?

Like Ted.

Ted successfully drove Frontier out of Ontario. As Frontier said, we are delighted that Ted can make money with $59 round trips, because we can't.

To a very large extent, Ted undercuts Frontier on any route out of Denver.

Rah, rah, Ted. And what does it achieve? How much money is United still losing? A $300 million loss in January alone?

Is this the way back to profit?

No. What it does is stop the erosion of United's market share at Denver.

cheers

mariner

[Edited 2005-03-11 04:41:26]

[Edited 2005-03-11 04:44:05]
aeternum nauta
 
SonOfACaptain
Posts: 1695
Joined: Thu May 27, 2004 5:36 am

RE: Who Of The US Airlines Is Making The Money?

Fri Mar 11, 2005 2:10 pm

Quoting Mariner (Reply 36):
You cannot be more alarmed than I. You put "lol", which, I believe, means "laugh out loud."

I don't have time to respond to your other statements but I thought I had to clarify this. I "laughed out loud" because you said I wasn't worried about the situation at US. Just read my profile and you can see that I am much more worried than you.

-SOAC
Non Illegitimi Carborundum

Who is online