tonytifao
Posts: 788
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It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 2:24 pm

Ok... what makes US airlines different from other countries airlines?

Take TAM (JJ) for example. They had their largest profit in 2004. I thought fuel was cheaper in the US than in any other country.

How does UA and DAL lose so much every month? Not only that, they have cut billions from labor and etc. These higher fuel costs just doesn't make sense to me.

maybe you guys can explain it better.

Thanks,
Tony
 
aaflt1871
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 2:47 pm

Look at the competition you have here with so many legacy carriers and Low Cost Carriers.

AA UA DL NW US WN F9 Airtran, JetBlue, America West, Independence, AA Eagle, Delta Comair, are you starting to get the picture? There is simply not enough people flying to fill the plates of all of the airlines above. That is the way I look at it.

Robbie
Where did everybody go?
 
tonytifao
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 3:08 pm

I still think the load factor is pretty high for airlines I fly.. UA and AA. And I'm paying a lot for their tickets. Just got tickets to Vegas from MCO to LAS for end of April.... ticket cost me 630 dollars on the schedule I want. Very pricy I think.

UA reported record high load factor, but a operation loss 151 in Jan/2005.

I still can't see that much loss.
 
iowaman
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 3:30 pm

Quoting AAFLT1871 (Reply 1):
There is simply not enough people flying to fill the plates of all of the airlines above.

Yes there is, in record numbers higher than ever before.

UA is losing so much money because of competition, high fuel costs, and other reasons, but those are the main two. They also have quite a few amount of different aircraft types (733,735,757,A319,777,etc.). With yields poorer than ever and fuel costs higher than ever (with the exception of the oil crisis in the 70's, but they didn't consume as much fuel as they do now) makes for a bad combination.
 
skidmarks
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 3:31 pm

If US airlines are anything like the ones in UK then the waste in other areas is phenominal. Waste like taxiing spares around the country to get an A/C servicable, like the managements having company cars and large expense accounts, like ridiculously inflated prices for spares simply because it is for "the aviation industry". Antiquated and restrictive practices which encourage waste rather than deter it.

All these factors contribute toward the enormous cost of running an airline and why, I suspect, that many US airlines are skint. Because I know quite a few European airlines are also running on a shoestring and some may not see out the year.

Anyway, thats my thoughts on the subject.

Have a nice day

Andy  old 
Growing old is compulsory, growing up is optional
 
aaflt1871
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 3:46 pm

Quoting Tonytifao (Reply 2):
still think the load factor is pretty high for airlines I fly.. UA and AA.

While the load factor may be high, the selling price of the tickets are not

Quoting Tonytifao (Reply 2):
And I'm paying a lot for their tickets

The majority of the public is not paying that much, you know it is bad when I can get a coast to coast ticket from BWI/IAD/DCA to LAX for under $250.00 round trip. In the early 90's I would fly to DFW from DCA several times a year on AA, my cheapest ticket back then was $318.00, now I get emails from AA with fares at $139.00. Does this make sense? And coast to coast used to run around $500.00.

Quoting Tonytifao (Reply 2):
Just got tickets to Vegas from MCO to LAS for end of April.... ticket cost me 630 dollars on the schedule I want

Again 90% of air travelers will take the cheapest flight they can get, no matter the time of day it is. I also will be in Vegas on April 14th >>>17th, me and 9 friends are going down for a weekend of gambling and another friends wedding. They left it up to me to find the cheapest direct route there. I booked through America West and got the only nonstop flight out of DCA to LAS for $182.00 a person round trip. Now America West is the only airline that can fly this route nonstop!! Why sell it so cheaply? They could charge more and get it!

Quoting Tonytifao (Reply 2):
Very pricy I think.

Yes, it is!!!

Quoting Tonytifao (Reply 2):
UA reported record high load factor

Now do not forget TED is tied into that, and on TED you have once again cheaper tickets!!
Where did everybody go?
 
starrion
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 3:57 pm

The legacy airlines also face very large health-care and pension costs. Those that have older fleets have expensive maintenance costs and the tickets prices that people are paying are not covering the bills. That's why the majors are trying to dump their pension plans.

The newer carriers don't have a lot of these costs and can -and do- charge less for a ticket. The legacies have to match those prices and lose money as a result.

Too many airlines and the newer ones don't have the costs that the older ones do.
Knowledge Replaces Fear
 
gothamspotter
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 4:40 pm

FLL-NYC last minute coach fares
Amtrak: $167
Greyhound: $123
United (via ORD): $60

Something is definitely wrong.
 
PhilSquares
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 5:08 pm

High load factors don't mean anything more than crowded aircraft. What is important is the CASM (cost/available seat mile) versus RASM (revenue/available seat mile).

The legacy carriers problems are in several areas. First their costs are out of line with the LCC. That imbalance is the result of several things, outdated work rules, several layers of management resulting in high overhead costs, varied fleet types. The second big issue for all airlines in the US, is simply overcapacity. There are too many seats chasing too few passengers. How do you get more passengers? By reducing your fares, thus reducing your RASM. However, if you don't have a corresponding decrease in the CASM you're asking for trouble.

Ironically, the Legacy carriers problems started in 2000. The US economy was entering a slow down and the first casualty was the business traveler. The high yield traveler, the person the airlines could not afford to lose.

It is funny, because all the major airlines in the US seem to suffer from amnesia. The airline industry is a cyclical industry. Everytime profits are at record levels, the airlines order new aircraft and have a completely irrational business plan. But the cycle continues. This time, no one counted on the price of oil being where it is today...
Fly fast, live slow
 
art
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 7:54 pm

I think it makes sense for legacy airlines to lose money

a) when they are governement owned. Historically, state owned airlines have not been efficiently run and their owners have shied away from implementing the changes necessary to make them efficient enough to run at a profit.

b) when there is structural overcapacity in the market. The US Chapter 11 safety net serves to maintain the overcapacity problem to the detriment of all.

c) where some significant component on the cost side alters for the worse, dramatically and quickly (eg fuel)
 
mrniji
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 8:17 pm

Quoting Tonytifao (Thread starter):
How does UA and DAL lose so much every month?



Quoting AAFLT1871 (Reply 1):
Look at the competition you have here with so many legacy carriers and Low Cost Carriers.

I completely agree with the staements as response to the valid and good question of Tony. Overcompetition has lead to a price war, which causes airlines to cut down costs dramatically in order to avoid losses.. The price war (in economic words: perfect competition) has resulted in airlines being forced to cut down dramatically and not being able to make proifits..

Sometimes, a little more regulation can be better for all actors.. regulation does not necessarity lave to contradict liveralism per se, but can distribute free market forces more equally  Wink - to delve in the latter topic, have a look at an older, in my eyes fantastic thread:

http://www.airliners.net/discussions...general_aviation/read.main/1781908
[economic liberalism vs. regulation]

Hope this helps a little, let's see what others say
"The earth provides enough resources for everyone's need, but not for some people's greed." (Gandhi)
 
Regis
Posts: 281
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 8:40 pm

Quoting Tonytifao (Thread starter):
Take TAM (JJ) for example. They had their largest profit in 2004.

You have to look at the Brazilian civil aviation market to understand JJ's revenues. TAM's 2004 record profit is largely due the near monopoly they enjoyed in the Brazilian domestic market in 2004. Throughout 2004 and the year before TAM established an alliance (now defunct) with rival VARIG by which they both controlled 75% of the of our country's market. TAM and VARIG fooled our antitrust authorities by labeling their alliance a "code-share agreement" and went on to unify their fares, routes and bookings. It was one stop short of a merger and this no-competition situation led to fare and revenue increases. I don't deny that TAM is an extremely well-run airline, but how hard can it be to turn a profit when you have 3/4 of the market in your hands? The JJ-RG alliance is supposedly over now. With the two biggest Brazilian airlines again competing we will see if TAM is able to repeat their 2004 performance this year.

Quoting AAFLT1871 (Reply 1):
Look at the competition you have here with so many legacy carriers and Low Cost Carriers.

Aptly put AAFLT1871.



[Edited 2005-03-18 12:48:58]
 
sunking737
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 8:54 pm

I agree with most of what is being said. Yes, fuel is high and going higher. But most carriers are afraid to give up market share. All the big carriers don't want to give up a piece of the pie.

They are all want to be's....They want to be like WN, but WN started out that way.

My airline watches every penny that is spent. Do we need it, do we really have to have it. If we buy it will it pay for its self over time.

Give the passengers what they want. Good fares, great inflight service, and treat them like a guest in your own home. Guess what they come back again, and again.

The other airlines need to control costs, but a lot of it is done out of panic.

My dad works for a major airline and he told me that 2005 was going to be a rough year for them, so far he has been right. They just cut 150 mechanics, with more to follow.

Like I said in another post this is a soap opera baby and you haven't seen nothing yet.
Just an MSPAVGEEK
 
B747-437B
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 9:27 pm

Quoting PhilSquares (Reply 8):
How do you get more passengers? By reducing your fares, thus reducing your RASM.

Not quite accurate. Reducing fares reduces your RRSM (aka "yield") and not your RASM. RASM is a related quantity that can be obtained by multiplying the Yield by the Passenger Load Factor. If the PLF increases simultaneously with the reduction in yield (which should be the case in elastic markets) then your RASM may actually see an increase.

As you pointed out, the trick is to find the equilibrium point where your RASM is maximized and then to ensure you can consistently obtain that RASM as well as ensure your CASM is below that. There are too many variables at play to have a "one size fits all" solution for the entire industry.
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada
 
7LBAC111
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 9:43 pm

Quoting Art (Reply 9):
The US Chapter 11 safety net serves to maintain the overcapacity problem to the detriment of all.

That's a very valid point. However, on the flip side, should say UA or US be allowed to disappear, it's safe to assume fares would rocket. In turn less people could fly. Ultimately every carrier would suffer.

7LBAC111
Debate is what you put on de hook when you want to catch de fish.
 
PhilSquares
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 10:23 pm

Quoting B747-437B (Reply 13):
Not quite accurate. Reducing fares reduces your RRSM (aka "yield") and not your RASM

I beg to differ. You have to look at the total seats available because that is your expense (CASM) and then look at you total revenue picture (RASM). In the example you gave if the yield decreased then the RASM would also decrease. If the CASM remained constant then your break even LF would increase because of the lower RASM. The difference between the RASM and CASM is the yield. Again, you have to look at all the seats on a revenue/mile basis.

Quoting 7LBAC111 (Reply 14):
However, on the flip side, should say UA or US be allowed to disappear, it's safe to assume fares would rocket. In turn less people could fly. Ultimately every carrier would suffer.

I disagree. Some markets may see a large increase, but as a whole the marketplace would probably have too many seats. The markets that saw a large increase would attract the LCCs. Thus, downward pressure would be kept on fares.
Fly fast, live slow
 
cornish
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 11:08 pm

As had already been mentioned, high load factors are not simply enough to help airlines make money. What you have to look at is how close they get to the Breakeven Load Factor. If a carrier falls below that then they're going to lose money no matter what, of course.

Now the US majors have some of the highest average load factors in the entire industry. The problem is that for many of them their breakeven load factors are far higher, hence their current problems. In contrast with their much lower cost base, the LCCs have much lower breakeven load factors and so find it far easier to make money.

Doing research for one of our publications we do on airline financial performance I took a look at 2003 against 2002 results for 50 key airlines around the world (will be doing the same with 2004 results in due course). What is interesting is that Southwest's actual load factor in 2003 for example was the lowest of any of the US majors by far at only 66.8% for the year. This compared against a load factor of 76.5% for United for example. However when it comes to the breakeven load factor, Southwest had a figure of 61.4%, meaning it outperformed it comfortably in reality. United on the otherhand had a breakeven load factor of 87.6%, the highest in the industry, which it felt far short of.

So why the difference - well Southwest controls its cost far more carefully than United has done in the past. UA has to make some serious cost cutting measures to survive. In addition, it is overmanned still. Sadly unless it can agree to job cuts it is going to improve in the longterm. Remember UA and the other legacy carriers agreed large wage increases during the boom year of 2000, only to then be follwed by a US economic downturn and then 9/11 meaning that now they couldn't afford them. These large wage increases didn't happen to the same extent at the LCCs.

Throw in huge and complex fleets - look at DL until recently vs Southwest's reliance on the 737 - huge cost implications there.

And of course, many of the legacy carriers see what should be their high yield premium seats occupied by people who haven't paid high yield premium fares, but have got free or cheap upgrades. This means their premium seats are being wasted to a large degree - remving further much needed revenue, either by getting people to pay for first class fares, or to use the space to fill with more economy seats and get money that way.

At the moment, the legacies can do whatever they like with pricing, but its their costs which are the big problem still. Control the costs and they have more room to maneuver when it comes to aggressive pricing.
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
 
slider
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 11:39 pm

Several good points, but let's not also forget that comparing the US legacy majors to the rest of the world's carriers is damn near impossible.

Regis hit it on the head with regard to the Brazilian market with the comment about the lack of competition.

And one cannot discount the fact that most of the European carriers were/are/continue to be to some % government owned. Also, given the governmental regs in those countries, pension liability as it exists in the US private sector is borne by the nations overall across the pond.

Not to single any one carrier out (but I will anyhow), AZ by all rights should have died a long time ago based on free market economics.
 
Yu138086
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RE: It Does Not Make Sense For Airlines To Lose Money

Fri Mar 18, 2005 11:39 pm

Analyze the balance sheet of two carriers in both the northern and southern hemisphere and you will find the the following:

Top two line costs in North America: 1) Labor ($) 2) Fuel ($)
Top two line costs in South America: 1) Fuel ($) 2) Advertising (local cost)

In South America, the cost of labor is not so much an obstacle to growth as in North America, although it is monitored closely. This explains why the North Amercan/European carriers have shed so much labor from their books in recent years. Labor is the first thing that's cut in restructurings in N.A. Fuel costs are variable and determined by "outside" market forces. North American/ European carriers simply have higher cost structures compared with their S. American counterparts coupled with more demanding passengers creating enormous competion for many unprofitable routes so its harder to "squeak" out a profit.
 
cornish
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 12:17 am

Quoting Slider (Reply 17):
And one cannot discount the fact that most of the European carriers were/are/continue to be to some % government owned. Also, given the governmental regs in those countries, pension liability as it exists in the US private sector is borne by the nations overall across the pond.

Not to single any one carrier out (but I will anyhow), AZ by all rights should have died a long time ago based on free market economics.

Actually some of my points are equally applicable to a number of European carriers too.
If I look at my figures, the likes of AZ, and LX are equally poor if not worse. Similar problems to the US majors that I outlined above - in simple terms substitue continued state handouts for Ch.11 protection in the US. either way it keeps carriers going when pure free market forces would see them disappear

Again it is the likes of easyJet and Ryanair which perform best in europe, follwed by companies like BA who have are further down the path of restructuring and adapting to meet the changed market from strong competiton at home than many of the US carriers are as yet.
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
 
tonytifao
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 1:47 am

Then why UA painting planes? How much does it cost to paint hundres of planes?
 
B747-437B
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 1:49 am

Quoting PhilSquares (Reply 15):
I beg to differ. You have to look at the total seats available because that is your expense (CASM) and then look at you total revenue picture (RASM). In the example you gave if the yield decreased then the RASM would also decrease. If the CASM remained constant then your break even LF would increase because of the lower RASM. The difference between the RASM and CASM is the yield. Again, you have to look at all the seats on a revenue/mile basis.

I see where you are coming from, but your formulae are slightly off.

Assume "x" to be the average fare paid by a total of "y" passengers on a flight with with "a" available seats and "z" miles long. Hence the total revenue earned is "xy" and the RASM is "xy/az". If the cost of operating the flight is a constant "C" then the CASM is "C/az".

Now, if you decrease the fares to "d" where d < x, you should (in an elastic environment) see an increase in demand to "i" where i > y. The total revenue in this case would be "id" and the RASM is "id/az". The cost remains a constant "C/az" (in truth the cost would actually increase to "C+o" where "o" is the incremental cost of each new passenger but "o" is insignificant in magnitude to "C" so we can ignore it for practical purposes).

The RRSM in the first case (RRSM1) would be "xy/yz" or "x/z" and the RRSM in the second case (RRSM2) would be "id/iz" or "d/z". Hence, since d < x you see that RRSM2 < RRSM1 in all cases.

However, in the case of RASM you have RASM1 = "xy/az" and RASM2 = "id/az". We know that d < x, but we also know that i > y. Hence it is indeterminate whether xy < id or xy > id. The point at which the function id has the maximum value (noting that i <= a at all times) would be the optimal sale price.

Now, complicate this across multiple price ranges and inventory buckets by making "x" and "d" variables with corresponding y(x) and i(d) functions and you have the science of yield management to determine where the functions have their maxima values.
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada
 
jdaniel001
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 1:52 am

Planes need to be painted after so many hours of flying anyway. If you don't paint them, they look like their falling apart. So it's pratical to change the scheme. It just takes longer if your strapped for cash. Or you can just paint the nose, which is what alot of carriers do.
We Are UNITED!
 
PhilSquares
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 1:58 am

Quoting B747-437B (Reply 21):
I see where you are coming from, but your formulae are slightly off

If I understand your example, you're talking more on the pricing side. I am speaking strictly from the cost/revenue side.
Fly fast, live slow
 
Tango-Bravo
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 2:38 am

Quoting 7LBAC111 (Reply 14):
That's a very valid point. However, on the flip side, should say UA or US be allowed to disappear, it's safe to assume fares would rocket. In turn less people could fly. Ultimately every carrier would suffer.

Be assured that fares will not "rocket" if both UA and US disappear. For two reasons that immediately come to mind:

1) The other legacies will continue to offer absurd loss-leader fares unabated in an attempt to grab market share that would be "up for grabs" and to achieve even higher load factors. Fares at which a profit is possible is a thought that would be obscured by the protential seen for increased market share and load factors -- if the thought of profitable fares even occurred to them at all.

2) LCCs would, by expanding, fill much of the capacity vacuum, with reasonable fares at which they can be profitable.
 
compuz1
Posts: 11
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 2:57 am

It really comes down to the fact that the Legacy carriers are old, and their business model can't change as easily. Also, newer airlines such as B8, don't have unions.

Unions can cripple an industry and the airline industry is a clear example of wha they can do. Furthermore they are really successful at shooting themselves in the foot. By demanding so much, especially post 9/11 they not only crippled an industry, but put themselves out of a job.

Take a look at Delta pilots, US baggage handlers, hey even look at BA's fiasco last summer at LHR / EGLL), United Kingdom">LHR / EGLL), United Kingdom">LHR / EGLL), United Kingdom">LHR... You can't expect a company to survive if when it is in trouble, you do too little, too late...

And anyone who argues that B8 won't unionize is out of their mind...

Ask Carl Icahn what he thinks about his involvement in TWA, he made out OK, but the unions made it hard as hell... They burnt their company to the ground.

[Edited 2005-03-18 18:59:37]

[Edited 2005-03-18 19:02:38]
 
B747-437B
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 2:59 am

Quoting PhilSquares (Reply 23):
I am speaking strictly from the cost/revenue side.

In that case, it can be simplified to "RASM-CASM = Profit". Big grin
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada
 
supa7E7
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 3:21 am

Quoting Cornish (Reply 16):
Southwest had a figure of 61.4%, meaning it outperformed it comfortably in reality. United on the otherhand had a breakeven load factor of 87.6%, the highest in the industry, which it felt far short of.

Breakeven load factor is a fake number based on false logic. It really has no meaning. For example, even between two cities, a 25% full plane might make money, while a 95% plane may lose money next week. RASM is what's important, not load factor. And in RASM terms, no doubt United beats Southwest.

But you are right that United has higher costs. In retrospect, if they had sold more seats at equal price (an irrelevant hypothetical situation), they might have broken even.... but so what...
"Who's to say spaceships aren't fine art?" - Phil Lesh
 
galapagapop
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 6:05 am

Quoting 7LBAC111 (Reply 14):
That's a very valid point. However, on the flip side, should say UA or US be allowed to disappear, it's safe to assume fares would rocket. In turn less people could fly. Ultimately every carrier would suffer.

7LBAC111

Actually Fares would not "SkyRocket" Both of those airline's hubs have other legacies and LCC's competing with them thats why they're losing money. What it would do is decrease the number of seats so you would see a general LF rise, althought that means fares on the aircraft would average out to be a tad more, but UA and US would not be missed as AA, F9, FL, B6, DL, DH, and Southwest would fill the market nicely.
Cheers!
 
lehpron
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 6:31 am

Isn't profit a percentage of sales, being what is left after everything else is taken out? So if fuel costs more or less people fly, the profit would go down and airlines gain less money that before, not loose money, per se?
The meaning of life is curiosity; we were put on this planet to explore opportunities.
 
LMP737
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 6:52 am

Quoting Compuz1 (Reply 25):
Unions can cripple an industry and the airline industry is a clear example of wha they can do. Furthermore they are really successful at shooting themselves in the foot. By demanding so much, especially post 9/11 they not only crippled an industry, but put themselves out of a job.

That's odd. Southwest is one of the most heavily unionized airlines out there they seem to be doing okay.
Never take financial advice from co-workers.
 
FLY2LIM
Posts: 1095
Joined: Thu May 06, 2004 6:01 am

RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 7:31 am

Quoting Tonytifao (Thread starter):
Take TAM (JJ) for example. They had their largest profit in 2004. I thought fuel was cheaper in the US than in any other country.

How does UA and DAL lose so much every month? Not only that, they have cut billions from labor and etc. These higher fuel costs just doesn't make sense to me.

maybe you guys can explain it better.

This is an "apples and oranges" scenario. Doing business in a country the size of Brasil is easier than flying all over the United States. True, Brasil is very large, but the cities the support air travel are not far apart. It's like flying in an area 1/4 the size of the US. Different situation all together.
FLY2LIM
Faucett. La primera linea aerea del Peru.
 
zotan
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 8:08 am

Load factors are up but the legacy carriers just cant make money. What makes airlines like WN, B6, and Airtran so succesful is that they have gotten rid of the hub and spoke system. Planes are in the air more, and intead of having the planes wait for passengers, LCC's have the passengers waiting for planes.
 
TomFoolery
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RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 8:14 am

The US doesnt have a single flag carrier, and the profits are spread over several airlines who may or may not be proficient in operating in accordance to all of its respective hubs/markets. No infusions of funds here, the primary means of income from the Gov't is mail (postal) contracts, and to a lessor extent, government and military transport. Sure there are loans, but not the infusion of funds that some Governments can justify as being necessary for the national interest. That makes a HUGE difference.

Regards, Tf
Paper makes an airplane fly
 
bill142
Posts: 7853
Joined: Wed Aug 04, 2004 1:50 pm

RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 9:23 am

Quoting Tonytifao (Reply 20):
Then why UA painting planes? How much does it cost to paint hundres of planes?

Those planes are being painted during their scheduled repaint. Repainting aircraft has to be done every few years to prevent rusting, corrosion etc. The new UA scheme is cheaper to paint then the old one and UA is not taking planes out espcially to repaint them. They are getting painted when they are due to be painted.
 
art
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Joined: Tue Feb 08, 2005 11:46 am

RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 10:30 am

If my understanding of the comments I have read on a.net is right, the US legacy carriers see cutting labour and other costs and increasing load factors as their salvation.

With crude having risen 50% or so in price in the last year, buying increased market share with below cost ticket pricing must simply aggravate losses in the short term, surely?

I could understand such a strategy if it resulted in a competitor being driven out of the market through bankrupcy but Chapter 11 seems to prevent this.

The price of crude is unlikely to fall to a level where profitability returns. On the contrary, it looks more likely to carry on rising. Have I misunderstood or are the US legacy carriers resigned to racking up billions in losses until one or more folds?
 
717-200
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Joined: Mon Oct 09, 2000 1:29 am

RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 11:31 am

Quoting PhilSquares (Reply 15):
And of course, many of the legacy carriers see what should be their high yield premium seats occupied by people who haven't paid high yield premium fares, but have got free or cheap upgrades. This means their premium seats are being wasted to a large degree - remving further much needed revenue, either by getting people to pay for first class fares, or to use the space to fill with more economy seats and get money that way

Delta is the best example of this practice, giving away F seats to
their platinum gold encrusted leaf Medallions who probably paid a
fraction of what the normal F fare would be. They have created an
entitlement class of these upgrade needy pax that is not unlike folk
who are feeding from the trough of government welfare.
72S 733 734 735 73G 738 742 752 763 E190 M82 M83
 
futureatp
Posts: 190
Joined: Sun Feb 27, 2000 3:07 pm

RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 12:21 pm

Tonytifao

I was thinking the exact same thing today and was going to ask it on the forum!

There are some good points above that I never thought before and they make a lot of sense. However, can anyone tell me what European carriers are charging for fares? What are their costs? Profits/Losses? and loads?

If any one could help that would be great! I am just curious numbers wise the difference between US and European carriers.

John
 
Tango-Bravo
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Joined: Sun Jun 17, 2001 1:04 am

RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 12:43 pm

Quoting 717-200 (Reply 36):
Delta is the best example of this practice, giving away F seats to
their platinum gold encrusted leaf Medallions who probably paid a
fraction of what the normal F fare would be.

Delta is, no doubt, an example of such folly, but trust me, the other legacies are just as much examples of this absurd practice. One legacy, in fact, went so far as to state that they didn't want to sell so many first class fares as to make it more difficult for elites to upgrade for free from coach fares. That is not only absurd folly, it is also idiotic, to say nothing of foot-in-mouth in light of their whining about having no control over pricing.
 
Bels13
Posts: 17
Joined: Sat Mar 19, 2005 2:15 pm

RE: It Does Not Make Sense For Airlines To Lose Money

Sat Mar 19, 2005 2:35 pm

Ok, all of you are missing the reason airlines are struggling in the US. One name says it all, Southwest. They alone have pussified the airline industry. It is unreasonable to get a ticket for $39 one way. It costs more to take a bus. This is not right. What would help the airlines out is if Southwest went away. Recently, a Southwest pilot jumpseater was on my flight and he said that some of the practices that Southwest does with entering new markets and getting around high costs are borderline illegal. For the longest time, Southwest Airlines was considered an intrastate airline. Intrastate airlines had less restrictions to maintenance and price structures. They are sort of grandfathered into the FAA's system. Not saying that Southwest has bad maintenance, they were able to save a lot more money in the 70's than the legacy carriers. All that has to happen is for the government put a price basement on airfares. The reason UA, AA, DL and so on charge cheaper prices is because of Southwest alone. Airtran, Jetblue and others offer premium services which require more money. A good portion of both airlines' fares are either equal to or higher than the legacy carriers. Airline employees are taking too many cuts and losing too many jobs because of one company. Sure, they are successful at what they do, but is it ethically right? There are airline pilots out there that REQUIRE at least 2 jobs to make a living. I am not talking about the top 2% of the pilot group who make a descent living but the bottom 25% who make no more than 20,000 a year. When training for this career cost around $100,000 making that much money a year is insane. People at fast food restaurants make more money. The government needs to step in. One example of Southwest's bad practices is when they decided to turn BWI into a hub. According to the same pilot, they promised the city that they would hire 1,000 employees and have over 200 daily flights. It started out like that and once US Airways cut their schedule and closed their hub, Southwest cut its flights by more than half and relocated employees to other cities. That must be stopped.

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