saab2000
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Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 9:37 am

Title says it all.

With the exception of Southwest, most US airlines are having a real hard time right now.

But in Europe, many airlines are enjoying quite a lot of success.

What is the deal here? Is it that the US airlines are burdened with too many liabilities?

This is a legitimate question. I have just read that Air France and KLM are doing quite well. Good for them. But what is happening with the US industry that makes it so hard to make a buck?
smrtrthnu
 
artsyman
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 10:53 am

The biggest problem for the US Carriers at this point is the price of fuel. The European carriers managed to ride the fuel spikes a little better due to the fact that fuel is priced in US Dollars, and the US dollar took a dive against the European currencies, and many of the world currencies at the same time. Therefore the European countries did not end up paying anything like the US Carriers were paying for fuel.

Southwest being hedged at $24 per barrel when the market was paying $55 did not hurt them either.

[Edited 2005-05-20 04:20:25]
 
starrion
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 11:00 am

Classic economics:

Costs that are elastic: Fuel prices are up. Costs for security are up.

And prices that are inelastic: customers have many choices among competitors for seats resulting in no pricing power for the airlines.

Result: Airlines are unable to raise fares to offset higher costs resulting in huge losses.

Some airlines like Southwest and Jetblue are pricing tickets near their breakeven point which sets the market. The breakeven point for the majors is far higher, but they are matching those fares in order to stave off a mass-defection of their customer base.

On a related note. How long can this situation continue? HP and US are merging in order to cut costs. It's the only way any part of US was going to surivive, but how long can the rest of the majors continue bleeding red ink before they all start to fold?
Knowledge Replaces Fear
 
atmx2000
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 11:05 am

Partly, the US airlines face more competion on a wider variety of routes. How many of the major airlines in Europe face competition out of their hubs and hub cities from other major airlines on a large number of routes. None, since there are a limited number of majors (AF, BA, LH, and smaller ones like IB and AZ) and they have their hubs in their home countries. You don't see anything like UA and AA operating major hubs at O'hare, or Delta, AA, and Continental having hubs in NYC.
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bond007
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 11:09 am

Don't get me started on the "it's all coz of fuel prices" again!

Most US airlines were in trouble years and years ago, and it has little to do with the price of gas and everything to do with how with airlines are run....which is very badly.

Now, I do agree it's not always fair to compare European airlines with US airlines, but understand that fuel accounts for a small percentage of costs for an airline (somewhere less than 15% probably).


Jimbo
I'd rather be on the ground wishing I was in the air, than in the air wishing I was on the ground!
 
eg777er
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 11:13 am

Plenty of competition in Europe. Mention a major city-pair, and they'll be at leads 2 'majors' and several low-cost boys to choose from.
 
atmx2000
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 11:33 am

Quoting Eg777er (Reply 5):
Plenty of competition in Europe. Mention a major city-pair, and they'll be at leads 2 'majors' and several low-cost boys to choose from.

But a given pair of majors will largely only be competing on routes between their respective countries, because they don't have signficant operations in other countries You'll see a different competitive environment if LH bought Virgin or BA buys a small German airline.
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BMIFlyer
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 12:26 pm

Lets See....

Airlines in the US:-

Have high frequencies like bus services.
Some (not all) of these Planes go out half empty at times.
They charge low fares even though the price of oil is sky high.
Many americans are still scared to fly after what happened on 9/11/01.
Airlines have too many aircraft in their fleets, creating too much ground time for each aircraft.

While in europe....

The airlines dont have a turn up and go service.
They raise fares accordingly to cover the oil costs.
Most flights still go out full as well.

Yes before you all rant, I know a full aircraft doesn't necessarily mean profit.


The american public will have to get used to the idea that fares need to and will rise eventually.


Thanks

Lee
Sometimes You Can't Make It On Your Own
 
saab2000
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 5:35 pm

Bond007,

Just curious. Why do you think that US carriers are badly run? I am not disputing what you say, but I am wondering specifically what it is that you are talking about? That is not meant as a slam at all. I am curious about your thoughts.

BMI Flyer,

Most Americans are not scared to fly anymore. The planes are full. Like you say of course, this does not translate to profits.

Lufthansa faces heavy competition in their home markets and yet they still seem to do OK.

I worked in European aviation for a long time. Now I am working in the US. Both are interesting places. I just wish I understood why the US carriers are in such dire straits. Yes, I know - overcapacity, fuel, etc. But these things ought to sort themselves out.
smrtrthnu
 
vunz
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 5:47 pm

I have been asking myself the same question, not as much the present situation, but also in the past

Only two major carriers in Europe (SR and SN) have folded in the past years, whereas there are many US carriers (Braniff, Eastern, TWA, Pan Am, Tower, Piedmont to name a few) have gone bankrupt in the past, so I don't think it has to do with the current oil prices.
 
flybeq400
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 6:06 pm

Personally, I think the simple answer to the US carriers unprofibability is over capacity and poor revenue management. Overcapacity exists because the ATSB and the bankruptcy procedures are structured in such a way that bankruptcy is a viable and valid alternative. I think bankruptcy procedures should be altered such that a binding timeframe is agreed between the judge, creditors, and the firm for it to return to profitable ops or to fold. I'm of the opinion that the rest of the majors and the innovative LCC's will be more profitable if one of the majors goes under or begins to service only international destinations (I'm thinking UA).

Quoting Starrion (Reply 2):

Costs that are elastic: Fuel prices are up. Costs for security are up.

And prices that are inelastic: customers have many choices among competitors for seats resulting in no pricing power for the airlines.

Other way round really. Fuel prices are inelastic in their supply for all industries; so airlines are price takers when it comes to fuel. Of course when it comes to fares airlines have pricing power (but much reduced due to LCC competition). Hence airlines face elastic demand curves. In the face of elastic demand price discrimination becomes more difficult (witness Simplifares); and the profit maximising price is lower. Hence yields fall making the airlines more vulnerable to shocks in cost.

Just my 2c.
 
CHRISBA777ER
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 6:34 pm

I think its a question of providing what is generally accepted that the US market wants - which is frequencies. This is core to much of the thinking behind the airline business in the US, from the massive number of RJs, to the whole 787 point to point (as opposed to A380 hub to hub) argument.

The US has many cities that are served with air routes, that comparable sized cities in Europe do not have. Not only this, but to provide the frequencies, smaller aircraft are used. They would rather use two ERJ/CRJ/ARJ flights rather than one A320/757 flight - as thats what the market wants.

Basic economics states that paying four pilots rather than two, landing, ATC, handling, and service fees twice, the MX costs of four cycles instead of two, as well as fuelling two aircraft rather than one larger one - its obviously going to be more expensive.

Thats for the same-coast city pairs. The transcon stuff is the same but larger. Instead of one 777, 744, or 763/4, you see two or three A320/A319/737 flights - the same economics applies.

For sure, i think if DL, UA, NW, CO, AA, or US thought they could get away with cutting frequencies in favour of larger jets, they would. Problem is, as with everything in the US market - the travelling public want it the way they want it and will vote with their feet if they dont get it. If you dont offer the departures - people wont fly you. If you add a surcharge to compensate for the extra costs you incur by keeping frequencies high - people wont fly you.

Other factors why the US airlines are haemorraging money:

* Politically motivated, sky-high security costs above and beyond what we pay in Europe.

* The all-powerful LoCos dictate pricing on city pairs where they are present - this forces the legacies to compete, but with their higher costs and differing operational strategies etc - they are unable to.

* the in-flight product for the legacies in Y-Class, generally, is inferior to that offered by the LoCos at the same price (ie.e: NOT SW, but thinking more of Song, JetBlue etc) - people know this.

* There is a great deal of negative press and sensationalism about the apparently catastrophic financial state of DL, US, UA, AA etc. This dents public confidence in the airline. JetBlue, Southwest etc - have no such issues.

* There is still a fear of terrorism and flying is not the pleasant experience it once was. Traffic should, given pre-9/11 growth rates be much higher than it is now. As it is, it is higher than pre-9/11 but not where growth was predicted to be.

* The poor exchange rates for the US$ against the €, Yen, and £.

* Overcapacity on some non-Domestic routes
What do you mean you dont have any bourbon? Do you know how far it is to Houston? What kind of airline is this???
 
Joost
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 6:48 pm

Quoting Vunz (Reply 9):
Only two major carriers in Europe (SR and SN) have folded in the past years, whereas there are many US carriers (Braniff, Eastern, TWA, Pan Am, Tower, Piedmont to name a few) have gone bankrupt in the past, so I don't think it has to do with the current oil prices.

Well, you get a nice point here. As it started by a same cause: deregulation.

The American carriers you mentioned mostly failed after deregulation, what started in the US way before in Europe. Also SR and SN went bust after deregulation and after EU rules that prohibe gouvernement-funding of airlines. SN only posted a profit once in their existance, but they were kept up with gouvernement aid.

(At the time, gouvernement aid wasn't 'dirty' as it is now. Because of all kind of treaties, not everyone could start an airline. And next to that, for a countries economy it's good to have a stable amount of airlinks; when country-wide wealth improves when subsiding one company that posts losses otherwise, the country-wide decisision for aid can be okay; when there is a free economy like now in the EU, gouvernement-aid causes unfair competition).

Now you see also other European legacies struggling. AZ as the prime example, but also OA. After SR folded, also LX didn't really run profitable. SK isn't doing too well; many other companies have had difficult years. And more consilidation will hapen. So the same things happen here, however 20 years after the USA, because we deregulated 20 years later. Interesting to see however, is that developments in the LCC-segment are pretty similar.
 
saab2000
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 8:18 pm

I think ChrisBA777ER pretty much has it. That sounds like a pretty good analysis of what is happening.

I will add one thing. A lot of people now see the RJ as a curse rather than a blessing. They have replaced mainline aircraft on many routes simply as a cost saving measure. But they don't cost less because, as CHRISBA777ER says, you increase total costs if you operate several RJ flights instead of one larger airplane.

I fly a CRJ here in the US and spent about 10 months working in Washington DC out of Dulles (a horrible airport, but that is another story....). I flew tons of flights up and down the East Coast, but most of our flights were not "regional" flights. They were replacement for mainline flying from Dulles into JFK, LGA, BOS, ATL, etc. Our company alone offers service between these cities many times per day. That is not counting other carriers which do the same thing.

This not only increases total cost (by having an increased CASM) but increases congestion massively. The number of ground stops (slot delays for the Euros here) between these cities is incredible.

Well, I just fly 'em. But I am curious sometimes about the state of our industry and wonder what can be done to stop the race to the bottom. This used to be a good industry which offered good careers to thousands of people. But ticket prices were insane too.

Southwest seems to offer a good career and fair pricing. So it would appear that those two things are not mutually exclusive.
smrtrthnu
 
atmx2000
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 8:35 pm

Quoting CHRISBA777ER (Reply 11):
* The poor exchange rates for the US$ against the €, Yen, and £.

Why would this hurt, except for its side effects on oil prices? It would improve competitiveness of US airlines on international routes on the labor side but would lower the costs of dollar denominated assets for foreign airlines, so it should be a wash. Anyway US carriers big problems are on the domestic side, not the international side.

As for the smaller jets labor efficiency issue, flying smaller jets wouldn't be so bad if they used them to fly more direct routes and not just feed hubs. If you have to feed a hub, you are flying with a stop and you are increasing ground handing and airport costs, and possibly fuel costs. If you fly more spoke to spoke routes, or spoke to faraway hub routes, you could improve utilization of ground resources at your spoke cities. I've wondered if it would make more sense for the mainline carriers to engage in codeshare agreements with all the regional airlines, and let those small jet carriers figure out where to fly and what hubs to feed.
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Udo
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RE: Euro Airlines Profitable - US Airlines Not: Wh

Fri May 20, 2005 8:49 pm

Quoting Atmx2000 (Reply 3):
Partly, the US airlines face more competion on a wider variety of routes. How many of the major airlines in Europe face competition out of their hubs and hub cities from other major airlines on a large number of routes.

Wrong. Most profits for European majors come from longhaul services. Many European or domestic routes are in the red. And yes, there is competition due to the growth of LCCs from both secondary airports and major hubs. Have a look at MUC, AMS, FCO or the London area.
Where do American carriers face "competition out of their hubs and hub cities from other major airlines on a large number of routes"? When I check a majority of routes out of ATL, CLE, CLT, DEN, DFW, IAD, IAH, MEM, MIA, MSP, PHL, PIT, SFO (just to name a few) I don't see so many alternatives...

Quoting Atmx2000 (Reply 3):
You don't see anything like UA and AA operating major hubs at O'hare, or Delta, AA, and Continental having hubs in NYC.

Probably because NYC is a class of its own? And if you take London, you find hubs of BA, BD, FR, U2, VS there.

Quoting Atmx2000 (Reply 6):
But a given pair of majors will largely only be competing on routes between their respective countries, because they don't have signficant operations in other countries You'll see a different competitive environment if LH bought Virgin or BA buys a small German airline.

Wrong. Majors compete against each others via alliances on a majority of their routes. And btw, BA once established a small German airline which is, meanwhile independant, a main competitor to LH out of MUC today...


Regards
Udo
Me & You & a Plane Named Blue...
 
saab2000
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 8:50 pm

At Air Wisconsin (United Express for now) we fly some feeder routes from Chicago. In fact, I would say that our ORD flying is mostly feeder flying, though we also have some routes between larger cities like Montreal, Toronto, Kansas City, etc.

But out of Washington the flying is mostly ex-mainline stuff, or at least it seems like it. Speaking of your point-point comment, we have one RJ flight from IAD which seems to make sense, as miserable as it is for passengers.

We fly Dulles to Kansas City (MCI). This is a really long flight for an RJ. With a strong headwind and with power pulled back to an economical setting we can be airborne for nearly 3 hours. But it is still probably better than going from IAD-ORD-MCI.

I don't know what the best use of the RJ is. But one thing is clear to me. There is a massive blurring of the lines between "Mainline" and "Regional" nowadays as more and more mainline routes are flown by "regional" carriers and the so-called "regional" jet is getting bigger and bigger.
smrtrthnu
 
atmx2000
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 9:11 pm

Quoting Udo (Reply 15):
Many European or domestic routes are in the red.

If that's the case then the fact that a larger portion of major US airlines RPMs come from domestic flights may be a key reason. I've argued before that the major US airlines have invested far too much into domestic routes to maintain marketshare. The ROI is in the gutter, except for LCCs like Southwest.
ConcordeBoy is a twin supremacist!! He supports quadicide!!
 
commavia
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 9:16 pm

I think the real reason why European airlines are generally either profitable or almost profitable while just about every major US carrier is not is a matter of the difference in consumer behavior in Europe vs. the United States.

In Europe, many customers -- particularly business travelers -- are still willing to pay a bit extra, generally speaking, for amenities like a hot breakfast, a free newspaper and a close-in airport, where is in the United States, generally speaking, the vast majority of travelers (perhaps excluding business travelers) regard a plane as just a Greyhound bus with wings, nothing more, and as such don't want to pay a dollar more than they have to on Orbitz or Expedia to get to their destination.

As such, Europe's "legacy" airlines have been able to maintain a certain level of pricing power in the market place and control the flow of capacity in different places to match demand at varying fare levels that can keep their airlines profitable. In the United States, by contrast, the legacy airlines have lost absolutely all pricing power and fares have dropped so dramatically to the point where they simply can't make money -- especially with oil as expensive as it is. AA and CO are getting there, but it is a long hard road.
 
cloudboy
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 9:54 pm

The fundamental problem with the US airlines is that the people running the US airlines lack any real interest or understanding of the flying public. What happens is that they see one or two airlines that have provided something different - i.e. low costs, and suddenly EVERYONE has to jump into that pattern. The airlines are more concerned with copying what everyone else does, and responding to a few well meaning but misguided ""experts" who refuse to look at the potential but instead try to find a pattern in what has happened before. So there is now no difference between airlines.

People hate to fly now. It sucks - security issues have had a major impact here, but bad service and the basic feeling that you are stuck in an unpleasant tube for hours on end just doesn't make people want to spend any more money flying then they have to.

So the real problem is that the airlines themselves are not doing anything to improve their service. They see things only in terms of the amount they charge for a seat. It is a very short sighted outlook.
"Six becoming three doesn't create more Americans that want to fly." -Adam Pilarski
 
fbgdavidson
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 10:11 pm

People have also forgotten that European airlines do well out of keeping their shorthaul and longhaul premium products just that..premium.

You can't buy a £199 ticket and use a SWU to upgrade it to a ticket that could have been sold for almost £4000!

Whether you like it or not airlines make their money through selling the seats up front for high $$$. European airlines do sell for high $$$, US carriers don't.
"My first job was selling doors, door to door, that's a tough job innit" - Bill Bailey
 
DLPMMM
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 11:36 pm

Come on people, don't lose the forest in the trees. The answer is really quite simple and it is all basic economics, Supply and Demand.

1. I fly within Europe often, so I know the service is not much different, including in the front of the bus.

2. There is a pricing power problem in the USA, but that is a symptom not the cause.

3. While the European market has not been subjected to as bad of an oil price shock due to the difference in exchange rates, this would normally be equalized by market forces.


There is an over abundance of supply of legacy airline seats because there are more legacy airline routes than the market can profitably absorb.
The biggest difference (and I submit as the reason the US legacy market is in such trouble) is the difference in bankruptcy laws. The USA's chapter 11 statutes has kept several legacies operating that would have been liquidated or merged (UA, US,) where Europe's laws have mandated that the legacies that are unable to quickly adapt must be liquidated or merge (LX, SN).

While Europe and the US are not the same size, they are similar enough to have the same relative market forces at work. If we compare these markets, you see 3 majors in Europe (AF/KL, LH, and BA) three major reigonals with questionable futures (AZ, IB, EI), and some smaller reigonals with 2 major LCCs (Ryan and EZjet) and a poop load of other LCCs trying to carve out a niche.

In the USA, we have 6 legacies (UA, US (Soon US/HP), AA, DL, CO, NW), three major LCCs (WN, FL, J6), and a boatload of other LCCs/regionals.

The market size difference does not warrant twice as many legacies for the US as compared to Europe. The inefficiency of the USA's bankruptcy system is exacerbating the problems for all the legacies.

The problems will continue until some legacies either fold or are merged together. Simple economic analysis leads me to believe that 3-4 legacies are all the USA's market can support.

That's my story, and I'm sticking to it!

ps. I use regionals here to describe airlines that fly big planes in a regional areas such as AS, not to be confused with the contract carriers flying the RJs.
 
saab2000
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Fri May 20, 2005 11:49 pm

I think that bankruptcy laws are probably not bad in principle, but it seems as though they are being used in the US in too liberal a manner.

I agree that if a carrier has a legitimate future why destroy its whole structure if it has a problem. But some of the airlines (United) seem to use it indefinitely and cannot get their act together in spite of the liberal bankruptcy laws.

That is not a slam on United operations. My experiences with UAL flights and crew members and ground staff has been almost universally positive. But their business seems to be sinking deeper into the mud even though they have forced massive cuts from the staff while under bankruptcy.

I used to work for Crossair, which then became SWISS with the integration of the Swissair staff into Crossair.

Swissair was a company which perhaps could have benefitted from some form of Chapter 11-type bankruptcy protection in Switzerland. Instead, they operated with massive losses until there simply was no money left and then more or less overnight shut down.

United and Swissair are two extreme examples maybe of how bankruptcy laws could be better implemented.
smrtrthnu
 
vs25
Posts: 64
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Sat May 21, 2005 2:12 am

Geography and language does play a part in the problem. The 25 countries of the EU have a population just short of 300m (a little more than the US) but we're crammed into much a small area (even smaller if you just look at the Old Europe 15). I can't be bothered working it out, but I do know that the tiny UK fights into Oregon.

Even though we are a common trade area we all speak different languages. There just isn't the cross border busines that you have cross state line in the US.

Our major population ares and business centres are a concentrated around a few major cities - London, Paris, Frankfurt, Amsterdam, Munich, Madrid, etc. These major cities have shuttle type flights, however the smaller cities don't.

There also appears to be a cultural difference, probably a lot to do with the Greyhound mentality. BA and VS constantly compete to race to the top, offering more elaborate and sophisticated business/first products (on long haul) to tempt the high yeild pax.
 
Speedbird2155
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Sat May 21, 2005 2:29 am

Quoting DLPMMM (Reply 21):
I fly within Europe often, so I know the service is not much different, including in the front of the bus.

There is actually a vast difference in the level of service, especially up front. After flying around the US on American carriers, I usually can't wait to get back onto a European carrier. After my last internal US flight, I made a decision to avoid them as much as possible and stick to one US city at a time.
 
DLPMMM
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Tue May 24, 2005 3:54 am

Quoting Speedbird2155 (Reply 24):
There is actually a vast difference in the level of service, especially up front.

I'll have to respectfully disagree with you on this one.

For comparison purposes, I fly DL domestic in the USA and AF, BA, LH, and AZ in Europe (used to fly Crossair alot as well years ago).

On domestic flights:

I have found the seats in the front of the USA carriers more comfortable than the "adjustable business class" config.s found in Europe. The drink selection in F in the USA tends to be better. While there is usually no meal, I don't get so excited over a couple of pieces of smoked salmon with bread and cheese. It is all just a matter of personal taste.

Flying coach pretty much sucks anywhere in the world.

Depending on what airline you flew in the USA, your results may vary.
 
AlanUK
Posts: 511
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Tue May 24, 2005 3:59 am

I think it's quite simple: Bankrupcy protection has allowed airlines that should have gone under a few months/years back to survived and therefore keep mounting on losses. In Europe, airlines that didn't make enough profit simply disapeared, leaving the market shares for other airlines... (Sabena, SwissAir, plus a myriad of other smaller carriers and charters).

It's Chap.11 that is to blame in my opinion, it has a very pervert effect.

Safe flying
Al.
 
DLPMMM
Posts: 2136
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Tue May 24, 2005 4:06 am

I agree Alan,

Too many carriers for the market size.
 
searpqx
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RE: Euro Airlines Profitable - US Airlines Not: Why?

Tue May 24, 2005 4:09 am

Quoting Udo (Reply 15):
Wrong. Most profits for European majors come from longhaul services. Many European or domestic routes are in the red. And yes, there is competition due to the growth of LCCs from both secondary airports and major hubs.

I think Udo hit it on the head (whether he meant to or not). In the US you've got too many seats chasing too few domestic butts. The US airlines have all acknowledged, they make far more money on international than they do on domestic. Those that have the ability are switching capacity to their international services. In Europe, a far greater % of the majors' flying is international (in this case meaning outside of continental Europe).

To complicate this, in the US, the majors must have a large domestic network to feed these international flights, whereas in Europe, while they do maintain domestic networks (that they have been cutting back on for the last ten years), the vast majority of their traffic is already concentrated at the hubs.

This, I believe, is the root difference and root cause of the problem. Throw in the additional problems of fuel, price inelasticity, etc., and you have the current bloodbath.

My prediction, both in the US and Europe, you'll eventually see the majors decrease their domestic (US)/short haul (Europe) flying to mostly hub-to-hub, and concentrate most resources on long-haul. I think you'll see some creative agreements worked out with 2nd tier and LCCs airlines to provide the intra-Europe and domestic US feed that the majors are currently providing themselves.

Duane
"The two most common elements in the universe are Hydrogen and stupidity"
 
B744F
Posts: 2927
Joined: Sat Jan 21, 2006 4:52 pm

RE: Euro Airlines Profitable - US Airlines Not: Why?

Tue May 24, 2005 5:06 am

Just look at the management's pay structure. American companies are using excess profits to pay their executives salaries and bonuses. This outrageous pay does not happen with the European companies who are doing well.

Unfortunately in America, the corporate ethics are reward the execs and shareholders for the work done by the workers and these workers should be happy with minimum wage.
 
ScottB
Posts: 5501
Joined: Fri Jul 28, 2000 1:25 am

RE: Euro Airlines Profitable - US Airlines Not: Wh

Tue May 24, 2005 9:32 am

Quoting Saab2000 (Thread starter):
With the exception of Southwest, most US airlines are having a real hard time right now.

But in Europe, many airlines are enjoying quite a lot of success.

...

This is a legitimate question. I have just read that Air France and KLM are doing quite well. Good for them.

Well, I think your fundamental premise about European carriers isn't entirely correct. Let's look at numbers for the first calendar quarter of 2005 where available.

* Air France-KLM showed an operating loss of 45 million euros.
* Lufthansa posted an operating loss of 26 million euros.
* British Airways had an operating profit of 40 million pounds (operating margin of 2.1%) and a pre-tax profit of only 5 million pounds.
* SAS lost 1,312 million SEK in the first quarter of 2005.
* SWISS lost CHF 122 million in 2004 (1Q05 numbers are unavailable).
* Alitalia showed a loss of 120 million euros in the first quarter.
* Iberia lost 23.3 million euros before taxes in the first quarter.
* SN Brussels' 2004 profit was a measly 1.04 million euros.

These numbers appear to demonstrate that the major European carriers are losing money as well, albeit in a seasonally weak quarter.

To some degree, the large European carriers are protected by slot restrictions at certain major hubs/airports (BA at LHR, LH at FRA, AF at ORY). Only BA and LH fly between LHR and FRA, and they don't compete particularly aggressively on price. Low-cost competition still isn't as pervasive in Europe as it is in the United States. Ryanair and EasyJet combined still carry fewer passengers than Southwest alone. The failures of Swissair and Sabena helped their competitors by removing capacity both intra-Europe and on intercontinental routes. Several of the large European carriers also enjoy healthy profits on a number of intercontinental routes with very limited competition (to Africa, for example).

I believe the European market today looks much like the U.S. market in the mid-to-late-80's. There are many new entrants including low-cost carriers, failures and reorganizations of major airlines (SR, SN), mergers (AF-KL and probably others in future), etc. I also believe that things will get significantly more difficult for the network carriers in Europe in the long term.

[Edited 2005-05-24 03:03:16]
 
jetdeltamsy
Posts: 2688
Joined: Tue Nov 14, 2000 11:51 am

RE: Euro Airlines Profitable - US Airlines Not: Why?

Tue May 24, 2005 9:45 am

the huge domestic systems suppported by US carriers are unprofitble...to say the least.
Tired of airline bankruptcies....EA/PA/TW and finally DL.
 
Lockheed1011
Posts: 154
Joined: Wed Dec 08, 2004 4:04 pm

RE: Euro Airlines Profitable - US Airlines Not: Why?

Tue May 24, 2005 9:58 am

Saab2000,

It is so interesting to see someone from Switzerland asking that kind of question. Didn't you guys just loose SWISS to Germany(LH)? What about Sabena? Are you forgetting that one?
Besides, all airlines in the US are private, not like in Europe, Mexico, Central America, South America, Africa, Middle East and Asia.
In the US they do not get their investments by the government. USAirways and HP are the ones selling their Soul to Airbus.
Do re-search first before making such a statement!
 
bennett123
Posts: 7521
Joined: Sun Aug 15, 2004 12:49 am

RE: Euro Airlines Profitable - US Airlines Not: Why?

Tue May 24, 2005 10:13 am

Several people have pointed to the number of RJ's, but also look at the number of airports flying mainline servives in the US compared to Europe.

If you take the UK, we have Aberdeen, Belfast, Birmingham, Bournemouth, Bristol, Cardiff, East Midlands, Edinburgh, Exeter, Gatwick, Glasgow, Heathrow, Leeds, Liverpool, London City, Luton, Manchester, Newcastle, Norwich, Pretwick, Southampton, Southend, Stansted, Teesside. A lot of 24.

We have 20% of the US population, but I guess that the US has more than 120 Airports.
 
Unicorn
Posts: 101
Joined: Mon Nov 24, 2003 6:57 am

RE: Euro Airlines Profitable - US Airlines Not: Why?

Tue May 24, 2005 10:41 am

Quoting Atmx2000 (Reply 3):
Partly, the US airlines face more competion on a wider variety of routes. How many of the major airlines in Europe face competition out of their hubs and hub cities from other major airlines on a large number of routes. None, since there are a limited number of majors (AF, BA, LH, and smaller ones like IB and AZ) and they have their hubs in their home countries. You don't see anything like UA and AA operating major hubs at O'hare, or Delta, AA, and Continental having hubs in NYC.

I think thats a cop out.

Every major European hub has several US carriers flying into it, and the Trans-Atlantic route is perhaps the most hotly-contested international market in the world.

Despite this, and the ever present pressure of low costs like Ryan Air, EasyJet, Air Berlin, etc etc, they contiunue to record profits or losses that seem miniscule compared to the US Majors.

The same can be said of carriers such as Cathay, Singapore or Qantas, they face extreme competitive pressures on their major hubs but continue to return profits.

Look at the quality of the service offering on US Majors on international flights and you have an indication that US carriers are not competitive.

The service on many domestic routes is also quite poor by international standards, especially given the exhorbitant airfares being charged (at least on those routes where LCCs haven't yet arrived to destroy the majors pricing power).

It may be that the majors simply haven't realised that as domestic carriers, they are in the position of looking at LCCs in the same manner Neanderthal Man looked at the arrival of the species that would make him obsolete, as something of a curiosity, not something to be feared.

History proved him wrong too.

Unicorn
 
ComeAndGo
Posts: 814
Joined: Thu Mar 31, 2005 5:58 pm

RE: Euro Airlines Profitable - US Airlines Not: Why?

Tue May 24, 2005 11:06 am

You can't compare the European market to the American market. In Europe deregulation is fairly new. LCC are fairly new too. How many national airlines fly between other EU nations. Almost none. LCC carriers are concentrated in certain markets only. You'll find London - Milan but not Glasgow - Milan. The only carriers flying between a European nation and another are the two national carriers and one or two LCC. There's no real competition here. When Lufthansa will fly from London to Madrid, or Air France from Barcelona to Stockholm that's when you can say that we have a similar market. It just isn't the case. Also LCC have compromised earnings in certain markets. All secondary routes are still dominated by the national carriers. Fly from Milan to Nantes and you'll find only AirFrance and there's tons more …

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