CO737800
Topic Author
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US Airlines Vs Rest Of The World

Fri Aug 19, 2005 8:38 am

How can the US airlines keep losing money and in the odd case make very little money, but I keep reading about other airlines around the world that are making money. Can someone please help me in understanding this.
 
hz747300
Posts: 1906
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 9:26 am

Low fares for the fickle US consumer, high debt (capital leases, airplane financing), high fuel prices, and the stubborn air passenger consumer that refuses to pay too much more to fly.

Qantas is a pretty safe bet because a lot of their service is long haul, and has a lot of premium traffic, where the consumer is a lot less price sensitive.

I would venture to guess if you could break apart the revenue and net income on UA and the others, the long haul service would be profitable, but the short haul miserably bad.

Let's take a look at AWA while we still can. WN competes on a lot of its LAS and PHX to California routes, and there are a reasonable days' drive between the destinations. The short haul consumer can afford to be extremely picky and price sensitive, whereas the person flying from PHX to MIA may not have that luxury.
Keep on truckin'...
 
BostonGuy
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 11:45 am

Quoting CO737800 (Thread starter):
How can the US airlines keep losing money and in the odd case make very little money, but I keep reading about other airlines around the world that are making money. Can someone please help me in understanding this.

Over the past couple of decades US Airlines have chosen not to differentiate themselves by service and instead compete on price alone. Airline service has become a commodity. That's one reason. There are many more.

I wouldn't call Americans fickle for choosing the lowest price for a product that is not differentiated between competitors... I'd call them smart.

Trying to look at this at a global perspective and trying to come to an explanation that fits world-wide just won't work when you have hundreds of countries... each with its own regulatory pricing environment.
 
Lufthansa
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 1:45 pm

I'm surprised that nobody mentioned the fact that the US marketplace is ultra competitive, and as the average flyer doesn't fly all that much, (and hence brand loyalty and frequent flyer programs don't mean much to them) even a few dollar difference matters.

I think this is largely due to the fact that, as Bostonguy said, they do not differentiate themselves... though we are seeing in New York at least, this done on a certain (albeit small) level with Jetblue and ppl going out of their way to use Jetblue.

There is, I believe, a market that would actually appreciate a little better service, but with profits by those who are actually posting them so slim, I guess that is a risk nobody is willing to take. I think one of either AA or UA needs to do this...and add about $6 or $7 per sector... as I said earlier, body is willing to risk it. DL perhaps is the one who could... things are getting serious over there so I guess you could say they've got not much too loose by trying.... If they could raise their revenue by just $10 per fare I'm sure a lot of their problems will be over.

Despite what ppl may say, I do believe there is a certain amount of medium to high frequency travellers who would actually like to be treated this way. For about $6 per passenger I could get you a several course hot meal, in disposable containers that could be easily heated in galley ovens, drink and basic dessert (say a small swiss chocolate or something like that). The trouble is...will Americans pay $6? This stragery, (whilest not exactly the same, but along these lines) seems to have worked well at both BA and Qantas for short haul. However it could be that British and Australian passengers are far more snobby? Or maybe have a higher percentage of business travellers vs leisure travellers? (as the US system is so big and caters to so many people)
 
regupilot
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 2:04 pm

I think that, the fact that they all depend mostly on the US market affects them a lot. I'm assuming that AirFrance doesnt cover Germany as much as Lufthansa does. And Lufthansa won't cover the UK as much as BA does. So they have money flowing on their own land and, internationally. BA flies to a bunch of US cities, that if otherwise, AA or NWA or CO would be flying to.

Also, most european airlines fly to lots of places that has nothing to do with their country, like to India, South Asia, Australia, South America.

What I mean is that, American airlines have not that much global precense as their european counterparts, from which money would come in good amounts.

This is just a plain old thiking from an islander.

-Ragu
 
satx
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 2:06 pm

Quoting HZ747300 (Reply 1):
Qantas is a pretty safe bet because a lot of their service is long haul, and has a lot of premium traffic, where the consumer is a lot less price sensitive.

Down Under typically costs $1,500 + Tax or more just for a coach ticket from where I'm at. Until we get some decent prices (and competition) Qantas and Australia can kiss my 'price sensitive' American ass.  Big grin

Besides, I still have plenty of other places in Asia, Europe, North and South America to explore yet and most of them only cost $500-750 + tax to visit.

Quoting Lufthansa (Reply 3):
I think this is largely due to the fact that, as Bostonguy said, they do not differentiate themselves...

AA had the whole MRTC thing going and won me back, only to kick me out again. Oh well. Now I'm looking for another international carrier to replace them. For domestic flights I try to use WN. Maybe I'll try Frontier to the west coast now that they arrived at SAT. If B6 ever comes to town I'd probably give them a try too. I've already tried UA, HP, NW, and DL out of SAT and they all sucked IMO. AA sucked too, but at least they had MRTC to make up for it. Now they have nothing.
Open Season on Consumer Protections is Just Around the Corner...
 
RobNL
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 2:19 pm

I would say that the bankruptcy protection facilities (chapter 11?) in the US are a reason for structural overcapacity, forcing airlines to dump their fares to fill the seats.

Without the bankruptcy protection, at least one of the legacy carriers would have gone belly up years ago, like what happened to Swissair and Sabena in Europe. SWISS and SN Brussels Airlines are nowhere near the size of Swissair and Sabena, so their folding reduced capacity in the full-service market.

I think (but I'm not sure about this) that in Europe, airlines cannot stay in a 'chapter-11' kind of status for extended periods of time. It's 'pay your bills or be liquidated'.

Does anyone agree with me?
 
supa7E7
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 2:23 pm

The reason is simple -

We have too many planes doing too much flying.

The USA has 5 mega-carriers that dwarf others in the world.

American
United
Delta
Northwest
Continental

Then, we have 5 or 6 large national airlines

Southwest
US Airways
America West
Frontier
Alaska
JetBlue

The US airline industry is overgrown; it's madness. NW is retiring DC-9s, Delta is retiring 737s and MD-90s. US is retiring 737s. Eventually we may re-gain our balance.
"Who's to say spaceships aren't fine art?" - Phil Lesh
 
GQfluffy
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 2:27 pm

Quoting Supa7e7 (Reply 7):
NW is retiring DC-9s

Says who??? Big grin

Quoting Supa7e7 (Reply 7):
The USA has 5 mega-carriers that dwarf others in the world.

American
United
Delta
Northwest
Continental

Yeah, but will NW last out the next week or so?

fluffy
This isn't where I parked my car...
 
kesflyer
Posts: 80
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 2:46 pm

How about huge pension funds that need to be funded. Understand that this could be one of the major reasons, if not the major reason that traditional US carriers are suffering. Old wage contracts ??
 
king
Posts: 183
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 2:57 pm

In some cases over capacity is a problem, but it seems most airlines are reporting high load factors. The fares are just too low. As others have mentioned, you have carriers operating under the protection of the bankruptcy courts doing crazy things.

Deregulation? Too much capacity in some markets? High pensions? Fuel costs? The Southwest effect?

Things got bad when fares became transparent with the internet. No longer did a passenger have to call each airline directly or go through a travel agent. Maybe we should say the Priceline, Travelocity, Orbitz, CheapTickets effect?
 
Doona
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 3:46 pm

Quoting SATX (Reply 5):
Down Under typically costs $1,500 + Tax or more just for a coach ticket from where I'm at. Until we get some decent prices (and competition) Qantas and Australia can kiss my 'price sensitive' American ass

OK, you just made my RU list.

Quoting Supa7e7 (Reply 7):
We have too many planes doing too much flying.

I agree totally with you. I want to see nothing but NW DC-9s and -10s in the skies from now on!

Cheers
Mats
Sure, we're concerned for our lives. Just not as concerned as saving 9 bucks on a roundtrip to Ft. Myers.
 
hz747300
Posts: 1906
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 4:06 pm

Quoting SATX (Reply 5):
Down Under typically costs $1,500 + Tax or more just for a coach ticket from where I'm at. Until we get some decent prices (and competition) Qantas and Australia can kiss my 'price sensitive' American ass.

No thanks  thumbsdown 

But you added to my point - the Aussie carriers can charge that because your choices are limited, even with connections. If you wanted to go to Australia bad enough, you'd pay.

Going between LAX-PHX, you probably have no less five choices of carriers and I would guess 30 flights, at least, a day. Even if you knew a hot chick would be handling your goodies for a $300 ticket on that route, you probably would not pay more than $100 and take WN.

PS - I'm an American working here in Sydney, where people would be price sensitive too, if they had any options.
Keep on truckin'...
 
BostonGuy
Posts: 484
Joined: Fri Jul 21, 2000 5:49 am

RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 9:10 pm

Quoting Lufthansa (Reply 3):
I think this is largely due to the fact that, as Bostonguy said, they do not differentiate themselves... though we are seeing in New York at least, this done on a certain (albeit small) level with Jetblue and ppl going out of their way to use Jetblue.

Airlines, like all companies, have the challenge of discovering what their customers trully want. When consumers are asked what they want to experience on an airline flight (excluding price concerns) having plenty of leg room always tops the list. But when consumers are given more leg room they, for the most part, realize that leg room is nice but they really don't want to pay for it. UA seems to be doing ok with its transcon PS service, but that's for domestic long-haul and most likely wouldn't have the same success if instituted on UA's other shorter domestic routes. UA will need to differentiate itself system-wide in order to succeed.

WN and B6 are excellent examples of the power of differentiation in the marketplace. They don't offer spacious legroom, they don't always offer the lowest fare between two cities (low fares, yes... always lowest, no), but they do offer something other airlines haven't. Good reliable service, entertaining and helpful staff, in-flight entertainment... those are some things that have gained these 2 airlines phenomenal press coverage, loyal customers and full planes that don't lose money on flights.

Quoting Lufthansa (Reply 3):
There is, I believe, a market that would actually appreciate a little better service, but with profits by those who are actually posting them so slim, I guess that is a risk nobody is willing to take.

Indeed. We frequently overlook the extraordinary risks that were taken by airlines that are making money right now and which have transformed air travel in the US. When you look at it from a differentiation and risk-taking perspective you see that many LCC's are providing a different product (different enough to make a difference) that is economically sustainable while also taking great risks. Legacies frequently are responding to this by copying select attributes of LCC's but without an equally great risk.
 
art
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Joined: Tue Feb 08, 2005 11:46 am

RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 9:40 pm

Quoting RobNL (Reply 6):
I would say that the bankruptcy protection facilities (chapter 11?) in the US are a reason for structural overcapacity...

...

Does anyone agree with me?

Certainly do. Seems like a disastrous piece of legislation that allows failing airlines to defer payments to suppliers, dump financial obligations (eg pension funds) and thereby NOT restructure into businesses that are NOT failing. And all the while by this "unfair competition" chapter 11 prevents other prospectively successful businesses being successful to the point that... they end up in chapter 11 as well.
 
ssides
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 10:16 pm

Quoting BostonGuy (Reply 2):
Over the past couple of decades US Airlines have chosen not to differentiate themselves by service and instead compete on price alone. Airline service has become a commodity. That's one reason. There are many more.

Yes, but they have done this at the "request" of the consumer. AA tried to differentiate itself with More Room Throughout Coach, but realized that people wouldn't pay the premium to fly on AA metal (yes, I know most members of this board would pay the extra, including me, but we don't represent the majority of the flying public).

Also, please remember that in most of the rest of the world, flying is still, to a large extent, reserved to members of the upper and upper-middle classes. In Europe, you can take a train for much less money than flying. Now that LCCs are gaining headway in Europe, this may change, but for now, BA, LH, AF, KL, etc., have successfully cornered the market on the high-dollar passenger.

In both Europe and Asia, passengers just don't seem to be as price conscious. They are often willing to pay extra for service, whereas Americans typically want the lowest price. This is true across industries -- go into a supermarket abroad, and while you will see various "on sale" items, you won't see the multitude of deep discounts offered in US stores. It's simply a cultural and economic difference.
"Lose" is not spelled with two o's!!!!
 
EDDM
Posts: 221
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 10:49 pm

Quoting Ssides (Reply 15):
In Europe, you can take a train for much less money than flying

This is an over-generalization.
 
CV747
Posts: 166
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 11:06 pm

The answer is much simpler:
Offer is larger then demand -> low prices.

Solutions: The market will regulate itself.
1. The demand needs to grow. -> unlikely
2. Offer must decrease. -> Fewer seats available.
This means that either some airlines need to shrink or some will go bust.

This is the fundamental basics of a free market as described by Adam Smith.

Any subsidies or government fundings will change the timing, but not cure the problem.
This also exolains why this problem is so apparent in the USA now and not in Europe. European consolidation in the legacy airlines is more or less over. But it has just started in the low cost airlines.
 
ekgold
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 11:33 pm

The large majority of Americans simply dont travel overseas. Go to the stats on the percentage of Americans that have passports. It is one of the lowest in the developed world. There are many many reasons for this which i wont go into now. All times when i have had the chance to do some sightseeing around the States, you are surrounded by Americans coming from all parts of the country, no matter what city you are in.

Due to the domestic nature of the American holidaymakers and taking some of the examples above about prices on long haul travel, these airlines are stuck in domestic, high frequency, expensive sectors that they simply cant charge a reasonable price for. Just one of those things....
 
rabenschlag
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 11:48 pm

this is just opinion and not facts, but still:

* having recently moved from germany to the US, my personal experience is that flying is by no means cheaper in the US than in germany or the EU in general.

Quoting Ssides (Reply 15):
Also, please remember that in most of the rest of the world, flying is still, to a large extent, reserved to members of the upper and upper-middle classes. In Europe, you can take a train for much less money than flying. Now that LCCs are gaining headway in Europe, this may change, but for now, BA, LH, AF, KL, etc., have successfully cornered the market on the high-dollar passenger.

i am not sure. trains, especially fast long-distance, are terribly expensive in germany unless you find some special fares. LCC are often on par pricewise. and the LCC is around for a while now.

saying that flying is for the upper-class and upper-middle in europe is a very weird assessment. but you are right in assuming that lower class people are less likely to be found in a lufthansa C seat. i recommend a LTU flight from DUS to PMI to give your assumption a reality check.
 
tockeyhockey
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RE: US Airlines Vs Rest Of The World

Fri Aug 19, 2005 11:55 pm

my two cents are that the internet has changed the way people fly in a dramatic way. so many americans now use the internet to book flights, probably more than the global average.

when you can very very quickly shop between dozens of airlines, you are going to find the best price, the best routing, and the best service for your needs practically instantaneously.

too often in the past, the big guys relied heavily on their name brand recognition to get people to come back. if you knew you needed to get from one tier 2 airport to another, such as BWI to SAN, you could be pretty much assured that you could do it on either UA or AA. you'd pick up the phone and book, without wanting to make six other calls just to check prices.

now, you can quickly check UA and AA's fares against a half a dozen carriers for the same route.

i think that the majors were a bit slow to catch on to this change. also, i believe that WN, for example, has an astoundinly easy website to navigate, which must be a huge advantage to them in terms of sales, even though they are not on orbitz.
 
FlyPIJets
Posts: 826
Joined: Sat Oct 11, 2003 3:32 am

RE: US Airlines Vs Rest Of The World

Sat Aug 20, 2005 1:06 am

Quoting Rabenschlag (Reply 19):
i am not sure. trains, especially fast long-distance, are terribly expensive in germany unless you find some special fares. LCC are often on par pricewise. and the LCC is around for a while now.

Well, but in the U.S., barring the Washington, D.C. ---> Boston corridor, there really isn't even a train option. there are trains, but I think very few consider actually using them. I'm not bashing train, it's just the way it is.

So, in most other parts of the globe, airline growth over the past 50 years has happened while train travel was a viable alternative.

In U.S domestic travel, passenger train service all but disappeared very quickly. That allowed for explosive growth by the airlines, some would argue too much, too fast.

<><><>
Rex Kramer: Get that finger out of your ear! You don't know where that finger's been!
 
semsem
Posts: 1621
Joined: Fri Jul 29, 2005 1:06 am

RE: US Airlines Vs Rest Of The World

Sat Aug 20, 2005 1:15 am

Most airlines around the world are losing money. However in the USA I think you have too much competition; just too many airlines and the service on the major airlines is the pits. That's one reason Jet Blue and Southwest are doing so well. Also these high Pension costs these US airlines have are not affordable in this day and age anymore.
 
icarus75
Posts: 750
Joined: Mon Oct 27, 2003 2:18 am

RE: US Airlines Vs Rest Of The World

Sat Aug 20, 2005 1:47 am

Quoting EDDM (Reply 16):
In Europe, you can take a train for much less money than flying

May be in Germany, and I doubt it!!!
I can assure you that most of the time, plane is cheaper then train in France!!!
Flying is amazing!
 
satx
Posts: 2771
Joined: Mon Apr 11, 2005 7:26 am

RE: US Airlines Vs Rest Of The World

Sat Aug 20, 2005 2:51 am

Quoting BostonGuy (Reply 13):

WN and B6 are excellent examples of the power of differentiation in the marketplace. They don't offer spacious legroom, they don't always offer the lowest fare between two cities (low fares, yes... always lowest, no),

1. WN and B6 have excellent coach-class legroom compared to many/most airlines the world over. This is the main reason I fly WN these days.

2. It's true you can beat WN and B6 on advanced purchase fares, but walk-up fares?

Quoting Ssides (Reply 15):
Yes, but they have done this at the "request" of the consumer. AA tried to differentiate itself with More Room Throughout Coach, but realized that people wouldn't pay the premium to fly on AA metal (yes, I know most members of this board would pay the extra, including me, but we don't represent the majority of the flying public)

My honest opinion is that the majority of the flying public doesn't even know that legroom can differ significantly from one carrier to the next. TWA had some ads about this and AA had a few, but nothing that would really get the word out IMO. Most ads about legroom refer to F and J class. I can't see myself caring about 65" vs. 70", but I sure as hell notice 32 vs. 34 inches.

Quoting EKGOLD (Reply 18):
The large majority of Americans simply dont travel overseas.

Here in Texas, we have lots of folks who have either never left the state or have only seen neighboring states and maybe Mexico.
Open Season on Consumer Protections is Just Around the Corner...
 
BostonGuy
Posts: 484
Joined: Fri Jul 21, 2000 5:49 am

RE: US Airlines Vs Rest Of The World

Sat Aug 20, 2005 4:03 am

Quoting Ssides (Reply 15):
Yes, but they have done this at the "request" of the consumer.

Which fits into what I pointed out earlier. Consumers "request" a lot of things... it's the successful airlines, however, that figure out what requests are most important to consumers and then come up with a plan to deliver that product in a profitable manner. Certainly consumers aren't to blame for carriers such as UA, DL, etc. making poor business decisions... especially when other airlines such as WN and B6 are able to do just fine. I've never had to provide a boarding pass and a business plan for an airline in order to get on their plane.

Quoting SATX (Reply 24):
1. WN and B6 have excellent coach-class legroom compared to many/most airlines the world over. This is the main reason I fly WN these days.

2. It's true you can beat WN and B6 on advanced purchase fares, but walk-up fares?

As I recall seat pitch on those two varies from 32" to 34"... ample, but not spacious. I categorize a spacious seat as being pretty close to either business class or first class domestic seating as well as being consistent throughout the aircraft. B6, I know from experience, is kind of a crap shoot on getting in a section that has the greatest pitch. I consider an airline to have excellent legroom when it has at least a 34" pitch throughout the entire cabin. As it is right now over 38% of a B6 cabin contains seat pitch of only 32". That's 60 seats with 32" pitch on each plane! SW seat pitch is 32.2" to 32.6", depending on he aircraft.

Not sure why you are asking about walk-up fares because my use of the broad term "fares" included, but wasn't limited exclusively to, "walk-up" fares. Should LCC's always offer lower walk-up fares than legacies my comment about fares is still true.

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