masseybrown
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CO Defers 737 Deliveries

Thu Jun 14, 2007 12:36 am

http://yahoo.reuters.com/news/articl...15_N13412563&type=comktNews&rpc=44

These delivery deferrals seem to confirm my rumor posted a few days ago in the "CLE expansion" thread:

"Scuttlebutt from a fairly decent non-CO source:

CLE expansion was supposed to happen this year but CAL got nervous about softness in system-wide (not just CLE) bookings as well as delays in Chautauqua flying and delayed a year while they decide whether to keep or return some older 737's. Some expansion will definitely happen starting next spring, but the size has not been determined."

While my comment specifically addressed the CLE operation, it obviously affects the whole airline. The 2008 deliveries are probably too close to defer, so 2009 deliveries are the first CO can affect.
 
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clickhappy
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 12:38 am

Overcapacity is a huge problem in the US Domestic sector right now.
 
AA737-823
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 12:52 am

Quoting Clickhappy (Reply 1):
Overcapacity is a huge problem in the US Domestic sector right now.

No, it is not.

How many times will we hear that? And what is your source?

Would you like to know that load factors at Continental Airlines are the highest in their entire history? Just read any of their monthly releases. I can't remember the last release that didn't say, "March consolidated load factor was 81.9%... a record for the month of March at Continental Airlines."

The planes are going out full as can be. Airlines (just ask US, or better yet, read the USAToday article on their overbooking policies) are having more trouble with overbooking than ever before, due to the planes being full, and fewer no shows.

Now, yields and pricing power are certainly an issue. But that's a different story.

I am disappointed to hear that Continental is deferring aircraft deliveries, especially at a time when American is advancing theirs. (Do a search, I'm not going to do it for you.) But if this is what management thinks is wisest, then I guess they gotta do it.
 
AeroWesty
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 1:00 am

Quoting AA737-823 (Reply 2):
Quoting Clickhappy (Reply 1):
Overcapacity is a huge problem in the US Domestic sector right now.

No, it is not.

The article linked says:

"The fleet adjustments come with U.S. airlines facing slackening demand as the U.S. economy slows, which is putting pressure on air fares."

The planes may still be full, but at lower fares, is what I read from the article, and the trend is expected to continue until the economy strengthens.
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PhilSquares
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 1:01 am

Quoting AA737-823 (Reply 2):
No, it is not.

How many times will we hear that? And what is your source?

Where have you been? Look at every "legacy" carrier in the US. They have publicly stated their plan is to keep domestic ASM flat or actually decrease. Why????? Because the revenue isn't there. The demand is soft and they have to resort to pricing to attract butts in seats. It's the same old thing, just because the flights are full doesn't mean they're making money.

The proliferation of LCCs in the US and the extremely elastic pricing sensitivity the airlines with pricing just shows that although the "average" person wants to go from point A to B and their only consideration is money. Why add seats to the market when you can't make money on the ones you already have in your inventory. This is exactly how the downturn in 99/00 started off....
Fly fast, live slow
 
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clickhappy
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 1:05 am

Now, yields and pricing power are certainly an issue. �But that's a different story.>

Uh, not it isn't. It's the same story, told from a different prospective.

Yields are low because there are too many planes. It's called overcapacity  Yeah sure
 
Flighty
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 1:10 am

It's interesting that CO thinks the 733 and 735 with winglets is a cheaper jet to fly than a new 73G. Very interesting indeed, because maybe they are right. CO may be keeping the 735s all the way until the plastic 737 comes along.
 
atlaaron
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 1:14 am

Quoting Clickhappy (Reply 5):
Yields are low because there are too many planes. It's called overcapacity

Well then who is not flying very full? Talk to any business traveler at any airport and they complain about how flights are always so full.
 
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clickhappy
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 1:19 am

The flights are full because prices are low. Prices are low because there are so many seats to fill.

If you cut capacity you squeeze out the bottom end of the market, thus raising fares.

It is pretty basic economic principal, and really has nothing to do with airlines. It happens in all industries.
 
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yyz717
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 1:22 am

Quoting AA737-823 (Reply 2):
Quoting Clickhappy (Reply 1):
Overcapacity is a huge problem in the US Domestic sector right now.

No, it is not.

How many times will we hear that? And what is your source?

Would you like to know that load factors at Continental Airlines are the highest in their entire history?

High load factors does not mean that there is no overcapacity. Profit does. US airline domestic-market profit is not strong, so it does indeed suggest that soft pricing (to fill the seats) is driving high load factors but not necessarily generating profit. Hence, there is indeed a strong argument that overcapacity exists and that argument will only disappear when profit levels rise to investment grade.

Quoting Flighty (Reply 6):
It's interesting that CO thinks the 733 and 735 with winglets is a cheaper jet to fly than a new 73G. Very interesting indeed, because maybe they are right. CO may be keeping the 735s all the way until the plastic 737 comes along.

As long as the dispatch reliablity of the 733/735 fleet remains good and the higher mx costs (vs. the NG fleet) are lower than the incremental lease costs (or ownership costs) of the new NG's, then yes: it makes sense to keep the 733/735 fleet flying. Moreover, any financial decision that defers capital costs (i.e. new NG purchases) at the cost of managable but higher operating costs (i.e. keeping 737 classics flying) is often a good decision.
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masseybrown
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 1:27 am

Quoting Flighty (Reply 6):
It's interesting that CO thinks the 733 and 735 with winglets is a cheaper jet to fly than a new 73G.

I don't think they do. Smizek said at the Merrill Lynch conference today that CO is considering "offshore disposal" of up to 15 735's in the near term, noting that the 735 is CO's least efficient aircraft. He didn't say whether these would be leased or owned aircraft; but CO is one of the most leveraged airlines around, so they might want to shed some mortgage debt - even if that would be relatively more expensive than ending some leases.

The wingleted 733's and 735's would probably be the last to go.
 
777gk
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 1:27 am

Quoting PhilSquares (Reply 4):

Where have you been? Look at every "legacy" carrier in the US. They have publicly stated their plan is to keep domestic ASM flat or actually decrease.

Continental plans to grow domestic capacity a few percentage points (and has been doing so for a few years).

CO usually is ahead of the curve in terms of long-term fleet planning. Apparently management feels the impending economic slowdown will require growth to be curbed slightly. 24 more 737s in 2 years is still strong growth, considering that most will be in the form of 169-seat 737-900ERs, and you can't forget the 787s that will start showing up in 2009.
 
ikramerica
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 1:30 am

I would imagine that the IAH construction has something to do with this, too?

I wonder about CLE expansion, too, because I fly CO a lot and the flights that aren't full are the ones that route through cleveland.

Quoting AeroWesty (Reply 3):
"The fleet adjustments come with U.S. airlines facing slackening demand as the U.S. economy slows, which is putting pressure on air fares."

The article is wrong, as the US economy has been steady for quite a while, and the only domestic factor that "slowed" the economy in the first quarter was housing starts. All OTHER aspects were strong, even stronger than expected. So unless CO is in the business of building homes...

Articles are not gospel. They often involve the writer making "cause and effect" statements that he/she didn't research and that have statistically backing, but that sound good.
Of all the things to worry about... the Wookie has no pants.
 
Thorben
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 1:34 am

Oh, I smell the end of the 737.  Wink

Honestly, I have the feeling that US carriers are focusing more and more on long-haul, a thing where they can make way more money and low-costs are not a competition.
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FLYGUY767
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 1:36 am

Quoting Clickhappy (Reply 1):
Overcapacity is a huge problem in the US Domestic sector right now.

Indeed and this has been proven over and over again with more airlines taking away from domestic capacity to add to international. Not to long ago we say airlines likes United using the 747-400, on routes like LAS-ORD, ORD-DEN, DEN-LAX. We say AA using multiple DC-10's on JFK-LAX, LAX-HNL, HNL-DFW, DFW-SJU. We say Delta using multiple 767's, 777's and so forth on routes like SLC-LAX, LAX-CVG, BDL-ATL, DEN-ATL. We saw Continental using multiple DC-10's and 767's on routes like IAH-MCO, IAH-LAX, LAX-EWR.

Those days are done as airlines realize the profit with the widebody aircraft is with the international market. Additionally, airlines have realized that an overcapacity has lead to seats being filled at lower profit margins, in turn effecting the bottom line of the airlines spreadsheet.

The delay in the Continental Airlines 737 additions, makes me wonder if we are going to see those 737 orders turned over to a 777, or 787 order. Only time will tell.

Quoting AA737-823 (Reply 2):
Would you like to know that load factors at Continental Airlines are the highest in their entire history? Just read any of their monthly releases. I can't remember the last release that didn't say, "March consolidated load factor was 81.9%... a record for the month of March at Continental Airlines."

It has been proven over and over again~

A FULL FLIGHT, A HIGH LOAD FACTOR, DOES NOT EQUATE TO A PROFIT

Yes, I stand behind the belief we have to many flights, at to low of a profit.


-JD
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777gk
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 2:00 am

Quoting Ikramerica (Reply 12):
I would imagine that the IAH construction has something to do with this, too?

Definitely.

Quoting FLYGUY767 (Reply 14):

The delay in the Continental Airlines 737 additions, makes me wonder if we are going to see those 737 orders turned over to a 777, or 787 order. Only time will tell.

The six 737s will be delivered in 2010.

CO will not be taking on any further 777s.
 
fun2fly
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 2:06 am

CO has suggested that they could expand or contract their fleet in a flexible manner at any time. It's they way they have planned it: +/-25 aircraft per year flexibility. 2008, net increase of 14 737's (16 733/735's out), 18 739er and 12 738's in. In 2009, they have 6 739er and 24 738's on order. Delaying 6 of them for a year is not a big deal folks. Could be for a myriad of reasons: capacity, financing issues, economics or perhaps the buyer of the 735's does not want them until 2010. I think the number everyone should focus on is the NET fleet increase:

Adjusted schedule:
2008 +14 737's (net of disposals)
2009 +24 - (less any disposals)
2010 +6 - (less any disposals)

While that's a lot higher than any legacy carrier, the have the second highest RASM in the industry. Thus, they must feel they can continue to obtain that premium in the industry and/or cannibalize other carriers domestcally. Additionally, they need the expansion to feed the international routes and replace 752's.
 
blsbls99
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 2:25 am

So, is it a capacity issue, or is it a price sensative domestic market issue? I realize that the two can affect each other, but if airlines were able to raise pricing, even slightly, and make a better profit, then there would be no "capacity issue".
I am just having a hard time buying into the over capacity issue when domestic load factors for a lot of the major carriers are 80%+. Obviously the demand is there, but not at the right price for some of these carriers to make the requrired profit. Capacity reduction is one way to solve the problem, the other is to raise fares.
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DAYflyer
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 2:36 am

This will obviously not affect Boeing much, and there are plenty of other operators who would like earlier 737 deliveries.
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DLPMMM
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 2:42 am

Quoting Blsbls99 (Reply 17):
So, is it a capacity issue, or is it a price sensative domestic market issue? I realize that the two can affect each other, but if airlines were able to raise pricing, even slightly, and make a better profit, then there would be no "capacity issue".
I am just having a hard time buying into the over capacity issue when domestic load factors for a lot of the major carriers are 80%+. Obviously the demand is there, but not at the right price for some of these carriers to make the requrired profit. Capacity reduction is one way to solve the problem, the other is to raise fares.

What you have just described above is a classic case of overcapacity. The carriers cannot increase their prices without trashing their load factor.

The carriers are pricing their seats in order to maximize their revenue per flight, which should lead to maximum profits given the low variable cost nature of the airline market.

High load factors combined with low profits means (from an economic point of view) there is an oversupply of seats available.

In economic theory, a few airlines should either shrink or disappear completely, and investment capital should look for more profitable places than airlines to be invested.

In reality.......
 
SESGDL
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 3:05 am

Low yields do not equal overcapacity, overcapacity is simply offering more capacity than is demanded. The capacity is there, just not at the prices that airlines would like. While they are similar and go hand-in-hand, stating that there's overcapacity just because fares are low is not entirely correct.

Jeremy
 
asuflyer05
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 3:21 am

Quoting Clickhappy (Reply 8):
The flights are full because prices are low. Prices are low because there are so many seats to fill.

If you cut capacity you squeeze out the bottom end of the market, thus raising fares.

It is pretty basic economic principal, and really has nothing to do with airlines. It happens in all industries.

I don't get it. Can you explain it again. I mean if the flight is full how can they not be making money???  sarcastic 

Quoting SESGDL (Reply 20):
Low yields do not equal overcapacity, overcapacity is simply offering more capacity than is demanded. The capacity is there, just not at the prices that airlines would like. While they are similar and go hand-in-hand, stating that there's overcapacity just because fares are low is not entirely correct.

Continental, Southwest, and US Airways have all publicly said there is too much capacity in markets and it is driving down fares. Thus they are adjusting domestic capacity. United's CEO spoke today saying they are still looking for a merger partner. There hope is by merging they will reduce some of the excess capacity in the market and help drive yields.

While I agree there is more to the issue than just basic supply and demand, it is a simple method of explaining the issue. And judging by the first few reponses to this thread and people's difficulty understanding how high load factors do not equal profit, a certain amount of "dumbing down" is necessary.
 
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antoniemey
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 4:39 am

Quoting DLPMMM (Reply 19):
The carriers are pricing their seats in order to maximize their revenue per flight, which should lead to maximum profits given the low variable cost nature of the airline market.

Umm... since when is the US Airline Industry "Low Variable Cost" in nature? One of the largest cost factors for an airline (fuel) is not just highly variable, it is at times quite volatile in it's price changes.

Other things vary less, but still vary... Maintenance costs, labor costs, and the like.

And Fuel costs also increase other costs, such as lost baggage delivery costs.
Make something Idiot-proof, and the Universe will make a more inept idiot.
 
CO777DAL
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 6:13 am

Something that I noticed over the past few years on CO is that the flights have been full or close to full. Well my last few flights in the past month have been a huge and disturbing surprise. One flight in particular stuck me as odd. This was a 757-300. There were less than 60 people on the plane!!! I couldn’t believe it so I took a video of how empty the plane was.



http://youtube.com/watch?v=f31cJnwupGs

The return flight was on a 737-500 and that plane was also empty. My upcoming flight in about a week is on a 757-300 to a different city and the seat map shows less than 60 seats sold. I’m weary of this flight because on my last flight seats (exit row) which shown as sold on the CO seat maps were not. So in one month time it looks like I will be on two different 757-300 flying to different cities with around 60 people on each flight. This is not good and I find it alarming! Unless CO is carrying some serious cargo, flying a plane that carries 200 people with only 60 or so is going to cost $$$$.
Worked Hard. Flew Right. Farewell, Continental. Thanks for the memories.
 
DiscoverCSG
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 6:32 am

Quoting CO777DAL (Reply 23):
the seat map shows less than 60 seats sold.

Seat maps do not show seats sold. They show seats not available for selection.

Seats might be unavailable because they're assigned, or because your (lack of) status means you can't select them - this is often the case with bulkhead or exit row seats.

Unless you look at a seat map an hour before depature, it's not going to show you how many tickets have been sold, because many non-geek travelers seat selection for the last minute.
 
prebennorholm
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 7:31 am

Quoting Asuflyer05 (Reply 21):
Quoting Clickhappy (Reply 8):
The flights are full because prices are low. Prices are low because there are so many seats to fill.

If you cut capacity you squeeze out the bottom end of the market, thus raising fares.

It is pretty basic economic principal, and really has nothing to do with airlines. It happens in all industries.

I don't get it. Can you explain it again. I mean if the flight is full how can they not be making money???

To put the math really simple:

Airline A flies a sector with a full 100 pax plane. They all pay 500 quid.

Airline B flies the same sector with a full 200 pax plane. 100 pax pay 500 and 100 pay 50 quid.

Airline A will earn money, airline B will lose money.

Even worse: For the next flight those who payed 500 will wait with booking until price has dropped. And ultimately airline B will fly all 200 pax at 50 quid.

As Clickhappy indicated, that's overcapacity as it works in any business.

If your baker bakes too much bread, then his puts it on sale an hour before closing the shop. Next day all customers arrive 30 minutes before closing to take advantage of the sale.
Always keep your number of landings equal to your number of take-offs
 
cle757
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 9:31 am

CO increases 737 order by four aircraft to optimize its flexible fleet plan

CO today announced it is fine-tuning its flexible fleet plan as part of its continuing efforts to emphasize fuel efficiency, environmental benefits and fleet optimization.

As part of a recent agreement with Boeing, CO ordered four additional 737 Next Generations for delivery in 2010 and moved six 737NG deliveries from 2009 to 2010. CO now has a total of 64 Boeing 737s and 25 Boeing 787s on order. CO also has options for another 92 Boeing aircraft.

Additionally, CO is exploring the possibility of selling between five and 15 of its 737-500s. These aircraft are suboptimal in today’s high-demand, low-yield domestic environment.

CO’s flexible fleet plan provides it the ability to adjust the fleet to meet changing market demands.

Executive VP & CFO Jeff Misner and Finance & Treasurer Sr. VP Gerry Laderman discussed this topic as part of a CO update at the Merrill Lynch Global Transportation Conference Wednesday. A replay of their presentation is available on continental.com.
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CO777DAL
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 9:44 am

Quoting CLE757 (Reply 26):
CO increases 737 order by four aircraft to optimize its flexible fleet plan

CO today announced it is fine-tuning its flexible fleet plan as part of its continuing efforts to emphasize fuel efficiency, environmental benefits and fleet optimization.

As part of a recent agreement with Boeing, CO ordered four additional 737 Next Generations for delivery in 2010 and moved six 737NG deliveries from 2009 to 2010. CO now has a total of 64 Boeing 737s and 25 Boeing 787s on order. CO also has options for another 92 Boeing aircraft.

  Ok, so now I’m confused? Is CO expanding and ordering more planes or slowing growth and shrinking as the yahoo article suggest. CO ordering 4 more planes?

To me ‘ CO Defers 737 Deliveries’ vs ‘CO increases 737 order by four aircraft to optimize its flexible fleet plan’ send two completely different messages.

[Edited 2007-06-14 02:47:34]
Worked Hard. Flew Right. Farewell, Continental. Thanks for the memories.
 
asuflyer05
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 9:50 am

Quoting Prebennorholm (Reply 25):
To put the math really simple:

I was being sarcastic. I even put the obligatory sarcastic face next to my comment.
 
cslusarc
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 10:16 am

BTW, for those who didn't get Prebennorholm's reference to "quid": it is another word used for pounds sterling (GBP).

1. does anyone know of any airline other than AR who is taking second-hand 735s?
2. it looks like the delivery of 6 73Ws were pushed back.
3. i guess CO got its market timing right this year as it is not taking delivery of any narrowbody aircraft in 2007.
4 how many 757s will be redeployed internationally in 2008? I think CO will need to redeploy a minimum of 14 (an amount equal to the net number of new 737s comming online next year).
4. how would you deploy 14 additional 757s internationally?
--cslusarc from YWG
 
Lemurs
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 10:58 am

Quoting CO777DAL (Reply 27):
To me %u2018 CO Defers 737 Deliveries%u2019 vs %u2018CO increases 737 order by four aircraft to optimize its flexible fleet plan%u2019 send two completely different messages.

I think it depends on what the message is you think you're hearing. As others have mentioned, CO has a very flexible fleet plan, and they like to tweak it as time and demand dictates. That means medium sized orders once or twice a decade, and smaller gap-filler orders in between. Deliveries tend to be spread out, with spurts timed to coincide with planned new service(s) or retirement of older/less efficient airframes, and the slow trickle used to grow capacity over time.

If you look at it as a big seat-shuffle, the two items don't conflict at all. They still have plans to grow the number of seats they have over the next 3 years by about the same amount, but they've decided that more of that growth should be in 2010 rather than be in 2009, and to possibly offload some of their less profitable expenses by removing a few hundred shorter-range seats in the form of some 735's. 2008 will still see new 737's, and 2009 will see more along with the introduction of the 787-8's. 2010 will bring even more 737's and probably the 787-9's as well. (Anyone know where CO stands in line for the 787-9's? I would assume, being an early and large customer of both types, they'd be near the front of the line after NZ...)
There are 10 kinds of people in the world; those who understand binary, and those that don't.
 
ThePalauan
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 11:07 am

Quoting Cslusarc (Reply 29):
how would you deploy 14 additional 757s internationally?

This might seem like a far shot but I smell a plan where maybe 2 757s come to GUM to replace the 767-400 flying the GUM-NRT route (making that route go x5 daily including the existing x1 daily 737 service) which would then allow that 767 to be redeployed to another European route that either needs capacity or a new city altogether. Perhaps they might even deploy 2-4 more just to replace the single daily GUM-HNL and upgrade that to double daily.

It'd be nice to have the 757 back in the region but I'd hate to see it at a sacrafice of the 767 (assuming that DOES become the case.)

[Edited 2007-06-14 04:09:54]
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tonytifao
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 12:04 pm

Demand is definetly there. Capacity is not! Airlines can increase fare 5-20% and planes will still be full.
 
Falcon84
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 12:06 pm

Quoting Ikramerica (Reply 12):
I wonder about CLE expansion, too, because I fly CO a lot and the flights that aren't full are the ones that route through cleveland.

You're joking, right? Our flights have been packed this spring, I can tell you that. There aren't a ton of empty seats in/out of CLE right now, I can attest to that.

I find that comment rather strange.
Work Right, Fly Hard
 
AIR757200
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 12:31 pm

Quoting AeroWesty (Reply 3):
facing slackening demand as the U.S. economy slows,

Who really knows what the U.S. economy is really doing? I think all these economic experts out there are simply out to influence the markets; one day it's "possible slowing", or "recession maybe near", but what's this in today's CNN Money page: "Fed report: Economic growth continuing." on CNBC on-air comment: "Housing will not be a factor, Economy will continue to grow."

Even our CEO Arpey says: "AMR CEO sees no lack of demand"

I agree with Arpey with who's to blame for capacity issues:

"....capacity growth in the industry, mostly by low-cost carriers. AMR, however, has tried to hold capacity in check, demand has caught up to supply.'"
 
qantas787
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 3:28 pm

Quoting DLPMMM (Reply 19):
What you have just described above is a classic case of overcapacity. The carriers cannot increase their prices without trashing their load factor.

Well I am not so sure about that. It seems to me the prices have increased incrementally and obviously not at the cost of load factor. They only have to get a few more percentage points, and the scales swing very much back into the favour of the airlines. Which BTW I don't think is necessarily a bad thing.
G'day
 
mrcomet
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 5:16 pm

Quoting FLYGUY767 (Reply 14):
A FULL FLIGHT, A HIGH LOAD FACTOR, DOES NOT EQUATE TO A PROFIT

Yes, I stand behind the belief we have to many flights, at to low of a profit.



Quoting Asuflyer05 (Reply 21):
Continental, Southwest, and US Airways have all publicly said there is too much capacity in markets and it is driving down fares.

Yes, but look at it another way. The legacies want the large numbers of seats because profit margins are down. There are too many LCCs in the market now. Legacies have to compete by flying larger numbers are lower prices. As a regular business traveller, I'll pay a premium to fly a legacy carrier but not a big one. $250 more? Maybe. $500 more? No way.

If they remove the overcapacity to try to raise prices, they'll just be ceding more market to the LCCs. I have seen a lot more cancelled flights and joined flights by Legacy carriers at their hubs. They are getting smarter by figuring out ways to fill more of their planes with more people increasing efficiency.
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wingnut767
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 8:46 pm

What this article failed to mention is that we are also adding four more firm orders to the delay of the six aircraft. Below statement is from Continental.

CO increases 737 order by four aircraft to optimize its flexible fleet plan

CO today announced it is fine-tuning its flexible fleet plan as part of its continuing efforts to emphasize fuel efficiency, environmental benefits and fleet optimization.

As part of a recent agreement with Boeing, CO ordered four additional 737 Next Generations for delivery in 2010 and moved six 737NG deliveries from 2009 to 2010. CO now has a total of 64 Boeing 737s and 25 Boeing 787s on order. CO also has options for another 92 Boeing aircraft.

Additionally, CO is exploring the possibility of selling between five and 15 of its 737-500s. These aircraft are suboptimal in today’s high-demand, low-yield domestic environment.

CO’s flexible fleet plan provides it the ability to adjust the fleet to meet changing market demands.
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DLPMMM
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RE: CO Defers 737 Deliveries

Thu Jun 14, 2007 9:19 pm

Quoting SESGDL (Reply 20):
Low yields do not equal overcapacity, overcapacity is simply offering more capacity than is demanded. The capacity is there, just not at the prices that airlines would like. While they are similar and go hand-in-hand, stating that there's overcapacity just because fares are low is not entirely correct.



Quoting Antoniemey (Reply 22):
Umm... since when is the US Airline Industry "Low Variable Cost" in nature? One of the largest cost factors for an airline (fuel) is not just highly variable, it is at times quite volatile in it's price changes.

Other things vary less, but still vary... Maintenance costs, labor costs, and the like.

And Fuel costs also increase other costs, such as lost baggage delivery costs.

The term variable costs in business has nothing to do with commodity price fluctuations. The term is from business and finance courses (which I took long ago).

Fixed costs are costs that do not change with each incremental seat sold (in the airline business it would be almost all the costs such as fuel, labor, landing fees, maintenance costs...)

The variable costs are the cost that incrementally change with each unit (seat) sold (in the airlines case the variable costs would be things like food, airport passenger fees, the cost of the paper that your boarding pass is printed on...)

I hope this helps your understanding.

Quoting Qantas787 (Reply 35):
Well I am not so sure about that. It seems to me the prices have increased incrementally and obviously not at the cost of load factor. They only have to get a few more percentage points, and the scales swing very much back into the favour of the airlines. Which BTW I don't think is necessarily a bad thing.

It has improved over the last 2 years as is shown by the fact that the airlines are not bleeding red ink like slit wrists. The improvement has been largely due to the double digit reduction of domestic capacity made by certain carriers that have gone through Chapter 11 (like DL and NW) . I would submit that since the airlines are only marginally profitable (including WN at this point) and the load factors overall are very high, then there is still an oversupply of seats available.

The LCCs are starting to feel the pinch as well now, as they no longer have such a large cost advantage over the restructured legacy airlines, so they can no longer use their cost advantage to profitable steal market share away from the legacies while maintaining profitability.

It will be an interesting USA market in the next few years.
 
GoAllegheny
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RE: CO Defers 737 Deliveries

Fri Jun 15, 2007 12:47 am

Today's WSJ (Thursday, June 14, page A10) has a story about Southwest's statement that it may slow its growth plans because of disappointing revenue increases. Southwest was planning on 8% capacity growth this year, it needs at least 5% unit-revenue growth to meet its target of a 15% return on invested capital.

The article quotes Southwest's chief Gary Kelly as saying that "we're experiencing the effects of a slowing economy and softer demand for air travel."

The article also reports that industry-wide:

** Seats are still being filled, but at lower fares.
** Available seat miles, a measure of capacity, were up 2.9% in Jan-Feb 2007 compared to last year.

Southwest and other airlines need a strong summer and fall. With yesterday's decent economic news (wages are rising faster than expected, meaning more consumer spending), perhaps that is more likely to occur tjhan analysts thought last week.

More germane to the originating post here, Southwest has 32 firm 737s scheduled for delivery in 2008. Kelly said that Southwest could find a market for some of the planes if the carrier didn't need them.
 
slider
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RE: CO Defers 737 Deliveries

Fri Jun 15, 2007 3:30 am

Quoting Clickhappy (Reply 5):
Now, yields and pricing power are certainly an issue. �But that's a different story.>

Uh, not it isn't. It's the same story, told from a different prospective.

Yields are low because there are too many planes. It's called overcapacity



Quoting Clickhappy (Reply 8):
The flights are full because prices are low. Prices are low because there are so many seats to fill.

If you cut capacity you squeeze out the bottom end of the market, thus raising fares.

It is pretty basic economic principal, and really has nothing to do with airlines. It happens in all industries.



Quoting Blsbls99 (Reply 17):
So, is it a capacity issue, or is it a price sensative domestic market issue? I realize that the two can affect each other, but if airlines were able to raise pricing, even slightly, and make a better profit, then there would be no "capacity issue".

You are all forgetting that pricing is IRRATIONAL!!

That's the key, irrespective of capacity. On an individual level, carriers are rational. On a macro level, it is insanity, plain and simple.

The focus on liquidity and cash, in concert with the madness of fare sales and matching hyper competitively, drive yields to the crapper.

Yes, squeezing capacity can increase fares. But not if it's offset by a sale or industry madness.
 
HPAEAA
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RE: CO Defers 737 Deliveries

Fri Jun 15, 2007 11:20 am

Quoting Antoniemey (Reply 22):
Quoting DLPMMM (Reply 19):
The carriers are pricing their seats in order to maximize their revenue per flight, which should lead to maximum profits given the low variable cost nature of the airline market.

Umm... since when is the US Airline Industry "Low Variable Cost" in nature? One of the largest cost factors for an airline (fuel) is not just highly variable, it is at times quite volatile in it's price changes.

hmm... well Total Cost=Variable Cost + Fixed... for each flight I would define Fixed Cost=Aircraft cost, MX cost, Crew Cost, Catering Cost, enplanement cost, ATC Cost, where as VC is Fuel....

Quoting Prebennorholm (Reply 25):
To put the math really simple:

Airline A flies a sector with a full 100 pax plane. They all pay 500 quid.

Airline B flies the same sector with a full 200 pax plane. 100 pax pay 500 and 100 pay 50 quid.

Airline A will earn money, airline B will lose money.

Even worse: For the next flight those who payed 500 will wait with booking until price has dropped. And ultimately airline B will fly all 200 pax at 50 quid.

As Clickhappy indicated, that's overcapacity as it works in any business.

If your baker bakes too much bread, then his puts it on sale an hour before closing the shop. Next day all customers arrive 30 minutes before closing to take advantage of the sale.

ok... Airline A... 100 Pax*500 Quid=50000 Quid...
Airline B... (100 Pax at*500 Quid)+(100 pax*50 Quid)=55,000 Quid.. hmmmm Airline B Made more revenue off this flight... how do you figure?
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ikramerica
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RE: CO Defers 737 Deliveries

Fri Jun 15, 2007 1:52 pm

Airline B was flying a 200 seat plane. Airline A was flying a 100 seat plane. I don't know of a modern 200 seat plane that costs the same per trip as a modern 100 seat plane.
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HPAEAA
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RE: CO Defers 737 Deliveries

Fri Jun 15, 2007 8:55 pm

Quoting Ikramerica (Reply 42):
Airline B was flying a 200 seat plane. Airline A was flying a 100 seat plane. I don't know of a modern 200 seat plane that costs the same per trip as a modern 100 seat plane.

sorry IKRA, missed that...
Why do I fly???
 
DLPMMM
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RE: CO Defers 737 Deliveries

Fri Jun 15, 2007 9:35 pm

Quoting HPAEAA (Reply 41):
hmm... well Total Cost=Variable Cost + Fixed... for each flight I would define Fixed Cost=Aircraft cost, MX cost, Crew Cost, Catering Cost, enplanement cost, ATC Cost, where as VC is Fuel....

While there is a small element of variability, fuel is essentially a fixed cost for airlines. The aircraft will use about the same amount of fuel regardless of the number of passengers. (The plane uses a little more fuel per passenger carried, but the amount is small compared to the amount of fuel used just to get the plane airborne).
 
ltbewr
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RE: CO Defers 737 Deliveries

Fri Jun 15, 2007 10:08 pm

CO may be just being smart. They see a possible dip in the economic cycles, a delivery schedule that puts a lot more capacity than may not be wise considering that possible dip. In general the USA economy has a very close effect on airlines. While some numbers for the economy look good, others are not good for many in this country and some projections are not particularly good. Interest rates on loans seem to be on a slowly rising trend, adding to the costs of businesses (including airlines as to leases and other borrowings), and personal spending. Oil, gasoline and other energy costs have gone up, forcing individuals and corporations to make spending adjustments including less use of travel on airlines or shopping around more or putting onto LCC's. Airlines are facing growing competition from other legacies and LCC's, forcing greater need to push prices down and thus profits. The LCC's have also put a lot of new seats in a number of markets that used to be important to the legacies and their subsidiaries.
Another issue that may be affecting the finances of CO, may be the problems of having EWR as one of their hubs. EWR has a number of operational limits due to it's landlocked layout limiting growth to add runways or better spacing for runways. That is a critical problem when weather, especially summertime thunderstorms and snow/ice in winter there screws up being able to keep to schedule from delays up to 4 hours on departures and arrivals and also raising overall costs from those delays.
 
masseybrown
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RE: CO Defers 737 Deliveries

Sat Jun 16, 2007 3:50 am

Quoting DLPMMM (Reply 44):
fuel is essentially a fixed cost for airlines.

Not by the accounting definition of fixed costs. Fixed costs do not vary with the level of operations; variable costs do. An example of a fixed cost is terminal rent. Your rent will be the same whether you operate 20 flights or 2. Your total fuel bill will vary with the number of flights.
 
blsbls99
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RE: CO Defers 737 Deliveries

Sat Jun 16, 2007 11:29 am

Quoting MasseyBrown (Reply 46):
Not by the accounting definition of fixed costs. Fixed costs do not vary with the level of operations; variable costs do. An example of a fixed cost is terminal rent. Your rent will be the same whether you operate 20 flights or 2. Your total fuel bill will vary with the number of flights.

But would fuel be a fixed cost per flight, whether a flight carries one person or goes out full? Granted if a flight doesn't operate, the fuel portion is zero cost, yet there are other costs that still remain, like aircraft rent/payments.
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ikramerica
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RE: CO Defers 737 Deliveries

Sat Jun 16, 2007 12:05 pm

Quoting Falcon84 (Reply 33):
You're joking, right? Our flights have been packed this spring, I can tell you that. There aren't a ton of empty seats in/out of CLE right now, I can attest to that.

It's a long term observation, not a "this spring" thing.

But CLE-LAX frequency has been cut way back, and I've been on CLE-MCO and CLE-TPA where the Y cabin wasn't full and even after all elites upgraded, the F was 1/2 empty.

I don't experience this through IAH and EWR.

Then again, I'm not talking this spring only, and since there had been a capacity CUT back at CLE, it would follow your planes filled up a bit, but maybe they aren't seeing the demand to return lost frequency?

I can't be way off, since they are postponing CLE expansion, or at least some of it.
Of all the things to worry about... the Wookie has no pants.
 
masseybrown
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RE: CO Defers 737 Deliveries

Sat Jun 16, 2007 1:08 pm

Quoting Blsbls99 (Reply 47):
But would fuel be a fixed cost per flight, whether a flight carries one person or goes out full?

Clipping from Wikipedia:

"Fixed costs are expenses whose total does not change in proportion to the activity of a business, within the relevant time period or scale of production. For example, a retailer must pay rent and utility bills irrespective of sales...

Variable costs are expenses that change in proportion to the activity of a business. In other words, variable cost is the sum of marginal costs."

There is a concept of unit costs (seat/mile costs in airline terms) in which the budgeted fuel load for a particular flight could be considered fixed, but even there actual aircraft loading will cause the actual fuel consumption to vary. I'm not sure considering the fuel component of seat/mile cost to be fixed is useful.