Osubuckeyes
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 7:36 pm

Quoting vin2basketball (Reply 145):
The dominant piece of evidence that they point to is capacity decisions. When they say that airlines' capacity decisions are unlawful (b/c they haven't added enough), then by extension they're making a capacity decision (i.e. you must add more of it) for airlines. That's pretty much regulation.

It is not regulation. A capacity decision in a vacuum is not illegal. A coordinated capacity decision between two or more competing firms is collusion and that is illegal. There is no regulation that the DOJ will be implementing it is a punitive body and will administer fines or divestitures.
 
bourbon
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 8:28 pm

This DOJ probe kind of makes me wonder if One of the ME3 carriers is paying some lobbyist in DC or promising a congressman that they will start new service to their airport if they make things difficult to the U.S. Carriers.


Also what would be a fair fare between DCA and LGA on the day of?
 
WPIAeroGuy
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 8:32 pm

Quoting commavia (Reply 149):
Any system that deems levels of competition and airfares that bankrupt companies and wipe out shareholders and employees as "appropriate," or believes that any "visible" hand of regulation should determine what constitutes "reasonable and proper" pricing, is simply not a view I subscribe to, or ever will. As a consumer, taxpayer and citizen - I simply completely, 100% disagree.

I'm quite happy with the system we have now, where the market sets prices based on supply and demand, I do not want to live in a country where any such systems of artificial market manipulation by politicians or unelected bureaucrats exist. And as I said, I will be telling my elected representatives as much.

If airlines are making healthy profits, and aren't actively trying to either undercut prices or increase capacity to increase competition, is that not tacit collusion? It's literally the definition. Now, I won't claim to know where the exact legal boundaries are, but how can you say this oligopoly is better for the industry when its actually working against the free market?
-WPIAeroGuy
 
commavia
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 8:40 pm

Quoting WPIAeroGuy (Reply 152):
and aren't actively trying to either undercut prices or increase capacity to increase competition, is that not tacit collusion?

Well first off, I don't agree with the summation that airlines "aren't actively trying to either undercut prices or increase capacity." With respect, I think such an assessment is pretty much detached from reality. But setting that aside, no, I do not believe that multiple competitors all independently arriving at the conclusion that adding incremental capacity - in the aggregate - that is dilutive to shareholder value is something economically unrewarding and thus not worth doing. That's not collusion. That's just business - and it happens literally billions of times every day in every consumer market on earth.

Quoting WPIAeroGuy (Reply 152):
how can you say this oligopoly is better for the industry when its actually working against the free market?

Because I don't think the current industry structure is "working against the free market." "Free market" doesn't mean that consumers are guaranteed goods and services priced below cost such that they destroy shareholder value and every other stakeholder gets screwed. The hallmark of a "free market," to me, is multiple competitors, pricing transparency and returns that are inline with the market's perceptions of risk, cost and complexity. The U.S. airline industry today exhibits all three of those.

I'll once again go back to what, for me, is the ultimate "bottom line" of this whole thing. The U.S. airline industry today is, in the aggregate and on average, generating net margins in the high-single-to-low-double digits on an annualized basis. Given the risk, cost and complexity inherent in this industry, I still fail to see what - on earth - anybody sees as a problem with said margins. Airlines have to compete everyday not just with each other, for passengers, but with industrials, retailers, and every other publicly-traded company on earth, for capital. So if airlines were producing 50% net margins and fares were truly skyrocketing at 5x inflation, that would be one thing. But of course, nothing even remotely like that is happening. Airlines are producing returns that seem - to me - exceedingly reasonable, and doing so while growing capacity right around in line with (if not actually a little ahead of) structural GDP growth. Until I hear somebody explain to me in a cogent, economically logical, way, what's wrong with that, I'll continue to struggle to understand what the complaint is.
 
brooklynchris13
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 8:46 pm

Quoting commavia (Reply 153):

I'll once again go back to what, for me, is the ultimate "bottom line" of this whole thing. The U.S. airline industry today is, in the aggregate and on average, generating net margins in the high-single-to-low-double digits on an annualized basis. Given the risk, cost and complexity inherent in this industry, I still fail to see what - on earth - anybody sees as a problem with said margins.

Commavia: There are many reasons I remain a reader of this forum and a constant visitor to this site, despite the silly, comical, and sometime childish comments that so many make. Your consistently insightful and intelligent observations and analysis are one of the biggest. Thank you. I concur with your comments. In this economic age, this DOJ inquiry seems nothing more than a silly waste of time when there are so many bigger "fish-to-fry" and questions to answer.
"Be the change you want to see in the world" (mg)
 
DCA-ROCguy
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 8:59 pm

Quoting alfa164 (Reply 148):
Make up yuor mind. Now that airlines are finally able to "make their investors money while being good stewards of their public trust", you claim that the public is being gouged - ignoring the fact that average airline fares, adjusted for inflation, have barely risen in two decades.

As I've noted above, airline costs needed to come down substantially after Deregulation, and finally in the middle of the last decade, the legacies were forced to do so, with the help of the courts. Airline fares have risen substantially since the dramatic cost decreases of the middle-late last decade.

And, as the current situation suggests, airline costs need to drop even further. American certainly didn't reduce its costs to US's lower cost structure when they bought them. (so much for the lie of 'synergies' that CEO's promised when consolidation was approved. Discussion here indicates that UA's integration of CO has not gone well. And finally, Southwest used the hedges it had in the last decade, to mask its own growing cost problems.

What likely set off this investigation, and got the discussion out of the realm of airline accounting-babble and jargon that "Airlines for America" (HA!) can use to bamboozle reporters, was the hard, cold fact that oil prices dropped a lot, and fares didn't. People get that. "AFA" and airline company spokesmen couldn't deny that fact, and didn't try to. And people rightly got angry.

Quoting commavia (Reply 149):
And that - right there - underscores the crux of this fundamental philosophical disagreement, and the ultimate futility of arguing over these irreconcilable differences of perspective.

Actually, it doesn't seem futile to me at all. One reason I always find it worthwhile to discuss this topic with you is that you recognize the reality of philosophical differences, and explain your own basis candidly and with respect for others.

Quoting commavia (Reply 149):
Any system that deems levels of competition and airfares that bankrupt companies and wipe out shareholders and employees as "appropriate," or believes that any "visible" hand of regulation should determine what constitutes "reasonable and proper" pricing, is simply not a view I subscribe to, or ever will. As a consumer, taxpayer and citizen - I simply completely, 100% disagree. I'm quite happy with the system we have now, where the market sets prices based on supply and demand, I do not want to live in a country where any such systems of artificial market manipulation by politicians or unelected bureaucrats exist. And as I said, I will be telling my elected representatives as much.

As I argued above, I don't argue for an uneconomical industry, just one that respects the just and proper role of *each* stakeholder--passengers included, not just shareholders / managements and employees and unions. As I've explained repeatedly, needed restructuring occurred during the last decade, so that airlines *could make money on fares that better realized the point of Deregulation*--allowing air travel to be the mass form of transportation that is economically possible. Competition and airfares didn't "wipe out" anything in 2003--2008. 27 years of mismanagement by managements / shareholders and employee unions did.

In addition, I've never called for fare-capacity regulation of the sort that existed in the 1970's. I've consistently called airlines to *themselves* properly exercise their very real public trust. We learned that detailed Federal fare-price regulation simply got captured by managements, shareholders, and unions, and artificially restricted air travel. What's needed is not a new fare-price regulation regime, but a proper, free recognition *by airlines themselves* that good business means making money while properly exercising a public trust to keep a common good as available as possible.

It's not a way we Americans seem used to thinking these days, but raw profit is not the only consideration when a common or public good is involved. As such, the four megacarriers can expect continued political trouble as long as they stay on their current course.

Like you, I am known to write my representatives, and will continue to do so.

Jim

[Edited 2015-07-02 14:01:18]

[Edited 2015-07-02 14:04:51]
Need a new airline paint scheme? Better call Saul! (Bass that is)
 
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scbriml
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 9:03 pm

Quoting QualityDr (Reply 138):
Oil makes $2B profit per week. Why haven't we taken a crack at them? I suspect the answer is, they know who to buy, er, support in Congress.

I suspect the answer is, you don't understand much about big oil. Oil margins are lower than Starbucks and McDonalds, but hey, they're an easy target.
Time flies like an arrow. Fruit flies like a banana!
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WPIAeroGuy
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 9:04 pm

Quoting commavia (Reply 153):
Well first off, I don't agree with the summation that airlines "aren't actively trying to either undercut prices or increase capacity." With respect, I think such an assessment is pretty much detached from reality. But setting that aside, no, I do not believe that multiple competitors all independently arriving at the conclusion that adding incremental capacity - in the aggregate - that is dilutive to shareholder value is something economically unrewarding and thus not worth doing. That's not collusion. That's just business - and it happens literally billions of times every day in every consumer market on earth.

But that's the definition of tacit collusion. Each company has agreed that their 'spot' is comfortable and making healthy profits, so why ruin a good thing right? Because its anti competitive - no one will try to take someone's market share by either lowering prices or increasing services/capacity, because that means everyone else will be forced to follow, meaning all around lower profits. It doesn't matter that they didn't have a secret meeting in an evil lair; its an oligopoly which has no motive to improve its product.

It's not that they are making profits - that's absolutely fine and I hope it continues that way.

Quoting commavia (Reply 153):
Given the risk, cost and complexity inherent in this industry, I still fail to see what - on earth - anybody sees as a problem with said margins.

I have no problem with their margins. My point has nothing to do with the amount of money they're making. It's how they're doing it - by purposely being anti-competitive. If the Y experience was constantly improving, then I would say there is healthy competition and profits are in line. But its not; more seats are being added, pitch is reduced, and fees are added to everything.
-WPIAeroGuy
 
32andBelow
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 9:12 pm

Quoting scbriml (Reply 156):
I suspect the answer is, you don't understand much about big oil. Oil margins are lower than Starbucks and McDonalds, but hey, they're an easy target.

Get out of here. Those guys print money.
 
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illinoisman
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 9:17 pm

I was never a fan of airline mergers as competition keeps prices low. Mergers defeat competition and cost jobs. I used to be able to fly to AUS for $200 each way on mainline aircraft, now it's $600 on cramped regional jets. Don't tell me that's fuel costs. The thievery is in the surcharges they no place on everything: isle seats, window seats, exit row seats, carry on baggage, checked baggage, checked baggage exceeding weight limits, and there's not even "free" peanuts anymore. Cramped rows, no knee room, seats in front of you being leaned back into your face - even if YOU are in a row where the seats do not recline. Are they charging for water yet? It wouldn't surprise me if some airlines put credit card swipers on bathroom doors.
 
Rdh3e
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 9:29 pm

Quoting illinoisman (Reply 159):
I used to be able to fly to AUS for $200 each way on mainline aircraft, now it's $600 on cramped regional jets.

From where? Given your handle I'll use ORD as a proxy.

Today UA, AA, WN and F9 all flew AUS-ORD 12 times combined, on mainline aircraft.

UA's fares start at $68, $138 same day
AA's fares start at $39, $128 same day
F9's fares start at $69, $114 same day

If you plan ahead, great deals are still available on airfare.
 
Flighty
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 10:04 pm

Quoting rdh3e (Reply 160):
If you plan ahead, great deals are still available on airfare.

Yes. In a few markets, in the few months until F9 is absorbeed into another carrier.

The reality is that pricing is similar to the actoal cost of the service. $150 e/w is about what all tickets do cost when there is a competitive situation.

In non competitive situations, 100%, 200% or even 500% profit margins come in. And that really makes people mad.

I am not saying airlines make 500% profit margins, I am saying $1,200 economy tickets are sold at a 500% profit margin.

And that's debatable. Cost allocation is an art form similar to any other fine art.
 
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scbriml
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 10:05 pm

Quoting 32andBelow (Reply 158):
Get out of here. Those guys print money.

You can't look at a profit number in isolation.   

It's a simple matter of scale - if you expect oil majors to spend tens of billions of Dollars every year (as they do) to find and produce oil and gas, they have to make billions of profit.
Time flies like an arrow. Fruit flies like a banana!
There are 10 types of people in the World - those that understand binary and those that don't.
 
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DDR
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 10:51 pm

Quoting scbriml (Reply 162):

Wow, I had never looked at it that way. It makes complete sense, thanks Scbriml
 
commavia
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 11:13 pm

Quoting DCA-ROCguy (Reply 155):
I don't argue for an uneconomical industry, just one that respects the just and proper role of *each* stakeholder--passengers included, not just shareholders / managements and employees and unions.

Okay, but once again, I don't consider an industry that produces unprofitable fares for one stakeholder (consumers) and uncertainty, upheaval and chaos for other stakeholders (investors, employees, etc.) to be "just and proper" in the slightest.

Quoting DCA-ROCguy (Reply 155):
allowing air travel to be the mass form of transportation that is economically possible.

Air travel isn't "economically possible" now? Seriously?

Quoting DCA-ROCguy (Reply 155):
I've consistently called airlines to *themselves* properly exercise their very real public trust.

Well as a consumer and taxpayer, I do not believe that airlines have any public trust to uphold beyond safety and reliability. Beyond that, airlines are just like any other business - they have every right to price their product and service however they see fit, and live or die based on the market's reaction to that pricing.

Quoting DCA-ROCguy (Reply 155):
What's needed is not a new fare-price regulation regime, but a proper, free recognition *by airlines themselves* that good business means making money while properly exercising a public trust to keep a common good as available as possible.

Sorry, but no. Again - "as available as possible" is not an outcome guaranteed in a free market. It's simply not. Ensuring something - a "common good," allegedly - is
"as available as possible" means prioritizing "availability" over "profitability," and that means regulation. Look at markets that are regulated - like electricity, postal service, or airlines prior to 1978 - and indeed one of the express goals of said regulation is to guarantee accessibility, and in fact relatively uniform, accessibility of said product or service to just about everyone (i.e., "as available as possible"). No such guarantee was ever intended for a deregulated free market, where goods are not "as available as possible," but rather as available as is profit-maximizing.

If the goal is "as available as possible," then by all means let's re-regulate airlines and we'll go back to a time when each city pair had at most 2-3 competitors and competition - at least based on price - was minimal. Until then, the market behaves as markets do - based on supply and demand.

Quoting WPIAeroGuy (Reply 157):
But that's the definition of tacit collusion. Each company has agreed that their 'spot' is comfortable and making healthy profits, so why ruin a good thing right?

No! If Walmart and Target both price toilet paper at $0.79 a roll, is that tacit collusion, or is that just two large competitors both deciding - based on similarly large samples of data from actual consumer behavior - that the market price for toilet paper is $0.79 a roll?

Quoting WPIAeroGuy (Reply 157):
I have no problem with their margins. My point has nothing to do with the amount of money they're making. It's how they're doing it - by purposely being anti-competitive.

Airlines aren't "purposely being anti-competitive" - they're purposely being profitable. There's a difference. Free markets don't mean all competitors compete everywhere all the time to the detriment of shareholders. Indeed - any such market is decidedly non-free, as no free market could ever sustain itself as such and still attract capital over the long run.

Quoting Flighty (Reply 161):
The reality is that pricing is similar to the actoal cost of the service. $150 e/w is about what all tickets do cost when there is a competitive situation.

In non competitive situations, 100%, 200% or even 500% profit margins come in. And that really makes people mad.

But again, air travel is just like virtually every single other product or service in a competitive market - it's priced not based on cost, but value. So airlines charge based on the value consumers place on a given product (in this case, a seat between point A and point B on a given date at a given time) - with "value" equal to what said consumer is willing to pay. If the airline prices too high, and the consumer's perception of the value of that transportation is lower than the price, then the consumer doesn't buy. And then the airline can either run empty airplanes, or lower their price. Again, literally economics 101 - supply and demand.

Quoting Flighty (Reply 161):
I am not saying airlines make 500% profit margins, I am saying $1,200 economy tickets are sold at a 500% profit margin.

I would love to have just one example of an airline that makes a 500% profit margin on any ticket, sold anywhere, under normal market conditions. Just one example.
 
brilondon
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Fri Jul 03, 2015 2:52 pm

Quoting AABB777 (Reply 33):
This news from the same DOJ that approved the airline mergers.

What did they think was going to happen? They reduce the number of players in the industry and of course the fares went up. They should realize that they can't have it both ways. What the airlines should do is start reducing their capacity on flights that don't meet a certain profitability standard and cut them. Let us see how the turkeys in Washington feel when they can't get a flight to where they want to go because airlines can't make it go to that particular town and don't have a flight there.
Rush for ever; Yankees all the way!!
 
commavia
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 1:09 pm

And over the weekend AA's management had its chance to voice an opinion on this matter:

http://aviationblog.dallasnews.com/2015/07/parker-there-has-been-no-illegal-behavior-on-the-part-of-american-airlines.html/

"On behalf of your entire leadership team, let me be crystal clear: there has been no illegal behavior on the part of American Airlines. We will comply fully with the demands of the CID and this fact will be proven."

[...]

"Whatever the rationale, it is clear we continue to struggle to get the US Justice Department to understand how intensely competitive our business is – how hard all of you work to ensure safe and reliable air travel for the American public, and how hard you fight to earn every customer from the competition. When we worked with the Justice Department to clear our merger, we learned they are good, smart, well-meaning people doing what they believe is required. But we also learned they harbored a number of unwarranted concerns about mergers and our industry, concerns we thought were since mitigated. For example, they were concerned American would shrink the combined capacity of AA/US post-merger (it has grown); they were concerned fares might increase (they have fallen); they were concerned American would cut jobs (we have added jobs in all work groups and increased wages materially); they were concerned American would terminate the US Airways “maverick” pricing philosophies (we have maintained and expanded them). Once we showed we were prepared to challenge DOJ’s assumptions in court, we were able to reach a resolution that created a better American and an even more competitive industry. So it is discouraging that less than two years later, with traffic and capacity up, and fares down, DOJ still doesn’t seem to acknowledge that the airline industry is as competitive a business as there is in the world. Our industry bears some responsibility for that disconnect, because we clearly haven’t made our case effectively enough. So the silver lining here is perhaps this investigation will help close the gap between DOJ perceptions of our industry and the competitive realities we face every day."
 
william
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 1:25 pm

Quoting brilondon (Reply 165):
What did they think was going to happen? They reduce the number of players in the industry and of course the fares went up. They should realize that they can't have it both ways. What the airlines should do is start reducing their capacity on flights that don't meet a certain profitability standard and cut them. Let us see how the turkeys in Washington feel when they can't get a flight to where they want to go because airlines can't make it go to that particular town and don't have a flight there.

Or maybe we should ask why couldn't we have this "capacity" discipline when there were 6 majors instead of 3 ?............Pathetic.
 
Cubsrule
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 1:27 pm

Quoting commavia (Reply 166):
So it is discouraging that less than two years later, with traffic and capacity up, and fares down, DOJ still doesn’t seem to acknowledge that the airline industry is as competitive a business as there is in the world.

The problem with this assertion, I think, is that it is not true for large chunks of consumers. Those of us east of the Mississippi, for instance, have seen the withdrawal of a tremendous amount of DL capacity since the merger. Much of that capacity has gone to SEA and LAX (which is great for them), but we hardly see any of it.

I think a big part of the disconnect here is that the government is conflating disruption to the status quo with anticompetitive behavior. DL and WN have shifted a lot of capacity since their mergers in ways that arguably would not have happened without the mergers. Some stakeholders have benefited from those shifts, and others have not. It is difficult for me to argue, however, that in the aggregate these shifts are bad even though we can cherrypick statistics that allegedly show harms to consumers.
I can't decide whether I miss the tulip or the bowling shoe more
 
commavia
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 1:40 pm

Quoting william (Reply 167):
Or maybe we should ask why couldn't we have this "capacity" discipline when there were 6 majors instead of 3 ?

Because there is far less economic incentive to behave in an economically rational way. The more competitors, the more chance there is that one of them will act in its own self-interest but to the detriment of the industry overall by attempting to steal market share through undercutting, etc. This is precisely what happened for decades following deregulation. With "excess" competition, the industry was never able to sustainably get its proverbial "head above water" because every time the market began to stabilize, one actor (either a new entrant or established rival) would seize the opportunity to attempt to steal market share through losses. The impact on the industry writ large was economically debilitating - and one of the primary causes of the industry's extreme restructuring post-9/11.

Quoting Cubsrule (Reply 168):
The problem with this assertion, I think, is that it is not true for large chunks of consumers.

True, although - and I know you're not arguing this point - deregulation doesn't guarantee equal outcomes for all consumers, and indeed expressly eschews such equal (or approximately equal) outcomes that were/are a hallmark of regulation. In a deregulated environment, the market places capacity where it is the most profit-maximizing, meaning that some will see more service, and others less, while some will pay more and some will pay less.

Quoting Cubsrule (Reply 168):
It is difficult for me to argue, however, that in the aggregate these shifts are bad even though we can cherrypick statistics that allegedly show harms to consumers.

  
 
Flighty
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 1:44 pm

Quoting commavia (Reply 166):
So the silver lining here is perhaps this investigation will help close the gap between DOJ perceptions of our industry and the competitive realities we face every day."

Their genius is that the competition was once real. Now, it is theoretical. Airlines make much more money with theoretical rather than real competition. This is what Richard Anderson meant by saying Atlanta can be "contested" in his Charlie Rose interview last year. With a twinkle in his eye. As an attorney himself, he was probably laughing his ass off and daring the DOJ to file.

As for Scott Kirby, wasn't he extolling the higher yields that the AA/US merger would bring? That's a billion dollar mistake right there. The DOJ can just serve up that quote to him, dress it up with publicly known data, and they have won their case.

Quoting commavia (Reply 164):
I would love to have just one example of an airline that makes a 500% profit margin on any ticket, sold anywhere, under normal market conditions. Just one example.

Basically any fare that is over $0.80c-90c per seat mile yield. Any coach yield over 40 cents strikes me as outrageous. But the same could be said for hotels. I don't want the government to price flights, I want them to make sure we have a capitalist marketplace.

I agree with you; it would be neat to see the routes of the Big 3 ranked by RASM in today's era. There are no routes with 500% but I think there are many with 100% margin. Are individual seats sold at 500%, sometimes.

[Edited 2015-07-06 06:45:58]
 
commavia
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 1:57 pm

Quoting Flighty (Reply 170):
Their genius is that the competition was once real. Now, it is theoretical. Airlines make much more money with theoretical rather than real competition.

  

Competition today is "theoretical?" Please. So when I go on Google Flights and see one-way fares for tomorrow (i.e., less than 24 hours in advance) from DFW to LGA on the market leader on the route for less than $140 all-in, that represents "theoretical," as opposed to "real," competition? Please.

Quoting Flighty (Reply 170):
As for Scott Kirby, wasn't he extolling the higher yields that the AA/US merger would bring? That's a billion dollar mistake right there. The DOJ can just serve up that quote to him, dress it up with publicly known data, and they have won their case.

Hardly. There are plenty of reasons why yields could improve that have nothing to do with illegal collusion. For example, the repeaking of AA's hubs leads to tighter connections, and thus shorter travel times, and thus - at least for some subset of the traveling public - a more attractive (i.e., more "valuable") product, and thus it's priced higher accordingly. AA is also investing in new aircraft, improved onboard products, better technology, etc. - all of which, again, ostensibly create a more "valuable" product and, again, ostensibly justify a higher price.

Good luck to the DOJ in "[winning] their case" if comments about higher yields is what they've got.

Quoting Flighty (Reply 170):
Any coach yield over 40 cents strikes me as outrageous.

And strikes me as business. Air travel is no different than any other product or service - it's priced at what the market will bear. If a consumer places sufficient value on being on a given flight on a given day at a given time and is willing to voluntarily pay a given price, I fail to see why the government should have any problem with that.

Quoting Flighty (Reply 170):
I don't want the government to price flights, I want them to make sure we have a capitalist marketplace.

Fascinating. So how, exactly, is the government supposed to "make sure we have a capitalist marketplace" - supposing we don't now, allegedly - absent direct control of pricing? There is no middle ground. Either prices are controlled, or they're not.
 
alfa164
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 2:03 pm

Quoting DCA-ROCguy (Reply 155):
It's not a way we Americans seem used to thinking these days, but raw profit is not the only consideration when a common or public good is involved.

The last time I looked, there was no Constitutional right to an airline seat. As a matter of fact, I couldn't even find a right to a bus ticket or to ownership of a car. Maybe I define my portion of the "common good" as owning a big-screen TV; does that mean the manufacturers are obligated to provide me with one?

Quoting illinoisman (Reply 159):
The thievery is in the surcharges they no place on everything: isle seats, window seats, exit row seats, carry on baggage, checked baggage, checked baggage exceeding weight limits, and there's not even "free" peanuts anymore. Cramped rows, no knee room, seats in front of you being leaned back into your face - even if YOU are in a row where the seats do not recline. Are they charging for water yet?
Quoting Cubsrule (Reply 168):
Those of us east of the Mississippi, for instance, have seen the withdrawal of a tremendous amount of DL capacity since the merger. Much of that capacity has gone to SEA and LAX (which is great for them), but we hardly see any of it.

I can see everyone with their own pet peeve will be entering into the argument. Not enough seats to my home airport? That's collusion! Seats getting too tight for my ever-growing butt? That's illegal! No free meals? Heresay! Making me pay for baggage, instead of requiring everyone to share the burden - even if the others don't carry bags? That's gotta be illegal!

We have become a narcisstic society, constantly looking out for our own self-interests. Why shouldn't the airlines do the same?

Quoting commavia (Reply 164):
Well as a consumer and taxpayer, I do not believe that airlines have any public trust to uphold beyond safety and reliability. Beyond that, airlines are just like any other business - they have every right to price their product and service however they see fit, and live or die based on the market's reaction to that pricing.

  

Quoting commavia (Reply 164):
But again, air travel is just like virtually every single other product or service in a competitive market - it's priced not based on cost, but value. So airlines charge based on the value consumers place on a given product (in this case, a seat between point A and point B on a given date at a given time) - with "value" equal to what said consumer is willing to pay. If the airline prices too high, and the consumer's perception of the value of that transportation is lower than the price, then the consumer doesn't buy. And then the airline can either run empty airplanes, or lower their price. Again, literally economics 101 - supply and demand.

      If you don't like the price, don't take the flight. Nobody owes you an airline ticket/
 
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enilria
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 2:04 pm

Quoting Flighty (Reply 170):
Quoting commavia (Reply 169):

To me, here is where the DOJ should ply. For years the DOJ has been stymied in prosecutions against airlines because DOJ has never been able to prove that an airline is selling below cost to drive out competition. The airlines always use variable and marginal costing to claim that their costs are nearly nothing and that it is impossible to price below cost. As a result, essentially the DOJ has never really won an antitrust case in this industry. The trick would be for DOJ to box them in. In the same case argue that airlines are pricing below cost to drive out competition AND that in other routes they are using their cartel status to price excessively and in concert with their competitors. That way, if the airlines claim cost is nothing in order to defend the "below cost" case, they sink their ship on the "excessive cartel pricing" argument.

DOJ desperately needs to adopt that sort of case or the airlines will be hard to win against.
 
commavia
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 2:10 pm

Quoting alfa164 (Reply 172):
I can see everyone with their own pet peeve will be entering into the argument. Not enough seats to my home airport? That's collusion! Seats getting too tight for my ever-growing butt? That's illegal! No free meals? Heresay! Making me pay for baggage, instead of requiring everyone to share the burden - even if the others don't carry bags? That's gotta be illegal!

  

Translation: "I don't like that after 30 years of essentially 100% of the economic value of deregulation accruing to me, the consumer, to the tremendous detriment of virtually all other stakeholders (including shareholders and employees), said other stakeholders are also finally starting to get some piece of the pie, and therefore it must be illegal."

Ridiculous.

Quoting enilria (Reply 173):
AND that in other routes they are using their cartel status to price excessively and in concert with their competitors.

But therein, yet again, lies the fatal flaw in this line of argument. The DOJ would first have to prove that airlines are a "cartel" - and considering that pricing in the airline industry is incredibly dynamic and exceptionally transparent, that should be quite the creative argument to make. And secondly, and perhaps more importantly, there is not - last time I checked - any legal definition of "price excessively." Given that "pric[ing] excessively" has yielded essentially high-single-to-low-double digit margins, I look forward to hearing that equally-creative argument for how this somehow constitutes "excessive" pricing.

All of these endless complaints about airlines would have some currency if airlines were making profits objectively out of line with other industries with similar risk, cost and complexity. But that's not happening. Indeed, as has been argued cogently in the last week by those both inside and outside the industry, some would argue that even today, with all of these alleged evils and ills perpetuated on U.S. consumers by airlines, the industry still doesn't earn profit commensurate with its risk, cost and complexity.
 
SelseyBill
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 2:13 pm

Quoting bourbon (Reply 151):
This DOJ probe kind of makes me wonder if One of the ME3 carriers is paying some lobbyist in DC or promising a congressman that they will start new service to their airport if they make things difficult to the U.S. Carriers.

Exactly my line of thinking.

One of the things the USA DoJ could consider is lowering entry barriers to the USA market by say; raising the minimum permissible ownership stake of US airlines from 24% TO 49%; (like DL's stake in VS).

Can you imagine the likely impact of Tim Clark @ EK ordering 200+ CS-300's and starting up 'Emirates-USA' ala 'Virgin-America'. That would be sure to blow Richard Andersons' stack......

Allowing overseas airlines to own 49% seems only fair to me.
 
Cubsrule
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 2:27 pm

Quoting Flighty (Reply 170):

Basically any fare that is over $0.80c-90c per seat mile yield. Any coach yield over 40 cents strikes me as outrageous.

How many of those fares can you find in cities that have become materially less competitive as a result of the various mergers?

Quoting SelseyBill (Reply 175):
Can you imagine the likely impact of Tim Clark @ EK ordering 200+ CS-300's and starting up 'Emirates-USA' ala 'Virgin-America'. That would be sure to blow Richard Andersons' stack......

Why would we assume that Tim Clark would succeed in the States? Richard Branson hasn't exactly been a smash hit . . .
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yowza
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 2:54 pm

Quoting brooklynchris13 (Reply 154):
Commavia: There are many reasons I remain a reader of this forum and a constant visitor to this site, despite the silly, comical, and sometime childish comments that so many make. Your consistently insightful and intelligent observations and analysis are one of the biggest. Thank you. I concur with your comments. In this economic age, this DOJ inquiry seems nothing more than a silly waste of time when there are so many bigger "fish-to-fry" and questions to answer.

  

Quoting bourbon (Reply 151):
This DOJ probe kind of makes me wonder if One of the ME3 carriers is paying some lobbyist in DC or promising a congressman that they will start new service to their airport if they make things difficult to the U.S. Carriers.
Quoting SelseyBill (Reply 175):
Exactly my line of thinking.

One of the things the USA DoJ could consider is lowering entry barriers to the USA market by say; raising the minimum permissible ownership stake of US airlines from 24% TO 49%; (like DL's stake in VS).

Can you imagine the likely impact of Tim Clark @ EK ordering 200+ CS-300's and starting up 'Emirates-USA' ala 'Virgin-America'. That would be sure to blow Richard Andersons' stack......

Allowing overseas airlines to own 49% seems only fair to me.

While everybody else seems to be caught up in the infantile he said, she said between the US majors and and the Gulf Carriers the real stuff is happening behind the scenes. The US being the US there are, of course, lobbyists in the picture. The UAE spent more money lobbying the US government last year than any other country in the world. And that's only in over the table money.

Let me put that in context for you:
UAE, that did $25B in trade with the US in 2014 spent $14.2M in lobbying on K Street.
Canada, that did $660B in trade with the US in 2014 spent $11.2M lobbying on K Street.

Of the top 50 UAE companies (by market cap) less than 5 have any meaningful interests in the US and two of the five happen to be EK and EY.

YOWza
 
FlyPNS1
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 3:00 pm

Quoting commavia (Reply 166):
they were concerned fares might increase (they have fallen)

I wonder what data AA is using for this claim as fares certainly haven't fallen in the past two years, not to mention fees have skyrocketed. Look at how fast each carrier copied each other to raise the change fee.

Quoting commavia (Reply 166):
they were concerned American would terminate the US Airways “maverick” pricing philosophies (we have maintained and expanded them)

Again, I'd love to see AA's data on this.

Quoting commavia (Reply 166):
Our industry bears some responsibility for that disconnect, because we clearly haven’t made our case effectively enough.

The airlines bear a lot of responsibility for routinely making false and deceitful claims. Not just AA, but also DL, UA, etc. The airlines got caught lying that bag fees were needed to offset higher fuel prices, but when fuel prices fell, the bag fees didn't change. Had you been smart and had any sense of public relations, you would have trimmed the bag fees even just a small amount to buy a little good PR. Instead, you did nothing. Totally tone deaf.

The airlines are their own worst enemy when it comes to public relations. It's why this type of investigation is now happening. I don't think the DOJ will be able to make a strong case, but the airlines will constantly face these types of inquiries as long as they remain so haplessly tone deaf to the world around them.

[Edited 2015-07-06 08:44:28]
 
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DarkSnowyNight
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 3:16 pm

Quoting alfa164 (Reply 148):
Now that airlines are finally able to "make their investors money while being good stewards of their public trust", you claim that the public is being gouged - ignoring the fact that average airline fares, adjusted for inflation, have barely risen in two decades.

People keep saying this (although it ignores a lot realities; but we'll pretend it's true for the time being), but what never gets addressed is is this actually a bad thing? Out of control labor, fuel, and operational costs were a staple of the airline scene for so long after de-regulation that there is this assumption that fares being rationalized down to appropriate levels must somehow not be a good thing.

Quoting commavia (Reply 149):

Any system that deems levels of competition and airfares that bankrupt companies and wipe out shareholders and employees as "appropriate," or believes that any "visible" hand of regulation should determine what constitutes "reasonable and proper" pricing, is simply not a view I subscribe to, or ever will. As a consumer, taxpayer and citizen - I simply completely, 100% disagree.


I think blaming BKs on competition and fares overlooks an awful lot of what caused these insolvencies to happen. I'm not saying regulation is the answer (especially when we're probably at least half a dozen years from the next time BK becomes likely for any of the big three anyway), but if your contention is that regulation shouldn't be a factor, then you would need to accept the reality that that can mean rational fares and competition that take larger airlines out of their comfort zones is also a possibility/probability.

Quoting commavia (Reply 149):
I'm quite happy with the system we have now, where the market sets prices based on supply and demand, I do not want to live in a country where any such systems of artificial market manipulation by politicians or unelected bureaucrats exist. And as I said, I will be telling my elected representatives as much.

Enjoy it while it lasts, I guess. A lot of the exact same mistakes that caused the turbulence of the last few decades are still happening. Again, not saying regulation is necessarily an answer, but it's not as stable a marketplace as it looks.

Quoting WPIAeroGuy (Reply 152):

If airlines are making healthy profits, and aren't actively trying to either undercut prices or increase capacity to increase competition, is that not tacit collusion? It's literally the definition.

That it is, as a practical matter. As a legal one (as you mention), is probably an entire other story. They would need to be able to show internal communication supporting the same.

Quoting commavia (Reply 153):

Because I don't think the current industry structure is "working against the free market." "Free market" doesn't mean that consumers are guaranteed goods and services priced below cost such that they destroy shareholder value and every other stakeholder gets screwed.

I'll buy that. But I think the opposite extreme (in this case that would be small, thin markets where regional flying dominates as well as fortress hubs where incumbents have a lot of "pricing power") also isn't covered by the term "free-market".

Quoting rdh3e (Reply 160):
If you plan ahead, great deals are still available on airfare.

I don't doubt that for a second. But there a lot of folks that don't have that luxury.

Quoting commavia (Reply 164):
Okay, but once again, I don't consider an industry that produces unprofitable fares for one stakeholder (consumers) and uncertainty, upheaval and chaos for other stakeholders (investors, employees, etc.) to be "just and proper" in the slightest.

The problem with that is that consumers are not only the largest piece of that puzzle, but they also fund the entirety of it. No one's saying investors and employees should be screwed, but they are also absolutely not the DOJ's problem when collusion charges come up as a possibility.

Quoting commavia (Reply 164):

Airlines aren't "purposely being anti-competitive" - they're purposely being profitable.

ATI JVs and merging away competition to consolidate markets and operations are the literal definitions of the first. Are there any of the US3+WN that don't do this (excepting for the obvious that WN doesn't have ATI runs at this time)?

Quoting william (Reply 167):
Or maybe we should ask why couldn't we have this "capacity" discipline when there were 6 majors instead of 3 ?............Pathetic.

Good point. Even better still when we remember that most even managed to share alliances for a while before pairing off for real.

Quoting commavia (Reply 169):
The more competitors, the more chance there is that one of them will act in its own self-interest but to the detriment of the industry overall by attempting to steal market share through undercutting, etc.

And what then?

I honestly don't understand how you can make an argument based on the need for less regulation, but then postulate that competition is a problem when there are so many of them that they start to... compete.

Again, I'm not sure that the gov't breaking up these quasi-monopolistic carriers is the best idea. There are significant volumes from below with the ULCC market picking up a lot of steam, with LCC operators delivering equal or better products and from above with foreign operators finally being able to make serious inroads here where the int'l markets are concerned. But all of that suggests that there will only be more competition in the future (with all the opportunities for various carriers to leverage their operating costs/advantages against each other that that comes with).

There's no minimum level of margin the airlines are entitled to here, and while we might be in a soft spot just now, there's nothing to suggest that will last long term. If you wanted to regulate that somewhat to insure profits while maintaining higher cost structures (this would necessarily act in the industry's overall self interest) that would be one thing, but if you're going for a much more liberalized approach, that's not going to happen. I guess that's why I'm a little confused by some of your postings.
Be A Perfectionst, You're Nothing If You're Just Another; Something Material, This Isn't Personal...
 
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Boeing717200
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 3:52 pm

LOL.

Congressperson, 10 years ago.... You're flying empty planes all over the place congesting major airports! You don't charge enough! You're losing money! Re-Regulate!

Congressperson, today... You aren't growing fast enough! You're fares are too high! You're making money! Re-Regulate!

Jeeze.   

Quoting vin2basketball (Reply 18):
Everybody loses their minds the minute airlines make an ounce of profits. I don't understand why.

Because when it comes to transportation, government only understands Amtrak and Public Transportation, which don't even break even. You have any idea how many politicians actually think that air transportation is public transportation run by the government? Half of them don't even get that airlines are private corporations. They always look at air transportation like the Bus or Rail. The first reaction to any expansion or construction of a new airport is "just make the airlines use bigger planes or schedule their flights better". ALWAYS. So now the airlines are making money. Oh the humanity!

[Edited 2015-07-06 09:02:56]
240 years and the top two candidates are named Dumb and Dumber. Stay classy!
 
commavia
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 4:02 pm

Quoting FlyPNS1 (Reply 178):
I wonder what data AA is using for this claim as fares certainly haven't fallen in the past two years

Does the DOT's data agree with the assertion that, on an average, national level, "fares certainly haven't fallen in the past two years?"

Quoting FlyPNS1 (Reply 178):
The airlines are their own worst enemy when it comes to public relations.

I don't necessarily disagree - airlines often do themselves no favors in the P.R. department. But then again, I really think it wouldn't matter what the airlines did - it's still a game they can never win. When consumers have been conditioned repeatedly that they deserve unprofitable or unsustainably-profitable fares, airlines have no choice but to behave accordingly, and either cut costs to the point that it undermines performance, and/or raise money by other means (i.e., fees).

Quoting DarkSnowyNight (Reply 179):
I think blaming BKs on competition and fares overlooks an awful lot of what caused these insolvencies to happen.

I'm not blaming the spate of bankruptcies "on competition and fares" alone. Excess competition is a reason, not the reason.

Quoting DarkSnowyNight (Reply 179):
Enjoy it while it lasts, I guess. A lot of the exact same mistakes that caused the turbulence of the last few decades are still happening. Again, not saying regulation is necessarily an answer, but it's not as stable a marketplace as it looks.

The market will be what the market will be - stable, unstable or otherwise.

Quoting DarkSnowyNight (Reply 179):
But I think the opposite extreme (in this case that would be small, thin markets where regional flying dominates as well as fortress hubs where incumbents have a lot of "pricing power") also isn't covered by the term "free-market".

Sure that's the free market. If little cities with small markets attract less competition because of the lower economies of scale and lower revenue potential, how is that not a free market response?

Quoting DarkSnowyNight (Reply 179):
The problem with that is that consumers are not only the largest piece of that puzzle, but they also fund the entirety of it.

Consumers "fund the entirety" of the air transportation system? Interesting. I suspect there are a few people at Boeing Capital (and various other financial institutions and lessors) that might disagree with you.

Quoting DarkSnowyNight (Reply 179):
I honestly don't understand how you can make an argument based on the need for less regulation, but then postulate that competition is a problem when there are so many of them that they start to... compete.

Huh? Who ever said "competition is a problem?" "Competition" - in general - isn't the problem. I'm all for competition. The problem is that some seem to want it both ways - they want the "excess" competition of the past but don't want to allow the industry to respond to it (via consolidation, etc.). I'm for "all of the above." Indeed, that - to me - is the optimal state. Let there be as much or as little competition as the market will bear, but get out of the way and let consolidation occur, as well, to rationalize that competition when it becomes dilutive to industry financial health.
 
frmrCapCadet
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 4:06 pm

Market fundamentalists assert that markets always work. There is no evidence that is true. Adam Smith did not think so, companies lobbying for special privileges do not think so, most economists do not think so, Warren buffet does not think so.

Utilities, transportation, and medical care are all areas in which major market failures occur. And regulations to correct or mitigate those failures are difficult. And specifically keeping air travel competitive and profitable are difficult. Which doesn't mean that the public should bow out and take whatever airlines want.
Buffet: the airline business...has eaten up capital...like..no other (business)
 
Cubsrule
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 4:17 pm

Quoting frmrCapCadet (Reply 182):
And specifically keeping air travel competitive and profitable are difficult. Which doesn't mean that the public should bow out and take whatever airlines want.

How, exactly, is the status quo (which is not full deregulation) failing at "keeping air travel competitive and profitable?"
I can't decide whether I miss the tulip or the bowling shoe more
 
Pyrex
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 4:49 pm

This has got to be a joke... If I decide to fly between Chicago and New York I have probably half a dozen airlines operating probably close to 100 flights a day with seats that need to be filled (or expire worthless) that same day, with different fare classes, for close to hundreds of different alternatives/fares for me. Yet, when I land in New York, I have a "choice" of one of three airports, all operated by the same government-owned monopoly (the PANYNJ). To get back from the airport to the city, I can then take an airport taxi from a government-enforced monopoly or, if I prefer to take public transportation, I can pay $5 for a 5-minute airport-owned monorail to take me to a subway station from where I can catch a $2.50 subway for durations upwards of 1h30. Of course I can drive myself there (in some instances paying $14 tunnel toll to the same guys who own the airports) and pay $30 a day for airport parking. And ye airlines are the problem with air transport?
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frmrCapCadet
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 5:31 pm

Quoting Cubsrule (Reply 183):
How, exactly, is the status quo (which is not full deregulation) failing at "keeping air travel competitive and profitable?"

We may not be in disagreement. Existing regulations 'kinda sorta' work.
Buffet: the airline business...has eaten up capital...like..no other (business)
 
commavia
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 5:58 pm

Quoting frmrCapCadet (Reply 182):
Market fundamentalists assert that markets always work.

Market don't "always" work, although I'd submit that history illustrates pretty vividly that markets certainly do work more, and in more applications, than regulation.

Quoting frmrCapCadet (Reply 182):
And specifically keeping air travel competitive and profitable are difficult.

And, as said, I don't think there is any "evidence" to support the conclusion that the market today isn't producing a "competitive and profitable" industry.

Quoting frmrCapCadet (Reply 182):
Which doesn't mean that the public should bow out and take whatever airlines want.

Indeed, although it also doesn't mean that the other stakeholders in the air transportation system - again, namely the providers of capital, and the providers of labor - should "bow out" and "take whatever [consumers] want." There has to be some semblance of balance. This remains the key point, at least from my perspective. We've gone from a system where essentially 100% of the economic value from the U.S. air transportation system accrued to consumers at the direct, express expense of other stakeholders, and today we've simply swung back somewhat on the continuum to where airlines are producing high-single-to-low-double digit margins. That, to me, seems like a fairly reasonable balance in spreading the value produced by the air transportation system among all the stakeholders to said system.
 
frmrCapCadet
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 6:09 pm

Heavy regulation and subsidies in early aviation built the tremendous system we had, but with costs. Pilots, FAs, and others enjoyed the benefits of working for airlines that were guaranteed profits. The system did need some deregulating. Which actually was started under Jimmy Carter IIRC.

That deregulation brought tremendous benefits to the public and to the industry, but at the cost of innumerable airlines going out of business or bankrupt.

Alliances and mergers have given airlines a lot more pricing power, which is not all a bad thing. But not all a good thing also.
Buffet: the airline business...has eaten up capital...like..no other (business)
 
Flighty
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 6:27 pm

Here is a basic real world example. Disclaimer, I did not search for an expensive ticket. I just made one up.

OMA-BTV. Need to go to a meeting tomorrow and return Thursday July 9. Right now AA/s price is between $727 and $957. United offers tickets from $1077 up. Delta offers from $1,435.

It's not quite a dollar a mile, but it is expensive. I don't have a point to make, just interesting.

Next I tried Minot, ND - New Orleans. Delta is the cheapest at $1,312. United, same price. And that's it.

[Edited 2015-07-06 11:38:58]
 
Cubsrule
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 6:57 pm

Quoting Flighty (Reply 188):
OMA-BTV. Need to go to a meeting tomorrow and return Thursday July 9. Right now AA/s price is between $727 and $957. United offers tickets from $1077 up. Delta offers from $1,435.

I don't disagree that expensive tickets exist, but they existed before the consolidation and alleged collusion too. Has anything that has happened int he last 5 years made fares in tiny markets worse?
I can't decide whether I miss the tulip or the bowling shoe more
 
commavia
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 7:04 pm

Quoting Flighty (Reply 188):
OMA-BTV. Need to go to a meeting tomorrow and return Thursday July 9. Right now AA/s price is between $727 and $957. United offers tickets from $1077 up. Delta offers from $1,435.

It's not quite a dollar a mile, but it is expensive. I don't have a point to make, just interesting.

Next I tried Minot, ND - New Orleans. Delta is the cheapest at $1,312. United, same price. And that's it.

Okay ... and? With one day advanced notice, between relatively small markets, what do you expect?
 
Flighty
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 7:30 pm

Quoting commavia (Reply 190):
Okay ... and? With one day advanced notice, between relatively small markets, what do you expect?

You arre right, if I had to make a point, it would be this. All those little markets add up. The ones involving Tier 2 - Tier 3 cities like Burlington, Tulsa, or Jackson MS.

The broad connect market was not really considered during merger mania. Now, they may be looking at it. Some of these cities, AirTran did not serve. But some, it did. People get mad when they are doing a fairly normal trip and it comes up $900 or something, and it used to be $220. It makes them mad enough to call their senator. So we'll see.
 
Cubsrule
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 7:38 pm

Quoting Flighty (Reply 191):
People get mad when they are doing a fairly normal trip and it comes up $900 or something, and it used to be $220.

Which markets saw that sort of increase?
I can't decide whether I miss the tulip or the bowling shoe more
 
AirbusCanada
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 7:40 pm

Quoting Pyrex (Reply 184):
This has got to be a joke... If I decide to fly between Chicago and New York I have probably half a dozen airlines operating probably close to 100 flights a day with seats that need to be filled (or expire worthless) that same day, with different fare classes, for close to hundreds of different alternatives/fares for me. Yet, when I land in New York, I have a "choice" of one of three airports, all operated by the same government-owned monopoly (the PANYNJ). To get back from the airport to the city, I can then take an airport taxi from a government-enforced monopoly or, if I prefer to take public transportation, I can pay $5 for a 5-minute airport-owned monorail to take me to a subway station from where I can catch a $2.50 subway for durations upwards of 1h30. Of course I can drive myself there (in some instances paying $14 tunnel toll to the same guys who own the airports) and pay $30 a day for airport parking. And ye airlines are the problem with air transport?

        
 
commavia
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 7:50 pm

Quoting Flighty (Reply 191):
You arre right, if I had to make a point, it would be this. All those little markets add up. The ones involving Tier 2 - Tier 3 cities like Burlington, Tulsa, or Jackson MS.

And I'm curious - what do those "little markets add up" to? My guess is that it's very much a Pareto scenario, with perhaps 20-30% of the nation's city pairs constituting the vast majority of the traffic. In that sense, it's only logical that the smallest among the nation's city pairs - like those you "randomly" used as an example - would have, in general, less competition and thus higher fares.

Small markets receive less competition for air service, just like how small markets receive less competition for all sorts of things, from grocery stores to gas stations to cable TV. This isn't news. And so I yet again find myself asking - what is so different about airlines?

Quoting Flighty (Reply 191):
People get mad when they are doing a fairly normal trip and it comes up $900 or something, and it used to be $220.

Well, first off, it really quite depends on what one considers "normal." A round-trip ticket booked less than 24 hours in advance, with a return in less than one week, to me constitutes a product - namely, near-immediate air transportation - that is and ought to be priced at quite a premium. The opportunity cost to an airline to hold a seat over for someone to travel on that short of notice is substantial, and should be priced accordingly.

Second, as to the alleged pricing regime in the past, again, said "people" - in the aggregate, on average - should be paying what it costs to run an airline plus create a reasonable return. If that means that fares have gone up - even considerably - in some city pairs (where, frankly, they perhaps shouldn't have ever been that low to begin with), then so be it.

Quoting Flighty (Reply 191):
It makes them mad enough to call their senator. So we'll see.

Well let's see if "their senator" would prefer returning to the era of regulation.
 
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mayor
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 8:01 pm

Quoting DCA-ROCguy (Reply 25):

And I suppose you don't blink an eye at a car that costs $20k today that cost $10k a mere 15 years ago?
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SelseyBill
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 8:03 pm

Quoting Cubsrule (Reply 176):
Quoting SelseyBill (Reply 175):Can you imagine the likely impact of Tim Clark @ EK ordering 200+ CS-300's and starting up 'Emirates-USA' ala 'Virgin-America'. That would be sure to blow Richard Andersons' stack......
Why would we assume that Tim Clark would succeed in the States? Richard Branson hasn't exactly been a smash hit . . .

What evidence is there of Tim Clark failing anywhere ?

In any case, EK in my scenario would be the minority shareholder @ 49%, and would probably appoint a US citizen as CEO and majority US board members like 'Virgin-America', or like the DL situation @ VS .........
 
MSPNWA
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 8:16 pm

Quoting frmrCapCadet (Reply 182):
Market fundamentalists assert that markets always work. There is no evidence that is true. Adam Smith did not think so, companies lobbying for special privileges do not think so, most economists do not think so, Warren buffet does not think so.

Utilities, transportation, and medical care are all areas in which major market failures occur. And regulations to correct or mitigate those failures are difficult. And specifically keeping air travel competitive and profitable are difficult. Which doesn't mean that the public should bow out and take whatever airlines want.

I agree completely. You can include me with the economist group that doesn't believe markets always work. I wish they did, but they just don't. If you notice, there's a common theme with markets that have regulations. In general they are "common goods" with few to no viable competition or substitutions for the consumer. Air travel is very much in that direction on the market grid. Usually we have enough competition that the free market works pretty well. But the rash of consolidation has tilted that away

Quoting mayor (Reply 195):
And I suppose you don't blink an eye at a car that costs $20k today that cost $10k a mere 15 years ago?

There's no issue with new cars costing much more than they used to. You're getting a lot more car than back then, so the "value" is roughly the same. Also, there's virtually an unlimited amount of price options for those who want transportation and don't want luxury. Neither of those exist in the airline industry today.
 
Cubsrule
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 8:32 pm

Quoting SelseyBill (Reply 196):
What evidence is there of Tim Clark failing anywhere ?

None. I don't know why we would presuppose anything about whether or not he could succeed in a multi-carrier, multi-hub, LFC-infested market based on his experience in Dubai. Perhaps he could, and perhaps he couldn't. Some foreign companies, like Toyota, do well in the States. Others, like Tesco, do not.

Quoting MSPNWA (Reply 197):
Also, there's virtually an unlimited amount of price options for those who want transportation and don't want luxury. Neither of those exist in the airline industry today.

Ever hear of a not-so-little airline called Spirit?
I can't decide whether I miss the tulip or the bowling shoe more
 
FlyPNS1
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Mon Jul 06, 2015 8:33 pm

Quoting commavia (Reply 181):
Does the DOT's data agree with the assertion that, on an average, national level, "fares certainly haven't fallen in the past two years?"

The DOT data shows average fares rising. Of course, the DOT doesn't even factor in fee revenue. What really gets the airlines in trouble is that fares are rising, even though airline costs are falling. It's pretty unusual in a "competitive industry" to have fares rise while costs are declining.

And even this national data is skewed by a handful of markets whose fares have dropped because of newly created competitive battles (DCA, DAL). However, many of those were forced on the airlines by the DOT/DOJ and would not have happened if the airlines had their way.

Quoting commavia (Reply 181):
But then again, I really think it wouldn't matter what the airlines did - it's still a game they can never win. When consumers have been conditioned repeatedly that they deserve unprofitable or unsustainably-profitable fares, airlines have no choice but to behave accordingly

But whose fault is it for conditioning customers to these money losing low fares? The legacy airlines were their own worst enemy by flooding the market with cheap fares when competing with new entrant LCC's. That's where most of the losses occurred and where most of the conditioning occurred.

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