TW870
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Wed Jul 01, 2015 11:00 pm

Quoting Indy (Reply 36):

Of course there is collusion. That was the whole point to "consolidation."

But from what I am able to tell with the little information available in the news sources, they are alleging that the airlines illegally communicated with one another to restrict capacity. So the Feds are not saying that the consolidation or capacity discipline is the problem. They are alleging that there was verbal communication between competitors without JVs or other partner agreements to strategically shrink capacity. It is illegal under anti-trust law for Smisek to call Anderson and handshake on a 20% capacity reduction to go into effect August 1. From what I understand, they are investigating whether or not that happened.
 
DeltaRules
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Wed Jul 01, 2015 11:08 pm

So how would an airline "breakup" work? Delta divests assets and Northwest reappears in a different form? American repaints a bunch of planes with blue and red tails with a flag on them?

I was going to start a thread about this anyway: Would it have been smarter/better advised on the airlines' part to "partner with" the airlines they merged with instead? I see Enterprise, National and Alamo, Avis and Budget operating as five different brands with two different parent companies. Why didn't they go "Continental, a United Airlines Company"?

Quoting sspontak (Reply 29):
Exactly. What did the DOJ expect would happen with 4 major mergers? Did they really expect it would help with competition?

They're as guilty as anyone else for allowing this to happen.

Quoting n471wn (Reply 39):
You must be joking as while Air Tran disappeared most of its routed remain---SWA is far more fair than the other mergers

Southwest merged with AirTran for no reason other than to kill them. It was the most obvious of the four.

Out of CMH, WN and FL overlapped on at least three routes with daily flights: MCO, TPA, and FLL. FL was often the cheapest by a mile into MCO, even when compared to the legacies. I think FLL is seasonal now.

[Edited 2015-07-01 16:11:28]

[Edited 2015-07-01 16:12:26]
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blueflyer
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Wed Jul 01, 2015 11:09 pm

Quoting DCA-ROCguy (Reply 25):
But now they're getting greedy. No, Southwest, for instance, should not be expecting a 15 percent return. Try 8-10.

Who's to say what is an acceptable rate of return?
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MKIAZ
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Wed Jul 01, 2015 11:21 pm

Quoting Maverick623 (Reply 14):
Here's the thing: Crandall was kinda right about it all. Not about the price fixing, but about this:

Quote:
Crandall: I think it's dumb as hell, for Christ's sake, all right, to sit here and pound the [expletive] out of each other and neither one of us is making a [expletive] dime.

He was right. It doesn't make sense. But that's the business they went into. Allowing 6 carriers to merge into 3 basically ensured there would be more agreements like this (be it formal or informal).

The issue, when carriers aren't competing and are slashing capacity and driving fares up, is how much profit is enough?

If they agree to limit capacity and increase fares to make 5%, next year they will want 7, then 10, then 15, ect. And if they've figured out ways around the intent of the laws they'll keep doing it. The DOJ should be all over them making sure they are 100% above board. And small carriers like spirit, jetblue, alaska should get priority access to new markets they want to enter.

Look at the wireless industry over the past 2-3 years. It is a PERFECT example of how competition should work. Sprint and tmobile were smaller, weaker players. The att/tmobile merger was denied, as it should have been (and as all the airline mergers should have been). To compete they started pricing aggressively and taking away market share from att/vz. Now you can get cell phone service for half (or less) of what it cost a few years ago.

The only problem is, if 5 million customers want to join tmobile next month, it won't be a big issue except for maybe adding some more towers. If 5 million people want to start flying jetblue it won't be possible due to slots/planes/ ect.
 
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Wed Jul 01, 2015 11:22 pm

Quoting DCA-ROCguy (Reply 25):
Southwest, for instance, should not be expecting a 15 percent return. Try 8-10.

As was said earlier, who are you to determine what is a reasonable rate of return?

And FYI, the "Alaska 2010" plan at AS, launched in 2003, was predicated on creating an average ROIC of 10% over the course of the business cycle meaning that some years would be 15% or greater to offset the lean years where you saw the 7-8% returns. That average 10% ROIC target isn't one pulled out of a hat; it's the minimum return required to re-invest in your company and allow it to sustainably grow, benefiting customers, shareholders, and employees alike.
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BestWestern
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Wed Jul 01, 2015 11:39 pm

Examples of recent collusion to reduce competition

1 - EWR JFK slot swap and eliminating competition on routes from prospective hubs by DL and UA
2 - combined US3 attacks to reduce / eliminate the threat of ME3 on their Atlantic alliances.

Both of these are an attempt to increase profits by collective decision
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N628AU
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Wed Jul 01, 2015 11:59 pm

Quoting RDUDDJI (Reply 22):
Quoting RDUDDJI (Reply 22):
Here's the Washington Post's article. The DOJ is starting an investigation on whether airlines communciated illegally in order to restrict capacity and force airfares higher. The investigation is definitely not just about fare-matching.

http://www.washingtonpost.com/politi...35-935065bc30d0_story.html?hpid=z2

IIRC, the Post allows one to read a few articles per month, so one shouldn't need to be a subscriber to read it.

Good for DOJ, doing its job. Airfares are unnecessarily high, and capacity unnecessaily low, in order to satisfy the unreasonable greed of Wall Street. Airlines are private businesses who provide a social or public good, so they have an obligation to keep fares as low as possible while still making a reasonable profit.

Jim

American had $982 billion in revenue in Q1 and made a record $932 million profit. Turns out to be about 10.5 cents on every dollar earned in an enormously complex and volatile industry with huge capital and labor intensive investments. This is greed to you? That's about the return a major corporate restaurant chain makes with more investment and risk.
 
N1120A
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 12:01 am

Quoting alfa164 (Reply 20):
He said "major" airlines

AS has been a major for nearly 20 years.
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Maverick623
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 12:03 am

Quoting MKIAZ (Reply 53):
It doesn't make sense. But that's the business they went into.

That's not a business. That's wasting money, and people's time.

Quoting MKIAZ (Reply 53):
The issue, when carriers aren't competing and are slashing capacity and driving fares up, is how much profit is enough?
Quoting MKIAZ (Reply 53):
And small carriers like spirit, jetblue, alaska should get priority access to new markets they want to enter.

Only 6 airports (spanning 4 markets) currently have capacity controls on them: JFK/EWR/LGA, DCA, ORD, and DAL. And guess who the latest open slots went to...

Any airline is free to start service to and from any other airport without restriction.

Quoting MKIAZ (Reply 53):

Look at the wireless industry over the past 2-3 years. It is a PERFECT example of how competition should work. Sprint and tmobile were smaller, weaker players. The att/tmobile merger was denied, as it should have been (and as all the airline mergers should have been). To compete they started pricing aggressively and taking away market share from att/vz. Now you can get cell phone service for half (or less) of what it cost a few years ago.

In the meantime, over a dozen other mergers have taken place in the wireless industry, additional bandwidth was allocated to wireless carriers, and all the major players are raking in the profits.

Cutting airfares in half (or more) would cause every single airline to shut down within 3 years, with no replacements.

Quoting MKIAZ (Reply 53):
The only problem is, if 5 million customers want to join tmobile next month, it won't be a big issue except for maybe adding some more towers.
Quoting MKIAZ (Reply 53):
If 5 million people want to start flying jetblue it won't be possible due to slots/planes/ ect.

Incorrect analogy. The proper analogy would be to view cell phones as airplanes, cell towers as runways, and cell frequencies (bandwidth) as the airspace.

Up until 5 years ago, cell companies didn't have enough bandwidth (slots) to take on the amount of customers they wanted (which is why cell service, especially data service, was slow and spotty).


Also, you just killed your own argument. The reason you can't have such fierce competition between airlines is because it costs a hell of a lot more and takes way more time to absorb any growth than cell companies... not to mention that you can't add airspace out of nowhere.

Cell towers and cell phones are far cheaper than runways and airplanes. You simply can't compare the economics of the two, even if you can compare the infrastructure.
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32andBelow
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 12:06 am

Quoting A333MSPtoAMS (Reply 43):
Also, the cost to change a ticket. $200 seems like a lot, especially if you're changing information 3-4 months before the flight.

If it makes you feel any better it takes a res agent who is making 9-12 dollars an hour, less than 5 minutes to do this.
 
BMI727
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 12:10 am

They'd better find some really good stuff, otherwise the government has just screwed investors out of a lot of money with their fishing expedition.
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Byrdluvs747
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 12:11 am

Quoting Indy (Reply 36):
Personally, I think most of the mergers that have taken place over the last 10 years or so should be undone.

I think its too late for that.

Quoting Flighty (Reply 28):
If/when they are blocked, OR predatory behavior is used against them,

Can we define "blocked" or predatory behavior? I have a feeling that we will create a atmosphere where the smaller carriers cry "Predator" anytime they don't get their way.
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 12:29 am

Quoting A333MSPtoAMS (Reply 43):
My biggest gripe is that hub captives tend to pay quite a bit more than non-hub captives. I once tested an airfare from MSP to AMS and it was $1300, but when I tried flying out of MKE via MSP to AMS it was about $1075.

That happens everywhere. A nonstop is a more valuable product than a one-stop and can be sold at a higher fare.
 
BD338
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 12:35 am

Hardly a surprise. The inevitabilty of merger mania was competitive loss for the consumer, though consolidation was also inevitable and once one giant had been created others were needed to (hopefully) balance the giants....that may not have worked. Some of the recent actions of the US3 are all a bit suspect in terms of them being open to true competition, backroom deals on slots at NY airports, wanting investigations against the ME3, trying everything they can to block Norwegian from full access to the TATL market (I saw a report today that even MOL over at FR had sympathy for Norwegian!). So, the possibility of collusion on pricing isn't the greatest surprise. Now, whether anything can be proved is a whole different tale.

I wish the US3 would just stop bleating about "unfair" I suspect many non-us airline would love to have been able to dump debt in Chapter 11 or foist billions of dollars of pension liabilities on their taxpayers. All perfectly legal in the US but hardly a level playing field globally. if the US3 product is that good, get on and compete with the world and each other, that should benefit us the traveler. Of course, fat cat bonuses and wall street dividends might be at a bit more risk, and they can't possibly have that  
 
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 1:03 am

Quoting rdh3e (Reply 31):
They are for-profit, privately owned enterprises the same as any other. Who are you to decide what level of profits are acceptable for a business?


I have an idea. Let us create oligopolies with high barriers of entry, the ability to collude, and a quick response to crush any non-colluding competition entering a market. You put them in an industry with many buyers who individually have little influence on price. The MegaFoods can then rent you your grocery cart and charge you a packaging surcharge if you want a container to hold that water. The MegaCars can charge you $50,000 for a subcompact car and squeeze the seats to reduce material costs. The MegaGases can add a fuel transportation surcharge on top of the pump price, and they limit the amount of fuel available to purchase at any time by mutual agreement. By colluding, one can charge a higher price than they would be able to in a competitive environment. All of these companies are for-profit enterprises the same as any other. The issue is not the level of profits, its the collusion.

Yeah, I understand you--in this version of the world, I would rather own it than fly it, and if I were an owner or employee, I'd be unhappier than the customers about this investigation. We're simply repeating US economic history--anti-trust laws came into being for a reason. The ironic thing is that this idea probably occurred to the DoJ lawyers when the airlines started complaining about Emirates and Norwegian in an attempt to crush them, and they decided to see if the U.S. airline industry realized it was holding a double-edged sword.

Maybe DoJ is just giving the airlines a yellow card. Maybe did blow the whistle and supplied evidence--then it could get really interesting. Honestly, I think it will be hard to prove empirically alone without supporting documented conversations and witnesses.

John
 
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 1:22 am

Quoting N628AU (Reply 56):

As much profit as restaurants! Investigate!

Lightsaber
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KirkSeattle
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 1:23 am

Quoting N628AU (Reply 56):
American had $982 billion in revenue in Q1 and made a record $932 million profit. Turns out to be about 10.5 cents on every dollar earned in an enormously complex and volatile industry with huge capital and labor intensive investments.

  

You forgot a decimal point. And yes, in this case, it's important.

9.82 billion.

I wonder if the DOJ got a hold of something that made them announce an investigation. A whistle blower?

As for profitability, to me, it seems like the airlines are announcing unfathomable level of profits recently from where they were several years ago. Is it all oil prices, change fees and baggage fees? Well, it will be interesting to watch this one.

Cheers,
KirkSeattle
 
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 1:35 am

Quoting KirkSeattle (Reply 66):
it seems like the airlines are announcing unfathomable level of profits

  

Stop focusing on the numbers and look at the ROIC. That's what's important. For an industry that generates tens of billions of dollars in revenue, a 10-15% return is not unreasonable. Even 20-25% isn't.

But when you look at just the number, it's easy to go, "OMG! THEY'RE GOUGING US!"

They're not.

Try looking at the ROIC for other industries and see where they rank. I think you'll be surprised at how reasonable the airline industry is by comparison.

Then tell DOJ to go investigate those other industries...   
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commavia
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 1:52 am

I literally cannot wait for the outcome of this "investigation."

If I'm proven wrong, I'll absolutely be the first to admit it. But until then, my position is the same as it was when this was last discussed a week ago. This sounds to me like nothing more than the latest all-too-common capitalist outrage whipped up by an uninformed media and even-more-uninformed politicians and bureaucrats with no understanding of even basic economics. Just when I thought this whole thing couldn't sound any more ridiculous than it did in print, I was lucky enough to hear the good Senator on NPR today, uttering such nonsense that it essentially confirmed what I already suspected.

I continue to doubt that this is some large cabal of airline CEOs "signaling" to each other at widely-publicized industry events in front of the global media, and this "signaling" somehow indicating a more secretive, sinister behind-the-scenes collusion to coordinate fares. I'm sorry, but in 2015, I simply don't believe that any airline CEO - let alone any publicly-traded corporation's general counsel - would be that blatantly stupid. And no, contrary to what the Senator said, simply using the words "capacity discipline" in public - in the presence of other airline CEOs, no less! - does not constitute collusion.

My opinion hasn't changed from what it's long been - it is an absolutely fantastic thing that this industry is finally able to earn an entirely-reasonable, risk-appropriate return on capital and create value not only for shareholders, but also employees and other stakeholders. If that means that some "spoiled" consumers, who enjoyed far-too-low fares for far-too-long, are having to pay more (either through higher base fares, or higher fees), then so be it. It's called capitalism.
 
william
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 1:57 am

Again, funny how these three CEOs find capacity discipline only after they go from 6 to 3.
 
maxamuus
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 1:58 am

This one really makes me scratch my head. I understand the law and the CEOs cant sit down and set prices, seats, etc.

So CEOs have stated publicly (on CNBC and earning conference calls) we are not going to act like drunken sailors and dump capacity in and flood the markets with excess seats thereby creating creating all the problems of the past 25+ years.

So airlines for the first time since deregulation are acting like a REAL business. Seats match demand and are priced to make a profit. Now the public and politicians want to go nuts that this is price fixing and collusion? How insane is that.

Ok so lets say DC decided Yup this is illegal. Airlines cannot show restraint and operate like any normal free market business are they going to RE-regulate the airlines? That is the only logical step. I mean they can't dictate that they must increase ASM YOY by 5% or 7% etc. Are they going to impose that airlines must fly 747-8 from LAX to SAN on the half hour? Hourly shuttle service from GSP to GSO (It was done for god's sake and the airline bled money)?

So DC &DOJ either Re-regulate the airlines, bring back the CAB and go back to 1978, or shut the hell up. You can't have it both ways.

[Edited 2015-07-01 19:00:21]
 
HPRamper
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 2:00 am

Quoting RWA380 (Reply 15):
Add AS to your list.
Quoting alfa164 (Reply 20):
He said "major" airlines

Aside from the financial definition, AS is also twice the size of Spirit.

Quoting BoeingGuy (Reply 35):
Right, and you think the bottom feeder of airlines, Spirit, is more major than AS?

  

Quoting n471wn (Reply 39):
You must be joking as while Air Tran disappeared most of its routed remain---SWA is far more fair than the other mergers

The AirTran routes remain to the markets that Southwest already served. The vast majority of unique AirTran stations have been dumped. There were plenty of them.
 
Rdh3e
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 2:02 am

Quoting TW870 (Reply 50):
It is illegal under anti-trust law for Smisek to call Anderson and handshake on a 20% capacity reduction to go into effect August 1. From what I understand, they are investigating whether or not that happened.

From my understanding they aren't saying there was a phone call or any person-to-person communication that was illegal. They are really concerned with the "capacity control" mantra that is being preached on a nationwide scale on earnings calls and in investor presentations.

The concern is really just to draw the line somewhere between providing meaningful insight to the markets, and messaging to competitors. It's certainly a fine line and I would not want to be the one to define it, but that is part of the reasons that all airlines have massive legal teams.

Quoting 32andBelow (Reply 59):
If it makes you feel any better it takes a res agent who is making 9-12 dollars an hour, less than 5 minutes to do this.

Or "free" on the web in about 15 seconds. (granted the transaction cost is probably about 5 cents or so!) But the real cost to the airline is having held your seat out of inventory for whatever amount of time. However, it would be nice if there was only a fee inside a certain window. I think that would be more appropriate.
 
maxamuus
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 2:24 am

Quoting 32andBelow (Reply 59):
If it makes you feel any better it takes a res agent who is making 9-12 dollars an hour, less than 5 minutes to do this.

Depending on the airline, *cough UA* that res agent is likely in a call center in the Philippines making 3 dollars a hour if he is lucky. So that 5 minute phone call is costing somewhere in the neighborhood of a 25 cents. Of course then you do have to factor in the 4 subsequent calls to get it fixed. So maybe a dollar.  
 
BestWestern
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 2:43 am

Explain to me the decision behind UA stopping trans continental service from JFK and DL curtailing international service from EWR - all announced in 24 hours - collusion to fix schedules and reduce competition?
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alfa164
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 3:39 am

Quoting BoeingGuy (Reply 35):
Right, and you think the bottom feeder of airlines, Spirit, is more major than AS?

Nope... neither. While the DOT - and you - may have various definitions of "major", I wouldn't consider any airline to be in that category unless, were it to disappear tomorrow, it would have a major effect on air travel within the USA.

Alaska is a very good regional carrier; Spirit is... well, the flying equivalent of a Greyhound bus. But if either (or both) of them were to fall off the earth tomorrow, it would hardly cause a ripple in the transportation marketplace in the USA.
 
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 4:28 am

Quoting BestWestern (Reply 74):
Explain to me the decision behind UA stopping trans continental service from JFK and DL curtailing international service from EWR - all announced in 24 hours - collusion to fix schedules and reduce competition?

There was the opportunity to redeploy the assets used in those markets and (hopefully) use them more profitably elsewhere. Happens all the time; no sinister motives at work other than the "profit motive" which is part of any business.

Quoting alfa164 (Reply 75):
While the DOT - and you - may have various definitions of "major", I wouldn't consider any airline to be in that category unless

No offense, but you have to understand that perception of what you or others think constitutes "major" isn't relevant. The DOT is the final arbiter of what constitutes a "major" carrier vs. a "national" one, and the benchmark is $1B in annual revenue or more.

And by that metric, AS has been a major for quite some time.
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Comments made here are my own and are not intended to represent the official position of Alaska Air Group
 
silentbob
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 4:31 am

Wait, wasn't there just a lot of talk about the airline stocks being down because of the "excessive capacity growth" and "fare wars" in the industry?
 
KirkSeattle
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 4:32 am

Quoting EA CO AS (Reply 67):
Stop focusing on the numbers and look at the ROIC. That's what's important. For an industry that generates tens of billions of dollars in revenue, a 10-15% return is not unreasonable. Even 20-25% isn't.

Healthy conversation, respective commentary. I appreciate it. Good points and I'll research more.

Best,
KirkSeattle

Anyone on DL 1473 tomorrow SEA-JFK? Message me to say hello. Row 4.
 
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TheRedBaron
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 4:54 am

Quoting Maverick623 (Reply 58):
Cutting airfares in half (or more) would cause every single airline to shut down within 3 years, with no replacements.

I agree, but Jet Blue, Southwest and some others have proven that a simple cheap product can survive in this very competitive industry. Now, JetBlue has Mint and is entering a much better hard product and service...at a very competitive price. My main gripe here is that Legacies have been screwing their employees for decades and hiked prices for oil price, and now that they are in a better shape, the oil surcharges never disappeared and they keep their employees on food stamps....

I wonder where will this end....

TRB
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32andBelow
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 4:57 am

Airlines will never act like a normal business. It is almost like a public utility or publuc transportation. If our bus systems were making 20% we would not be happy. That is always going to be the struggle of running a business that is profitable vs what the country and public feel about it.
 
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 5:39 am

Quoting KirkSeattle (Reply 78):
Healthy conversation, respective commentary. I appreciate it.

From you as well sir. And much appreciated also.

Safe travels tomorrow!

~ EA
"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan

Comments made here are my own and are not intended to represent the official position of Alaska Air Group
 
luv2cattlecall
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 5:41 am

A month or so ago, someone at WN mentioned 7-8% growth, and that one comment sent all the airline stocks into a tailspin. Investors (the owners of the respective airlines) made it clear that they want capacity discipline.

It would be irresponsible to continue to flood the market given that reaction.

The DOJ is acting like Gary and Doug are planning to park aircraft for an extra 6 hours each day, when in reality they're increasing overall ASMs but are doing so on routes that are more profitable.
.
 
b747400erf
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 5:43 am

Quoting EA CO AS (Reply 67):

Then tell DOJ to go investigate those other industries...

The DOJ isn't investigating other industries? Do you have a source for that?

This topic went from discussing the possibilities to a Fox News comment section real fast, as always. As if you all had the inside information and have decided you know more than a DOJ investigation. Why doesn't the world just start letting internet commentators run the world instead?
 
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 5:54 am

Good to see the DOJ take this step. After the big mistakes of allowing all four major takeovers in this country, this is the least they can do. Maybe they will find something. We can debate what level of profit is right/wrong all day, but no matter a profit or loss, colluding is illegal.
 
enzo011
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 5:55 am

Quoting BestWestern (Reply 74):
Explain to me the decision behind UA stopping trans continental service from JFK and DL curtailing international service from EWR - all announced in 24 hours - collusion to fix schedules and reduce competition?

Capacity discipline....say it enough times and it will become the truth...
 
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enilria
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 6:03 am

ROTFL. So deserved. We'll see if it goes anywhere.
 
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enilria
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 6:26 am

Quoting vin2basketball (Reply 18):
Quoting n562wn (Reply 23):
Quoting BoeingGuy (Reply 35):

There is a spectrum in terms of level of competition. If you have a lot of competition you may have an unprofitable industry, but without regulation and in an industry with extreme barriers to entry airlines will merge down to just one airline. In capitalism it will always be cheaper to buy a competitor than "defeat them" and since bankruptcy makes it virtually impossible to "beat" anybody, acquisition is by far the cheaper method. As there are fewer and fewer competitors the value to eliminate the remaining ones via acquisition increases.

Yes, the DOJ is guilty of allowing the last round of mergers, but 1) the airlines lied about the benefits and if they were not achieved the DOJ has the right to hold them accountable and 2) the DOJ tried to stop the AA/US deal and was undermined by airline lobbying of politicians. The same politicians who are using the same lobbying effort to block the ME3 from competing. This, hopefully, represents a full stop of mergers, slot trades, and other anti-competitive actions.

Quoting DeltaRules (Reply 51):

I doubt there would be a breakup, although a sale of slots is possible. Very hard to put the genie back in the bottle.

Quoting BestWestern (Reply 55):

Exactly. I think that's the most likely thing to change. No more competition limiting deals.
 
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DocLightning
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 6:41 am

It's an interesting debate. Of course private companies have the right to make money, but where do you draw the line to the point where they are overcharging? What sort of profit margin is "appropriate" for an airline? Who decides that?

Four airlines each share a double-digit percentage of domestic traffic. Is that sufficient competition for a country this size? When we had more airlines, things were better for passengers in some ways, but worse in others.

I'm not going to wade into that because I'm so conflicted on the multiple legal and ethical issues that impinge here.

But what interests me here is that the stock plunged. Does that mean that investors are worried that there might be something to these charges? Or is that a normal reaction?
-Doc Lightning-

"The sky calls to us. If we do not destroy ourselves, we will one day venture to the stars."
-Carl Sagan
 
BMI727
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 7:17 am

Quoting 32andBelow (Reply 80):
Airlines will never act like a normal business. It is almost like a public utility or publuc transportation.

No it isn't. Utilities have to be treated differently because there is no practical way to build additional water mains or run five different sets of power lines for competing companies. Having an airline send a plane to fly between Point A and Point B is perfectly practical, and apparently quite popular as well, considering the number of startups even during very bad markets.

Quoting DocLightning (Reply 88):
Of course private companies have the right to make money, but where do you draw the line to the point where they are overcharging?

At the point the market will bear.

Quoting DocLightning (Reply 88):
What sort of profit margin is "appropriate" for an airline?

The profit margin that results from a price the market will support and the costs the provider incurs.

Quoting DocLightning (Reply 88):
Who decides that?

You, me, airlines and anyone else who considers buying or selling airline tickets.

Quoting DocLightning (Reply 88):
I'm not going to wade into that because I'm so conflicted on the multiple legal and ethical issues that impinge here.

There is exactly one legal issue here: have airlines been colluding with competitors to fix prices and supplies?
Why do Aerospace Engineering students have to turn things in on time?
 
HPRamper
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 7:19 am

Quoting alfa164 (Reply 75):
Alaska is a very good regional carrier; Spirit is... well, the flying equivalent of a Greyhound bus. But if either (or both) of them were to fall off the earth tomorrow, it would hardly cause a ripple in the transportation marketplace in the USA.

Spirit could disappear tomorrow and the capacity could be backfilled without anyone noticing. If Alaska disappeared tomorrow, it would be impossible to absorb that lost capacity. The intra-West Coast travel market would be thrown into chaos.
 
BoeingBear
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 7:20 am

I thought this was pretty funny -- check out an example of real collusion from Bob Crandall, back in the good old days:

http://www.skywriteraviation.aero/20...ht-deck-is-that-all-youve-got-doj/

CRANDALL: "I think it's dumb as hell, for Christ's sake, all right, to sit here and pound the ____ out of each other and neither one of us making a ____ dime.”

PUTNAM: “Do you have a suggestion for me?”

CRANDALL: “Yes, I have a suggestion for you. Raise your ____ fares twenty percent. I'll raise mine the next morning … You’ll make more money and I will too.”

PUTNAM: "Robert ... we can't talk about pricing."

CRANDALL: "Oh bull____, Howard. We can talk about any ____ thing we want to talk about."
 
Flighty
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 7:26 am

Quoting BMI727 (Reply 89):
The profit margin that results from a price the market will support and the costs the provider incurs.

The government agrees. But first, a market has to be created. DL, WN UA AA is not a market. Opening Laguardia, DCA, etc to competition and enforcing anti-predatory law in places like SEA begins to create a market where investors can expand new airlines. Then, we can determine what the profit margin is in a legally compliant market. It will be whatever it is, then. Right now, the government's argument will be that we're not looking at a free market today. So we have no idea what a legal profit margin might be.
 
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enilria
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 7:40 am

Quoting Flighty (Reply 92):

I don't think what DL is doing in SEA is illegal. The system has just allowed DL and others to become so large that long term AS can't really compete if DL wants SEA for themselves.
 
mjoelnir
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 8:11 am

I find it strange this obsession with talking about profits or revenues in regards to collusion. Collusion is banned independent of the companies making a profit. Two loss making companies colluding to lift prices or restricting capacities are breaking the law the same way as two or more companies raking in the money. It does not matter if the aim is to make less loss or heaps of money.
 
nikeherc
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 8:51 am

Back in the days before deregulation, airlines competed on service since fares were regulated. Also, markets were regulated and smaller markets had fewer choices. There were arguments about what constituted a sandwich, believe it or not. Since airlines competed on service, the regulators looked at overall costs and set fares to allow a reasonable rate of return. If there were increasing costs due to any numbers of factors, including frills added to pick up market share, either fares went up, or airlines lost money. Most of them lost money.

Because of regulation, there was very little to no price competition and fares were higher in constant dollars. Look at what happened in the telecom industry when it was deregulated, prices dropped and so did service.

The fact is that if the airlines hadn't merged and exercised capacity discipline, there would still be fewer seats out there, because more airlines would have gone out of business. Creditors would have quit lending to airlines.

This investigation is because a senator got p...ed off because his home airport lost some service.
DC6 to 777 and most things in between
 
rbavfan
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 9:30 am

Quoting alfa164 (Reply 20):

Per US Gov. specs. AS is a Major airline. You have to carry over a set amount of pass per year to meet the spec. Alaska has met it for quite some time.
 
rbavfan
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 9:40 am

Quoting DCA-ROCguy (Reply 21):

No they are not. Look at the cost of a plane compared to 20 years ago. It quite remarkable how much they went up. All the while air fares were flat or lower, fuel was high, crew cost grew & then were strangled into submission by all the bankrupcies & airlines bled to death. If you look at inflation airline fares are one of few things that have went down over the last 30 years.

All the while their cost increasing and people demanding lower and lower fares. People are getting lower "fares" by now paying for luggage, soda, snacks & oh yeah the only way to make fares lower is to stuff in more seats. Then we all bitch that the airlines are being mean. How about this. We go back to free luggage, greater seat pitch for all seats & you can pay double to make it work!
 
commavia
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 11:00 am

Quoting Flighty (Reply 88):
Of course private companies have the right to make money, but where do you draw the line to the point where they are overcharging? What sort of profit margin is "appropriate" for an airline? Who decides that?

As has been said repeatedly, this is the true crux of the issue - what is an appropriate return, and who decides.

My personal opinion remains that given the risk, cost and complexity involved, the providers of capital to airlines demanding net margins in the high-single-to-low-double digits is astoundingly reasonable. Given what margin expectations are in other industries - many perceived as far, far less risky than airlines - I think airlines are producing margins just about where they should be. And I will be communicating as much to my elected representatives at the federal level.

Quoting Flighty (Reply 88):
Four airlines each share a double-digit percentage of domestic traffic. Is that sufficient competition for a country this size?

What's the market share breakdown in other industries? Is an industry structure of four competitors constituting 80% market share rare, or relatively unique to the airline industry?

Quoting Flighty (Reply 92):
DL, WN UA AA is not a market.

I could not possibly disagree more. Four competitors accounting for 80% of a market doesn't mean there is no market.

Quoting Flighty (Reply 92):
Opening Laguardia, DCA, etc to competition and enforcing anti-predatory law in places like SEA begins to create a market where investors can expand new airlines.

I'll wait for the proof that "predatory" activity has occurred in SEA. And once again, I could not possibly disagree more that today we don't have a "market where investors can expand new airlines." Not in the slightest. I think today we simply have investors who have started to demand actual, reasonable returns from airlines rather than simply throwing money down a hole which is what most airline startups have generated in the deregulated era. As such, people are simply being smarter about what airlines they start.

Either way, though, I do agree that restricted-use airports would benefit from more competition, but I don't think the way to do that is by "opening" them (whatever that means). To me, the far more logical response is to (a) possibly tighten, and certainly strictly enforce, scarce-use provisions of gates, slots, etc., and (b) expand these airports!

Quoting Flighty (Reply 92):
Right now, the government's argument will be that we're not looking at a free market today.

We'll see about that. I look forward to learning whether the government feels it has an "argument" at all, and if so, whether said "argument" is that a free market doesn't exist today. I will look forward to that, in particular, since any alleged lack of a free market that exists today exists ... as a result of government approval.
 
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EA CO AS
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RE: Airlines Stocks Plunge After DoJ Probes Collusion

Thu Jul 02, 2015 11:10 am

Just overheard on CNN, reporting on the DOJ's probe:

"Fares have skyrocketed....according to government data, airfares have increased 16.4% since 2010..."

The stupid...it burns...   
"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan

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