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ZSOFN
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Hard Times: US Vs European Approaches

Sun Aug 21, 2005 11:31 pm

Hi all.

Firstly, I do not want this to be seen as flamebait. I am currently writing an Economics essay and would like people's thoughts/opinions.

Post 9/11 and with the fuel crisis, as well as with increased competition from LCCs, has it been right for the U.S. to keep its major airlines afloat when the same provision wasn't given in Europe? We saw Sabena and Swissair go bust quite quickly (being replaced by smaller more profitable outfits), as well as various mergers and acquisitions.

As a result it would seem that we now have a much healthier situation in Europe, whereas in the U.S. many of the majors are still having serious problems (UA, NW etc). Is this due to chapter 11 bringing over-capacity to the market?

I haven't decided on this, and so this is not necessarily my viewpoint. Just want to get some better info and educated opinions.

Thoughts please!

Tom

(BTW I know this has been discussed here but I want to get some specifics as above)
 
BostonGuy
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RE: Hard Times: US Vs European Approaches

Sun Aug 21, 2005 11:48 pm

Quoting ZSOFN (Thread starter):
Firstly, I do not want this to be seen as flamebait. I am currently writing an Economics essay and would like people's thoughts/opinions.

Hmmm... interesting topic.

And, if you're really doing an "economics essay", shouldn't you be doing some serious research into expert analysis of the situation.

After doing that then you could share your findings here and get people to comment. Another angle is to ask forum members for ideas on where you might find qualified sources to help you with your essay.

If you want to do a top-notch essay you might try those approaches. As it is, it appears you might be phishing a forum with little "economics" experience for stuff you can put into the essay and basically letting us do your work.

Are you using us to do your work for you? Where else are you conducting research?

I'm just curious as to how seriously you're taking this "essay".
 
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ZSOFN
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RE: Hard Times: US Vs European Approaches

Sun Aug 21, 2005 11:54 pm

Thanks BostonGuy for your support.

I'm already a few weeks into my research on this one. It's not a major essay and it's only a section of it, taking up about 1000 words. I've already got hold of a fair few "official" sources, e.g. "Airline management : strategies for the 21st century" by Paul Stephen Dempsey, "Flying in the face of competition : the policies and diplomacy of airline regulatory reform in Britain, the USA, and the European Community, 1968-94" for an historical approach and "Productivity differences in the airline industry : partial deregulation versus short run protection" Pedro L. Marin to name a few.

I'm just missing some more up-to-date specifics. No offense intended, I just respect what a lot of people have to say on this forum and many here are more than happy to help out others.

I am taking this "essay" seriously.
 
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jfklganyc
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RE: Hard Times: US Vs European Approaches

Sun Aug 21, 2005 11:59 pm

Wow, I bet that last answer was a little more than u wanted to chew on. Plain and simple, the US airline industry is a mess! The whole idea behind deregulation was comeptition in an open market.

Granted after 9/11, subsidies were quickly needed as the U.S. dealt with a national crisis. But since 9/11, US Airways has seeked bankruptcy protection twice and UAL has milked bankruptcy protection for years.

With that said, the US is no longer a deregulated, open market. Deregulation is like a game. If one oponent consistently loses, there is no reason to keep them in the game . . . and in the case of UAL and US (especially US) that is what happened.

US was kept afloat long enough to find a buyer to merge/save the company. Now your research should find out whether or not Sabena, SwissAir, and KLM had those same subsidies and options before they were taken over or laid to rest.

Hope the helps

PJ
 
PHXinterrupted
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 12:04 am

Quoting ZSOFN (Thread starter):
As a result it would seem that we now have a much healthier situation in Europe, whereas in the U.S. many of the majors are still having serious problems (UA, NW etc). Is this due to chapter 11 bringing over-capacity to the market?

Take a hard look at all the numbers, not just market capacity.

As a sidenote, of the 10 largest airlines in the US, only UA, NW, DL and US lost money last quarter. However, US is being taken over by HP, which should produce a profitable airline in 2006; NW should return to profitability once the current mechanics' union situation is resolved; and yes, UA and DL are in real trouble.
Keepin' it real.
 
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ZSOFN
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 12:08 am

Cheers guys, useful stuff.

Quoting JFKLGANYC (Reply 3):
Now your research should find out whether or not Sabena, SwissAir, and KLM had those same subsidies and options before they were taken over or laid to rest.

Funnily enough that's one of the holes in my sources, plus it's an important one! I know there's a lot of speculation over EU subsidies in many areas of the industry.
 
Arniepie
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 12:30 am

Is it better in EU compared with the US.
in the shortterm yes , in the longrun=> I very much doubt it.

In the US they really have to take a good look at the long term survivability for DAL because there is only so much economizing, restructuring,etc... you can do before you have to sit back and realize that they really have not a lot going for them (routes&Hub's).
UA on the other hand will have to downsize but they really have a good marketbase (KORD,KDEN,KSFO) and there Aussie lines and Asia routes.
So in the longrun it doesn't look all bad for them.
US and HP I really wouldn't know what will happen.
NW basically same thing but I think if they can keep their AMS operation and PACIFIC action going they'll survive.


In the EU however we still have tons of airlines that just won't be able to make it in a real free market environment.
Just look at Air France, the only reason they keep on turning a profit is that they actually have a monopoly on one of Europe's most important markets and the french government is using all kind of tricks to keep this going as long as possible.
If they where working in the same market as lets say the UK (fairly comparable) they would have gone belly up or have to face a major restructuring (layoffs, paycuts,etc...) a long time ago.
I am not even talking Alitalia and some other major ones over here.
In the longrun what is and has happened in the US will also happen in the EU and the other places around the globe:
-Short and medium range flights will go to the LCC and to regional carrier affiliates from the big ones (for connecting long haul flights).
-Long Haul will go to a couple of major players that will offer a good network
-The odd niche player (eg SN Brussels just to name one close to home).
[edit post]
 
avek00
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 12:33 am

Furthermore, US carriers have done a significantly better job cutting out non-value-added costs from their operations than their European counterparts. It often goes unnoticed, but US carriers have been the leaders in automating nearly every facet of passsenger-interface ground ops, from online ticket sales to interline e-ticketing to systemwide web/kiosk check-in.
Live life to the fullest.
 
BostonGuy
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 12:37 am

Quoting ZSOFN (Reply 2):
I'm just missing some more up-to-date specifics. No offense intended, I just respect what a lot of people have to say on this forum and many here are more than happy to help out others.

I am taking this "essay" seriously.

Oh good. One angle you might want to consider is that airline deregulation took effect in the US over 25 years ago. Europe is relatively new to this environment. Should you come to the conclusion that the European airline industry is healthier at the moment than in the US you might want to put that qualifier in your essay. Your source material may have some insight into that as well.

Industries are constantly evolving to meet the changing business environment (taxes, new competitors, new or no regulations)... you may find that your essay touches on your expert sources' opinions on what the European airline industry will look like 20 years from now.

You might also want to prepare yourself in defending your conclusions by being able to acknowledge that there isn't an "apples to apples" comparison possible and show that you've taken the variables of when deregulation took effect in the US vs. Europe into consideration.
 
Arniepie
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 12:42 am

Quoting Avek00 (Reply 7):
Furthermore, US carriers have done a significantly better job cutting out non-value-added costs from their operations than their European counterparts. It often goes unnoticed, but US carriers have been the leaders in automating nearly every facet of passsenger-interface ground ops, from online ticket sales to interline e-ticketing to systemwide web/kiosk check-in.

A lot of people outside the US don't always want to admit it but economic trends in the aviation industry usually happen first in the US and after 5-10years in the EU and after that spreads to the rest of the globe.
What we are seeing now in the US is a normal (granted sometimes painful) process that just has to occur every so many years.
Didn't we have Eastern,PanAM,Piedmont,etc... before and they where also considered to be icons to exist forever.
Nothing is eternal certainly not in the Aviation industry.
[edit post]
 
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ZSOFN
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 1:15 am

Thanks for your response BostonGuy! A lot of this is confirming what I was thinking but getting some useful facts here.

Quoting BostonGuy (Reply 8):
You might also want to prepare yourself in defending your conclusions by being able to acknowledge that there isn't an "apples to apples" comparison possible and show that you've taken the variables of when deregulation took effect in the US vs. Europe into consideration

I totally agree here. All of that adds together to show that the European situation may not necessarily be better but just at a different stage of the economic cycle, so to speak, as ArniePie cited.
 
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ZSOFN
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 1:55 am

By the way, here's a good article from The Economist:

http://economist.com/agenda/displayStory.cfm?story_id=1695098
 
BostonGuy
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 4:19 am

And here's later changes made to the bill.

Remember, a "Bill" isn't law until it's signed by the President. Up until then changes can be made by Congress.

You need to find the specifics on the Act that was signed by President Bush... otherwise you are at risk of quoting incorrect figures.

That was a good article in the economist.
 
AirRyan
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 4:25 am

Quoting BostonGuy (Reply 1):
And, if you're really doing an "economics essay", shouldn't you be doing some serious research into expert analysis of the situation.

If your in a business and they are footing the bill than I would say yes, but for just a college paper you have to go with what set of data is readily accessible/available. Tough assignement but nonetheless an interesting one. The hardest part will be just collecting the date you will use.

I agree with ArniePie's statements; that's a good summary of how I would perceive it as well.
 
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ZSOFN
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 5:21 am

Bostonguy, thanks for that link. Couple of good quotes there including:

“The industry is undergoing a period of fundamental restructuring to align costs and capacity to the demands of the marketplace, and excessive, generalized assistance would only delay and disrupt these important and inevitable changes,” said Office of Management and Budget Director Mitch Daniels in a statement prior to passage of the act.

Maybe a sign that Congress is starting to think more rationally...

Quoting AirRyan (Reply 13):
The hardest part will be just collecting the date you will use

I know! It's been a bit of a beast  Smile I suppose in some ways Bostonguy was fair in his accusation - I am looking to beef up my sources a little bit more so I was asking in case anyone knew of the best up-to-date sources. Thanks for the encouragement though  bigthumbsup 
 
eilennaei
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 6:15 am

Quoting Avek00 (Reply 7):
but US carriers have been the leaders in automating nearly every facet of passsenger-interface ground ops, from online ticket sales to interline e-ticketing to systemwide web/kiosk check-in.

Correction suggested: "... US carriers have been amongs the leading companies ... "

Examples from one European company, info derived from their annual reports on the Web: ticketless travel for corporate customers in internet: 1998; cellphone reservation management: 2000; 'Last-minute' standby flights web shop: 2000; Public ticket web shop: 2001 (20% share in 2005), Internet check-in: 2001; e-ticket, e-check-in kiosks: 2002.
 
atmx2000
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 6:24 am

Quoting BostonGuy (Reply 12):
Remember, a "Bill" isn't law until it's signed by the President. Up until then changes can be made by Congress.


I don't think changes can be made once it has passed both houses and sent to the the President for signing.
ConcordeBoy is a twin supremacist!! He supports quadicide!!
 
BostonGuy
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 7:57 am

Quoting AirRyan (Reply 13):
If your in a business and they are footing the bill than I would say yes, but for just a college paper you have to go with what set of data is readily accessible/available.

Oh, I never suggested he pay! Why do that when sufficient excellent research is available for free on the internet?

Quoting Atmx2000 (Reply 16):
I don't think changes can be made once it has passed both houses and sent to the the President for signing.

I was just trying to point out to ZSOFN, who appears to be from the UK, that the press articles we were pointing him to were prior to the bill becoming law and that the figures for dollars given to airlines might change a bit. Just a tip to him that his research should include finding out what the actual Act doled out to the airlines.

Quoting ZSOFN (Reply 14):
I know! It's been a bit of a beast   I suppose in some ways Bostonguy was fair in his accusation - I am looking to beef up my sources a little bit more so I was asking in case anyone knew of the best up-to-date sources.

Well, you showed right away after my comment that you are taking this seriously and had already done some excellent research.

I just encounter far too many university students here in Boston (even at Hahvahd) who have a stunning inability to do more than a simple search on Google and don't know the difference between qualified and unqualified sources. These are the same students who think that "doing research" on a topic means starting a thread on a message board and asking everyone to basically provide the meat of a paper... without having any clue if the people contributing have any idea what they are talking about!

It's clear ZSOFN isn't one of those students.
 
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ZSOFN
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 8:31 am

Quoting BostonGuy (Reply 17):
I just encounter far too many university students here in Boston (even at Hahvahd) who have a stunning inability to do more than a simple search on Google and don't know the difference between qualified and unqualified sources. These are the same students who think that "doing research" on a topic means starting a thread on a message board and asking everyone to basically provide the meat of a paper... without having any clue if the people contributing have any idea what they are talking about!

Fair enough - I can now understand your initial skepticism! Thanks for hearing me out and providing useful links and starting points  bigthumbsup  That goes for everyone on this thread  Smile

Now pretty much covered that essay section, now just filling some initial macroeconomic/labour theory...
 
ExPedia
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 8:50 am

Now applying *that* to the rock'n'roll world of aviation labour relations is a challenge all on its' own. Godspeed!  Wink
-- ExPedia
 
BostonGuy
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 8:58 am

Quoting ZSOFN (Reply 18):
Now pretty much covered that essay section, now just filling some initial macroeconomic/labour theory...

Ewwwwwwwwwww!

Bad memories of an Economics professor who got his PhD from University of Chicago.
 
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ZSOFN
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 9:07 am

Quoting BostonGuy (Reply 20):
Ewwwwwwwwwww!

I know - it's not looking pretty! Particularly at 1am... SO bored.
 
SonOfACaptain
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 9:29 am

Quoting ArniePie (Reply 9):
Didn't we have Eastern,PanAM,Piedmont,etc... before and they where also considered to be icons to exist forever.

I agree with what you said, but you shouldn't include Piedmont with Pan Am and Eastern. Piedmont was a whole different situation then the other two airlines. Piedmont was a very successful airline at the time of their merger with US unlike PA an EA, who just went completely out-of-business. They were not in any trouble what so-ever.

-SOAC
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ZSOFN
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 9:34 am

Quoting SonOfACaptain (Reply 22):
Piedmont was a very successful airline at the time of their merger with US

Purely out of interest, why did it end up merging if it was doing so well on its own? Could the same questions be asked about KLM with its merger to AF?
 
avek00
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 10:47 am

Another thing to consider is that European carriers still operate in an environment that is significantly more restricted to newcomers than US legacies. The bottom line is that upstart Euro LCCs find it impossible to get slots at many key European airports while US LCCs can break into even DCA and LGA with a modest effort nowadays. If BA had to face a 200+ flight/day LCC at Heathrow or AF a similar competitor at Orly or DeGaulle, both airlines would soon bleed like hemophiliac virgins.
Live life to the fullest.
 
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ZSOFN
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 10:56 am

Aah! 3am and I'm finished! Pain in the a$$ that was...  tired 

Thank you all for the help and good night  zzz 

BTW feel free to continue this thread if you wish! I'll be around tomorrow as ever  Smile
 
Douglas7Seas
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 3:34 pm

In regard to your question: "...has it been right for the U.S. to keep its major airlines afloat when the same provision wasn't given in Europe"?

My training is in philosophy, so I am attracted to your use of the term "right". Do you mean is it fair; is it moral? In the context of high level finance, neither of those terms is relevant. Those with an investment in the major U.S. airlines will protect those investments. That is the bottom line; not only in the U.S. but everywhere that capital is god.

My, uh, 2 cents... sorry
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Arniepie
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 4:44 pm

Quoting Avek00 (Reply 24):
Another thing to consider is that European carriers still operate in an environment that is significantly more restricted to newcomers than US legacies.

For now.
But things will change, this is inevitable if the EU wants to go ahead and make an open free market and all things indicate that it is going to happen.
When it happens I'll be very curious to see which airlines can swim and which will sink.

On a sidenote I think , in hindsight, it could prove to be a blessing for SNBA that they already had to reform and that they now can only survive if they keep profitable, efficient and to the point.
[edit post]
 
GLA MD11
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 5:11 pm

From what I have read in this thread and my European point of view, I would like to say:

- Indeed, deregulation is 15 - 20 years older in the States than in Europe and we expect to see the same changes here than you see today over there: majors falling off (Swissair and Sabena are already gone, Alitalia may be next), LCC becoming top-notch competitors (look at Ryanair).

- Most airlines in Europe are or were state-owned. It means that their shareholders (the States) can pump money in them, that does not always mean that these are subsidies. They have deeper pockets but they are now forced (by European competitition Law) to act as private shareholders would.

- Europe is much smaller in size than the US. This allows for a strong competition by rail that you cannot have in the US. Nobody here flies for a 1/2 hour trip (like ORD-IND for example), we ride trains. And you can even connect from train to air here like you transfer from one plane to another in the US. That's even more true for the freight business.

- Airlines in Europe have a history of protection from other airlines, although they always had to compete with other means of transportation. They are now in a less protected business and will need to do some serious adaptation work to survive.
 
wdleiser
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RE: Hard Times: US Vs European Approaches

Mon Aug 22, 2005 11:35 pm

Most countries in Europe have one major airline(I emphasize on most). The United States has... well.... 6 Legacies (atleast). Give France 6 legacies and we will see what happends, along with adding many LCC's. US airlines seem to be filling seats just fine but their major problem is low yields. Websites like Orbitz and such are taking away a bunch of money and passengers buying these cheapo tickets are also feeling entitled to premium service even at the low price.
 
BostonGuy
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RE: Hard Times: US Vs European Approaches

Tue Aug 23, 2005 1:09 am

Quoting Wdleiser (Reply 29):
Websites like Orbitz and such are taking away a bunch of money and passengers buying these cheapo tickets are also feeling entitled to premium service even at the low price.

Taking away money from whom?

What exactly is "premium service", how much more do consumers have to pay to deserve it, and how are they being told what qualifies as premium service?

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