concentriq
Topic Author
Posts: 283
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Airlines Price Fixing

Sat Mar 10, 2012 7:25 pm

Opinions: I fly regularly, once every 4-6 weeks and on a lot of the same domestic routes, some of which are fairly competitive. Kayak is my friend, and I am on there almost daily looking to see which dates are best suited and try finding deals. Over the last 10 years ive come to learn these 3-4 routes fairly well (pricing, how far in advance, deals, etc..), and watch prices fluctuate along with the prices of fuel and thought nothing of it. However, withing last 6 months it seems that airfare rose dramatically, and it is as though it has no correlation to the rise in fuel prices. Not only that, there seems to be no competition between the airlines anymore. I would notice airline A drop their price for a few days and airlines B and C would follow within several hours. that just does not happen anymore. Looking to book a vacation recently shows that other markets seem to be affected. I repeat: there appears to be NO correlation to rise in fuel prices. (75%-100% increase in fare does not correlate to 20-25% or even 30% increase in fuel price).

Although besides few pieces of anecdotal data I dont have any hard evidence, nor do i care at this point to collect such information, but everything ive observed almost suggests that there may be a price fixing going on between the airlines. Its not unheard of: only a few short years back 21 airlines were fined $1.7B in price fixing scandal, if you care to search the news.

Does anyone else notice this? Am i the only one?
Mobilis In Mobili
 
Viscount724
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RE: Airlines Price Fixing

Sat Mar 10, 2012 7:48 pm

Quoting concentriq (Thread starter):
However, withing last 6 months it seems that airfare rose dramatically, and it is as though it has no correlation to the rise in fuel prices. Not only that, there seems to be no competition between the airlines anymore. I would notice airline A drop their price for a few days and airlines B and C would follow within several hours. that just does not happen anymore.

It's not price fixing, it's because airlines need the revenue and fare increases are more likely to stick now than in previous years when at least one major competitor would often fail to match an increase, forcing the carrier that filed the increase first and others that matched to withdraw it to remain competitive.

With capacity reductions on many routes it's also easier to increase fares than it used to be. Airlines now charge what they think the market will bear, with little or no direct relationship to things like fuel price increases.
 
BE77
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RE: Airlines Price Fixing

Sat Mar 10, 2012 7:55 pm

Prices have jumped a lot on the routes I use as well, almost doubled in the last year or so...but, almost every flight I am on is packed to the rafters...I think I have had at most about four flights in the past year with an empty middle seat beside me, or an empty seat in a two seat row.
My normal flying is.a mix of Canada and US domestic, tied into a lot of Caribbean and Northern S. American, so I am using a variety of carriers, AC, WS, BW, UA, AA, and Insel, mostly, and all have been typically full, except the odd short hop or tag on segments.
So, I think there is a lot of demand side going into the pricing as well.

With the full loads (from the published reports here, both AC and WS keep showing very high LF's), they must have the revenues, but >$100 oil has gotta hurt, perhaps except for BW which I understand gets a pretty good deal at home, which is another story.
Tower, Affirmitive, gear is down and welded
 
DLD9S
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RE: Airlines Price Fixing

Sat Mar 10, 2012 8:01 pm

There are a lot less airlines these days... Back when we had NW, CO and FL as separate entities, and even HP and TW before that, there were a lot more choices and more chances a fare increase would not stick.

VA and B6 are keeping some prices down, but they simply don't have the same route network as the merged majors. NK has been making a lot of noise lately, but the majors don't seem to worry about price matching them - unlike other carriers they don't seem to consider them a threat.
717 727 737 747 757 767 777 DC9 DC10 M80 M90 M11 L10 AB6 333 340 319 320 321 ARJ CRJ EM2 EMJ SF3 146 100 BE1...
 
MaverickM11
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RE: Airlines Price Fixing

Sat Mar 10, 2012 8:22 pm

Quoting concentriq (Thread starter):
I repeat: there appears to be NO correlation to rise in fuel prices.

That's because you're only looking at a few routes, and you don't know what the average fare the airline ends up getting when all is said and done for those routes. If you look at the airlines' average fares in their quarterly reports, for instance, you will see a correlation with fuel prices--if they're lucky to recapture some of the increased fuel cost.
E pur si muove -Galileo
 
sxf24
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RE: Airlines Price Fixing

Sat Mar 10, 2012 8:33 pm

Quoting concentriq (Thread starter):
However, withing last 6 months it seems that airfare rose dramatically, and it is as though it has no correlation to the rise in fuel prices.

The price of jet fuel is not correlated to the prices you pay at the pump. Jet fuel has risen faster and farther than unleaded gasoline.
 
BE77
Posts: 360
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RE: Airlines Price Fixing

Sat Mar 10, 2012 8:42 pm

Quoting sxf24 (Reply 5):

Interesting point on the rise in price of jet fuel. I had supposed that the recent pull backs and the associated cut backs in operations by the largest single buyer of jet fuel (USAF) might have actually led to an increase in supply at that end of the refineries. I mean, some of the cut could be moved into gasoline, but not all of it.
The pull out from the mid east has certainly affected the charter operators!
Anyway, I suppose it shows just how interesting the markets really are for things like jet fuel.
Tower, Affirmitive, gear is down and welded
 
PPVRA
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RE: Airlines Price Fixing

Sat Mar 10, 2012 9:19 pm

Cuts in capacity, higher use of hedging positions, and price matching can go a ways in explaining these points.
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
IADCA
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RE: Airlines Price Fixing

Sat Mar 10, 2012 11:02 pm

While what you have mentioned is a possible symptom of price fixing, there are other explanations as well, one of which Viscount already covered. Remember, "price fixing" - that is, in U.S. law terms, a violation of Section 1 of the Sherman Act - requires an actual agreement, not just consciously parallel behaviour.

That agreement, though, doesn't need to literally be about price. It could be about other economic variables, such as capacity, output, market division, etc. One problem with concentrated markets is that such consciously parallel behaviour, as well as actual conspiracy, becomes more likely as the number of players and potential entrants in any given market becomes smaller and smaller.

However, when you've got highly concentrated markets, behaviour that at first blush looks like conspiracy can in fact be rational individualistic behaviour - especially if there are high barriers to entry in markets. In order to actually prove the conspiracy, you need either a "smoking gun" or a painstaking cobbling together of document discovery and economic data, material that you need to survive a motion to dismiss to get. And guess what? Surviving a motion to dismiss is a lot harder now than it was 10 years ago. Not a good time to be trying to prove a price fixing conspiracy in a civil suit in the U.S.

[Edited 2012-03-10 15:09:37]
 
FlyASAGuy2005
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RE: Airlines Price Fixing

Sat Mar 10, 2012 11:09 pm

Quoting concentriq (Thread starter):
(75%-100% increase in fare does not correlate to 20-25% or even 30% increase in fuel price).

This very statement right here tells me you don't have much of a clue as to how much just a slight rise in the price of oil affects the bottom line. A mere dollar rise easily equals tens of millions of dollars in added fuel bills. You wouldn't want to see what the state of the industry would be if the price of oil rose just 10% above what it's been over the past year or so.
What gets measured gets done.
 
chimborazo
Posts: 299
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RE: Airlines Price Fixing

Sat Mar 10, 2012 11:43 pm

Quoting FlyASAGuy2005 (Reply 9):
This very statement right here tells me you don't have much of a clue as to how much just a slight rise in the price of oil affects the bottom line. A mere dollar rise easily equals tens of millions of dollars in added fuel bills. You wouldn't want to see what the state of the industry would be if the price of oil rose just 10% above what it's been over the past year or so.

Does it? Quantify. If a company's current fuel bill is $1Mill, would "a mere dollar rise" equal tens of millions? Yes, I know you're going to say airlines spend far more on fuel than that... which airlines? I want to see what the state of the industry would be if fuel prices were to rise by ten percent. Please don't tell someone they don't have a clue and then be so vague as to why you think they don't.
 
rampart
Posts: 1800
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RE: Airlines Price Fixing

Sun Mar 11, 2012 12:15 am

Yes, consolidation has been so G O O D for the industry.

Oligopology. Works for them. Not for consumers.

http://thetravelinsider.info/airlinemismanagement/airlineoligopoly.htm
http://www.allbusiness.com/sector-92...tion/administration/1185414-1.html

-Rampart
 
PPVRA
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RE: Airlines Price Fixing

Sun Mar 11, 2012 12:28 am

Quoting rampart (Reply 11):
Yes, consolidation has been so G O O D for the industry.

You would not know it by looking at their financials! Better, but far from great.
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
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coronado
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RE: Airlines Price Fixing

Sun Mar 11, 2012 12:30 am

Most Airlines including Delta post fairly detailed analysis regarding their fuel expenses.
Delta in year 2010 had an average fuel cost per gallon of US$2.32/gallon, and in 2011 this jumped to 3.01/gallon.

http://images.delta.com.edgesuite.ne..._reports/NonGAAP_Recons2011_Q4.pdf

Their overall fuel (including fuel taxes) expenses went up 28% in 2011 over 2010 ($9.73bn verus $7.594bn). Actual fuel consumption in gallons was only up 1% from the year ( before as basically all are aware that Delta kept capacity pretty flat in 2011 compared to 2011. Overall revenue was up 11%. If it had not been for cost cutting on other items.

It may behoove all to read a full 10K statement occasionally to get a grasp of the magnitude of the numbers. But yes an extra 70 cents per gallon in increase in average fuel from one year to the next raised Delta's expenses by over $2.1 billion, and the airline did not grow!

http://phx.corporate-ir.net/phoenix....MjcyL3RvYy9wYWdl&ListAll=1&sXBRL=1
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mcdu
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RE: Airlines Price Fixing

Sun Mar 11, 2012 1:00 am

Airline travel is not a public commodity. You are born with a right to cheap airfare. The airlines charge what they hope is a price that will cover all their costs plus a profit. There is volatility in the pricing. If you buy a ticket for $100 for a flight one year from today and the cost rise on the airline side to a point where that $100 is not profitable to them, they eat the cost. Therefore the pricing model has to be continuously managed to attempt to get cost plus profit out of a ticket.

If you are seeing an across the board rise in airfares it is not price fixing. It is revenue fixing and something the airlines haven't been able to do for years. In the past with cheap fuel there was always an Western Pacific, Air South, Vanguard or other type of carrier willing to enter the market with cheap fares. These carriers would fly for a loss to try and gain traction. All they accomplished was hurting the margins for the incumbent carriers. With the high cost of fuel now you don't have those carriers pulling down the market. In one aspect higher fuel costs have actually been to some benefit to the legacy carriers by keeping out the riff raff.

There are many reasons why your travel cost are rising. To claim price fixing is not really the case. It is a case of the airlines doing what any other business sets out to do, make money. If the cost of the ticket prices you and enough others out of traveling then the prices will drop. I honestly don't see that happening soon.
 
capitalflyer
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RE: Airlines Price Fixing

Sun Mar 11, 2012 1:21 am

At what point does the American consumer say "I can't afford to fly"? I just got back from a 1200 mile round trip drive which cost about half of what it would have cost to fly. I have flown IAD-SBN about 4 times a year over the past 4 or 5 years and have seen my fare go from $220-$250 to over $500. Why? My guess is a couple reasons:

1. Fuel costs
2. Cuts in service (supply) to an already small airport
3. UA's fortress hub at IAD
4. Mainline Consolidation (UA/CO, DL/NW, US/AW).
5. Regional consolidation. Many of these have happened under the radar. As more regionals merge, there is less competition for regional flying and therefore higher contract prices, resulting in higher fares to recover those contract costs for the mainline carriers.

Supply cuts I would imagine were originally to reflect reduced demand during the recession. With the slow recovery, airlines are reaping a premium during a shoulder period before they will be comfortable enough with the recovery to begin to add supply.

It pisses me off too. But that's capitalism for you. Somebody is making a buttload of money (oil traders/speculators driving up fuel prices, I am looking at you), it just ain't me or the employees laid off at the newly merged supercarriers. I am sending my message by just not flying anymore, and I imagine others will too.
 
rampart
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RE: Airlines Price Fixing

Sun Mar 11, 2012 1:47 am

Quoting Mcdu (Reply 14):
In one aspect higher fuel costs have actually been to some benefit to the legacy carriers by keeping out the riff raff.

I'm not surprised to hear big airline elitism here any more, such as this above. New entrants are given weeks to survive, only a minority here are encouraging. Revenue fixing is desired, as opposed to illegal. Smaller competitors are riff raff. I could barf!

What exists now is an industry well stacked in the large incumbents' favor, including the corporate laws that allow them to re-boot at their employees' and creditors' expense, literally, known as Chapter 11. The list of large incumbents keeps getting smaller not because they go out of business, but because they merge and get bigger, in which they posess more power. The industry that enjoys so much greater participation and ridership because of the competition introduced by the likes of WestPac, Vanguard, Midway, AirTran, and yes, Southwest, is now working its best to eliminate that kind of competition. That's regression, and too much of it will eventually lose those customers. Southwest somehow enjoys a persistent status as underdog or up and coming competitor, they were once good for competition, is some 40 years old and as anticompetitive as AA, UA, and DL in their ability to "control" prices and eliminate compeition. The only thing they haven't done is use Chapter 11.

No, I'm not foolish enough to suggest that air travel is an entitled commodity. Somewhere there's a happy medium. Bigger is not better. Aeroflot and CAAC broke up for a reason. That said, air fares should increase according to real expenses. Companies should be able to price freely, which includes undercutting in certain times or segments. All commercial businesses do that. Look at Wal-Mart. Lose a little money on milk and christmas lights but make a little on widescreen TVs and shoes. Most industries have competition and new entrants. You know, riff raff. Why do airlines get a pass on that expectation?

Quoting PPVRA (Reply 12):
Better, but far from great.

That's why I said GOOD. Not great. "Good" should be an accomplishment in this sort of economy. "Great" would probably entail abnormal windfalls suggesting out of whack competition (lack of it) and/or unwillingness to compensate employees to an appropriate level.

-Rampart
 
capitalflyer
Posts: 608
Joined: Tue Nov 16, 2010 2:43 am

RE: Airlines Price Fixing

Sun Mar 11, 2012 1:58 am

Quoting rampart (Reply 16):
"Great" would probably entail abnormal windfalls suggesting out of whack competition (lack of it)

Not to mention portending another major drop. Slow up and down with less extremes is way better economically.
 
FlyASAGuy2005
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RE: Airlines Price Fixing

Sun Mar 11, 2012 4:06 am

Quoting Chimborazo (Reply 10):
Does it? Quantify. If a company's current fuel bill is $1Mill, would "a mere dollar rise" equal tens of millions? Yes, I know you're going to say airlines spend far more on fuel than that... which airlines? I want to see what the state of the industry would be if fuel prices were to rise by ten percent. Please don't tell someone they don't have a clue and then be so vague as to why you think they don't.

I do this for a living, do you? Either way, someone beat me to it. Our very own CEO and CFO talks about this very thing on a quarterly basis...

Quoting Coronado (Reply 13):
It may behoove all to read a full 10K statement occasionally to get a grasp of the magnitude of the numbers. But yes an extra 70 cents per gallon in increase in average fuel from one year to the next raised Delta's expenses by over $2.1 billion, and the airline did not grow!

Anything else Chimb?
What gets measured gets done.
 
ORDJOE
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RE: Airlines Price Fixing

Sun Mar 11, 2012 4:16 am

I think we have gone a bit far with the consolidation of the industry, and these international JVs just as AA/BA/IB/QF, DLAF/AZ/KL UA/LH/ANA. Look at Europe, now it is IAG, AF/KL, and LH that own most of that continent,
 
frmrCapCadet
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RE: Airlines Price Fixing

Sun Mar 11, 2012 5:01 am

We all can look at AS, WN, or JetBlue and get a fairly good idea of what airlines that make profits need to charge. From this we can draw conclusions as to what airlines are dealing with excess costs and inefficiencies. Some of legacies higher costs relate to serving a lot more cities. This is a value cost generally. I personally like dealing with companies that make profits, I feel safer and expect happier employees.
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wdleiser
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RE: Airlines Price Fixing

Sun Mar 11, 2012 6:14 am

Quoting ORDJOE (Reply 19):

Probably because smaller airlines are no longer able to survive in Europe without government subsidies.
 
PanHAM
Posts: 9731
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RE: Airlines Price Fixing

Sun Mar 11, 2012 10:41 am

Quoting wdleiser (Reply 21):
Probably because smaller airlines are no longer able to survive in Europe without government subsidies.

which are not allowed under European union regulation.....
Was Erlauben Erdogan!!!
 
FlyASAGuy2005
Posts: 3965
Joined: Sun Sep 23, 2007 4:55 am

RE: Airlines Price Fixing

Sun Mar 11, 2012 11:53 am

Quoting capitalflyer (Reply 15):
At what point does the American consumer say "I can't afford to fly"? I just got back from a 1200 mile round trip drive which cost about half of what it would have cost to fly. I have flown IAD-SBN about 4 times a year over the past 4 or 5 years and have seen my fare go from $220-$250 to over $500. Why? My guess is a couple reasons



i don't think anyone really knows that question but folks were flying in droves during the 2007-early 2009 travel season then it sort of fell of in '10 but started to gain traction in 2011 and again this year. Despite the cost of a ticket, people are saying to hell with it and are flying still. the economy on a whole is still not what it was but it's picking up. Disney did a study for 2011 and it showed that despite fuel and everything else being what it was for that summer, park attendance was up YoY, with some days having to meter people in and out because they were so full.
What gets measured gets done.
 
mcdu
Posts: 1583
Joined: Thu Apr 28, 2005 5:23 am

RE: Airlines Price Fixing

Sun Mar 11, 2012 3:10 pm

Quoting rampart (Reply 16):
That said, air fares should increase according to real expenses.

If you compare profit margins of airlines versus other corporations you see that the airlines are usually in the 5% or less in the best of times. Consider all the years where the airlines survived on losses or 1% to 2% profit margins.

Have you stopped patronizing Starbucks as they increase prices? Stopped buying cereal as the size of the package goes smaller and the price increases?

I don't think the airlines have anything to apologize for in the area of pricing. You have had so many upstarts cutting the legs from under the carriers that have served the traveling public for so many years. When the Vanguards and West Pac's of the world were gutting revenues it didn't help you in the long run. It created a temporary price decrease until they exhausted the investors dollars and they disappeared. Even the self proclaimed "low fare leader" WN has prices above those of the legacy carriers in most markets. There was a huge fallacy that air travel is cheap and to many a commodity. If you think for a moment about all the moving parts, regulation, security etc that go into getting a flight in the air, it is inherently expensive. To try and huff and puff about the airlines consolidation being to blame, you can thank increased regulation as a driver of those cost.

In your line of business what are the profit margins you produce? Are you willing to take a pay cut to subsidize lower cost to the consumer?
 
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coronado
Posts: 1274
Joined: Sat Jun 26, 1999 9:42 am

RE: Airlines Price Fixing

Mon Mar 12, 2012 8:41 pm

Boyd put out an interesting report on their web site today.

http://www.aviationplanning.com/AviationDataFlash.htm

Summary is that in the USA total number of passenger departures is down almost 12% in the last 5 years, while seat capacity is down almost 9%. Please note that Boyd takes the time to assign regional lift to the contracting party, thereby allocating and assigning, as an example, Skywest lift to their contracting airline be it Delta or United, etc.

I was analyzing these figures from the point of view of what the various carriers have done in recent years to adjust their seat count per departure, and if this has an influence on their relative profitability. I think most will agree that increasing number of seats per departure, as long as you are selling those seats at a reasonable price, has the corrollary of driving down the casm, particularly fuel casm. Obviously a lot of other factors, including of course yield, affect profitability, but
pretty much all will agree that other things being equal, bringing fuel per pax ratios down can't be a bad thing.
Below table makes some interesting reading and I added my 2 cents worth of comments.

Seats per departure %
Carrier 2007 2012 change
CO+UA 90 89 -1.72% high reliance on contracted RJ operations. Fleet will shrink more than peers.
US 89 93 4.92% retired smaller Boeings, added A321's
DL+NW 97 104 7.89% reduced reliance on RJ, reduced smaller DC9's, positive trend
AA 108 108 -0.72% AA should have been more profitable compared to the other legacies,but other costs?
AS 99 111 11.55% retired smaller Boeings, added 739's-smart moves
B6 138 132 -4.11% Adding the 190's reduced average seats per departure-Wise move?
WN+FL 134 134 0.21% Airtran is less than 1/5th the size of WN


Methodology: Using the Boyd table
Took total seats in 2007 and divided by total departures in 2007. Took total seats in 2012 and divided by total departures in 2012. Grouped the numbers based on mergers: ( DL+NW, CO+UA, WN+FL), recognzing that Delta merger activities and fleet rationalization, other than CRJ lift, is mostly accomplished, CO+UA is getting there , and WN+FL are really only starting the fleet rationalization/redeployment activities later this year as they drop certain stations.
The Original Coronado: First CV jet flights RG CV 990 July 1965; DL CV 880 July 1965; Spantax CV990 Feb 1973

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