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flyDTW1992
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 6:06 am

Quoting brewfangrb (Reply 48):
Here's what Blumenthal (and you) are missing: Think about why planes are packed. Think about why fares are high. SOMEONE is paying these fares. SOMEONE is flying. Why in the world should ANY business sell their product for LESS than what someone is freely willing to pay for it?

        
YES. You can't possibly look at load factors today and logically think "hmm...Airlines should really lower fares."
Now you're flying smart
 
29erUSA187
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 6:07 am

Quoting brewfangrb (Reply 48):
Here's what Blumenthal (and you) are missing: Think about why planes are packed. Think about why fares are high. SOMEONE is paying these fares. SOMEONE is flying. Why in the world should ANY business sell their product for LESS than what someone is freely willing to pay for it?

Amen. Air Travel isn't a charity or a right. If you want to fly. Pay for it. And shut up about the fares too people. They aren't that high. Looking a month out, I can go SAN-DEN for $119 R/T (on UA). Which is incredible.
 
Flighty
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 6:13 am

Quoting commavia (Reply 24):
With, again, "minting money" amounting to net margins in the ~7-14% range. It continues to astound me that anyone finds that to be unreasonable for an industry as costly, complex and risky as air transportation, but apparently lots of people do.

Certain markets are much higher than that.

Quoting lightsaber (Reply 26):
Except the fare discipline historically breaks down with 4+ competitors.

Yes. Atlantic really has 3 competitors, often just 2. So collusion and price fixing (even if just tacit, via daily pricing activity) is pretty easy.

DL AF KL AZ VS NW

UA LH CO

AA US BA IB
 
Brewfangrb
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 6:42 am

Quoting Matt6461 (Reply 17):
My practical answer is obvious: greater supply means lower prices. If pro-supply regulatory incentives increased the supply of ASM by, say, 50%, but decreased airline profits by, say, 30%, I'd be entirely fine with that.

But why should "lower prices" be the goal? Why do consumers (who may or may not "need" the benefit of a lower fare, mind you) deserve this benefit but people who work for the airlines (you're operating under the assumption that an airline would just mindlessly take a lower margin and lower ROE/ROC), the people that work for their suppliers and the people that invested their money in the airline are supposed pay the price? Your premise seems to think "Oh, we'll just increase ASM by 50% and yeah, profit will drop 30% but the airlines won't change anything ELSE about how they run their business." It will absolutely result in lower wages/salaries, lower returns for investors--who will drop out and ultimately RAISE the cost of capital. And because a FIFTY PERCENT increase in capacity is preposterous in any conceivable scenario, it will result in airlines exiting the business purposely or through liquidation.

Quoting Flighty (Reply 23):
Both sides of Atlantic are minting money and laughing at the dumb sheep who pay the fares.

Good. There should be a consequence for being dumb. As I said above: People are paying the fares. It's not extortion. It's not "Pay $800 to fly GRB-MSP (it's not even near that) or I'll kill your grandma!" It's "I'm willing to fly you--4x faster than it takes to drive--to your destination and here's what I will charge you do it". Who, exactly, is forcing people to pay? If fewer people paid, fares would drop. I mean, sure, I only took 1 semester in Economics and it was like 17 years ago, but I'm pretty sure these are still fundamental economic concepts.

Quoting Matt6461 (Reply 28):
But boo fucking hoo to the shareholders. They're diversified - even a 30% hit to their airline holdings won't hurt them a ton, while society would see great benefits. This might go to our philosophical differences. I care a bit more about average people flying to see family, for instance, than about equities that are disproportionately held by relatively few individuals.

Why? Why do people who choose to live far from family have this presumed right to an "affordable" fare? What do you do about the people that can afford $20 to fly GRB-SAN? Don't they have a right to see their family, too? And if not, why are you discriminating against them? Shouldn't airlines increase their capacity and reduce their margins to allow anyone who wants to fly to do so for what they can afford to pay? (See, you'll argue "Strawman!" and I'll argue "You, too!" because regulating the industry so the kids can see Grandma and Aunt Ethel is ridiculous).

Quoting LAX772LR (Reply 29):

Yes, yes, yes, yes!

Quoting toxtethogrady (Reply 40):
Ever hear of the Civil Rights Act?

Woah. I knew airlines' pricing and reservation algorithims and systems were as sophisticated as ever, but now they can charge higher prices for protected classes? Perhaps that's not what you meant. If that's not what you meant, I'm confused by how airlines are discriminating against people by telling them how much they will charge to fly them somewhere. (You know "thinking cost of a good is too much!" is not a protected class, right?)

[Edited 2015-06-18 23:46:40]
 
Brewfangrb
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 6:52 am

Quoting 29erUSA187 (Reply 51):
And shut up about the fares too people. They aren't that high. Looking a month out, I can go SAN-DEN for $119 R/T (on UA). Which is incredible.

Yup. I was looking at GRB-HNL in September (just for fun, because I should be going on that exact trip NEXT September) and it can be done for ~ $950 in Y (AA or DL) and ~ $1900 in F (DL, generally). I'm very much in the middle class and I just don't see $950 as being unreasonable to fly from a relatively small city 5,000 miles to a high-demand (but leisure) destination.

Hell, DL has a one-stop GRB-HNL (in ATL) that puts you on an A330 (most other flights are 757 or 767 from PHX or LAX). In F, that's on a fully-flat bed. And I'm half-tempted to pay the $2900 for that flight to avoid 2 stops and a longer travel day overall.
 
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LAX772LR
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 6:55 am

Quoting MSPNWA (Reply 45):
The problem is that you're forgetting the technology factor.

Not forgetting, I just find that argument to be complete and total B.S.
I myself, suspect a more prosaic motive... ~Thranduil
 
Gemuser
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 6:57 am

Quoting brewfangrb (Reply 54):
up. I was looking at GRB-HNL in September (just for fun, because I should be going on that exact trip NEXT September) and it can be done for ~ $950 in Y (AA or DL)

Is that one way or return? Because if its one way that is highway robbery! You can frequently do SYD-LAX return for $A1300 (which is between $850 and 1150 depending). That's a lot further!

Gemuser
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Flighty
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 7:03 am

Quoting 29erUSA187 (Reply 51):
Looking a month out, I can go SAN-DEN for $119 R/T (on UA). Which is incredible.
Quoting brewfangrb (Reply 53):
. Who, exactly, is forcing people to pay?

We are a big country. It is essential to have air and rail travel to move people and goods about the country. A total free market was outlawed long ago, because it would give dangerous market power, especially to railroads who could blackmail entire towns and even states for their survival which (in a twisted way) justifies 100% of the town or state's money being paid to the railroad.

When we had more airlines, airfares were cheaper. If we have 1 airline, fares will cost a near infinite amount, what is called a monopoly price. We are moving in that direction, measurably.

Quoting 29erUSA187 (Reply 51):
can go SAN-DEN for $119 R/T (on UA). Which is incredible.

Denver is a great example of how it used to be, with competition.
 
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compensateme
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 7:12 am

Quoting flyby519 (Reply 1):
What happened to free market? Didn't de-regulation happen 30+ years ago?
Quoting commavia (Reply 3):
Great question. Since when is it the government's job to prevent companies from withholding their services? Isn't that between said companies and their shareholders/owners?

Absurd. Could you imagine if wireless phone companies had the same level of fanboys as airlines? 'AT&T, my favorite hometown carrier, should've been allowed to acquire T-Mobile. It's a totally free market... nothing stops other companies from creating wireless start-ups... except for the facts that no spectrum is available in major markets, or the fact that when it does become available AT&T will use its vast cash levels to ensure nobody else will get it. But still.. FREE MARKET!'

It's pretty well accepted that the major American automotive manufacturers participated in de facto price collusion in the 60s and 70s and participated in hard lobbying efforts that made it challenging for imports... a practice they didn't let up on until they succumbed to Congressional heat, mainly a derivative of soaring prices despite declining quality.

In a truly "free market," AA would've taken advantage of free falling jet fuel prices to defer retirement of select aircraft and competed for increased market share. Instead, domestic capacity among the majors outside the SEA squabble will be stagnant at best this year. In a truly "free market," the new Eastern Airlines could launch multiple daily, low-cost service between LGA-ORD.

If the majors have a de facto gentleman's agreement not to add capacity, it should be investigated.

Quoting commavia (Reply 9):
And that's because - in my opinion - the traveling public was spoiled with "ridiculous" (ridiculously low) fares for several decades during tumult and upheaval following deregulation when airlines were unwilling or unable to do what was necessary to actually become commercially viable. The traveling public - and I include myself in that group - had it too good for too long and it's about time they pay what it costs to operate a viable air transportation system that earns its cost of capital and generates a risk-appropriate return for investors. That's not too much to ask. And indeed that's exactly what we now have. If airliners were making 50% net margins, that would be one thing. But they're not. The industry is producing net margins in the high-single-to-low-double-digits, which is entirely reasonable given the cost and risk associated with operating large, complex air transportation networks.

No doubt airfares were "ridiculous" for a small period, but you and others abuse this argument:

Can you argue that the company you work for today pays too little for its professional services (legal & accounting) because taking 1970s pricing & adjusting for inflation / company size, the bill today is only a fraction of what it was then? Or do you recognize that the reason these services are cheaper is because technological advances and economic normalities (e.g. paying a secretary $10/hour with no benefits today vs. an adjusted wage of over $30 with full benefits) have sharply reduced the cost of providing the service, and this is being passed to the consumer?

Likewise, a combined AA/US saves tens of billions in labor cost vs. what a company of that size would've paid in the 1970s into the 1980s. Gone are the days of flying one-third full 737 twice daily into smaller stations that are staffed by AA employees using equipment AA is responsible for (everything from computers to ground equipment). Today, these are completely outsourced to the lowest bidder.... and often AA pays per-flight instead of heavy fixed leasing costs.

The reality is that it doesn't cost AA nearly as much to provide the service as it once did, so it'd be ludicrous to expect passengers to pay adjusted inflation pricing for.

A second point is that the network model that dominates slots & gates at every congested airport drives up the cost of transportation, effectively forcing people in Chicago to subsidize to cost of operating to/from Gators Creek, GA even though those in Chicagoland benefit from a larger number of flights.

[Edited 2015-06-19 00:13:34]
We don’t care what your next flight is.
 
Brewfangrb
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 7:32 am

Quoting gemuser (Reply 56):
Is that one way or return? Because if its one way that is highway robbery!

Roundtrip.
 
Brewfangrb
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 7:34 am

Quoting Flighty (Reply 57):
When we had more airlines, airfares were cheaper. If we have 1 airline, fares will cost a near infinite amount, what is called a monopoly price. We are moving in that direction, measurably.

That's simply and demonstrably not true. It's just not.
 
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Matt6461
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 7:39 am

Quoting brewfangrb (Reply 53):
"Oh, we'll just increase ASM by 50% and yeah, profit will drop 30% but the airlines won't change anything ELSE about how they run their business.

It really annoys me that people here don't know how to deal with hypotheticals. I come from a professional and academic background where it is common to throw out exaggerated numbers to isolate conceptual distinctions, not to advocate the exact numbers proposed. Just keep in mind that's what I'm doing here. The concept to be isolated is the importance of profits versus the importance of a good, such as the ability of common people to travel.

Quoting brewfangrb (Reply 53):
Don't they have a right to see their family, too?

In sense, yes. But we're dealing in different concepts of the question of rights. The popular, less sophisticated conception of rights is that they are "trumps." When you throw one down, all other considerations are defeated. Thus if I held this conception I'd have to agree that Delta should offer $20 fares on GRB-MSP. That's not how I think of rights and neither should you. Rather, rights are a claim to consideration in matters of collective action. In forming public aviation policy under this theory, respecting individual rights would require only that we consider whether aviation policy could be reasonably structured such that air travel is more widely available. See, e.g., http://papers.ssrn.com/sol3/papers.cfm?abstract_id=121252 Thinking correctly about rights also removes common mistakes such as the one appearing constantly in this thread: that the market has rights. It doesn't. Markets aren't people, markets are tools that may or may not be the best way to achieve desired outcomes in a given domain (markets are usually great btw, they just don't count for anything in themselves). So in my sense of rights, a government who allows an oligopoly to restrict supply and raise prices when simple regulatory fixes could create a different, still sustainable and profitable, market outcome is in fact violating the rights of its citizens. It is ignoring their claim to consideration for affordable travel, while prioritizing the claims of investors.

Quoting brewfangrb (Reply 53):
It will absolutely result in lower wages/salaries, lower returns for investors--who will drop out and ultimately RAISE the cost of capital.

Businesses in a market pay as little as they can to employees/suppliers, and charge as much as they can to customers. It's not as if the CEO says, "Hey we made $6bn this year, let's give some of that to the flight attendants."

Quoting brewfangrb (Reply 53):
I mean, sure, I only took 1 semester in Economics and it was like 17 years ago, but I'm pretty sure these are still fundamental economic concepts.

It shows. People who know a little about economics are, especially in the U.S., more likely to believe in market fundamentalism.


I have put forward one small suggestion for nudging competitive equilibrium towards increased capacity: charging lower passenger fees for higher-gauge flights. I believe this is a sensible proposal that more accurately matches supply/demand for public infrastructure. Yet people on here are literally screaming at me as if I'm proposing the end of capitalism. This is why I think I've proved my point: market fundamentalism blinds many people, including otherwise reasonable, thoughtful people. You're all in the grips of a quasi-theological worldview in which markets are as sacred as the cracker that Catholics think is Jesus. If you were to drop the dogma and look seriously at the issue, you might learn something.
 
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EA CO AS
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 7:48 am

Quoting Matt6461 (Reply 28):
boo fucking hoo to the shareholders.

You DO realize that a great many of those shareholders are employees, right? And I don't mean executives - I mean rank-and-file who have company stock as part of their 401(k) match.

What's good for shareholders is good for the employees, and that leads to good things for the customers in the form of a better, more engaged workforce. It's a virtuous cycle that feeds itself.

Running a business at just-above-breakeven levels leads to high turnover, employee disengagement, and poor quality.

[Edited 2015-06-19 00:50:33]
"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
 
aa777lvr
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 8:46 am

My apologies if this has already been referenced in an earlier thread, but some are so lengthy I skip them...

I would argue that the senator fails to realize that the true puppet master of this industry is Wall Street. The thoughts and opinions of the group are a powerful force in this business.

http://www.zacks.com/stock/news/1763...-major-selloff-ryanair-outperforms
 
commavia
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 9:26 am

Quoting Flighty (Reply 52):
Certain markets are much higher than that.

Okay ... and? Certain markets are also much lower than 7-14%, but on average, in the aggregate, that's about what airlines are generating. And that is entirely reasonable.

Quoting compensateme (Reply 58):
In a truly "free market," AA would've taken advantage of free falling jet fuel prices to defer retirement of select aircraft and competed for increased market share.

Huh? How on earth one would arrive at that conclusion is completely lost on me. "Truly free market" necessarily equals airline dumping capacity to gain market share? I don't think so. Again - economically rational actors in a fully or partially free market attempt to maximize profits. Sometimes that means gaining market share, and other times it doesn't.

Quoting compensateme (Reply 58):
If the majors have a de facto gentleman's agreement not to add capacity, it should be investigated.

Indeed. That should be investigated. And I look forward to someone finding the evidence of said agreement and filing a federal lawsuit.

Quoting compensateme (Reply 58):
No doubt airfares were "ridiculous" for a small period, but you and others abuse this argument:

I disagree. They were ridiculous - i.e., priced (again, on average, in the aggregate) far below that which would economically justifiable to cover airlines' cost of capital and generate a risk-reasonable level of return to shareholders. How do we know? Because airlines generally didn't cover their cost of capital or generate much of any returns, let alone risk-reasonable returns, for their shareholders in the entire first 30 years of deregulation. That is what all these arguments always come back to.

For all the alleged evils and ills of the wave of consolidation and industry restructuring - the inescapable fact remains that the industry is producing average net margins in the high-single-to-low-double digits, and I'm still waiting for someone to provide a cogent argument as to why that is even slightly unreasonable given the cost, complexity and risk profile of this industry.
 
FreequentFlier
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 9:58 am

Quoting commavia (Reply 13):

That is one perspective. I, personally, have a different one - it is not possible for me to disagree more with the above. In my opinion, regulation has a rightful and reasonable place in the civil aviation system when it comes to safety and foreign relations (i.e., bilaterals), but other than that, I believe regulation should have essentially zero role. Subject to the practical realities of constrained access in certain places (and that's a whole different subject), airlines should be able to do what deregulation envisioned - fly wherever they want, whenever they want, charging whatever price they want, and either live or die based on the consequences of those commercial decisions. No right or wrong - just two different perspectives.

If only someone had thought of this before....

Oh wait, they did, we tried it, and the practice failed so spectacularly we got rid of it in 1978 (by that right wing, free market warrior Jimmy Carter no less) and haven't looked back since.

So much for "market fundamentalism".
 
FreequentFlier
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 11:05 am

Quoting Matt6461 (Reply 61):



It shows. People who know a little about economics are, especially in the U.S., more likely to believe in market fundamentalism.


I have put forward one small suggestion for nudging competitive equilibrium towards increased capacity: charging lower passenger fees for higher-gauge flights. I believe this is a sensible proposal that more accurately matches supply/demand for public infrastructure. Yet people on here are literally screaming at me as if I'm proposing the end of capitalism. This is why I think I've proved my point: market fundamentalism blinds many people, including otherwise reasonable, thoughtful people. You're all in the grips of a quasi-theological worldview in which markets are as sacred as the cracker that Catholics think is Jesus. If you were to drop the dogma and look seriously at the issue, you might learn something.

Your arrogance is astounding considering how little you know.

Airlines cannot immediately react day to day to low fuel prices - schedules take months of advanced coordination to create. Now that low fuel prices have been baked into the cake, airlines have expanded and many are reporting PRASM declines of 5% in an environment with a 2% inflation rate. Because as compared to other industries, airlines disproportionately benefit from lower fuel prices, they have been able to achieve low single digit margins (the HORROR!) despite the fare reductions, which have benefitted the traveling public.

And you're decrying 5% fare reductions year over year, and low single digit margins, in a 2% inflation environment, as being an example of "free market fundamentalism" run amok.

God save us from these Know Nothings. Haven't they ruined enough?

[Edited 2015-06-19 04:07:41]
 
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Matt6461
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 11:27 am

Quoting FreequentFlier (Reply 66):

Airlines cannot immediately react day to day to low fuel prices -

I said nothing about low fuel prices. Airlines shouldn't make capacity decisions based on short term fluctuations. I know it's a long thread so I won't take too much offense to that misperception and I'm going to ignore the tenor of your response.

What about the pax charge suggestion? Unholy market meddling?
 
Cubsrule
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 12:23 pm

Quoting Matt6461 (Reply 61):
So in my sense of rights, a government who allows an oligopoly to restrict supply and raise prices when simple regulatory fixes could create a different, still sustainable and profitable, market outcome is in fact violating the rights of its citizens.

What's missing from your argument, I think, is any evidence that this sort of government action actually exists. Certainly, we have never experienced it in the United States.

You point out (rightly) that your hypotheticals are "exaggerated" but make no effort to tie the concepts to reality.
I can't decide whether I miss the tulip or the bowling shoe more
 
threeifbyair
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 12:36 pm

Quoting commavia (Reply 13):
Because it isn't like transit, rail or highways in my opinion.

I'd argue that air travel has a fairly high public infrastructure component.

Airports in the USA are largely owned and operated by government entities that benefit from eminent domain rights, tax-free municipal bonds, dedicated taxes, etc.

Only governments can raise the many many billions of dollars required to construct, upgrade, and maintain a comprehensive national system of airports. They use their higher credit ratings and taxing authorities to build facilities for the benefit of one specific industry, air transportation. Airlines are relieved of the massive fixed costs of building and maintaining airports and can even discharge long-term leases in Chapter 11 (see PIT, etc.).
 
billreid
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 12:48 pm

Quoting catiii (Reply 2):
Richard Blumenthal is a moron. So if McDonald's and Burger King both publicly agree on the best way to price a hamburger is that collusion? The fact that he doesn't understand that the airlines have figured out how to make money, that it isn't a secret, and most importantly it isn't illegal, doesn't mean it's collusion.

Moronic comment. Collusion is when competitors talk about business that results in damage to the consumer. If the industry controls capacity for the purpose of increasing fares then we have a problem. Asking the question is always fair.

Quoting flyDTW1992 (Reply 5):
This is nonsense. It's not as though it's some evil secret these airlines are using to effectively turn a profit. It's good business. They've finally hit a viable business environment post-deregulation and post-9/11 and now this idiot decides he doesn't like it.

UNfortunately you speak out of the side of your mouth that says you are an employee. The reality is that consolidation has had two effects. First, the elimination of competition. The second is the effective blocking of new entrants. As difficult as it is to start an airline it is now near impossible because of the size and the control excersized by the big players. The USA is in a Walmart economy where you kill the competition and put ut a bland product as an industry.

Quoting LAX772LR (Reply 12):
Except that there's currently more revenue seats than at any point in the last three decades, yet PRASM overall is down..... meaning more people, are going to more destinations, than at any point in the USA's deregulated history; and paying less to do so.

Where do you get that capacity is up and RASM is down. Average fares have gone up excessively since the mergers began with NW and DL being the first.
With Capacity has done well in major population centres originating from fortress hubs. At the same time the smaller communities have suffered greatly with loss of service. This was amplified through the elimination of carriers. Almost every small airport has been impacted negatively.
PLEASE PROVIDE A LIST OF SMALL HUBS AND NON-HUBS THAT HAVE MORE CAPACITY NOW THAN IN 2005?

The EU is a good measure against the USA. There are three airlines in the EU for every US carrier. Low fares are available with strong low cost competition. Even to the USA there is more than triple the airlines from the EU to the USA than from the USA to Europe. SAD.

But what perhaps shocks me the most is international fares. The cost originating to the EU versus from the EU to the USA is dramatic. It is almost double when originating in the USA. WHY?
Some people don't get it. Business is about making MONEY!
 
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enilria
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 12:54 pm

Quoting commavia (Reply 22):
Yes. By all means let's look at Alaska, and how Delta is allegedly "crushing" it's smaller rival in SEA. Last time I checked, smaller Alaska getting "crushed" amounted to generating incredibly impressive profit margins that are still the envy of much of the industry - including Delta!

AS is already losing revenue momentum, they just didn't make the same fuel hedge gaffes that Delta and others did. Over time AS will see significant negative earnings effects from DL unless the painfully transition to a ULCC or LCC.

Quoting commavia (Reply 22):
And while we're examining how the "big airlines" can "crush" the "smaller airlines," let's take a look at how JetBlue and Spirit and Allegiant are doing in the "crushed" department.

B6 is basically dead in the water in NYC in terms of their ability to better their position. B6 has admitted that they are unable to compete for corporate clients in NYC because they cannot achieve enough critical mass in the face of all the mergers and slot deals. That is pretty apparent from the routes they are flying from JFK vs BOS.

Quoting LAXtoATL (Reply 25):
And what do you think would happen to supply when one of the big 3 go bankrupt because there was "capacity discipline".

First, that's happened like 10 times, so what? Second, if a carrier goes bankrupt they should be liquidated and the assets sold to new entrants. That would allow for a more competitive system and one that does not simply screw over the share and debt holders.

Quoting LAX772LR (Reply 29):
Quoting enilria (Reply 19):
Well yes, that is the definition of the word.

Then perhaps you're in need of a new dictionary.

Let's review:
Collusion
[kuh-loo-zhuh n]

Law. a secret understanding between two or more persons to gain something illegally, to defraud another of his or her rights

http://dictionary.reference.com/brow...n?s=t

I guess you can cherry pick what dictionary you want to use because the first entry on google is this one.

In the study of economics and market competition, collusion takes place within an industry when rival companies cooperate for their mutual benefit. Collusion most often takes place within the market structure of oligopoly, where the decision of a few firms to collude can significantly impact the market as a whole. Cartels are a special case of explicit collusion. Collusion which is not overt, on the other hand, is known as tacit collusion.

Quoting flyguy89 (Reply 30):
In a perfectly free market, that would be impossible because there'd be a constant stream of competitor airlines entering the market place to challenge that monopoly

I suppose, but in a market like this one where safety issues will always constrain entry that would never be possible.
=================================================================================
Another issue I have yet to bring up in this thread is that the DOT/DOJ's overlap model that they use to approve or deny mergers is idiotic. It only considers non-stop overlap and not connection overlap. Over half the passengers are flying on connecting routings, but apparently that doesn't count as a competitive offering by the DOT/DOJ's standard. So, when they say there are 3 airlines competing nationally, it is only in something like 25% of markets that you actually have 3 options. That's different from the cell phone situation where they have different styles of networks...and they keep trying to merge too.

I'll also say this. If you look at many other non-transportation industries and their history, what has happened is that the players all merge down to nothing and then to create competition they allow foreign companies into the market. Transportation is just waaaaay late to this. That's where we are headed here. If they keep allowing people to merge, you are going to eventually end up with cabotage as the proposed solution.
 
avek00
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 1:24 pm

Quoting billreid (Reply 70):
The EU is a good measure against the USA.

Yes...like the United States, the EU has consolidated into three large airline groups (which, unlike US carriers, operate under multiple names to avoid offending sensitivities). Ryanair, easyjet, Norwegian, and a a few other players provide regional-level competition.

However, unlike the United States, most key EU hub airports and incumbent carriers are structurally insulated from serious direct competitive threats. Combined with other factors, this leads to many Europeans paying more for air travel, on average, than Americans.
Live life to the fullest.
 
aaexecplat
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 2:09 pm

The problem as I see it with this discussion is that too many of the participants here either work for the airlines or in the industry and have a personal stake in the welfare of the industry....and are therefore incapable of making arguments that are unbiased or "down the line". Allow me to provide a different viewpoint.

Quoting commavia (Reply 20):
Well I suppose you and I have a different definition of "improved human welfare." To me, the fact that we have a stable, commercially viable air transportation system capable of safely, reasonably reliably and still incredibly affordably (by historical standards, adjusted for inflation) transporting millions of people every day while also employing (directly or indirectly) millions of other people and generating earnings for still-thousands-more owners is the defintion of "improved human welfare."

Improved human welfare is more than what you describe. It also completely dismisses the financial state of affairs of consumers historically and lens heavily in the direction of the main beneficiaries (airline employees and investors).

1) The US3 are outsourcing everything they can to the lowest bidder. Look at UA's baggage handling for example. Many former UA baggage handlers are working for a different company now but are doing the same thing for even less money and without the same protections. Improved human welfare?

2) Passengers are treated worse every year at this point. Take a look at the customer service rankings of the airlines and the actions the airlines have taken. AA got rid entirely of calling Customer Service. Now write-in only via the website with cookie cutter responses coming back. Call centers are being closed, especially the good/experienced ones which means hold times can be hours for even 1k/EXPs during severe weather in just one hub. All the customer service reps that have been sent into retirement. Improved human welfare?

3) The airlines are charging a lot more than they used to just a few years ago. Businesses in particular are hit hard with sky high fares (my average business fares have doubled in less than 5 years) and since every dollar spent on travel is a dollar that can't be spent elsewhere, it follows that businesses spend less money elsewhere (whether it be hiring, technology, infrastructure) and that hurts the overall economy and its participants. There are over 300 million folks that live in this country. The latest number I see is from 2012 (which means it's probably lower now), but then, the entire industry employed just South of 600k people.

4) Of those 600k employed, only those working for the US3 stand to gain anything from the current trends. Increased margins, profits and revenues mean greater bargaining power for the unions. Either way, management makes out better, and investors rejoice. Again...300 million residents, 600k employees, and now some investor numbers. Less than 50% of US residents have ANY stock investments. Of those, ~80% are in the "wealthy" category. Using 401k numbers, in 2012 there were about 50 million 401(k) accounts (mind you accounts...not investors....many investors have multiple accts). The average balance in those accts was then less than $60k and $78k for those age 55 and over. Fully one third had a balance of less than $25k. If you think that higher profits and higher stock prices significantly benefit ANYONE other than those working in the industry or those already wealthy, then I have some ocean front property in AZ to sell you.

5) The relatively small positive effect (on a national level) of sustained record profits in the airline industry, compared with the vast negative economic effects of restriction of air travel, make it imperative for the government to stimulate the growth of the industry as much as is possible. If the economy grows faster and the middle class and lower income class have a chance to make money and spend it, THAT is improved human welfare.

6) Lastly a quick look at the "but airfare is still very affordable" argument will inform you while that claim may be true if looked at from a point of view of fares adjusted for inflation, what you are leaving out of the equation is the buying power of consumers. Mean household incomes have FALLEN for ALL socio economic classes since the peak years (either 2000 or 2006 depending on the quintile as reported from the US census bureau). The drop is anywhere from 5% to 15% with the latter being the case for the lowest income quintile. Prior to 2000, much of the runup in this stat was due to households converting to two-earner households, something which is no longer happening. So to put this differently, while consumer household income has stagnated at best and in reality declines in the last 10-15 years, airlines have significantly raised their fares. And even THAT has to be taken with a grain of salt since all the extra fees are not even included in the fares that are being touted as historically cheap.

Quoting commavia (Reply 20):
I guess what I take issue with - not just with the above, but with the general tenor and sentiment of this and other threads like it - is the sense that the only type of "human welfare" that matters is that of passengers (consumers). There are plenty of other "humans" with a stake in the air transportation system, and in general their welfare was absolutely not improved by the state of affairs from 1978 up until the late 2000s, when the barriers to entry were low and the industry was legally prohibited from consolidating to a rational state. Ask a seasoned airline employee or shareholder how they feel about the "improvement" of their "welfare" during that period.

Sure. They took it in the pants. BUT look at the roaring bull market that made those whiny investors trillions of dollars in that time. They conveniently forget about that. Airline employees have a greater right to complain, but if you think the airlines are willingly paying their employees much better and disburse record profits to their employees in a large scale, then I have another ocean front property for you. The reality is that they aim to funnel ALL profits to investors via dividends and stock price increases (incl buybacks).

Quoting commavia (Reply 20):
Again - I would totally understand, and possibly even agree with, these arguments if airlines were making 50% net margins and truly exercising monopolistic power.

The airlines are now at a point where their net margins outstrip what is commonly understood to be one of THE most profitable industries in existence...big oil. And we don't even have to look at 2015 (when net margins are lower than they have been in recent years). Go back several years when the going was good and you'll see net margins for big oil companies really never get to double-digits at all. Yes, they do it on greater total revenue and total profits, but this assertion that the airline industry is BARELY profitable is a flat out lie. Especially considering that there are now massive structural reasons for this to not really change anytime in the near future and political power that can and will tilt any nagging issues their way.
 
Osubuckeyes
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 2:23 pm

Quoting northwestEWR (Reply 46):
Prove that it's harmful to the competitive landscape.

Let me start my dissertation. I think it is ignorant to say that monopolistic competition is not harmful to the competitive landscape. Whether it is occurring in the airline industry to an extent that the DOJ has to intervene is questionable.

Quoting brewfangrb (Reply 53):
I mean, sure, I only took 1 semester in Economics and it was like 17 years ago, but I'm pretty sure these are still fundamental economic concepts.

Maybe you shouldn't comment on things that go far beyond a basic understanding of economics.
 
peanuts
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 2:46 pm

Quoting Matt6461 (Reply 28):

I can appreciate your well articulated thoughts in this thread about transportation utopia.I'm cynical at best. The real world is always different. I'm not saying practical and efficient, just different.

Everytime a "progressive" in government finds a way to lower prices for consumers (at the expense of the other side, including employees and investors, who are of course also consumers ), they will pounce back with increased taxes elsewhere. And progressives justify those additional burdens by saying that disposable incomes have improved. See how that works? Very clever. That's not progressive. That's regressive.

So when someone theorizes up a perfect equilibrium of how things should be, others will be there to tear it down immediately by taking advantage of it.
Equilibrium is a pipe dream. The goalposts are constantly shifted. Your theory may sound nice, reality is different.
 
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lightsaber
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 4:27 pm

If the concern is new entrants, expand airports and ground transportation to the.

LAX needs gates and rail access to move people.
IAD needs rail to high yield customers
NYC needs more capacity
ORD, DTW, DFW all have too few gates for new entrants.

There are enough airlines that the problem will solve itself.

Lightsaber
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mayor
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 4:36 pm

Quoting threeifbyair (Reply 69):

Quoting commavia (Reply 13):
Because it isn't like transit, rail or highways in my opinion.

I'd argue that air travel has a fairly high public infrastructure component.

Which the airlines pay for in the form of landing fees, etc.
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LJ
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 6:22 pm

Quoting Flighty (Reply 52):
Yes. Atlantic really has 3 competitors, often just 2. So collusion and price fixing (even if just tacit, via daily pricing activity) is pretty easy.

Not correct. You have a growing FI and DY which will grow even more if fares would be higher. In the end, TATL is very competitive and highly profitable only in the Summer months. In Winter, these flights are probably loss making, especially in January - March.

Quoting avek00 (Reply 72):
However, unlike the United States, most key EU hub airports and incumbent carriers are structurally insulated from serious direct competitive threats. Combined with other factors, this leads to many Europeans paying more for air travel, on average, than Americans.

That's only applicable to a few airports in Europe (notably FRA and LHR). The other airports have many LCC options.
 
Sightseer
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 6:58 pm

Quoting AAexecplat (Reply 73):
The problem as I see it with this discussion is that too many of the participants here either work for the airlines or in the industry and have a personal stake in the welfare of the industry....and are therefore incapable of making arguments that are unbiased or "down the line".

I will do my best to compare apples to apples here. By default, virtually all employees of the airline industry depend on it for their entire livelihoods. How many non-airline employees can say that about airlines? Unless you don't agree that the principal stakeholders in the company should be given higher priority, how is it fair to criticize those stakeholders' opinions as biased, especially in an industry which saw 17 bankruptcies and lost $54 billion in the prior decade?

[Edited 2015-06-19 12:20:47]
 
Flighty
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 7:27 pm

Quoting LJ (Reply 78):
Not correct. You have a growing FI and DY which will grow even more if fares would be higher. In the end, TATL is very competitive and highly profitable only in the Summer months. In Winter, these flights are probably loss making, especially in January - March.

Good response, this is a perfect argument, but I am not impressed that FI and DY are actually affecting the marketplace. They are just enjoying the high summer yields with a little bit of ULCC capacity (no free food etc)

All those 13 airlines I listed used to have independent pricing departments. Then, NW-KL got a joint venture IIRC, AA-BA did, and LH-UA set something like that up too. So now the 13 have become 3.

Quoting commavia (Reply 64):
Okay ... and? Certain markets are also much lower than 7-14%, but on average, in the aggregate, that's about what airlines are generating. And that is entirely reasonable.

My point is that some markets are in an improper situation. Some markets are very competitive (like LAX or DEN) and I have no problem there. It is problems like the SE region duopoly (created by mergers approved under false pretenses, eliminating NW and FL hubs). The US is about 2/3 in the East where every domestic trip is affected by that. And as mentioned, hundreds of int'l markets as well.

Let's enter our time machine (this will be an absurdly long post -- but pure airline CEO gold if I may say so).

----------------------------------

Sept 28, 2010 (http://www.wsj.com/articles/SB10001424052748704654004575517510208350940)
----------------------------------

"Southwest's Mr. Kelly said he is confident regulators will approve the deal because the airlines only overlap on 19 routes. He is also optimistic a deal can be worked out with labor, given the combined airline's heightened growth prospects.

"We're talking about adding airplanes, flights, adding more jobs. We're not interested in buying someone and downsizing," said Mr. Kelly.

One of the keys to Southwest's low-cost success has been a simple operating model that includes only one type of aircraft—the Boeing 737. That strategy would become slightly more complicated with AirTran, which has a fleet of 737s and smaller 717s. Mr. Kelly said the 717s could be useful serving smaller domestic markets."


----------------------------------

2008 (http://www.memphisdailynews.com/editorial/ArticleEmail.aspx?id=37421)
----------------------------------

"If anything, the merger of the two airline behemoths – expected to be completed by fourth quarter – will enhance the status and traffic of Memphis International Airport, Anderson said at a breakfast forum hosted by the Memphis Regional Chamber, Memphis-Shelby County Airport Authority, Memphis Convention & Visitors Bureau and the Economic Club of Memphis.

“The consolidation is about addition, not subtraction,” Anderson said.

Anderson said the move could even bring more flights to the city, especially international flights, considering the long list of worldwide cities now served by the two companies. He also noted that the two airlines don’t overlap in national and international network routes as much as Delta and U.S. Airways, which recently failed in a bid to overtake Delta.

Instead, he added, the union of Northwest and Delta creates a complementary network that spans the globe and retains a need for strong connection hubs like Memphis.

“The places Northwest is strong, Delta has little presence,” Anderson said. “And the places Delta is strong, Northwest has little presence. When you think about a map of the world, you want to cover the map of the world.”

Anderson pointed to Memphis’ importance as a hub airport by citing the recent restructuring at Northwest. After all, if Memphis was found to be a valuable asset during and after the company’s bankruptcy, it surely will be a valuable asset after the merger."


----------------------------------
What some other observers have said:

2013 (http://fortune.com/2013/10/23/delta-proves-that-consolidation-drives-up-ticket-fares/)
----------------------------------
"Delta’s record earnings could give the government just what it needs to finally crush the merger hopes of American Airlines and US Airways. Delta’s pricing power and heft allowed it to reduce service and raise fares in the third quarter, leading to absurdly high profit margins for an airline. While some of Delta’s success can be attributed to good management and cost cutting, it was Delta’s ability to force passengers to open their wallets that truly allowed the company to achieve such stellar results.

All of this doesn’t bode well for merger hopefuls American and US Airways (LCC 0.00%), which claim that further consolidation in the industry would somehow lower prices and increase service. But as Delta (DAL 1.93%), and indeed, the rest of the industry demonstrated last quarter, consolidation has acted like a rising tide, which not only lifted industry profits across the board but also managed to drown consumers with fees and fare hikes."


--------------------------------------------
2012 (http://www.politifact.com/tennessee/statements/2012/nov/25/steve-cohen/delta-broke-promises-memphis-says-congressman-cohe/)
-------------------------------------------
"When the merger of Delta Air Lines and Northwest Airlines was under consideration in 2008, U.S. Rep. Steve Cohen, D-Tenn., was skeptical of the deal. While noting that the Memphis Airport Authority and the Memphis Chamber of Commerce backed it, Cohen sought some assurances from those seeking to implement it.

The Memphis congressmen is now assailing Delta, which has grown very unpopular in the region while flights are cut and fares are raised, for failing to live up to those assurances.

Cohen put out a press release Oct. 31 saying some of the assurances he received were misrepresentations and "that Delta has once again broken a promise they made to me and to the people of Memphis." The release’s opening paragraph referred to a "string of broken promises," so we decided to look at the history and determine if Cohen is accurately representing the company’s record.

Cohen’s office provided hearing transcripts and press accounts. In one, the CEO of Delta, Richard H. Anderson, appeared before the House Judiciary Committee’s task force on antitrust laws in April 2008, and Cohen was there to question him. Anderson, who had served as a senior vice president for labor relations at Northwest in the early 1990s, noted that he’d spent "many days in Memphis" and was "instrumental in launching the service from Memphis to Amsterdam some, I guess, 10 years ago now."

Cohen: "The Amsterdam flight would remain, I presume?"

Anderson: "Yes."

(.....)

Delta announced in March of this year that the flight to Amsterdam, inaugurated in 1995 and giving the Bluff City huge international cachet, would be converted to a summer-only schedule. Then, in October, the airline dropped the flight from the schedule completely.

(..... numerous other promises...)

We rule this statement True."
 
Cubsrule
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 7:42 pm

Quoting Flighty (Reply 80):
It is problems like the SE region duopoly (created by mergers approved under false pretenses, eliminating NW and FL hubs). The US is about 2/3 in the East where every domestic trip is affected by that. And as mentioned, hundreds of int'l markets as well.

There was nothing low fare about the NW MEM hub, either for O&D passengers or for connecting passengers. With regard to FL, would you rather have them liquidated and nothing left in ATL now (or 5 years from now) or the operation WN has in ATL? You assume that FL/ATL was sustainable long-term. Why do you assume that? Remember, it was run by management group that asserted that MKE-YUL could support multiple daily mainline airplanes.
I can't decide whether I miss the tulip or the bowling shoe more
 
aaexecplat
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 8:16 pm

Quoting Sightseer (Reply 79):
I will do my best to compare apples to apples here. By default, virtually all employees of the airline industry depend on it for their entire livelihoods. How many non-airline employees can say that about airlines? Unless you don't agree that the principal stakeholders in the company should be given higher priority, how is it fair to criticize those stakeholders' opinions as biased, especially in an industry which saw 17 bankruptcies and lost $54 billion in the prior decade?

I get that their livelihoods depend on the success of the industry. But that means their interests are at odds with what is potentially best for the country as a whole. What part of that is hard to understand?

And I don't agree that stakeholders should be given higher priority over the economic well-being of potentially hundreds of millions of people.
 
billreid
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 8:23 pm

Quoting avek00 (Reply 72):
However, unlike the United States, most key EU hub airports and incumbent carriers are structurally insulated from serious direct competitive threats. Combined with other factors, this leads to many Europeans paying more for air travel, on average, than Americans.

I beg to greatly differ. How frequently do you fly inter EU as a revenue pax?
I do it frequently. I can frequently find OW fares intra Europe for less than USD$100. I also can find fares regularily less than $50 OW.
If you feel that US fares are less. Please give examples of ten city pairs in the USA flown by the USA's largest carriers that can be booked within 36 hours of departure for less than $50 OW.
I have flown three times from Luton to AMS or EIN in the last four months all booking OW within 24hrs. The prices were between 80Euros and 132Euros including luggage fees. In contrast after returning to the USA I tried to book from EWR, DCA, IAD, BWI, PHL to either TPA or SRQ OW within 24 hours of travel. Lowest fare quoted was AA at $214 and when you tried to book it the computer said NO LONGER AVAILABLE went to the AA website and lowest fare $485 OW.

GOUGE OUCH GOUGE OUCH.
Any airline employee thinking the fares are equal or fair should be sent for a drug test!
Think of it, there are more EU airlines flying to the USA then there are airlines in the Americas with the ability to fly to Europe!

Another Example. TUI/ Arkefly is selling its flight OW from SFB to AMS at Euro 250 in July! Round trip is well less than 1000!
In contrast cheapest US carrier is DL at $1693. Now granted DL has a connection in ATL flies only brand new state of the art aircraft and arkefly is using a crappy old B787-8. Most US fares are pushing over $2000 with a conx.
Some people don't get it. Business is about making MONEY!
 
Sightseer
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 8:46 pm

Quoting AAexecplat (Reply 82):

OK. By that logic, why stop at airlines? Should Toyota and GM sell cars at a loss because of " the economic well-being of potentially hundreds of millions of people?" After all, there are always more auto customers than there are auto industry employees, so why should we worry about the wellbeing of those employees?
 
Rdh3e
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 8:51 pm

Quoting billreid (Reply 83):
I have flown three times from Luton to AMS or EIN in the last four months all booking OW within 24hrs.
LTN-AMS is 221 miles, so for 83 euros you paid 41 (USD) cents per mile.

Quoting billreid (Reply 83):
In contrast after returning to the USA I tried to book from EWR, DCA, IAD, BWI, PHL to either TPA or SRQ OW within 24 hours of travel. Lowest fare quoted was AA at $214 and when you tried to book it the computer said NO LONGER AVAILABLE went to the AA website and lowest fare $485 OW.
EWR TPA is nearly 5x the distance at 997miles which for $214 is 21.4 cents, and at $485 is 49 cents per mile. By the way, you can buy a EWR-TPA one way for $208 for travel tomorrow on Kayak.com.

Please if you're going to make a point don't use an example that shows you're wrong.

Face value the fares in the US are going to be higher, usually because you're flying further.

[Edited 2015-06-19 13:51:57]
 
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northwestEWR
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 9:06 pm

Quoting Sightseer (Reply 84):

Quoting AAexecplat (Reply 82):

OK. By that logic, why stop at airlines? Should Toyota and GM sell cars at a loss because of " the economic well-being of potentially hundreds of millions of people?" After all, there are always more auto customers than there are auto industry employees, so why should we worry about the wellbeing of those employees?

        
Welcome to Capitalism.

Quoting AAexecplat (Reply 82):
And I don't agree that stakeholders should be given higher priority over the economic well-being of potentially hundreds of millions of people.

That's called Capitalism. Company shareholder's interests are the top priority, even above employees. What the shareholders want is what is important, whether you agree with that or not.
Northwest Airlines - Now You're Flying Smart
 
Brewfangrb
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 11:35 pm

Quoting Matt6461 (Reply 61):
It really annoys me that people here don't know how to deal with hypotheticals. I come from a professional and academic background where it is common to throw out exaggerated numbers to isolate conceptual distinctions, not to advocate the exact numbers proposed. Just keep in mind that's what I'm doing here. The concept to be isolated is the importance of profits versus the importance of a good, such as the ability of common people to travel.

It really annoys me when people use hyperbole and when they are called out on it, they cry "It's an exaggerated example!" Well, then use a REAL example that grounded in fact and reality. If you don't REALLY mean "Increase ASM by 50% and reduce profit by 30%", then what DO you mean?

Quoting Matt6461 (Reply 61):
hinking correctly about rights also removes common mistakes such as the one appearing constantly in this thread: that the market has rights. It doesn't. Markets aren't people, markets are tools that may or may not be the best way to achieve desired outcomes in a given domain (markets are usually great btw, they just don't count for anything in themselves). So in my sense of rights, a government who allows an oligopoly to restrict supply and raise prices when simple regulatory fixes could create a different, still sustainable and profitable, market outcome is in fact violating the rights of its citizens. It is ignoring their claim to consideration for affordable travel, while prioritizing the claims of investors.

The problem is you've only focused on the right of PASSENGERS, without considering the impact on others, who are still people, you know.

Quoting Matt6461 (Reply 61):
Businesses in a market pay as little as they can to employees/suppliers, and charge as much as they can to customers. It's not as if the CEO says, "Hey we made $6bn this year, let's give some of that to the flight attendants."

Umm, that's EXACTLY what many airlines, Delta in particular, do. Many businesses have either direct/codified profi-sharing plans or bonuses. I've received a bonus every year I've worked for my employer, starting 10 years ago. (Not the airline industry). Your comment is incorrect and misplaced.

Quoting Matt6461 (Reply 61):
I have put forward one small suggestion for nudging competitive equilibrium towards increased capacity: charging lower passenger fees for higher-gauge flights.

No, you presented a preposterous, hyperbolic example because it can't criticized, because you can simply claim it was an "exaggeration." You think airlines pay the least they can for their labor/expenses now but have refused to discussed the fact that if they were required to increase the supply of their product against their will, that they would just take a profit reduction and say "Thank you". They WILL respond with higher ancillary fees or cutting wages. My problem is that you've consistently spoken about "human welfare" but ONLY with respect to passengers. You blow off other impacts as being to "investors". You ignore flight attendants, mechanics, ground and gate crew and pilots are just as much ordnary people as the passengers you think should be able to fly GRB-SAN for $20.

Quoting AAexecplat (Reply 73):
2) Passengers are treated worse every year at this point. Take a look at the customer service rankings of the airlines and the actions the airlines have taken. AA got rid entirely of calling Customer Service. Now write-in only via the website with cookie cutter responses coming back. Call centers are being closed, especially the good/experienced ones which means hold times can be hours for even 1k/EXPs during severe weather in just one hub. All the customer service reps that have been sent into retirement. Improved human welfare?

So? No one's ENTITLED to "good customer service". If people accept bad customer service and keep using that business, what incentive is there for that business to improve. Ethically and socially, yes, people should not be treated badly, of course. But if I'm treated badly by an airline and I just keep flying, why should they improve?

Quoting AAexecplat (Reply 73):
6) Lastly a quick look at the "but airfare is still very affordable" argument will inform you while that claim may be true if looked at from a point of view of fares adjusted for inflation, what you are leaving out of the equation is the buying power of consumers. Mean household incomes have FALLEN for ALL socio economic classes since the peak years (either 2000 or 2006 depending on the quintile as reported from the US census bureau). The drop is anywhere from 5% to 15% with the latter being the case for the lowest income quintile.

To be sure I'm understanding, you're suggesting airlines should price their flights based on their potential customers' individual purchasing power?

Quoting osubuckeyes (Reply 74):
Maybe you shouldn't comment on things that go far beyond a basic understanding of economics.

You don't have the slightest clue what I do or don't know. If Matt6461 gets to use exaggerated examples and not have to defend the basis for his arguments, I can simplify my responses the same way. Whether you think so or not, flights are still a product subject to basic forces of supply and demand. Some argue it's an oligopoly, but it's certainly not a monopoly and the fare structures are not regulated. Thus, airlines control the supply and demand dictates the price. No one is forcing anyone to pay anything. And despite Matt's protestations, no one has the right to fly anywhere they want for a fare they consider "affordable".

Quoting rdh3e (Reply 85):
EWR TPA is nearly 5x the distance at 997miles which for $214 is 21.4 cents, and at $485 is 49 cents per mile. By the way, you can buy a EWR-TPA one way for $208 for travel tomorrow on Kayak.com.

Please if you're going to make a point don't use an example that shows you're wrong.

Ooops.
 
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LAX772LR
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Fri Jun 19, 2015 11:39 pm

Quoting billreid (Reply 70):
Average fares have gone up excessively since the mergers began with NW and DL being the first.

Only because you're making the fallacious mistake of comparing fares nominally. In real terms (i.e. calculated using Bureau of Labor Statistics CPI)

http://www.rita.dot.gov/bts/airfares..._price_index/html/AnnualFares.html

  • In December 2006, with five legacies, two of them bankrupt, and no mergers: average USA air fare was $386.
  • In December 2014, with three legacies, all of them at peak strength: average USA air fare was $391... a whopping $5 difference in the span of nearly a decade.
  • And for the fun of it: in December 1995, with six legacies, and fuel that's a fraction of what it is now: average USA air fare was $454.

    How many modern commodities can you name that cost $63 less now, than they did 20yrs ago, in real terms?

    Quoting billreid (Reply 70):
    The EU is a good measure against the USA.

    In some ways yes, in plenty of others no.

    Quoting enilria (Reply 71):
    In the study of economics and market competition, collusion takes place within an industry when rival companies cooperate for their mutual benefit.

    But again, you're just highlighting your fundamental misunderstanding of what it means to "cooperate."

    Retroactive response to a competitior's market move, is not a cooperation-- no matter how badly you want it to be so.
  • I myself, suspect a more prosaic motive... ~Thranduil
     
    superjeff
    Posts: 1385
    Joined: Fri Feb 05, 2010 2:14 am

    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Fri Jun 19, 2015 11:42 pm

    What bothers me about the whole thing is that even making buckets of dollars these days, they just RAISED fares! Last week, JetBlue instituted a $10 roundtrip increase; Southwest followed the next day, and the US 3 over the next few. I can understand raising fares when costs increase (but also note that the airlines didn't rescind increases when fuel prices dropped), but this is not fare.

    I'm old enough to have worked in the industry at the time of deregulation. I thought it would be a disaster then (but I was a few decades ahead of my time, I guess), and I think it is a disaster now.
     
    flyby519
    Posts: 1583
    Joined: Tue Jul 24, 2007 3:31 am

    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Fri Jun 19, 2015 11:45 pm

    Delete please....
    Delete mis-post

    [Edited 2015-06-19 16:47:02]
     
    flyby519
    Posts: 1583
    Joined: Tue Jul 24, 2007 3:31 am

    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Fri Jun 19, 2015 11:46 pm

    Quoting northwestEWR (Reply 86):

    Company shareholder's interests are the top priority, even above employees. What the shareholders want is what is important, whether you agree with that or not.

    This should be printed on every boarding pass so the travelers remember air travel isn't a public utility and everyone isn't entitled to cheap airfare.
     
    BMI727
    Posts: 11300
    Joined: Mon Feb 02, 2009 9:29 pm

    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Fri Jun 19, 2015 11:47 pm

    Quoting superjeff (Reply 89):
    I'm old enough to have worked in the industry at the time of deregulation. I thought it would be a disaster then (but I was a few decades ahead of my time, I guess), and I think it is a disaster now.

    Of course you do. Regulation was a gravy train for you guys.

    Quoting flyby519 (Reply 90):
    This should be printed on every boarding pass so the traveling public remembers air travel isn't a public utility and everyone isn't entitled to cheap airfare.

    That should be self evident to everyone. Stop idiotproofing the world.
    Why do Aerospace Engineering students have to turn things in on time?
     
    Rdh3e
    Posts: 3634
    Joined: Wed Mar 30, 2011 2:09 pm

    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Fri Jun 19, 2015 11:51 pm

    Quoting superjeff (Reply 89):

    What bothers me about the whole thing is that even making buckets of dollars these days, they just RAISED fares!

    You don't think that could possibly be due to increased demand?

    "According to projections released today by Airlines for America, US carriers are expected to face record traffic this summer as the US economy recovers. The group has projected a 4.5% year-over-year (YoY) increase in traffic for the period June-August 2015."

    http://www.bidnessetc.com/42991-us-a...-this-summer-industry-trade-group/
     
    32andBelow
    Posts: 5060
    Joined: Mon Sep 03, 2012 2:54 am

    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Fri Jun 19, 2015 11:52 pm

    Quoting flyby519 (Reply 91):
    This should be printed on every boarding pass so the travelers remember air travel isn't a public utility and everyone isn't entitled to cheap airfare.

    It would just be nice if shareholders realized that what is in the customers best interest is actually also in their best interest.
     
    User avatar
    compensateme
    Posts: 3279
    Joined: Wed Jan 28, 2009 4:17 am

    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Fri Jun 19, 2015 11:55 pm

    Quoting commavia (Reply 64):
    I disagree. They were ridiculous - i.e., priced (again, on average, in the aggregate) far below that which would economically justifiable to cover airlines' cost of capital and generate a risk-reasonable level of return to shareholders. How do we know? Because airlines generally didn't cover their cost of capital or generate much of any returns, let alone risk-reasonable returns, for their shareholders in the entire first 30 years of deregulation. That is what all these arguments always come back to.

    At its most simple form, profit = revenue - expenses.
    You're insisting that the lack of profitability over the past 30 years is a derivative of revenue not covering expenses. You're completely ignoring the expense part -- incredibly high labor costs, high debt serving costs (e.g. UA taking delivery of over 100 767, 777 and 747 within 5 years, most destined for risky expansion), etc.

    Quoting commavia (Reply 64):
    Indeed. That should be investigated. And I look forward to someone finding the evidence of said agreement and filing a federal lawsuit.

    I suspect the a.net community uses this argument because they don't know how these investigations work: even in the most extreme situations, investigations into people who participate in illeagle activity like embezzelment don't launch because of evidence -- they launch because of suspected irregularity. I'm certain the majors have their teams of trusty advisors, but their reluctance to add even the slightest capacity is a bit suspicious. They may not be breaking any laws... but the irregularity is certainly worth investigating into to determine such.

    What amuses me is that if the local gas stations suddenly raised prices for no apparent reason (e.g. oil was dropping), a.net is outraged and welcomes an investigation. But when it comes to their favorite local hub airline...

    Quoting commavia (Reply 64):
    Huh? How on earth one would arrive at that conclusion is completely lost on me. "Truly free market" necessarily equals airline dumping capacity to gain market share? I don't think so. Again - economically rational actors in a fully or partially free market attempt to maximize profits. Sometimes that means gaining market share, and other times it doesn't.

    I wrote that because over the past 5 years US has injected a fair amount of capacity but this year it suddenly stopped, despite there being no obvious reason why....
    We don’t care what your next flight is.
     
    Brewfangrb
    Posts: 292
    Joined: Tue Nov 11, 2014 3:13 am

    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Sat Jun 20, 2015 12:04 am

    Quoting 32andBelow (Reply 94):
    It would just be nice if shareholders realized that what is in the customers best interest is actually also in their best interest.

    Not always. A transcon for $20 is certainly in my best interest, but it's hardly in ANYONE else's interest. (Again, I suspect I know what you mean, but using absolutist language doesn't help).

    Quoting superjeff (Reply 89):
    I can understand raising fares when costs increase (but also note that the airlines didn't rescind increases when fuel prices dropped), but this is not fare.

    I'm not sure if this is an @adam_jacobi pun or a real statement. But if this is real, you understand you're allowed to refuse to pay, right? And if everyone joined you, fares would drop, right? And that fares increase because people are willing (even if YOU are not) to pay them, right?

    [Edited 2015-06-19 17:07:37]
     
    T5towbar
    Posts: 491
    Joined: Fri Feb 27, 2009 2:06 am

    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Sat Jun 20, 2015 12:05 am

    Quoting commavia (Reply 9):
    And that's because - in my opinion - the traveling public was spoiled with "ridiculous" (ridiculously low) fares for several decades during tumult and upheaval following deregulation when airlines were unwilling or unable to do what was necessary to actually become commercially viable. The traveling public - and I include myself in that group - had it too good for too long and it's about time they pay what it costs to operate a viable air transportation system that earns its cost of capital and generates a risk-appropriate return for investors. That's not too much to ask. And indeed that's exactly what we now have. If airliners were making 50% net margins, that would be one thing. But they're not. The industry is producing net margins in the high-single-to-low-double-digits, which is entirely reasonable given the cost and risk associated with operating large, complex air transportation networks.

    Best post I've read that clearly sums up this crazy business that we love to follow and work in.

    Thanks, Commavia.
    A comment from an Ex CON: Work Hard.....Fly Standby!
     
    User avatar
    compensateme
    Posts: 3279
    Joined: Wed Jan 28, 2009 4:17 am

    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Sat Jun 20, 2015 12:14 am

    Quoting T5towbar (Reply 97):
    Best post I've read that clearly sums up this crazy business that we love to follow and work in.

    Thanks, Commavia.

    As I wrote in my postings above, IMO, his comments merely repeat a perpetual a.net fallacy...

    Kinda like spending $75,000/a year despite pocketing only half of that after taxes and blaming your debt load on the fact that you don't earn enough money...

    [Edited 2015-06-19 17:16:10]
    We don’t care what your next flight is.
     
    User avatar
    LAX772LR
    Posts: 13442
    Joined: Sun Nov 09, 2014 11:06 pm

    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Sat Jun 20, 2015 12:38 am

    Quoting 32andBelow (Reply 94):
    It would just be nice if shareholders realized that what is in the customers best interest is actually also in their best interest.

    Sounds cute to say, but it's often not the case... especially in the short-term, which is all today's investors seem to really care about.  
    I myself, suspect a more prosaic motive... ~Thranduil

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