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strfyr51
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 12:56 am

THE same people speaking out about capacity discipline would be the SAME turkeys that would decry re-regulation. When the Airlines De regulated and fares dropped I never saw ANYBODY complaining and I was in the industry then TOO, Now all of a sudden the airlines are looking FIRST at their "bottom lines" and they seem to ALL have come to the same conclusion. LESS is More. Fewer seats means you can gain pricing support for the seats you HAVE. You no longer need to give away excess seats with fare sales because you HAVE no EXCESS seats. Yield managment now means to wring a profit out of EVERY seat.
the genie is out of the bottle!! This is De regulation at it's FINEST !!!
 
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compensateme
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 1:10 am

Quoting strfyr51 (Reply 100):
THE same people speaking out about capacity discipline would be the SAME turkeys that would decry re-regulation. When the Airlines De regulated and fares dropped I never saw ANYBODY complaining and I was in the industry then TOO, Now all of a sudden the airlines are looking FIRST at their "bottom lines" and they seem to ALL have come to the same conclusion. LESS is More. Fewer seats means you can gain pricing support for the seats you HAVE. You no longer need to give away excess seats with fare sales because you HAVE no EXCESS seats. Yield managment now means to wring a profit out of EVERY seat.
the genie is out of the bottle!! This is De regulation at it's FINEST !!!

Us "turkeys" have never "decried" for re-regulation. You need to read more carefully.
We don’t care what your next flight is.
 
Rdh3e
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 1:23 am

Quoting compensateme (Reply 95):
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....

That's completely untrue. 2015 has been the biggest YoY increase in the last 5 years, that is why everyone is nervous, airlines are adding lots of capacity, not "stopped adding" as you claim.

YoY 2015 US Domestic:
Flights ~flat
Seats up 3%
ASMs up 5%

Now if you're going to be one of those people that says "slimline doesn't count as more capacity" or "larger airplanes don't count", then have a nice day, but airlines are increasing capacity this year.
 
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compensateme
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 1:37 am

Quoting rdh3e (Reply 102):
That's completely untrue. 2015 has been the biggest YoY increase in the last 5 years, that is why everyone is nervous, airlines are adding lots of capacity, not "stopped adding" as you claim.

YoY 2015 US Domestic:
Flights ~flat
Seats up 3%
ASMs up 5%

Now if you're going to be one of those people that says "slimline doesn't count as more capacity" or "larger airplanes don't count", then have a nice day, but airlines are increasing capacity this year.

According to AA, the combined network cut domestic capacity 1Q.
http://phx.corporate-ir.net/phoenix....7098&p=irol-newsArticle&ID=2039822

updated to add -
AA's forecasting 2% ASM increase for 2Q.

Some markets, like SEA, LAX and Dallas are seeing a boom in capacity and subsequent fare war in many markets (and we know why), but too bad the rest of the country isn't getting to participate...

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

Sat Jun 20, 2015 2:19 am

Quoting LAX772LR (Reply 88):
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.

But this is proactive not retroactive. This is all about future capacity and attempts to shame competitors into also exhibiting "discipline" with future capacity. Don't understand how the word retroactive is appropriate.
 
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LAX772LR
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 2:31 am

Quoting enilria (Reply 104):
Don't understand

Indeed, seems you don't. We could just stop right there, as it summarizes the situation perfectly.

I mean, at the end of the day, if you can offer corroborative evidence of collusion-- then why are you sitting here rambling to us, when you (or at least a US consumer whom you can convince to claim harm) should be raising hell over at the DOJ?

[Edited 2015-06-19 19:35:30]
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rwessel
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 4:34 am

Quoting strfyr51 (Reply 100):
Now all of a sudden the airlines are looking FIRST at their "bottom lines" and they seem to ALL have come to the same conclusion. LESS is More. Fewer seats means you can gain pricing support for the seats you HAVE. You no longer need to give away excess seats with fare sales because you HAVE no EXCESS seats. Yield managment now means to wring a profit out of EVERY seat.
the genie is out of the bottle!! This is De regulation at it's FINEST !!!

So you're saying that tacit collusion by the airlines is a certainty? Multi-billion dollar fines and jail terms all around, then.
 
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mayor
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 5:14 am

Quoting rwessel (Reply 106):
So you're saying that tacit collusion by the airlines is a certainty? Multi-billion dollar fines and jail terms all around, then.

The Big 3 airlines needn't have gotten together to decide this. They could have, individually, come to the same conclusion.

Quoting rdh3e (Reply 102):
YoY 2015 US Domestic:
Flights ~flat
Seats up 3%
ASMs up 5%

Airlines can reduce the number of flights without reducing capacity, but keeping it flat.
"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
 
rwessel
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 5:44 am

Quoting mayor (Reply 107):
The Big 3 airlines needn't have gotten together to decide this. They could have, individually, come to the same conclusion.

Tacit collusion, by definition, does not require anyone to explicitly "get together".

What you're saying the airlines have done only works if they've all decided not up upset the apple cart by actually competing with each other harder. If they *did* fully compete, any one of the airlines could significantly increase sales by slightly lowering prices while the others don't. They've decided *not* to compete, in order to keep prices high. Your argument is that they've individually come to the decision to (tacitly) collude. Off with their heads, then.
 
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northwestEWR
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 5:44 am

Quoting LAX772LR (Reply 88):

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?

^^^^^ This says it all right here. Airfares are DOWN. Not up. Period.
Northwest Airlines - Now You're Flying Smart
 
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EA CO AS
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 6:26 am

Quoting rwessel (Reply 108):
Tacit collusion, by definition, does not require anyone to explicitly "get together".

At what point do you begin calling non-communicated best practices tacit collusion - when it results in something you happen to dislike?
"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
 
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mayor
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 1:47 pm

Quoting EA CO AS (Reply 110):

Quoting rwessel (Reply 108):
Tacit collusion, by definition, does not require anyone to explicitly "get together".

At what point do you begin calling non-communicated best practices tacit collusion - when it results in something you happen to dislike?

   And at what point does that become ILLEGAL, if at all?
"A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
 
Brewfangrb
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 4:08 pm

Quoting rwessel (Reply 108):
Tacit collusion, by definition, does not require anyone to explicitly "get together".

This hurts to think about. You want to argue that without parties acting in concert on a course of action, they can be guilty of collusion? So in essence, only one company can have a good idea, or a best practice because if 2 or more companies happen to believe a practice is the best approach, it's collusion?
 
rwessel
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 6:08 pm

Quoting brewfangrb (Reply 112):
This hurts to think about. You want to argue that without parties acting in concert on a course of action, they can be guilty of collusion? So in essence, only one company can have a good idea, or a best practice because if 2 or more companies happen to believe a practice is the best approach, it's collusion?

No, they *are* acting in concert, but without explicit coordination (IOW, there wasn't a meeting between the CEOs in a dark back room where they agreed to fix a price - which is *obviously* a problem). A classic example is following a price leader. Everybody just "happens" to set the same price as the first one in. You can even have punishment mechanisms for anyone failing to "cooperate." Again, without explicit coordination (for example, anyone if anyone cuts prices "inappropriately", everyone else immediately sets an even lower price, until the original transgressor "plays nice"). There are other forms. It tends to be a somewhat unstable arrangement, and works best with poorly differentiated products, in markets with only a few players and with high barriers to entry (all of which are obviously true of the airline industry).

The basic tip-off is simple (although not conclusive): By lowering prices, could one of the vendors significantly increase sales and profits at the expense of the other vendors (assuming they don't raise prices)? Looked at another way, what would the price be if there were enough vendors to make tacit collusion impossible? This is really only a more complicated version of the problem with monopoly pricing. While a monopoly *might* price a product the same as what it would be priced in a competitive market, they almost never do.

The argument presented above is that the US3 are (effectively) constraining capacity industry-wide in order to boost prices. There is obviously no merit for (say) Delta to reduce its capacity, unless AA and United do so as well. On the face of it, that's collusion of some sort. I'm not actually saying collusion has happened, but rather the (specific) argument being presented that it hasn't, actually demonstrates that it has.

Proving any of that in a court of law is difficult.
 
Flighty
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 8:05 pm

Quoting brewfangrb (Reply 96):

A $20 transcon, like free gas for your car, is an unambiguous win for American citizens, corporations, nonprofits and the government, with the exception of airline investors and to some extent employees. It is a huge win. When mobility declines our entire economy suffers. Airline investors win but we all pay a (vastly greater) price for that.

Airline travel, like sewage treatment, is a small part of our economy but allows the rest of it to function well. Airline travel is a commodity like clean water unless and until improper market forces try to make it into something more. A large profit margin for airlines suggests there is a structural problem blocking new entrants.

[Edited 2015-06-20 13:09:31]
 
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enilria
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 8:27 pm

Quoting LAX772LR (Reply 105):
I mean, at the end of the day, if you can offer corroborative evidence of collusion-- then why are you sitting here rambling to us, when you (or at least a US consumer whom you can convince to claim harm) should be raising hell over at the DOJ?

The thread is about a Senator who has already requested that.
 
tomcat
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 9:09 pm

Quoting enilria (Reply 19):
In a perfectly free market all the airlines would merge down to one

The situation you describe doesn't match the definition of a "perfectly free market". I my understanding, a free market, actually, a market, implies a great number of players both on the demand side and on the supply side. If you leave the supply side (or the demand side) to a single player or a very limited number of players, your free market place would be gone for good because it would be left under the domination of a few dominant players. Obviously, air transport cannot be left to self employed people as it is a capital intensive business, but you could imagine a much more fragmented market organized around market places where the myriad of suppliers would offer their capacity and where the market price would be established at regular capacity auctions.
 
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lightsaber
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sat Jun 20, 2015 9:51 pm

All,
I found links for airline profit margins. In general, the profits are not high enough to justify fast expansion *except* at G4 and NK. Since those two are growing quickly, I think we'll do OK.

Profits are important as they are what justifies and funds growth. Without higher profits, we're just seeing fares grow back to what airlines could sustain at.

Quoting Flighty (Reply 114):
Airline travel, like sewage treatment, is a small part of our economy but allows the rest of it to function well. Airline travel is a commodity like clean water unless and until improper market forces try to make it into something more. A large profit margin for airlines suggests there is a structural problem blocking new entrants.

First I agree with your sentiment. Except maybe what the product the ULCCs are carrying.   

There is a low barrier. What we have is a multi-year period of low to no profits for most carriers. In a capitol intensive business such as airlines, where there is a *long* lead time to receiving new equipment, that means they are unable to adapt to even moderate demand increases other than fare increases.

I do want more expansion at a large number of airports to enable competition. For that is the 'barrier to entry.' But there is still plenty of room for G4 and NK to grow quickly. There is simply not going to be collusion between AA, UA, DL, WN, B6, NK, G4, F9, and WN. There will always be one who breaks ranks with 4 or more participants.

G4 (Allegiant) is having major problems with too fast of a growth rate. That has created friction with workers. G4 certainly has the profit margin for growth. (Note: This site wants a login for Return on Capitol, the real number we should be discussing.)
https://ycharts.com/companies/ALGT/profit_margin
B6 only started having profits high enough for growth a year ago.
https://ycharts.com/companies/JBLU/profit_margin
UA's profit isn't there yet for growth. They're still recovering:
https://ycharts.com/companies/UAL/profit_margin
AA started having profits justifying slow growth 1Q2014. I think their growth is OK.
https://ycharts.com/companies/AAL/profit_margin
DL only has the profit margin for slow growth:
https://ycharts.com/companies/DAL/profit_margin

NK, should be growing quicker. Their limit is access to new A320s/A321s. 16.2% profit margin is very un-airline like!
http://www.bloomberg.com/bw/articles...irline-is-also-the-most-profitable
But there growth is so fast, investors are complaining (due to the risk and hit on profits):
http://www.thestreet.com/story/13131...on-30-growth-rate-sell-shares.html

Evidently, it was too much growth for investors to stomach, especially since Baldanza noted that 40% of the first-quarter RASM decline was due to increased capacity. By contrast, he said, "60% is not our own stuff," but rather relates to competitive conduct including "fare compression" as competitors reduced fares, partially due to lower fuel costs, and to the Dallas situation.

WN's profit margins of 7.62% do not justify much growth.
F9? They are barely profitable. So large growth is not in the cards.


So let's see, only the two airlines with high profit margins are growing quickly (G4 and NK). Ok, that makes sense. Both are having issues due to their fast growth. Cest la vie. We're seeing the markets work.

Lightsaber
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EA CO AS
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sun Jun 21, 2015 5:06 am

Quoting Flighty (Reply 114):
A large profit margin for airlines suggests there is a structural problem blocking new entrants.

Define "large" - thirty percent? Forty? Seventy?

Because for a multi-billion dollar, capital-intensive industry such as commercial aviation, having an average 10% ROIC over the course of the business cycle is really about the minimum required to re-invest in the business and grow.

Other industries make FAR higher returns than 10 to 20%, yet no one bats an eye over their profit margins.
"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
 
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enilria
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sun Jun 21, 2015 5:27 am

Quoting tomcat (Reply 116):

We agree. It is an oligopoly where the largest markets (O&Ds) have 3 or 4 choices and most markets have two.
 
XT6Wagon
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sun Jun 21, 2015 5:45 am

Quoting Flighty (Reply 114):
A large profit margin for airlines suggests there is a structural problem blocking new entrants.

A low or even negative profit margin is an even bigger structural problem. VX took nearly a billion in capital to start up and barely makes a profit now that times are better. Its hard to start up when the existing companies can cut profit to kill new entries. Its even harder when even the existing companies can make no profit with well established service.
 
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LAX772LR
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RE: Senator Asks DOJ Investigate Capacity "Discipline"

Sun Jun 21, 2015 5:48 am

Quoting enilria (Reply 115):
The thread is about a Senator who has already requested that.

Which doesn't mean jack squat...

  • We have Senators and Representatives who request that Congress never speak of climate change again, because one has (freezer-created) ice in his hand: in 2015.
  • We have politicians and citizens who request that the nation/states execute gays or women who have premarital sex: in 2015.

    That there's some political yahoo thinking that general market dynamics equate to collusion, doesn't really surprise me-- that you'd be willing to take him that seriously, sorta does though.
  • I myself, suspect a more prosaic motive... ~Thranduil
     
    mjoelnir
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Sun Jun 21, 2015 10:50 am

    It seems that most of them postinging on this thread agree that the US3 are in capacity control mode.
    It seems further that most agree that were one cuts capacity the other does not jump in and increases capacity.
    If that happens without the US3 talking to each other about it fine.
    If that happens because there is an gentleman's agreement in place, not so fine, because that is illegal.

    I think the authorities are not doing there work if they do not look at the possibility of an gentleman's agreement at work.

    [Edited 2015-06-21 04:15:52]
     
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    lightsaber
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Sun Jun 21, 2015 3:41 pm

    Quoting mjoelnir (Reply 122):
    I think the authorities are not doing there work if they do not look at the possibility of an gentleman's agreement at work.

    But there is no gentlemen's agreement between so many competitors. While the US3 + WN aren't growing much, G4 and NK are. What has happened in 'momentum in decisions' finally caught the market with less capacity than demand. But profits are not at the level the US government investigates. The profits are still fairly low.

    Now if there was a gentleman's agreement, it would be wrong and I'm ok with that being looked at.
    But such agreements never hold with 4 or more participants. We're talking about adding G4, NK, B6, and others.

    The US has the classy problem of a fast rise in demand as all airlines were hunkering down. DL will benefit the most as they could ramp up MD-80 usage. But are the fares there?


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

    Sun Jun 21, 2015 3:53 pm

    Quoting rdh3e (Reply 85):
    LTN-AMS is 221 miles, so for 83 euros you paid 41 (USD) cents per mile.
    Quoting Sightseer (Reply 84):
    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.

    So from your perspective fares are based on stage length and not on competitive forces.
    If that were the case then there would have been no need for ANY merger, Right?

    Pricing is based on supply and demand. CASM represents the costs to run the flight and allows the airline to determine whether a new route is worth the risk under different scenarios.
    The airlines after determining CASM the airlines run QSI simulations to determine what the RASM will result given many competitive situations.
    In a perfect world, new start-up situation, the airline figures cost and assumes revenues but rarely understands the impact from competition.

    I for the life of me cant figure out why so many people have a challenge understanding competition is healthy and good for the consumer. Arguing that the consumer is better off with fewer airlines is counter intuitive and fails every economic model.

    So pray tell why the airlines pushed for mergers? Especially WN who is Americas most profitable airline?
    Some people don't get it. Business is about making MONEY!
     
    commavia
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Sun Jun 21, 2015 3:56 pm

    Quoting threeifbyair (Reply 69):
    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.

    Sure it does - nobody every claimed differently. There is absolutely no question that the air transportation system in the U.S. does and ought to necessarily require a substantial amount of interaction with the government and pubic infrastructure - for a variety of economic, political and legal reasons. Nonetheless, that doesn't mean the airlines have to be owned, controlled or commercial regulated in order for the system to function optimally. As I've said repeatedly - there generally is and always should be a free market when it comes to airlines in the U.S., but there never has been, never could be and never should be a "free market" when it comes to public infrastructure. That is simply not feasible. Nonetheless, all that being said, as already mentioned, it's not like airlines and their customers don't contribute to the investment in, and maintenance of, said public infrastructure - as is well known and documented, air travel is among the highest-taxed consumer goods in the U.S. today.

    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".

    Well the problem as I see it is that many participants here interact with the airline industry through only one lens - as a passenger - and as such lack for understanding, recognition and appreciation of the cost, complexity and risk assumed by airlines, their employees and ultimately their shareholders, and thus are "incapable" of marking arguments that are "unbiased" when it comes to the returns that those other stakeholders in the system require in order to keep contributing.

    I suppose we'll agree to disagree.

    Quoting AAexecplat (Reply 73):
    Passengers are treated worse every year at this point.

    That is highly, highly subjective.

    Quoting AAexecplat (Reply 73):
    The reality is that they aim to funnel ALL profits to investors via dividends and stock price increases (incl buybacks).

    Okay ... so in other words, airlines are profit-seeking, publicly-traded enterprises.

    Quoting AAexecplat (Reply 73):
    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.

    Huh? First off, please provide some substantiation for it being "commonly understood" by anybody except populist news media commentators circa 2008 that "big oil" is "THE," or "one of THE," most profitable industries. Most volatile? Sure. Most profitable? Hardly. Oil companies make big profits in up cycles, but I doubt too many people were ranting about big oil's excessive profitability in the 1980s when oil prices fell through the floor. And besides, a company's absolute "profit" is pretty much meaningless - it's the profit margin that matters, and oil is hardly "one of THE" most profitable industries - over the long run - as measured by margin.

    Quoting Flighty (Reply 80):
    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.

    Well if the big complaint is that some cities (mostly larger ones) have more competition and lower prices, and some cities (mostly smaller ones) have less competition and higher prices, they strikes as less an "improper situation" and more "economic reality." There are few if any consumer products on earth that are priced identically everywhere, and in general it is hardly uncommon for bigger markets to attract more competitors. I once again fail to see how the airline industry is any different.

    Quoting Flighty (Reply 80):
    It is problems like the SE region duopoly (created by mergers approved under false pretenses, eliminating NW and FL hubs).

    How was the "SE region duopoly" created "by mergers" and under what "false pretenses?"

    Quoting Sightseer (Reply 84):
    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?"

       The entire thing is purely subjective because everyone has a different definition of what reasonable profit is. Those focused purely on the price they pay and nothing else of course want lower prices and thus lower profits, while I, personally, think the market conditions today are extremely reasonable. So who is right? And who gets to decide?

    Quoting EA CO AS (Reply 110):
    At what point do you begin calling non-communicated best practices tacit collusion - when it results in something you happen to dislike?

       If multiple independent actors all looking at proprietary, but very similar, data and all acting in an economically rational way all derive the same conclusions from said data, does that constitute "collusion?"

    Quoting Flighty (Reply 114):
    A $20 transcon, like free gas for your car, is an unambiguous win for American citizens, corporations, nonprofits and the government, with the exception of airline investors and to some extent employees. It is a huge win. When mobility declines our entire economy suffers. Airline investors win but we all pay a (vastly greater) price for that.

    Well I guess we can file this one under "fundamental philosophical disagreement." If you have a system that is producing an "unambiguous" and "huge win" for consumers but at the expense (minor caveat!) of the investors who capitalize said system and employees who run said system, that strikes me as a massive failure. Again - it all goes back to perspective. If the only perspective and "human welfare" that matters is that of the consumer, then great - screw everyone else, and keep those fares as low as possible. But the reality in a capitalist system is that this type of approach - where 100% of the value and benefit of a system accrues to a single constituency (the consumer) to the direct expense and detriment of most of the other constituencies - cannot last forever. Eventually, it has to stop because shareholders and labor will simply stop contributing. To one extent or another, that is essentially what we have witnessed in the last decade.
     
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    enilria
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Sun Jun 21, 2015 4:00 pm

    Quoting billreid (Reply 124):
    Arguing that the consumer is better off with fewer airlines is counter intuitive and fails every economic model.

    Exactly. Look at internet service in the USA. The mergers and general lack of competition has led to more and more regulation of landline internet providers which is such a bad outcome. With the importance of the internet to the economy and humanity in general at this point, to say there is not enough demand to justify multiple providers to consumers is a joke. It's also similar to airlines in that theoretically there are several large companies competing on a national level, but in individual markets there is often just one.

    Quoting billreid (Reply 124):
    Pricing is based on supply and demand.

    Yup

    Quoting billreid (Reply 124):
    The airlines after determining CASM the airlines run QSI simulations to determine what the RASM will result given many competitive situations.

    Yup
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Sun Jun 21, 2015 5:26 pm

    Quoting commavia (Reply 125):
    Well the problem as I see it is that many participants here interact with the airline industry through only one lens - as a passenger - and as such lack for understanding, recognition and appreciation of the cost, complexity and risk assumed by airlines, their employees and ultimately their shareholders, and thus are "incapable" of marking arguments that are "unbiased" when it comes to the returns that those other stakeholders in the system require in order to keep contributing.

    I suppose we'll agree to disagree.

      That's true of every single company on Planet Earth, including your neighbor's lawn care business.

    Doesn't change the fact that the people heaviest in defense are people with vested interest -- whether they work for the airline, or it's literally interest (as in 'my favorite local hub airline).

    Kinda like the other perpetual argument on here... I had a significant amount of cash invested into my former employer, which went bankrupt but is now reporting record profits. Is it me sharing that wealth? Or is it new investors, most of whom had never invested in the company's losses?
    We don’t care what your next flight is.
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Sun Jun 21, 2015 8:04 pm

    Quoting compensateme (Reply 127):
    That's true of every single company on Planet Earth, including your neighbor's lawn care business.

    Doesn't change the fact that the people heaviest in defense are people with vested interest -- whether they work for the airline, or it's literally interest (as in 'my favorite local hub airline).

    Kinda like the other perpetual argument on here... I had a significant amount of cash invested into my former employer, which went bankrupt but is now reporting record profits. Is it me sharing that wealth? Or is it new investors, most of whom had never invested in the company's losses?

    But why should the shareholders and employees be punished because the consumer is so spoiled and don't have any conception of why a $20 transcon fare, just isn't going to work?
    "A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Sun Jun 21, 2015 8:10 pm

    Quoting billreid (Reply 124):
    So from your perspective fares are based on stage length and not on competitive forces.
    If that were the case then there would have been no need for ANY merger, Right?

    Not sure what you're saying? I'm showing you that your examples of US airfares was wrong because you compared a short route with a very long route. We have an extremely efficient air transport system that on balance, is pretty darn fair.

    There are probably examples where in certain markets the situation is less than optimal, but I believe on balance our air transport system is the best in the world.
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 1:41 am

    Quoting enilria (Reply 119):
    most markets have two.

    Which markets larger than 50 PDEW have only two carriers offering service?
    I can't decide whether I miss the tulip or the bowling shoe more
     
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    compensateme
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 1:49 am

    Quoting mayor (Reply 128):
    But why should the shareholders and employees be punished because the consumer is so spoiled and don't have any conception of why a $20 transcon fare, just isn't going to work?

    Let's assume I'm a gas station owner by your house and the price of oil is dropping, but prices at the pump are on the rise. Maybe myself & the other owners in your area have tacitly colluded, maybe we haven't. But... we're in business to make money. Why should our employees and our new shareholders have to suffer just because you were so spoiled by cheap gas that existed throughout most of the 1980s, 1990s and much of the 2000s?

    This is essentially your argument, applied to a different scenario.

    [Edited 2015-06-21 18:58:25]
    We don’t care what your next flight is.
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 2:12 am

    Quoting compensateme (Reply 131):
    Let's assume I'm a gas station owner by your house and the price of oil is dropping, but prices at the pump are on the rise. Maybe myself & the other owners in your area have tacitly colluded, maybe we haven't. But... we're in business to make money. Why should our employees and our new shareholders have to suffer just because you were so spoiled by cheap gas that existed throughout most of the 1980s, 1990s and much of the 2000s?

    This is essentially your argument, applied to a different scenario.

    If one or even multiple market actors charge an above-market price for too long, a rival will undercut them and steal market share. That goes for gas stations just as it does for airlines.

    In the U.S. today, I'd guess that at least 95% of all city pairs have at least two competitors, and if we exclude Alaska and the EAS markets, it's probably more like 97-98%. And by traffic, I'd suspect that city pairs representing at least 75-80% of the demand in the country has not only at least two competitors, but more, and in most cases multiple nonstop competitors, too.

    Now, sure, small cities have less competition and thus less service and thus, likely, higher fares. But the same goes for the hypothetical gas station example - it's easier for two gas station owners to get away with that if they're the only two gas stations within 50 miles. Yet again - this is hardly unique to the airline industry.

    And yes, before we hear the inevitable reply, it's certainly true that the number of competitors has been reduced in recent years through mergers. But again, all those mergers have led to an industry generating 7-14% net margins on average, and I'm still waiting for someone to provide a cogent justification for why that isn't entirely reasonable giving the cost, complexity and risk in this industry.
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 5:12 am

    Quoting compensateme (Reply 131):
    This is essentially your argument, applied to a different scenario.

    And some people argue that you should purposely reduce your prices, regardless of that impact on you, because people have to drive to work and that's important, so only those people matter.
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 3:38 pm

    Quoting commavia (Reply 132):
    7-14% net margins on average, and I'm still waiting for someone to provide a cogent justification for why that isn't entirely reasonable giving the cost, complexity and risk in this industry.

    Airlines are no more entitled to certain profit margins than consumers are to outrageously cheap airfares. The overall benefit to the travelling public far outweighs the benefits of a few stockholders and employees as it does in every industry. That is a huge reason the anti-trust division of the DoJ exists to begin with.
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 3:52 pm

    Quoting osubuckeyes (Reply 134):
    Airlines are no more entitled to certain profit margins than consumers are to outrageously cheap airfares.

    Who said they were? I never used the word "entitled." What I said was that if the industry is producing margins that seem entirely reasonable given cost, complexity and risk, then I fail to see what the problem - and the complaint - is.

    Quoting osubuckeyes (Reply 134):
    The overall benefit to the travelling public far outweighs the benefits of a few stockholders and employees as it does in every industry.

    I could not possibly disagree more.

    As a citizen and taxpayer - let alone a traveler - I do not want any individual party or entity, especially a politician or unelected bureaucrat, determining what the nebulous, dubiously-definable alleged "overall benefit" to the traveling public is and subordinating shareholders' property rights to it. Thanks, but no thanks.

    When capital (let alone labor) goes on strike, the system stops functioning. Absent direct government funding and management of the air transportation system, shareholders are needed. Airlines aren't just competing with each other, and other forms of transportation. They're also competing with restaurants, banks, industrials and every other publicly-traded corporation for shareholders' capital. And as such, they have to generate returns commensurate with those shareholders' perceptions of risk and return. I am still waiting for someone to explain to me how 7-14% net margins are not entirely reasonable in that context.

    [Edited 2015-06-22 08:54:19]
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 4:07 pm

    Quoting lightsaber (Reply 123):
    But such agreements never hold with 4 or more participants. We're talking about adding G4, NK, B6, and others

    The vast majority of markets, foreign and domestic, are not served by G4, NK, or B6.

    Quoting commavia (Reply 125):
    How was the "SE region duopoly" created "by mergers" and under what "false pretenses?"

    The false pretense was that hubs would not close in order to lift yields in the Eastern USA, harming consumers, which would be illegal, and would strictly prevent the mergers. But that is what happened anyway, with vague promises that MEM and FL's hub at ATL would stick around. The fine for closing each should be $5 billion in my view. This is actually very generous compared to forced breakups.

    Quoting commavia (Reply 132):
    But again, all those mergers have led to an industry generating 7-14% net margins on average,

    Hey, there are businesses that have higher provit margins. Drug companies. Pfizer made 41% margins recently. That's a whole nother essay and I have no clue how to fix the drug company shennanigans. But I just have this one little opinion about airline merger related profits, and the individuals in govt who could have prevented it. It is NOT a big deal. And it CAN solve itself, if we wait long enough.  
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 4:11 pm

    Quoting commavia (Reply 135):
    I am still waiting for someone to explain to me how 7-14% net margins are not entirely reasonable in that context.

    Do people view the oil industry's average 6% margins as reasonable with similar cost and complexity issues? I think the answer you would get is a resounding no.

    If their margins are 7-14% in a sufficiently competitive market I have no problem with that. When an industry goes from 6 major players to 3 major players controlling the same amount of product there is no disputing that a reduction of competition is a result. Whether it is harmful to the consumer enough to warrant DoJ intervention is another question. I would argue that the industry is toeing the line of harmful monopolistic competition through consolidation. I would not call it collusion.

    Quoting commavia (Reply 135):
    When capital (let alone labor) goes on strike, the system stops functioning. Absent direct government funding and management of the air transportation system, shareholders are needed.

    Ironically, the entire industry was basically bailed out through mergers, bankruptcies and government funding when shareholders wouldn't step in. So in that respect nothing has changed. If the system fails they are all not "too big to fail", which is because of the huge benefit the airlines provide to the public at large.
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 4:17 pm

    Quoting Cubsrule (Reply 130):
    Which markets larger than 50 PDEW have only two carriers offering service?

    Define offering service? Many carriers offer service, but very circuitous routings. Are you including non-stop and connections?
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 5:37 pm

    Quoting osubuckeyes (Reply 137):
    Do people view the oil industry's average 6% margins as reasonable with similar cost and complexity issues? I think the answer you would get is a resounding no.

    Frankly, I couldn't care less about what "people" view to be reasonable. If the market ran on the basic understanding of fundamental financial and economic principles by the average "man on the street," I suspect that much of the global economy would grind to a halt in a matter of days if not hours.

    Of course "people" - and by that I suspect we're talking about consumers - think that 6% net margins are unreasonable. That's because consumers, acting only in their self-interest - would prefer as little margin, if any, as possible so as to keep their price low. But regardless of that, the reality is that the expectations of reasonableness that matter in this case are not consumers, but rather the providers of capital - shareholders and lenders.

    It is precisely this dynamic tension - between owners and consumers constantly fighting for a greater share of the value created by an economic enterprise - that is at the core of capitalism itself.

    Quoting osubuckeyes (Reply 137):
    If their margins are 7-14% in a sufficiently competitive market I have no problem with that.

    Ah - but therein lies the fundamental crux of this philosophical disagreement. Who gets to decide what constitutes "sufficiently competitive?" You? Me? That matters a lot, because to me the structure in the airline industry today is just fine - with four large competitors and multiple smaller ones providing at least two competitors (if not, in most cases, more) in the vast majority of city pairs. And that industry structure - which I consider perfectly "sufficiently competitive" today - is producing 7-14% net margins.

    There are basically only two ways to rectify this critical difference in subjective thought - either let the market decide, or let a regulator decide.

    Quoting osubuckeyes (Reply 137):
    When an industry goes from 6 major players to 3 major players controlling the same amount of product there is no disputing that a reduction of competition is a result.

    Absolutely. And again - many of us believe that's a good thing, because there was too much competition previously, and it was creating an economically unsustainable and practically untenable situation.

    Again - the entire crux of capitalism, in the airline industry or any other market, is the dynamic tension between owners and one side and consumers on the other fighting for the maximum possible share of value created by an economic enterprise. What we had in the airline industry for the first thirty years of deregulation was a system where essentially 100% of the value generated by the economic enterprises of airlines were accruing solely to consumers - not to owners, let alone employees. This led to low fares, yes, but it also led to constant instability, uncertainty and upheaval - and to me, that is not what I consider the market of success for any constituency (including consumers!) besides possibly bankruptcy lawyers.

    Quoting osubuckeyes (Reply 137):
    Ironically, the entire industry was basically bailed out through mergers, bankruptcies and government funding when shareholders wouldn't step in.

    The industry wasn't "bailed out" by mergers and bankruptcy. Those were exactly the examples of what's being discussed - other contributors to the system simply said, "we've had enough," and airlines had no choice but to resort to alternatives in order to survive. It's also important to note that the vast majority of "consolidation" events that have taken place in the airline industry since deregulation have occurred not through mergers, but liquidations. At some point, if airlines weren't allowed to merge, some (more) of them would have simply gone out of business - which would have led to the same net effect.

    And how did "government funding" bail out "the entire industry?" Is that referring to the reimbursements made to airlines right after 9/11 when they were shut down for nearly a week?
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 5:55 pm

    Quoting commavia (Reply 132):
    But again, all those mergers have led to an industry generating 7-14% net margins on average, and I'm still waiting for someone to provide a cogent justification for why that isn't entirely reasonable giving the cost, complexity and risk in this industry.

    So what is the reasonable range according to your calculations? Since you seem to know what is fair given your understanding of the fundamentals, what net margin would be "too much"?

    Quoting commavia (Reply 139):
    Of course "people" - and by that I suspect we're talking about consumers - think that 6% net margins are unreasonable. That's because consumers, acting only in their self-interest - would prefer as little margin, if any, as possible so as to keep their price low. But regardless of that, the reality is that the expectations of reasonableness that matter in this case are not consumers, but rather the providers of capital - shareholders and lenders.

    Consumers don't care or understand what net margins are fair or risk appropriate. What they DO understand is that they are paying twice as much today as they did 5 years ago while being bent over the barrel by a group of airlines that have shown collective contempt for their customers. And I don't care what net margin is fair, sooner or later, consumers will force change by legislation no matter what the net margins are.

    Quoting commavia (Reply 139):
    There are basically only two ways to rectify this critical difference in subjective thought - either let the market decide, or let a regulator decide.

    In the end, this will be legislated. Until then, enjoy the getting while it is still good.

    Quoting commavia (Reply 139):
    Absolutely. And again - many of us believe that's a good thing, because there was too much competition previously, and it was creating an economically unsustainable and practically untenable situation.

    So free markets are awesome as long as the competition is reasonably restricted? Do you even hear yourself?
     
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    enilria
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 5:58 pm

    Quoting commavia (Reply 139):
    Absolutely. And again - many of us believe that's a good thing, because there was too much competition previously, and it was creating an economically unsustainable and practically untenable situation.

    Bottom line, as someone who watches the industry very closely, I think there is reason to investigate whether there is cartel style collusion of macro capacity in the industry whether it be tacit or overt.

    If the US3 can ask the government to investigate nefarious activity by the ME3 based upon the evidence they have gathered, I think there is just as much reason to ask the government to investigate whether there is a functional competitive situation in place here.

    Is the government even capable of undertaking either? Probably not. They seem to think the internet provider industry is competitive enough when you have one or two choices. Regardless of what the ruling would be, there is definitely cause to investigate. Surely we can agree on that.
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 6:01 pm

    Quoting AAexecplat (Reply 140):
    What they DO understand is that they are paying twice as much today as they did 5 years ago while being bent over the barrel by a group of airlines that have shown collective contempt for their customers.

    But that is woefully untrue. We need a red alarm in this thread that goes off everytime someone tries this BS.

    http://www.rita.dot.gov/bts/airfares..._price_index/html/AnnualFares.html
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 6:03 pm

    Quoting enilria (Reply 141):
    Regardless of what the ruling would be, there is definitely cause to investigate. Surely we can agree on that.

    Like? You say this stuff all the time and you have no proof of your claims other than your (off-base) opinion of how things work.
     
    ec99
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 6:14 pm

    Quoting commavia (Reply 139):
    Ah - but therein lies the fundamental crux of this philosophical disagreement. Who gets to decide what constitutes "sufficiently competitive?" You? Me?

    This is indeed the crux of the argument. Firstly, I ultimately agree with you that the situation now does not warrant government intervention. Fares are up but this is a boom time for the airlines, oil is sub $70 a barrel, economy is performing nicely, unemployment is down and there are no large geopolitical disturbances. But what happens if the Iranians decide to blow up a tanker in the Straits of Hormuz? International travel goes down, gas goes up 40% in a matter of weeks, economic growth is constrained. Profits for airlines would plummet. Air travel is a volatile business and the airlines are corporations that need to make returns for their stockholders. With the knowledge that there will be future conflicts, recessions etc…, they have to make good returns on the good times to make their business viable. The previous situation just wasn’t viable. In my non-expert opinion., the little carries post a risk for the big 4. If the fares stay this high and oil this low they will have every motivation to grow and capture market share and should be able to do so while still making money.

    That said, I think most economists other than extreme libertarians/Adam Smith disciples would acknowledge that monopolies/collusion can occur and at times be bad not just for the consumer but for the country. Bell Telephone gained their market share organically but ultimately got so big that no competition was viable. With no competition, they charged outrageous long-distance rates, which constrained the nation’s economic growth. The price of long distance plummeted once the DOJ broke up Ma Bell and it was one factor that contributed to economic growth throughout the 1990s. The same can be said for the breakup of American Sugar and the Morgan railroad monopoly in the early part of the 20th century.

    So I don’t think we are near that point now, but if the DoJ allowed further consolidation (which is unlikely) it’s not unforeseeable that that we could reach a point where price fixing/collusion becomes possible.
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 6:23 pm

    Quoting AAexecplat (Reply 140):
    So what is the reasonable range according to your calculations? Since you seem to know what is fair given your understanding of the fundamentals, what net margin would be "too much"?

    It's not for me to say either way, as I'm a single individual actor in the market - a consumer. Nonetheless, in my unimportant opinion, 7-14% net margins are exceedingly appropriate and reasonable given the cost, complexity and risk inherent in operating an airline. But again, ultimately "reasonable" can only be judged by the market, or a regulator.

    Quoting AAexecplat (Reply 140):
    Consumers don't care or understand what net margins are fair or risk appropriate.

    Agree completely - thus my earlier point.

    Quoting AAexecplat (Reply 140):
    What they DO understand is that they are paying twice as much today as they did 5 years ago while being bent over the barrel by a group of airlines that have shown collective contempt for their customers.

    They're paying more - not "twice as much" - not to be "bent over the barrel" but rather to pay what it actually costs to operate an airline plus generate a risk-appropriate return for investors. The only reason we're even having this conversation is because consumers had such a good deal - too good a deal - for too long, and only now are being forced to actually behave like consumers in every other industry, which have to pay what it costs plus a reasonable margin.

    Quoting AAexecplat (Reply 140):
    And I don't care what net margin is fair, sooner or later, consumers will force change by legislation no matter what the net margins are.
    Quoting AAexecplat (Reply 140):
    In the end, this will be legislated. Until then, enjoy the getting while it is still good.

    Fine. Try reregulation, and when that happens, get back to us and let us know if fares go up or down.   

    Quoting AAexecplat (Reply 140):
    So free markets are awesome as long as the competition is reasonably restricted? Do you even hear yourself?

    Huh? The thing that was "restricted" for most of the deregulation era was consolidation. Free markets are great, and if it had been purely up to the market and had not been impacted by a particular bankruptcy regime and antitrust regulators, the industry likely would have consolidated down to a more rational structure decades earlier. And yes, I do "hear myself."

    Quoting EC99 (Reply 144):
    I think most economists other than extreme libertarians/Adam Smith disciples would acknowledge that monopolies/collusion can occur and at times be bad not just for the consumer but for the country.

    Agree. But as you say - I don't think where are anywhere even remotely close to "monopolies/collusion," and with the barriers to entry in this industry being what they are (relatively low, considering the complexity and risk) I don't think we'll be there anytime soon.
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 6:29 pm

    Quoting commavia (Reply 145):

    I can remember in the old days when airline execs were overjoyed to have margins in the 2-3% range.
    "A committee is a group of the unprepared, appointed by the unwilling, to do the unnecessary"----Fred Allen
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 6:36 pm

    Quoting commavia (Reply 139):
    "sufficiently competitive?" You? Me?

    The DoJ

    Quoting commavia (Reply 139):
    There are basically only two ways to rectify this critical difference in subjective thought - either let the market decide, or let a regulator decide.

    Bankruptcy and liquidation exist when extreme competition is detrimental to the market. The anti-trust division of the DoJ exists to protect consumers when monopolistic/predatory practices are detrimental to market competition. Also, a distinction to be made is that the DoJ is not a regulatory body they are a punitive body just as bankruptcy is. I absolutely do not support regulatory price fixing, price floors/ceilings.

    Quoting commavia (Reply 139):
    airlines had no choice but to resort to alternatives in order to survive

    Finally after decades of mismanagement, reckless capital spending, and reckless growth.

    Quoting commavia (Reply 139):
    if airlines weren't allowed to merge, some (more) of them would have simply gone out of business - which would have led to the same net effect.

    That may be true, but that also may not have happened. They also could have come out of Chapter 11 as stronger players as well.

    Quoting commavia (Reply 139):
    And how did "government funding" bail out "the entire industry?"

    The NTSB granted a number of loans to airlines in the wake of 2001. Many of those were paid back many were not (some due to liquidation), but the shareholders were certainly not there to pick up the slack. HP sticks out in my mind. I believe they took loans in 03/04 and payed it back by 2008 and look at them now. Credit to them for paying it back but they were certainly partially bailed out. Also, that doesn't even begin to address the issue of bankruptcy courts allowing the airlines to wipe out billions in pension liabilities with little or no recourse. That isn't funding, but it certainly is a bail out.

    Quoting EC99 (Reply 144):
    So I don’t think we are near that point now, but if the DoJ allowed further consolidation (which is unlikely) it’s not unforeseeable that that we could reach a point where price fixing/collusion becomes possible.

    It is also never harmful to keep a watchful eye on an industry that has consolidated so much. Very good post.
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 6:50 pm

    Quoting commavia (Reply 132):
    And yes, before we hear the inevitable reply, it's certainly true that the number of competitors has been reduced in recent years through mergers. But again, all those mergers have led to an industry generating 7-14% net margins on average, and I'm still waiting for someone to provide a cogent justification for why that isn't entirely reasonable giving the cost, complexity and risk in this industry.

    I may have said why before, I'll give you a justification. The airline industry is a only facilitator of a healthy economy. It's not a driver of it, so you want costs to be as low as possible. People need to have the freedom to move around for business and quality of life reasons. Only a minute fraction of airline consumers *want* to spend money for the experience or travelling from point A to point B. With that in mind, on a macro scale you do not want passengers spending more than the cost of the operating the airline plus enough profit for the airline to invest in advanced technology to lower the cost of doing business. Any profit beyond that is detrimental to the macro economy. I believe we have gone well past that healthy point.
     
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    RE: Senator Asks DOJ Investigate Capacity "Discipline"

    Mon Jun 22, 2015 7:20 pm

    Quoting osubuckeyes (Reply 138):
    Many carriers offer service, but very circuitous routings. Are you including non-stop and connections?

    Are there some large markets where the third carrier is "circuitous?" Are you thinking of stuff like SAT-ABQ, where DL is a poor option (but WN, AA and UA are not)?

    [Edited 2015-06-22 12:51:47]
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