Why is the airline industry in such big trouble? (1 Viewer)

[Kevin Alexander]

I get the feeling that not all of it is due to the 9/11 attacks, but even before that, things didn't seem too well. Here in Atlanta, there is talk of bankruptcy w/ Delta and contract talks w/ the pilots union. Not only w/ Delta, but American Airlines, United, US Airways and others all seem to be on the brink - or that's what they're telling us. Is all of this due to overpaid pilots?...A slow down in air travel by the public?...Low cost carriers?...Poor customer service?...Or, a combination of the four? Personally, I have no remorse whatsoever for any of them. They have all radically changed so much that it's sickening. Remember when you could sell your ticket when you had a change in plans? And when there weren't rediculous restrictions for every little thing such as advanced purchases, date changes, and frequent flier miles? Those were the days. I say let them all go under, and let's start anew w/ a more customer friendly business model. Anyway, why is there so much trouble w/ the major carriers?

 

[Glenn Overholt]

Answer - they don't charge enough for air fares!

Glenn

 

[Chris Bardon]

No, since most pilots are paid pretty badly (unless you're really senior) and only for the time they're actually in the air. For example-if you're sitting there waiting for an hour to take off-your pilot isn't getting paid.

I know that there's a similar situation here with Air Canada on the verge of bankrupcy, and I think that part of the problem is the deals that they have with their unions. They have five unions that they have to deal with, which means that they're overpaying for a lot of services. One example I read about was that Air Canada was paying staff to come in and clean the planes after they landed, but Westjet just had the flight attendants do it as part of their job.

I'm sure that rising fuel costs and insurance rates are also a problem though. And taxes-let's not forget the boatload of airline taxes...

 

[Philip_G]

The airline industry is pretty different from every other industry, an airline ticket is the most complicated product on the market to price. I think bottom line, the business model isn't working, airlines are trying to operate on a very low margin, around 3% because of their volume. Fuel prices, 9/11, the soft economy, carriers like jetblue and southwest I think are all a part of it.
United is running like 80% and higher load factors right now, and they still can't make money.

Most of them make more money hauling cargo than people. Most of them hedge fuel, some are huge like NWA. They probably make more hedging fuel and selling it than they do hauling people, just a guess.

 

[LewB]

Philip:
Does your statement mean that Southwest and Jet Blue are making money ? If so, that means that it is possible to make money in the airline business. That being the case, I would have to blame management, I love to blame management. You know, the guys whose first reaction is to:

1-Layoff workers
2-Blame the union (who would have no reason to exist if management wasn't always screwing the workers).
3-Run to their golf buddies in Congress and get federal loan guarantees
4-Print up a few million more stock options for themselves.


BTW, there is no such thing as an overpaid pilot in my mind. I want to know that the flight crew and mechanics are all well-paid and happy !

 

[Philip_G]

I haven't checked lately, but AFAIK neither jetblue nor southwest have ever posted a loss. It might have changed in the last year, but I doubt it.

Jetblue started with MASSIVE amounts of private funding. More than anyone else ever has, they don't pay as much towards loan repayment, they have all brand new airbus aircraft so their maintenance costs are low right now, times are good. for now.
Southwest has an aging fleet, but they keep their aircraft in the air something like 14 hours a day, quick turns are the name of the game. They don't see other airlines as competition, they see ground based transportation like busses and trains as their competition. Both airlines operate very differently from everyone else.

The guy that started southwest is an amazing fellow. Many many books written about him and many classes that study him.

Another point, look at the markets SWA flies into, they don't fly into a major airport because they don't want to compete head to head with the NWAs, deltas, and uniteds of the world. Jetblue is somewhat the same.
The major airlines will slash fares to nothing and take a loss on a route to drive you out, they have deeper pockets than you do and don't care. Northwest is great at this in some of the midwest states, some of them are EAS contracts, but a lot of towns that have only NWA service is due to NWA, those bastards.

 

[Philip_G]

to blabber on further, how do you price an airline ticket?
it's like fruit, at the departure time that seat expires and isn't worth a penny. So you've got to price seats for the elastic vacation traveller, and the inelastic business traveller, but get the maximum amount from both that you can, while still filling the seat, because the flight is leaving no matter what.
If I understood how to price seats I'd be a very busy and wealthy man I'm afraid.

 

[chris_everett]

SWA has only posted a loss in one quarter post 9-11. And they did not take any federal dollers to do it. IMHO, the airlines are so concerned trying to squeeze every penny out of every flyer that any concept of a fair (and cheaper) price structure is beyond their comprehention. As a result, the customers all feel screwed and will take any opportunity to screw the airline in return. The way airlines schedule flights is outdated and inefficent as well. Notice how layovers are either always 10 minutes or three hours? That's because airlines schedule all the flights to arrive at the hub airports at the same time instead of spreading them out through the day. Fine in theory, but the instant anything happens, the system falls apart, and you have huge delays, etc,etc...

 

[Philip_G]

there is no more efficient way to schedule flights than the hub and spoke system. It would be far too costly to do anything else.

 

[Todd Henry]

Philip,

Southwest does not use a hub and spoke system. They fly point to point. In fact the same flight # may make 4 stops.

Todd

 

[Philip_G]

They do, but they also use a completely different route structure.
You can not use a point to point structure like that to provide service between as many cities as say alaska or united does. It won't work.

 

[Garrett Lundy]

Frequent flier miles are killing huge chunks of revenue I'm sure. But still they cut space, cram more people into tinnier seats, and behave like raging assholes to any, and everyone... and they wonder why only people with "free miles" will take up a seat?

I'll be happy when the airline system go's bellyup and only small, expensive airlines (that can cater to the professional customer) stay in business.

Then we can get to making super-high speed bullettrains. NY to LA at 250mph baby!

 

[chris_everett]

It's not the hub structure that's the problem, it's all of the flights taking off/landing at the same time. If they would just spread those out throughout the day they would be better off. Fewer very short/very long layovers. And a lot more probable that you will make your flight.

 

[Philip_G]

Again, there are problems there too, it's ungodly expensive to have an airplane just sit on the ground, SWA knows this. I have no idea how the schedules are drawn, but I'd imagine a big part of it is utilization.

 

[Grant B]

I got a free ticket on SW after 4 RTs so that might not be the cause.
I commute from SF to LA weekly on Jetblue & SWA. Funny how American charges over $400RT and JB & SWA are under $100 RT ....even walk up.

 

[CharlesD]

I LOVE Midwest Airlines. For one they are the only airline that flies from where I live direct to National Airport in DC, a trip which I do several times a year. They're not that much more expensive than other airlines flying to the same destination, but don't have the extra stops, have polite employees and instead of the regular 2,3 seating have 2,2 with nice comfy chairs. Well worth the extra 20% (or whatever it is) on the ticket IMO.

 

[Jason Harbaugh]

Frontier Airlines has seen profits over the past couple years and their market share continues to increase. Their average fair has also decreased this year, from last, so that tells you something. According to their earnings report, fuel prices are the only thing taking a chunk out of their profits.

*increase in # of travelers
*increase in profits over past year
*decrease in ticket price
*award winning ad campaign (animals on tail)

Looks like they might be on to something.

Also love their planes now, lots of room, everyone has a seperate tv w/ 30 some channels of direct TV.

 

[Philip_G]

Airbus
frontier is intersting as they've come and gone a few times.
I had to do a report on them in college, but have forgotten all of it
They're mostly just following southwests example IMO. Nothing wrong with that, find what works and use it.

 

[CharlesD]

The same. They have changed their name. And yes you still get hot gooey chocolate chip cookies (you have to pay for meals now though)

 

[Chris]

Some airlines are not doing so bad.. Southwest just handed out nice chunks in raises and continues to make money.

What's killing some airlines is simple: terrible investments, bad future planning, development of terminals that didn't turn out, and too high of a merger rate hoping micro carriers would turn a profit.

United threw money down the toilet buying up microcarriers for a while, lost money on terminal work, and then has kept employees dissatisfied so that they aren't high on the "I'll fly them again" list..

While some may complain about Southwest, they along with Midwest have the highest passenger retention.. people who say they will fly them again.. of anyone.

Sometimes competition does you in. Southwest did something almost no one else did: they offered employees shares. This sounds stupid, and never base your entire portfolio on the company you work for, but lots of employees viewed that and really took "ownership" in their airline.. thus Southwest has better employee retention then other airlines.

Southwest went in with the right business model at the right time. And they have continued to make money, upgrade aircraft, and receive high marks from their passengers.

Those who go into business and know what they are doing succeed. Just that simple