Airline Overcapacity Warning

[FN FAL]

http://today.reuters.com/business/newsarticle.aspx?type=ousiv&storyID=2006-02-20T134516Z_01_PEK72484_RTRIDST_0_BUSINESSPRO-AIRLINES-OVERCAPACITY-DC.XML

SINGAPORE (Reuters) - The head of the world's airline club warned the industry against the danger of overcapacity on Monday, ahead of an air show at which carriers are expected to add to the record aircraft orders they booked last year.

 

[NuGuy]

http://today.reuters.com/business/newsarticle.aspx?type=ousiv&storyID=2006-02-20T134516Z_01_PEK72484_RTRIDST_0_BUSINESSPRO-AIRLINES-OVERCAPACITY-DC.XML

I don't think you could technically call whats going on (at least in the US) "overcapacity" when every airline is running at %80 + load factors. Anything more than %72 or so is really full, because you have to subtract out all the red-eyes, and those repo flights at 5am where they sell tickets.

I think what you have is too much insanity. Check it...JetBlue has the lowest CASM of the large aircraft carriers, and THEY can't make money at the current fares? I mean, no dig at JetBlue, but WTF?

Look at SWA...they only made money because of the hedges (we can argue about this, but lets just say things would be MUCH worse for them). They could make serious bank (and probably should get while the getting is good) by raising fares. Could it be that they are acting a preditory nature? Maybe, but the other thing to consider is that the the demand is so price sensitive as to be artificially generated.

Point is, if even the bottom cost carriers were to raise their fairs just to cover their costs, much of the post 9/11 demand would evaporate (because then the trailer park crowd has to choose between the trip to the mouse or smokes), and they know it. But everyone is trying to outlast everyone else. It's a huge game of chicken, perpetuated by GE Capital and other big money lenders because they don't want to see airplanes parked.

Nu

 

[Big Duke Six]

Nu, you hit it right on the head in your last paragraph. But in the first paragraph you say there is no overcapacity, as evidenced by the fact that many flights are full. With all due respect, there is a huge disconnect in your argument.

For the sake of this discussion I'll just take your word for it that "every airline is running 80% full" (the number really doesn't matter). The thing is, if we sold tickets for $1, I'd bet we'd fill up every flight, don't you agree? Does that mean we would then go out and buy more airplanes, to handle the hordes of people clamoring for tickets at the ticket counter? No. So it doesn't follow that because the seats are full, supply equals demand.

If airlines can't make money and are giving away seats below cost just to fill seats on an airplane that's going to fly anyway, there is overcapacity no matter how you slice it. The hard truth is that if a person cannot afford to buy a ticket for at least what it costs to get that seat from A to B, then that person should not be flying. They should be on a bus. That's just an economic reality.

We can't make it up in volume. Yet, here we are, as you put it so well, just because the GE Capitals of the world have too much to lose.

 

[smellthejeta]

Nu, you hit it right on the head in your last paragraph. But in the first paragraph you say there is no overcapacity, as evidenced by the fact that many flights are full. With all due respect, there is a huge disconnect in your argument.

For the sake of this discussion I'll just take your word for it that "every airline is running 80% full" (the number really doesn't matter). The thing is, if we sold tickets for $1, I'd bet we'd fill up every flight, don't you agree? Does that mean we would then go out and buy more airplanes, to handle the hordes of people clamoring for tickets at the ticket counter? No. So it doesn't follow that because the seats are full, supply equals demand.

If airlines can't make money and are giving away seats below cost just to fill seats on an airplane that's going to fly anyway, there is overcapacity no matter how you slice it. The hard truth is that if a person cannot afford to buy a ticket for at least what it costs to get that seat from A to B, then that person should not be flying. They should be on a bus. That's just an economic reality.

We can't make it up in volume. Yet, here we are, as you put it so well, just because the GE Capitals of the world have too much to lose.

Well...

My air travel is discretionary. That means if the ticket costs too much, I don't go. I also made more (W2 wise) than the average household in 2005 or some crap like that. If I can't afford more than $400 for a plane ticket for myself, then there's no way the dude can take the family of four on a trip any more than once or twice a year.

What's happening is that the consumers have determined that they can pay $xxx for a ticket. The airlines KNOW that they either deliver a product at that price or they don't deliver a product at all. No product = no sales = no jobs. The people who can afford to pay for luxury do so -- keeping the 91 corp, 91k, the 135 guys, and me employed. Oh, and my company actually handed out some decent pay raises too. Nobody's come looking to cut my paycheck either.

That whole "over capacity" thin, IMHO, is a sham. If we had capacity to match demand, there would only be CRJ's, ERJ's, and the like. Why? Say that on any given flight, only 50 people are willing to actually pay their CASM costs. What do you do? Do you put them in a 50 seat RJ that breaks even, or do you put them in a 130 seat 737 that loses money? People paying high fares hate RJ's. We all know that the CASM on an RJ is higher than that of a 737, but if the 737 can't fill EVERY seat with CASM rate payers, it will lose money.

 

[paid4training]

basically "we be kcufed"....

 

[81Horse]

Flying is a privilege, and people should pay for it. Let the rhetorical family of four drive to Wally World. At least then their infants and toddlers would probably be properly restrained in carseats.

Okay, I'm ready. Flame me.

 

[FN FAL]

Flying is a privilege, and people should pay for it. Let the rhetorical family of four drive to Wally World. At least then their infants and toddlers would probably be properly restrained in carseats.

Okay, I'm ready. Flame me.

That's cool...cut down capacity by half, quadruple the prices. It just means that half the people working in the industry get to take a walk...and the privileged get to fly.

It's a no brainier.

 

[81Horse]

Ahhh -- you failed to address the carseat issue! So, I win.

 

[spudskier]

Let the rhetorical family of four drive to Wally World.

They made a theme park named after her!?!?!? D NIFA ppl know what I mean) (and yes, I know about the movie)

 

[FN FAL]

Ahhh -- you failed to address the carseat issue! So, I win.

I sorry, I got distracted thinking about that dish rag hooah Britney Spears driving her SUV around with her kid on her lap at the steering wheel teaching it to drive. I'm over it now, where were we?