Airline Overcapacity Warning

[81Horse]

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.

Never too young too learn 'em how to drive down to the 7-11 to pick up ciggies and Zima for Mama and K-Fed.

 

[TrafficInSight]

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

It's the Funkiest place on earth

 

[FN FAL]

Originally Posted by CaptainMark
Virgin America plans to operate into these airports....DFW..PHX..LAS..SFO..SLC..SEA..
IAH..DEN..MSY..TPA..SRQ..MCO..PBI..FLL..
MIA..JAX..ATL..RDU..CLT..MCI..IND..ORD..
CLE..CVG..PHL..EWR..BOS..BWI...

 

[Big Duke Six]

Smell said:

Well...

My air travel is discretionary. YES, almost everyone's is. 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. WRONG. The airlines are delivering their products right now, as we speak, for BELOW COST to the consumer. 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.

If you do the math, selling a seat for CASM x-fuel is not that hard. The problem is that fuel has gone through the roof and so actual CASM is much higher than what the people will pay. If airlines charged what it cost, seats would go empty, so there is overcapacity. CASM trends downward as number of seats goes up, to a point, so the CASM on a 737 is less than with your RJ. You call it a "sham" then make my arguement for me. But the problem is that there are too many airplanes out there flying (you've heard of it, it's called "scheduled service", where you are required to fly whether you sell a ticket or not) below break-even loads. So, the airline loses money because they can't sell the seats for cost. The number of potential passengers are further reduced because of the inexorable negative impact of high gasoline costs on a family's bottom line.

Airlines are reluctant to just shed airplanes and labor during these times, preferring to weather the storms, take losses temporarily and come out the other side intact. During short downturns it causes pain but is not crippling. During protracted crises like these, it is a different matter. It becomes a game of attrition. To stay alive, costs must be cut before cash runs out. It hurts but the only other option is to park more airplanes and furlough more crews.

Now, why mgmt doesn't lead and share the pain with labor rather than handing out bonuses and high-fives to each other as they extract concessions from labor is the topic of another thread. I'm tired so I'd rather not start on that one.

 

[smellthejeta]

Six, my point with the pricing is that the airlines know what people are willing to pay for a ticket. Either the airlines deliver a product at that price, or they don't sell it. If they want to remain in business they MUST get their costs inline with their revenue.

You talk about ex-fuel CASM costs. What's the point? You have to pay the fuel bill to get the plane in the air.

The reason I called overcapacity a sham is because people act like removing the capacity will actually drive up fares. I don't think it will, because I'm fairly certain the price point has already been established. People won't pay the high fares, and the airlines need the lower-CASM larger aircraft in order to keep expenses below revenues.

 

[AA717driver]

smelljet--The one point I kind of disagree with is that joe six-pack won't spend the bucks to go to W.W. My wife worked at a bank in a small Midwestern town for several years. People would come in just before Spring Break and gut their savings account--just cash it all out. Why? They're going to Vegas/W.W./a cruise. And they'd do it every year. (This happened from the early 90's on. Low fares, IMO, weren't a factor.)

Never underestimate the public's propensity to blow their saving on crap. TC

 

[smellthejeta]

smelljet--The one point I kind of disagree with is that joe six-pack won't spend the bucks to go to W.W. My wife worked at a bank in a small Midwestern town for several years. People would come in just before Spring Break and gut their savings account--just cash it all out. Why? They're going to Vegas/W.W./a cruise. And they'd do it every year. (This happened from the early 90's on. Low fares, IMO, weren't a factor.)

Never underestimate the public's propensity to blow their saving on crap. TC

In my first post on this thread, I think I mentioned that if fares went significantly up, most discretionary/leisure travellers would only travel once or twice a year (okay three -- turkey day or xmas, and summer vacation). I think your spring break example fits the bill perfectly. That person is also me -- at $350 a ticket (or less!) I get on an airplane once or twice a month. If those same tickets ran me $600+ which they should if I had to pay CASM costs for my transcon tickets, then I'd probably be on a plane three or four times per year. The airline actually gets more money out of me this way.