Boyd's take on $4 jet fuel and AA's new fees

[SuperFLUF]

[FONT=Tahoma, Ariel, Verdana]http://www.aviationplanning.com/asrc1.htm[/FONT]​

[FONT=Tahoma, Ariel, Verdana]Hot Flash [/FONT]-[FONT=Tahoma, Verdana, Lucida] Tuesday, May 27, 2008[/FONT]
[FONT=Tahoma, Ariel, Lucida]Panic In The Front Office[/FONT]
[FONT=Tahoma, Ariel, Lucida]Airline Industry In Full Retreat?[/FONT]
[FONT=Tahoma, Ariel, Lucida]When facing a crisis, the worst thing one can do is to panic. [/FONT]
[FONT=Tahoma, Ariel, Lucida]But that's exactly what seems to be happening in some airline front offices. Panic results in clumsy decisions. Clumsy decisions make the crisis worse.[/FONT]
[FONT=Tahoma, Ariel, Lucida]Let's start with this: $130+ oil is a crisis for the airline industry. If it continues to climb, or even if it drops back down twenty bucks, the airline industry has got to fundamentally restructure how it operates. And they must do it on a right-now basis, because fuel costs are eating their lunch.[/FONT]
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[FONT=Tahoma, Ariel, Lucida]Today's Best Practices & Traditional Thinking - Recipes For Failure. What's necessary is strong, focused, and futurist thinking. This is a whole new environment, and what worked last year, or the stuff coming out of some of the usual-suspect B-school types, do not apply. More importantly, such may even prove to be lethal. What will set winners from losers will be the vision of an airline's leadership at the top. [/FONT]
[FONT=Tahoma, Ariel, Lucida]The crisis is not about revenues not meeting higher fuel costs. It is much more fundamental: it is about an air transportation system that suddenly is operationally obsolete.[/FONT]
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[FONT=Tahoma, Ariel, Lucida]It is an entirely different industry now. Unfortunately, the aircraft, the production methods, and the strategies now in use are not up to the challenge. They're yesterday. The need to have a system that can be operated with jet fuel at $4 a gallon is today.[/FONT]
[FONT=Tahoma, Ariel, Lucida]The obvious, traditional, "best-practices" reaction is to raise fares. But that can be hard to do in a competitive environment. Toss in the fact that Southwest's flying around with much less fuel-cost pressure, thereby having a lot less imperative to raise fares. [/FONT]
[FONT=Tahoma, Ariel, Lucida]So, the trend has been to start charging for things that used to be free. Or, much more dangerously, panic and start to view the solution being in shaking down the customer for things that simply are part of what's expected when one travels.[/FONT]
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[FONT=Tahoma, Ariel, Lucida]Circle The Wagons. Then Shoot The People Inside The Circle. Let's state the obvious: revenue comes from customers. Customers must use the airline product to provide revenue. Lose the customer and you lose the revenue. The customer doesn't like to feel trapped, cornered or cheated. Airlines need the customer's good will to survive.[/FONT]
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[FONT=Tahoma, Ariel, Lucida]Unfortunately, some of the actions taken by some carriers in recent weeks are clearly the result of quick panic decisions, not rational planning to adjust to $3.50 - $4 jet-A. They are directly affecting customers' good will. [/FONT]
[FONT=Tahoma, Ariel, Lucida]More and more, the flying public walks into an airport and likely starts to feel like "marks" at a two-bit country carnival. Every game in the place is rigged to shake more money out of them. An airline ticket once bought travel from A to B. Now, it's becoming just a down-payment.[/FONT]
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[FONT=Tahoma, Ariel, Lucida]Alienating The Revenue Source, i.e., The Customer. The most obvious and most recent sign of a panicked retreat from the crisis is American's decision to charge for any checked luggage. Whether it spreads across the industry or not makes no difference: it is a bad service decision. Really, really bad. People inherently travel with things like clothing.[/FONT]
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[FONT=Tahoma, Ariel, Lucida]Often, that entails the need for a checked bag. It is unreasonable to sell a ticket and then tell the customer his change of underwear and extra suit for that important meeting is going to be an extra $15 bucks.[/FONT]
[FONT=Tahoma, Ariel, Lucida]True, there is some potential money here. Airports:USA® airline data indicate that AA could theoretically collect as much as $1.2 billion with this new fee. But its fuel costs in 2008 alone - forget the prior spikes - is going to be up possibly three times that much. So in the grand scheme, the fee for the first bag will do more to make AA look like a desperate pirate, than to materially address fuel costs.[/FONT]
[FONT=Tahoma, Ariel, Lucida]What's next? An extra admission fee to the departure gate? $2 seat rentals in the hold room? Pay toilets on board for all but Titanium-Level frequent flyers? [/FONT]
[FONT=Tahoma, Ariel, Lucida]Deal with it: AA's first-bag charge is un-defendable. Worse, it does more to tick off the customer than to be a meaningful contribution to offsetting the billions in increased fuel costs since 2005.[/FONT]
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[FONT=Tahoma, Ariel, Lucida]Charge Ransom To Get Out Early. Another carrier has implemented a no-exceptions policy of charging $50 if a passenger is at the airport, and wants to leave on an earlier flight that has seats available. Needless to say, most people won't pay it. [/FONT]
[FONT=Tahoma, Ariel, Lucida]Not only is such a policy the direct equivalent to what picadors do to a bull in the ring, it is also very misguided customer management. Once a paying passenger is in the terminal, the objective is to get him or her out of town as fast as possible. That flight he's booked on in two hours might be delayed. Overbooked. Canceled due to weather. Get him on the earlier flight, and wave good-bye to what could have been a problem later on. So to deny a willing, same-day paying passenger an open seat on an earlier flight without first paying a $50 ransom is another sign of let's-get-the-dough panic. It is not good policy.[/FONT]
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[FONT=Tahoma, Ariel, Lucida]The Real Answer's On The Cost Side. Face it - the problem is fuel expense. The potential of getting fares up fast enough to compensate for these increases is miniscule.[/FONT]
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[FONT=Tahoma, Ariel, Lucida]"Ancillary revenues" - bag charges, change fees, seat-assignment add-ons, etc., are nothing more than a bucket brigade on the financial Titanic. The fact is that airlines cannot operate as they have traditionally in the face of $130 oil. Period.[/FONT]
[FONT=Tahoma, Ariel, Lucida]That means the only real hope for carriers is fundamentally changing how they operate. As pointed out earlier (Go There) there's a lot of costly slop in the system that can be culled out. To the horror of some leasing companies and small lift providers, at least 30% of the flying now done with RJs is a loss leader and must be cut. Some parts of mainline fleets need to be parked, simply because the outer margins of route system profitability are shrinking fast. [/FONT]
[FONT=Tahoma, Ariel, Lucida]Note to the airline industry: The customer is your friend. The customer is the solution. In a lot of ways, you're ticking off your friends and delaying real solutions.[/FONT]
[FONT=Tahoma, Ariel, Lucida]Not to mention running out of time.[/FONT]​

 

[imacdog]

Wow did he think of that all by himself?

 

[reepicheep]

Boyd is off his rocker. What he says if you go to his website is the that airines (except WN) waste precious minutes everyday that must be recaptured. A minute here, a minute there, it all ads up to better utilization of aircraft and facilities that will eventually show up on the bottom line.

So he's betting the farm on the most poorly paid, least motivated, least skilled people in the company. Yessir, the fate of the airline rests on the ability of that $7.96/hr. agent to get the jetway up to the door and get the people off. I don't know about you guys, but at my airline (US Airways) we're lucky if they get it done in under 5 minutes.

At Southwest? Try 30 seconds.

 

[vetrider]

Aint that the truth, its painful to watch, isn't it?

 

[Soverytired]

Boyd is a fun (if repetitive) read, but writing that there's a big problem and someone needs to come up with a radically new way to run airlines isn't particularly helpful.

Face it; if HE had a clue about the "silver bullet" he'd bottle it and sell it for millions. He doesn't have a strategy either.

 

[Mamma]

Boyd is a fun (if repetitive) read, but writing that there's a big problem and someone needs to come up with a radically new way to run airlines isn't particularly helpful.

Face it; if HE had a clue about the "silver bullet" he'd bottle it and sell it for millions. He doesn't have a strategy either.

I actually agree with Boyd on this one. It is ridiculous to charge a passenger $15 for the first checked bag. They may do this in Europe but it won't fly over here. This is basically a sneaky way of matching everyone else's price on Orbitz or Travelocity. I think most passengers will see this and if able take their business elsewhere. Nobody wants to feel like a sucker or cheated and this new charge does just that.

 

[~~~^~~~]

Yes, and it makes expense report accounting more difficult for business passengers.

 

[GuppyWN]

I find it ironic that Boyd dumped on WN every chance he had - until about 6 months ago. Now we can do no wrong.

Tail wagging the dog.

Gup

 

[Crash Pad]

Piece of cake... ground the RJ's, DC9's, and MD80's. Then replace them with more efficient aircraft. Cut some routes and whamo you have a profitable airline.

Except for Southwest... You are off the hook for having a hedge.

 

[jetflier]

I think Boyd left out the airlines biggest waste of money,....hiring worthless airline analysts.