Doesn't make sense...

[NEDude]

Okay, I will be the first to admit that I am no genius. But I did some figuring the other day and this oil mess and the effect on airlines just doesn't make any sense to me.

Like many airlines, my company requires that we get a fuel slip prior to departure. Additionally our paperwork includes station information which includes what we pay for gas at each station on our paperwork. The price is updated weekly.

So I did some figuring based on some of our typical trips.

The day I did this figuring we were full. Here is what I came up with: 2300 gallons of fuel at a cost of $4.20 per gallon equals $9660. Now divide that by our total capacity of 168 (Airbus A320) and it works out to $57.50 per passenger. If each passenger were to contribute to the total cost of the gas for that trip, they would have to pay $57.50 each.

Now if you figure that gas has roughly doubled in the past year and just charged passengers the difference between what gas cost then versus now, on this flight they would have to pay an additional $28.75 for a ticket versus last year.

If you take a more extreme example and take that same airplane at 50% passenger load and fill the gas tank to capacity and charge passengers the difference between gas last year and this year and each passenger would have to pay an additional $155 for their trip.

To me that seems like a small difference in the grand scheme of things of the total ticket cost to take an airline from profitablity to closing the doors. Obviously there would have to be some equation based on overall average load factor, and average fuel burn per trip etc. But I would guess based on a fleet of A320s at least, if you increased your prices by $50 to $75 per ticket, you should be covering the additional costs of fuel and probably even more so.

Just thinking that maybe overall, given loads still seem relatively full (I ride up front a lot when commuting lately), management is over-reacting to this fuel crisis.

 

[Andy Neill]

Makes remarkable sense to me to adjust the ticket prices accordingly.

 

[hate2bL8]

I think that is the crux of the problem they have never been able to charge more. They are more short sighted only concerned about undercutting each other, slashing,, cutting only looking to be efficient in order to move the stock which in in turn keeps the ceo employed.

 

[NEDude]

Makes remarkable sense to me to adjust the ticket prices accordingly.

Don't tell that to management.

My point in all this is that overall tickets are up, on avereage, by more that $50-$75 over a year ago. Based on my figures, from my limited perspective, that should be covering the additional costs of fuel versus a year ago. And flights are still very full as well. That is what doesn't make sense to me.

 

[JustaNumber]

Seems simple, but of course airline pricing is a much more complex issue. If the airlines raise prices an average of $X, then the overall load factor declines by some factor of X. Simple supply and demand: the more expensive a ticket is, the fewer people decide to take that discretionary vacation or business trip.

Granted, everybody's flights are full these days, but that doesn't show the whole yield picture. Yes, ticket prices have risen recently. Airlines have gotten very good at adjusting their prices (some seats sold high, some low) to make sure every seat is full. But the average increase has not been enough to cover the total increase in costs.

For those of you saying they should just charge a lot more on average: if they really actually did that, they wouldn't be able to fill all the seats, and their average yield would actually decline. It's a fine balancing act governed solely by market forces. They're actually doing the best they can in terms of total yield. Which means we're pretty much screwed!

 

[hate2bL8]

nobody ever seems to mention that these airlines have to buy super high dollar aircraft from a vitual monopoly on plane makers Ie. Airbus and Boeing. where is the free market here both are basically subsidized by their governments boeng by gov contracts and Airbus by France. How fair is that?

 

[Toobdrvr]

Oh man! A bunch of airline people talking sense?

Who are you? What have you done with FlightInfo!!!?>??

 

[Andy Neill]

For those of you saying they should just charge a lot more on average: if they really actually did that, they wouldn't be able to fill all the seats, and their average yield would actually decline. It's a fine balancing act governed solely by market forces. They're actually doing the best they can in terms of total yield. Which means we're pretty much screwed!

I agree with that, but if losing millions a quarter is the best they can do, they should stop doing it. To do otherwise is not what the rational businessman would do.

 

[BoilerUP]

NEDude, if you had an MBA and had ever worked in airline management, you'd already know why simply raising revenue to cover increased costs won't work...there's no incentive for executive bonus unless you get labor to take a cut too!

Gosh.