Expert calls latest round of fare sales 'economic suicide'

[skykid]

D8,

If you read my post, you'll see that I was talking about United's sale terms in relation to the quote you took from my post. In fact I later advocated that he research the sale U has going, because it is completely different.

There are a lot of reasons why ticket prices are getting "thrashed." There are some airlines chopping domestic seat miles by double digit percentages while others are doing the opposite. One could argue that some domestic only carriers used money from the ATSB, not a loan, but cash, to expand and therefore decrease the demand for tickets.

 

[Dizel8]

Skykid,

I was not attcking you, but the quote was to good to pass up vis a vis U.

As for this one: "One could argue that some domestic only carriers used money from the ATSB, not a loan, but cash, to expand and therefore decrease the demand for tickets".

Not sure how to read it, since the ATSB gave cash based on RSM numbers and it was given to ALL carriers.

 

[FR8mastr]

Predatory pricing? Lets see, its ok for JB AT or SW sell/give tickets away for 39 bucs, but if a legacy carrier does it.. Stop the presses its predatory pricing.

 

[Dizel8]

"Lets see, its ok for JB AT or SW sell/give tickets away for 39 bucs"

They all posted a profit for the year and in the case of SWA, they are THE most profitable carrier.

When you are in bankruptcy and on life support by the goverment it seems rather silly to allow this. Perhaps U can use the ATSB loan to Ch.7 a few airlines and then they will prosper, but wait, we are supposed to be deregulated, so what is the goverment doing here?

U qualified for the ATSB loan, fine, however, they have not met any target numbers since. The ATSB has allowed all kinds of leeway, perhaps it is simply time to call the loan and pull the plug.

Maybe SWA should file 11 and fly for nothing while the ATSB picks up the bill.

 

[FR8mastr]

ok fair enough, so I guess 10 years ago when the govt. stepped in to stop the predatory pricing that would have killed off or greatly hurt the current wonder airlines, you were all up in arms over that huh? And buy the way the ATSB has yet to lose a cent, they have guarenteed a loan not given any money to US. And if and when U tanks they are the first in line to collect. The ones that may lose some money would be GE and the Alabama folks.

 

[Dizel8]

IIRC JB is 5 years old, the legacies have done all they could to hurt SWA, ie segment tax, Wright amendment etc and Airtran have taken on DAL schemes plenty of times. No predatory suit has ever been won, so it is a moot point.

The ATSB have not lost a cent, yet, but they may very well in the end, even if they are first to collect. Of course, the goverment did get stuck with the bill for the U retirement.

Besides, my point of contention is not that U is predatory, the point is, that U is thrashing the fares while being kept afloat by the goverment. Clearly that should be frowned upon, since U's action is essentially being sponsored by the goverment, at a time the airlines are in big trouble.

 

[skykid]

Of course, the goverment did get stuck with the bill for the U retirement.

How much did the government get stuck with and where is that money coming from?

 

[Dizel8]

"According to PBGC estimates, the plans are 40 percent funded, with $1.7 billion in assets to cover $4.2 billion in liabilities. Of the $2.5 billion shortfall, the PBGC will guarantee payment of an estimated $2.3 billion".

The money comes from insurance premiums, however, the PBGC has also said, that they may be facing financial problems in the not so distant future. Of course, they will soon have to cover UAL as well, since it is only a matter of time before that pension is gone.

"As of the end of 2004, the agency has a shortfall of more than $23 billion. Rest assured, however, that it poses no near-term threat to PBGC's ability to pay current benefits, nor will it affect our commitment to quality customer service. Having said that, it is becoming ever clearer that changes in the system must be made to strengthen the defined benefit system for employees, create incentives for plan sponsorship and ensure that PBGC is able to fulfill its mission in the future."

www.pbgc.gov

 

[100LL... Again!]

If all airlines agree to raise prices, you have price-fixing and possible legal recriminations.

If just one does it, the others will gleefully wait for them to go out of business first.

What we have is a contest to see who can go the longest without food. Those who have the most fat stored up will win.

 

[skykid]

Of course, the goverment did get stuck with the bill for the U retirement.

So was that accurate?

 

[capt. megadeth]

I feel I have been subsidizing (with my paycheck) cheap airfare for last 5 years!

I agree.....we all have (except for managment of course) Sad but true.

 

[canyonblue]

Predatory pricing? Lets see, its ok for JB AT or SW sell/give tickets away for 39 bucs, but if a legacy carrier does it.. Stop the presses its predatory pricing.

If a business can make money by charging above the cost of the product ,then it's acceptable. If a business cannot make money at the same price but chooses to sell below cost, then it's insane and they will go out of business soon. (Except in the airline industry)

 

[FR8mastr]

I am assuming from your avatar you are SW. So you know that nobody with an airplane could make money charging $39 per ticket. As a pilot you know the true cost of moving all that aluminium around. The reality as we know is not all tickets are 39. SW has done the best marketing job I have ever seen, People actually believe all the hype on pricing. Please keep in mind I am not bashing, I wish my airline had a fraction of the management team yours does. The point being, that pricing, $39, is a gimmick to get the people in, but when the legacy's would do that all heck was raised about predatory pricing. Well why not now? that is the only point I was trying to make.

 

[Snoopy58]

If you sold EVERY seat for $39, you couldn't make money. If you sell a FEW seats for $39 but the average is higher, you can. After all, 100 seats at $100 is less money than 100 seats at $100 and 20 seats at $39. SWA is pretty sharp with their fares, and the folks who make those decisions know what they're doing when they discount some number of seats, offer introductory fares, etc. It isn't about losing money, and the evidence doesn't really support a complaint that SWA is pricing seats the way they are & losing $ just so everybody else loses more.

There's a big difference between "predatory" (selling at a loss to cause some competitor pain) and pressing a competitive advantage (being able to make money at an average fare that is below somebody else's costs).

 

[FR8mastr]

Ok I guess I had it all wrong SW coming into PHL and Pit and the rest of the NE with "low introductory fairs" has nothing to do with Airways being in major trouble. I'm sure they would love it if Airways found a way to compete. Again I am not bashing SW but if you think they are not trying to kill off the competition, then I have some of that beach front property you may be interested in.

 

[Dizel8]

They may be hasting the demise, yes. However, unlike what has happened previously, SWA stays in their market and maintains a lower fare. When AA hastened the demise of say Vanguard, they pulled out once the deed was done. (No pun intended)

U is in trouble, but they are in essence being subsidized by the goverment and where it not for the ATSB agreeing to change the terms, they would be gone.

It is a dog eat dog world, the goverment needs to get out and let the chips fall where they may!

 

[Snoopy58]

SWA isn't losing money in the PHL market... that's the point. "Intro" fares are just like having some seats priced cheap for the leisure market but having the average fare high enough to cover costs: average fares for the 6 months will be enough to cover costs, even if initially there are a greater fraction of cheapies.

The point isn't whether SWA is "going after" US Air or not (although the argument has been made that they aren't trying to kill them, but simply positioning themselves to be where the best opportunities will be when U inevitably dies), but that they aren't losing money doing what they're doing. With the new "economic suicide" fares (yeah, it's a bit of hyperbole), U and UAL are losing money, even beyond what they already are. Wouldn't be such an issue if they weren't on the dole.

 

[canyonblue]

Again I am not bashing SW but if you think they are not trying to kill off the competition

We don't have to. They are doing a pretty good job of killing themselves.

 

[ATR-DRIVR]

We don't have to. They are doing a pretty good job of killing themselves.

THAT is a very true statement.