How full are your airplanes? Why losses?

[enigma]

I don't fly often enough (9/11 has me on the reserve forever list) to get a good feel for the current load factors. I see the performance numbers from my company, but not being in the terminal keeps me from seeing just how full everyone elses boarding areas are every day. When I commute to work, I see full airplanes, but I commute from DFW to south Florida and I don't think that DFW-MIA/FLL is a representitive route.

So what's the truth about loads? Are we running full nationwide as are the DFW/FL runs?

I can't figure out why the industry continues to lose so much, yet still be flying basically full airplanes. If the airplanes are full why not raise the price of tickets?

Just where are the big boys loosing so much money? Are the losses domestic?, or international?, etc?

I know that some of you are very good financial analysts, help me out here.

regards,
8N

 

[F.Gump]

It is earnings season right now. Log onto all the majors websites and listen to the replay of their 3Q analyst conference calls. You will hear from their own mouths why they cant make money.

Particularily interesting is the CAL call. Gordon "gut punches" US Airways several times by saying (and I paraphrase) that they either wont be around next year or that they will be significantly smaller. Pretty aggressive since they havent even finalized a plan to emerge from CH. 11.

As long as the majors follow the yield management model that bends the business traveller over and gives the leisure traveller the shop none of these guys are going to suceed until companies can once again allow travel at all cost.

Some of the analysts are funny as well. Someone asked on AMRs call yesterday what they expect next quarters non-recurring charges will be. The analyst couldnt find a quarter in recent history that American didnt have a non-recurring charge so it is reasonable to ask what a forecast of next Qs non-recurring charge will be. Hearing the CFO tap dance around that one was pretty funny.

Happy flying
Gump

 

[TriDriver]

Not to be too cynical, but I think management in the airline industry does not want to show a profit at this time. They are keeping fares artificially low so they do not make a profit.

They have to show the gubmint that they are in dire straits so they can get bailout money and get help paying for increased security costs, not to mention get big concessions from labor.

When they want to turn a profit, they'll raise fares. Then, when they start making a profit, they'll look like Wall Street heroes, and they can justify giving themselves big raises and bonuses.

Again, not to be too cynical, but you're not paranoid if they really are out to get you!!!

TriDriver, Bob

________________
Remember, it's "Take off into the wind and break ground", not the other way around.

 

[FlyinBrian]

The planes may be full, but there aren't as many planes flying and the tickets are dirt-cheap. I'm flying to PHX NYC round trip for 225. Then I'm flying NYC to Shannon (Ireland) for another $400. Who can make money at those fares?

My understanding is that with ticket prices the airlines have to raise them collectively instead of individually and some airlines just won't do it, so the others have to keep theirs low.

This is simple competition. American can't raise their rates much higher than Delta or everyone will fly Delta. They have to all rise together or they will give all the market share to the cheapest competitor. Add to the equation the fact that bankrupt airlines don't have to pay their bills, and the rest have to compete with that.

The question is: How long can the airlines operate with such staggering losses?

 

[asarjfo]

I agree with TirDriver 110%, by keeping the books in the red it allows the majors to renegotiate with labor while at the same time flooding the ramp with as many RJ's as they can get their hands on!

I remeber a book that I had to read in college. It was for my basic accounting class and the title was "How to lie with numbers".

If Worldcom and Enron can show a huge profit while they are losing their A$$......why can't the airlines make things look especially bleak (not saying they are actually making money, just not losing that mich).

 

[enigma]

The planes may be full, but there aren't as many planes flying and the tickets are dirt-cheap. ................................................

This is simple competition. American can't raise their rates much higher than Delta or everyone will fly Delta. They have to all rise together or they will give all the market share to the cheapest competitor

Brian, If all of the airplanes are full, how can a competitor take away market share? For your example to be valid, you need enough available seats to sell to those who decide to fly on the lowest fare, and the majors (except SWA) have made substantial cuts in available seats in the last year. Those seats can't be rejuvinated in a hurry, so what's to stop AA from raising fares?

Remember, my basic question is about load factors. If there are available seats then you are 100% correct. If there are no available seats, then there is something else going on.

regards,
8N

 

[FlyinBrian]

Many airlines have planes parked and pilots on furlough. It would only take a couple of months for an airline to add capacity if they could sell enough tickets.

If one airline raises their fares, the rest will absorb the business that is loses. It a hurting market like air travel, raising your prices is suicide until there is sufficient demand.

Seats being full means that supply and demand are in synch, and that ticket prices are perfect. (not too low.) If all pilots and planes were flying and all the seats were full, then prices MIGHT be too low.

 

[enigma]

Brian, In theory I most certainly agree. BUT, getting those seats back into the air will take much longer than a couple of months.

In the case of AA and DL, they are actually flying more seats now than they plan to fly in the future. (announced plans to retire the F1OO's and MD11's)

Something just doesn't make sense. Especially when you consider that SWA, JetBlue, Spirit, etc, are making money in the current market. In our case (Spirit) we manage because our wages are very low. But SWA doesn't fit that slot. Neither does JetBlue.

I'm not really debating/arguing here, just sort of thinking outloud. There has to be more to this than just a market in equilibrium.

regards,
8N

BTW,I'm sure that the managers at AA, etc, are looking at very complex modeling methods to predict future sales and basing their decisions on those models. Do they know something that SWA doesn't?, or are they just taking the opportunity to cut costs?

 

[~~~^~~~]

I remeber a book that I had to read in college. It was for my basic accounting class and the title was "How to lie with numbers".

I did a search on "How to Lie With Numbers." The book was not listed. I find it very difficult to believe that any accounting class would promote such material, if it did exist. Ethics are a large part of the professional certification programs that colleges provide. Kindly provide a reference to the text, or the department at your school providing such materials - unless someone is working on a follow up text, "How to lie on a web board."

Not that this would usually grab my attention. But your handle has you as an ASA pilot - I found your post embarrassing.

(snip - enough of that)

Another consideration with the high load factors and losses is that airlines like US Air have been furloughing in seniority order. This leaves the more highly paid employees in position, resulting in higher costs for RSM. US Air can not shrink to profitability, because as it shrinks, it loses revenue faster than it reduces costs of producing those revenues. US Air is a gonner and United it not looking too good. Government intervention is not really a good thing, because a desperate US Air will harm other airlines as they sell their wares at a tremendous loss. The industry needs to lose a little capacity and government has to allow the market to act, or else the over supply that hurts all of us will continue.

Delta has been smarter about their restructuring. Delta has been giving senior folks early out packages, which reduces the cost of RSM's since the junior employees are usually paid considerably less. This effort has yet to hit the pilot ranks, since they are contract employees - but the rest of Delta's workforce can be (& is being) reduced through retirement and other incentive programs which are only possible since they do not have contracts.

So Delta can shrink (a little) to profitability, US Air can not.

Eventually (and hopefully) Delta will negotiate a deal with the pilots that allows the senior guys an early out. With the MD11's going away, there are a bunch of senior pilots who will bump everyone as they came down to the next smaller aircraft. 400 pilots bumping their way down the seniority list is very expensive in training costs.

 

[Starsailor]

WARNING: off-topic alert

I did the same search for "How to Lie with Numbers" before I even finished reading the thread, equally to no avail. I read an excellent book years ago (and it does exist; it's sitting right in front of me) called How to Lie with Maps by Mark Monmonier, which starts with a nice primer on cartography, for anyone interested in that sort of thing.

The book that I think asarjfo was referring to was How to Lie with Statistics by Darrell Huff, first published in 1954. I haven't read it, but it's on my list. I disagree with what ~~~^~~~ wrote about university accounting departments not including this as part of their curriculum. I saw a few of my students at the University of Nebraska (statistics students, I would surmise) carrying this book around back in the day, which piqued my interest. I supposed it was assigned as a sort of 'know thine enemy' (or in today's world of questionable accounting practices, "We have met the enemy, and he is us," --Pogo) reading, to demonstrate all the tricks that accountants/statisticians can play on an unsuspecting populace, in line with How to Lie with Maps. Besides, universities (as well as message boards ) were founded on the principle of a free exchange of ideas, and if you don't have that, then what have you?

To the topic: I believe everyone to be making good points here, esp. FlyinBrian (great avatar, btw) what with supply and demand being in sync, and one airline can't very well raise their prices and risk losing customers. I realize this is only part of the profit equation. ~~~^~~~ makes an interesting point about US Air's woes (even a failing airline can't furlough out of senority) and then what Delta is doing at least with their non-contract employees. I'm curious to see how the negotiations go should DAL management attempt this with the pilots and mx (aren't mx under contract as well?).

Regards,
Starsailor