Senators suggest re-regulation.

[AC560]

In simpler terms: they want regulation to ENSURE that those routes / cities REMAIN COVERED. You have to have the SAME NUMBER OF PILOTS, if not more, to cover those SAME CITIES / ROUTES / FREQUENCY.

The point is that while great in theory, in practice it doesn't work.

If you can't make money on the existing route structure you have three choices. Either eliminate the route structure, lower your operating costs (i.e. pay cuts), or raise your prices. You could also do a combination of all three.

Now clearly if we take eliminating route structure out of the equation we are only left with two options. Lower costs or raising prices. When it goes from $60 ORD-MSP to $300 ORD-MSP, a lot of people are going to drive instead. Now your load factors go down so you have to confront the same choices again. If again you are not going to eliminate the route you have to again raise fares or lower costs.

The only way that regulation would work in the sense most of you appear to want it to (keep all the routes, keep all the jobs) would be to make air travel like Amtrak and fund it with tax dollars (which already occurs for essential service routes).

If Congress/FAA can't agree (let alone the industry) on whether a pilot can fly at 65 or not do you actually think they would be able to agree on something as complex a problem as this?

 

[YourPilotFriend]

Yes, lets re-regulate the airlines. Right after we bring back prohibition, restrict the right of women to vote and drive, bring back the draft, allow slavery, etc, etc, etc. Yes, those are great ideas....

I don't think regulation has anything close to the impact of anything you just stated here. Or for that matter has any relation. Your LCC only provides service on routes that it can turn a profit. If you allow airlines to merge, instead of two carriers competing for market share you now have one. On routes that the LCC's don't exist, those fares will go way way up; Some will go up hundreds of percent. The LCC business model simply can't provide service like that ever.

 

[YourPilotFriend]

Now clearly if we take eliminating route structure out of the equation we are only left with two options. Lower costs or raising prices. When it goes from $60 ORD-MSP to $300 ORD-MSP, a lot of people are going to drive instead. Now your load factors go down so you have to confront the same choices again. If again you are not going to eliminate the route you have to again raise fares or lower costs.

A regulation price would only be 10-20% higher. You are confused about how the industry covers costs. The RASM required to cover the CASM is currently 15 cents a mile. However, the LCC's keep it in the 14 cent range there, and 12 cent range on the gravy train routes. Re-regulation would stop the price from going from $60 to $300 by making it cost $65.

 

[AC560]

On routes that the LCC's don't exist, those fares will go way way up

Which will then cause a LCC to enter the market and provide competition and lower the rate.

 

[49W]

Totally wrong on that point, supply is way low compared to the days of regulation. In fact, during regulation load factors were in the 40% range.

That's because of supply and demand. There was less supply of seats and an even smaller demand for those seats during regulation because of much higher ticket prices. There were not many people then who could afford a $1,000 one way domestic ticket.

 

[YourPilotFriend]

Which will then cause a LCC to enter the market and provide competition and lower the rate.

That can't build airplanes fast enough to do that. We are talking about 6 carriers combining into three. That means service to almost all destinations will only be covered by one carrier.

 

[HalinTexas]

This is a ridiculous discussion. Not even good for conversation. I'd rather ride a horse than go back to a regulated industry, and I'm sure once the reality of set in, should it ever happen, then I'm sure we'll all be back at that point. The resultant economic chaos would destroy this country.

And, Hollywood would have put Hugo Chavez in office as US Pres.

 

[YourPilotFriend]

This is a ridiculous discussion. Not even good for conversation. I'd rather ride a horse than go back to a regulated industry, and I'm sure once the reality of set in, should it ever happen, then I'm sure we'll all be back at that point. The resultant economic chaos would destroy this country.

And, Hollywood would have put Hugo Chavez in office as US Pres.

They are suggest re-regulation so the exact thing you are saying doesn't happen. What part of all the major carriers are consolidating so they can price gouge don't you understand?

 

[AC560]

Re-regulation would stop the price from going from $60 to $300 by making it cost $65

Any price increase is going to lead to some form of reduction passengers. You reduce a passenger you have to make the lost revenue up some place.

That can't build airplanes fast enough to do that.

Really where do all the LCC's come from today?

 

[AC560]

What part of all the major carriers are consolidating so they can price gouge don't you understand?

“Before Jet Blue started service in Rochester, this airport was known for having the third highest airfares in the country,” said Neeleman. “Since then fares have plummeted. Some are down as much as forty percent.”

Source

Here we have one carriers dominating a market and gouging the consumer as you put it. What happens? A new carrier enters the market and prices go down. In a free market as soon as you push the prices up to a point where a competitor can make a go it he will. This is what keeps prices down.

 

[HalinTexas]

They are suggest re-regulation so the exact thing you are saying doesn't happen. What part of all the major carriers are consolidating so they can price gouge don't you understand?

Can't price gouge. That requires collusion. Price fixing is illegal. AMR did it with DAL to run Braniff out of business. Got lucky there was no real evidence, but everyone knew.

Even with consolidation a new carrier with enough cash, a la JetBlue, could enter the market place. This keeps the Consolidated Airlines of America from gouging. Under regulation, it's much more difficult for new entrant.

 

[YourPilotFriend]

Can't price gouge. That requires collusion. Price fixing is illegal. AMR did it with DAL to run Braniff out of business. Got lucky there was no real evidence, but everyone knew.

Even with consolidation a new carrier with enough cash, a la JetBlue, could enter the market place. This keeps the Consolidated Airlines of America from gouging. Under regulation, it's much more difficult for new entrant.

A LCC is a limited market entity. Here's a merger situation for you, DAL/US, NWA/UAL, CAL/AA. No LCC would survive 6 months in that kind of situation.

 

[Lear70]

Totally wrong on that point, supply is way low compared to the days of regulation. In fact, during regulation load factors were in the 40% range. Today it is somewhere in the 80-90% range for most airlines. Regulation would hurt, if not kill the non hub and spoke carriers. We here at NWA see high capacity even on routes we charge regulation type prices. Air travel expanded because the time value of money has gone through the roof. Even if you charged double for fares, it's still way cheaper than sending your employee cross-country on a bus.

Don't worry about dealing in reality, this is a message board. No one wants to hear the truth about capacity (running so full it's difficult to jumpseat to or from work), fares (so low they're below the cost of providing the service), or employee wages (at an all-time-low in RECORDED HISTORY in adjusted dollars).

Noooo... they just want you to be too scared to try change.

Deregulation has failed. Period.

Everyone knows it. But shhhhh - don't tell anyone.

p.s. A "new entrant" under regulation could simply be disallowed an operating certificate or operating route authority. Nothing anyone could do to stop it, that's the whole point of a "regulated industry".

Jeez, this thread feels like I'm arguing with some CRJ kid who actually has NO memory or knowledge of how regulation worked (not you Halin, I simply disagree with you, but some of the other posts are downright ignorant of regulation-era operating authority).

 

[AC560]

No one wants to hear the truth about capacity (running so full it's difficult to jumpseat to or from work), fares (so low they're below the cost of providing the service), or employee wages (at an all-time-low in RECORDED HISTORY in adjusted dollars).

So the airlines are full and fares are low, sounds great for the consumer. Your wage issues aren't my concern anymore then my pay is probably keeping you awake at night.

Jeez, this thread feels like I'm arguing with some CRJ kid who actually has NO memory or knowledge of how regulation worked

Do you remember price controls under Jimmy Carter?

 

[scoreboard]

I don't think regulation has anything close to the impact of anything you just stated here Yes it does, you want to turn back the clock to your good old days. Or for that matter has any relation. Your LCC only provides service on routes that it can turn a profit And the problem with that is?? Lower fares? Higher frequency? Better service??. If you allow airlines to merge, instead of two carriers competing for market share you now have one Good math... On routes that the LCC's don't exist, those fares will go way way up; Some will go up hundreds of percent Again correct, but not the fault of the LCC, it's the legacies only way to mitigate the losses of competing head to head with an LCC, sort of a loss leader in reverse. The LCC business model simply can't provide service like that ever You right, the result is that market should not get the service because others will have to foot the bill, which is not a component of this economy.

?? Your argument makes no sense.

You do realize you live in America which opperates with an economy based on free market forces, not those of Stalinist Russia? Or France, or China?

If there is a viable market, there will be a provider. If a carrier chooses not to enter that market, it's for a reason, it does not make economic sense. If only one carrier enters that market and charges an arm and a leg, and survives, good for them. The people in that market have then said it is acceptable, and is what the market will bear. There should NOT be subsidies or regulation restricting market entry nor exit.

Oh the irony, NWA flys overseas routes to destinations restricted from other competition, you guys rape and pillage fare whys on those routes. Now you want the same protection in the USA, hogwash...

We shouldn't be running air service based on self serving socialist needs. If Jim Bob in Yakutat wants jet service, let him pay for it. Not me.

 

[Lear70]

So the airlines are full and fares are low, sounds great for the consumer. Your wage issues aren't my concern anymore then my pay is probably keeping you awake at night.

Sure it's great for the consumer.

At the expense of... oh yeah, the consumer via an ever-increasing deficit and the resultant failures of small business that were bankrupted on by the legacy carriers, not to mention the overburdened PBGC backed by,,, oh yeah, the Federal Government.

Forgot that part of the puzzle, didn't you? You're too busy worrying about your rediculously-low ticket prices. You really think it's a GOOD thing to price a commodity below what it costs to produce it? You REALLY think that's healthy for the long-term economic welfare of this country??!!

Don't worry, I'm sure it's not keeping you awake at night. The blissfully ignorant sleep the most peacefully.

Do you remember price controls under Jimmy Carter?

Sure do. I'm not saying it works in every industry, but which evil is greater? A price control on a commodity that is vital to the national economy or the continued bankruptcy cycle that's been ongoing ever since Deregulation?

It's not just about wages; that's just a nice by-product of a regulated industry. The REAL winner is the inability of the airline world to continue the roller coaster of profit, loss, bankruptcy, furlough with only the CEO's walking away with cash while leaving everyone else holding the bag.

 

[YourPilotFriend]

So the airlines are full and fares are low, sounds great for the consumer. Your wage issues aren't my concern anymore then my pay is probably keeping you awake at night.

No, fares are high and planes are full. They are filling up even more as fares move higher(see 2006 airline data). The problem is that if the industry consolidates, which it will, the shrink in capacity will price gouge the consumer. Re-regulation is suggested to keep fares low enough that airlines have to maintain the current size of the air industry to remain profitable. This is a completely new kind of regulation that we haven't seen in the past.

 

[YourPilotFriend]

Sure it's great for the consumer.

At the expense of... oh yeah, the consumer via an ever-increasing deficit and the resultant failures of small business that were bankrupted on by the legacy carriers, not to mention the overburdened PBGC backed by,,, oh yeah, the Federal Government.

Forgot that part of the puzzle, didn't you? You're too busy worrying about your rediculously-low ticket prices. You really think it's a GOOD thing to price a commodity below what it costs to produce it? You REALLY think that's healthy for the long-term economic welfare of this country??!!

^This is correct, the total economic impart of the NWA bankruptcy is -$129 billion in revenue out of the airline.

 

[Indy refugee]

The airline industry is the most regulated de-reguleated industy in history.

Slot controlled Airports.
DOT regulations to operate airline.
Ownership regulations.
FAA regulations to obtain operating certificate.
Gate leases from Podunk Municipal Airport.
Ground Delay Programs.
TSA security procedures.
DOJ approval to merge/sell airline.
DOT approval to merge/sell airline.
Congressional hearings over a business transaction.

We can talk about increased regulation, but let's not pretend it's not already a highly regulated industry.

 

[AC560]

You really think it's a GOOD thing to price a commodity below what it costs to produce it? You REALLY think that's healthy for the long-term economic welfare of this country??!!

I agree looks like Ford lost $13B last year (compared to the roughly $6B the US carriers combined are scheduled to lose), time to regulate the auto industry (I hear wage and benefits for the UAW are down as well). In fact there are only two US auto companies left so we better act quick or people won't be able to buy cars anymore either.

There are airlines making money, the ones that won't will go away and be replaced by ones that can.

The problem is that if the industry consolidates, which it will, the shrink in capacity will price gouge the consumer.

See again Jet Blue example. If an airline gets into a lane and raises prices to high they will met competition very quickly on that lane. If they use funds from other areas to support a loss on that lane to drive out competition there are existing laws to deal with that.

This is correct, the total economic impart of the NWA bankruptcy is -$129 billion in revenue out of the airline.

$129 billion?

 

[Lear70]

You're comparing apples to oranges, but you know that, you're simply trying to muddy the waters of a clear-cut argument that you have NO answers for.

The multiple bankruptcies of major carriers over the last 3 decades have cost this country BILLIONS.

Fix that profit/bankruptcy cycle without regulation, and you'll have an argument here.

Otherwise, you're just p*ssing upstream, and everyone here knows it.

 

[AC560]

Fix that profit/bankruptcy cycle without regulation, and you'll have an argument here.

There are as people pointed out more flights to and from more places at a lower price the industry is working great for the American public. I grant you it sucks for the workers but then again that is true in dozens of industries. Regulation is done to benefit the public not the workers.

The multiple bankruptcies of major carriers over the last 3 decades have cost this country BILLIONS.

And again regulation isn't free either. You are implying that regulating prices, route structures, etc. will cost this country less. Where does the money come from?

Otherwise, you're just p*ssing upstream, and everyone here knows it.

We can just agree to disagree. At the end of the day the airline industry won't be re-regulated any more then Ford will be so all these discussions are fairly pointless anyways.

 

[LJDRVR]

Your arguement are all moot, fellas: The Genie is out of his bottle.

 

[NuGuy]

Some of you are missing the point about regulating an industry.

Typically, industries are regulated that are considered "essential" to the economy or national security.

Using my above example, it is in everyone's best interest to have very reliable, widely available, and reasonably inexpensive electrical power and communications.

Some of our California friends see what the result can be when even a LITTLE bit of those protections are changed. And we have all seen the result in this industry.

Now, some may argue that air service is NOT essential, and again, that's fair. However, realize that with such a HUGELY expensive VERY low margin business like air transportation (well, pax anyway), that there is NO return on capital. This removes any incentive for improvement or investment other than to extract what little cash there is. This leads to a bare minimum operational system that leaves NO margin for system disruptions (gee, we never see that, do we?).

Eventually, service will deteriorate, and you'll get howls of compaints from the public about how crappy the service really is (say, sitting in a MD-80 for 9 hours).

The industry is going in that direction.

True, the prices will go up, but then again, not everybody NEEDS to fly. If using FedEx or UPS only cost 0.50, I'm sure that everyone would be using overnight service, whether they needed to or not (and those two would be lose BIG $$$ trying to accomodate that).

Nu

 

[AC560]

If using FedEx or UPS only cost 0.50, I'm sure that everyone would be using overnight service, whether they needed to or not (and those two would be lose BIG $$$ trying to accomodate that).

Last published CAB rate from ORD to SIN was $4.16/kg today you pay about $.40/kg (plus fuel) on FX/5X/NW/etc. Ocean rates have fallen even more and they are a highly regulated industry allowed by law to price fix, collude, and do things you wouldn't believe and they still can't figure out how to make money.

Price isn't always a reflection on profitability.

Typically, industries are regulated that are considered "essential" to the economy or national security.

Which is why we have essential routes and CRAF.

 

[Lear70]

All of which does NOTHING to FIX an industry that has been in a downward spiral for decades.

Not just for employees, but for passengers (in terms of quality of service), and the ENTIRE NATION (in terms of the cost of REPEATED bankruptcies in the aviation industry).

Again, for those of you who think Regulation IS NOT the answer, then what IS the answer?

I, and several others, have given several reasons that Regulation is the best solution. I have YET to see ONE SINGLE GENUINE COUNTER-SOLUTION that would fix the basic problem with CEO profiteering, under-pricing the product, and bogus bankruptcy filings where they are unnecessary (some were, some were NOT).

I know we're not going to fix the problems of the world here on Flightinfo, but if we're going to rationally debate, don't just shoot down my (and other's) ideas if you can't offer a better alternative.

What we have now doesn't work.

 

[mdf]

Personally, I think exploitation of the bankruptcy laws has done way more harm than de-regulation ever did. Where would the industry be right now without the past proping up of USAIR, America West, Continental, and the recent filings? Would the recent filings even have happened if those before them would not have been allowed to do it? Nothing personal folks, but I would prefer less government.

 

[pgcfii2002]

No this wouldn't hurt consumers, fares are this low because capacity is way up.

Fares are low because airlines are struggling to maintain their customer base and market share. They will often cut fares in one market where they compete and raise fares in other markets where a monopoly exists.

Look at AA at DFW....you can't tell me fares are not made slightly higher due to their monopoly.

 

[pgcfii2002]

Your argument might actually make sense if ticket prices were low due to lack of demand. That's simply not the case. Ticket prices are low because airline managements have convinced themselves that fighting for market-share at any cost is better than letting the "other guy" gain a single percent more in market-share. Load factors are at all-time highs. Airlines can't put enough seats out there to cover the loads. Yet the fares remain rock-bottom because every airline is convinced that raising prices to a reasonable level that is supported by demand would allow the "other guy" to pick up a few more pax if he lowered his price by $1. The system is broken, and since this system is essential to the world economy the government needs to step back in and regulate it. Pilot jobs will not suffer from it.

I agree..airlines are chasing passengers now, trying to maintain market share even if it means losing money.

 

[PCL_128]

Lear, YPF, etc..., you're wasting your time with these guys. Guys like AC560 are regurgitating supply-side theory; you are talking about economic reality. As long as AC560 and the like continue to look at their text book instead of the real world economy, then this argument will never be settled.