Some Things from the Boyd Group

[Colonel Savage]

[FONT=Tahoma, Ariel, Lucida]This is a few weeks old, June 16th I believe, but it summarizes some key airline issues with responding to rising fuel prices. [/FONT]
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[FONT=Tahoma, Ariel, Lucida]Key metrics we’re reviewing as we complete the 2009 – 2014 Airports:USA® Traffic Forecasts:[/FONT]

• [FONT=Tahoma, Ariel, Lucida]Fare Increases. A no-brainer, but the scope of the price hikes will ultimately be breathtaking and change how air service is utilized in the US. If traditionally fuel was 40% of all airline costs in “normal” times, it isn’t as of now. That means the cost of flying will need to go up in major double-digit percentages. If oil gets to $150 and above, plan on real increases – 80% even. At $200 – it’s at least a 100% increase needed. That will shift the role and scope of air transportation. The entire pattern of consumer and business spending will shift due to the effects of high oil prices, and how air travel with emerge is uncertain. Except that there will be less of it, and it won't be able to support the consumer stratas that now depend on it.[/FONT]
• [FONT=Tahoma, Ariel, Lucida]Leisure Markets - Start Re-Assessing Your Economic Base. Over the past 30 years, the increasing availability of cheap air travel has resulted in enormous growth in leisure markets. But write this down: big adjustments are going to be necessary, as any industry that depends on air transportation to deliver high percentages of its customer and revenue streams will need to re-think its business strategy. Orlando is a prime example. In the near future, the plethora of seats and flights and low fares lavished on MCO and SFB will begin to evaporate. Las Vegas is in a similar situation. Phoenix, San Juan and Reno, too.[/FONT]
• [FONT=Tahoma, Ariel, Lucida]RJ Flying. The ASM cost of 50-seat jets has exploded by almost 50% in the last nine months due to fuel increases. Most 37-seaters and 44-seaters are now flying money-pits. (According to our fleet financial models, 37-seat ERJs are now pushing 30 cents per ASM.) There is no doubt that 180-day "out" clauses in some small jet provider contracts will be exercised by major airlines in 2009. [/FONT]
• [FONT=Tahoma, Ariel, Lucida]Restructuring of Hub-Feed. Hub reach will constrict materially. The farther an airline has to toss an airplane to feed its hub, the more financially-dicey it becomes. For mainline airliner applications (737s, A-320s, Embraer E-Jets) any market that “over flies” one of the carrier's hubs, feeding a more distant hub, is on the block. For RJ operations, any feed market that’s over 600 miles is an open target for the red planning pencil, particularly if the feed traffic is heavily weighted toward Florida traffic.[/FONT]

 

[johnsonrod]

[FONT=Tahoma, Ariel, Lucida]This is a few weeks old, June 16th I believe, but it summarizes some key airline issues with responding to rising fuel prices. [/FONT]




[FONT=Tahoma, Ariel, Lucida]Key metrics we’re reviewing as we complete the 2009 – 2014 Airports:USA® Traffic Forecasts:[/FONT]

• [FONT=Tahoma, Ariel, Lucida]Fare Increases. A no-brainer, but the scope of the price hikes will ultimately be breathtaking and change how air service is utilized in the US. If traditionally fuel was 40% of all airline costs in “normal” times, it isn’t as of now. That means the cost of flying will need to go up in major double-digit percentages. If oil gets to $150 and above, plan on real increases – 80% even. At $200 – it’s at least a 100% increase needed. That will shift the role and scope of air transportation. The entire pattern of consumer and business spending will shift due to the effects of high oil prices, and how air travel with emerge is uncertain. Except that there will be less of it, and it won't be able to support the consumer stratas that now depend on it.[/FONT]
• [FONT=Tahoma, Ariel, Lucida]Leisure Markets - Start Re-Assessing Your Economic Base. Over the past 30 years, the increasing availability of cheap air travel has resulted in enormous growth in leisure markets. But write this down: big adjustments are going to be necessary, as any industry that depends on air transportation to deliver high percentages of its customer and revenue streams will need to re-think its business strategy. Orlando is a prime example. In the near future, the plethora of seats and flights and low fares lavished on MCO and SFB will begin to evaporate. Las Vegas is in a similar situation. Phoenix, San Juan and Reno, too.[/FONT]
• [FONT=Tahoma, Ariel, Lucida]RJ Flying. The ASM cost of 50-seat jets has exploded by almost 50% in the last nine months due to fuel increases. Most 37-seaters and 44-seaters are now flying money-pits. (According to our fleet financial models, 37-seat ERJs are now pushing 30 cents per ASM.) There is no doubt that 180-day "out" clauses in some small jet provider contracts will be exercised by major airlines in 2009. [/FONT]
• [FONT=Tahoma, Ariel, Lucida]Restructuring of Hub-Feed. Hub reach will constrict materially. The farther an airline has to toss an airplane to feed its hub, the more financially-dicey it becomes. For mainline airliner applications (737s, A-320s, Embraer E-Jets) any market that “over flies” one of the carrier's hubs, feeding a more distant hub, is on the block. For RJ operations, any feed market that’s over 600 miles is an open target for the red planning pencil, particularly if the feed traffic is heavily weighted toward Florida traffic.[/FONT]

Certainly can't disagree about the RJs. I don't know how American Eagle could make any money on its E135/140s - especially in the competitive Northeast or in California. All of the passengers would need to be feed for international or more pricey flights. How can Eagle make money with E140s competing with SWA on the LAX-SJC or LAX-LAS routes?

I can see how some of the bigger RJs can potentially squeek out a small profit on the routes where they don't compete with SWA (i.e., LAX-OKC or DFW-PIT) but otherwise I would assume they are losing money - you just can't spread out the costs over 40-50 seats and still charge competitive fares enabling a profit...

 

[NuGuy]

Heyas,

Yup. I agree with Boyd. Buh-bye to $69 fares to Mousetown.

Buh-bye to small RJs.

Buh-bye to non-stop jet service from East Butthole, Minnesota.

Once you move beyond a certain strata of passenger, and get your capacity back in line with the true "profitable" demand, fare increases will be easer to push (a guy paying $600 to fly for business is more likely to keep flying if the fare is $700, versus the $69 crowd).

Once (and if) profits return, you might actually have to pricing power to re-introduce some ammenities. With lighter loads, and carrying a higher fraction of high fare pax, flying might actually become enjoyable again.

Nu

 

[Tweaker]

Once again, accurate and painful prognostications from Senor Boyd. Airlines, ignore at your peril.

 

[BLUE BAYOU]

I disagree about MCO and LAS. Although considered leisure markets by many, people still want to see Mickey Mouse in good and bad times. MCO and LAS also rank in the top 5 for conventions as well. Low cost carriers dominate these markets too. Delta has decreased its flying into MCO significantly only to leave it to AAI, SWA, and JBLU to fight over many routes that we don't overlap with. As reported in the Orlando Sentinel, the number of seats to/from MCO in September will decrease across the board for all airlines except JBLU, which will actually have 5% more seats available than last year (SDQ, CUN, and AUS/SFO/LGB helping this number out). Everything else seems rather elementary.

 

[Marko Ramius]

I disagree about MCO and LAS. Although considered leisure markets by many, people still want to see Mickey Mouse in good and bad times. MCO and LAS also rank in the top 5 for conventions as well. Low cost carriers dominate these markets too. Delta has decreased its flying into MCO significantly only to leave it to AAI, SWA, and JBLU to fight over many routes that we don't overlap with. As reported in the Orlando Sentinel, the number of seats to/from MCO in September will decrease across the board for all airlines except JBLU, which will actually have 5% more seats available than last year (SDQ, CUN, and AUS/SFO/LGB helping this number out). Everything else seems rather elementary.

It's not like history is on your side on this one BB. Leisure markets like MCO and LAS have historically seen wild swings in traffic as the economy turns and left not only a swath of major airlines like UsAir and Eastern in the wake, but plenty of LCC' capacity as well. Even if you didn't have history to look at it, it doesn't even make logical sense that these markets would continue to endure at strong levels between the friction of the passengers personal economics and the minimum fare levels needed to sustain profitable service that are higher than historic levels for all carriers including LCC's. C'mon in, the water's warm of course that's because were all pi$$ed on but that's just semantics.

 

[cessnapilot]

I disagree about MCO and LAS. Although considered leisure markets by many, people still want to see Mickey Mouse in good and bad times. MCO and LAS also rank in the top 5 for conventions as well. Low cost carriers dominate these markets too. Delta has decreased its flying into MCO significantly only to leave it to AAI, SWA, and JBLU to fight over many routes that we don't overlap with. As reported in the Orlando Sentinel, the number of seats to/from MCO in September will decrease across the board for all airlines except JBLU, which will actually have 5% more seats available than last year (SDQ, CUN, and AUS/SFO/LGB helping this number out). Everything else seems rather elementary.

I just did a priceline search for New York to MCO in Sept. It is $105 each way, $210 RT. The family of four now pays about $800... if that goes to $1600 I guarantee there will be a lot fewer families taking that vacation.

 

[iaflyer]

Delta has decreased its flying into MCO significantly only to leave it to AAI, SWA, and JBLU to fight over many routes that we don't overlap with.

If I remember correctly, Delta was dropping a lot of RJ, non-hub flying into MCO. Places like Nashville-Orlando were going to get cut. I think that there is still significant flying from Atlanta to MCO, plus other larger cities that can support a B737 or larger.

Of course, it's hard to keep up with all the schedule changes - but I think with an RJ, just couldn't charge enough to make those routes profitable.

 

[Occam's Razor]

Buh-bye to non-stop jet service from East Butthole, Minnesota.

My hometown! Home of the Fighting Sphincters!

"Clench, Sphincters, CLENCH!"

 

[NuGuy]

It's not like history is on your side on this one BB. Leisure markets like MCO and LAS have historically seen wild swings in traffic as the economy turns and left not only a swath of major airlines like UsAir and Eastern in the wake, but plenty of LCC' capacity as well. Even if you didn't have history to look at it, it doesn't even make logical sense that these markets would continue to endure at strong levels between the friction of the passengers personal economics and the minimum fare levels needed to sustain profitable service that are higher than historic levels for all carriers including LCC's. C'mon in, the water's warm of course that's because were all pi$$ed on but that's just semantics.

Quoted for scripture.

To quote an old timer "Florida is a graveyard for dead airlines".

As a native and long time resident, I already see the signs of a fast-rewind in the FL economy. Subtle signs that the "big" money is getting out of town.

Florida, and South Florida in particular, are bellwethers for the "upscale" segment of the economy. The collapse of the real estate market in SoFL preceeded the general bubble by a good 8-12 months (I warned people, but did they listen? NOOOOO!)

It's subtle, like when the mall becomes a "dirt mall". Trashy stores popping up in "good" locations. It's going to be the late 70s/early 80s all over again.

I hope everyone who wanted to sell did so.

Nu

 

[doh]

My hometown! Home of the Fighting Sphincters!

"Clench, Sphincters, CLENCH!"

My nomination for post of the year!:laugh: :beer:

 

[climbhappy]

I thought East Butthole, minnesota was home to the 'purple pickle pushers"?

 

[Captzaahlie]

I recommend the strawberry flavored suppositories.

The seedless one of course.........