Time for re-regulation

[A Squared]

And TiredofTeaching, you pointed out SW is successful in the present environment but neglected to note that they would not be if they weren't hedged.

yes, but the point is that they DID hedge, and they are making money, and other airlines, run with less foresight are not making money.

Thats great that those companies are very fortunate in their current business practices. However, even comparing Southwest to any of the legacy carriers is like comparing apples to oranges. Southwest has always concentrated on keeping fares low and providing service within the US. The legacy carriers have expanded their reach to surround the globe and provided several levels of service such as coach, first, and business classes. That type of operation is vastly different than Southwest. So it is truely unfair to compare the two based on the fact they have night and day business models.

No it is not an apples to oranges comprison, it is as direct and as vadid comparison as could possibly be made. Southwest and the legacy carriers are both in the buisness of selling air transoprtation. Southwest uses a business model which works, and the legacy carriers use a business model which *doesn't* work. That it the whole point. The legacy model doesn't work, Southwest's does. You can talk all you want about global reach and various levels of service, but at the end of the day, thier business model isn't working, and Southwest's model *IS* working. For whatever reason the legacy carriers are clinging to a business model which is pretty clearly not workable, yet we keep propping them up and letting them stagger on.

It has allowed some companies to cherry pick while disallowing true competition.

No actually "cherry picking" as you put it is a fundamental element of competition, enter the markets which are profitable, don't enter those which are not. It's not some insidious evil, like scabbing or prostituting your sister, it's sound business practice, which the legacy carriers are not practicing. If "cherry picking" certain markets puts the legacy carriers in jeporady because it takes away revuene they need to sustain unprofitable routes, the question must be asked, "why are they flying those unprofitable routes?"

It's like a legacy sunscreen retailer complaing becuse some new upstart sunscreen retailer is "cherry picking" the lucrative florida and arizona sunsscreen markets, leaving them with the losses from thier unprofitable Ketchikan, Alaska sunscreen store (it rains 476 days in an average year in Ketchikan )

Hello, why on earth are you selling sunscreen in ketchikan whey you can't make money doing it???????? The problem is not the new upstart sunscreen retailers "cherry picking" in Miami and Phoenix, the problem is the business model which has you keeping a sunscereen store open in ketchikan which never sees the sun.

Maybe the key is to close your Ketchikan store and concentrate on being competitive in the sun belt, where the market is.

 

[Traderd]

And time keeps draggin' on.....

It's like a legacy sunscreen retailer complaing becuse some new upstart sunscreen retailer is "cherry picking" the lucrative florida and arizona sunsscreen markets, leaving them with the losses from thier unprofitable Ketchikan, Alaska sunscreen store (it rains 476 days in an average year in Ketchikan )

I have had a few of those years myself!

 

[ToiletDuck]

Yea let us go back to the regulated industry like 1975, 75% less pilots flying, most guys hired by the majors are ex-military like about 85%. The regional industry, SWA outside of Texas, Air Tran, Spirit, do not exist. This means 3 out of 4 pilots presently would probably not have jobs. Is this what we really want?

You're right assuming your numbers are accurate. But they are not. Between 1978 and 2004 there were 45% less employees than now. There has since been a 25% increase in population alone and you can't possibly assume that the amount of air operations going on wouldn't have grown had the gov still regulated. Between 1970 and 1978 there was an annual increase in employees of around 1.4% per year. Between 1978 and 2004 there was an increase in employees of about 1.7% per year. Not that much diff.

There was no big boom in the amount of flying going on before and after deregulation. It's pretty much linear growth which is expected as technology improves. Meaning that it would be reasonable to assume that more people would have kept flying and shipping things anyway and the airlines would still have kept growing. The difference being that smaller companies would not try to shoot in and under bid forcing some airling to operate under bankruptcy just to hang in there.

 

[414Flyer]

You're right assuming your numbers are accurate. But they are not and you can't possibly assume that the amount of air operations going on wouldn't have grown had the gov still regulated. There was no big boom in the amount of flying going on before and after deregulation.

Sure you can, because fares would be substantially higher, probably double to triple. While that might make some here jump for joy, it would invariably result in less passengers, and hence less flights.

 

[ToiletDuck]

Sure you can, because fares would be substantially higher, probably double to triple. While that might make some here jump for joy, it would invariably result in less passengers, and hence less flights.

During regulation the price airlines were able to charge was 12% over cost. So unless they just showed having a TON of cost because of being unorganized or something it shouldn't do that.

If you want to do a search here: http://www.bts.gov/xml/airline_financial/src/index.xml

I know it only goes back to 1990 but it's pretty sad when you plug in your own searches and look at the numbers. Agreed prices would be higher but it would be worth it. I just look at it that if something was $1000 and then one day you saw it for $650 you'd be happy. Take that same $1000 item, see it at $250, then it jumps up to $650 people would be really upset about it. I wouldn't consider it price gouging just business. And it's kind of like higher gas prices. People will still pay it because they have to drive to work. Well I think people would still fly and still mail their packages because they have to. It's become too important to society. Waiting 2 weeks for mail is just unacceptable now days. I think they'd do it.

The fact is that a public transportation system is first and foremost for the traveling public. The public must be assured of reasonably priced transportation in a competitive environment. That is not what regulation offered.

Of course it didn't. Airlines aren't public transportation. They are not paid for by the gov't and no taxes are taken to run them.. (Well outside of the gov stepping in and tossing some money so they don't up the unemployment rate really fast). That's like saying Grayhound and Taxi's are public transportation. They are companies and their goal is to make money.

Not trying to point anyone out or argue till blue in the face. I just think what's going on now isn't working. What's the worse that could happen with re-regulation? Everyone's already scratching by as is.

Just my .02 worth.

Resources for my information (and just some interesting reads):
http://www.bts.gov/programs/airline_information/number_of_employees/certificated_carriers/index.html
http://www.airlines.org/econ/d.aspx?nid=1032
http://library.findlaw.com/1988/Sep/1/129304.html (very interesting)

 

[pilotyip]

Adam Smith rules

Yes the businessman might still pay $650 for the ticket, but 25%-30% of the riders will not. The airlines complete with the private auto and the Greyhound Bus on the lower end. The price of an airline ticket goes up. Potential passengers shift from the airline the ground transport or they do not make the trip. Instead of flying to MCO for a vacation they drive to Six Flags over Ohio. 414 understnds the influence of Adam Smith. You can not mess with market forces when you are dealing in a commodity.

 

[cezzna]

Why are people worried about losing jobs through re-regualtion. they're disappearing anyway. the only new airline jobs are the crappy ones. This reminds me of when Clinton bragged about all of the jobs arkansas creates under his tenure. Most of the jobs were at chicken procesing plants paying peanuts.

If the people can't afford to fly to MCO then let them drive to six flags. Is your goal to make flying so affordable that every dirtbag in america goes on an airplane? Maybe US AIR should start taking food stamps so we can get the next tier of people in the planes. If XYZ airlines were allowed to do this by law, I guarantee some enterprising airline COO would start up the program. "Every food stamp dollar equals 2 miles at XYZ". The next week ABC airlines would start offering 3 miles per dollar thus undercutting XYZ. Sounds ridiculous right? If they were allowed to do it by law would it surprise you? It wouldn't surprise me.

A question for someone out ther who knows. Where do these airlines find financing to operate under chapter 11. I can see where they would get money from someone out of the gate under the new business plan, but then after that, where do they get it? They have no equity in anything to leverage. After they fail to emerge time and time again, they still find investors. Where? How does GE capitol sell this to their board of directors? I would think anybody giving us Air any money right now would be committing career suicide.

 

[Icelandair]

The LCA's do like to cherry pick. Tell me how you would get from Lewiston, ID to Grand Forks, ND on Southwest? Well to even get to an airport w/ southwest service, you have to drive 4 hours down to Boise. Soutwest doens't even serve MSP, i'm not sure what the closest airport is to Grand Forks, but you can be assured it is several hours driving distance away. So let the legacies go away, and who is going to serve these places? Or are you going to tell the governors to go rot? No major air service is a huge blow to a region's economy, and it becomes an endless circle. Nobody new wants to build a plant/office/hq there, because its inaccessible. Nobody new there, means no new jobs there other than maybe a few new gas station attendants, means no growth for the region. No growth, equals no air service, which starts the circle again. So if everyone followed the SWA model and offered service from only large profitable city to large profitable city, you can be assured most of red America would end up in a world of economic hurting. What about essential air service? That seems like government regulation though, i thought the objective was to get away from that. So go rot, Lewiston and Grand Forks.

 

[Publishers]

"During regulation the price airlines were able to charge was 12% over cost. So unless they just showed having a TON of cost because of being unorganized or something it shouldn't do that"

One problem with this is that it did not work. It is the same problem that we have with utilities today. First, there is little incentive to manage costs. That is how union pushed up to where they were when deregulation occured. Secondly, airlines like utilities tended to put money into other ventures that had nothing to do with the base business.

The fact is that of the legacies, only American saw the reality of deregulation correctly, managed themselves very well under Crandall, and emerged a power house. Companies like Braniff and those who rushed to get into every market on the planet died under their own greed. American's success can be directly tied to the A B scale that Crandall implemented.

You not only have the regulation deregulation discussion, there is the hub and spoke concept and point to point discussion that was a fundamental shift in airline thinking.

In addition, international flying airlines have another whole set of issues that impact them that do not with US only carriers.

What some of you would like is to ignore all the business factors and concentrate on your position.

 

[ToiletDuck]

"During regulation the price airlines were able to charge was 12% over cost. So unless they just showed having a TON of cost because of being unorganized or something it shouldn't do that"

One problem with this is that it did not work. It is the same problem that we have with utilities today. First, there is little incentive to manage costs. That is how union pushed up to where they were when deregulation occured. Secondly, airlines like utilities tended to put money into other ventures that had nothing to do with the base business.

The fact is that of the legacies, only American saw the reality of deregulation correctly, managed themselves very well under Crandall, and emerged a power house. Companies like Braniff and those who rushed to get into every market on the planet died under their own greed. American's success can be directly tied to the A B scale that Crandall implemented.

You not only have the regulation deregulation discussion, there is the hub and spoke concept and point to point discussion that was a fundamental shift in airline thinking.

In addition, international flying airlines have another whole set of issues that impact them that do not with US only carriers.

What some of you would like is to ignore all the business factors and concentrate on your position.

I agree with pretty much everything you are saying there. Makes perfect sense. Deregulation also saw it's pitfalls too, such as firing everyone and hiring new people to dodge unions... So what happened after this was done a couple times? Rules were made so that they couldn't do it anymore... Maybe regulation wasn't perfect but with a few extra rules added in to limit what can be regulated and how it should be regulated would make a huge difference. It's not impossible to find a group of people today that actually know what they are talking about that could devise a plan of action. Re-regulation could include just regulation on little things like domestic flights only with "X"% of pass/seats get certain tax breaks or something like that. Making those "sunscreen in alaska sellers" stop trying to sell there. Regulation could consist of only job security. Say you have to keep XX pilots and the airlines would have to start raising prices a little to compensate that. I'm not saying they have to tripple their price. But a gradual 15% or so increase would help a lot of people.

I flew to Thailand and stayed a week for cheaper than what renting a room at the Hilton and staying 3 days in Houston attending 6 flags would cost. I think there is still room for travel for those who want it. I like some of the other guys ideas that they posted here on the regulation part of it.