Trouble ahead for Low Cost Carriers???

[SWAdude]

"But, he did bring up some good points, and I expected you to counter with some good ideas. Agree or disagree, it is your opinion."

Since when do i come up with good ideas?

I really can't argue in nerdy accounting terms. I am more of common sense approach by my 19 years in the business and what seems to make it work or not.

My point was simply that there is no way that DAL can lower its operating costs by 26 to 27 percent. No legacy carrier could even come close to that. You wouldn't want to do that. Your service level would drastically reduce and your competitive advantage wiped out. You would lose way too many of your return customers which is what makes or breaks any airline.

If T-bag is indeed furloughed...I feel for him. And the last thing I would want to take away from anyone is hope for a recovery. The problem with some of these posts is that they have the air of we are doing better because you might be doing worse. There is nothing that pisses me off worse than people trying to instill fear in others in order for them to fell like their doing better. Its small, unproductive and it think its called terror.

I will always defend our industry, profession and my company but not on the backs of others.

SWAdude

 

[General Lee]

SWADude,

I don't think DAL could lower their operating costs that much either. I think they have made some good moves----installing many Kiosks, moving aircraft around to "right size markets", create a seperate brand that does have a lower CASM due to lower pay, longer segments, and more aircraft utilization, also unfortunately laying off 16,000 people has trimmed the costs a little (including 2500 fewer pilots since 9-11). I think they have tried to make it leaner to compete, and now they are seeing that they cut back too much (hence announcing that they will re-add 8-10% capacity back next year). Cutting back too much can also depress revenue---our VP of Marketing said that last Summer "We left money on the table..." since we parked most of our MD-11s that could have been running full to Europe and atleast bringing in some extra revenue that could have made the losses smaller perhaps. It is hard to lower operating costs when you have a mainline fleet of around 500 planes and you plan to keep them. (Our VP of Flt Ops did say last week that we were going to keep the same number in the fleet) Where else do you cut? Salaries. Some productivity too probably. We can hope fuel prices will eventually go down too. But, fares have been going up, and since capacity has been down in the last two years, the number of seats have been lower (even though I said we were adding back some this next year), so the fares have been slightly higher. As long as the terrorists stay away, I think this next year will help the struggling Majors, and the point of these articles was that it would be more expensive for the LCC operators to add new cities and planes rather than the Majors--because the Majors already have the planes (in the desert), have the gates (unused now), have the people(either furloughed or on leave--can be retrained easily), etc. America West just started transcons on their A319s from JFK/BOS to LAX/SFO. That is great, but they had to pull those planes (and there would have to be atleast 4 A319s doing the turns) from other high frequency routes to the long 5-6 hours flights transcons. They have the extra expense of having to fill in those planes with others (probably 90 seat Mesa RJs). I think that is what the articles were saying---that it will be more expensive for the LCCs in the future to add new markets etc....compared to the Majors who have planes and people waiting to come back to work.(for less)

Bye Bye--General Lee

 

[ivauir]

I try to stay away from these threads (because the General writes so darn much - and I am too lazy to read all of it) but I want to enter the fray (I have no idea why).

I think everyone agrees that DAL (or any other legacy carrier) does need to lower their costs to be competetive, BUT I would contend that they'll NEVER get them where they need to be to compete against a well run LCC. There are simply too many factors beyond their control (part of the business model) that keep costs high (mixed fleet, hub and spoke etc). There needs to be something about the product that causes it to stand out. And just getting miles that add toward a European vacation is not enough for most passengers.

I guess what I am staying (General and freinds) is that I don't think the shake up is over. I am not going to quote a bunch of statistics or any analysts: I am too lazy, and you can always find an "expert"to support you position whatever it is. None of that would make me right anyway. The market forces at work do not care about our opinions (or where we went to college), so we'll all have to wait. I honestly wish the best for everyone, but I am pretty sure some are going to be disappointed. Maybe I am wrong, but I don't think it is going to be the guys flying the red bellied "warbirds".

 

[FLB717]

TBAG

Delta Accidents (Remember DAL has the best record of the traditional big 5 Majors)

723, 31 July 1973 89 Lost
2605, 31 Oct 1979, 72 of 89 Lost (Western Airlines)
191, 2 Aug 1985, 137 Lost

To say that Valujet or any other carrier is deserving of an accident is horrible. To continuosly point it out in your post, cold and inhuman. I hope no one ever has an accident. It may not happen but it is a goal for all to share in. Delta does have a very good reputation for saftey, but all of us share in the peril, lets not wish, hope or gloat over any pilots or passengers misfortune.

 

[T-Bags]

This site has become such a monumental waste of time. Is there another where I can just get information without all this bs? And it's no wonder that the non-military think we are arrogant after these comments. Those of us who are currently serving in the Mid-East right now would like to collectively ask you to shut up.

Roman, how many months of tax free do you have this year? ever consider that I may have spent a little time in the "box"? I was merely responding to "dudes" snide anti-military remark.

 

[General Lee]

Easy guys, please.

Ivauir,

Thanks for entering the fray. I know I write a lot, and I think every word is important, of course. I don't think Delta will get it's costs as low as a LCC, and that really is because--as a whole--Delta is NOT a LCC. We still have a full cost mainline service with First Class, and that also includes an INTL division that is not "People's Express" flying old 747s from EWR to Brussels for $99. So, we do have that first class service that is not always full, which means we lose some money. Now, we have also found a sector of the traffic that doesn't care about 1st class etc, and only wants cheap, nonstop travel. For those people, we initially had Delta Express which believe it or not, was actually a success---but had the wrong aircraft type. It was set up to combat Southwest's intended invasion of Florida back in 1996. Then Jetblue came along with a good product with TVs, and we decided that the 737 could not win that one, and a 757 with more seats, better fuel efficiency, and TVs and goofy flight attendants could compete, and it has done well so far. The buzz has been so good in fact, that Delta even opened a store in SoHo with Song trendy fashions (?), and will add more planes next year. The employees there (besides the pilots who will get some sort of paycuts) are paid less, and the planes are flown more per day. That part of Delta--Song--can be run like a LCC. The rest of Delta with a 1st class product etc...CANNOT really without dirt cheap labor. (and Dirt cheap management---which AINT gonna happen it seems) I hope that is short enough for you.

Bye Bye--General Lee

 

[f9driver]

LCC Profits

General Lee and T-Bags,

As a retired pilot for the predecessor of Delta Intl I wanted to give you the benefit of my vast experience watching a bloated old airline and how it can go down the tubes. lol ALPA negotiators, consultants and bankers will help you get there and Intl. routes won't save you. Be careful out there.....it's dangerous to your lifestyle.
And yes, despite what you say, I believe you are intimidated by the LCC start-ups and "whistling past the graveyard."
FYI I turned down a job with Delta in 1963. That was in the good old days when they had a preponderance of Navy Pilots, who I am sure would not try to win the airline war on an Internet thread. gggg

 

[SWAdude]

" I was merely responding to "dudes" snide anti-military remark.

OK Bag...i'm calling you out....where is the anti-military remark....

 

[Dizel8]

Actually General, the reason for the store was lack of buzz for Song. Loadfactor on Song is about 70 which Selvaggio calls too low, but he is confident it will improve and it just might. As of yet, Song has probably not broken even, but the concept is good.

 

[T-Bags]

Dude,
I apologize if I offended you with the GED remark, i realize SWA only has a couple GED pilots. I just hate to see the same old COMPLETELY false "they don't pay their bills" line. It's been repeated refuted in the past, but I did you a diservice by lumping you into any group with "TY". "TY" likes to pretend the financials are all rosy at AT, even stating that they have been paying off all their debt. But when you ask him to post a link, he changes the subject. He really gets hissy when you post one that shows debt GOING UP at AT. As for SWA, why didn't they grow like a weed the last two years? AT and JB better mananged? NAH, SWA didn't want to leverage the heck out of themselves with the expectation that the majors would never gain back strength and retaliate. SWA doesn't have the notion that they can paint RJ's that have the IDENTICAL costs that the majors pay, and make them profitable with lower fares

F9,
You are wise. I don't think anyone at the legacy carriers has any illusions that this 'struggle" to return to long term profitablilty will be anything but tough. Likewise however, it is nieve to the extreme for the LCC's to think they suddenly invented sliced bread. A couple months ago I made the point that JBlus business model would lead to LOWER RASM (point to point). Of course I was scoffed at. But then the 3rd Q numbers showed per pax revenue down, and now a warning for Q4. At the same time RASM is going up at the H&S's. It's not about "gloating' it's about discussing the strengths and weaknesses of a certain business model.

Gen Lee,
DAL's AVERAGE casm will NOT go down by 30%, however the MARGINAL CASM WILL. I'm still waiting for someone to give me a rational argument that shows DALs cost per additional SM will be in line with current CASM.

FB,
was it you that pointed out that AT's CASM was going down as you added capacity? If so, BINGO, congratulations, you've got it figured out. AT doesn't need another HQ, TQ or MX dept. incremental costs are lower, which in turn lowers total CASM. the point WRT DAL is that I suspect AT can't add CASM's without adding jets (20% of CASM), DAL can. How's your gate Util? Are you employees maxed out? Will you have to add more to add flights? When you grow costs go down, when you shrink, they go up. that's why EVERY hub and spoker's costs went up while ALL the growing LCC's saw lower costs. If DAL starts adding back capacity, and your capacity growth stalls, the opposite effect will happen.

All,
I apologize for bringing up the Valudeath incident. I just have issues with TY's ignorance and lack of class. It is beyond belief to me that an Air carrier, that derives most of it's income from the greater hotlanta area would make snide denigrating remarks toward one of the largest employers, and providers of flying pax, in the city. The implication that a craftsman or just even any old blue collar worker is someone to be ridiculed by another "union" member is somewhat distasteful. But I got such a kick out of it I burned a copy of Ty's anti-HD employee "TY"raids and gave it to a buddy at church today (regional HD manager...). He wasn't amused. Note to "TY": If you want to denigrate your customers, at least be smart enough to remove your links to AT....


I DO NOT WORK AT DAL!!!!! NEVER HAVE!!!! NEVER WILL!!!!

 

[T-Bags]

" I was merely responding to "dudes" snide anti-military remark.

OK Bag...i'm calling you out....where is the anti-military remark....

"yeah, it says I graduated from a service academy. you?"

I repeat...that says it all.



To me, there was an implied slam. If That wasn't your intent, then I apologize. But again, I invite you to refute my cost argument point per point.

 

[General Lee]

F9driver,

I really hope you are enjoying that retirement. If you HAD gotten on with Delta back then in 1963 or whenever and now retired, I bet you would have been a lot more comfortable. I know a guy who retired last year with $1.5 million lump sum, and also makes $10,000 a month. I hope your's was like that. (Probably not) Delta does have some problems, but we also have more cash on hand than most, which gives us more time. We also are trying to fix some of these with negotiations, and the economy getting better makes it easier. We aren't intimidated by the LCCs, we are watching them and adjusting--like with Song, which will beat some of them. You don't think that our ALPA people are taking care of us? What are you on old man? I guess you worked for management in your last years with Frontier, right? Follow what they say...right? They won't trick you......And guess what? The loads are improving, economy is getting better, Summer INTL will be great due to the Olympics......Should I go on? We'll be fine. Take care.

Dizel8,

How do you know Song isn't doing that well? The 70% load factor report was 6 months after the new brand started(wasn't that reported in Sep or AUG?? has it changed since then?? Dizel8 says...NO). What was Jetblue's load factor after 6 months? 30%? The Song store is actually quite busy supposedly, and the "Kate Spade" stuff is supposedly sought after. With the recent Noreaster storm, I bet more and more people will want to flock to warm FL---and a lot will fill Song and try it--and they will return. How did Jetblue do during the Noreaster? Ooops, their main base with 95% of their flights was shut down---that must have hurt. (Oh yeah, the single FLL-LGB bus completed the flight, and one or two roundtrips between OAK and LGB----the rest were cx) Overall, the Song brand is getting better known, the loads this chilly Winter will get better, and Song will grow and compete more against Jetblue---it's target. It is a great concept.

And T-bags,

Don't give in to everyone, man. Yes, those statements about the GED and Valuejet were childish, but relax and have a backbone. A lot of your arguments were good.

As far as the Delta CASM going down 30%, I don't think that will happen with a 1st class cabin on most Delta mainline aircraft. Reducing salaries and increaseing productivity will help alittle, but adding more Song flights (and seats--199), on longer flight segments will help more. And, if we continue to add the Comair/ASA CASM (average 14.5) to the Delta number, we will never get to that magic number everyone is looking for. We tried that back in the mid 90's when we tried the "7.5" program. Then, the economy got a lot better and we did great. These are cycles, and now we just have some debt that we need to take care of, and we will.......

Bye Bye--General Lee

 

[General Lee]

Just for you Dizel8 (it's also on the Jetblue stock thread):



JetBlue shares dive as margins are cut
By Caroline Daniel in Chicago
Published: December 6 2003 4:00 | Last Updated: December 6 2003 4:00


Shares in JetBlue, the most highly rated stock in the US airline sector, tumbled more than 17 per cent on Friday after it cut its fourth-quarter operating margins, increasing concerns about intense fare competition.


After the market closed on Thursday, JetBlue said it expected its operating margins to be in the range of 13-14 per cent, against previous guidance of 16-17 per cent.

David Neeleman, the chief executive, said: "We're faced with a challenging revenue environment due to capacity additions resulting in lower average fares, particularly in our western markets."

The warning adds to the concerns of a number of analysts about whether the low-cost carriers, which have enjoyed rapid growth during the downturn, can continue their expansion in the face of tougher competition from the legacy carriers.

The comments from JetBlue knocked the shares of other low-cost carriers. America West's shares fell 13.6 per cent to $11.91, AirTran's shares fell nearly 10 per cent to $12.05, and Frontier Air was down more than 8 per cent at $13.81. JetBlue closed down $5.52 at $25.86.

Susan Donofrio, analyst at Deutsche Bank, said JetBlue's announcement "only solidifies our opinion that now that the major carriers are beginning to regain their financial footing, they are becoming more aggressive with JetBlue.

"For example, Delta's Song, which competes directly with JetBlue, is now 10 per cent of the airline's overall capacity and is expected to continue its growth path."

Last month Sam Buttrick, analyst at UBS Warburg, noted that only twice during the past 20 years had small discount carrier margins exceeded those of the major networks. That was in 1991-93 and 2001-03, when the legacy carriers reduced supply.

Now that capacity is starting to come back, Jamie Baker, analyst at JP Morgan, reduced his fourth-quarter earnings forecasts for JetBlue to 17 cents from 22 cents.

He also warned that in spite of the recent steep fall in JetBlue's shares they could come under further pressure if Delta succeeded in getting "a truly meaningful agreement with its pilots sometime in the first half of next year".

The comments add to other negative airline news this week.

Southwest said it expected its December load factors to slip below last year's levels of 66 per cent.

It added that, in line with its previous forecasts, its overall unit costs in the quarter would rise by 4 per cent compared with last year amid higher fuel costs.




Is the media wrong? I tend to think so a lot---especially when it comes to Delta. (Of course!!) But, you have to read it and think about the motives. We shall see.....You might be seeing a lot more of those Thong green 757s flying around next to you---and we have an advantage: we can get the planes faster than you (we already own them)---you are waiting for Airbus and Embraer (which is having big problems with the EMB-170 and -190 certification). We should get 15 more for Song atleast next year alone.

Bye Bye--General Lee

 

[Ty Webb]

Saying Delta Express was a "success, but with the wrong aircraft type" is an oxymoron. That sounds to me like management's excuse, and you sound pretty silly repeating it.

As for fending off SWA, yeah, I can see how that worked every time I am in JAX, MCO, TPA, FLL and PBI!

 

[SWAdude]

T-bags,

The only thing I know is that no legacy carrier can lower their cost and remain a full service competitor. Their infrastructure makes it impossible to reduce their costs that low and remain competitive with other legacy carriers. That is their core business.

As for going point to point your way, I really have no interest in speaking that kind of language. I understand enough of it, but really have no interest. My point of view is more practical instead of theoritical.