Are Airlines Going Bankrupt Again?

Let’s see if I have this correct? Many airlines have reduced seat capacity by a record amount. Recent traffic demands are showing at or near historically high load factors.

And some of these same airlines are now rumored to be looking at bankruptcy again?

Without doubt the balance sheets of most airlines are weak. If fuel prices continue up and/or we experience another global event similar to 9/11, it’s likely the airline industry will race to the courthouse with Chapter 11 bankruptcy filings. At the same time, I believe there are enough positives to suggest recent analyst estimates for the industry are too negative.

Looking at the largest U.S. airlines since 911, United, Northwest (NWA) and Delta (DAL) filed bankruptcy. USAir filed twice. American (AMR) and Continental (CAL) talked about it before they were able to restructure outside of bankruptcy. Southwest (LUV) had fuel hedges which provided the cushion to avoid most of the financial turmoil experienced by the rest of the industry.

In my analysis of the airlines that filed bankruptcy and restructured, I calculated some average –benchmarks- that can be used to project the current financial weakness relative to the more recent airline bankruptcies.

The chart below provides the 1^st quarter 2009 cash ratios as they compare to the pre-bankruptcy averages (note: not all airlines were used to conclude the averages)

My analysis shows none of the airlines are currently in a critical cash position

(Cash includes unrestricted cash and short term investments).

The chart below provides 1^st quarter 2009 debt ratios to total operating revenue and assets as a comparison to recent bankruptcies. (Note: not all airlines were used to conclude the averages. LT debt includes capital leases. Pension includes post-retirement obligations).

Using debt ratios noted above, some airlines are currently at or below the averages just prior to the more recent bankruptcy filings.

Projecting which, if any, airlines are approaching bankruptcy should consider weakness in both cash and debt ratios.

Before looking into the future for solutions, it’s important to review the past.

Year 2008 operating revenues -for the airlines noted above- were around $3 billion more than year 2000. Over the same time period, employee wage/benefits dropped by nearly $6 billion. 150,000 jobs (over 32%) have been lost just from the airlines noted above. It would seem –labor- has paid more than their share to keep this industry alive.

Everyday media articles and some analysts point to a variety of reasons why airlines aren’t profitable. To me, after reviewing airline industry financials, it is obvious air fares are simply too low to support the on-going fixed and variable costs of one of this country’s most important business sectors. Safety, schedule reliability and customer service comes at a price. These should not be compromised for cheap fares.

Disclosure- The above opinions should not be used to determine the worth of any stock or investment. At the time of writing, the author and his family hold stock and derivative positions in AMR.

Comments

[jetplandriver:]

Bob ends his article by concluding that ticket prices are too low. In doing so, not only is he wishing for higher fares, but he misses what should have been the point of his article-- declining passenger demand.

Yes, the carriers have dramatically cut capacity, but demand is falling faster than the cuts, leading to depressed ticket prices. In the airline business, seats are priced as commodities, with little regard to the service levels provided by the carriers, unlike say the hotel business where a Hilton can always charge more than a Motel 6.

The bottom line is capacity must be matched to demand before ticket prices can be raised (remember the post 9/11 inverted yields that caused the referenced bankruptcies and restructurings?) Until passenger demand returns, especially from the business sector, airline revenues will continue to suffer, eventually leading to more bankruptcies or deeper cuts.

Despite management's many gaffs, pilots often succumb to the notion that fares and travel demands are within management's control, but in this case, management is along for the ride just like everyone else.

If you subscribe to the belief that the economy has much lower to go before it bottoms, then AMR and its pilots, rightly or wrongly, are going to take it in the shorts.

Jul 05 07:13 AM

[Tack:]

Reducing seat capacities with the objective a using it as leverage to raise ticket prices is a road to oblivion. As ticket prices are raised, the airlines will find that demand decreases, yet again, setting off the next round of capacity reductions, ad infinitum. Most airlines have used punitive pricing models that don't serve customers, then wonder why more and more customers decide they don't really need to travel.

As the airline business has a huge fixed-cost component, airlines have to figure out how to increase volumes, while making their operations much more efficient. Southwest Airlines has served as a model for success, but, apparently, most major airlines cannot connect the dots, despite the evidence.

Jul 05 08:57 AM

[JB Flies:]

What you fail to realize is that SWA really hasnt made a profit from the "airline" side of their business, but rather very very well done hedging in gas and oil. Now that those hedges are done, and the other airlines have caught on, SWA is losing money. They too, as all airlines finally do, will succumb to bad government regulations, ancient FAA ATC, etc. The airlines could make MILLIONS if the US used the aviation trust fund for aviation!! Instead of using it to hold up social security.
Basically its time for re-regulation if the government wishes to keep their finger in the avialtion pie. They are NOT the solution, but the problem.
As far as reducing capacity, that simply doesnt work, that big dog has got to eat, and cutting your gravy train, has never worked. The answer here is for the airlines to demand the sweetheart deals that SWA, JBLU receive that totally changes the playing field. These cities often find that the airline pull out or goes bankrupt soon after the deals are finished. Good example is Miami. Miami charged ALL the airlines for AMR's terminal upgrades, causing several to either pull out, or drastically cut service into that airport. But as govt's are....they never ever learn......after all they are here to help......


On Jul 05 08:57 AM Tack wrote:

> Reducing seat capacities with the objective a using it as leverage
> to raise ticket prices is a road to oblivion. As ticket prices are
> raised, the airlines will find that demand decreases, yet again,
> setting off the next round of capacity reductions, ad infinitum.
> Most airlines have used punitive pricing models that don't serve
> customers, then wonder why more and more customers decide they don't
> really need to travel.
>
> As the airline business has a huge fixed-cost component, airlines
> have to figure out how to increase volumes, while making their operations
> much more efficient. Southwest Airlines has served as a model for
> success, but, apparently, most major airlines cannot connect the
> dots, despite the evidence.

Jul 05 10:54 AM

[HomeGamer:]

Lots of chatter about easily the simplest yet least understood industries in America.
Re-regulate and re-subsidize.
Network nationwide inexpensive air travel is an essential and indispensable public utility, like universal mail service and universal electric service.
However, expecting this public utility to be both inexpensive, universally available and PROFITABLE is absurd. We don't expect mail delivery to turn a profit--by definition we want all our essential public services (electricity, basic phone, drinkable tap water etc) to be provided as INEXPENSIVELY as possible. And that's inevitably opposed to PROFITABILITY.

Darwinian musical chairs does not work in the public-utility model, and can never work. That's been tried since 1979 and failed miserably. Government is strangely slow to grasp that, and airline CEOs, never best of breed, can articulate the problem but can't seem to take the obvious logical step of volunteering to be nationalized.
Until that happens, there will be much more erosion of air service and easy money to be made betting on the next turn of musical chairs.

Jul 05 11:29 AM

[Tack:]

To suggest that SWA's 64 consecutive quarters of operating profits were due solely to fuel hedges is rather facile. SWA runs an efficent operation, has motivated employees, and offers customers good value and, very importantly, the absence of punitive nonsense (change fees, bag fees, seat fees, etc.).

Most other airlines operate as if customers have no alternative but to accept the costs, inconvenience and general nickle-and-diming that they rather arrogantly offer. In reality, many cutsomers have two options: 1) don't fly or 2) fly another friendlier carrier, like SWA.

As in all business segments, the efficient and cutsomer-minded will propser, while others struggle or perish. Frankly, it's been rather amazing to me that the airline sector, generally, has been so incapable of recognizing this reality for so long.

Jul 05 11:39 AM

[User 342869:]

Maintaining adequate liquidity is one of the top priorities for the airlines right now, as many are looking to take loans covered by anything the lenders will consider as collateral, spare parts, etc. As to raising fares, the airlines have no pricing power in this deep recession, so it isn't really an option. If you maintain or raise your prices, you will be flying empty planes. This is especially true for business fares and first class at the present, as companies are holding way back on business travel. The airlines are basically trying to tide themselves over until the economy improves, at which time you'll see fares increase.

Jul 05 12:30 PM

[thruthemurk:]

SWA fuel hedges are not responsible for 64 quarters of profitability. They are, however, a big part of the profitability in the last 7 or 8 years. Prior to that the Southwest employees worked for considerably less than their counterparts (50-70%). Combine this with a good management plan and the ability to bring a low cost model into markets not served by that model allowed an impressive cash flow. Now that their costs have risen ( and legacy costs have dramatically lowered) to closer to the legacy model, fuel hedges that succeed are necessary for SW continued profitablility.


On Jul 05 11:39 AM Tack wrote:

> To suggest that SWA's 64 consecutive quarters of operating profits
> were due solely to fuel hedges is rather facile. SWA runs an efficent
> operation, has motivated employees, and offers customers good value
> and, very importantly, the absence of punitive nonsense (change fees,
> bag fees, seat fees, etc.).
>
> Most other airlines operate as if customers have no alternative but
> to accept the costs, inconvenience and general nickle-and-diming
> that they rather arrogantly offer. In reality, many cutsomers have
> two options: 1) don't fly or 2) fly another friendlier carrier, like
> SWA.
>
> As in all business segments, the efficient and cutsomer-minded will
> propser, while others struggle or perish. Frankly, it's been rather
> amazing to me that the airline sector, generally, has been so incapable
> of recognizing this reality for so long.

Jul 05 02:12 PM

[derryl:]

As a number of commenters have observed above, demand for airline tickets is extremely price elastic. Unless airfares are relatively cheap people simply look at the few hundred dollar pricetag and decide to drive or choose a closer destination where flying is not necessary. At least 50%, probably much more, of air travel is nonessential, a 'luxury', and luxuries are the first items cut from deflating household budgets.

One commenter wants to reregulate and subsidize airfares. Why should 100% of taxpayers subsidize a luxury like air travel for the maybe 10% of taxpayers who regularly use it? This is just another example of the wealthier and more profligate sucking money out of the less wealthy and more prudent. Unless you are Dumbo the flying elephant, or the flying nun, or a witch on her broom, flying across continents and over oceans is NOT a 'right', and certainly not an activity that taxpayers should be subsidizing.

In the 1960s only rich 'jet-setters' flew around this planet. I'm not making an argument for elitism, but air travel is a high cost service that naturally belongs in the category of luxury consumption that few can afford. If and when oil prices return to peak oil levels the airline industry faces massive contraction and will once again become a playground for rich people and for 'once in a lifetime' middle class extravagance.

Jul 05 04:40 PM

[rabesch:]

I see the problem lying much deeper than all the very valid discussions above: Going back to Peter Drucker's question as to "What business are you in?", I believe that the airlines, all of them, simply still believe they are in the airline business. Well, they are not; they actually are in the business of transporting people and freight and if we want to go a little bit farther, communicating people with people. Two major factors are infringing on to the "airline business", if they choose to stay in there. One: Electronics and Communications are replacing many business people's flights by video communications that can be done instantly on a conference type basis, not just on an individual basis. This will not change but increase. This means that many business trips have become unnecessary, since people can not only hear themselves but see each other. The other factor is that the oil price is just a symptom of a fundamental change from today's propulsion, based on combustion engines to electricity, whether we like it or not. High speed trains in Europe and Asia are replacing airplanes on an ever growing scale both for distances up to 1000 miles and speeds, now quite a bit over 200 mph, not counting Maglevs that run over 300mph. Airlines should therefore adopt the model of "We are in the business of communcating people with each other and the people and freight transportation business" and venture boldly into these ever growing fields. If they don't, still adhering to the absolutely obsolete business model of today and the past, will only result in their demise. The automobile industry is going through a similar adjustment already at a much faster pace; the tax payer can't afford to bail out any other industries.
[e-mail]

Jul 05 07:13 PM

[Danny Newton:]

The worst thing that can happen to the airlines, next to another 911 attack and increasing oil prices is the actual construction of high speed rail. High speed rail and air travel are natural and logical competitors. The airplane has an advantage over the train in that it can fly over obstacles and only needs pavement at the beginning and the end of the trip. The train on the otherhand needs a guideway for the entire distance. If the government supports trains against planes, some airlines will die.

Jul 05 09:19 PM

[Danny Newton:]

Europe uses its rail for passengers mostly and the US uses rail mostly for freight. Freight does not complain and does not mind going an average of 15 MPH as long as the delay is coordinated. Both Europeans and Asians prefer to use their own cars in spite of taxes that discourage it. MAGLEV is too expensive. Making MAGLEV work technically is a lot easier than making it work financially. MAGLEV can travel on steep grades that steel on steel traction could never negotiate. You can build several miles of four-lane Interstate for the same cost as a single lane of MAGLEV The Interstate can carry many more passengers per day and even accomodate trucks. The Interstate is also open 24/7 every day of the week. Passenger Trains died long ago but we still have them on life support by socializing the costs. All it takes is one or two people in the right place to be honest about the viability of trains and they will be moved to Disneyworld and museums. Trains moving freight still have substantial value and are being made to carry heavier loads on better track. Further, they should be allowed to travel without crews, as robots controlled from a central point.

To compete with an Interstate, a MAGLEV would have to carry about 100,000 passengers per day per mile. Some kind of transit or secondary conveyance would be required at the beginning of and the end of the MAGLEV trip. The Japanese high speed train system is supported with an impressive train,bus and taxi system over land that is about 6 times more densly populated than anything in the US. All of these disadvantages will deter no one who is not interested in optimizing throughput or passengers past a fixed point. If the efficiency of leaving New Orleans via automobile before Katrina makes no impact on anyone versus the failure of bus and train to evacuate any substantial number of people I doubt that any appeal to rationality is going to be viable. I suspect that high speed trains will be hidden in substantial shelters in the event of hurricanes much as airplnes are ferried out of harm's way in bad weather.

Jul 05 11:39 PM

[mwfall:]

blah blah babble babble. if you really want to make progress get rid of the clown pilot, etc. unions.

Jul 06 01:08 AM

[Crocodilian:]

Author writes: "it is obvious air fares are simply too low to support the on-going fixed and variable costs of one of this country’s most important business sectors."
----------------------...

Um . . .head scratching . . . if the airlines aren't filling the seats with these cheap fares, how do you think they'd do with higher fares?

The problem with the airlines is not "cheap fares" -- its too much capacity.

Why is there excess capacity? For the same reason that there are too many condominiums in Las Vegas: far too much credit, on much too easy terms.

Jul 06 04:24 AM

[User 305589:]

the cash positions alone don't tell the whole story. there are debt covenants in certain lending agreements that require some airlines to hold a certain amount of cash as collateral and/or as additional cushion. some of these airlines won't be around as going concerns by this time next year, or 2011 at the latest, no matter what they do with their ticket prices and no matter where crude oil is going.

Jul 06 04:34 AM

[hokieincane...:]

Domestic fare levels are now largely being set by JetBlue, AirTran and Southwest based upon their cost structures. As a result, the low cost carriers are steadily gaining domestic market share vs. the legacies.

Southwest has benefitted greatly from its fuel hedges, which are now liquidated--its airline business is marginally profitable now, as its costs are above those of AirTran and JetBlue.

It is fairly easy to project that these trends will continue, and the least profitable airlines (e.g. UAL, etc.) will eventually seek bankruptcy protection once again; their capital assets are being eroded at rapid rates.

Jul 06 07:55 AM

[Lightway:]

Great point here. The Southwest hedges have helped them out tremendously, but this company has historically been run very well on the operating side, and Southwest has never had a layoff in their entire history. This is unheard of in the airline industry.


On Jul 05 02:12 PM thruthemurk wrote:

> SWA fuel hedges are not responsible for 64 quarters of profitability.
> They are, however, a big part of the profitability in the last 7
> or 8 years. Prior to that the Southwest employees worked for considerably
> less than their counterparts (50-70%). Combine this with a good
> management plan and the ability to bring a low cost model into markets
> not served by that model allowed an impressive cash flow. Now that
> their costs have risen ( and legacy costs have dramatically lowered)
> to closer to the legacy model, fuel hedges that succeed are necessary
> for SW continued profitablility.

Jul 06 01:07 PM

[Lightway:]

Interstates are aging and are also showing their capacity issues, especially around crowded city limits. This used to be a problem with the larger cities, now most cities have times during the morning and evening where they are becoming bogged down to the point of unusability, so they are not really open 24/7. Los Angeles is the "model" for primary travel by interstate, and is gridlocked at least 8 hours of the day.

Most people used to move across the country on rails, and it's only been recently, as noted in an earlier comment, that airlines have been the form of cross-country mainstream travel.

After my recent flight experience, I looked into getting a train ticket across the country for the first time in my life. Personally, and I know alot of this it out of airline control due to security constraints, but I'm really fed up with the airline experience to the point I'm looking for alternatives at this point. I don't remember having so many chronic problems 10 years ago. It seems every single time I take a flight, something goes wrong. Flights cancelled, baggage rerouted, and now nickle and dime fees like $15 luggage check in or $7 meals are the norm. Lots of people seem to come down with a few days illness after the trip, whether this is due to being packed in with so many other people, recirculated air, changing pressure, etc.

The European rail system is amazing. It's cheap, on time, and the ride experience is roomy and comfortable. While we don't have Europe's density, we do have a forgotten system of moving people across the country by rail. Let's hope some sort of alternative system comes online.

I will give the airline system one thing, it's a phenomenally safe form of travel.

On Jul 05 11:39 PM Danny Newton wrote:

> Europe uses its rail for passengers mostly and the US uses rail mostly
> for freight. Freight does not complain and does not mind going an
> average of 15 MPH as long as the delay is coordinated. Both Europeans
> and Asians prefer to use their own cars in spite of taxes that discourage
> it. MAGLEV is too expensive. Making MAGLEV work technically is
> a lot easier than making it work financially. MAGLEV can travel
> on steep grades that steel on steel traction could never negotiate.
> You can build several miles of four-lane Interstate for the same
> cost as a single lane of MAGLEV The Interstate can carry many more
> passengers per day and even accomodate trucks. The Interstate is
> also open 24/7 every day of the week. Passenger Trains died long
> ago but we still have them on life support by socializing the costs.
> All it takes is one or two people in the right place to be honest
> about the viability of trains and they will be moved to Disneyworld
> and museums. Trains moving freight still have substantial value and
> are being made to carry heavier loads on better track. Further, they
> should be allowed to travel without crews, as robots controlled from
> a central point.
>
> To compete with an Interstate, a MAGLEV would have to carry about
> 100,000 passengers per day per mile. Some kind of transit or secondary
> conveyance would be required at the beginning of and the end of the
> MAGLEV trip. The Japanese high speed train system is supported with
> an impressive train,bus and taxi system over land that is about 6
> times more densly populated than anything in the US. All of these
> disadvantages will deter no one who is not interested in optimizing
> throughput or passengers past a fixed point. If the efficiency of
> leaving New Orleans via automobile before Katrina makes no impact
> on anyone versus the failure of bus and train to evacuate any substantial
> number of people I doubt that any appeal to rationality is going
> to be viable. I suspect that high speed trains will be hidden in
> substantial shelters in the event of hurricanes much as airplnes
> are ferried out of harm's way in bad weather.

Jul 06 01:23 PM

[Jennie:]

The seats would simply be filled if it wasn't so spendy to fly. You figure most people love traveling and flying is the best way to go, but when you're already spending an arm and leg to have money to have fun at the place you are going, there's not much room to spend money on tickets. Simply drop the price, and seats will fill up!

Jul 07 03:06 AM

[hksche2000:]

COMMENTARIES EZ TRUMP ORIGINAL ARTICLE!
The two resonating the most:

1. "Most other airlines operate as if customers have no alternative but to accept the costs, inconvenience and general nickle-and-diming that they rather arrogantly offer. In reality, many cutsomers have two options: 1) don't fly or 2) fly another friendlier carrier, like SWA.

As in all business segments, the efficient and cutsomer-minded will propser, while others struggle or perish. Frankly, it's been rather amazing to me that the airline sector, generally, has been so incapable of recognizing this reality for so long."


2. "After my recent flight experience, I looked into getting a train ticket across the country for the first time in my life. Personally, and I know alot of this it out of airline control due to security constraints, but I'm really fed up with the airline experience to the point I'm looking for alternatives at this point. I don't remember having so many chronic problems 10 years ago. It seems every single time I take a flight, something goes wrong. Flights cancelled, baggage rerouted, and now nickle and dime fees like $15 luggage check in or $7 meals are the norm. Lots of people seem to come down with a few days illness after the trip, whether this is due to being packed in with so many other people, recirculated air, changing pressure, etc. "

Customers dreading to fly to the point of having "nightmares" about the ordeal, obviously disn't a good business model for any air service provider that desires to be here to stay. Many people would gladly pay extra, though not necessarily the outrages first/bus class price differences, if they could count on a safe, havock-free and, yes, pleasant travel experience. I know I would! Being herded, coerced and mistreated like cattle, or worse, should be outlawed. Since the airline lobbies have beaten down passenger rights to the point of "non-existence", they themselves may well go the way of the Detroit dinosaurs after beating down MPG requirements having their lunch eaten by their non-US competition. What a loss for all of US! We must be able to do better than that. Bring back real customer service, bring back real pride, bring back THE BEST CARE IN THE AIR! Americans are waiting!

Jul 07 02:52 PM

[dw57:]

sorry trains won't work for most of the US. Geography is your enemy there. in EU its easy. locations are far apart.
not so in the US.
Just going from one end of Texas to another can be 1000 miles by itself.
never mind going from NY to LA.

but that electronic meetings is truly a threat.
most business travel of that type is gone, never to return


On Jul 05 07:13 PM rabesch wrote:

> I see the problem lying much deeper than all the very valid discussions
> above: Going back to Peter Drucker's question as to "What business
> are you in?", I believe that the airlines, all of them, simply still
> believe they are in the airline business. Well, they are not; they
> actually are in the business of transporting people and freight and
> if we want to go a little bit farther, communicating people with
> people. Two major factors are infringing on to the "airline business",
> if they choose to stay in there. One: Electronics and Communications
> are replacing many business people's flights by video communications
> that can be done instantly on a conference type basis, not just on
> an individual basis. This will not change but increase. This means
> that many business trips have become unnecessary, since people can
> not only hear themselves but see each other. The other factor is
> that the oil price is just a symptom of a fundamental change from
> today's propulsion, based on combustion engines to electricity, whether
> we like it or not. High speed trains in Europe and Asia are replacing
> airplanes on an ever growing scale both for distances up to 1000
> miles and speeds, now quite a bit over 200 mph, not counting Maglevs
> that run over 300mph. Airlines should therefore adopt the model of
> "We are in the business of communcating people with each other and
> the people and freight transportation business" and venture boldly
> into these ever growing fields. If they don't, still adhering to
> the absolutely obsolete business model of today and the past, will
> only result in their demise. The automobile industry is going through
> a similar adjustment already at a much faster pace; the tax payer
> can't afford to bail out any other industries.
> [e-mail]

Jul 07 04:15 PM

[User 442615:]

I do agree that air travel is not meant for everyone. It is not the cheapest form of travel, but it's not as expensive as some make it sound. Consider a round trip flight from coast to coast. Unless you buy the ticket the day before you fly, you can probably find a rate of $500. to $800. per person. Just say around $1500. for a couple. It only takes about 5 to 6 hours to make the trip. Now compare that to a drive coast to coast. Unless the 2 people are swapping off driving while the other one sleeps, you are looking at at least 3 days each way. Not only have you now used 6 days for a round trip, but you also have 2 nights motel costs each way plus 3 meals a day for 2 people. Ad to this the fuel you will spend, plus the added wear and tear on your car, that $1500 flight is looking better and better. I realize that depending on your plans at your destination, a rental car could be needed, so that would ad more to your expenses, but I personally can't get past that 6 days of lost time. Now for those with unlimited spare time, the drive could actually be very enjoyable.
And of course for those that still think air travel is too expensive, but don't want to drive either, Go Greyhound, and leave the driving to "them".

Jul 07 07:08 PM

[CMCMCM:]

They should first try a high speed train from LA to Las Vegas. What people need to realize is that with trains someone has to Buy all the land the tracks are put on. So they should start with areas that the land is cheap but passengers will travel. LA to VEGAS!

Jul 07 08:07 PM

[mac123449:]

They will all be bankrupt when they start putting coin slots on the lavatory door and charging .50 to take a dump they already took away free luggage check and peanuts next is the free bathroom.

Jul 07 11:14 PM

[Bull Run:]

I have never considered the airline industry as part of any portfolio. Highly regulated, ( for good safety reasons), high operating cost, (maintenance, air port fees and costs), extremely expensive parts and union labour, and very expensive replacement costs of equipment, and high degrees of training, plus the very competitive nature of the business with too many in the game. The other point is that a competitor may file for bankruptcy, which in many cases gives him an unfair advantage. Westjet may be one of the few that along with SW that has profits. My though-- stay away from the industry as an investment, at least for long term planning..

Jul 08 04:11 PM

[MudEngineer:]

With the thinking below, we should just lower the cost of everything way below what it costs to produce it and people will buy more! DUH! A company cannot pay wages, cost of planes, fuel, administrative costs, ect. if they price their tickets at a loss. The huge legacy airlines are the ones that absorb all the infrastructure costs to fly internationally while the smaller U.S. only carriers get the benefit of flying passengers to the legacy carrier's hubs to be able to continue their trip abroad.


On Jul 07 03:06 AM Jennie wrote:

> The seats would simply be filled if it wasn't so spendy to fly. You
> figure most people love traveling and flying is the best way to go,
> but when you're already spending an arm and leg to have money to
> have fun at the place you are going, there's not much room to spend
> money on tickets. Simply drop the price, and seats will fill up!

Jul 08 09:48 PM

[BoneYard:]

Utility, phone and water aren't profitable? Perhaps a little investigation/analysis would help your argument. And flag carriers/nationalized airlines? What country exactly has that worked in? Capacity has been/is/will be the determinant of profitability. The States have too many airlines, restructuring will never succeed unless there is liquidation. Another problem is the ability to park the aircraft and have the associated costs flow to the bottom line - encumbered fleets have significant costs in the air or on the ground. The industry model is broken and all the governments horses and government men (even Ratner) can't put the airlines together again.


On Jul 05 11:29 AM HomeGamer wrote:

> Lots of chatter about easily the simplest yet least understood industries
> in America.
> Re-regulate and re-subsidize.
> Network nationwide inexpensive air travel is an essential and indispensable
> public utility, like universal mail service and universal electric
> service.
> However, expecting this public utility to be both inexpensive, universally
> available and PROFITABLE is absurd. We don't expect mail delivery
> to turn a profit--by definition we want all our essential public
> services (electricity, basic phone, drinkable tap water etc) to be
> provided as INEXPENSIVELY as possible. And that's inevitably opposed
> to PROFITABILITY.
>
> Darwinian musical chairs does not work in the public-utility model,
> and can never work. That's been tried since 1979 and failed miserably.
> Government is strangely slow to grasp that, and airline CEOs, never
> best of breed, can articulate the problem but can't seem to take
> the obvious logical step of volunteering to be nationalized.
> Until that happens, there will be much more erosion of air service
> and easy money to be made betting on the next turn of musical chairs.

Jul 08 10:22 PM

[AndrewJ5267:]

Yes, airfares appear to be low, but the author failed to mention the additional 'fees' that have come about; therefore, airfares are not as low as they seem.
I personally would have executed the 'fee' system differently, with a charge per pound of checked baggage, rather than a flat fee.
And after reading the comments here, I would suggest the airlines market the cost of flying more along the lines of how much a flight costs per mile ... for example, if a 700 mile flight from MIA to ATL costs a whopping $70 each way ($140 round trip), that would translate to $0.10 per mile.
That would not only be pretty much "break-even" for a single person driving a car that gets 25 miles per gallon with gas priced at $2.49/gallon, but the journey is much faster, there are no traffic tie-ups to deal with, no car break-downs, and someone else is doing the 'driving'.

To those people who want lower airfares, just how low do you want them? Maybe you are so accustomed to getting your housing and food paid for by the government (section 8 and WICS/food stamps), you expect free flights as well?

And to the person who would rather travel 3,000 miles by train, good luck with finding a cheaper train fare when you add in the cost of a sleeper cabin, unless you'd rather give up comfort by sitting/sleeping in the same chair for 2-3 days/nights non-stop each way.

Some of you penny-pinchers truly have no overall perspective. There are bargains, and then there is paying less for lesser quality, and if you don't know the difference, then you are a bigger fool than anyone gave you credit for.

Jul 12 04:10 AM

[Da Welder:]

Let them go out of business. The Greedy CEO will just get hired on by their greedy friend somewher else. Hopefully if they do go out of business they will be reborn again by Exec's that really want to run a business, not rape the public!!!! Driving a car is grass roots and fun.

Jul 12 11:16 AM

[Riles:]

As a retired UAL pilot, I concur, and have for years, with those advocating REregulate! Consumers Reports did an extensive study a few years back and concluded deregulation has failed (and noted that fare prices were coming down MORE rapidly PRIOR to dereg. than subsequent to, due cost efficiencies of "new" jet age. It's a commoditized industry, whose "CEO's are suicidal" (per Buffet, referring to his airline investment losses due fare wars)!
For a good laugh, check old interview with "father" of Dereg. Kahn with PBS, where he bragged about of one of his ideas' early opponents, a regional airline CEO, who, after Deregulation, grew his small carrier into one of the nation's largest, initiating transcon and international service. The eventual of the former regional...US AIR, which has twice gone bankrupt!

Jul 12 06:31 PM

[Jan Baker:]

There is excess capacity because we killed fifty million consumers in the last forty years. They would have been born with a credit card in each fist, but we allowed them to be aborted.


On Jul 06 04:24 AM Crocodilian wrote:

> Author writes: "it is obvious air fares are simply too low to support
> the on-going fixed and variable costs of one of this country’s most
> important business sectors."
> ----------------------...
>
> Um . . .head scratching . . . if the airlines aren't filling the
> seats with these cheap fares, how do you think they'd do with higher
> fares?
>
> The problem with the airlines is not "cheap fares" -- its too much
> capacity.
>
> Why is there excess capacity? For the same reason that there are
> too many condominiums in Las Vegas: far too much credit, on much
> too easy terms.

Jul 12 06:40 PM

[Jan Baker:]

All's I know is, United breaks guitars.

Jul 12 06:40 PM

[Jan Baker:]

Couldn't they charge us by the pound?

Jul 12 06:42 PM

[Desertkid:]

Part of the problem is that the airlines are more interested in market share than profit. Look back to the 90's - probably the most profitable time for the airlines, but the load factors were in the mid 60% range.

There is a value to an empty seat! Also, consider the additional weight and manpower needed to sell those extra 20-30 seats today - is it worth the ROI. When I was in revenue management (for a major airline) I couldn't cinvince management to let some seats go (empty). They were afraid UA or DL would get that customer.

Think about this. AA doesn't paint airplanes because of weight (about 1,000 lbs per plane). An additional 20 people adds over 4,000 lbs in weight, and additional fuel. At the airport - more staffing, etc. The $249 fares aren't worth the ROI - but airline management wants the market share. Until that mentality changes, all the airlines will go broke!

Jul 21 02:38 PM

[humperpumper:]

Alot of chatter about this huh?
Continental has had three bankruptcies, FAA and DOT said in the late 80's third bankruptcy is Chapter 7 liquidation, but Continental came in just under that new rule. So CO is the best bet to fly, they won't go belly up, cuz the next time they try to get rid of their debt, like United, who when EASTERN airlines was doing bad, told the government, only the strong survive, don't help them... and then dumped their millions in pension fund problems on the taxpayers.....it will be over.

Sep 20 12:34 PM