NWA May Go Bankrupt Without Labor Concessions

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This may be the first time that Icelandair and I have agreed on something. Which means it must be right.

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Oh jeez, it's time to get over yourself...
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In response to the question about raising prices to match costs... Many of you raise a valid point about the Air Greyhound types but one problem as I see it is the airline that raises prices first risks missing out on that revenue to another carrier, something that virtually no airline can afford to do right now. I think we all agree that customers are very price conscious. I certainly am when I fly.

I'll pick on USAir because I'm still bitter at them for their sickout last Christmas. A route that I fly often is MHT to RDU of which both Southwest and USAir serves. I check both of their sites for prices, times, layovers etc and they both offer very similar choices. More often that not, the plane du jour for USAir is a 733 or 734 and we all know WN flies 737's as well.

When the price to fly MHT-RDU is $20 more on USAir, what do I get for that price? Nothing, that's what. Ergo, WN wins. If US had IFE on the flight then I'm getting something for my $$. But when both offer the same product and one is priced lower, the lower price wins. Any airline that goes up against Southwest knows that raising prices is risky because of the Southwest effect. I think airlines are reluctant to raise prices because of the potential loss of revenue...
 
Most airlines take spillage (losing passengers to another airline) into account when they make a price change. More often than not, if there is a price change, the capacity on those routes is probably high enough that the lost revenue isn't that much compared to the revenue gained from the increase.
 
Ding ding ding ding ding. Kellwolf gets the kewpie doll.

Also, another thing to do would be to reduce the number of air greyhound seats, so you can still advertise those prices, but your average ticket price goes up. Do that in conjunction with an across the board fare hike, and you'll get more revenue per seat.
 
Good point, Tony. It's all about perception. As long as the fare is still advertised, the public still perceives that airline as the lowest cost. Look at SWA. They are actually more expensive on some of their routes than some of the other, more established carriers like United, US Air, Delta, AA, etc. People automatically buy on SWA b/c they assume they're cheapest.
 
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Ding ding ding ding ding. Kellwolf gets the kewpie doll.

Also, another thing to do would be to reduce the number of air greyhound seats, so you can still advertise those prices, but your average ticket price goes up. Do that in conjunction with an across the board fare hike, and you'll get more revenue per seat.

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It's too bad we don't have someone on from a yield management department at an airline. They're more computer nerds than aviation junkies. But they'd get a kick out of the idea that they aren't already doing all these things you're talking about. Even SWA uses yield management and jockeys the number of discounted seats available.

For evidence look at what happened when Delta moved to a more "rational" fare structure so as to defend their turf from AirTran and others. That move away from strict yield management, milking every seat for what you can get, was decried by the other airlines because of all the revenue it would cost. But they fell in line on competing routes because to do otherwise, not compete on fares, meant less revenue per flight.

One of the reasons that Delta has tried this new fare structure is to immitate SWA. SWA is able to sell some tickets at higher fares than their competition because they don't participate in the online bazaar sites. They have their customers conditioned to come to their site and book, not fare shop. Delta is hoping to do that as well. It probably won't work. The only thing that will moderate the online fare wars is fewer hubs that have to have the revenue feed. Get each city-pair down to 2 or 3 competing hubs instead of 5 or 6 and fares will make it to a profitable level.
 
Riddle me this.

Look at what's happening at DFW.

Delta goes out, so what's DFW doing?

That's right. Looking for airlines to replace the flights that went away.

So what does this mean about taking flights out? It means to me it's not a viable long term strategy. Take them out, and someone comes in to fill that lost capacity.

Sure, you may benefit in the short run, but in the long run, those slots are going to be used.

Bottom line is that you've got to charge a price that makes money for you, period. If the air greyhound types get pissy about it, so be it. You ain't making money off them anyway, so let 'em go.

I've never understood the obsession that many businesses have with preserving market share at the cost of profits. It's what brought down a lot of the dot com companies, and we don't seem to have learned a lesson from that collapse.
 
I figure there's space for "The Sizzler" and space for "Ruth's Chris".

But "The Sizzler" crowd can't expect "Ruth's Chris" at "Sizzler" prices, so they generally don't go.

But "Ruth's Chris" can't have "The Sizzler's" product and expect to charge "Ruth's Chris" prices for it.

Anyone tell that it's time to forage for food?
 
I guess I didn't explain my point well enough. Let me try again...

In my comparison above, one is an LCC and the other is a legacy, yet both offer the exact same product. What do I get on US's 737's that I do not get on Southwest's 737s? Answer: nothing. If anything, I now get less on USAir's 737's because they don't even serve pretzels anymore. All of us aviation geeks knows that US's cost structure (despite being in bankruptcy) is WAY higher than Southwest. So, how on earth can US charge more than WN on the same routes they compete on, if WN's costs are less?

Raising prices in my opinion won't solve the overcapacity problem. If anything it will make the problem somewhat worse.
 
Primarily why I used the steak analogy. You can get a steak anywhere, but if you want to charge more for it, you're going to have to start with a better product.

USAir has a higher cost structure for a variety of reasons. People like to say "business model!" but as long as you can fly from Paris to Baton Rouge and only make one connection, you're going to have a higher cost structure, period.

In-N-Out Burger is going to have a lower cost structure than TGI Fridays. In-N-Out burger sells burgers, fries, cokes and shakes, whereas Friday's has a higher cost-of-goods sold because they're catering to a broader (route)market.
 
Ok, I hear what your saying about charging more based on product, but US's product isn't better than WN, at least on the route I picked out. That's where I'm losing you.

Now, if that route was served by US's Airbus A32X aircraft, then I know that I can use in seat power so I can work on my laptop. That is an example of differentiation between US and WN. In that case, at least I'm getting some value for paying more to fly on US than on WN.

IFE is another example. I went out of my way to fly JetBlue to Ft. Meyers from BOS rather than taking a US flight out of MHT b/c JetBlue has those cool TV's in each seat, and the price of US from was very similar. I got more value for my dollar on JetBlue than I did on US. I wouldn't have paid more for US than B6 because where is the added value?

Pricing examples aside, I'm still failing to understand what can be done about overcapacity. There are more seats than there are people to put their butts in those seats. How can you raise prices in that situation, when you're fighting for every customer you can get?

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Primarily why I used the steak analogy. You can get a steak anywhere, but if you want to charge more for it, you're going to have to start with a better product.

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That about sums it up, as long as each airline offers the same product, same type aircraft, same type of seat pitch, same type of service, the only way to differentiate yourself from the competition is on pricing.

Now, before people pick apart my comment, no, a customer is not going to pay $50 or $100 more for a ticket because they get a hot meal. But, you may find people willing to pay the extra money for increased seat pitch and better service. I am not talking about the 3 inches extra that some airlines have added in the past.
 
When you've got 80 percent load factors, you can afford to lose some of those pax -- the ones who don't cover your costs of doing business.

And mpenguin, that's one thing UAL did right. Want our e-plus seats with the extra room (and it makes a difference, believe you me)?

Well, either pay the unrestricted coach fare, which sometimes is roughly equivalent to the lowest business class fare, or put your butt on our metal a lot.

Does it work? Hell, yes. If it's a few bucks more for that extra legroom, I'm paying it. And the longer the flight, the more I'm willing to pay for it.
 
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I figure there's space for "The Sizzler" and space for "Ruth's Chris".

But "The Sizzler" crowd can't expect "Ruth's Chris" at "Sizzler" prices, so they generally don't go.

But "Ruth's Chris" can't have "The Sizzler's" product and expect to charge "Ruth's Chris" prices for it.

Anyone tell that it's time to forage for food?

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Wish there was a Sizzler's around here. Grew up with them the place the family went! Making me ready for lunch.
 
Doug has a good point using the hamburger vs hamburger cross point. Face the facts, a hamburger is a hamburger and just like the others unless the company adds something extra to make it a little different than the competition. It's the flavor factor and customers know this. Airlines are no different and they should be adding extras instead of taking away. Why do you think one or maybe other LCC's are adding Internet access during flight? One LCC is adding leather seats. I think they are on to the fact that the flying public is going to fly the carrier that offers a little bit more and are willing to pay for that extra. As a test, go to ORBITZ web site and pick a RT flight to any destination. Look at all the options and carriers and price range.
 
I think we're in the swirl of circular logic, but we're saying the same thing more or less.

------>IF<------- Product A is superior to Product B, there shouldn't be a problem charging a premium for it. People that want the superior product will pay the premium while people unwilling to will not.

Kind of why I'm switching to a 15" Mac Powerbook rather than replacing my Dell with another XP machine.
 
We interrupt this thread for a tangent...

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Kind of why I'm switching to a 15" Mac Powerbook rather than replacing my Dell with another XP machine.

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I'm going Firefox, Thunderbird, GAIM, and all open-source!

I'm not giving Microsoft any more money! Plus, the open-source stuff has better support and more customizing options!

I heard something like Microsoft has $80 BILLION IN CASH! Unbelievable!
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We now return you to your original thread...
 
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Riddle me this.

Look at what's happening at DFW.

Delta goes out, so what's DFW doing?

That's right. Looking for airlines to replace the flights that went away.

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Believe me, if there were any airlines that wanted to hub against AMR they would already have those gates filled. AMR ran out Braniff and Delta and is flying every market out of DFW.

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Bottom line is that you've got to charge a price that makes money for you, period. If the air greyhound types get pissy about it, so be it. You ain't making money off them anyway, so let 'em go.

I've never understood the obsession that many businesses have with preserving market share at the cost of profits. It's what brought down a lot of the dot com companies, and we don't seem to have learned a lesson from that collapse.

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What caused the dot-com collapse was those companies had no underlying product or service that anyone wanted. It is not relevant to the airline situation.

You and I will have to agree to disagree on this. I don't think you have a clue about the dynamics of airline pricing. The "Greyhound types" as you call them were a critical part of profits during the "golden 90s" and they are absolutely critical to overall revenue now. Airlines have always sold seats "below cost" because seats are perishable and nothing is more unprofitable than an empty seat that has left the gate. They sold many many seats "below cost" during their most profitable years, it's one of the ways they made those profits.

You can "set prices above costs" all you want, but of course the instant you change a price you change the load which changes the cost allocation per seat sold, etc, etc. The competitive pressures of a high percentage of LCC seats and the fact that several legacy carriers fight for each potential hub customer's business means almost no control over pricing. You believe airlines are intentionally charging below cost and nothing will convince you otherwise.

On the other hand I'm sure you feel I'm clueless as well. So we're at a stalemate there. The way you find out what a true solution is that when it is applied, the problem is solved. I'm betting that, ineviatably, revenues and costs will move back to a profitable, or at least sustainable level. And that this will be after some hubs have left the system and we are down to about 3 major hub carriers. Time will tell. Your the solution of kicking out the contemptible "Greyhoud types" begs the question. If this really is the solution then how come the most successful airline in the history of the business caters to these low-life dregs? (This is how I know you're really a liberal, you love the working class stiffs.)

Have a great weekend, cause I'm gonna!
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Pricing examples aside, I'm still failing to understand what can be done about overcapacity. There are more seats than there are people to put their butts in those seats. How can you raise prices in that situation, when you're fighting for every customer you can get?

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Here's the problem I have with "overcapcity," it's not across the board. If someone were to say there was an overcapcity problem on routes to FL, I'd have to laugh them out of the airport. Try non-reving. You'll learn that overcapacity is mostly hype except on routes that probably shouldn't exist anyway. Unfortunately, those routes were establish during the massive expansion, so the airline takes a big hit publicity wise when they pull out. Which leads nicely into.....

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Look at what's happening at DFW.

Delta goes out, so what's DFW doing?


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That was because DFW sorta pushes people into expanding. Since that plan didn't work out and Delta scaled back ops, DFW is scrambling to find someone to fill those gates b/c it's lost revenue for the airport every day. As far as I know, DFW hasn't found any takers for those empty gates because it isn't profitable. As was pointed out earlier, DFW is more or less "hubbed out" and anyone that came in here would have to probably take a loss for a while to undercut American, something no airline can afford to do right now. SWA isn't leaving DAL. I wouldn't either. They more or less control that airport, landing fees are less, air traffic is a LOT less, and it's closer to downtown Dallas instead of fighting the insane traffic around here.
 
I think flyover has the correct analysis.

There is no way that simply raising prices would solve the airlines' problems. As much as people love to bash airline CEO's and upper level management, rest assured that they are (typically) very, very intelligent people and understand the dynamics of their business very well. People don't get to those positions without being talented and smart. I refuse to believe that the people with the responsibilty to run the airlines would overlook something so simple as to "just raise the ticket price" if that was really a viable solution.

Flyover's analysis makes more sense to me. There are market forces at work that put the ticket prices where they are based on the (not so simple) laws of supply and demand. I'll bet that the computer programs and algorithms used to set ticket prices are squeezing every available penny out of the system, and that raising the price will cause a greater drop in loads than the increase in price will cover. Reverse is also true - if they lower their price they will not get enough increase in load to cover the reduced profit (or greater loss, if you will) on the other tickets. And it is much more involved than that since there are so many different pricing structures in place on every single flight that departs. The airlines are constantly juggling the number of seats at different prices and ticket prerequisites trying to optimize their revenue.
 
I don't know if my way will work.

I will tell you this. It ain't working the way they're doing it now. And doing the same thing over and over again and hoping for different results to me isn't a good business plan. It's insanity.

If there really has been a paradigm shift into new realities, then they need to adapt to it. And you can't keep on dumping on the employees like they have. Concessions are the easy route and they've been done up the ying yang.

Management's going to have to earn every single dime they get paid to figure out a way out of this.
 
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