Ever since 2001, all that I have heard in regards to the airlines in the news is how they keep losing money, go bankrupt, get into major debt with new purchases, troubles with pensions, etc, etc etc
Or at best, they run with a slim profit margin in a good year
Is there any way the industry can reorganize itself so that at least it can have a reasonable rate of return? say 10%
Or am I dreaming ?:dubious:
Probably not without colluding. Flyers are in general extremely price sensitive (looking for the lowest fare), so whichever seller (of the many competitors) can offer the lowest price gets more business.
That is what I was thinking as well in terms of ticket prices,
I wonder if there are any ways in which the airline system can become more efficient but I suppose that pretty well everything that can be done has already been done.
I can’t think of anything except for maybe a little less security and given these times, that is not going to happen
Actually, I would look for the shortest flight time and non stop flights as long as the cost difference wasn’t too bad
They’re doing much better lately. They’re up to 4%.
I’m sure that lower oil prices have much to do with that. You try running an airline without fuel.
Certainly, the lower fuel prices do help in the meantime but eventually, they will be going up in a few years
Before deregulation, airlines were virtually guaranteed a profit. After the 1973 oil crisis and the following ‘stagflation’, passengers had to pay more for their tickets. Economists said that deregulation would allow more airlines to be formed, there would be more competition, and prices would come down.
And prices did come down. Most people can afford to fly nowadays. But with reduced prices and no ‘virtual guarantee’ of profitability, profit margins are smaller. Airlines try to make up for this by cramming more seats into airframes, and by charging for things that used to be ‘free’.
Airlines Accused of Price-Fixing Conspiracy. With everyone competing on the basis of price, ISTM the only way to ensure larger profits would be collusion, as andrewm says.
We can have deregulation and cheap fares, at the cost of amenities and slim profit margins for the airlines or we can have regulation and more amenities and reasonable profits for the airlines, at the cost of higher fares. We get to choose one.
For the last five or more years, every flight I have been on has been full. If they cannot make a profit with a plane full of passengers, they need to recalibrate. I think they are doing well. They have learned to fill a plane.
Southwest Airlines has probably been the most consistently profitable line since deregulation.
Fly a single type of aircraft (reduced maintenance and training cost)
Cut labor costs (unions, pensions, etc.)
No frills
Service smaller, less expensive airports (Love Field instead of DFW, Midway instead of O’Hare)
Short time on the ground
Etc.
Unfortunately, trying to compete under the same formula didn’t work for People Express, Midway or a half-dozen other examples.
I assume you don’t really think this is representative of the entire industry.
It’s not, of course. 2014 was a record at 83.3% but that’s still one empty seat out of every six.
Business travelers are not as sensitive to the cost - they want to make sure they get there at the right time. They also are more likely to buy last minute tickets and they have to pay more for those.
vacation travelers usually go with the lowest cost and they don’t mind buying tickets months in advance. And they are also more flexible in regards to schedule.
Thank you for the cite.
I just wish the empty seat was next to mine next time.
The airlines each have this massive fleet of aircraft, and empty seats cost them money. I recall something about this theory in business class - if you have a hotel, it’s bad to have empty rooms, you should drop the price as much as you have to to fill those rooms (obviously don’t reduce price below marginal cost but you can reduce it to just above that)
Aircraft purchases are time lagged, so the airlines can’t respond quickly to changes in demand.
Unions drive up their labor costs.
National airlines exist that compete with them.
That’s a bit of an over-simplification. You have to be careful not to cannibalize your own sales.
There is a certain market segment that is ready to pay, let’s say, $250 for a hotel room. You don’t want to train them to wait until the price drops to $25 before making a reservation. You’ll go out of business that way. It’s better to let a few hotel rooms go empty than to create an expectation in your customers that they will get hotel rooms for $25.
Hotels have to use more creative price discrimination strategies than simply lowering the price until all rooms are sold. For example, there are the opaque sales channels (like Priceline and Hotwire) where customers don’t know what they are getting until after they’ve paid for it.
I suspect that story is misleading. “Bingo fuel” would normally mean you have minimum fuel to get to the destination and still have fixed reserves in the tank. What fixed reserves actually is depends on rules of the state and company policy. It is likely to be around 30 minutes, maybe more. So they probably had at least 33 minutes of fuel, not 3. The emergency declaration is then required because if the airport isn’t opened for them they have no where else to go.
This is not a hit and miss game. Using calculus, you can determine what will fly (pun intended). To make a profit.
As you see with airline pensions - “you earned this money, it’s technically belonging to you but in this pension fund, oops, there’s not enough so you lose it” - generally, management gets the unions they deserve. But… this isn’t a debate over unions.
Airline seats are like gas prices. Airlines can’t win - if they cut prices, it’s a temporary advantage until the others do the same - a race to the bottom. So, the price is the one that makes money for the most cost-efficient airline. The best strategy is to match but not beat the competition. (When the difference is less than, say, $50 I’ll look at flight times and layovers ahead of cost) I suspect the other posters are right, there’s a calculus - we will never post more than X seats at the fire-sale price - or never fire sale the last X seats. People who wait, gamble that they can get them cheap will find as often as not, there are no cheap seats, so buy while you can.
The thing that has destroyed airline business recently is Expedia. (well, the internet). It used to be you went to a travel agent and took what they could find. Now, you can compare every option. I’m sure the marketing departments check constantly. There’s a famous accidental email leak from an airline exec about a complaining customer - “we don’t owe him anything. He’ll switch to our competitors if they are cheaper and he’ll be back to us if we are $5 cheaper.” If you’ve noticed, they instead charge for stuff that does not show on Expedia - food, checked bags, priority boarding, even pay a premium to pick your seat or for the ones with a few inches more legroom. I await the day when they charge by the pound for carry-on. Apparently extra charges are a huge part of their business now.
The FAA would set reserve fuel requirements - at least enough to divert to the nearest next airport. The pilot may get to land (it’s ultimately his call) but he’ll be facing some serious questions - not about where he landed, but why no reserve? The LAW for small planes is minimum 45 minute reserve. (IIRC Canada and USA that law is the same). The calculation is different for big planes, but local states don’t set aircraft rules.
Agreed.
What the pilot meant was that if he didn’t get ATC cooperation within 3 or 4 minutes he would take matters into his own hands and land there, Blue Angels or no.
How that relates to how much fuel he actually had remaining at that time is complicated. For round numbers, the FAA requires planning to get there with at least 45 minutes left. Most of us in US domestic service get uncomfortable with much less than an hour still in the tanks. Long haul international pilots get nervous landing with much less than two hours remaining.
So what the pilot *might *have meant is “In 3 or 4 minutes I will not have the fuel to fly for 20 minutes to the other airport and still land there with the one hour’s fuel onboard that I consider the minimum for safety.” IOW, at that instant he had 1 hour and 24 minutes of fuel on board, and he ended up landing about 10 minutes later with one hour and 14 minutes still on board. Which is a long way from a dangerous situation.
To be sure, sometimes everything lines up against you. Slightly chintzy planning, bad luck with ATC or winds, unexpected weather (or an airshow) at the destination, etc. This can drive you towards a slowly growing trap. The key is to see the trap starting to close and do something early to restore your normal safety buffers.
Once in a great while you get the pop-up severe problem. You’re going someplace fairly remote with one runway and the airplane landing ahead of you blows a tire or crashes or whatever and suddenly that one runway is unusable for who-knows-how-long and you’re down to close to your planned landing fuel. What now Ace?
That sort of sounds like what happened there, with the difference being that the airfield closure was known in advance to the FAA & industry at large, but somehow that airline HQ or at least that flight never got the word. So to them it was a surprise at arrival. Which is an inexcusable screw-up in the admin system.
It’s Econ 101, in an unregulated market with near-full transparency of prices and virtually no product differentiation. There is no way for an airline to build a reliable profit margin into their business models, so they’re all forced to operate right on the edge, in and out of bankruptcy. You can’t make money in the business, you can only lose it - unless you’re fortunate enough to have a monopoly market or something like it, or some other way to regulate fares other than transparent competition.
Another factor is that around a third of all an airline’s costs are in fuel, and those costs are hard to stabilize. An airline’s financial health is based mainly on its fuel hedging strategies, not anything to do with customers or service or anything else a normal consumer industry depends on.