dlombard

Less. Not nothing. There is a tipping point.

greatam

I kind of like the pay-as-you-go system. Why would I want to pay extra taxes which subsidize the buses, if I never ride the bus? If I am not around to pay the eventual tax increase, someone else who also does not ride the bus or subway is subsidizing bus riders.

GUWonder

Flying bus or ground bus, the "pay-as-you-go" can be done with higher fares to cover fuel costs in the same manner as fuel costs were covered before: by the fare paid.

And amongst my issues with these fuel surcharges -- besides some misleading advertising-related issues -- is that these fuel surcharges will find their way onto award tickets. And this means that our award tickets are "less free" than before (even for those award tickets using specifically miles accumulated on flights with a high fuel surcharge).

gemac

Thanks for illustrating my point 3 about gorernment economists and their assumptions: "every trend line in effect today will extend as a straight line on its current path until the end of the world." (or to infinity). You might want to apply for a job as a government economist.

sipples

Exactly! We're below it, by the way. WAY below it. But this argument is a digression, so I suggest taking it to OMNI.

Footnote: Referring to United States, personal income tax, long run effects.

enjoystravel

Actually,most airline executives have commented on the fact that demand is highly elastic. The leisure market gets used to a certain price point and is prepared to pay a premium from the point but when a threshold is crossed, demand drops suddenly. This is the reason why airlines that could be profitable at just a $50 per ticket more on average suffer billion dollar losses.

Yield management is a complex art and science and simplistic assumptions about customers just being their because they want to see "Aunt Tillie in Los Angeles" may not pan out.

I don't think demand will evaporate, but a 50% load factor vs 75% load factors is the difference between Chapter 7 and profits.

sipples

What on earth are you talking about? I'm not the one making that argument. I simply pointed out the logical absurdity of saying that "tax cuts generate more revenue" (full stop) by pointing out that if you set the tax rate to zero then revenues are (of course) zero. (It's like the old joke about change machines which give you four quarters for a buck. "How do you make money on your change machines?" "Volume." ) But if you reduce the tax rate even more (set it to a negative rate), that raises revenue again, right?

So at what tax rate does this magical rule apply, that lowering the tax rate actually raises revenue? There actually is an answer to that question, and it's pretty well studied, but I suspect the answer won't suit your purposes. Let's just say there's no practical point under present circumstances in worrying about it.

That's not to say that there aren't genuine issues relating to tax efficiency. Although a lot of people might not like the answer to the question, "What's the most efficient (non-distorting) form of taxation?" Hint: this most efficient form of taxation has been cut in recent years.

The CBO (Congressional Budget Office) actually does a very good job assessing the full, dynamic effects of tax decreases or increases. (It's called "CBO scoring.") Check their record. Those "government economists" do a very good job. It's the politicians that have problems with numbers.

But really, let's take this to OMNI. It has nothing to do with high oil prices and their effects on American Airlines. I don't know why anybody brought up this subject.

sipples

REALLY good point. And it's the core reason why $70+/bbl oil is so painful to the airline industry. A lot of travel is discretionary, even for business travel.

I know my employer periodically enacts a "travel freeze." There are different types of travel freezes, but they all tend to reduce air travel. I'm sure many companies do the same thing.

There are imperfect substitutes for travel: telephone, fax, e-mail, leisure destinations closer to home, etc. At some price points these substitutes become more attractive.

gemac

Yes, but I think this is a short-term effect. If the price suddenly jumps from $200 to $300, demand drops off because people are waiting for the price to go back to $200. Usually, within a month or so, we see the price back at $200, and we buy then. I think this is what those airline executives are referring to.

What we are talking about here is a sustained price increase, for years. The price now moves between $300 and $400. In the short run, there would be a decrease in demand, as people wait to see if the price goes back down, but eventually people adjust to the new, higher price. Remember that higher energy costs will effect the cost of alternate means of transportation (car, train, bus) also, so the question becomes travel or no travel.

Auto executives would tell you that there is a high price elasticity of demand also (that's why they offer rebates). Forty years ago, you could buy a new Mustang for $2400. Today, it is $24,000, but amazingly, more cars are sold today than 40 years ago. People have adjusted to the price increases quite nicely.

blueeyes_austin

Er, someone who is slagging off "gummint economists" ought to avoid freshman level economic mistakes like comparing prices in different time periods without adjusting for inflation.

Assuming a 1964 to 2005 Mustang comparison, the $24,000 in 2005 dollars amounts to $4,879 in 1964 dollars.

But hey, what do I know. I just do economics for the government.

Tango

By providing a bus service, everyone who does not ride the bus system benefits. Can you imagine how many more cars on the road there would be if the bus service stoped?

gemac

Is the price up? In constant dollars, it's more than double. Is demand up? Yes. This is the point that I was trying to make, that there is a big difference between short-term elasticity of demand and long-term elasticity of demand. I guess I assumed that everyone would know that one 1966 dollar is roughly five 2006 dollars, would do the deflation, and would realize that the prices quoted were a pronounced increase. Didn't realize that I was talking to an audience that thought that there had been zero inflation over the last 40 years.

Please realize that my comment on "gummint economists" was a generalization, and like all generalizations, has a lot of exceptions. I am sure that as an economist, you read pronouncements by government agencies from time to time that make you wonder how they came to that conclusion.

Trying to get the discussion onto a more positive track, perhaps you could comment as an economist on the statement that launched this exchange. It was "the energy dept says anything over the $100 barrel indicator will bring on an economic recession like the world has never seen and will bring the us airline industry to its collective knees. " (Post #17).

1. Is this statement true (that the energy department says this)?
2. Do you agree or disagree with this prediction?
3. If possible within reasonable parameters of time and bandwidth, could you give us a Cliff Notes version of the reason you agree or disagree.

I think that this would be interesting and illuminating.

sonof1K

I kind of like the pay-as-you-go system. Why would I want to pay extra taxes which subsidize the buses, if I never ride the bus? If I am not around to pay the eventual tax increase, someone else who also does not ride the bus or subway is subsidizing bus riders.

its called an externality, you subsidizing the bus riders lets them not take a car to work and lets the drivers have to deal with less traffic, not to mention lower emissions etc.

sipples

I know oil very briefly went above $72/bbl in intraday trading, but it looks like it'll close above $72 now. Wow.

greatam

And it works so DARN well is Los Angeles and Phoenix, not to mention other cities. Let's see, light rail in Phoenix-a couple of billion for 18,000 riders a day. Tempe immediately tacked on a $.05 increase in taxes and most people in Tempe will not ride the rails. Phoenix isn't even connecting to the airport, which is more poor planning and waste of resources. 33 million flyers a year, getting into CARS.

Los Angeles-6 Billion for Metro Rail. I was born and raised in LA. I know no one who has ever ridden the Metro Rail. But the taxes went up for EVERYONE.

Back to the topic at hand-fuel surcharges, to compensate for the increased cost of FUEL, are the fairest way to handle the ever increasing fuel price. And, if the price of fuel goes down or stabilizes at some point, can be deleted as quickly as they were instituted. Has happened 4 times in the last 30 years for trucking and the railroads.