FlyerTalk Forums - View Single Post - Additional tarriffs on the CS100...ugh...
Old Oct 7, 2017, 2:01 pm
  #23  
GrayAnderson
 
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Originally Posted by FSUnole03
*I'm uneducated on the subject so go easy*

My question is - why is it wrong for for Bombardier to sell these planes at below cost, but airlines like Spirit can sell seats for $9, which is well below costs and it be okay? Why doesn't DL or other airlines go after them like Boeing is going after Bombardier. I know Boeing says it's because Bombardier is getting unfair subsidies, but so does Boeing. So why isn't okay that Bombardier does?
Without commenting on the validity of the justifications given, there are a few schools of thought here:

(1) You could argue that Spirit is using the $9 fare as a loss leader on the seat, with the expectation that you'll end up actually paying $50-75 once all sorts of fees are attached (thus the $9 is intended as an advertising gimmick, not an actual sale price). This is sort-of like the storage facility that offers you a $1 first month's rent...and then charges you a set of fees for the first month that more than equal subsequent months' rents. In the case of Spirit you can usually dodge most of those fees, but Spirit is likely banking on you not managing to do that. An equivalent for Bombardier would be selling the first ten planes to an airline at half-price (to hook a base order), but with the expectation that the order would be sufficiently profitable if it exceeds 50 planes (40 at full price).

(2) You could argue that what Spirit is doing is a dumping practice and is therefore not OK and shouldn't be allowed. Here, the analogy is the ME3 (where it has been increasingly obvious that they're losing money on lots of routes in an attempt to force other carriers off), but this would imply that Spirit wasn't making up for it on the back end somehow (e.g. baggage fees, buy-on-board programmes, etc.). A dumping argument would apply if Spirit was selling the whole plane for $9 and doing so on a continual basis in an attempt to force other airlines off a route (or if Megabus was selling the whole bus for $1). I'm sure this is a line of argument that a lot of airlines would like to cudgel one another with, but it's also something of a WMD. There's also the complicated question of what the minimum price "should" be.

(3) There's also the free-market position of "Who cares what Spirit is doing as long as they're acting on their own?" Here the question becomes one of "improper" government aid (which is a sticky matter in general) as the difference (e.g. is Bombardier simply a better business or are they being enabled by some government entity in undercutting their competitors' prices?). Here the analogy would be if Spirit got a "sweetheart" deal from a given airport/city to come in that enabled it to then dump those $9 fares on the market (and that deal was on a continuing basis).

I think that sums up three sides of the argument on something like Spirit.

Edit: I wonder if Airbus has a product in this market? I don't think so (Airbus also skews larger IIRC) but I can't help wonder. Also, were I in DL's shoes I'd be getting mighty tempted to start going after Boeing for this in some sort of long-term manner (for example, working with other carriers to start a domestic competitor to Boeing).

Last edited by GrayAnderson; Oct 7, 2017 at 2:08 pm
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