I find the recent aggressive cutbacks/layoffs by all major airlines to be somewhat suspect. Granted, they lost a ton of money due to the Sept. 11th tragedy in NY/DC/PA; however, they are getting 5 BILLION dollars in cash (now, as a matter of fact) and 10 BILLION dollars in loan guarantees.

However, in many cases, fares continue to be ridiculously high. I was pricing a trip MKE-LAS for the weekend of October 12th. The cheapest ticket available on CO was $776 RT. It seems to me if they cannot fill the planes, they should not be charging such high fares 2 weeks before travel.

In addition, I flew MKE-MSP-PDX RT last weekend on NW, and each flight was 80-100% full.

Any thoughts?


NOTE: I am fully aware of the poor Enlish in the title, I realized my error after the fact (hanging my head in shame).
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What do you mean I can't charge my heart bypass to my Visa? I need the MILES!!!

[This message has been edited by Seth (edited 09-29-2001).]

Yes, CO et. al. are using the tragedy as an excuse for the "enhancements" that were necessary all along, but were highly unpopular.

The airlines lose money on the cheapest airfares. They make up for the money-losing airfares with business travelers who buy their tickets at the last minute and pay the extremely high and profitable air fares.

With fewer travelers, the airlines don't want to dig their graves any deeper by continuing to offer the usual low money-losing airfares.

This is all just speculation on my part, but this explanation would explain the lack of cheap airfares in many markets.

No reason they can't discount full fare tix either! A $700 unrestricted transcon ticket just might bring back some business flyers. And any remaining restricted transcon seats could be sold for $100.

Look, $700 isn't as good as $2300, and $100 isn't as good as $400-500. But it's still a lot better than $0! You may still bleed pink, but at least you won't bleed red.

Furthermore, CO is in a better position than most airlines, having had 26 consecutive quarters of profitability. So a quarter of red ink might not be all that disastrous, if they at least keep the red ink to a minimum.

But then, it's a lot easier to just go begging at the Federal trough!

It may take a year or so for the dust to settle, but I believe the airlines are going to wake up and realize that if they can't make a profit on a $400 ticket, then they'd darn well better charge $500.
Cutting fares is obviously NOT the answer.
Look at the mess they're staring at now.

NonRev99,

What makes you think that if no one will pay $400 for a ticket, they'll pay $500?

I think you're missing my point! I'm not suggesting that CO should expect to make a profit. Every business has slump periods in which it loses money. It's called the business cycle!

Agreed, current circumstances are extraordinary. But CO is in a very fortunate position in that they've had 26 quarters of profitability. They can weather one quarter of red ink, if they don't let it get out of control.

And how do they control their red ink? Simple, they cut their fares! If they're running 40% load factors, cut fares until they're running 80-85% again.

They're obviously not going to make money with those low fares. But hopefully they can earn enough revenue to minimize the red ink until Americans start flying again.

Hopefully, 26 quarters of profitability should carry them through one quarter of red ink, if they minimize their losses by raising load factors, even if it means temporarily cutting fares below cost.

It's the same principal the airlines use on flights to Europe during the winter months. They sell what they can in full fare business tickets. But that's not enough to justify the cost of flying the aircraft. So they fill the remainder of seats with pax who are buying below cost tickets, on the basis of $400 for a seat is better than $0 for an empty seat. Not a difficult concept!

Now I've heard that CO has overextended itself a bit with loans. If so, they need to refinance, or do whatever to bail themselves out.

We live in a capitalist society where businesses who get themselves into financial trouble are expected to work themselves out of it or suffer the consequences!

I agree with semielite. I doubt most business travellers are price sensitive, except for major price swings. $100 on a business fare is not likely to change buying habits. Likewise on the discount end, fares are already very low on most routes. I regually get $130 roundtrips from EWR-PBI, At that fare, the only thing keeping peoplefrom flying is Fear, not price. If they made the fare $110 I doubt it would make a difference.

The bailout was the politicos knee jerk response to the airlines pushing many layoffs quickly such as CO AND AA's 20,000 + just after the NYC event.
The bailout will cover much of airline money declines before 9 -11-01.
If air traffic is so bad, where are the fare sales?
Why would AA and NWA try to screw their laid off employyees by dening health and severance benefits..just after getting 5 BILLION of taxpayer money?
Is this another instance of taxpayers bailing millionaire airline managers and millionaire pilots?
The Joe Blow of America is once again on the short stick of American political economics...May God help us.

There is a good article on Slate on this topic. A reader comment at the end sums it up, I think:

"Socialism for the rich, capitalism for the poor."

Here is a portion of the article, with the link to it:

http://slate.msn.com/Economics/01-09-27/Economics.asp

What if the airlines go bankrupt? So what if they do? They'll be reorganized, and the profitable flights will continue to be flown�if not by existing carriers, then by new carriers who will step in to fill any breach. All those jumbo jets will still be out there, and as long as enough people want to fly, someone will be flying them.

So, what does the airline bailout accomplish? One thing and one thing only�it enriches the millions of people who own airline stocks at the expense of the millions of others who don't. And in the process, it undermines the very principles that we uphold and our enemies want to destroy.

It also saves several thousand jobs that would otherwise be lost. Funny how the author of this article focuses only on the investors and not on the thousands of front-line airline employees whose very livelihoods are threatened by this crisis. And comparing the airline bailout to agriculture subsidies?? That's the biggest stretch I've seen in a LONG time.

hey -- what do you expect from the guy who says seatbelts in cars kill people since it provides them with an incentive to drive faster and more dangerously!

CO laid off 12,000 people two days after the attacks. This screams of poor mismanagement and inability to run a tight company. What did the bailout do for them?

How many other industries should the US taxpayer bail out? Insurance? Hospitality? What about companies like Boeing? What about small businesses greatly affected who do not have the leverage of paid lobbyists that the airline industry has?

I was and am horrified that the US immediately gave away $15 billion to the airline industry. 120,000 industry-wide are still laid off.


[This message has been edited by Analise (edited 10-01-2001).]

I haven't heard of that, but on a similar note, it is true that ABS doesn't improve safety overall because drivers with ABS don't slow down on wet roads. Insurers stopped giving discounts for having ABS because the expected decrease in collisions didn't pan out.

An excuse? Probably. Who knows with the airlines...

The Presidential "bail out" package is giving the airlines 4 times what they are going to be losing!!??

Also, these CEO's make around US$700k plus a year, along with million dollar bonuses...

Yes, a couple of the CEO's have given up their REST OF YEAR salaries (i.e., CO CEO for one..) which amounts to a staggering US$150k.. Big deal!!

How about forgoing the executive bonuses this year, and giving the people who are being let go, some kind of decent severance??

Government largesse isn't about "need," "deserving," or "fairness." It's about who gives the largest campaign contributions, and who has the largest battery of lobbyists! It's called "corporate welfare"!

Once again, our politicians prove that we have the best government that money can buy!

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"Giving money and power to government is like giving whiskey and car keys to teenage boys." --P.J. O'Rourke