mid

<sigh>

I'll tell you what: We've been going on round-and-round on this issue. You folks seems to believe that DH is doing BAD BAD things and mucking it up for the whole industry. They're charging less for flights and in general making it hard for the majors to cover their costs. That they are charging less than even THEY need to cover their costs.

I believe that there is more to this than meets the eye. That DH is in reality an old airline that's transitioning to a LCC and that they have the management in place to know what they can charge for a flight and still make money. That they are doing everything they can to mirror the policies and practices that other LCCs do and that they are being innovative in how they interact with their customers to serve them and make their life easier. Because they know their very survival is at stake and they saw they had a shot to survive by radically transforming their business.

Since neither of us will really know the answer until this whole story ends (or does not), then I'm done.

I'll believe what I believe and fly who I fly and you guys do the same.

But you'll never convince me that they don't have the right to do what they are doing and that they are having a positive impact on the industry. I saw a piece just today on CNBC where the former head of the Civil Aeronautics Board basically came out and said that they fully expected that there would be failures of at least some of the major airlines after deregulation. What everyone didn't expect was how long it would take.

So you guys wait for DH to fail and I'll wait and see what happens with UA, US, DL, and NW.

CNN Article: Blame Airline Management

Cohiba

mid,

I understand your frustration. It is just like whenever DH posts a sale and most folks here act as if they are having sales too frequently. In actuality, Independence's sales are usually no more often than other carriers. Glad to see you are a big supporter.


Cheers.

Cohiba

In my opinion, it would be very difficult for DH to be successful with its current cost structure, which is what you are pointing to. However, while DH does not have the assets that UA, US, DL and NW possess, its ability to restructure is not as impossible as all the journalists & analysts think. I'm not saying it is going to work, but on the other hand, liquidation is not inevitable either.


Cheers.

DHAST

I'm glad you wrote your last line, because my first question was what fairness had to do with anything. Those pensions that predated regulation were also renewed during contract negotiations every time they came up. UA had the choice to keep them or reject them.

It *may* be fair to say that the entire industry pay scale (except for mangement, IT, and other various white collar 9-5 type jobs) is based on seniority from unions in a regulated environment.

But I challenge you to come up with a better pay system that is objective and not subjective. For the last five years I've worked in aviation, I have never had union representation. Yet, all of my jobs have pretty much mirrored or closely mirrored a "union" seniority system. When it comes right down to it, pay scales WILL be tied to years of service and nothing more. These people perform assembly line type jobs, and as such, have the same worker output. There is nothing to differentiate one person's performance from another person's performance. (That WOULD be the basis for a merit evaluation, right?). The only enhancement I could see would have recognition for total experience, but it would still be strictly tied to years served.

whlinder

You don't want to know how many times I've done that...

It isn't a belief, it is a fact as shown in their financial statements that DH is not covering costs with every ticket sold. While they are certainly hurting their competitors, that is business and I don't have a problem with it.


I disagree that they have the 'management in place to know what they can charge for a flight and still make money.' They've changed their revenue management strategy several times already. While there is nothing wrong with adapting to change, I think it is more of a sign that they weren't particularly well versed in revenue management. When DH was flying for UA, who set the fares? UA. DH just got paid as long as the flight took off, no matter if the plane was full or not.

Thats fine, and I have no problem flying FlyI. I like them. I just don't see how they will exist much longer at the rate they are going.

They certainly have the right to lose as much money as they want (unless the stockholders sue them, I have no idea about the legalities WRT that, but if I were a stockholder I'd be ticked to lose 95% of the value of my stock in a little over a year) but I don't think you can claim they have had a positive effect on the industry, at least not yet. It depends how we define 'posititve effect on the industry'. If a positive effect is the health of all the carriers, innovations and advancements, then they have not had a positive effect. Perhaps once they shut down, the removal of all their CRJ capacity will be a positive effect. They have had a positive effect on the communities they serve who can now fly to all kinds of places cheaper than before.

Anyone wanna bet which one of those 5 fails first?

I don't think liquidation is inevitable, but FlyI has their back against the wall. Perhaps they could file Ch11 and reject the leases on all their CRJs and emerge very quickly flying only A319s. But I don't think they want to admit that their 'LCC plan with RJs' has failed.

DHAST- you're right, there is probably not a better way than seniority, though in an industry without unions workers would be able to move between carriers much more easily. IMHO the current system rewards experience more than it should, as there are diminishing returns by earning more and more 'experience' in the same position but the pay scales seem to reward that experience that doesn't really add much value to the worker. This is another thread. Someone said 'it isn't fair that UA can be in Ch11 for decades' so I was trying to convey how the world is not fair.

UALPilotDC

Sorry been away working for a few days....

Thats exactly my point.....its a revenue issue with the west coast not so much as a cost one!

And yes east coast routes are higher yielding..but also higher cost too.

DC

L Dude 7

DH has 15 years experience operating airplanes. Few would deny that they have been doing a good job at operating flights now. In fact, I'd bet most would agree that on the operations side they are doing a whole lot better job than they were doing as ACA.
Their problem is in the areas where it has no experiene - scheduling, selling, etc. You can almost see what they were thinking: "well, people like flexibility, so we'll have lots of flights each day... And selling through agents is expensive, so we'll have everyone book online... Oops, people haven't heard of the new airline, and don't see them anywhere - maybe they should be listed in a GDS.

Now wait - haven't there already been a number of failures? TWA, PanAm, Eastern, etc. All big names that have bit the bucket.

jaguar

It's too bad to see DH about to go bankrupt because they are excellent.

Cohiba

You can see that happening, but actually in terms of selling tickets, they have met the goals set forth in the initial plan for Independence Air for revenue. You might argue that that goal was set too low, but I still think things have gone awry on the cost side.

Also, I don't think you can blame the scheduling people. They worked with the hand they were dealt. When you start out with 87 CRJs you need to try and get some revenue for them instead of paying the leases on planes that are sitting in the hangar. That situation has been vastly improved over time.


Cheers.

L Dude 7

Didn't the original plan predict a profit by 3Q 05? Based on previous figures that show revenue wasn't covering costs - even without fuel, I place the odds pretty slim on that happening.

As for scheduling, they were definately dealt a crummy hand. I'm sure there was a lot of thinking to the tune of 'lets hope Delta hangs on for a while, before dumping the planes back on us.'

DHAST

Whlinder, without using those words, I guess I was trying to imply what you said... airline workers would be able to move between airlines much more easily. Everybody blames "unions" for the pay scales that are in place. Would you believe that the airlines actually SUPPORT the current system? The reason being is that they enjoy a cost ADVANTAGE with the current system. If you were to move between airlines and keep your seniority so to speak, after 5 years at Airline A, transfer to Airline B, and receive year 5 pay at Airline B, the Airline A would be forced to match the pay scales at Airline B, creating UPWARD demand on salaries. With the current system, the airline can jam paycuts and what not down their employees' throats, because the paycut is still better off than the MASSIVE paycut they would receive by starting over somewhere else. This actually creates a downward pressure on payscales, keeping the airline management HAPPY.

UAL_Rulez

Looks like those closest to the situation aren't so optimistic about DH's prospects.

StSebastian

I think their business plan was predicated on $40 barrels of oil, too. That looks crazy now, but wasn't unreasonable then. They probably expected to get better yields on transcons, not seeing the length the majors could go to cut costs and hold prices down so much. They saw WN and B6 selling without GDS and making money, so at first glance you just need to replicate them. What's missing from WN is the large metro point-to-point network, and from B6 is an airport easily accessed through mass transit. (IAD generally sucks to get to if you're not driving, whereas JFK has pretty easy access from the NYC subway ssytem and the AirTrain and its predecessor.)

RyanAir sells $0 (or technically GBP0.01 probably because of some legal issue) fares all the time and somehow manages to do fine with that, so it's not all that insane a business model. (I don't know enough about RyanAir to say anything more than that except it doesn't look like an airline I want to fly on since I prefer major metro airports.) They've got at least 100 routes right now that are for sale with a zero fare -- just pay taxes. They probably make some money with other optional charges like selling drinks and food, but it's still a zero fare to start with.

L Dude 7

I think a bigger factor missing was pace of startup. WN does list (to a limited extent) in GDS. They actually had a greater GDS presence early on. Both B6 and WN started out with just a few flights, and gradually expanded. WN flew to Dallas, Houston, and San Antonio, and could fill planes both ways advertizing in those cities. B6 was something like JFK, upstate New York and Florida. Now, when B6 or WN goes to a new city, there is oftena great deal of free publicity and instant awareness. FlyI launched with an entire network in a few short months. If it were not for Flyertalk, I would have had no idea that they even existed in Chicago. (though I do recall seeing a good amount of advertizing in D.C.) The needed advertizing to sufficiently reach every city in the large network would probably cost more than the cost of simply listing in a GDS. (Which helps to explain the eventual decision to add distribution channels.)

The market is another good point. While DC may be one of the top 5 metro areas, the IAD market is much smaller, especially for a short haul flights. Driving from Columbia, Maryland to IAD for a flight Sao Paulo might make sense. Driving to IAD for a flight to Newark doesn't - especially when flights are available at BWI. And if cost is a concern, the drive to EWR is viable.

Transportation is another key factor. Metro goes to National. From the District it's under $2 each way, with fast, frequent service. To Dulles, transit is a hassle and more expensive. Taxi or driving and parking at the airport are even more expensive, but allow for more schedule flexibility. A fare from IAD may be $15 cheaper, but the ground transport costs eat this up and then some.

There potential market looks something like:
1) Origin market - primarily Northern Virginia (Loudon County, etc.) People that would need to drive to the airport, and find Dulles closer.
2) Destination market - this includes people traveling to Northern Viriginia, as well as people traveling to elsewhere in metro DC who are willing to sacrafice convenience for price.
3) Connecting traffic

United has an advantage in that they offer long haul and overseas service from IAD that cannot be offered from DCA. Thus, they have a larger potential market area for O/D traffic, as well as additional feeder traffic for their short haul service. United also has built in loyalty from years of service. And, they potentially have lower costs on the short haul flights. (DH did leave UAX due to the low rates that UA wanted to charge.) DH is thus left with competing primarily on price to attract new customers, while trying to retain them on service.

whlinder

I'm not surprised the business plan was built on $40 barrel oil; however they would have still lost money in Q2 had they not paid anything for oil. Had oil stayed $40, they would certainly have more time to rectify their problems. That is a common theme with FlyI's problems- taking too long to fix problems. Not being in the GDS' at startup was a bad decision, one that many people on here scratched their heads at. Both B6 & WN used to be in the GDS' and they still are to a very limited extent.

FR (RyanAir) crams their planes with seats, their pitch is something like 28 inches or something obscene, just packing their plane with seats. And it is really no-frills. DH has much more onboard service plus they started flying with 50 seat planes, not 150 seaters.

I could go on and on, about their marketing failures, their poor revenue management, creating an inefficient route system, etc, but we can do that later.

Low-fare Independence taxis toward bankruptcy