Intresting comments from an analyst re changes
Sep 5, 2002 | 7:26 pm
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Intresting comments from an analyst re changes
One wall street analyst feels the changes the airlines are making isnt helping things at all.
Dwindling air traffic spurs tougher ticket measures
By Meredith Grossman Dubner
CHICAGO, Sept 5 (Reuters) - A year after hijacked jetliners destroyed the World Trade Center and damaged the Pentagon, U.S. airlines are still struggling with declining air traffic and are changing ticket policies to boost revenue.
Monthly data released by the airlines this week showed that overall traffic, as measured in revenue passenger miles, slipped at many airlines in August. Capacity, or the number of seats the airline makes available to passengers, was also lower at a number of air carriers last month -- a sign that airlines don't have enough people to fill their planes.
The load factor at most airlines, meanwhile, or the percentage of airplane seats filled, was near steady.
"Traffic is down because capacity is down. You can have full airplanes, but that begs the next question -- how good is the revenue?" Merrill Lynch analyst Michael Linenberg said. "The concern is that revenue hasn't been all that strong. We're in a weak revenue environment."
United Airlines, the No. 2 U.S. airline and a unit of UAL Corp.<UAL.N>, said on Thursday that passenger traffic fell almost 13 percent last month, while traffic at AMR Corp.'s <AMR.N> American Airlines, the nation's largest airline, dipped more than 9 percent.
US Airways Group <UAWGQ.PK>, which last month filed for Chapter 11 bankruptcy protection, said its traffic dropped more than 17 percent in August.
Shares of major U.S. airlines were sharply lower on Thursday, weighed down by a weak stock market, fears of an invasion of Iraq and continued revenue problems.
AMR fell more than 7 percent, UAL was down 8 percent and shares of Delta Air Lines<DAL.N>, the No. 3 U.S. air carrier, dropped more than 6 percent. The American Stock Exchange airline index <.XAL> closed 6 percent lower at 44.09.
"Unfortunately, most carriers are responding to the public's appetite for low fares by cutting capacity and making travel more difficult," JP Morgan analyst Jamie Baker said. "The discount carriers continue to satisfy the public's appetite for value by offering more seats for sale. Not coincidentally, many of these discounters are profitable."
TICKETING CHANGES
Weak demand has forced a number of troubled airlines to seek concessions from their workers as they race to trim costs to survive the industry downturn.
In addition, several carriers have attempted to counter the weak revenue trend by announcing draconian changes to their ticketing policies this week.
In a move similar to actions taken by American Airlines, Continental Airlines <CAL.N> and US Airways, Delta Air Lines on Thursday said nonrefundable tickets not used on their ticketed date could not be used for any purpose after the date of travel.
Delta also said it was raising fees for paper tickets to $20 from $10 and would charge $100 for passengers who wish to fly stand-by during certain peak times.
The carrier said the changes would allow it to continue offering certain low fares while rewarding customers who pay higher prices with added benefits and flexibility.
"They're going to look in every single corner. They're going to leave no stone unturned when it comes to finding pockets of revenue," Linenberg said of the airlines' new ticketing policies.But Baker said the ticket changes were not the most effective strategy for improving demand.
"Airlines are reducing supply and making it more difficult for the majority of their passengers to travel," Baker said. "So my concern is that over time passengers will increasingly gravitate toward the carriers that treat them well and provide consistent value, and thereby avoid other carriers whose gate agents are armed with the latest restrictions eager to pounce on the hapless traveler who happened to get caught in traffic."
09/05/02 16:53 ET
Copyright 2002 Reuters Limited.
Dwindling air traffic spurs tougher ticket measures
By Meredith Grossman Dubner
CHICAGO, Sept 5 (Reuters) - A year after hijacked jetliners destroyed the World Trade Center and damaged the Pentagon, U.S. airlines are still struggling with declining air traffic and are changing ticket policies to boost revenue.
Monthly data released by the airlines this week showed that overall traffic, as measured in revenue passenger miles, slipped at many airlines in August. Capacity, or the number of seats the airline makes available to passengers, was also lower at a number of air carriers last month -- a sign that airlines don't have enough people to fill their planes.
The load factor at most airlines, meanwhile, or the percentage of airplane seats filled, was near steady.
"Traffic is down because capacity is down. You can have full airplanes, but that begs the next question -- how good is the revenue?" Merrill Lynch analyst Michael Linenberg said. "The concern is that revenue hasn't been all that strong. We're in a weak revenue environment."
United Airlines, the No. 2 U.S. airline and a unit of UAL Corp.<UAL.N>, said on Thursday that passenger traffic fell almost 13 percent last month, while traffic at AMR Corp.'s <AMR.N> American Airlines, the nation's largest airline, dipped more than 9 percent.
US Airways Group <UAWGQ.PK>, which last month filed for Chapter 11 bankruptcy protection, said its traffic dropped more than 17 percent in August.
Shares of major U.S. airlines were sharply lower on Thursday, weighed down by a weak stock market, fears of an invasion of Iraq and continued revenue problems.
AMR fell more than 7 percent, UAL was down 8 percent and shares of Delta Air Lines<DAL.N>, the No. 3 U.S. air carrier, dropped more than 6 percent. The American Stock Exchange airline index <.XAL> closed 6 percent lower at 44.09.
"Unfortunately, most carriers are responding to the public's appetite for low fares by cutting capacity and making travel more difficult," JP Morgan analyst Jamie Baker said. "The discount carriers continue to satisfy the public's appetite for value by offering more seats for sale. Not coincidentally, many of these discounters are profitable."
TICKETING CHANGES
Weak demand has forced a number of troubled airlines to seek concessions from their workers as they race to trim costs to survive the industry downturn.
In addition, several carriers have attempted to counter the weak revenue trend by announcing draconian changes to their ticketing policies this week.
In a move similar to actions taken by American Airlines, Continental Airlines <CAL.N> and US Airways, Delta Air Lines on Thursday said nonrefundable tickets not used on their ticketed date could not be used for any purpose after the date of travel.
Delta also said it was raising fees for paper tickets to $20 from $10 and would charge $100 for passengers who wish to fly stand-by during certain peak times.
The carrier said the changes would allow it to continue offering certain low fares while rewarding customers who pay higher prices with added benefits and flexibility.
"They're going to look in every single corner. They're going to leave no stone unturned when it comes to finding pockets of revenue," Linenberg said of the airlines' new ticketing policies.But Baker said the ticket changes were not the most effective strategy for improving demand.
"Airlines are reducing supply and making it more difficult for the majority of their passengers to travel," Baker said. "So my concern is that over time passengers will increasingly gravitate toward the carriers that treat them well and provide consistent value, and thereby avoid other carriers whose gate agents are armed with the latest restrictions eager to pounce on the hapless traveler who happened to get caught in traffic."
09/05/02 16:53 ET
Copyright 2002 Reuters Limited.
Sep 5, 2002 | 8:22 pm
#3
Join Date: Oct 2001
Location: Anywhere and Everywhere
Posts: 318
Large capital requirements and high fixed costs create barriers to entry. Barriers to entry create reduced competition. Reduced competition leads to complacency. Complacency leads to poor customer service and slow reaction to change. These lead to customer dissatisfaction. That leads people to vote with their feet. That leads to insufficient use of pre-existing, expensive capacity. That leads to operating losses. Operating losses lead to bankruptcy.
Airlines, railroads, baseball teams, and the US auto industry are all examples of this syndrome.
An industry with high fixed costs and high barriers to entry MAY be a natural monopoly, in which case I believe the solution is a single provider combined with government regulation. Do you really want ten different competing companies digging up your yard to lay ten different sewer lines so you can chose among sewer service providers so you can save $0.50 per month until the ongoing investments bankrupt all the competing providers and you end up with a house full of sewage?
Flame away.
Airlines, railroads, baseball teams, and the US auto industry are all examples of this syndrome.
An industry with high fixed costs and high barriers to entry MAY be a natural monopoly, in which case I believe the solution is a single provider combined with government regulation. Do you really want ten different competing companies digging up your yard to lay ten different sewer lines so you can chose among sewer service providers so you can save $0.50 per month until the ongoing investments bankrupt all the competing providers and you end up with a house full of sewage?
Flame away.