An Open Letter to All Airline Customers
Jul 10, 2008, 10:22 pm
#92
Join Date: Feb 2005
Location: Boulder, CO
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Posts: 7,054
So... not really a surprise, IMHO.
Jul 11, 2008, 1:31 am
#94
FlyerTalk Evangelist
Join Date: Nov 2000
Location: Atlanta, GA, USA
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Given the recent history of market bubbles in other areas (dotcoms, RE) and the seeming lack of other areas that are producing returns for the huge amount of capital out there, the idea that there may be artificial inflation of oil prices due to speculation doesn't seem that farfetched. Certainly the idea that removal of regulatory safeguards in the area is exacerbating the problem is something we've also seen in other areas in recent years. Energy is a bona fide problem and the global-demand factor is real and will force major changes, but in the short term the idea of paying 70 or 80 cents a gallon as a premium to speculators really rubs people the wrong way, given all their struggles.
Politically it seems like it could put the Republicans on the defensive, as it'd give a candidate like Obama a reply to McCain's gas-tax proposal. If Congress sent it to Bush and he vetoed it, it'd be a tough veto to defend.
Politically it seems like it could put the Republicans on the defensive, as it'd give a candidate like Obama a reply to McCain's gas-tax proposal. If Congress sent it to Bush and he vetoed it, it'd be a tough veto to defend.
Jul 11, 2008, 2:16 am
#95
Formerly known as CollegeFlyer
Join Date: Jan 2004
Location: JRA
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Posts: 6,716
Maybe you should try being B-SchoolFlyer next 
There is no such thing as "demand for oil futures." There is only demand for oil. Futures are not a commodity with a fixed level of physical supply or demand. The available supply of oil futures is only limited by the number of people that feel like writing a contract for one. You don't have to own a barrel of oil to sell an oil future--all you are doing is promising to hand over the spot price of a barrel of oil on the day the contract expires. Then you give the money to the buyer of the contract, and he/she goes out and buys a barrel of oil with it (or puts it in his/her pocket).
There is no such thing as "demand for oil futures." There is only demand for oil. Futures are not a commodity with a fixed level of physical supply or demand. The available supply of oil futures is only limited by the number of people that feel like writing a contract for one. You don't have to own a barrel of oil to sell an oil future--all you are doing is promising to hand over the spot price of a barrel of oil on the day the contract expires. Then you give the money to the buyer of the contract, and he/she goes out and buys a barrel of oil with it (or puts it in his/her pocket).
Jul 11, 2008, 2:17 am
#96
Join Date: Sep 2007
Location: Ether
Programs: Some, not all.
Posts: 1,595
Got this from UA, as did my neice who has yet to fly UA, but is still a "most loyal customer" - even though she has yet to fly UA!
It's hard to have any symapathy for the airlines when we get screwed left, right and centre. They need to get smarter and leaner, not ask for my support for what is a political issue.
If/when oil prices come down, will fares come down, will soda's be free. will checked baggage be free? No, they will hold on to the extra profit
It's hard to have any symapathy for the airlines when we get screwed left, right and centre. They need to get smarter and leaner, not ask for my support for what is a political issue.
If/when oil prices come down, will fares come down, will soda's be free. will checked baggage be free? No, they will hold on to the extra profit
Jul 11, 2008, 4:37 am
#97
Join Date: Feb 2005
Location: Boulder, CO
Programs: UA, AA, WN; HH, MR, IHG
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), they will, because of competition. All it takes is for one airline to lower fares when they realize that they can do so while still maintaining margins... the rest will shortly follow to remain competitive, and this cycle will continue until fares reach a point where they are no longer sustainable (when they will once again rise).It could happen your way, but I think it's more likely to happen as I describe, assuming oil drops to sustainable levels. While certainly some specific markets are beholden to certain airlines, in general air travel is a commodity these days, with very little to distinguish one airline from another... and commodities compete on price just as above.
Jul 11, 2008, 5:37 am
#98
Join Date: Apr 2003
Location: MSY
Programs: BA GfL
Posts: 5,929
The supply-demand dynamic you're assuming, by which prices get more expensive as demand increases and cheaper as demand decreases, only works if there is a limitation on supply. If there's no limit--i.e., no matter how many people want the thing, there will always be an infinite supply of it--then it's not valid to suggest (as you do in your first post) that less demand = lower price.
Jul 11, 2008, 7:36 am
#99
Join Date: Dec 2007
Posts: 1,688
Hmm...why is there "no such thing" as demand for oil futures? Your explanation addresses supply, but not demand. And if I'm reading you correctly, even the supply structure doesn't seem unique. (The available supply of haircuts, for example, is affected only by the number of people who feel like cutting hair. But that doesn't mean that the principles of supply and demand are completely inapplicable.)
The only thing this propopsal would do is decrease the liquidity in the US oil futures market. The total number of trades worldwide wouldn't decrease much because people can trade it on other exchanges in London and other places.
Jul 11, 2008, 8:51 am
#100
Join Date: Nov 2007
Location: Phoenix, AZ
Programs: WN A-List, Marriott Tit
Posts: 257
This link was posted on the MilesBuzz thread (since closed) on this topic, but I want to make sure every FTer reads this:
http://online.wsj.com/article/SB1215...s_opinion_main
It is not surprising that the airlines are failing if their CEOs do not understand basic economics.
http://online.wsj.com/article/SB1215...s_opinion_main
It is not surprising that the airlines are failing if their CEOs do not understand basic economics.
Jul 11, 2008, 8:57 am
#101
Join Date: Sep 2000
Location: OH
Programs: AA Lifetime Plat, Marriot Lifetime Gold
Posts: 9,539
Dear Airlines:
Thank you for your letter.
While we believe it's unfortunate that your poor management has landed you in a serious state, we point out the airlines who didn't sign this letter -- most notably Southwest and Continental -- have been clever about management.
They've adopted to fuel speculation with clever hedging, and enhanced their product rather than destroying it. As a result, they've lowered their fuel costs AND maintained a revenue premium -- blunting the fuel prices increases and earning significant profits throughout a time that has put most of the rest of you into bankruptcy.
While it is sad that you are encountering problems, it is largely due to your managerial incompetence in refusing to hedge -- dumping large sums of money into executive bonuses instead -- and lack of ability to attract and retain customers who are willing to pay premium fares to get you through this rough patch.
Instead, you've nickled-and-dimed customers with baggage charges, drink charges, IFE charges, and even elimination of IFE altogether. You've cut routes and increased fares, you've introduced customer-unfriendly weekend stayover fares, you've slashed and burned your frequent flyer programs, and you've flown unprofitable flights to unprofitable destinations.
Many of you *were* hedging but decided to stop doing so a year or two ago. Bad call. YOUR bad call.
Your destiny is your own. So are the actions leading you towards collapse.
Not one taxpayer dime should go towards rescuing you from your poor financial decisions.
Hopefully, you can begin hedging and treating your customers better, attracting those high-fare passengers you need to survive.
As for us, we do intend to write my legislators -- demanding that they resist efforts to bail out carriers again. With over $20 billion in direct and indirect subsidies since 2001, and multiple bankruptcies, it's outrageous that you would expect us to further bail you out of your sorry state.
Your bankruptcy and the elimination of some of you will give well-managed carriers like Continental, Southwest, and other future carriers an opportunity to fill in the blanks you leave with better service at a competitive price, happy employees, and vendors who are paid rather than screwed in bankruptcy.
Best regards,
The American Public
Thank you for your letter.
While we believe it's unfortunate that your poor management has landed you in a serious state, we point out the airlines who didn't sign this letter -- most notably Southwest and Continental -- have been clever about management.
They've adopted to fuel speculation with clever hedging, and enhanced their product rather than destroying it. As a result, they've lowered their fuel costs AND maintained a revenue premium -- blunting the fuel prices increases and earning significant profits throughout a time that has put most of the rest of you into bankruptcy.
While it is sad that you are encountering problems, it is largely due to your managerial incompetence in refusing to hedge -- dumping large sums of money into executive bonuses instead -- and lack of ability to attract and retain customers who are willing to pay premium fares to get you through this rough patch.
Instead, you've nickled-and-dimed customers with baggage charges, drink charges, IFE charges, and even elimination of IFE altogether. You've cut routes and increased fares, you've introduced customer-unfriendly weekend stayover fares, you've slashed and burned your frequent flyer programs, and you've flown unprofitable flights to unprofitable destinations.
Many of you *were* hedging but decided to stop doing so a year or two ago. Bad call. YOUR bad call.
Your destiny is your own. So are the actions leading you towards collapse.
Not one taxpayer dime should go towards rescuing you from your poor financial decisions.
Hopefully, you can begin hedging and treating your customers better, attracting those high-fare passengers you need to survive.
As for us, we do intend to write my legislators -- demanding that they resist efforts to bail out carriers again. With over $20 billion in direct and indirect subsidies since 2001, and multiple bankruptcies, it's outrageous that you would expect us to further bail you out of your sorry state.
Your bankruptcy and the elimination of some of you will give well-managed carriers like Continental, Southwest, and other future carriers an opportunity to fill in the blanks you leave with better service at a competitive price, happy employees, and vendors who are paid rather than screwed in bankruptcy.
Best regards,
The American Public
Jul 11, 2008, 9:45 am
#102
Join Date: Aug 2005
Posts: 3,438
lancebanyon
This link was posted on the MilesBuzz thread (since closed) on this topic, but I want to make sure every FTer reads this:
http://online.wsj.com/article/SB1215...s_opinion_main
It is not surprising that the airlines are failing if their CEOs do not understand basic economics.
http://online.wsj.com/article/SB1215...s_opinion_main
It is not surprising that the airlines are failing if their CEOs do not understand basic economics.
Jul 11, 2008, 10:14 am
#103
Join Date: Aug 2006
Location: DCA / WAS
Programs: DL 2+ million/PM, YX, Marriott Plt, *wood gold, HHonors, CO Plt, UA, AA EXP, WN, AGR
Posts: 9,388
Jul 11, 2008, 12:48 pm
#104
Join Date: Sep 2005
Location: New York
Programs: UA, Starwood, Marriott, Hyatt. RewardsNetwork dining.
Posts: 210
Yesterday I replied to my "An open letter to all airline customers" from United with a suggestion to read Robert J. Samuelson's Newsweek column on Supply & Demand:
/////////////////
The problem is basic Supply & Demand of a physical resource, not "speculation" on futures; futures contracts on many commodities are bought and sold without the price increase we've seen in fuel the last couple of years.
Please see Robert J. Samuelson's column from last week's Newsweek:*"Let's Shoot the Speculators!"
URL: http://www.newsweek.com/id/143786
...The candidates say financial slimeballs are piling into commodities markets
and pushing prices to artificial and unconscionable levels. If only it were that simple. Speculator-bashing is another exercise in scapegoating and grandstanding....
/////////////
Today I received an email from Customer Service:
...I can certainly understand your concern in this e-mail
regarding the oil and fuel prices. We realize that how disappointing
and frustrated it can be for our passengers. Still, your comments are
important to us and I will share your concerns with our responsible
Management here at our Head Quarters for their internal review....
I wish they would just raise the ticket prices to whatever they need to cover their expenses, and have done with it. Makes it feel like it *costs* them money to fly me somewhere. And if they save money by not flying me... ah don't go there.
/////////////////
The problem is basic Supply & Demand of a physical resource, not "speculation" on futures; futures contracts on many commodities are bought and sold without the price increase we've seen in fuel the last couple of years.
Please see Robert J. Samuelson's column from last week's Newsweek:*"Let's Shoot the Speculators!"
URL: http://www.newsweek.com/id/143786
...The candidates say financial slimeballs are piling into commodities markets
and pushing prices to artificial and unconscionable levels. If only it were that simple. Speculator-bashing is another exercise in scapegoating and grandstanding....
/////////////
Today I received an email from Customer Service:
...I can certainly understand your concern in this e-mail
regarding the oil and fuel prices. We realize that how disappointing
and frustrated it can be for our passengers. Still, your comments are
important to us and I will share your concerns with our responsible
Management here at our Head Quarters for their internal review....
I wish they would just raise the ticket prices to whatever they need to cover their expenses, and have done with it. Makes it feel like it *costs* them money to fly me somewhere. And if they save money by not flying me... ah don't go there.
Jul 11, 2008, 12:56 pm
#105
Join Date: May 2008
Posts: 698
Speculators buy up large amounts of oil and then sell it to each other again and again.
A barrel of oil may trade 20-plus times before it is delivered
and used;
and used;
the price goes up with each trade
and consumers pick up the final tab.
Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.
These people are CEO's of major corporations and they don't have what used to be a tenth-grader's understanding of basic economics?!?! ...