kdinino

so if the LCC's started servicing Europe, Asia and/or South America...would you all feel differently?

I love miles like the rest of you but as a non-elite flier, which frankly most of the traveling public is, what good are lounges, etc? Even when I was elite, I think I used them once?

LAX

If the LCCs were to start flying real international routes (which is definitely not an unimaginable scenario), they would no longer be true LCCs. Part of LCCs business model is to keep a relatively simplified fleet and a simple route structure to keep their costs down. A successful international route structure doesn't allow that. With increasing costs, so will the accompanying fares. Besides, do you really want to fly into out of the way secondary airports in a foreign country, which is part of the LCC formula?

While some travelers do not benefit from the airport lounges, those who take advantage of them value them highly. I supposed many don't use them because of the added cost commonly associated with their usage. However, if it were free (ie: part of a first or business class award ticket one redeems using miles), I would think most people would prefer the peace and quiet as well as amenities provided by these lounges. Besides, the fact that the mass public doesn't use them doesn't mean they are not good. By the same token, do your local fancy restaurants that you don't frequently patronize cease to operate because they are not affordable to many?

LAX

CPRich

Sorry, this argument aligns too much with the "it's not my fault, I'm just a victim" mentality in the US. Blaming a failed business on that nasty and unfair free market, supply-and-demand, Adam Smith foolishness is just absurd, IMHO.

If you run a business you are responsible for understanding consumers and the market. If you don't adjust, you have failed. Period.

LAX

What about possible free upgrade to first class on those trancons using miles?

Obviously, if you are content with flying domestically for the rest of your life, LCCs will satisfy your desire of reducing upfront cost (by the way, LCCs nowadays don't always have the lowest on any given route) without sacrificing the flexibility to travel abroad. However, in the long run, even for domestic travelers, legacies will probably save more by giving a free domestic ticket after every 5 RT transcons. Do the math yourself. In general, how much cheaper is a LCC trancon ticket compared to the legacies? Probably not much. With the money saved times 5, does that equal to the cost of one transcon ticket?

LAX

LAX

I don't disagree with your statement, but tell that to the unions. I am sure all legacies understand that consumers want ridiculously low fares and they all are trying to adjust to the consumers by cutting costs, namely labor costs.

Besides, the consumers are not always in the driver seat. How come I never see Ferraris and Porsches go on "sale"? Consumers also have to adjust as well.

LAX

otralot

Ferraris and Porsches are not commodoties and airline seats are. The distribution of these high end cars is highly controlled. Between any two cites you can pretty much have your pick of airline seats. You can argue that one seat is better then another but most people shop by price or at least won't pay a lot more unless the get a much better value (or perceived value). There is little to distinguish between airline seats on varying carriers.

deelmakur

I know a lot of people have had it with discussing the deal strategy, but I thought it would be fun to summarize the week that was. Actually, it ended like it started....with not much. After jacking up the business papers with stories of an imminent deal with America West, culminating in a couple of paragraphs "above the fold", in the WSJ, the deal guys saw their momentum slow, when Bronner, who can always be counted on to say the wrong thing at the right moment, told some reporter the truth...that there was a lot of talk, but nothing big going on. So much for using AWA as a prod. Markets are efficient, goes the saying on Wall Street. What they mean is, if you do things investors don't like, they tank your stock. Following the "leak", America West took the kind of hit that makes the CEO realize he better not quit his night job. Apparently, the idea of combining the businesses didn't excite the folks who control the shares (probably mostly "Arbs" and "Shorts" by now...note those are not ethnic references). So the Genie went back in the bottle for a little bit, leaving most of us continuing to wonder what we're going to do with all those miles, and whether we'll be able to use that Envoy award to London in the Fall. Meanwhile, according to CNN, in Alabama, specialists have been called in to remove a foot from some guy's mouth. It's said they are particularly experienced there.

motnot

Well, the US loan guarantee is overcollateralized. My guess is that if a merger goes through, the ATSB would then apply US' collateral to HP's loan guarantee as well. Or it's possible that the merged entity will receive such finanancing from outside parties that the ATSB would be repaid as the HP/US transaction is executed.

ClueByFour

Or not. Every day that US continues to burn thru cash, the "overcollateralized" nature of the load dwindles. If US burns down to a few (2 or 3) hundred million bucks worth of unrestricted cash, the ATSB is left with gates/slots and whatever else on the properly is not in hock.

deelmakur

Be careful that cash receivables aren't in your collateral computation, At any given time. a lot of that is still in the hands of credit card issuers, who are holding sizeable amounts in reserve, in the event of a shutdown, and the resultant requests for refunds. As for ATSB security, I believe it was always contemplated that if necessary, debt could be converted to equity. Being an owner of one of these airlines is not exactly where your government wants to be these days. Meantime, hats off to GE, who, while being junior to ATSB in the credit chain, are quietly lowering their position by substituitng cheaper planes for ones being taken in trade. Those guys have their fingers everywhere in this deal.

FWAAA

Really? A myth?? According to whom?

While your airline might think it's a myth, I'm more inclined to believe Gary Kelly and Colleen Barrett, CEO and President, respectively, of Southwest Airlines, since I'm certain they know more than I do about industry overcapacity:

http://phx.corporate-ir.net/phoenix....ZhdHRhY2g9b24=

I could post similar statements by management of the legacy airlines as well, but that would be repetitive. And it would be fair, of course, to discount the opinions of the CEOs of AA, UA, DL, NW, CO and US, since, as you said, the legacies have a flawed business model which relies on high prices.

But on what basis would you discount the opinions of WN management? Perhaps you lump Southwest in the "flawed business model, relying on high prices" group. If so, you're probably alone in that assessment.

When the most successful airline (hardly a high-cost legacy airline) says it, I'm thinking there may be some truth to the rumor that there are more domestic seats chasing the paying butts than we need. In short, excess capacity. Even Southwest saw its yield fall in the first quarter, despite raising fares.

That you choose to disbelieve when someone tells you it's raining doesn't mean it's bright and sunny outside. You are free to deny that there's excess domestic capacity, but that don't mean you're right. You may be right, but even WN disagrees.

The legacy airlines continue to try to solve the problem by cutting expenses (primarily wages) even though many expenses continue to increase (like fuel). In an industry without so much excess capacity, the solution would be simple: prices would increase.

Industry overcapacity even impacts JetBlue, as its yields and RASM have fallen over the last couple of years (almost as sharply as the declines in those metrics at USAir over the same period). Were it not for an accounting change in the fourth quarter of last year, B6 would have reported a net loss in Q4 2004. And its first quarter results were hardly anything to be proud of. Simply the results of an overcrowded domestic market with too many perishable seats to allow for healthy pricing.

TomBascom

Never take anything that WN management says at face value. Those guys are the masters of leading legacy airline management down the road to ruin. And the legacies fall for it time after time.

Remember Jack Welch and the need to be #1 in market share?

deelmakur

Southwest must be pulling their hair out. They have thrown everything but the kitchen sink at these guys, and they still show up every day. Admittedly, my observations are only anecdotal, but it appears that when you fly anything but a bread and butter route, like a weekday transcon, and if you ignore holiday periods, where everybody spills excess traffic to them, the front cabins are not full, which speaks volumes about yields. Even on these threads, some long time defenders have either disappeared, or turned downright critical. They've dumped hubs, staff, planes. res centers, clubs, the Lauderdale mini hub seems to be a non event, etc., but are still managing to operate a respectable system. Something has to give. GE and the other equity won't carry them forever. It's like "Newton's Law" in reverse...apples falling up. They have to be trying to pull something off, but meanwhile, SWA must be bumping into walls, trying to figure out why their strategy isn't working.

krj9999

From Southwest press release:

For first quarter 2005, available seat miles increased 10.1 percent to 20.2 billion from the 2004 level of 18.4 billion. The first quarter 2005 load factor was 65.4 percent, compared to 64.2 percent for the same period last year.

So, WN increased capacity by 10% and still increases load factor, yet complains about a glut in capacity?

While there may be plenty of capacity, airlines don't seem to have a problem further increasing it, and the passenger loads seem relatively strong. The big issue is the increase in fuel costs, in my opinion.

TomBascom

The overcapacity people believe that if only a big chunk of seats were removed from the market then they could go back to charging the "fair" fare of $2,000 for a ticket.

They're wrong.

They're wrong on two fronts.

1) The market for $2,000 tickets is approximately 3 people. Even if their fantasy were to come true it would not save the legacy airlines. There is no demand for air travel at those prices. Those fares were kept on life support by customer hostile rules like saturday night stays, no hidden cities etc long past the point where they should have been rationalized. The legacy airlines are reaping what they have sown.

2) No big chunk of capacity is going to be removed from the market. That's just wishful thinking. They can fantasize all they like but neither US nor UA are going to just go "poof". And nothing short of both of them disappearing overnight would have the kind of impact that they postulate needing in order to have the desired effect.

The overcapacity people are right about one thing -- there is an excess. There are still far too many seats being offered for vast multiples over CASM. And there are far too many rules, restrictions and fare categories. And management's capacity to delude itself about the root cause of their problems still knows no bounds.