BoeingBoy

My mistake - what I get from posting based an my memory of your post.

As you point out, the fleets have changed dramatically since 1980. A new generation of planes has replaced the replaced those in use then. The 727/737-200 are gone, the 3 & 4 engine widebodiess are mostly gone (the Airbuses didn't exist back then). Even now, a new generation of even more efficient planes is flying or on the horizon - NEO, MAX, 787, 350, 777X.

The other big fallacy you used is the government CPI. Ignoring that some claim that the CPI overstates actual inflation, it reflect the cost to the consumer of a host of goods/services. PRASM would be a more apt comparison than CASM.

Also, some goods/services in the CPI increased in price while others decreased - a particular good/service can be anywhere in a pretty wide range of increase/decrease. Air travel is no different. You can't just adjust the cost or price of air travel by the overall CPI to arrive at that air travel should cost.

The CPI for air travel is simple to calculate - the cost of a specific ticket then relative to the cost of that same ticket now.

Jim

Fanjet

You don't need a merger to switch alliances. And there is no excuse the DOJ could give to block it. Given the fact that US and UA are currently in the same alliance. And UA is a larger airline than AA. Also, with UA/AC/LH, there are more shared nonstop routes between those airlines and US than there are between US and AA/BA. I'd wait until US management issues a statement regarding OW and Star.

LETTERBOY

It's pretty obvious that DOJ is trying to flat out block the merger. They came right out and said it when they announced the suit. If slots were all that were holding this up, US would've given up the slots before it ever got to this point. At least, if they were smart they would have.

nova08

I think PHL as an airport had a lot to gain from the merger. They could have lost a lot based how PHL vs. JFK played out but I think with US/AA PHL could have grown into a stronger global gateway.

It is anyone's guess what alliance US will align with if the merger is indeed blocked, but I suspect US stays with Star.

If that is the case, QR will very likely cancel plans for DOH-PHL, PHL-LHR will remain lacking in traffic given the size of the two cities, I doubt any Star carriers are itching to add PHL, and if PHL-Asia is going to happen it will certainly not come until US has the proper aircraft and willingness to enter Asia.

perseus11

IMO, if a standalone US is to compete (at all) with the 3 other legacies (UA, DL and AA), they have to fairly quickly expand their international network and do so in the largest megalopolis in the U.S. - the Northeast corridor. JFK and EWR are likely not a an option, with UA, DL and AA already entrenched in those Gateways. That leaves PHL. Parker should do what ever it takes to acquire at least 6 long haul aircraft, capable of PHL-Asia and possibly a reasonably high yielding (cargo + passenger) PHL-Africa city pair and define a domestic route and most importantly a competitive fare structure to support those routes. Even if that means a temporary Boeing sub-fleet of leased 787s, or acceleration of A350 deliveries to early 2015 (with the 787 threat in hand). If they wait until the first currently scheduled A350 delivery in 2017, the competitive ship will have long sailed. US should also (and I believe they will) join OW and align with BA (at PHL and possibly PHX) and also negotiate with PHL to completely take over all of Terminal "A", as a requisite for this global expansion scheme. An example of how a competitive international flight originating in the NE corridor can affect an airport's originating passengers can be easily exampled with PHL-TLV, which has multiplied PHL-TLV O&D by more than 600% over the past 2-3 years, by reversing long term PHL-EWR-JFK bleeders and tour groups and gaining bleeds from Northern NJ/NYC.

tommyleo

Maybe I'm naive, but isn't US quite profitable now with the routes it has? Why does need to expand quickly, if at all?

Fanjet

US is profitable because of what is paying right now for its labor. That's not gonna last forever. And I have not seen any data that suggests they have that great of margins which would allow them to handle an increase in operational costs. Whether that be labor or the price of jet fuel. So while PHL and CLT may make good hubs, they do not have the high O&D numbers that make them great hubs. If US went Chapter 7, who would jump at the opportunity to take over those hubs?

So what is US's future without this merger? Their choices are slim. They can:

1) Move over to OW, which allows them to possibly merge with F9 (DEN would have two separate alliance hubs there).
2) Retrench on the East Coast, and focus on connecting that area with Europe and the Carribean, and select West Coast destinations. Sort of a "reverse" AS.
3) Expand into Asia from PHX or PHL, and further expand into South America from CLT. Then find a good law firm to take them into bankruptcy protection.

nkedel

Who's ever stated that? Most people consider CPI to understate actual inflation, especially in the past couple decades with an increasing amount of manufactured goods being imported from very-low-labor-cost countries.

That's not a useful index, though; that's just the price change on a given ticket. I mean, going on SFO-NYC tickets, whether nonstop or not, I used to average $300-$350 round trip back in college 15-20 years ago for the cheapest advance purchase tickets. They're still that much, although it's gotten harder to find them at those rates.

There's clearly been overall inflation, whether understated by CPI (or median nominal-dollar income/hourly wages) or overstated by some other measures (cost of a barrel of oil, say, although this has a more direct effect on air travel costs.)

McSam18

Great post. While a lot of us FTers are cheering the potential collapse of the merger, I feel we're forgetting the necessity of this merger for the long term success and sustainability for US. With their limited network, lack of features on planes that fliers are craving for, and expected increase in labor costs, without a merger US won't be able to compete against UA, DL, and AA.

tommyleo

I'm not convinced.

First, US's "limited" network is now quite profitable while AA's huge network didn't prevent AA from bankruptcy.

Second, if US's planes are lacking "features" that people are "craving," why are US's loads so high? Exactly what features are you referring to?

Third, why are US's labor costs going to rise? It's not as if the pilots and FA's have better offers elsewhere, do they?

Convince me.

BoeingBoy

For a lot of the period FWAAA and I are discussing, the CPI used a fixed "market basket" of goods/services, ignoring consumers substitution of brands - what made WN successful all those years in a row. Thus the average of shoppers paid less than the official CPI would indicate. In other words, the CPI overstated inflation.

{quote]That's not a useful index, though; that's just the price change on a given ticket.[/QUOTE]

Like the official CPI, I didn't mean the real inflation of air travel would be what happens to the cost of a single ticket over time. That was just to illustrate the principle - a "basket" of flights cost X then and Y now. Average air travel inflation is a function of X & Y, not the price of laundry detergent, shirts, movies, etc, etc.

Jim

C010T3

If that's the case, Delta has problem on its hands, since US has shown on its application for new frequencies to Brazil that CLT has overtaken ATL on O&D figures to GIG... Go figure...

Biggie Fries

Me, too. If there is some more efficient market location to be in, US can evolve to it and AA can devolve to it. How limiting competition can improve things for the consumer is beyond me.

AA_EXP09

Like the official CPI, I didn't mean the real inflation of air travel would be what happens to the cost of a single ticket over time. That was just to illustrate the principle - a "basket" of flights cost X then and Y now. Average air travel inflation is a function of X & Y, not the price of laundry detergent, shirts, movies, etc, etc.

Jim[/QUOTE]

Movies have almost tripled...
(about 4 in 1997 to more than $12 in 2013...)

nkedel

CPI doesn't track individual brands; it tracks averages of categories of goods. Yes, the chained CPI has been proposed as an alternate model of tracking inflation by the substitution of alternate categories of goods; to say that NOT using it overstates CPI is as much an ideological statement as saying that CPI understates inflation because it over-weights good (driven down cheap foreign labor) over services, energy and housing costs all of which have gone up faster than CPI (and for that matter, in many cases MUCH faster than average wages.)

There's a Z you're missing, which is how much people have to spend on it. CPI, in the "price of laundry detergent" sense you mean, is a proxy for that. Not a very good one, but the best one everyone can grudgingly agree on.