B777a340fan From United States, joined Oct 2005, 675 posts, RR: 0 Posted (1 month 2 weeks 4 days 6 hours ago) and read 12589 times:
After reading the thread about BA's recent profits (which I think is great btw), I was left to wonder what the US airlines are doing wrong when other airlines around the world are posting pretty good profits. I mean, are US airlines doing something that the others around the world aren't (or vice versa)?
Donder10 From Canada, joined Oct 2001, 6649 posts, RR: 14 Reply 3, posted (1 month 2 weeks 4 days 6 hours ago) and read 12561 times:
Not a direct answer to your question but I don't understand why so many people on here view a domestic industry's profitability as a guage of success. Sure the US majors are struggling financially but is that a reflection of poor management across the industry or a stronger level of competition than other aviation markets? Do higher profits at the likes of BA,LH,AF-KL etc prove that these countries have a 'stronger industry'. Using LCC market penteration as a proxy for assessing the maturity of a market I would suggest that the reason the US airlines are struggling is because of the more competitive and open market place - look how long it's taken for EU carriers to operate long-haul flights from outside their own domestic markets.
Singapore_Air From United Kingdom, joined Nov 2000, 12544 posts, RR: 15 Reply 4, posted (1 month 2 weeks 4 days 6 hours ago) and read 12542 times:
Brief answer: competitive landscape, the power of unions, the willingness of employees to realise economic reality of the industry in which they work, possible market failure due to overcapacity?, inability to extract yields, debt......
Not an employee or representative of Singapore Airlines Limited, or any related company, or their views thereof.
PanAm747 From United States, joined Feb 2004, 3614 posts, RR: 5 Reply 5, posted (1 month 2 weeks 4 days 6 hours ago) and read 12481 times:
The price of fuel in the U.S. has risen SO much in the last year that airlines have absolutely no hope of keeping up. Even Southwest's fuel hedges will run out, and it will re-negotiate at MUCH higher prices. Add to that the falling dollar, and you have prices changing before customers can fill their tanks!!
Other factors include (but are not limited to):
the fact that airlines can longer compete with each other over ANYTHING except price, which necesitates the virtual elimination of ANY kind of "service" (other than a smile)
High labor costs. Older airlines have more senior employees who cost a lot more $$$$ than flashy upstarts, which could mistakenly assume that their costs won't ever go up. They will, and some new young pup will be there to take THEIR place.
Giving away the store. Frequent flyer points and automatic upgrades have eaten away at the 10% of the plane that used to cover 80%+ of the costs.
Mismanagement of airlines. Some heavily unionized airlines have done well, some have not. Some non-unionized airlines have done well, some have not. Some see their employees as assets, others see them as liabilities. Some airlines have been blessed by extraordinarily good management determined to turn an airline "from worst to first", while others languish with a revolving door of incompetents determined to stay long enough to make a quick buck and secure the golden parachute. Some airlines make choices so obviously bad that the most novice a.net armchair CEO could see was a bad idea, some legitimately try and market and don't succeed.
Pan Am:The World's Most Experienced Airline - P(oor) S(ailor's) A(irline): San Diego's Hometown Airline-Catch Our Smile!
Par13del From Bahamas, joined Dec 2005, 987 posts, RR: 0 Reply 6, posted (1 month 2 weeks 4 days 6 hours ago) and read 12395 times:
Last I checked WN was a US carrier who has had operating profits longer than most foreign carriers, they are larger than most foreign carriers, they carry more pax than a lot of foreign carriers, and they don't need international traffic to be profitable, remarkable is what I would say, can you imagine BA, VS, KLM, AF having that large a fleet, flying only within the EU - I'm granting that one - and making a profit?
ANstar From Australia, joined Nov 2003, 2151 posts, RR: 2 Reply 7, posted (1 month 2 weeks 4 days 6 hours ago) and read 12380 times:
Quoting A300AA (Reply 1): Airlines in Asia, Europe and Latin America, are not doing bad. So, whats the difference?[/quo
[quote=Singapore_Air,reply=4]inability to extract yields, debt......
American carriers struggle to get much domestic premium yeild- punters are used to getting their free upgrades and therefore dont sell as much of the higher value fares. I guess this is the same on international. A frw companies I know have a buy J get F policy with AA.
Quoting PanAm747 (Reply 5): The price of fuel in the U.S. has risen SO much in the last year that airlines have absolutely no hope of keeping up.
It is the same for most airlines across the globe - The price of oil has been going up much faster than the dollar has been devalueing. The dollar has been hovering around 2 Pounds - $ 1 dollar mark for around 12 months, but in that same 12 months fule ha snearly doubled.
Ikramerica From United States, joined May 2005, 14518 posts, RR: 41 Reply 8, posted (1 month 2 weeks 4 days 5 hours ago) and read 12285 times:
Quoting PanAm747 (Reply 5): The price of fuel in the U.S. has risen SO much in the last year that airlines have absolutely no hope of keeping up.
Yes, it's 50% or more of costs for most USA carriers, but only 30% of costs for foreign airlines.
For many USA carrier, the losses of the last 3-9 months are attributable entirely the cost of fuel rising so much that fares can't keep up. A look at the annual and quarterly reports makes this crystal clear. As I've pointed out before, if oil were to stabilize at $120 for 6 months, airlines like CO and AA would return to profitability despite the high fuel costs. But if it keeps accelerating, they can't keep up with the rising costs.
Why is it hurting the USA carriers more? Weak dollar + oil imports = higher costs to dollar based companies. Slow economy = less travel. This squeezes the airlines on both ends: higher costs, lower revenues. Even the discount flyer helps pay for the fuel, even if he/she doesn't add to profit.
The summer season is coming. That means more domestic travel at higher prices, but less international J travel, so we'll see how that plays out. I know that when I'm looking to travel in July, advance discount fares are $200 more than last July, nearly 75% more. So we'll see if the customers will pay that much more. A 75% increase in fares based on a 33% increase in cost to fly due to fuel doesn't quite seem justified to me, though. Doubling of fuel costs from last summer still only means costs went up from being 33% of costs to 50% of costs, and overall costs only went up 33% or so. So if airlines overdo it and try to increase fares even more than 50%, they might shoot themselves in the foot…
Of all the things to worry about... the Wookie has no pants.
Silentbob From Vatican City State (Holy See), joined Aug 2006, 670 posts, RR: 0 Reply 9, posted (1 month 2 weeks 4 days 5 hours ago) and read 12274 times:
Quoting PanAm747 (Reply 5): Even Southwest's fuel hedges will run out, and it will re-negotiate at MUCH higher prices
The WN fuel hedges are one of the biggest problems the rest of the industry has right now. Any attempt to raise fares or fuel surcharges on the part of the legacy airlines is doomed to fail if other airlines don't follow along. With WN paying half the market rate for their fuel, they can afford to fly for much less than the other airlines. They're using that advantage to their fullest right now in Denver, IAD, PHL, LAS, etc...
Obviously the other things you mentioned all contribute to the problems in the US, but this one thing prevents them from doing the one thing they need to do; charge passengers what it costs to fly from point A to point B.
Osiris30 From Barbados, joined Sep 2006, 2391 posts, RR: 11 Reply 10, posted (1 month 2 weeks 4 days 5 hours ago) and read 12223 times:
Quoting A300AA (Reply 1): Airlines in Asia, Europe and Latin America, are not doing bad. So, whats the difference?
All these airlines haven't seen fuel spike so very dramatically for one. Remember the value of the Euro (and many other currencies) has gone up vs. the Dollar, so their fuel prices have grown by far less.
Also they each sell into markets dominated by different mindsets. The American consumer is (unfortunately) predominantly fixated on cost, while other areas of the world the customer is fixated on service. This allows airlines to offer (and charge for) more premium service.
I don't care what you think of my opinion. It's my opinion, so have a nice day :)
747srule From United States, joined Mar 2004, 273 posts, RR: 0 Reply 12, posted (1 month 2 weeks 4 days 5 hours ago) and read 12148 times:
I am surprised no one has mentioned this,so here's my .02 cents. Let's remember that instead of 1 or 2 airlines, the U.S. has AA Jet Blue CO F9 WN UA Northwest Delta and US Airways. Consequently, the pie is cut into smaller pieces.
Abrelosojos From Venezuela, joined May 2005, 2370 posts, RR: 13 Reply 13, posted (1 month 2 weeks 4 days 5 hours ago) and read 12087 times:
Quoting Donder10 (Reply 3): - look how long it's taken for EU carriers to operate long-haul flights from outside their own domestic markets.
= This is an often overlooked point ... and why I think round 1 of Open Skies is going to be nothing but hot air ... except for increased flights in.out of LHR.
Quoting PanAm747 (Reply 5): Giving away the store. Frequent flyer points and automatic upgrades have eaten away at the 10% of the plane that used to cover 80%+ of the costs.
= Do you blame the passengers? Without any upgraded cabin, why would they buy a F/J ticket?
Ikramerica From United States, joined May 2005, 14518 posts, RR: 41 Reply 14, posted (1 month 2 weeks 4 days 5 hours ago) and read 12069 times:
Quoting Osiris30 (Reply 10): Also they each sell into markets dominated by different mindsets. The American consumer is (unfortunately) predominantly fixated on cost, while other areas of the world the customer is fixated on service.
Well, you have to define "customer" before you make such a generalization in this case.
"Unfortunately" the USA is much wealthier across the board than a lot of the world, so far more people are able to fly in the first place. Thus the "customer" in the USA is not the same person as the "customer" from many other nations. In many countries it's still mostly the upper classes who can afford to fly (and expect to be treated like princesses and princes when they do), in the USA that era is long past, and flying has become something just about anyone can do if they save up a few ducats. And the masses don't expect great service or at least won't pay a huge premium for it, but they appreciate value. This is true in most countries you go to. The working and middle class is more value oriented all over the world, but in the USA, they are flying scheduled air carriers, and in other countries, they are taking the the train, or flying charter vacations, or not traveling at all, etc.
In the EU, the same phenomenon is kicking in but a few years later. That's why no-service carriers are doing well there. But as others have pointed out, the EU market has always been more charter oriented when it comes to the discount leisure traveler, where the USA has limited charters and package tour operators negotiate discount fares with many of the scheduled carriers.
Of all the things to worry about... the Wookie has no pants.
PGNCS From United States, joined Apr 2007, 704 posts, RR: 1 Reply 15, posted (1 month 2 weeks 4 days 5 hours ago) and read 12051 times:
Quoting Par13del (Reply 6): Last I checked WN was a US carrier who has had operating profits longer than most foreign carriers, they are larger than most foreign carriers, they carry more pax than a lot of foreign carriers, and they don't need international traffic to be profitable, remarkable is what I would say, can you imagine BA, VS, KLM, AF having that large a fleet, flying only within the EU - I'm granting that one - and making a profit?
And they are heavily unionized...the difference is they have defined their business model, have stuck to it, and are extraordinarily well managed.
Thegeek From Australia, joined Nov 2007, 631 posts, RR: 0 Reply 16, posted (1 month 2 weeks 4 days 5 hours ago) and read 12055 times:
I'd add that the US airlines have been very slow to retire older and thirstier aircraft, in particular NW's DC-9s. And AA/TWA buying more MD-80s in the late 1990s was a strange decision especially for AA in the sense that they should have foreseen that they'd need to buy 738s to replace its 727s anyway, so there was no commonality advantage.
It's particularly strange when it's recognised that there is an overcapacity problem in the US.
Gsosbee From United States, joined Jan 2005, 267 posts, RR: 1 Reply 18, posted (1 month 2 weeks 4 days 4 hours ago) and read 11993 times:
The dollar really has nothing to do with the profitability within a country. Issues are:
* Lack of significant intra-country competition - In Europe people either put up with the Ryan Air's of the world or pay the country carrier of choice a pound of flesh. In Asia nothing but the country's carrier.
* No international competition of any significance
* US carriers bowing to their customers choice of frequency over efficiency (more flights on smaller airplanes rather than fewer flights on larger planes.)
* A five hour transcon flight in the US a rock bottom prices v. a five hour international flight (at international prices.) (i.e. more area to cover in the US.)
Flybyguy From United States, joined Jun 2004, 1391 posts, RR: 1 Reply 19, posted (1 month 2 weeks 4 days 4 hours ago) and read 11982 times:
Quoting ANstar (Reply 7): American carriers struggle to get much domestic premium yeild- punters are used to getting their free upgrades and therefore dont sell as much of the higher value fares. I guess this is the same on international. A frw companies I know have a buy J get F policy with AA.
What you say here pretty much sums up the U.S. airline problem. Domestic flying is terrible on U.S. carriers because of the low yields and the highly competitive nature of those routes. Legacy carriers currently do not have the corporate culture or the cost structure in order to make domestic flying. An airline like Southwest was made for sustainable and profitable domestic flying. I think therein lies the biggest problem for Legacy carriers today, they have their hand in every cookie jar reaching for crumbs.
European and Asian carriers are able to be profitable because they are virtual monopolies in their home turf. The governments of those regions are less inclined to promote free market competition. Furthermore the aforementioned airlines with high profit margins, BA, SQ have routes that are overwhelmingly international and all initiate from small nations with little or no domestic flying. We all know that international missions comprise the bulk of any airlines cargo and premium class yields.
I think we are reaching a new era of air travel, similar to that caused by the Deregulation Act of 1978.
To get this industry under control again we either have to see Legacy carriers move from gaining market share to concentrating on SEVERE rationalization of their operations or have newer carriers not burdened with union bureaucracy and complicated cost structures gradually take domestic flying away from Legacy carriers. This may mean that domestic airlines may end up looking very much like Southwest Airlines. Domestic flying should be an entirely separate business operation from international flying, with only, perhaps, some agreements and schedule arrangements that will aid passenger connections between domestic and foreign flights. I think it is an important point that domestic and international flying are entirely different animals and need to be treated to separate cost structures, corporate cultures, and business plans. I think having any one company do both with lead to complications and unneeded bureaucracy and disallows the company from being flexible. I think the way Southwest has been conducting business for 30+ years should be a wake-up call to the airlines... they took up their small niche in the world and rather concentrated on market share and empires, they took their time over those three decades to do what they do with excellence and superior profitability.
A sustainable and profitable domestic airline, much like Southwest will have to concentrate on growing slowly and using the point to point model, offer simple amenities with excellent customer service and fly a single fleet type only to places that can sustain profitability, furthermore they have to treat their employees right from the get-go for this to be successful. We have seen how easily airlines have gone under because of airline management/employee discord and how hard it is for airlines to gain profitable footholds.
"Are you a pretender... or a thoroughbred?!" - Professor Matt Miller
Sponsor Message: 
From United States, joined Oct 2005, 675 posts, 
From Denmark, joined Dec 2007, 282 posts, 
From Canada, joined Oct 2001, 6649 posts, 
From United Kingdom, joined Nov 2000, 12544 posts, 
From Bahamas, joined Dec 2005, 987 posts, 
From Australia, joined Nov 2003, 2151 posts, .gif){kind=small}
From Vatican City State (Holy See), joined Aug 2006, 670 posts, 
From Barbados, joined Sep 2006, 2391 posts, 
From Venezuela, joined May 2005, 2370 posts,