Interesting article from the New York Times, how airlines are only concerned with short term returns, much like make other industries due to pressure from Wall Street.



https://www.nytimes.com/2017/05/28/busi ... f=business

Interesting to note that the profit margins for airlines has risen to 15 to 20%. When you complain about tight seating, no food, remember airlines are responding to shareholder representatives - Wall Street.

BUVC10er wrote:

Interesting article from the New York Times, how airlines are only concerned with short term returns, much like make other industries due to pressure from Wall Street.



https://www.nytimes.com/2017/05/28/busi ... f=business

Interesting to note that the profit margins for airlines has risen to 15 to 20%. When you complain about tight seating, no food, remember airlines are responding to shareholder representatives - Wall Street.

The airlines are being pressured from both sides. Shareholders want better returns, and passengers want cheaper fares. Passengers historically have not chosen better service for a more expensive fare. Some passengers do and that's why there's Economy Plus and First/Business. But the majority of passengers are seeking to go from Point A to Point B at the absolute cheapest fare. Airlines have no other choice than to cater to this.

Airlines are here just to make profit. They're not here for your traveling needs. If they can make profit by beating you and kicking you out, they will. While not everybody is beaten up and kicked out, most for most of us, basic luxuries that used to be free like food/water, bin space and even bathroom use now has a price. This is just capitalism run by banks. It's happening everywhere not just airlines.

inferno wrote:

Airlines are here just to make profit. They're not here for your traveling needs. If they can make profit by beating you and kicking you out, they will. While not everybody is beaten up and kicked out, most for most of us, basic luxuries that used to be free like food/water, bin space and even bathroom use now has a price. This is just capitalism run by banks. It's happening everywhere not just airlines.

That is such a gross overstatement that it needs a calling out. I ride the airlines every week and some see pretty good service, even in coach. Yes airlines are in business to make a profit otherwise they would not exist as many of them have found out.

inferno wrote:

Airlines are here just to make profit. They're not here for your traveling needs. If they can make profit by beating you and kicking you out, they will. While not everybody is beaten up and kicked out, most for most of us, basic luxuries that used to be free like food/water, bin space and even bathroom use now has a price. This is just capitalism run by banks. It's happening everywhere not just airlines.

Sounds like you are flying the wrong airlines or enjoying cheaper fares (oh the another side effect of capitalism).

We often hear that companies exist only to make money for shareholders. The other side of this is society passes laws to allow companies to exist in some legal sense as a person. Society has the right to make to rules work for the economy as a whole. To some extent a number of sectors have been captured entirely by companies to make them only responsible to shareholders and managers.

BUVC10er wrote:

Interesting article from the New York Times, how airlines are only concerned with short term returns, much like make other industries due to pressure from Wall Street.



https://www.nytimes.com/2017/05/28/busi ... f=business

Interesting to note that the profit margins for airlines has risen to 15 to 20%. When you complain about tight seating, no food, remember airlines are responding to shareholder representatives - Wall Street.

TWO THOUGHTS

1) Short-term thinking among airlines has been around for at least 20 years. Not new.
2) I suspect that in the arena of mass transportation, these are the best operating margins sustained for a lengthy period of time since mass transportation was born. I might even say that is likely to be true worldwide. Mass transportation is notorious for low margins or losses. That extends to buses, trains, and planes.

frmrCapCadet wrote:

We often hear that companies exist only to make money for shareholders. The other side of this is society passes laws to allow companies to exist in some legal sense as a person. Society has the right to make to rules work for the economy as a whole. To some extent a number of sectors have been captured entirely by companies to make them only responsible to shareholders and managers.

This really sums things up for many industries, especially in North America. The "existing as a person' rulings allow corporations to donate to political campaigns. The shareholder value angle crept in during the 80s and 90s, now pervading high tech, pharma, and health care.

The airline business is no different these days. As anetters, at least we can find some intrigue and romance in what to many is just a way to augment their stock portfolio.

Interesting how fewer and fewer people (and newspapers) nowadays understand how capitalism and competition work. The problem nowadays is that we don't let capitalism and competition work. Instead, we create regulations and laws to protect the status quo. The reasons are many. As a people, we don't want those who don't compete well to go out of business. Most importantly, we (and shareholders) don't want companies to take risks. Change is scary and we don't want change. Thus the heard mentality among the airlines and the seeming inability to perform anything other than a marginal change. And we reap what we sow.

Read Tyler Cowen's book, "The Complacent Class" before replying.

inferno wrote:

Airlines are here just to make profit. They're not here for your traveling needs. If they can make profit by beating you and kicking you out, they will. While not everybody is beaten up and kicked out, most for most of us, basic luxuries that used to be free like food/water, bin space and even bathroom use now has a price. This is just capitalism run by banks. It's happening everywhere not just airlines.

Which airlines charge for bathroom use?

jetmatt777 wrote:

The airlines are being pressured from both sides. Shareholders want better returns, and passengers want cheaper fares. Passengers historically have not chosen better service for a more expensive fare. Some passengers do and that's why there's Economy Plus and First/Business. But the majority of passengers are seeking to go from Point A to Point B at the absolute cheapest fare. Airlines have no other choice than to cater to this.

While it is broadly true that passengers want lower fares, in the US, airlines do not offer these "low" fares. When comparing other markets like Europe and Asia, the US is a high fare market. Why? Because the US industry is controlled by an oligopoly. In a true capitalist system, competition would be a reality and fares would be much lower than they are today. Of course, service levels would also be less than what they are today. Thus, with any oligopoly, the incumbents are able to offer no frills service at a high frills fare.

Who is at fault here? Mainly the regulators for allowing the wave of mergers of the past decade. It doesn't make sense to regulate this oligopoly even more. If anything they should break up the airlines and bring in more competition. But some might argue that airlines' finances are pretty bad when there is competiton, case in point European airlines today. But just like other industries, weak players should fail and the ones that are able to adapt should survive.

Long story short, the US airlines are moving in the right direction in terms of removing frills and service levels. But in a truly competitive environment, this change would come much quicker and at a lower cost to the traveling public.

BUVC10er wrote:

When you complain about tight seating, no food, remember airlines are responding to shareholder representatives - Wall Street.

Only indirectly. "Wall street" says, "make us lots of money."

The airline then looks at what makes them money and acts accordingly.

Passengers have been consistently proving that the way to make money in the airline industry is to reduce seat sizes, service levels, perks, and all the other actions necessary to provide the lowest possible fare. Sure, they no doubt make a much higher profit margin on business and 1st class seats, but that's only a small slice of the market.

As long as the lowest possible fare is the most popular option among passengers, this will continue.

Thankfully, premium economy seems to be getting more popular, and I'm hoping that an increase in competition there will lead to a more balanced offering that is decently priced but provides the amenities that used to be common, while the service level that economy is increasingly becoming turns into a minority of the seats on carriers with multiple classes.

dfwking wrote:

While it is broadly true that passengers want lower fares, in the US, airlines do not offer these "low" fares. When comparing other markets like Europe and Asia, the US is a high fare market. Why? Because the US industry is controlled by an oligopoly. In a true capitalist system, competition would be a reality and fares would be much lower than they are today. Of course, service levels would also be less than what they are today. Thus, with any oligopoly, the incumbents are able to offer no frills service at a high frills fare.

Huh? How many other nations have half a dozen major airlines? In Europe it seems more common to have multiple nations served predominantly by one of the merged traditional airline giants like IAG, plus a patchwork of routes from the LCC's, some of which are subsidiaries of the traditional airline, like Vueling. Also, I got caught one time in a small part of the mess that ensued when British bought BMI. Many of the same problems definitely exist over there as we have in the US.

But that aside, assuming the most recent series of US mergers hadn't gone through and Northwest, Continental, US Airways, and Virgin America all still existed, how would that actually improve competition? The routes that can support a large number of carriers already were not hurting for competition. The routes that can not support multiple carriers still would not be able to.

So for an example of a route I sometimes fly, had Alaska not bought out Virgin, would Virgin for some reason have started SEA-IND even though until Alaska started service recently, even a single airline could not make a business case for it?

Ah, but for the times when airlines went bankrupt every couple of years, and/or only the extremely wealthy could afford to fly, and even then rarely... those were the times, amirite?

747d10 wrote:

inferno wrote:

Airlines are here just to make profit. They're not here for your traveling needs. If they can make profit by beating you and kicking you out, they will. While not everybody is beaten up and kicked out, most for most of us, basic luxuries that used to be free like food/water, bin space and even bathroom use now has a price. This is just capitalism run by banks. It's happening everywhere not just airlines.

Which airlines charge for bathroom use?

None, he is just being a drama queen.

Pyrex wrote:

Ah, but for the times when airlines went bankrupt every couple of years, and/or only the extremely wealthy could afford to fly, and even then rarely... those were the times, amirite?

I am quite surprised it took until Post 15 for this favorite line of a.net to get posted. Figured it would be Reply #1.

Of course, there is a lot of middle ground behind the historic situations you describe and the present state of the airline industry. We don't have to choose between the two extremes (nor should we).

The line in the article that struck me most was that only (only being my word here) 35% of people choose solely on price. Of course, another 35% choose mainly on price so that brings it to 70% of people using price of a major decision factor. I would have guess that percentage to be quite a bit higher if you'd made me guess.

Maybe I'm not part of the norm here by saying this but I don't blame Wall Street for a bad inflight experience; I blame the lack of common-sense.

Here are my personal experience examples:

+ I purchased a round-trip LAX-IAH via ATL (to be on the 777) in F for roughly $2,500.00 to attend a Cinco de Mayo birthday party. So, it came from out-of-pocket. I was astonished by the flight attendant knowingly serving me room-temperature white wine. I get catering didn't load the plane with chilled white wine, but there is a quick-fix for that: an ice-bucket (fill it with ice and club soda or water and add the bottle to be chilled) could have been started before the hot-towel service prior to the meal. Commom sense.

+ LAX - BKK via NRT in J. I ate really well. Catering did a great job and everything was nice until the breakfast service just before landing into Narita: why would anyone serve pork on an airplane knowing pork is a dry meat. It's dry in the sky and then this pork noodle breakfast was a softer version of tree bark. Common sense. Don't serve pork on the plane unless it's in the form of a dumpling. Anyway, I was hungry and asked for the Economy Breakfast. She looked so offended when I requested that. So that's what an $8,000 plane ticket gets you: dry-as-the-desert pork and judgment in a roomy seat. Again, paid for out-of-pocket but let's be honest here, these are all first-world problems.

I've already switched loyalty programs. Done and Done.

Yes, Wall Street is to blame. Airlines want to make as much money as possible while passengers want the cheapest fares possible. Wall Street takes advantage of both, and guess who wins in the end? Interesting how Wall Street is legal but organized crime families are not. Same exact thing, except at least the crime families are honest in their dealings.

Um, sorry, but $8,000 isn't exactly what I would call "the cheapest fare" especially when that comes out of my checking account. Not everyone falls into that general category of expecting First Class service at Basic Economy fares.

I really don't think I deserved her judgmental stare which happened after two bites; I refused the dry pork and asked for the Economy Breakfast option. I was hungry.

Wall Street may win at the end, but complicity at the customer service level is to blame. And this has nothing to do with entitlement. This has to do with going back to the basics.

White wine should be served chilled. Period. End of story. It's common-sense. If it's not chilled, then don't serve it.

It was sheer laziness and lack of having a sense of pride. I get it we all have our bad days and I certainly have mine, but geez is it really too much to ask for a properly chilled glass of white wine after paying north of $2,000?!!! I mean really? She should have just told me there was no white wine available. At least I can't fault the lapse in onboard service. I understand once the plane takes off, my only options are what was loaded by the catering truck at the gate.

Have we all become so jaded that we have lost the basic expectations of customer service and now people are so quick to lump every single paying passenger into the categories of entitled and low-budget flyers?!!! Eeeeek!

Personally, I would NEVER, not even slightly entertain the idea of pouring a glass of white wine at room temperature to guests in my own home. It's insulting.

And if I was a flight attendant and I caught that bottle of white wine at room temperature, I would make an ice bucket with ice and water or club soda and chill those bottles asap. I may have to apologize for the delay in wine service and that's alright by me,
but at least I's sending a message that says, "hey, this happened. I'm going to fix it and do it the right way."

Accountability. It's funny how conveniently this disappears at the convenience of the complicit under the guise of authority.

But seriously, the last time I checked, a member of Wall Street isn't working in the plane doing the passenger service making inflight service to blame. It's the few complicit cabin crew members that make the good ones look bad.

It's quite a shame because I've been lucky for most of my flying experiences so it's easily-noticeable for me to spot the bad apples that ruin the "applesauce."

Lesson per above: unless you have status with an airline, avoid US airlines if you are flying to Asia.

Wall Street is the enemy of airline passengers and local communities. By pressuring airlines to to reward executives *only* for short-term financial gains, and expecting unreasonably high profits, Wall Street unnecessarily reduces the breadth, accessibility, and service levels of a business that, whether they like it or not, is also a social good.

Jim

DCA-ROCguy wrote:

Wall Street is the enemy of airline passengers and local communities. By pressuring airlines to to reward executives *only* for short-term financial gains, and expecting unreasonably high profits, Wall Street unnecessarily reduces the breadth, accessibility, and service levels of a business that, whether they like it or not, is also a social good.

Jim

Unreasonably high profits? Airline profit margins even now are mediocre performers at best when placed in context with other industries. And reduce accessibility? Well I'd say they're doing a terrible job if that's their goal given that the US air travel market per capita is larger than it has ever been. Check your facts before you post.

frmrCapCadet wrote:

Lesson per above: unless you have status with an airline, avoid US airlines if you are flying to Asia.

I thought this was always the case: for most foreign airlines, flight to LAX or JFK is a flagship route. For US airlines exact same route is just one of many "is that in asia or europe??" runs..

flyguy89 wrote:

Unreasonably high profits? Airline profit margins even now are mediocre performers at best when placed in context with other industries. And reduce accessibility? Well I'd say they're doing a terrible job if that's their goal given that the US air travel market per capita is larger than it has ever been. Check your facts before you post.

"Context with other industries" does not fully apply, as many industries are not social goods and thus they do not make adequate comparison.

Ask the smaller communities that have lost air service in the last few decades. Per capita nationwide is not the only measure of accessibility.

I know my facts just fine, thank you. You might want to try paying attention to what I actually wrote.

Jim

747d10 wrote:

inferno wrote:

Airlines are here just to make profit. They're not here for your traveling needs. If they can make profit by beating you and kicking you out, they will. While not everybody is beaten up and kicked out, most for most of us, basic luxuries that used to be free like food/water, bin space and even bathroom use now has a price. This is just capitalism run by banks. It's happening everywhere not just airlines.

Which airlines charge for bathroom use?

I expect to see all of them charging for the privilege of going soon. That is the only thing left ...

AEROFAN wrote:

747d10 wrote:

inferno wrote:

Airlines are here just to make profit. They're not here for your traveling needs. If they can make profit by beating you and kicking you out, they will. While not everybody is beaten up and kicked out, most for most of us, basic luxuries that used to be free like food/water, bin space and even bathroom use now has a price. This is just capitalism run by banks. It's happening everywhere not just airlines.

Which airlines charge for bathroom use?

I expect to see all of them charging for the privilege of going soon. That is the only thing left ...

Cost of washing pee off the seat would be a show-stopper.

Actually its blame multiple mega mergers which reduced competition and resulted in creating oligopolies that behave like logical monopolies that do not have to pretend to give a damn,

Could you imagine if we relaxed cabotage rules and let an airline like Emirates fly within the US? Just flew over to Germany and back for the first time on Lufthansa and had a great experience in both directions.

I believe that the last airline in the US that actually cared about thier guests, VX was forced to put itself up for sale to make a quick buck for it's Wall Street investors.

DCA-ROCguy wrote:

flyguy89 wrote:

Unreasonably high profits? Airline profit margins even now are mediocre performers at best when placed in context with other industries. And reduce accessibility? Well I'd say they're doing a terrible job if that's their goal given that the US air travel market per capita is larger than it has ever been. Check your facts before you post.

"Context with other industries" does not fully apply, as many industries are not social goods and thus they do not make adequate comparison.

It very much adequately applies. An argument could very easily be made that a lot of industries meet the arbitrary threshold of "social good." I could say smart phones are a social good...have you seen Apple's profit margins?

DCA-ROCguy wrote:

Ask the smaller communities that have lost air service in the last few decades. Per capita nationwide is not the only measure of accessibility.

...and neither is the fact that some smaller communities have lost out on subsidized air service Regardless of that fact, more people are flying on more flights at cheaper fares than ever before.

iamlucky13 wrote:

Huh? How many other nations have half a dozen major airlines? In Europe it seems more common to have multiple nations served predominantly by one of the merged traditional airline giants like IAG, plus a patchwork of routes from the LCC's, some of which are subsidiaries of the traditional airline, like Vueling. Also, I got caught one time in a small part of the mess that ensued when British bought BMI. Many of the same problems definitely exist over there as we have in the US.

The EU as a whole is one aviation market. The US as a whole is one aviation market. Compare the two, and you quickly realize one has a lot of competition and the other does not. Yes there have been a spate of mergers in the EU. But even still, they are not left with 6 players virtually controlling the entire market as in the US.

Individual nations in Europe are relatively small and domestic markets are mostly served by trains, cars, and busses. The basis of comparison is the EU single aviation market to the US single market.

iamlucky13 wrote:

But that aside, assuming the most recent series of US mergers hadn't gone through and Northwest, Continental, US Airways, and Virgin America all still existed, how would that actually improve competition? The routes that can support a large number of carriers already were not hurting for competition. The routes that can not support multiple carriers still would not be able to.

So for an example of a route I sometimes fly, had Alaska not bought out Virgin, would Virgin for some reason have started SEA-IND even though until Alaska started service recently, even a single airline could not make a business case for it?

Well for the SEA to IND segment, the competition would be come from 7 other airlines that offer connecting service versus the 3 or maybe 4 that do today.

Some people here either just don't know economics or work for wall street.People want lower and lower ticket prices because people are earning less and less (at least in America). Ever wonder why that is? Those mega mergers aren't helping too. Your airline is in the brink of bankruptcy, so what do you do, merge with another airline to raise stock prices to make shareholders happy. The effect, less competition, the more airlines can get away treating passengers like s#!t. Oh, and some of you want less regulations, let's put in those standing-room section in the cabin then.

The situation is not as simple as airlines giving the opportunity to more of the masses to access air travel. As the most profitable class in an airplane is business class. What is happening is that more and more money are going to execs who fly private anyway. The 99% who fly commercial has less money to go around. The less money for the masses, the less they are willing to pay for tickets. Then airlines need to lower prices by slashing services, slashing seat pitch, etc. It's a vicious cycle and this is what recessions are made of.

Last I checked (admittedly, in 2009), the airline industry as a whole, cumulatively, throughout its entire existence, had failed to meet its cost of capital. With the industry finally being profitable for the last few years maybe that has changed now (but then again, it is only a few years of profits to offset decades and decades of losses). Any other industry that performed like the airline industry would have gone out of business a long time ago, but luckily there has always been a certain panache associated with having your name plastered on the side of a big, shiny metal tube crossing the skies at 500 mph, so the industry was always able to attract the next generation of hopeful airline millionaires (by starting off as billionaires).

The NYT gives me a bad reader experience. A lot of their news materials are in fact opinion/editorial content, or speculative creative writing. Shall I blame Wall Street?

Interesting how fewer and fewer people (and newspapers) nowadays understand how capitalism and competition work.

The airline industry has, is, and will continue in the economy is one of the prime examples of multiple market failures. It relies on subsidies (appropriate and inappropriate), peculiar pricing, and market restrictions. It is also one of the wonders of our era, and an essential part of our economy.

747d10 wrote:

inferno wrote:

Airlines are here just to make profit. They're not here for your traveling needs. If they can make profit by beating you and kicking you out, they will. While not everybody is beaten up and kicked out, most for most of us, basic luxuries that used to be free like food/water, bin space and even bathroom use now has a price. This is just capitalism run by banks. It's happening everywhere not just airlines.

Which airlines charge for bathroom use?

Ryanair

brilondon wrote:

747d10 wrote:

inferno wrote:

Airlines are here just to make profit. They're not here for your traveling needs. If they can make profit by beating you and kicking you out, they will. While not everybody is beaten up and kicked out, most for most of us, basic luxuries that used to be free like food/water, bin space and even bathroom use now has a price. This is just capitalism run by banks. It's happening everywhere not just airlines.

Which airlines charge for bathroom use?

Ryanair

No they don't

brilondon wrote:

747d10 wrote:

inferno wrote:

Airlines are here just to make profit. They're not here for your traveling needs. If they can make profit by beating you and kicking you out, they will. While not everybody is beaten up and kicked out, most for most of us, basic luxuries that used to be free like food/water, bin space and even bathroom use now has a price. This is just capitalism run by banks. It's happening everywhere not just airlines.

Which airlines charge for bathroom use?

Ryanair

Seriously? I scoured their website and couldn't find any information on bathroom usage fees. How much do they charge, and where do you pay?

I've wondered for a while what the fuss is about when it comes to the amenities we expect when flying. Especially for short haul.

If I buy a train ticket from Newcastle to London. It will cost me more than the BA flight. It also doesn't guarantee me a seat. It just guarantees the journey. The seat won't recline legroom will be minimal and no complimentary drinks. I'll be on that train for about 3 hours. And I expect nothing other than to arrive.

But when BA introduce buy on board.... There's an outcry over a much shorter journey which I've probably paid less for!

Long haul though is a different matter

dfwking wrote:

iamlucky13 wrote:

Huh? How many other nations have half a dozen major airlines? In Europe it seems more common to have multiple nations served predominantly by one of the merged traditional airline giants like IAG, plus a patchwork of routes from the LCC's, some of which are subsidiaries of the traditional airline, like Vueling. Also, I got caught one time in a small part of the mess that ensued when British bought BMI. Many of the same problems definitely exist over there as we have in the US.

The EU as a whole is one aviation market. The US as a whole is one aviation market. Compare the two, and you quickly realize one has a lot of competition and the other does not. Yes there have been a spate of mergers in the EU. But even still, they are not left with 6 players virtually controlling the entire market as in the US.

Individual nations in Europe are relatively small and domestic markets are mostly served by trains, cars, and busses. The basis of comparison is the EU single aviation market to the US single market.

A) The land area of the US is more than double that of the EU with population density about 1/3 that of Europe. Any comparison between the two needs to take into account the fact that average stage length for flying in the US is necessarily much longer than the EU.
B) IAG, AFKL, LH Group, FR, U2, and SK...I'd put good money that those 6 players do indeed control virtually the entire EU market. Granted there are also other marginal players in AZ, TP and EI, but then in the US there's also NK, F9, G4, and SY, and mind you the EU also has a population base about 200 million people larger than the US.

inferno wrote:

Some people here either just don't know economics or work for wall street.People want lower and lower ticket prices because people are earning less and less (at least in America). Ever wonder why that is?

I don't know that there's much in the way of "economics" in what you're posting either. On a real and inflation-adjusted basis, income for US individuals and families continues to grow. Now, there is indeed debate about how much those incomes are getting squeezed by costs for other things, which can decrease disposable income, but it's just about the laziest of speculation to state that the reason people want the cheapest fares nowadays is because they're making less. Plenty of people also just prefer taking a cheap flight so they can splurge on other things like hotels on their vacation, or they'd rather take an extra trip with the money saved from flying LCC.

inferno wrote:

The situation is not as simple as airlines giving the opportunity to more of the masses to access air travel. As the most profitable class in an airplane is business class.

What are you even trying to say here? Yes, business is the higher yielding ticket, but airlines also make significant profit from selling much higher volumes of lower-yielding coach tickets.

flyguy89 wrote:

A) The land area of the US is more than double that of the EU with population density about 1/3 that of Europe. Any comparison between the two needs to take into account the fact that average stage length for flying in the US is necessarily much longer than the EU.
B) IAG, AFKL, LH Group, FR, U2, and SK...I'd put good money that those 6 players do indeed control virtually the entire EU market. Granted there are also other marginal players in AZ, TP and EI, but then in the US there's also NK, F9, G4, and SY, and mind you the EU also has a population base about 200 million people larger than the US.

A.) Even on comparable stage lengths with similar sized populations fares are lower in the EU. But you are right in that distances are on average shorter in Europe. The lower fares are a factor of both increased competition in the air and from other modes of transport.

B.) Competition in Europe is not as consolidated as your statement makes it seem. Those six European airlines do not control as big of the market as the US majors do. There are other significant airlines like Norwegian, Brussels, Wizz, Jet2, the host of holiday charters, and the multitude of smaller national airlines. In addition, the ULCCs in the EU are much larger and provide more competition than those of the US. I stand by my argument. There is significantly less competition in the US.

BUVC10er wrote:

Interesting to note that the profit margins for airlines has risen to 15 to 20%. When you complain about tight seating, no food, remember airlines are responding to shareholder representatives - Wall Street.

Critical caveat to those numbers, though. It's very convenient that the "article," which has an obvious point of view it's trying to promote, used the operating margin rather than the net margin. That 15-20% number is the operating margin of the industry, in the aggregate. It is not the net margin. The net margin is what the airlines and their owners actually get to keep after paying for the cost of financing the operation. And the net margins of the U.S. airline industry, in the aggregate, are well below 15-20%. I would be interested to see the numbers, but I suspect that if that average is even in the double-digits, it's in the low double-digits. And that is entirely reasonably for enterprises as sprawling, complex and risky as airlines.

BravoOne wrote:

That is such a gross overstatement that it needs a calling out. I ride the airlines every week and some see pretty good service, even in coach. Yes airlines are in business to make a profit otherwise they would not exist as many of them have found out.

Agreed. I honestly still do not understand all the whining and complaining. I travel all the time, and the vast majority of the time, I manage my expectations and thus my expectations are typically met. I want safe, reliable transportation from A to B. If I want more, I have to pay more. That doesn't seem unreasonable.

frmrCapCadet wrote:

We often hear that companies exist only to make money for shareholders. The other side of this is society passes laws to allow companies to exist in some legal sense as a person. Society has the right to make to rules work for the economy as a whole. To some extent a number of sectors have been captured entirely by companies to make them only responsible to shareholders and managers.

It's been discussed here over and over. Over and over and over. If "society" (whatever that means) wants to re-regulate the airline industry so that it "work[s] for the economy as a whole" (whatever that means), then it can certainly do that. That is precisely what our elected representatives are for. They have the constitutional authority to regulate interstate commerce. So if our elected representatives, informed by the votes of citizens, decide to essentially regulate the offerings of Spirit, Frontier and Alliegant - and the similar offerings of competitors - out of existence, they certainly have the legal prerogative to do so. But the inevitable and inescapable end result will be that fares will rise, choice will decline, and fewer people will fly. It's as simple as that. That would essentially amount to saying, "if you as a free and law-abiding U.S. citizen want to willingly purchase a bare-bones product from a willing provider, you are prohibited from doing so despite the fact that your independent choices pose absolutely no threat to public safety." Thanks, but no thanks.

DCA-ROCguy wrote:

"Context with other industries" does not fully apply, as many industries are not social goods and thus they do not make adequate comparison.

And herein, again, we get to the real issue. Some people view airlines as a "social good." Others don't. If it's truly a "social good" like other utilities - power, water, etc. - then re-regulate it, accept the reduction in competition, and mandate some level of arbitrarily-defined "minimum service." Just be done with it.

But if the goal is to maximize access to air service, then the system we have, while imperfect, seems to be working quite well. Deregulation does not now, nor has it ever, guaranteed equal access to a service, or at equal price points, for everyone - in fact, that's pretty much the antithesis of a free market. The industry structure is evolving and, over time, stratifying - it's frankly the natural path that we've been set on since 1978, and frankly since the 1930s. We started with a system where everybody payed about the same and got about the same. Then, with deregulation, we steadily moved to a system where there was wide variation in what people paid based on their perceived value (time of purchase, supply vs demand, etc.). And now, finally, we're steadily moving towards a system where, accompanying the wide variation in what's paid, there is also a wide variation in what people get for what they paid. Everyone gets a seat from A to B, and if you want to bring a bag, be provided with food, get a better seat or more legroom, etc. - that all costs more. Again, seems reasonable to me.

DCA-ROCguy wrote:

Ask the smaller communities that have lost air service in the last few decades. Per capita nationwide is not the only measure of accessibility.

That's a red herring. There are countless exogenous factors that have just as much if not more of a role to play in the decline of small community air service as deregulation. In fact, the argument is somewhat illogical on its face. As has been stated repeatedly - and accurately - here on A.net, fares are, inevitably and logically, more expensive in smaller markets. Those markets carry higher opportunity costs and, by nature of their smaller size, don't have the scale to support as much competition as big, high-volume markets where there is enough demand to go around to sustain multiple rivals. So all else equal, with network airlines generally charging higher fares in small markets, wouldn't these network airlines want to increase their exposure to higher-revenue markets? The answer is yes, but of course all else isn't equal. The bigger part of that equation is cost. The cost of flying to small cities has effectively skyrocketed in recent years because of a variety of factors, chief among them the steady rise in the cost of pilot labor. As compensation for pilots have steadily risen, the share of the overall cost burden on a given flight attributed to that pilot compensation has risen as well, and especially so on small airplanes.

Personally, I think the issue of small community air service is mostly a non-issue, anyway, since the vast majority of the U.S. population still lives within 1 hour (probably 30 minute) drive of a commercial airport. But if people are really that worried about it, then write your Congressman and Senator and tell them to do things to bring down the cost of pilot labor - like increasing the pool of available candidates.

dfwking wrote:

flyguy89 wrote:

A) The land area of the US is more than double that of the EU with population density about 1/3 that of Europe. Any comparison between the two needs to take into account the fact that average stage length for flying in the US is necessarily much longer than the EU.
B) IAG, AFKL, LH Group, FR, U2, and SK...I'd put good money that those 6 players do indeed control virtually the entire EU market. Granted there are also other marginal players in AZ, TP and EI, but then in the US there's also NK, F9, G4, and SY, and mind you the EU also has a population base about 200 million people larger than the US.

A.) Even on comparable stage lengths with similar sized populations fares are lower in the EU. But you are right in that distances are on average shorter in Europe. The lower fares are a factor of both increased competition in the air and from other modes of transport.

I very much doubt that that's true, any data to back it up?

dfwking wrote:

B.) Competition in Europe is not as consolidated as your statement makes it seem. Those six European airlines do not control as big of the market as the US majors do. There are other significant airlines like Norwegian, Brussels, Wizz, Jet2, the host of holiday charters, and the multitude of smaller national airlines. In addition, the ULCCs in the EU are much larger and provide more competition than those of the US. I stand by my argument. There is significantly less competition in the US.

Brussels is actually part of the LH Group, and sure there's also Norwegian and Jet2, but again there are over 200 million more people in the EU than the US, so controlled for population the competitive landscape between the two isnt all that different...you've got about 6 players who control the vast majority of the market.

DCA-ROCguy wrote:

flyguy89 wrote:

Unreasonably high profits? Airline profit margins even now are mediocre performers at best when placed in context with other industries. And reduce accessibility? Well I'd say they're doing a terrible job if that's their goal given that the US air travel market per capita is larger than it has ever been. Check your facts before you post.

"Context with other industries" does not fully apply, as many industries are not social goods and thus they do not make adequate comparison.

Ask the smaller communities that have lost air service in the last few decades. Per capita nationwide is not the only measure of accessibility.

I know my facts just fine, thank you. You might want to try paying attention to what I actually wrote.

Jim

You started to make a good point but got off track. There's one area where airlines directly compete with all other publicly held companies -- the quest for capital. Capital, for the most part, flows to the companies with the best risk/reward relationship. In the competition for capital, airlines do directly compete with Apple and other tech companies.

Ponder that for a minute. For capital acquisition, "social good" does not matter. Few will buy a stock that is locked into a regulations that make potential future earnings less desirable than the stock of other companies in other industries.

Ponder something else. Without capital, airlines cannot survive.

TheOldDude wrote:

You started to make a good point but got off track. There's one area where airlines directly compete with all other publicly held companies -- the quest for capital. Capital, for the most part, flows to the companies with the best risk/reward relationship. In the competition for capital, airlines do directly compete with Apple and other tech companies.

Ponder that for a minute. For capital acquisition, "social good" does not matter. Few will buy a stock that is locked into a regulations that make potential future earnings less desirable than the stock of other companies in other industries.

Ponder something else. Without capital, airlines cannot survive.

Exactly right. Airlines are in competition every single day with every single other publicly traded company, and a nearly endless list of other possible investments, for shareholders' capital. If investors believe that a given investment will not appropriately and sufficiently reward them for the associated risk, they'll place their capital elsewhere. That is, in essence, essentially what happened to every single network airline in the U.S. over the last decade - investors finally said "enough, we're not getting a return commensurate with the risk we're shouldering (or for that matter any return at all) so we're not giving any more money." And the industry went (largely) bankrupt.

I would just add one comment, or caveat, to the above - investors can and do willingly and happily invest in stocks "locked into a regulations that make potential future earnings less desirable" all the time, but they expect something in return. And that gets back to risk vs return. Investors invest in heavily regulated companies, like utilities, but they do so based on the implicit - if not explicit - understanding that in exchange for heavy regulation and lower profits, those companies profits are effectively guaranteed. In other words, the risk is lower. And that is, of course, exactly what would have to happen if airlines returned to a regulated environment - just like what happened prior to 1978. Airlines made generally lower profit margins than they're making today, but those margins were essentially guaranteed, because regulators intervened in the market to prevent "excess" competition on any given route.

So again, it all comes back to the airline industry that voters want. If voters want choice, then leave the system as-is. If voters want mandated "minimum service" and "maximum profit," with the cost being less competition, then by all means re-regulate.

flyguy89 wrote:

dfwking wrote:

flyguy89 wrote:

A) The land area of the US is more than double that of the EU with population density about 1/3 that of Europe. Any comparison between the two needs to take into account the fact that average stage length for flying in the US is necessarily much longer than the EU.
B) IAG, AFKL, LH Group, FR, U2, and SK...I'd put good money that those 6 players do indeed control virtually the entire EU market. Granted there are also other marginal players in AZ, TP and EI, but then in the US there's also NK, F9, G4, and SY, and mind you the EU also has a population base about 200 million people larger than the US.

A.) Even on comparable stage lengths with similar sized populations fares are lower in the EU. But you are right in that distances are on average shorter in Europe. The lower fares are a factor of both increased competition in the air and from other modes of transport.

I very much doubt that that's true, any data to back it up?

dfwking wrote:

B.) Competition in Europe is not as consolidated as your statement makes it seem. Those six European airlines do not control as big of the market as the US majors do. There are other significant airlines like Norwegian, Brussels, Wizz, Jet2, the host of holiday charters, and the multitude of smaller national airlines. In addition, the ULCCs in the EU are much larger and provide more competition than those of the US. I stand by my argument. There is significantly less competition in the US.

Brussels is actually part of the LH Group, and sure there's also Norwegian and Jet2, but again there are over 200 million more people in the EU than the US, so controlled for population the competitive landscape between the two isnt all that different...you've got about 6 players who control the vast majority of the market.

My data source is this economist article: http://www.economist.com/news/leaders/2 ... ssons-lack

The second and fourth paragraphs counter both your arguments.

dfwking wrote:

flyguy89 wrote:

dfwking wrote:

A.) Even on comparable stage lengths with similar sized populations fares are lower in the EU. But you are right in that distances are on average shorter in Europe. The lower fares are a factor of both increased competition in the air and from other modes of transport.

I very much doubt that that's true, any data to back it up?

dfwking wrote:

B.) Competition in Europe is not as consolidated as your statement makes it seem. Those six European airlines do not control as big of the market as the US majors do. There are other significant airlines like Norwegian, Brussels, Wizz, Jet2, the host of holiday charters, and the multitude of smaller national airlines. In addition, the ULCCs in the EU are much larger and provide more competition than those of the US. I stand by my argument. There is significantly less competition in the US.

Brussels is actually part of the LH Group, and sure there's also Norwegian and Jet2, but again there are over 200 million more people in the EU than the US, so controlled for population the competitive landscape between the two isnt all that different...you've got about 6 players who control the vast majority of the market.

My data source is this economist article: http://www.economist.com/news/leaders/2 ... ssons-lack

The second and fourth paragraphs counter both your arguments.

Not in the slightest. The airfare stats aren't stage length-adjusted, a straight seat mile comparison is not accurate. And once again, it's an air market with 200 million more people, you're comparing apples to oranges, and given that many of its largest carriers (AFKL, AZ, AB, TP) are perennial loss-makers, does not indicate an especially healthy or stable competitive environment.

flyguy89 wrote:

Not in the slightest. The airfare stats aren't stage length-adjusted, a straight seat mile comparison is not accurate. And once again, it's an air market with 200 million more people, you're comparing apples to oranges, and given that many of its largest carriers (AFKL, AZ, AB, TP) are perennial loss-makers, does not indicate an especially healthy or stable competitive environment.

Not to go back and forth and be argumentative, but even comparing fares on a seat mile basis show that the US is over priced. I think it's safe to assume that stage lengths in the US are longer than in the EU. Longer stage lengths generally should mean lower fares per seat mile (same logic as CASM decreasing as stage lengths increase, and this is what I've seen in my experience). Now the article says, "air fares are higher per seat mile in America than in Europe." Given that stage lengths are longer and air fares are also higher in America, we can conclude that even on a stage length adjusted basis, fares are higher in America than in Europe.

And yes there are 200 million more people, but there are also 10 other mainline European carriers I can name of the top of my head which I can't do in America. This is super anecdotal, but it's something.

Those loss makers should be allowed to go into bankruptcy. That way they can cut costs and compete, making the entire industry healthier.

dfwking wrote:

And yes there are 200 million more people, but there are also 10 other mainline European carriers I can name of the top of my head which I can't do in America. This is super anecdotal, but it's something.

What are the 10 mainline European carriers?

There's a somewhat parallel discussion in the "passenger and crews are in it together" thread. I hope it's not bad form, but I'll repeat what I said there:

"There are only three major network carriers in the EU: The Lufthansa Group, AF/KL, and IAG. You have a few LCCs like Ryanair, Easyjet, and Norwegian. Not very different from what we have in the US. For reasons of national pride, politics, and employee relations, separate brands have been preserved, i.e. Swiss, Austrian, SN Brussels are all under Lufthansa. Had separate United, Continental, Northwest, Delta, American, and US Airways brands been preserved, we would not have any more competition as they would all be under the same leadership and revenue management. Its advantageous in Europe to have separate branding. It is not advantageous in the US."

Part of the reason US carriers are more profitable is because they are more efficient. There is a cost to maintaining all of those separate brands, even if they are part of the same economic entity.

US airline industry profits are certainly not excessive, especially relative to other industries.