Very true. At 12:01 AM 20/05/03 -0400, you wrote: >You've rather artfully made a point I've brought up on here more than once: >lower fares does not, by definition, translate into increased long-term >revenue (that is, profit). Not everyone seems to grasp that concept. > >-----Original Message----- >From: The Airline List [mailto:AIRLINE@xxxxxxxxxxxxxxxxx] On Behalf Of Grant >McKenzie >Sent: Monday, May 19, 2003 10:37 PM >To: AIRLINE@xxxxxxxxxxxxxxxxx >Subject: Re: DJ $158 million profit > > >So what is that it doesn't work. Or more accurately, it only works up to a >point. It becomes an exercise in creative accounting rather than genuine >excess of income over outgoing. Put another way, there is only so much >profit you can squeeze out of cost cutting if revenue is static or only >growing slowly. If QF reduced their cost base to DJ level their profits on >the balance sheet would triple overnight. Doesn't mean they earnt more >money. Revenue growth is the only long term way any company can survive > >As I said previously, DJ (and QF) gained a windfall of pax when AN collapsed >but from now on market growth will be incremental rather than quantum. Their >profit increased from $47 mil last year to $158 mil this year but I doubt >very much whether they will record a comparable increase next year. > >Lowering fares doesn't always work either. It might encourage more people to >fly but it will narrow the margin between cost of seat and revenue per seat >and hence reduce rather then increase profits. There is a finite point >beyond which an airline can't make a profit no matter how many seats they >sell. Low Cost Carriers like Virgin, Ryanair, Easyjet et al have a lower >point than majors like QF, BA, etc but it's there none the less.