What you're referring to Clay is 'elasticity of demand'. Airlines ability to extract higher yields from available seat miles (ASM) has diminished greatly with the proliferation of budget carriers and the perceived lack of value in paying the premium the legacy carriers would have you pay. In short, people see a large difference in price and very little difference in service. Leisure travelers are much more price sensitive than business travelers but even businesses now are becoming more price conscious in order to pare travel costs and remain competitive in their respective industries. Because there's so much capacity and a significant portion of it discretionary, it's a buyers (passengers) market. Someone significant needs to go Chapter 7 to take the pressure off the others. -----Original Message----- From: The Airline List [mailto:AIRLINE@xxxxxxxxxxxxxxxxx] On Behalf Of Clay Wardlow Sent: Friday, October 29, 2004 11:57 AM To: AIRLINE@xxxxxxxxxxxxxxxxx Subject: Re: Everybody missed on this I understand and for the most part agree. Increasing fares though will not help. Average everyday Joes will not fly. So, if people don't fly, airlines don't make money. With fares as low as they've been, I've been able to fly quite a bit over the last 5 years. If fares go up too much, I will only take one trip a year (rather than the 11 a year I've been able to). That's all I'm saying. The problem isn't the fares. The problem is oil prices. Fares are where they should be (for the most part) - fuel is not.=20 This is more than an industry problem. This is a world-wide problem. Something has to be done or more than the airline industry is going to fall. Look around you right now. Notice all the plastic around you. Plastic is made from oil (petroleum). We've got a huge problem on our hands. Clay - SEA Not a fan of oil companies and OPEC. -----Original Message----- From: David W. levine [mailto:dwl@xxxxxxxxx]=20 Sent: Friday, October 29, 2004 9:10 AM Subject: Re: Everybody missed on this At the moment, pretty much nobody in the industry can make money with current yields and the current cost of oil. Southwest's benefits from hedging were larger than their entire profit for the quarter. If WN had to pay for the non hedged cost of their fuel, they'd have lost 22 million in the third quarter. Hedging isn't a long term solution, in the face of persistent higher fuel costs. Hedges help you duck the risk of short term spikes (At the risk of having to pay more for fuel if prices drop far enough) But you can only hedge as long as people want to sell you hedges. If $40 oil becames the long term reality, hedges below $40 will go away. My impression is that, at the moment, at somewhere between $40 and $50 a barrel, the industry as a whole, including the low cost carriers can't make money at current yields. Even carriers with very low seniority workforces, minimal pension costs and all sorts of unsustainable sources of lower costs start loosing money. That way lies madness. While there is no doubt that the legacy network carriers still have some costs they can wring out of their systems. (It takes a long time to squeeze out things which took decades to happen) there are limit. When Southwest, which has pretty darn good practices only makes money with hedges, and companies like AirTran and JetBlue aren't able to make money or are barely making money, you're hitting a point where the industry as a whole, is underpricing its product. A sustainable industry has to spin enough profit to pay for ongoing capital investment. A sustainable industry has to generate enough return that people want to invest in it and are willing to hold debt and stock. And finally, a sustainable industry needs to be able to pay people a decent wage, offer them some benefits, including a pension, or it won't be able to attract people with the skills and desire to do a good job. That's especially cogent for pilots and mechanics, but in terms of customer service it matters across the board. Southwest manages this, but at the moment, they're going to have problems doing it, if oil stays where it is. - David At 10:54 AM 10/29/2004, you wrote: >Clay, >Since the oil went from $19 to $55 in almost a year, the fares didn't raise >the fares in a proportional way. This is hurting them big time. The airlines >did everything they could, including outsourcing some work, increasing the >utilization, laying off people and reducing the salaries of the people who >are still ungainfully unemployed. >There isn't enough room to squeeze any more. > >So, this fare increase is long overdue if you ask me. Low low yields with >highest oil prices in the history is a combination of death for a lot of >airlines. > >All the majors, to a certain extend are leaner and meaner compared to 3-4 >years ago. It's the oil price that's killing them. > >I read United's quarterly press release yesterday. They are paying $1.5 >BILLION ( that's $1,500,000,000)!!! More for oil this year .. That's an >outrages number. If it wasn't for this they would be reporting pretty nice >profits. > >BAHA >Fan of Ua 747 upperdecks > >-----Original Message----- >From: Clay Wardlow [mailto:clay.wardlow@xxxxxxxx] >Sent: Thursday, October 28, 2004 9:28 AM >To: Bahadir Acuner; AIRLINE@xxxxxxxxxxxxxxxxx >Subject: RE: Everybody missed on this > >Fan of fare increases, are you crazy man? > >The airlines need to go through a much needed diet. There is so much fat >and waste at the biggies especially. This has been a long time coming. > >There's lots of change that needs to happen, not just in the aviation >industry, but world-wide. Oil is getting more expensive. Demand is going >up, supply is going down. Now we know there are other sources of energy >for cars (etc), and they are becoming more popular. Is there such a >thing for airplanes? What happens to the industry if fuel prices never >stop going up? Fares can only go up so much before the average person >can't fly. That's not going to save the airlines. > >Clay - SEA >Fan of the maglev train they talked about on the Discovery Channel the >other day. > > >-----Original Message----- >From: Bahadir Acuner [mailto:bahadiracuner@xxxxxxxxx] >Sent: Wednesday, October 27, 2004 7:08 AM >Subject: Everybody missed on this > >WN has increased some of the fares by 50% few days ago. In the day and >age of $55/barrel oil prices I am hoping that this will take care of >yield problems in the industry. There will be less of $99 one way >special fares. > >BAHA >Fan of fare increases so that airlines can stay afloat.