Notices
Major Legacy, National, and LCC

Airfares

Old 03-07-2006, 02:43 PM
  #11  
Gets Weekends Off
 
furloughman's Avatar
 
Joined APC: Jan 2006
Posts: 122
Default

Just hang in there folks. Management will raise fares in due time. Once the labor is beat down with a stick, the fares and profits will be record high!
furloughman is offline  
Old 03-07-2006, 03:00 PM
  #12  
Prime Minister/Moderator
 
rickair7777's Avatar
 
Joined APC: Jan 2006
Position: Engines Turn Or People Swim
Posts: 39,097
Lightbulb

The $ of tickets is driven by overcapacity and SWAs fuel hedges, in that order. Let's look at a couple of examples of businesses operating in a non-profitable market to see why:

Fixed Cost= overhead business related costs that are always there regardless of the amount of product produced (ie factory/office rental, admin staff, lights, HVAC, etc)

Variable Cost= Cost incurred ONLY while actually producing the product (factory labor, energy, raw material, shipping, equipment maint.)

Total Cost of product= Fixed + Variable (ideally you can sell your product for MORE than total cost to make a profit, but that's not what we're looking at here)

Typical Factory: Variable costs = 85%, Fixed Costs = 15%. If this factory can sell its product for 80% of total cost, it will not bother to make the product...by not making the product it can save all variable costs (80%), and only have to pay its small fixed costs. If the factory can sell the product for 90% of total cost it WILL make the product because even though it's losing money, the sale price of the product covers ALL of the variable costs plus some (5%) of the fixed costs. This means that you might be able to buy a Ford pickup for a little less than what it cost to make.


Typical Airline: Variable Costs = 20%, Fixed Costs = 80%. Notice right away the BIG difference here...the airline's fixed costs are much higher than variable costs. Their overhead, aircraft leases & maintenance, gates, and most labor costs are fixed...as long as you can cover your variable costs (fuel, peanuts, and a small % of labor) you may as well fly so that you can also make a dent in your fixed costs...an airline such as this would sell it's product for 25% of cost...covers all the variable and leaves 5% to apply to fixed costs. This is where your LA-NY $49 fares come from.

Any non-profitable business will continue in this manner until a) market conditions improve, b) it reorganizes, or c) runs out of money.

Last edited by rickair7777; 03-07-2006 at 03:03 PM.
rickair7777 is offline  
Old 03-07-2006, 03:37 PM
  #13  
Gets Weekends Off
 
Joined APC: Feb 2006
Position: left seat regional
Posts: 146
Default

Originally Posted by tomgoodman
Smells like a classic "bait-and-switch" ploy.

Or maybe it's a "loss leader" such as department stores use to get customers into the building. Once on the line with a reservations clerk, customers will surely buy several high-priced tickets to other destinations.
How can you "bait-and-switch" when they fly on the airline trying to get their business only to find its employees are generally ****ed off at the world and , overworked, underslept and losing all their pay and benifits?! Not a good equation for service with a smile...
BZNpilot248 is offline  
Old 03-08-2006, 04:37 AM
  #14  
Gets Weekends Off
 
Joined APC: Jan 2006
Posts: 222
Default

Originally Posted by rickair7777
The $ of tickets is driven by overcapacity and SWAs fuel hedges, in that order. Let's look at a couple of examples of businesses operating in a non-profitable market to see why:

Fixed Cost= overhead business related costs that are always there regardless of the amount of product produced (ie factory/office rental, admin staff, lights, HVAC, etc)

Variable Cost= Cost incurred ONLY while actually producing the product (factory labor, energy, raw material, shipping, equipment maint.)

Total Cost of product= Fixed + Variable (ideally you can sell your product for MORE than total cost to make a profit, but that's not what we're looking at here)

Typical Factory: Variable costs = 85%, Fixed Costs = 15%. If this factory can sell its product for 80% of total cost, it will not bother to make the product...by not making the product it can save all variable costs (80%), and only have to pay its small fixed costs. If the factory can sell the product for 90% of total cost it WILL make the product because even though it's losing money, the sale price of the product covers ALL of the variable costs plus some (5%) of the fixed costs. This means that you might be able to buy a Ford pickup for a little less than what it cost to make.


Typical Airline: Variable Costs = 20%, Fixed Costs = 80%. Notice right away the BIG difference here...the airline's fixed costs are much higher than variable costs. Their overhead, aircraft leases & maintenance, gates, and most labor costs are fixed...as long as you can cover your variable costs (fuel, peanuts, and a small % of labor) you may as well fly so that you can also make a dent in your fixed costs...an airline such as this would sell it's product for 25% of cost...covers all the variable and leaves 5% to apply to fixed costs. This is where your LA-NY $49 fares come from.

Any non-profitable business will continue in this manner until a) market conditions improve, b) it reorganizes, or c) runs out of money.
Yes, very true rickair. Very good post. Only it is more than 80/20 for fixed/variable, respectively, once you commit to fly a certain flight. Then it is probably more like 99% fixed; 1% variable cost per seat. In other words you will be better off selling those last empty seats for $10 each rather than leave them empty.

This is a well known problem in the Theory of Games. The current aggressive pricing is obviously unsustainable. The solution is to have only a handful of players competing with each other for the same business. Which, of course, is where we are headed anyway through bankruptcies and consolidations.

There's a good reason why FedEx and UPS are very profitable.
sgrd0q is offline  
Old 03-08-2006, 04:41 AM
  #15  
Gets Weekends Off
 
Daytripper's Avatar
 
Joined APC: Oct 2005
Position: Capt. B737
Posts: 329
Default

It's funny how you pilots all think that management is at fault for the downturn of the aviation industry and the depression of wages that come along with it.
When you go back and do some research, you'll find that the current situation is brought on by high fuel prices. Passenger levels are back to pre-9/11 numbers. Instead of passing those prices on to the consumer...like every other facet of this economy it is a grab by the managements to sap labor. Strangly enough...name an airline that has beaten-up labor..dumped pensions reduced wages......and are now profitable?????? Labor cost really isn't what's sinking airlines. If a pilot makes 100k, or 200k......makes about 3 or 4 bucks difference in the price of a ticket. Instead of the CEO's going to Capitol Hill and pounding a fist on some bloated congressmans desk over these fuel prices, like the C.R. Smith's, Woolmans, Crandall or Kellerher's would, we have the ivy league CEO's who sip latte's in italian suits, but couldn't spell cat if you spotted them the "c". Nah, it's the overpaid pilot.
By they way....all of our paycuts went right into the pockets of the oil companies...with their record profits. Heck, I didn't even get a thank you note from them.
Daytripper is offline  
Old 03-08-2006, 06:02 AM
  #16  
Gets Weekends Off
Thread Starter
 
crewdawg52's Avatar
 
Joined APC: Jan 2006
Position: Right Seat 744
Posts: 946
Default

Originally Posted by Daytripper
When you go back and do some research, you'll find that the current situation is brought on by high fuel prices. Passenger levels are back to pre-9/11 numbers. Instead of passing those prices on to the consumer...like every other facet of this economy it is a grab by the managements to sap labor. Strangly enough...name an airline that has beaten-up labor..dumped pensions reduced wages......and are now profitable?????? Labor cost really isn't what's sinking airlines. If a pilot makes 100k, or 200k......makes about 3 or 4 bucks difference in the price of a ticket. Instead of the CEO's going to Capitol Hill and pounding a fist on some bloated congressmans desk over these fuel prices, like the C.R. Smith's, Woolmans, Crandall or Kellerher's would, we have the ivy league CEO's who sip latte's in italian suits, but couldn't spell cat if you spotted them the "c". Nah, it's the overpaid pilot.
By they way....all of our paycuts went right into the pockets of the oil companies...with their record profits. Heck, I didn't even get a thank you note from them.

Yea ya did.......BOHICA!
crewdawg52 is offline  
Old 03-08-2006, 07:19 AM
  #17  
Gets Weekends Off
 
ryane946's Avatar
 
Joined APC: Dec 2005
Position: FO, looking left
Posts: 1,057
Default

Originally Posted by Daytripper
By they way....all of our paycuts went right into the pockets of the oil companies...with their record profits. Heck, I didn't even get a thank you note from them.
I am as mad over high oil prices as anyone, but it is a misconception to think that oil companies are "gouging" everyone. Oil is a commodity traded on the open market, and prices are governed by supply and demand.

It is easy to look at an oil company that made a billion dollar profit and say they are overcharging. But that several billion dollar profit come on over $100 billion dollars in sales. Oil companies take a % percentage of profit from oil sales, and naturally as the price increases, the % percentage becomes a larger chunk of $$ money. Oil companies are monster corporations (remember they are vertically integrated) that makes huge profits, but look at their profits as a percentage of revenue, and it is like 8%. Imagine a pizza company, it cost them $0.92 cents to make a pizza, and they sell it for $1.00. Ya right!!! Most companies double or tripple the "cost" of the product and sell it for that price.

As someone who has looked into investing in oil companies, and who has done a lot of research, I have some insight. The biggest problem is finding oil. Everyone thinks there is a giant ocean of oil and all we have to do is simply drill down and we will hit oil. Not true. In fact the world's oil supply is like a bunch of tiny puddles. Most drills come up DRY. Drilling is more of an art (and luck) than it is a science. Really! Oil infact does cost more to drill for than it did several years ago.

The solution to high oil prices is reinvesting these large oil company profits into new technology to make drilling for oil more reliable, more of a science, and therefore MUCH cheaper and easier. Some sort of government incentive might help this out. I mean an extremely high tax on profits over a billion dollars that is not reinvested into new means of exploration and scientific drilling. This needs to happpen, otherwise high oil prices are here to stay.
ryane946 is offline  
Old 03-08-2006, 07:39 AM
  #18  
recleared
Guest
 
Posts: n/a
Default

Originally Posted by bman484
It's funny how you pilots all think that management is at fault for the downturn of the aviation industry and the depression of wages that come along with it. All you say is "management sucks, management doesn't know what they're doing, it's all their fault...pay us 200,000 even though the airline can't afford it." The bottom line is this, passengers want cheap, direct service, without the frills. That's the name of the game. Add to that record high fuel prices and something has to give; and in an industry with cost structure mostly in labor, any guesses on what is going to give? Listen folks, you're beating a dead horse. The glitz and glamour of aviation is a thing of the past. Get used to it.
bman484,

Among other issues considering my statement of over paid and inept management, how can one justify asking the bankruptcy court for a 15% ownership in the "new United" as an example. Consider the fact that their contempt for labor, their record high salaries, bonuses and stock options pre 9-11 are somewhat responsible for their financial peril in the first place and had weakend their balance sheets for years. That very same core of managers responsible for the sloppy management of the airline then, is doing the very same thing now. Look at Delta as well, guaranteeing a bonus to keep their top brass from bailing now? Somewhere there has to be a balance other than to reward top brass loyalty for sub-standard performance of their own. As they look out for themselves, they have gutted labor to subsidize their lower paid employees now. It is ugly to be sure and I can only hope when things shake out labor will once again be rewarded with superior pay and bennefits that they deserve.
 
Old 03-08-2006, 07:56 AM
  #19  
Gets Weekends Off
 
Daytripper's Avatar
 
Joined APC: Oct 2005
Position: Capt. B737
Posts: 329
Default

As someone who has looked into investing in oil companies, and who has done a lot of research, I have some insight. The biggest problem is finding oil.
If you are looking for crude.....look not farther than storage facilities, and the hugh number of tankers lumbering off shore. What your research failed to show you is the real problem is refining. Controlled by oil companies. I live in oil country have relatives working for oil companies. When you control the spigot on the refined product....you control the price. Answer a couple of questions since you have done research.
1. The govenor of Montana has stated that there is enough coal under his state that could produce diesel and gasoline for the 200 years. He claims to be able to deliver said products to the pump for about $1.50/gal. A plant in Missouri in the late '50 had production up to 200,000 gallons of diesel and gasoline per day from coal. What has become to the govenor's claim, and what happend to the plant in Missouri?
2. Aside from hurricane disruptions, how long are the lines at the gas stations? Who has been waiting in line at the pump??? Where is the shortage?
By now you should have figured out that speculators have gotten control of the market. Look what they did to natural gas. Nearly tripled the price with the Chicken Little Syndrome. They profited nicely, some sanity returned to the market, and look where the price is now.
It's a game and unfortunately we're along for the ride......just like in the early seventies.
Daytripper is offline  
Old 03-08-2006, 08:07 AM
  #20  
Gets Weekends Off
 
Daytripper's Avatar
 
Joined APC: Oct 2005
Position: Capt. B737
Posts: 329
Default

Oh yeah, by the way.....oil numbers just out. Refining capacity running at about 83%. You'd think with all that demand, and trying to shorten some of those lines at the pump, they would ramp up to 90, 95%. Build in crude of 6.8 million barrels. If you are looking to invest in the oil business, you might want to look into an oil storage company. LOL
Daytripper is offline  
Related Topics
Thread
Thread Starter
Forum
Replies
Last Post
ryane946
Major
3
04-05-2006 03:42 PM

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are On
Pingbacks are On
Refbacks are On


Thread Tools
Search this Thread
Your Privacy Choices