OT Airline Industry

[JohnS]

When is it ever going to hit bottom? Every time you think it can't get any worse, it does. I just read that Independence Air is shutting down. I believe (I hope I'm wrong), that one of our regular posters worked for them. The job market sucks right about now. :(

[csm]

until we get a handle on legacy costs and healthcare costs it will be more of the same.

[JohnS]

Even the "low cost" airlines are struggling. JetBlue lost money last quarter and SWA only made some because of fuel price hedging. I believe that there are two major problems in the industry. First, there are too many large financial institutions with too much money tied up in airlines that should've been allowed to die years ago. They keep throwing good money after bad to try to recoup their original investment. Second, most airlines have the stupidest management that money can buy. They keep offering fares that won't pay the bills. They keep hoping that the "other guy" goes bellyup first. They have a monopoly between them but don't use it. They need to add fuel surcharges to their prices. The trucking (hey, csm) and railroad industries do it. The passengers will accept it. They have no choice. What are they going to do, take Amtrak or the Big Grey Dog from JFK to LAX? I don't think so...

[pale scotsman]

It's pretty bad. A buddy of mine, naval academy P-3 guy, that flew for AA after his AD stint, lost his job after 9-11 and flew a private jet for some billionaire in FL for a few years. The money was good but job security was bad since the rich guy was so old. He's now flying for Exxon/Mobile out of the Dallas area. It's tough out there for pilots.

[csm]

could it be that pilots are overpaid and this is just natural market forces correcting that?
just a question not an opinion.

[BdaGhisallo]

I can't remember where I read it, but apparently the whole airline industry in the US, since its very beginnings, has been, at best, a break-even proposition!

When your primary variable cost, fuel, is skyrocketting in price, and when many airlines are forbidden to hedge those costs, it is a recipe for disaster. I think Southwest is one of the few airlines to hedge aggressively and it has served them well. What's worse is that when airlines enter bankruptcy they basically forbidden from hedging their fuel costs. Absurd.

I have to say that if I lived in the US, in an area with a good train network, that I would use it a lot. None of this two hour checkin time and endless delays! Having used some rail in europe, I can say that they have the right idea there. Get some fast trains and lines and un-encumber them from govt regulation and unions and let them compete properly.

[csm]

I'm not sure that the answer is less govt regulation and help. look at amtrak's woes. I think the answer is to have rail compete fairly with the airlines. which would mean deregulate the airline industry further or offer some funding to the rail industry.
until we figure out a way to run the planes on something other than petroleum products the costs and problems associated with the industry are going to remail in dire straits.
and it is getting to be a real hassle to fly these days. and just remember, at most airports, the security screening is going to the LOWEST bidder.

[JohnS]

Trains on the European model will never work in the US, outside the NEC. Our population is too spread out. All of Western Europe would fit into the US east of the Big Muddy.
Most pilots aren't overpaid these days. A starting regional pilot makes LESS than an OTR truck driver.

[csm]

I think some otr drivers are overpaid.

[GregL]

I flew for a regional airline (2 years) and business aviation management companies (10 years) before bailing out of (what I consider to be) a fundamentally unsound industry. My family has been involved in aviation for several generations in both government (NASA, USAF, Army and Marine aviation) and civilian (TWA, AA, ATA, US, regional, charter, corporate, FBO, ad infinitum...) aviation. I have been observing commercial aviation since my childhood and could never make sense of it in my mind...

1) Too many people get into aviation for the love of flying, but without fundamental business skills. Lots of pilots willing to work for peanuts, lots of airline executives without any business knowledge. When I flew in the mid-80's to mid-90's, pilots would advertise in the trade journals that they would fly for free to build time. This made it pretty hard to negotiate with a company for a reasonable wage.

2) Overcapacity. Just too many companies bidding for too few dollars. Kinda' like the auto industry 80 years ago. I used to jokingly refer to the airline business model as "everyone is going bankrupt, the last one to declare ch. 11 wins." I am sorry to see that this is mostly true.

3) Ridiculous unions. Not just high wages, but ridiculous disparity in wages (do they give food stamp applications to new hires?) and outrageous work rules. I knew senior airline pilots in the "old days" who could rig their schedules to take an entire month off without using any vacation time.

I left the aviation industry in 1995 with a heavy heart. I missed the joy of flying, but found much more joy in the time I could spend with family and friends and much more logic (and security) in other industries. I feel bad for the airline personnel who have to deal with what passes for their "business" today.

[BumbleBeeDave]

. . . is that high speed jet travel is one of many industries that our society has literally grown to depend on. This creates number of problems. First, people will put up with abysmal service because so many people are so spread out that they have no choice if they want to visit family or do business spread across the country. They MUST travel by air, but they're angry about it on a subliminal level. The airlines have exacerbated this problem through poor service which puts people off, but they have also dropped prices below profitibility for so long that if they raise them to a reasonable level to fix it, people will be put off by THAT, too. And the emerging communications technology that allows so much communication and work at a distance robs them of business travelers.

But the availability of cheap airline travel has also undermined the development in this country of any kind of truly high speed rail. If the government supported such an industry like they do bailing out the airlines again and again, we COULD have high speed maglev trains between major cities--a network of 300+ mph maglev tracks would work for many shorter trips with no more hassle than the hub & spoke pattern the airlines use now anyway.

It's a mess, and all I REALLY know for sure is that I avoid airline travel if I can because it's just become a huge pain in the @ss.

BBDave

[OldDog]

It will get worse in the next 8 - 12 years as more and more wish to fly both commercially and privately. I'm in the mfg/supply end of the industry. Just keep building and flying those planes so I can keep buying more bikes!

[1centaur]

As someone who's watched from the investment side of the equation, I'd say there will be no good answer to airline profitability until fewer people wish to fly or the industry is re-regulated!

The investment cycle has been key - new entrants could get equipment financing and low cost pilots which combination would support picking off profitable city pairs, pretty much the Southwest model. Wall Street would applaud the growth, and then want more. To grow at an acceptable rate, the start-ups would buy more equipment and work down to more marginal city pairs and hire less desperate pilots until much of their competitive advantage was lost, while newer entrants who could create a better stock story for 2-3 years would chip away from below. Thus capacity always stayed high, which kept prices low AND created a discount mentality among discretionary passengers so that the old-line airlines could provide nothing to justify higher prices. Pension and fuel costs then hammered the old airlines, along with union rules and wages. Chapter 11 was the only way out, but tends to re-set the competitiveness at the point of least pain to creditors and employees (bankruptcy judges being mindful of the appearance of hurting organized labor), thus allowing room for the start-ups to undercut and the cycle to start again. Equipment lenders tended to get their money back, so that source of capital continued to be available. So now we have full planes in a strong economy and the airlines are making no money (Southwest is making a lot of money off its hedge, which will be rolling off), which has never happened before.

Solution is econ 101: less capacity and higher prices, implying much more inconvenient scheduling and far lower discretionary travel. For the airlines to do well consistently, we the flying public have to do much worse in money and convenience, but the flying experience would probably get better. Less capacity is the hard part. The government could re-regulate to take out capacity, but that's politically difficult with all those union votes, and what politically attractive case could be made to a populace that is happy to play ostrich on Social Security? I am guessing demand will need to decline, which could occur for good reasons (better videoconferencing keeping the business people home) or bad (bird flu or terrorism reminds people that jumping on a plane is not really necessary for most business and plenty of pleasure - stay home and ride bikes :) )

Mag-Lev trains? Love to see it, but not going to get through the permitting process, and the private investment money will not be there unless the planes are already out of the sky.

Oil at $150/barrel would help change people's views on the necessity of travel. My bet is unpleasant realities and very high bandwidth will eventually lead to profitable airlines.

[Brian Smith]

. . . is that high speed jet travel is one of many industries that our society has literally grown to depend on. This creates number of problems. First, people will put up with abysmal service because so many people are so spread out that they have no choice if they want to visit family or do business spread across the country. They MUST travel by air, but they're angry about it on a subliminal level. The airlines have exacerbated this problem through poor service which puts people off, but they have also dropped prices below profitibility for so long that if they raise them to a reasonable level to fix it, people will be put off by THAT, too. BBDave


up front: I fly only about an average of 2-3 times per year.
I haven't had any bad service from airlines, with the obvious exception of the unfair bicycle surcharge amounts. Actually, I'm always super impressed when an airline can cross-book me onto a different airline's flight, when they can accommodate my tardiness by placing me on a later flight, or honor fares sold to me by a number of different online services.
That said, a trip involving air travel can be a huge hassle, and I routinely spend more than double the time at airports than I do in the air, and I fly the same routes a lot and get to know the quickest way to negotiate every aspect of each airport. I don't think that airlines are at all to blame for that.
Being able to better integrate a bicycle/bicycles with my air travel would substantially reduce the amount of time and hassle I spend on a trip involving air travel.
I always evaluate the options of train/car/bus travel in comparison to air for each trip I take, and the airlines offer such a (subsudized) bargain, that it is hard to convince myself to take another option, especially with my frequently-last-minute planning style.

I agree, Dave, that with higher airline prices, other modes might start to be able to compete. I know that from here, bus and train policies and schedules have done nothing but decrease their attractiveness.

[gasman]

Warren Buffet has said, " Since Wilber and Orville nobody has made a dime out of running an airline. " or something to that effect.

[saab2000]

could it be that pilots are overpaid and this is just natural market forces correcting that?
just a question not an opinion.

Filler.........

[csm]

I think I prefaced my comments.
I was merely asking if that was the case. market forces in the airline industry, as well as nearly every unionized industry, are not allowed to influence the price the consumer is willing to pay.
is 35K too much to pay for a pilot? no, I don't think so.
is 150K too much to pay?after loading that salary with all the other bennies and inherent costs that go with that... perhaps.

[oldguy00]

I think I prefaced my comments.
I was merely asking if that was the case. market forces in the airline industry, as well as nearly every unionized industry, are not allowed to influence the price the consumer is willing to pay.
is 35K too much to pay for a pilot? no, I don't think so.
is 150K too much to pay?after loading that salary with all the other bennies and inherent costs that go with that... perhaps.

When I'm flying on a large jet, I prefer to think that the guy flying is well paid, and well experienced. Why should an accountant make 100k, but an airline pilot responsible for thousands of lives shouldn't?? When I'm in an American Eagle jet (embra air?) and it gets hit by lightening (scared the **** out of me) I want the guy flying to be spoiled rotten with money!!!

But as someone else mentioned, I think you would find that the -majority- of pilots do not make much money..

Crap, I missed Saabs post! He would have some good insite into what I'm saying above.

[csm]

I don't know. I posed it as a question. given the fact that so many airlines are bankrupt, nearly so or in trouble, something in their business models is amiss.
the argument that "so and so" makes 100k doesn't, uh, fly. you really can not compare accountants, for example, to airline pilots. or attorneys to medical doctors.
does an accountant deserve 100 grand? maybe, I don't know.
does a pilot? probably. from what I know about it, I'd say they deserve a fair salary. I've done some research on it in the past. at one time I thought about pursuing a career flying. in the end, I didn't think, for some of the reasons that saab outlined, that it was for me. it sounds like a routine, albeit disconnected life to me. I do a bit of traveling for my job and I can say that I don't particularly care for it. I can only imaging how I would feel about being gone most of the month.
I actually think the problems the airlines are suffering are similar to the problems suffered by the domestic auto industry, the ltl trucking industry and nearly every large manufacturing concern in the us. the short-sightedness of management and the uncompromising positions of labor unions. and I know that the airline unions are negotiating givebacks, etc, but is it a case of too little too late? I see the general (general motors) as a prime example. sure they've made some dumb product decisions over the years, but the uaw certainly has not set and precedent for sane decisions. both sides seemed to operate with the idea that only the term of contract matters with no long term thought to what the market might be doing. I know it's simplistic and there are many other factors to consider but that does sum it up.