The Airlines are Losing Money

[Brer Chump]

The reality is that reading here one sees that much of the American (Disney-obsessed at least) public is both unwilling to accept a viable fare and is then willing to cheat the airline out of any fees possible whether it be checked baggage fee, change fees, or any other type of fee the airlines have put in place in an effort to reduce their staggering losses.

It is not the responsibility of the consumer to figure out what a viable price is for any good or service and then pay that price. That is up to the service provider to price in a profit margin to their prices. If a company or in this case, an airline, prices their product at below cost, and consumers accept this price, then all is fair, even when the complany loses money, they set the price. If little accept a "viable fare" then it is not the customer's fault for not paying the price. In any business in capitalist countries prices are normally set by supply and demand. If airlines are losing money, then they need to decrease supply, which they did last year; unfortunately, a recessionary economy reduced demand nullifing the reduction in supply.

 

[rosiep]

No, very often I do NOT book the cheaper fare. With change fees the cheaper fare often does not make sense - it is not a value.
Look at how many people come here trying to find a way to cheat the airline and avoid change fees, by taking advantage of schedule changes of even 3 minutes.

The reality is that reading here one sees that much of the American (Disney-obsessed at least) public is both unwilling to accept a viable fare and is then willing to cheat the airline out of any fees possible whether it be checked baggage fee, change fees, or any other type of fee the airlines have put in place in an effort to reduce their staggering losses.

I said all things being equal....

 

[kaytieeldr]

It is not the responsibility of the consumer to figure out what a viable price is for any good or service and then pay that price.

Okay. Would you rather pay $200 for a plane ticket, plus $25 to check a piece of luggage, plus $15 to bring aboard a bag that fits in the overhead compartment, plus $2.50 each for the two Cokes you drink onboard; or would you be willing to pay $250 for that plane ticket?

 

[crashbb]

I said all things being equal....

But they're not. Price differences reflect differences - different airlines, different flights, different "extras", different booking windows. You're never going to have a situation where everything is exactly the same but you can choose to pay two different prices.

 

[Mamiamjo]

Okay. Would you rather pay $200 for a plane ticket, plus $25 to check a piece of luggage, plus $15 to bring aboard a bag that fits in the overhead compartment, plus $2.50 each for the two Cokes you drink onboard; or would you be willing to pay $250 for that plane ticket?

Well I'd rather just pay the $250 up front and be done with it.

I agree that the airlines are in a bad situation but sometimes they shoot themselves in the foot with their pricing. First they offer below cost pricing on fares and people get used to it and start thinking that the flight is now worth that price.
When they decide to raise the price you have resistance to that price point and demand goes down. They end up in a spiral of offering low fares to raise the demand.
Then they have to do things to make up for those too low prices like jacking up higher demand weeks way too high and adding other fees or charges.

I would rather they even out their pricing a bit and charge a little more up front but lower or eliminate some of the extra charges and not raise the higher demand week flights up so much that noone buys them anyway.

An example: Last year we wanted to go to Cancun during the summer. The week that we needed included July 4th and we started watching the fares as soon as they were listed in August. The flights we needed were priced at $850 from Houston - Cancun (a 2 1/2 hour flight). The week before (no holiday) was priced at $350. Well anyway I don't have to mention that nobody was buying at $850 (would you?). I kept watching the air but it never went down until Feb or March. It went down to $500 (still high, but it was a holiday week so I understood a reasonable mark up) and so I bought our tickets. It eventually went down another $50 - $75 and the flight did fill up mostly. Now, If they would have priced the flight more reasonably from the start I would have bought our tickets way back in August and they would have had my money for another 7 months.

Example #2: We wanted to go to WDW during Spring Break (mid March, not during Easter) this year but when I checked the flight last summer the fare was $1050. yes that's correct over a thousand dollars to go from Houston - Orlando! Who the heck would pay that amount? I kept checking and the fares came down a little but remained really high. As of right now (I just checked) they are asking $649 after taxes and fees.
We ended up changing our plans. We will go during the summer instead and are paying $334 (we bought our tickets on January 15).

Again I can understand a reasonable mark up for high demand periods and if the fares were around $400 I would have bought the tickets last summer. Continental would have had more of my money and they would have had it for a much longer period of time.

So as I started out saying, I'd rather pay a "reasonable" price up front and not feel Nickel and Dimed for everything. I would also rather pay a reasonable mark up during higher demand periods instead of the ridiculous rates they are asking (that nobody is paying anyway). It makes you feel like they are trying to take advantage of you for wanting to travel that week

 

[rosiep]

Okay. Would you rather pay $200 for a plane ticket, plus $25 to check a piece of luggage, plus $15 to bring aboard a bag that fits in the overhead compartment, plus $2.50 each for the two Cokes you drink onboard; or would you be willing to pay $250 for that plane ticket?

Personally I'd rather just pay the $250

But they're not. Price differences reflect differences - different airlines, different flights, different "extras", different booking windows. You're never going to have a situation where everything is exactly the same but you can choose to pay two different prices.

My scenerio...my rules..

 

[uva185]

...It went down to $500 (still high, but it was a holiday week so I understood a reasonable mark up) and so I bought our tickets.

Did that price include taxes? That's a pretty good fare IMO. What do you expect for international travel??

Example #2: We wanted to go to WDW during Spring Break (mid March, not during Easter) this year but when I checked the flight last summer the fare was $1050. yes that's correct over a thousand dollars to go from Houston - Orlando! Who the heck would pay that amount? I kept checking and the fares came down a little but remained really high. As of right now (I just checked) they are asking $649 after taxes and fees.
We ended up changing our plans. We will go during the summer instead and are paying $334 (we bought our tickets on January 15).
3

...so they actually priced the flight so they would make a profit and you chose not to fly. What makes you think the airline should offer a $334 fare if they cannot make a profit on it?

There are plenty of people that do pay for the higher fare classes, though those passengers typically do not book 330 days in advance. You should never expect to see the airlines lowest price offered when a flight is released.

When I was traveling between Columbia, SC and Washington, DC on a regular basis I routinely paid over $600 roundtrip with taxes. That is for a 408 mile flight on a cramped regional jet. I needed to travel and that was the cost...so be it.

In all honesty the "solution" to the problem is to reduce capacity (through mergers, bankruptcies, and fleet reductions) which in turn will make it easier for airlines to raise fares. It is inevitable that this will price many leisure travelers out of flying.

 

[uva185]

I think that most people who travel regularly know that airfares are usually expensive. I, too, travel often and sometimes my fare is low and sometimes it is not. I don't ever "assume or expect" that it should be low...however, I know that when looking to travel the first thing I consider is my needs, then I look for the best price based on those needs.
Assuming that all things were equal, if you were looking for a flight and you found one for $100 and another for $300 which one would you book?

I admit..I book the cheaper fare...do you?

Well all things are NEVER equal. I only look for fares on two airlines: US Airways and Delta. I decide between the two based on price, route, schedule, and aircraft type (hate regional jets). If Delta is $200 more expensive but has a better schedule I book Delta. I don't even bother checking any other airlines fares.

 

[angelmav]

First, flying has become a terrible experience regardless of price, second, I cant book a flight to anywhere in the US for much less than $300, which is why we usually drive.

An airline can offer low fares and make money, you can fly all over europe on Ryanair for next to nothing, granted there are a bunch of seats packed in, you pay through the nose to check luggage, and there are zero frills, but you fly cheap and they turn a profit. Its sort of the greyhound of the skies.

 

[bavaria]

Ryanair is certainly not making a profit - they have been in trouble for quite some time now. The only thing which saved them in the latter half of 2008 was plumetting fuel prices; mid year 2008 they were predicting a very gloomy future.

2009 does not look promising for them.

http://www.bloomberg.com/apps/news?pid=20601102&sid=ahOMfYxNaJc4&refer=uk

Ryanair Holdings Plc (RYA ID): Citigroup Inc. downgraded Europe’s biggest low-cost airline to “hold” from “buy,” saying the December 2008 quarter would be one of the “weakest on record” for the airline industry. The shares fell 7.5 cents, or 2.4 percent, to 3.03.

I have often priced out those super-LCC fares and factor in all the extra charges like boarding fees, seat fees, baggage fees, beverage fees, carry on fees, and extra time/distance travelled to these lesser airports and for me they have never come in as a better value than a legacy carrier.

 

[goofy4tink]

We, here in America, have become ridiculously spoiled by ridiculously cheap airfare. Is that our fault? No, it's the airlines' fault. Were they wrong? No, probably not. It used to be that if I could find airfare, from Boston to MCO, for $250 pp, nonstop, I was thrilled. If it was around $300 I wasn't happy but so be it. Then, airfare started dropping...down to under $250...I am a happy camper. Then, it got so low that if I paid more than $200 I felt I was overpaying!! Then came the time I paid $149, r/t, nonstop. Heaven, I was in heaven. Now?? It's back up there..I got spoiled. But I knew all the time that those fares were not going to last forever...they couldn't. The airlines couldn't exist with those fares.
So...we got people moaning and groaning about having to spend $250 pp again. And whining that they can no longer make 3 trips to WDW each year because the airlines are getting greedy. Oh, and those checked bag fees? A cost of doing business people. For me, I hope they keep it the way it is....pay when you fly if you want to check luggage. If I choose to not check luggage, then I can pay a bit less. But, if I decide that I have to have 4 changes of clothes for each day, then I can pay to check those extra bags...my choice.

 

[kaytieeldr]

I would rather they even out their pricing a bit and charge a little more up front but lower or eliminate some of the extra charges and not raise the higher demand week flights up so much that noone buys them anyway.

While I agree with the first part of your statement, WHY should the airlines be any different than ANY other business? Should the NFL sell Super Bowl tickets for the same price that tickets cost in Tampa during the regular season? Should the Top of the World (single location restaurant near the top of the highest building west of the Mississippi) charge the same prices for its food as the found-on-every-corner McDonalds? Should Crystal Cruises (two luxury ships, total capacity 2,020) charge the same rates as Carnival (too many ships/cabins to count)?

It's supply and demand. The demand for air passage during popular travel weeks generally exceeds the supply - don't say '... so no one buys them', because people do; so as in ANY such case, it is unreasonable to begrudge a business the opportunity to increase its revenues. Disney does it. Disney has four "seasons" based on the popularity of travel/expected crowds (i.e. not on the calendar). They charge much more for rooms in March than in January and September, and even more than THAT around Christmas. And more on weekends during those periods. People pay. Why should airlines be any different?

 

[bicker]

Of course not; but if my husband ran his business as poorly his pockets would be empty and he'd need a new job.

That's not a rational conclusion in context. If most suppliers in an industry are losing money, then the way to judge an executive is with respect to how little money they're losing, not how much profit they're making. Let me demonstrate it this way: Let's say you are panning for gold in the Ohio River: How much gold would you expect a super-duper expert gold-panner to garner? The gold-panner is forced to work the under-performing Snake River, just like the CEO of an airline is forced to operate a domestic airline, instead of shifting to some perhaps more profitable venture.

To be fair, as an investor, I'd be peeved, and would probably seek to move my assets elsewhere. However, I'd take a pretty nasty hit, as an investor, to still be there invested in the airline, I suppose. However, that says nothing about the way the airlines are run... it only is a comment on the investor's lack of foresight.

 

[bavaria]

And for those thinking that rental car agencies are rolling in profit too...

The rental car company Hertz Global Holdings will cut more than 4,000 jobs to reduce costs as businesses and consumers slow travel because of the global recession. About 12 percent of the company’s work force, including part-time employees, will be cut, the company said. Including the 4,000 jobs, the company has eliminated 32 percent of Hertz’s work force since August 2006

http://www.nytimes.com/2009/01/17/business/17bizbriefs-HERTZRENTALC_BRF.html

Until recently, Enterprise Rent-A-Car Co. prided itself on a 51-year history of never laying off a U.S. employee. When competitors slashed fleets and shuttered branches after the Sept. 11 attacks, Enterprise kept hiring.

This fall, though, the nation's largest car-rental agency said it would dismiss 1,000 of its 75,000 employees, as Americans curtailed driving and flying
....
But the 2007 acquisition of rival Vanguard Car Rental Group Inc., parent of the Alamo and National brands, increased Enterprise's stake in the airport rental market and added 10,000 employees, leaving the company more vulnerable to economic factors heading into 2008.

http://online.wsj.com/article/SB123004642728030105.html

Avis Budget Group, Inc. eliminated more than 700 jobs during the third quarter of 2008 and it appears Parsippany, the N.J.-based company is planning additional cuts.

A source at a Budget Rent A Car facility here who was contacted Wednesday by the Times Record News said employees were notified by e-mail Nov. 7 the company is asking for volunteers to take layoff benefit packages and that the cutoff date is Monday

http://www.timesrecordnews.com/news/2008/nov/13/avis-announces-job-cuts-local-facility-seeking/

 

[deltachi8]

I admit..I book the cheaper fare...do you?

Every time. Of course, I book for leisure and will plan trips with flexibility as much as possible to take advantage of low fares. I will fly at odd times, a day or two early or later, etc.

If I have to be somewhere - family commitment for holidays, emergency, etc - on a certain day or days then I realize I will have to pay a higher price, but I will generally look for the best deal I can get on that flight (I will factor in schedule, airline, miles earned and airport along with price.)

Now my wife, OTH, travels much for business, including international and pays top dollar for fares. Her company has restrictions on what airlines they can fly on certain routes, etc. However, this year they started to get more flexible and have allowed the use of Southwest for some domestic routes (too much of a cost savings to ignore) and have put the kibosh on many first class fares).

Now i know my wife is much more important and valuable to the airlines, however, as long as the airlines are willing to sell - at their own decision - the fares I will pay, I won't feel bad at all.

It is not the responsibility of the consumer to figure out what a viable price is for any good or service and then pay that price. That is up to the service provider to price in a profit margin to their prices. If a company or in this case, an airline, prices their product at below cost, and consumers accept this price, then all is fair, even when the complany loses money, they set the price. If little accept a "viable fare" then it is not the customer's fault for not paying the price. In any business in capitalist countries prices are normally set by supply and demand. If airlines are losing money, then they need to decrease supply, which they did last year; unfortunately, a recessionary economy reduced demand nullifing the reduction in supply.

Very well stated.

Okay. Would you rather pay $200 for a plane ticket, plus $25 to check a piece of luggage, plus $15 to bring aboard a bag that fits in the overhead compartment, plus $2.50 each for the two Cokes you drink onboard; or would you be willing to pay $250 for that plane ticket?

Me, I would pay the lowest base fare and choose what I want to include. I don't need or want the drinks/snacks (and certainly the meals) on board. If I don't have to check a bag, I won't, etc.

Of course, I factor all these things into my overall ticket. If I am flying to see my parents for a few days, I know I can carry on what I need and will just book the lowest fare, period. If going to Disney for a week, I look at bag fees, etc (and usually book Southwest).

I completely understand that the airlines are loosing money. I understand that for them not to be, there needs to be a reduction in capacity (routes and seats) as well as higher fares and much better and efficient management. Until the airlines are willing to make those choices though, then I really won't feel much sympathy for them.

 

[bavaria]

I completely understand that the airlines are loosing money. I understand that for them not to be, there needs to be a reduction in capacity (routes and seats) as well as higher fares and much better and efficient management. Until the airlines are willing to make those choices though, then I really won't feel much sympathy for them.

Look at what happened here in summer 2008. Airlines slashed routes, reduced capacity, raised fares, and there was outrage here. I remember those threads, and I wasn't online much at the time.

I also remember when SW released their next round of fares late last spring; the number of outraged threads was quite substantial when people saw the fare increases.

That was at a time when oil was over $140/barrel, and people were still travelling a lot. Yet many readers here refused to accept that higher fuel costs were having a substantial impact on airline profitability.

Many of for the past four years have been warning that the super-low fares would not continue forever; in mid-2008 they came to an end, much to the distress of many. I see it as be grateful that you had the ability to fly for so cheap for so long, and realise the reality in American air travel is changing.

 

[crashbb]

Well all things are NEVER equal. I only look for fares on two airlines: US Airways and Delta. I decide between the two based on price, route, schedule, and aircraft type (hate regional jets). If Delta is $200 more expensive but has a better schedule I book Delta. I don't even bother checking any other airlines fares.

Apparently, it is "her scenario, her rules" even if it makes the question completely nonsensical and unanswerable. I'm just not going to play.

To a certain extent, I like the "nickle and diming' model. Air Canada has been doing it for a while. However, they are very clear and upfront about it. When you book your ticket, there is a grid with all the available flights and the available fares. You can click on each type (or hover) and it will give you the rules or you can click and get a grid comparing each fare type (seat selection, frequent flyer accumulation, change fees, refunds, etc.).

Once you choose your fare, the next page allows you to customize it. This varies depending on fare type but includes a slight (like $3) refund if you don't check bags (there are no fees for checking bags now - there was a charge for the second bag for a few weeks/months); selecting a seat on the rare fares that don't include it; pre-buying your meal; etc.

Finally, when you get to your final fee page, the rules for your fares are detailed again (you can often choose one fare type going and a different one coming home). It also tells you the differences between your fare and the next one up and tells you how much you'd have to pay to "up-grade" to the next fare class.

I like not having to pay for things I'm not using. Many solo travels don't care, for example, where they sit and are fine with not paying to pre-select their seat or are traveling with 1 (or no) checked luggage - why should their fare pay for luggage?

 

[bavaria]

Now i know my wife is much more important and valuable to the airlines, however, as long as the airlines are willing to sell - at their own decision - the fares I will pay, I won't feel bad at all.

But the difference is that you are rational and understand that those are money-losing fares. Every week here we see rants about 'airfare is unreasonable' and people complaining about $200 airfare. I remember one person from upstate New York complaining a few weeks ago about a fare of $250 RT to Orlando.

For that poster and many others, they seem to truly believe that the airlines are making a profit on that fare.

That is the difference between passengers like you and CarolA who know that the fare is not viable (but pay it anyway) and those who think that the fare is helping the airline to 'rake in a profit'.

I suspect that the OP was directing the original post to those readers, and not those who already understand the business of airfares.

 

[deltachi8]

Look at what happened here in summer 2008. Airlines slashed routes, reduced capacity, raised fares, and there was outrage here. I remember those threads, and I wasn't online much at the time.

I also remember when SW released their next round of fares late last spring; the number of outraged threads was quite substantial when people saw the fare increases.

That was at a time when oil was over $140/barrel, and people were still travelling a lot. Yet many readers here refused to accept that higher fuel costs were having a substantial impact on airline profitability.

Many of for the past four years have been warning that the super-low fares would not continue forever; in mid-2008 they came to an end, much to the distress of many. I see it as be grateful that you had the ability to fly for so cheap for so long, and realise the reality in American air travel is changing.

I think the Airlines just have to ignore the noise that the "outraged" make and instead focus in on their core customers. I really don't think Continental should care what I think about them, their routs or fares, but they should really care about what my wife thinks, or you - as you and she are how they make money.

Of course, I just booked tickets for my Son and I to visit my parents in Upstate NY over the Spring Break and paid $198 RT (all taxes included) - lowest fare I have ever paid RT to/from Houston. When really got me, is I didn't need to be flexible - I got the days and the airports I wanted.

When that happens, it makes me people question the argument for higher fares ("If they are needed so bad, why can I book this flight so cheap" type of thing).

 

[bavaria]

I think the Airlines just have to ignore the noise that the "outraged" make and instead focus in on their core customers.

I agree - I said once that if I were an airline CEO and I read this website I would most likely quit in frustration! But I don't think that flyertalk.com is much better - a lot of whinging going on there too, and lots of threads about compensation for having orange juice spilled on ones head, etc.

By reducing capacity airlines were conciously saying 'bye bye' to some passengers. They knew that some of the DIS members would no longer be their customers, and they made that decision anyways because it made the most financial sense.

I'm not always a good customer, and I don't get upset when a company no longer 'needs' me.