Well, being in the business of restructuring large companies, a consultant I highly respect told a client once that you can't cut your way to profitability. If you eliminate the feeder routes flying the regional jets, where will the passengers come from to fly between hubs? I'm shaking my head a little as well. I've heard, but not verified, that the regional jets being flown today can't make money flying full at today's prices. My take is that you will see frequency of flights go down and cost go up. If you have 10 flights a day currently flying half full at a ticket price of $x, you could probably fill one plane a day at 2 x $x. However, if they double prices and reduce frequency driving starts becoming more attractive, even at today's prices.
What we need is a national priority on high speed, electricity powered trains. If we could decide on building the interstate network of highways, why not trains?
You're entirely correct. I've done a lot of work on building and rebuilding profitability within companies. You can't cut to prosperity, but you can cut to greater efficiency. True profitablity comes from increased revenues, but if your efficiency/costs are out of line with competitors then you won't be able to sustain the corporation. In other words, you need to be focused on both (but NOT penny-wise, pound-foolish).
Cutting airline capacity and routes accomplishes two things: it saves money because the assets are used more efficiently (operating cost goes down, ROC goes up) and lower capacity will drive prices higher assuming that demand remains the same.... but one needs to keep in mind that standard economic theory indicates that demand and pricing have an inverse relationship.
Long haul routes tend to offer the best opportunities to maintain demand (or less reduction in demand) because there are fewer alternatives. Practically speaking, it's next to impossible to drive coast-coast for a business meeting but there are practical alternatives on a 250 mile route (say, DC-NYC).
The math on DC-NYC works like this: DL or US shuttle: $800 weekday round trip (DCA-LGA, IAD-LGA) - it's lower but much less convenient on B6 IAD-JFK. $300-$400 depending on when you book for the Acela higher-speed train (2:45 each way to Midtown, day trip easy, compared to 2:30-2:45 door-door via the shuttle). About $200 on the regional train. Between $20 and $100 on Megabus. And about $250 using the IRS allowable mileage reimbursment for a car ($67.50 for fuel alone at 30 MPG, plus a LOT for tolls).
Habit? Market share? The fear that, if we raise fares, the other guy won't, we'll alienate the passenger base and lose those customers forever?
Price driven. Airlines have made themselves into a commodity. Businesses and tourists view them as a commodity. In a commodity situation, each participant has little pricing power. Further, the demand curve for the tourist/very price sensitive consumer is much steeper than it is for most business travelers, meaning there is a disproportionate drop in seat demand as the price goes up and the economy sours. Think about the impact on a family of four for a $50 increase in cost on tickets that, in the past, cost $150 per person.... that may be enough to push the family of four into a car.
Airfares were profoundly higher, on an inflation-adjusted basis, than they are now. Only the wealthy could fly, and the range of flight choices was a fraction of what they are today.
IOW, the effects of a deregulated environment. The other effect is that such a structure rewards those that gain efficiencies in their cost structures, and penalizes those that have ineffecient structures.
Good question, one we may see the answer to more and more. Used to, you had to take the Greyhound from smaller cities. Maybe you will again (air travel is not a constitutional right).
Already happening in many cases. And more passengers are deciding that the hassles of air travel are not worth the extra cost & time. It really makes no sense to fly from DC-Richmond, for example.... nor does it make sense to drive to BWI to save $50 on an airline fare.
Not many do; most have failed. Skybus, Vanguard, ATA, Midway...
But that was also true in the old days.... People Express went under in the early days of dereg. New York Air went down. Some of the legacies that couldn't get efficiencies in the early days also went down: Pan Am, Eastern, Braniff.....
...the airlines making money today (principally, Southwest, also Airtran and (perhaps) JetBlue) are not "discount" airlines, although they are often identified under the partially-descriptive term, Low Cost Carrier (LCC). "Low Cost" means that their cost of providing the service, per passenger, is lower than many carriers. They do this through more efficient use of resources, more productive people.
These never would have existed - and there would have been no incentive to operate efficiently - under the old regulatory structure. No question that conversion is hard.... witness the same thing happening in power these days. Telcos have done better (principally due to innovations like wireless and the proliferation of cable services), but the larger companies are seeing their legacy landline business fade away....
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