economic musings

seagull · November 30th, 2004, 15:42

Sort of a follow-on to the USAir thread, where we got into some economic issues.

Pondering the history of industries that charged more than the economic "break-even" for their product/service. A few examples come to mind:

Pipelines came about because it was cheaper to build pipes than ship on the railroads.

Airlines came about because the railroads were overcharging and thought that the public would continue to pay the price.

Cable television got so greedy that it became economically viable to launch satellites into space.

Many more examples, but the bottom line is that the airlines were charging a price above the economic cost for the industry at large, and now we're seeing the correction. If the LCCs start charging more, watch for there to be economic incentive (and less political push-back) for high speed rail systems.

flyover · November 30th, 2004, 16:01

Interesting, but the comparison of plane and train seems a little simplistic. For sure there had to be a value in time saved to go from LA to NY, for example.

Likewise, if high speed trains do become a factor it will be because the aviation structure is not efficient, time wise or energy wise.

The big elephant in the room that no one wants to look at is energy. I think oil is only starting to head up. If it does climb toward $100 a barrel (or higher), all bets are off on the airline industry. There will be one but it will be smaller.

I agree that the legacies "over-charged" for their product, mainly through revenue enhancment programs that charged business fliers more. They were playing the supply and demand game very well. But they lost the incentive to control costs and now they are paying the price.

seagull · November 30th, 2004, 17:39

Actually, I believe that in the early days the time was roughly the same via air or train.

Bottom line is that the economic cost will drive what will happen, just as if oil prices sustain at where they are it will result in both more oil fields being opened up as well as more money chasing alternative energy sources. The net result of the oil situation will be to stabilize and eventually reduce the price of oil due to lower demand and more production -- which is why the oil companies are not currently investing in new exploration, incidentally.

If airline ticket prices go back up, you will see openings for other alternatives to airline transport. As it stands now, the cost of that investment is higher than starting and operating a LCC, which is why we see what we see now. If the LCC costs go up to where the legacies were, then it's just a matter of time before you see an alternative pop up for the majority of routes. A transcon 300 mph train that went to the heart of major cities would be tough to beat, time wise, by the time it is all said and done.

This is not a future I want to see, but it is the future that would represent past experience in other industries.

kellwolf · December 1st, 2004, 15:26

Bottom line is we need to get off of oil, period. End of discussion. There's really no other viable energy sources out there for fueling airplanes, cars, heaters, trains, and anything else that "gos." To me, that's just sad. It basically makes the oil companies a cartel, and the other industries are essentially crack addicts.

In the start of the airline industry, a lot of the owners owned railroads AND airplanes. Why? So people could travel at night. No ILSs, or even airways to follow at night, so the rails were safer and more reliable. They used to sell combo tickets where pax would fly during the day and ride the rails at night. If weather rolled into town and grounded the planes, pax were either stuck until it cleared or got on the train early. It was almost more of a status thing than time saving then. As weather detection and instrument systems got better, then the airlines started the "time saving" marketing. Now, it's ALL about time. People flip if their flight is delayed 10 minutes, and they want someone's head if their flight cancels. Then they might lose hours on a trip that used to take days or weeks.

As far as high speed trains, I think we'd have to see a LOT of economic pressure to get those rolling. It takes mega tax dollars just to get a light rail moving in FL, and that's been in the works for close to ten years. If it goes into the private sector (which it probably would and should), I don't think we'd see more than maybe one or two companies operating. The start up costs for a viable system to compare to the airlines are mid boggling. It would probably resemble SWA's "stop at every city in between" system, too. Japan can pull it off since they are a much smaller country. I just can't see it being economically feasible at start-up in the US since there would be a LOT of criss-crossing.

seagull · December 1st, 2004, 18:49

At the current time, I expect that the LCCs will continue to compete with auto travel and the other airlines will attempt to continue to compete with LCCs (who are really not even competing with them). If the dynamic changes, then at some point the investment for infrastructure will make rail a competitor, perhaps not on transcons, but on shorter routes, at first.

Bottom line is the price pressure will remain regardless of whether a carrier sinks and capacity reduces.

Screaming_Emu · December 1st, 2004, 21:26

I really think that Amtrak should look into a Maglev system like what they have in Shanghai. It took 7 minutes to go 40 miles out to the airport. I know its expensive, but if more people start using it then it would get cheaper. The technology already exists too so they wouldn't have to do as much development as they did in China (though it was actually built by a German company).

bjm · December 2nd, 2004, 00:18

I hope it doesn't go to this of course, but I was just thinking that the rail lines are already in place. They'd just have to replace the traditional rail with the new technology. No need to create new routes. I wonder if that would be a factor.

PhotoPilot · December 2nd, 2004, 09:29

[ QUOTE ]
I really think that Amtrak should look into a Maglev system like what they have in Shanghai. It took 7 minutes to go 40 miles out to the airport.

[/ QUOTE ]

Seriously? That's about 350 miles per hour . . .

Minnesota_Flyer · December 2nd, 2004, 10:45

[ QUOTE ]
I hope it doesn't go to this of course, but I was just thinking that the rail lines are already in place. They'd just have to replace the traditional rail with the new technology. No need to create new routes. I wonder if that would be a factor.

[/ QUOTE ]Not true. High speed trains require fairly straight tracks (at least when they want to go fast). The current track routes are way to curvy to allow high-speed runs.

MF

Screaming_Emu · December 2nd, 2004, 11:29

[ QUOTE ]
[ QUOTE ]
I really think that Amtrak should look into a Maglev system like what they have in Shanghai. It took 7 minutes to go 40 miles out to the airport.

[/ QUOTE ]

Seriously? That's about 350 miles per hour . . .

[/ QUOTE ]

I believe that was the number they had listed in the museum thingy at one of the stations but I may have gotten it wrong. Either way the top speed was 431km/h, however fast that is in MPH, its still pretty damn fast.

kellwolf · December 2nd, 2004, 14:36

[ QUOTE ]
Not true. High speed trains require fairly straight tracks (at least when they want to go fast). The current track routes are way to curvy to allow high-speed runs.

[/ QUOTE ]

Aren't some of those tracks supercooled to deal with friction as well?

Minnesota_Flyer · December 2nd, 2004, 15:40

[ QUOTE ]
Aren't some of those tracks supercooled to deal with friction as well?

[/ QUOTE ]I don't know -- although the maglevs do not actually touch the track when moving, so I'm not sure where the friction would come from.

kellwolf · December 3rd, 2004, 19:25

[ QUOTE ]
I don't know -- although the maglevs do not actually touch the track when moving, so I'm not sure where the friction would come from.

[/ QUOTE ]

Energy in the magnets I think. I remember reading something about the rails being supercooled for friction reducing/better electricity conduction or something in my physics class.

November 30th, 2004, 15:42	#1
seagull Old Skool Join Date: Sep 2001 Posts: 2,045	economic musings Sort of a follow-on to the USAir thread, where we got into some economic issues. Pondering the history of industries that charged more than the economic "break-even" for their product/service. A few examples come to mind: Pipelines came about because it was cheaper to build pipes than ship on the railroads. Airlines came about because the railroads were overcharging and thought that the public would continue to pay the price. Cable television got so greedy that it became economically viable to launch satellites into space. Many more examples, but the bottom line is that the airlines were charging a price above the economic cost for the industry at large, and now we're seeing the correction. If the LCCs start charging more, watch for there to be economic incentive (and less political push-back) for high speed rail systems.

November 30th, 2004, 16:01	#2
flyover Old Skool Join Date: Mar 2004 Location: Georgia Posts: 3,389	Re: economic musings Interesting, but the comparison of plane and train seems a little simplistic. For sure there had to be a value in time saved to go from LA to NY, for example. Likewise, if high speed trains do become a factor it will be because the aviation structure is not efficient, time wise or energy wise. The big elephant in the room that no one wants to look at is energy. I think oil is only starting to head up. If it does climb toward $100 a barrel (or higher), all bets are off on the airline industry. There will be one but it will be smaller. I agree that the legacies "over-charged" for their product, mainly through revenue enhancment programs that charged business fliers more. They were playing the supply and demand game very well. But they lost the incentive to control costs and now they are paying the price.

November 30th, 2004, 17:39	#3
seagull Old Skool Join Date: Sep 2001 Posts: 2,045	Re: economic musings Actually, I believe that in the early days the time was roughly the same via air or train. Bottom line is that the economic cost will drive what will happen, just as if oil prices sustain at where they are it will result in both more oil fields being opened up as well as more money chasing alternative energy sources. The net result of the oil situation will be to stabilize and eventually reduce the price of oil due to lower demand and more production -- which is why the oil companies are not currently investing in new exploration, incidentally. If airline ticket prices go back up, you will see openings for other alternatives to airline transport. As it stands now, the cost of that investment is higher than starting and operating a LCC, which is why we see what we see now. If the LCC costs go up to where the legacies were, then it's just a matter of time before you see an alternative pop up for the majority of routes. A transcon 300 mph train that went to the heart of major cities would be tough to beat, time wise, by the time it is all said and done. This is not a future I want to see, but it is the future that would represent past experience in other industries.

December 1st, 2004, 15:26	#4
kellwolf Old Skool Join Date: Jun 2003 Location: Memphis, TN Posts: 14,230	Re: economic musings Bottom line is we need to get off of oil, period. End of discussion. There's really no other viable energy sources out there for fueling airplanes, cars, heaters, trains, and anything else that "gos." To me, that's just sad. It basically makes the oil companies a cartel, and the other industries are essentially crack addicts. In the start of the airline industry, a lot of the owners owned railroads AND airplanes. Why? So people could travel at night. No ILSs, or even airways to follow at night, so the rails were safer and more reliable. They used to sell combo tickets where pax would fly during the day and ride the rails at night. If weather rolled into town and grounded the planes, pax were either stuck until it cleared or got on the train early. It was almost more of a status thing than time saving then. As weather detection and instrument systems got better, then the airlines started the "time saving" marketing. Now, it's ALL about time. People flip if their flight is delayed 10 minutes, and they want someone's head if their flight cancels. Then they might lose hours on a trip that used to take days or weeks. As far as high speed trains, I think we'd have to see a LOT of economic pressure to get those rolling. It takes mega tax dollars just to get a light rail moving in FL, and that's been in the works for close to ten years. If it goes into the private sector (which it probably would and should), I don't think we'd see more than maybe one or two companies operating. The start up costs for a viable system to compare to the airlines are mid boggling. It would probably resemble SWA's "stop at every city in between" system, too. Japan can pull it off since they are a much smaller country. I just can't see it being economically feasible at start-up in the US since there would be a LOT of criss-crossing.

December 1st, 2004, 18:49	#5
seagull Old Skool Join Date: Sep 2001 Posts: 2,045	Re: economic musings At the current time, I expect that the LCCs will continue to compete with auto travel and the other airlines will attempt to continue to compete with LCCs (who are really not even competing with them). If the dynamic changes, then at some point the investment for infrastructure will make rail a competitor, perhaps not on transcons, but on shorter routes, at first. Bottom line is the price pressure will remain regardless of whether a carrier sinks and capacity reduces.

December 1st, 2004, 21:26	#6
Screaming_Emu Old Skool Join Date: May 2002 Location: Atlanta, GA Posts: 3,396	Re: economic musings I really think that Amtrak should look into a Maglev system like what they have in Shanghai. It took 7 minutes to go 40 miles out to the airport. I know its expensive, but if more people start using it then it would get cheaper. The technology already exists too so they wouldn't have to do as much development as they did in China (though it was actually built by a German company).

December 2nd, 2004, 00:18	#7
bjm Junior Member Join Date: Apr 2004 Location: Columbia, MO (COU) Posts: 62	Re: economic musings I hope it doesn't go to this of course, but I was just thinking that the rail lines are already in place. They'd just have to replace the traditional rail with the new technology. No need to create new routes. I wonder if that would be a factor.

December 2nd, 2004, 09:29	#8
PhotoPilot Senior Member Join Date: Jun 2003 Location: Indianapolis, IN Posts: 902	Re: economic musings [ QUOTE ] I really think that Amtrak should look into a Maglev system like what they have in Shanghai. It took 7 minutes to go 40 miles out to the airport. [/ QUOTE ] Seriously? That's about 350 miles per hour . . .

December 2nd, 2004, 10:45	#9
Minnesota_Flyer Old Skool Join Date: Mar 2004 Location: the Twin Cities of Minneapolis and St. Paul Posts: 2,016	Re: economic musings [ QUOTE ] I hope it doesn't go to this of course, but I was just thinking that the rail lines are already in place. They'd just have to replace the traditional rail with the new technology. No need to create new routes. I wonder if that would be a factor. [/ QUOTE ]Not true. High speed trains require fairly straight tracks (at least when they want to go fast). The current track routes are way to curvy to allow high-speed runs. MF

December 2nd, 2004, 11:29	#10
Screaming_Emu Old Skool Join Date: May 2002 Location: Atlanta, GA Posts: 3,396	Re: economic musings [ QUOTE ] [ QUOTE ] I really think that Amtrak should look into a Maglev system like what they have in Shanghai. It took 7 minutes to go 40 miles out to the airport. [/ QUOTE ] Seriously? That's about 350 miles per hour . . . [/ QUOTE ] I believe that was the number they had listed in the museum thingy at one of the stations but I may have gotten it wrong. Either way the top speed was 431km/h, however fast that is in MPH, its still pretty damn fast.

December 2nd, 2004, 14:36	#11
kellwolf Old Skool Join Date: Jun 2003 Location: Memphis, TN Posts: 14,230	Re: economic musings [ QUOTE ] Not true. High speed trains require fairly straight tracks (at least when they want to go fast). The current track routes are way to curvy to allow high-speed runs. [/ QUOTE ] Aren't some of those tracks supercooled to deal with friction as well?

December 2nd, 2004, 15:40	#12
Minnesota_Flyer Old Skool Join Date: Mar 2004 Location: the Twin Cities of Minneapolis and St. Paul Posts: 2,016	Re: economic musings [ QUOTE ] Aren't some of those tracks supercooled to deal with friction as well? [/ QUOTE ]I don't know -- although the maglevs do not actually touch the track when moving, so I'm not sure where the friction would come from.

December 3rd, 2004, 19:25	#13
kellwolf Old Skool Join Date: Jun 2003 Location: Memphis, TN Posts: 14,230	Re: economic musings [ QUOTE ] I don't know -- although the maglevs do not actually touch the track when moving, so I'm not sure where the friction would come from. [/ QUOTE ] Energy in the magnets I think. I remember reading something about the rails being supercooled for friction reducing/better electricity conduction or something in my physics class.

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