Could the Govt. solve our industry's fuel woes?

[RightSeatGirl]

A friend and I were talking about this and I was wondering, being that no airline will risk losing pax to the competition by raising fares enough to realistically compensate for rising fuel costs, can the government step in and legislate a mandatory fare increase for all carriers so no one can hold out and hoard the penny pinching pax for themselves?

I mean would not a $30 per ticket across the board do the job? I'm not up on the the legality of such a thing nor do I understand the detailed economics of fare vs fuel cost so can someone more informed on this comment?

[surreal1221]

Haven't seen you around much RSG. Glad to see you back though.

Even though you'll end up catching heat for suggesting the airlines have to raise fares. . .

Good luck.

[wheelsup]

Nobody is saying airlines shouldn't raise fares. Where we disagree with you is that you seem to think it's a simple manner to raise ticket prices when in fact from an individual carrier standpoint it is not.

[RightSeatGirl]

Thanks, been busy..working on my art or just working, LOL

Wheelsup - did you read my first post? I'm talking an industry wide increase, not individual carriers. Can we not diverge from the question I posed with a related but irrelevant detail just to argue about it...sheesh.

So, as cost increases we should charge more for the product right? I mean if the price per lb. of beef goes up then you have to charge more for a sirloin if you own a restaurant. Why is this such a touchy issue? If all airlines are required to raise prices equally then the competition dynamic is unchanged and we all benefit. I'll re-iterate my question, I'm not necessarily wanting to discuss should we. I'm more interested in the legality of govt, interference in this. Can it be legislated or would that violate free-market principles or any laws?

[Chris_Ford]

Yes, then maybe we can have the government regulate that we all eat 5 servings of vegetables a day too!!!

The governments job isn't to do anything. If you run such a piss poor operation that you can't figure out a way to make money, you don't belong in business. Period. It's not the government's job to string along any operation (and conversely penalize operations that have low costs and are still able to make a profit) until they're in "good financial standing."

People need to stop crying for government intervention when the government will likely eff it up more than anything else...

[BobDDuck]

Sure, the government could tack on a $30 fee, but that money would be going to the government (like taxes) and wouldn't help the airlines out at all. Also, if they required all airlines add a $30 fee we would be right back into regulation, which isn't necessarily a bad thing, but would make a lot of people uncomfortable.

[wheelsup]

Originally Posted by RightSeatGirl

Wheelsup - did you read my first post? I'm talking an industry wide increase, not individual carriers. Can we not diverge from the question I posed with a related but irrelevant detail just to argue about it...sheesh.

Yes, my post wasn't a response to yours, but to surreals. Sorry for the confusion.

[WAFlyBoy]

A couple of comments (I don't know if you'd want to call them informed):

Originally Posted by RightSeatGirl

I mean would not a $30 per ticket across the board do the job?

I suppose the only folks who know the answer to this are airline managers (probably cost accountants). None the less, would it be fair to increase a $99 fare by 30% and a $600 fare by 5%?

Originally Posted by RightSeatGirl

I'm not up on the the legality of such a thing

The Airline Deregulation Act of 1978 aimed to (among other things) eliminate fare regulation and allow airlines to compete in an open market environment. Government imposed price controls have had limited success in the US, probably because they interfere with the framework of our economic system. Surely Congress could enact a policy that would force every airline to raise fares (some airlines might even advocate such a change). But could this be the gateway to raising the political barriers that existed prior to the ADA?

Originally Posted by RightSeatGirl

legislate a mandatory fare increase for all carriers so no one can hold out and hoard the penny pinching pax for themselves?

With this plan, all of the boats will rise with tide. In other words, although fares have been universally increased, you will continue to have airlines that will be priced better than others. How does this work to better distribute the passengers across the airlines? (It probably doesn't.) It is still possible for certain carriers to undercut competitors and "hoard" those penny pinchers.

Although this plan allows for more revenue per ticket sold, is it possible that some prospective travelers will now be priced out of the market altogether? "Basic economic theory" (which is oft quoted in these parts) would suggest so. Now, this could be either good or bad. Probably somewhere on either side of current pricing (up or down) there's an optimum price for an airline ticket that will bring in the maximum amount of revenue. (For a project as complex as airline fare pricing, modeling this figure would no doubt require some rather complex mathematics.) As competitors search for this figure in the midst of a rapidly changing industry, it is my belief that a government-imposed pricing scheme will only serve to reverse the 30 years of progress that have been gained.

[RightSeatGirl]

WAFlyboy - Awesome post! Thank you. You brought up some good points to consider and answered my questions.

Wheelsup - Cool..

It seems to me that we are facing a situation where the airline industry is strangling itself to death. No individual carrier will raise fares over competitive worries so revenue is dwindling and now we are facing the very real prospect of massive cutbacks across the whole of the biz in aircraft and staff which is already happening.

Could it be that the worries over re-regulation may have to be ignored? Is there any other option?

[planesiscool]

you have to raise revenue somehow. I heard a while back that some airlines were toying with the idea of using their planes as flying billboards or advertisements to supplement fuel costs. I don't know if this would bring in enough money to matter nor do I know how feasible it is to repaint planes constantly with different advertisements. It doesn't give the planes a uniform look and they would have to be out of commission while being painted but I mean you gotta do what you gotta do right? Government intervention is rarely a solution for any industry.

[PCL_128]

Originally Posted by WAFlyBoy

it is my belief that a government-imposed pricing scheme will only serve to reverse the 30 years of progress that have been gained.

"Progress?" Is that what you call this? Many cities have lost airline service altogether. Still many others now receive RJs or Q400s where they used to receive 727s and 737s. Customer service has become nonexistent. This isn't progress. This is a slow slide into death for the industry. It's time to bring back regulation. The experiment failed. Time to admit it and go back to what works.

[Matt13C]

Originally Posted by RightSeatGirl

WAFlyboy - Awesome post! Thank you. You brought up some good points to consider and answered my questions.

Wheelsup - Cool..

It seems to me that we are facing a situation where the airline industry is strangling itself to death. No individual carrier will raise fares over competitive worries so revenue is dwindling and now we are facing the very real prospect of massive cutbacks across the whole of the biz in aircraft and staff which is already happening.

Could it be that the worries over re-regulation may have to be ignored? Is there any other option?

I believe we are at the point where cut backs are unavoidable. The cost of non-aviation fuel has increased 30% in the last few months and is expected to increase more. With that the price of food and other essentials has risen to accommodate their increased costs. With that happening people who fly as a luxury will begin to cut back. Those who fly for business will begin to explore other means, namely teleconferencing or videoconferencing to conduct business.

If the government mandated an across the board increase in prices it would do very little, if not hurt, the aviation industry. It would further decrease the size of the market of potential passengers, while not reducing costs. This would require companies to make further cut backs.

No, what the government needs to do is stop cutting the prime rate. Every time they do that the dollar loses more of its value. Investors then, afraid of inflation, invest in commodities, oil, gold and natural gas. This increases their demand and send the prices higher. Due to the higher prices of fuel other products need to increase their prices to cover costs and the cycle continues.

The government is essentially the root cause of inflation, the very thing they claim to be trying to avoid.

[RightSeatGirl]

Hmm, interesting pov. I'm not sure I agree with you but still, an interesting point you make. I think commonplace luxury flying was cut out of many people's budgets when gasoline hit $2.50 a gallon. However, travel by air, despite economic worries is still increasing though. It's becoming a necessity the same way buying gasoline is. People are cutting back heavier in other areas. Corporate aviation is till growing by leaps and bounds and will continue to do so for the foreseeable future. I'm doubtful that there will be a significant falloff in air travel. The big fat nasty suckball of this situation is if the majors scale back ops much more then commuting will become next to impossible as flights will be perpetually oversold.

[Maurus]

Originally Posted by Matt13C

I believe we are at the point where cut backs are unavoidable. The cost of non-aviation fuel has increased 30% in the last few months and is expected to increase more. With that the price of food and other essentials has risen to accommodate their increased costs. With that happening people who fly as a luxury will begin to cut back. Those who fly for business will begin to explore other means, namely teleconferencing or videoconferencing to conduct business.

If the government mandated an across the board increase in prices it would do very little, if not hurt, the aviation industry. It would further decrease the size of the market of potential passengers, while not reducing costs. This would require companies to make further cut backs.

No, what the government needs to do is stop cutting the prime rate. Every time they do that the dollar loses more of its value. Investors then, afraid of inflation, invest in commodities, oil, gold and natural gas. This increases their demand and send the prices higher. Due to the higher prices of fuel other products need to increase their prices to cover costs and the cycle continues.

The government is essentially the root cause of inflation, the very thing they claim to be trying to avoid.

Last I checked when cost increases demand decreases while supply increases. Just because people invest their money in a market doesn't mean more people need the same commodity. If you invest in oil, you will invest in the oil companies, not buy barrels of crude oil like if you were to invest in gold.

The unfortunate thing is that with these rising prices in oil, people still go to the gas pump because of the car being more of a necessity these days than a luxury.

[E6BAV8R]

The unfortunate thing is that with these rising prices in oil, people still go to the gas pump because of the car being more of a necessity these days than a luxury.

The thing with oil is that oil will increase and people will moan and complain for a given amount of time, but eventually they will shut up and keep putting that gas in their car like they they always have and the new increased price becomes the new way of life.

Rinse and repeat

[Matt13C]

Originally Posted by Maurus

Last I checked when cost increases demand decreases while supply increases. Just because people invest their money in a market doesn't mean more people need the same commodity. If you invest in oil, you will invest in the oil companies, not buy barrels of crude oil like if you were to invest in gold.

The unfortunate thing is that with these rising prices in oil, people still go to the gas pump because of the car being more of a necessity these days than a luxury.

In the short term, if demand decreases supply does increase, until the surplus is absorbed. However, the company decreases production to the new maximum revenue point and this decrease supply to meet the decrease in demand at the higher price point.

People invest in oil futures as a hedge against inflation. Every time the fed cuts rates the chance of inflation rises. As the chance for inflation rises the demand for oil futures increases and this increases the price of a barrel of oil. Since oil is so high already it is essentially a self fulfilling prophecy. Oil companies margins decrease as the costs of the raw material increases. If it was a slight increase they might just ride it out and not pass it on, but a large increase requires a rising in the price of the goods sent to market, refined fuel. Since fuel is almost a need it sparks an increase in prices across numerous industries.

The only way to stop this is to raise rates or at least stop cutting them. When the fear of inflation abates, the demand for oil futures will diminish and the price will drop. This will cause a decrease in the price at the pump in the hopes of attracting more customers. Customers will pay a lower overall percent of income and thus have more expendable cash on hand to buy other goods. Demand will increase across industries and we will start to grow as an economy again.

[flyingmaniac]

One thing the government could do is keep the Navy's aircraft carrier's at home-port longer. Going out to sea costs a lot of money due to fuel prices.

[blee256]

Originally Posted by RightSeatGirl

A friend and I were talking about this and I was wondering, being that no airline will risk losing pax to the competition by raising fares enough to realistically compensate for rising fuel costs, can the government step in and legislate a mandatory fare increase for all carriers so no one can hold out and hoard the penny pinching pax for themselves?

I agree with chris ford. The airlines should not be bailed out by the government. If these execs dun the airline into the ground so be it. SUcks for us, but thats business. It will only make the survivors that much stronger.

Originally Posted by RightSeatGirl

I mean would not a $30 per ticket across the board do the job? I'm not up on the the legality of such a thing nor do I understand the detailed economics of fare vs fuel cost so can someone more informed on this comment?

Its happening, didnt United raise fares by $50? And I think Northwest is matching it.

[Maurus]

The best thing an airline can do is do what Airtran did right after 9/11. I believe they made a contract and bought fuel up front for the next so many years at the current price. I believe this is one of the reasons why Airtran was able to grow and make money the way it did earlier in the decade. The oil company gets a lot of money up front and the airline wont have to increase prices because of rising fuel costs.

[PCL_128]

Most airlines don't have the money for that. Long term fuel hedging contracts cost big time dollars up front. We certainly don't have the money for it now. We're only hedged at 16% for the year.

[surreal1221]

It's happening. . .just needs to end up coming to the Domestic side of things as well.

http://money.cnn.com/news/newsfeeds/...0_FORTUNE5.htm

[bhh1128]

Originally Posted by surreal1221

It's happening. . .just needs to end up coming to the Domestic side of things as well.

http://money.cnn.com/news/newsfeeds/...0_FORTUNE5.htm

Of course unless these cost increases (and resulting fare hikes) are met with positive news on the demand side, this means quantity reductions (both planes AND pilots).

[RightSeatGirl]

That is the double edged blade of the situation isn't it...I guess all we can do is wait and see.

[surreal1221]

Originally Posted by bhh1128

Of course unless these cost increases (and resulting fare hikes) are met with positive news on the demand side, this means quantity reductions (both planes AND pilots).

Indeed. But I think that's the reality we as professional pilots must wake up to.

If we want our industry to become stronger, then it may happen at the cost of reduction in flying.

That there is the reality.

[bhh1128]

Originally Posted by surreal1221

Indeed. But I think that's the reality we as professional pilots must wake up to.

If we want our industry to become stronger, then it may happen at the cost of reduction in flying.

That there is the reality.

I agree with you completely. I'm not arguing against increasing price at all. It absolutely needs to happen. Just like you, I hope people can recognize that hiking prices is not some magical black box that fixes everything that is wrong with airlines without any negative consequences. In other words, to get rid of this idea (unless the intended point was exclusively distribution between competitors).


"If all airlines are required to raise prices equally then the competition dynamic is unchanged and we all benefit."