 |
I saw some truly incredible comments on this British aviation site in a piece on U.S. airline woes. Yes, there’s plenty to be “woeful” about — but what do you think about this suggestion from Ray Neidl, a Calyon Securities airline analyst? Here’s what he said:
He went on to say, that failure would result in the liquidation of the busted airline’s seat inventory, and that would enable the “survivors” to raise ticket prices to “economic levels”. My first thought? What a crock. My second thought? Keep reading… |
Okay, my second thought was, the guy who made the comments is pretty tone deaf to airline struggles.
First of all, with proper motivation, even the worst can make a come-back; hey, who would have thought we’d be clamoring to hear ABBA tunes again after all these years (”Mamma Mia!” anyone?).
Okay, forget ABBA. How about US Airways? Long reviled for its horrendous on-time record, this carrier decided to change all that. And so far this year, US Airways now has the best on-time record. They did it with money, retraining, and determination (despite the congestion in the Philly corridor with LaGuardia and Newark).
Will some airlines go bankrupt in the coming year? If oil doesn’t drop below $100/barrel, maybe. Is this “the best thing” for the industry? Absolutely not. Competition is what keeps flying within reach for many of us.
Oh, and US Airways? A lot of folks think they may be among the first to go into bankruptcy if oil stays high. Their CEO’s take? “
“If there are other airlines whose strategies are based on US Airways going away, they’d better find a different strategy. We are going to be fine, and we are going to get through this. We can compete as well as anyone.” — Doug Parker, CEO US Airways
I don’t think any airline will go down without a fight. And I wish them all well.
Competition is good, but not competition propped up by a Chapter 11 process that keeps broken businesses in the air. The U.S. has seen airline after airline go through Chapter 11 reorganization on numerous occasions. This is not the natural forces of the market at play.
In the real business world, smart, efficient, competitive businesses prosper while those that are not reform or go away. There are no shortage of air carriers to fill the void should one of the less viable ones go away.
Without a real threat of liquidation, furthermore, the various stakeholders in a company’s restructuring don’t have quite the same incentive to reform the business.
Of course it is tragic for the employees of the affected company. Nobody likes to see people lose their jobs.
Comment by DMcD — July 23, 2008 @ 8:26 am
I don’t really understand your counterpoint. The analyst is using economics 101 here. How would an airline raise prices without losing overall profit? If a major died, then the spill over demand would allow this and compensate for the natural reduction of demand that occurs with a price hike.
If fuel prices go up x%, and revenue goes up
Comment by mwarden — July 23, 2008 @ 7:54 pm
I don’t really understand your counterpoint. The analyst is using economics 101 here. How would an airline raise prices without losing overall profit? If a major died, then the spill over demand would allow this and compensate for the natural reduction of demand that occurs with a price hike.
If fuel prices go up x%, and revenue goes up less than x%, then profit margins decrease. This proportion is so out of whack that ALL airlines are in trouble now. The loss of an airline (or a consolidation and reduction of overall supply for that consolidated airline) would help the survivors as described above.
Comment by mwarden — July 23, 2008 @ 7:57 pm
I am not saying that an airline will not go out of business … it could happen if we have prolonged fuel 100+/barrel …
My point is simple - who benefits from 1 or 2 airlines going bankrupt — consumers — no, competition drives price. Shareholders — no — they are left holding worthless paper. Airline employees — no — they are out of jobs …
His point was bankruptcies of a few would be good for the whole (airline industry) … it is all a matter of perspective … If i was an airline analyst I would like to have at least 1 airline to analyze …
Comment by Rick Seaney — July 24, 2008 @ 5:04 pm