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How did the airline companies become so unprofitable?

I

imported_goku

Diamond Member
I mean look at all of the bankruptcies, why did the airlines have so many problems? Seemingly for years they were in the black and then all of a sudden they fell apart, now they're removing services like inflight meal, what a bunch of bullcrap, how is it they've had in flight food service for over 60 years and NOW, ALL OF A SUDDEN it's costing them too much??? Maybe the companies became too large and bloated to sustain themselves?
 
When they found out that the government would pay them for not planning ahead, their profits 'mysteriously' vanished.
 
Originally posted by: jadinolf
They don't charge enough.

That's very simplistic but true.
Click to expand...

I'll buy that. I remember when plane tickets were very expensive. 1000 bucks and what not.

now I can fly to CA round trip for like 3-400 bucks.
 
Competition, gas prices, increased security measures, unions, etc. Don't forget the impact that 9/11 had.

It's not one thing but a culmination of several things.
 
Airlines have never been what I consider great profit houses. They usually spend what profit that have on new equipment.

That said Union greed in the early and mid 1990s lead to huge pension and compensation plans they simply couldnt afford once cheap airlines without the burden became popular. Then you have a huge rise in fuel costs and 9-11 and it is a recipe for disaster.

People will attack me for the Union comment but look at the other big industry with heavy union labor, auto, and you see the exact same issue.

Public sector is the last great stand of union labor in this country because no politician is going to say no to their meal ticket when the union comes calling for high wages for low performance in a govt job.
 
The airline industry, post deregulation, has always been a very cyclical. If the economy is doing well so are airlines. If the economy is doing poorly so are the airlines. In the boom years of the 1990's the economy was on a roll and the airlines profits soared (along with labor costs.) Once 9/11 happened, and the economy tanked, they were stuck with high costs and low demand.
 
Originally posted by: jadinolf
They don't charge enough.

That's very simplistic but true.
Click to expand...

I agree. I wonder why they don't raise rates though. Is it really better to bankrupt yourself? Some companies are still making money, right? Maybe it's just a question of poor management.
 
Originally posted by: z42
Originally posted by: jadinolf
They don't charge enough.

That's very simplistic but true.
Click to expand...

I agree. I wonder why they don't raise rates though. Is it really better to bankrupt yourself? Some companies are still making money, right? Maybe it's just a question of poor management.
Click to expand...

Low fare airlines keep them from raising the prices. These airlines dont have the same overhead the big airlines have.
 
Originally posted by: So
When they found out that the government would pay them for not planning ahead, their profits 'mysteriously' vanished.
Click to expand...
WINNER!

Except that they found out almost immediately. The airlines have been subsidized and protected since the early days of Pan Am.
 
In all of the other countries, the airlines are government subsidized. Air FRANCE, BRITISH air, etc etc. They're called flag-airlines for a reason. They have never been particularly profitable, and if they were to cut all of the unprofitable routes, half of the airports in the country would never ever have flights.
 
Originally posted by: Genx87
Originally posted by: z42
Originally posted by: jadinolf
They don't charge enough.

That's very simplistic but true.
Click to expand...

I agree. I wonder why they don't raise rates though. Is it really better to bankrupt yourself? Some companies are still making money, right? Maybe it's just a question of poor management.
Click to expand...

Low fare airlines keep them from raising the prices. These airlines dont have the same overhead the big airlines have.
Click to expand...

also add, higher maintenance for older airline corps aircraft. newer airlines keep prices down as maintenance on newer fleet of aircraft is significantly less, as well as lower fuel prices. As long as new airlines come into the field, the price will never raise.

higher fuel prices, more expensive aircraft, more expensive electronics equipment.



 
Originally posted by: Vic
Originally posted by: So
When they found out that the government would pay them for not planning ahead, their profits 'mysteriously' vanished.
Click to expand...
WINNER!

Except that they found out almost immediately. The airlines have been subsidized and protected since the early days of Pan Am.
Click to expand...

Corporate welfare FTL.
 
Originally posted by: novasatori
Originally posted by: Genx87
Originally posted by: z42
Originally posted by: jadinolf
They don't charge enough.

That's very simplistic but true.
Click to expand...

I agree. I wonder why they don't raise rates though. Is it really better to bankrupt yourself? Some companies are still making money, right? Maybe it's just a question of poor management.
Click to expand...

Low fare airlines keep them from raising the prices. These airlines dont have the same overhead the big airlines have.
Click to expand...

also add, higher maintenance for older airline corps aircraft. newer airlines keep prices down as maintenance on newer fleet of aircraft is significantly less, as well as lower fuel prices. As long as new airlines come into the field, the price will never raise.

higher fuel prices, more expensive aircraft, more expensive electronics equipment.
Click to expand...

But they still don't charge enough to cover these costs.
 
Originally posted by: novasatori
also add, higher maintenance for older airline corps aircraft. newer airlines keep prices down as maintenance on newer fleet of aircraft is significantly less, as well as lower fuel prices. As long as new airlines come into the field, the price will never raise.
Click to expand...

Newer aircraft have higher lease payments which offsets the lower maintenance costs (just like with a car.) It is true that competition from low cost carriers keeps prices down. But with many legacy carriers cutting unprofitable domestic capacity, and healthy demand, prices have been going up. I am seeing much higher holiday ticket prices this year compared to what I paid last year around this time. The low cost carriers are happy to raise their prices along with their competition.

 
For the older airlines the big problem was the New Discount no-frills competition. The New airlines offered super cheap travel that the only way for the Old airlines to compete was to also go No-frills.

Unions are not to blame, but the Older airlines also had higher employee compensation than the Newer airlines which also has made it very difficult for the Older airlines to compete.

Older airlines also had a wide variety of routes, some of which were Profitable, some of which were not. The Newer airlines were very picky about their routes and stuck to only profitable ones.

Then the Fuel Price increases came and 9/11, pushing the weak airlines and even the healthy ones to the brink. If one of the major airlines was allowed to collapse it would probably benefit everyone, but no one wants to be that one so they'll continue scraping by hoping the Other Guy collapses or the Public decides to start flying again.

Certainly Government should stop infusing cash to the airlines. Shortly after 9/11 was reasonable, but to continue it now is just a waste. Let fate decide who lives/dies and the survivors will become healthier due to decreased Supply. Government can provide the better help to Airlines in other ways besides throwing around Cash at them:

1) Better/Faster security checks of Passengers. Much more people will fly if flying is less of a hassle

2) Health Care reform. Real Healthcare reform.

3) Perhaps temporary Tax Breaks/Deductions on Fuel Costs.
 
If I could run a business where I can get paid really well, and if I ever go bankrupt the government will bail me out and let me continue on as before, I'd sure do it.
Who really needs much in profits when bankruptcy doesn't mean anything?
 
Originally posted by: sandorski
For the older airlines the big problem was the New Discount no-frills competition. The New airlines offered super cheap travel that the only way for the Old airlines to compete was to also go No-frills.

Unions are not to blame, but the Older airlines also had higher employee compensation than the Newer airlines which also has made it very difficult for the Older airlines to compete.

Older airlines also had a wide variety of routes, some of which were Profitable, some of which were not. The Newer airlines were very picky about their routes and stuck to only profitable ones.

Then the Fuel Price increases came and 9/11, pushing the weak airlines and even the healthy ones to the brink. If one of the major airlines was allowed to collapse it would probably benefit everyone, but no one wants to be that one so they'll continue scraping by hoping the Other Guy collapses or the Public decides to start flying again.

Certainly Government should stop infusing cash to the airlines. Shortly after 9/11 was reasonable, but to continue it now is just a waste. Let fate decide who lives/dies and the survivors will become healthier due to decreased Supply. Government can provide the better help to Airlines in other ways besides throwing around Cash at them:

1) Better/Faster security checks of Passengers. Much more people will fly if flying is less of a hassle

2) Health Care reform. Real Healthcare reform.

3) Perhaps temporary Tax Breaks/Deductions on Fuel Costs.
Click to expand...

Woohooo, airline monopoly
 
It isn't just the government. The creditors figure refinancing debt costs them less than liquidating would. So they continue to string along an unsuccessful bunsiness model.
 
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