Airlines Cutting Back on Flights
by Lewis DerkinsJune 16th, 2008, 6:07 pm
Today the business section of the San Diego Union-Tribune ran a piece on U.S. airlines cutting back on domestic flights. The article laments this and tries to portray the development as bad for consumers.
Just as air travelers were beginning to grapple with higher fares and add-on charges, many of the major U.S. airlines have announced they will cut back flights and eliminate routes.
The good news? There isn’t any.
The resulting seat squeeze means that passengers in coming months can expect longer lines, fewer choices for when and where they can fly and, in many cases, to pay a premium for it.
OK, so what is wrong with the market correcting itself? Just like the housing bubble couldn’t support unchecked growth forever, neither can the airline industry.
I lived in the San Diego area for a few years. There was a flight that went from San Diego to LA.
You can drive that distance in less time than it takes to fly. You have to get to the airport an hour early to check in and get past the Totally Stupid Administration’s stormtroopers. Then you have to fly 45 minutes – assuming you leave on time, and you have to budget about 15 minutes to deplane and leave the airport. The car can cover the same distance in the same time, even with traffic most times.
But the car beats the airplane hands down when you account for the time you have to spend driving to the airport in the first place, and the time you spend getting a rental or having a taxi drive you around LA once you get there.
I used to live in Carlsbad, which is about 30 miles north of San Diego, so to take this stupid flight, I would have to drive forty minutes south, abandon my car, pay $849, let some gorilla confiscate my toothpaste (probably to eat as a snack later) wait an hour, hope my flight wasn’t late, arrive, deplane, rent a car and drive to a meeting, let’s say, 25 minutes south. Of course before I did any of that, I would have to pretend that I didn’t have a brain. But that seems to be the old operating model of the airlines – no brains. Who the hell would take this flight and why?
I would almost guarantee that this is one of the flights that will get cut. As an aside, there is another flight directly from Carlsbad which is just as moronic and should also be ended. What is wrong with ending these flights?
“If you are trying to fly a route that a low-cost carrier doesn’t fly, the predominant carrier for that market can basically play with fares until they find the point where the market won’t bear any more increases,” said Wallace, chief technical officer of Farecompare.com.
Again, the market is reacting to market forces. Are we under some delusion that the airlines aren’t businesses that exist to make profits? They aren’t carrying us all over the world out of a sense of civic altruism. All these riff-raff flights do is cater to the very few who are rich enough to afford them and can’t be bothered to sit in traffic. They clog the runways for the rest of us and cause delays. They carry people through airports who should be driving in the first place and make longer lines at ticket counters and feel good … err … security screenings. Who cares if they have to pay more to do it? This article tries to convince you that you lose choice when the airlines cut back on flights, but you can still choose to drive, take a train or bus, hell, even bicycle to LA. Cutting these flights doesn’t eliminate consumer choice any more than if McDonalds and Burger King decided to discontinue chicken sandwiches leaving only Wendy’s.
Who cares if these go away? If you want to fly one of the specialized routes, you should have to pay out the yang for it. That’s one of the simple laws of economics – supply and demand – in action. But the authors of this article would prefer that the airlines suck up huge losses, continue to deliver crappy service and somehow magically escape the everyday forces of the business world.
Wake up America. You are not entitled, nor do you need to fly everywhere. I know you’ve seen too many movies that show important people jetting all over the earth on a moment’s whim, but kindly remeber, that is the land of make believe. In real life, on a real life salary, it makes much more sense to drive from LA to San Diego than to fly. This holds true in any section of the country where the flight time is nearly equivalent to driving time, and where the cost is less.
Cutting back on these flights will help the airlines make the rest of our flights more efficient and affordable. Instead of a portion of your ticket price on the sold out plane between New York and LA subsidizing the flight between LA and San Diego with three people on it, you’ll be paying for the cost of the flight you’re on.
Yes, those prices will continue to go up with rising fuel prices, but so what? Where in the constitution does it guarantee every American citizen a right to cheap air travel? Fuel prices are driving tickets prices up, and they will continue to do so. If Americans don’t like that, maybe they should get off their lazy asses and exercise a constitutional right that is actually guaranteed – the vote.
Tell our moron leaders in Washington to stop allowing environmentalists to hamstring our energy policies. Allow us to drill for the oil we have and expand our refining capacity. Invest in alternate energy sources and tell the greens to shut their mouths before we end up back in the Stone Age.
Posted in Airlines, Airports, Uncategorized Rage |
I definitely have a bone to pick with you on this one Lewis.
I think the market correcting itself is a positive thing. In an interesting aside we had Judd Wiley posting that the Commonwealth of Virginia should have ‘anticipated higher fuel prices like private industry did’ - it’s clear from the reshuffling the airlines are doing that they didn’t - but that’s beside the point.
They’re adjusting now, finally and belatedly. I agree that not every podunk town throughout the country can have an airline to fly at low prices. But being someone who was born in a ‘podunk’ town in Mississippi and who lived right near the Carlsbad airport in San Diego county I disagree with your specific example and some fo your other points.
1) Not everyone who flies from Carlsbad to Los Angeles does so because that’s their final destination. When I flew home to the East Coast or the town in Mississippi I would often do so for a week or ten days. Since I lived around the corner from the Carlsbad airport there are a lot of times that taking the small aircraft, that is cheaper to operate than large jets, to Los Angeles made far more sense for me than to drive all the way to Los Angeles (80-90 miles one way), park at 10 - 20 dollars per day, and deal with traffic gridlock that is worse than anything I’ve seen in this country - including in the DC Metro. At the time I believe the stand alone flight from Carlsbad was $149 which was less when you compared the price of a RT ticket from CBad to the east to a ticket on a flight from LA to the east.
Usually I would continue on from LA to the east Coast or to Mississippi. What’s wrong with paying an extra hundred to hundred and fifty bucks to get rid of all the inconvenience of driving to LA. Your assertion that it’s somehow not fair for the NYC to LA passenger to ’subsidize’ the cost of a passenger’s flight from Carlsbad to LA is ludicrous on its face. First, I highly doubt the airlines are subsidizing most flights. They’re charging what the market can bear as they should. Two, even if they were subsidizing do you think maybe private industry has decided that it’s good business to fly to Carlsbad at the price point they’ve determined? Many of them subsidize the cost of the ticket on the first flight so they can gain business and marketshare once they fly the passenger from the smaller airport to their hubs and spoke them out to other areas.
Your argument makes as much sense as saying that it’s a tradgedy that McDonald’s profit on a 32oz Soda is somewhere near 300% but it’s only about 20% on food so the food only customers are being subsidized by those who purchase both soda and food.
2) Flights into podunk towns are extremely high in many cases. For example flights into northern Mississippi’s airport known as Golden Triangle (GTR is the airport code) are $500 - 600 dollars RT no matter when you fly, how early you purchase, etc. Apparently Delta has made a determination that the price point is at around 600 bucks right now and that they don’t subsidize the flight because it doesn’t drive enough business for them to recoup whatever they subsidize.
I agree with the general thrust of your post but had to correct a few of your more outrageous assertions.
Koe,
I never flew out of the Carlsbad Airport - I always flew out of San Diego. I agree with you that the hub airports are not always the final destinations - usually it’s small airport to small airport. As you point out, this is a somewhat outrageous assertion, but consider two things:
In the scenario I put forth, I am correct that the automobile is much more beneficial.
In the scenario you put forth, the airplane may make sense for you, but it clearly doesn’t for the airline, which is why the airlines are cutting them. There’s nothing wrong with paying a little extra to avoid some of the hassle, but the airlines aren’t really charging you what it costs. Your concerns about traffic gridlock are valid, but that’s exactly why we should be expanding the highways too.
The airline never set a good price point for these flights because no one is willing to pay the true cost that it takes to fly them. So the airports were probably trying to use these small airports to feed travelers into larger airports - almost like loss leaders - with more expensive long flights that subsidize a portion of the cost of the small ones. You have to remember that subsidizing the cost of those flights involves more than the cost of the fuel and crew (which are cheaper than large jets in the total amount of money, but larger in terms of the share you have to pay for since there are less passengers), there’s a huge maintenance cost with those smaller airplanes, you have to provide hangar space for them, there are additional costs for the ground crews and equipment to service them, there are bigger costs for maintaining an inventory of spare parts and specialized equipment that you need for the diverse fleet, higher costs to train people since they need to be able to work on a more diverse array of planes, and those smaller airplanes clog the system which leads to things like the government auctions on flight slots that they are doing right now in New York area airports, and the horrible delays that people bear.
Carlsbad sends 7 flights per day to LAX. Add that to the 30 flights per day from San Diego, the 4 from Palm Springs, and the 18 from Santa Barbara. That is an incredible strain on the air traffic control systems from 4 regional airports.
I think you and I both agree that the airlines should set the price that they need to in order to make up their costs, and they have to balance that with what people can pay, but that’s the big problem with airlines right now, if you had to pay that true cost for those small flights, no one would take them.
In my honest opinion, what we really need is a much better integrated transportation system. For instance, if I have to fly through LA to Carlsbad, why isn’t there a train at LAX that takes me directly there, and why can’t the airline sell me a transfer for the train as part of my ticket? And why doesn’t the train run more frequently? That would work really well for you because you would probably pay less for the train portion, you would certainly pay less for parking, and you would spend less time than you would on the highway and in the airport.
That is a point I didn’t make in the post because I wanted to focus on the issue of whether the airlines should cut these flights or not. I clearly think they should. The flights benefit some people to be sure, but they just aren’t economically or logistically feasible for the airports. You’re talking about moving people fast and cheap, I think the solution to that is a better rail system integrated with the airport, and better highways to get you to the trains or give you some choice that doesn’t involve gridlock. I’m talking about the financial survival of airlines in general, and in this arena, cutting these flights is clearly the best option.
I’m sure you would agree that you would much rather feel the pain for two hours to drive from Carlsbad to LAX than to have no airlines in business to fly you from LAX across the country. We’re talking about saving airlines from going out of existence, and that is what preserves commuter choice.
I think the airlines are doing the right thing. At the end of the day, it’s their bottom line that dictates all of this. If they’re not making money on these podunk areas, it makes perfect sense that they’d want to shut down these lines (and perhaps beef up the major routes).
What we don’t need (and I say this preemptively) is the federal government stepping in and mandating that a certain number of flights service these stupid areas of the country. Barack Obama, for instance, wants to “strengthen air transportation in underserved areas” and “improve transportation access to jobs.”
Yeah, that’s great. Spend federal tax dollars constructing airports in areas where few people live. Force airline companies to send a certain number of flights per week to these areas. Completely disregard free market economics, and the law of supply and demand.
Oh Judd,
We abandoned free markets in this country long ago.
Lewis, you didn’t respond to the substance of the biggest disagreement I have with your post but I’ll respond to yours.
You say:
“There’s nothing wrong with paying a little extra to avoid some of the hassle, but the airlines aren’t really charging you what it costs.”
And:
“The airline never set a good price point for these flights because no one is willing to pay the true cost that it takes to fly them.”
And:
“and they have to balance that with what people can pay, but that’s the big problem with airlines right now, if you had to pay that true cost for those small flights, no one would take them.”
The quotes I’ve selected above go to the heart of the disagreement I have with you regarding the airlines practices. The reason the airlines charge these lower amounts is explained by simple economics.
Airlines, and all corporations make pricing decisions based on a multitude of factors: their cost (significantly), their overhead (maintenance, insurance, etc as you referred to), their income streams from investments, leasing, rents, etc, and the nature of the competitive market place.
If an airline can charge $1000.00 on a flight from NYC to LAX (to use the example previously) and their profit on that flight minus all their expenses is $400.00 they may charge far less than they pay to fly a customer from a smaller airport to one of it’s hubs. They balance these losses with other income revenue from that same passenger.
Anyone can find singular flight segments that are net money losers from point a to b. But looking at the flight without reference to that same passenger’s flight from point b to c, c to d, and so on AND without looking at the rest of the competitive market place and other revenue streams is short sighted.
My biggest disagreement with your analysis is the economic populism you seem to betray by decrying the fact that airlines charge more in certain markets to compensate for losses in other markets. This is the nature of all corporations who charge more for products in certain markets and less than others. Companies do this among product offerings all the time. I could include countless examples, but a few examples/ Companies charge less for their consulting services in order to market software that has higher profit margins. Ditto for fast food restaurants that operate on less profit margins on food than they do on drinks which spreads the cost of food to beverage consumers.
You seem to decry the unfairness in the pricing policies of the airlines that don’t make passengers from smaller airports pay for the ‘full cost’ of their flight from point a to b.
My biggest argument is that airlines (and other corporations for that matter) are best suited with their pricing models to determine the cost of a given flight (or segment) on any given day at any given time. I take issue with your determination that airlines should drop these flights or charge far more because flight a to b doesn’t exactly meet cost. The solution to airlines revenue woes is theirs – any attempt to regulate it is stupid. On that I think we agree. However, I go further and argue that your arguments that airlines should price the flights ‘at cost’ and decrying the fact that airlines on other routes subsidize these routes is an inane and useless exercise. Let the airlines, with input from their shareholders, best determine how to price their product, stay competitive, and ultimately decide how to operate.
To prove my point that airlines will make these choices without the input of airline industry expert Lewis Derkins, read the below release which shows that airlines shift out of these small airports has been ongoing for 6 months to a year:
————————————————————————————
Service cuts to small airports
The most serious impact, thought not perhaps as widespread, will be felt at small regional airports located in rural areas or near major hubs in big cities.
Air service to dozens of small regional airports is completely drying up this year, according to industry sources. Some 37 airports will lose service this year, including far-flung spots in Alaska and Montana, as well as cities like Trenton, N.J. and Portsmouth, N.H. that are close to heavily-trafficked hubs like Philadelphia and Boston. This is in addition to the 59 airports that lost service in 2007, more than half of them in Alaska.
“[The airlines] are looking at where they’re making the least amount of money,” said David Castelveter, spokesman for the Air Transport Association. “Many times, it’s the small communities.”
Koe -
I didn’t realize that you had a Derkins worthy rant in you.
Now you’re staring to embrace what this place is all about.
I still disagree with you.
Let me see if I understand the substance of your big disagreement with me. Here’s the tried and tested Commuter Outrage knee-jerk synopsis:
I maintain that the airlines cut these flights because they do not make enough revenue off of them to justify the costs of running them, and cutting them is good for a variety of reasons.
You maintain that the airlines don’t measure the costs of each leg individually, rather they look across the entire revenue stream that one customer generates.
So, I fail to see how, even under your model, we don’t arrive at the same conclusion - these flights aren’t profitable, and thus they were cut.
I don’t advocate that the airlines should be regulated, and I have no idea where you got that notion. I maintain that it is good for the airlines to trim their own fat, and I decry people who are whining about it.
But, maybe I still don’t understand you, so let me change tack. If you think that these flights have sufficient ridership, are convenient and generate sufficient revenue, then why do you think the airlines cut them?
The article you reference is interesting in that it makes my exact point - the airlines determined that those flights were not profitable.