Sunday, July 13, 2014
I Don't believe that the pricing algorithms of the commercial airline industry actually make airlines profitable. I would love to see the day when a passenger went to the airport like a train or bus station bought the ticket at the window and takes the fligth.
Some New Ideas to Help Make the US Commercial Airline Industry Profitable Most of the US Commercial Airline Industry is in a State of Financial Suspended Animation Somewhere Between Bankruptcy and De Facto Nationalization. There Are Ways to Bring Back More Permanent Profitability Lex Loeb Contributor Network . Everyone who is impressed with nationalized airlines and systems like the European passenger euro rail probably likes getting the subsidy from tax payers that props up those systems making them look suave and profitable. Euro-rail has operated at an ongoing loss since it's inception pretty much the way Amtrak does in the USA. A lot of countries still have or had nationalized airlines that also run on considerable subsidies and ultimately may not prove as profitable as they seem. Passengers tend to pay less for ticket than it costs governments to provide the services. The Channel , the rail tunnel under the English Chanel never became profitable nor did Concord service under private ownership nor under public ownership. Subsidizing travel costs to the well to do on the Concord even when they had to outlay more than twice what they would have to to fly an ordinary commercial airline is possibly not the best use of public funds any more than a world city like Paris taxing everyone in France to create the atmosphere of luxury that only benefits some Parisians and more often foreign tourists if one one else. Being impressed by nationalized efforts to provide transportation services with public subsidies may please the eye but it does not mean that there is any true profitability. The lack of real profitability suggests that ultimately the service provided is not sustainable over the longer term. In the USA , Amtrak has cut back a large number of travel corridor routes in the same time it continues loosing money at a significant subsidy from it's friends in Congress. The idea of rail travel is a fine and admirable one but as a business it should ultimately rely on profitable operation as the raison d'etre for retaining the system. Other transportation systems that fail or continue to live in suspended financial animation due to government subsidies are public transportation systems and interstate bus services. The financial subsidies provides a nice illusion of the necessity of retaining the system but ultimately the benefit to consumers/ passengers becomes something of a subsidized luxury. This is the same thing that has seemingly happened to the US Airline industry with some government subsidies in place already as seen after the 911 attacks when most of the industry could have collapsed without government assistance. Breaking even year after year might be alright but in the long run it probably means antiquated planes, safety problems and a lack of re-capitalization in general. The problem with most of the airline industry comes down to an inability to recapitalize itself and when it does the costs destroy future prosperity. Businesses that do not need expensive ongoing recapitalization, say for fuel efficiency, will be a lot more profitable over time. The industrial railroads have proven over a very long period of time to have lower capitalization expenses and much more long term profitability than the passenger lines which all became Amtrak disappearing otherwise from the face of the earth. Commercial cargo planes like those with UPS have a similar longer term prosperity due to lower recapitalization costs than many commercial airlines do. A government take over will allow all the newest planes to replace older ones but it will not lead to sustainable profitability as a guide. A lot of airlines have tried to imitate the very few airlines that have proven to be successful but generally failed to get similar results. Here are some new ideas for making the commercial passenger airlines as profitable as can be with the level of competition that exist in the mature US airline industry markets: Pre-Paid Air travel service plans. Here is an idea that no airline has tried. Forget the points per mile plans and think more about health insurance plans. With computers airlines can calculate how much the various types of passengers they fly are likely to spend in a one year period. A business flier might fly 2 to 4 times a month and pay X number of dollars on average where as a typical economy passenger may fly only one round trip a year verses a college student who may fly 4 or 5 round trips annually. So why not create pre-paid plans. Already airlines have around the world annual passes that have a fixed one time charge so why not have a monthly charge for airline "insurance" which pays for flights when needed? The plans could guarantee flights by class of service for a monthly automatic payment of anywhere between $30 and $4000 a month. The fight dollars could earn interest just as a bank would credit interest to the account or discount fight coupons on a regular basis. It would be a form of a pre-payment plan and dollars logged will not expire with protections against fare increases once set levels of accumulation are met. This could give airlines a bit of financial ballast. Pre-paid plans won't work for everyone but there is an actuary insurance way to figure out how much money will accumulate ahead of flights being needed. Accumulation of capital in advance of flying is one reason airlines book tickets at a discount months ahead of time but that will not give them the float a system like this would. Another idea is that airlines could be smarter about commercial cargo and have a check in area for cargo itself. It is always surprising in an era when airlines are charging extra fees to check bags that companies like UPS and FedEx don't have passenger terminal bag and small cargo check in station right there at the airport. Major US airlines could go bankrupt and then in re-organization re locate their base of operations to get a lower labor rate. One could imagine a major US Airline becoming based in Northern Mexico as one possibility. An International carrier might go much further away to a net export oil economy where it might receive lower costs on fuel by the relocation. That is a possibility in Mexico if possibly giving Mexican oil company some interest in the company in exchange for the best wholesale local fuel contract. The problem with this is the distances can consume more fuel than makes sense in cost savings. Putting casino flat screen terminals on the backs of seats on commercial flights for the possibility of realizing some extra cash flow. In cabin advertising. Everyone has seen the paid advertisements above the seats in city busses and subway trains. Ryan air is an airline that may already be doing this. Advertising space on the outside surfaces of planes --The flying billboard. In Portland ,Oregon , originally the public transit system looked down on such an idea but since has turned it into a major side line business for a special interest contractor to increase profitability in spite of consistent subsidized losses. The only place advertising is found on most airlines is in the seat pocket magazines and on television screens. Ryan air found there really is no limit to how much paid advertising there can be and is able to lower prices to rock bottom levels as a result. Although the days of $20 flights across Europe maybe over. Ryan air still can beat most competitors in price thanks to the other lines of business including advertising. The trade off between advertising and lower fare prices might ultimately be realized with paid infomercials and live infomercials on board jets in flight. The Obama administration could pay $4000 per 300 plus passenger flights to bring a spokesman on board to sell nationalized health care to passengers non stop on a 4 hour flight as one example. Another idea could be smokers only fights on smokers planes or even more absurd, transcontinental marijuana smoking planes. This is only half kidding. If the idea is profitability why not take advantage of offering services on planes that may not be legal in national territories? Casino Flight might not be legal in some jurisdictions but in trans continental zones the access could legally be provided when not otherwise. This type of service might be called "Sin Flights." Government prepaid use of services is another way that airlines could reduce the ticketing in advance nonsense and have ready flights for certain branches of government and other organizations that pre pay for the service monthly or annually. An all last minute fare ticketing window airline for first come first served non reserved flights is something long overdue. The reservations system is one thing that does more to make flying hell. With the same computer systems that take reservations the airlines could set up systems that allow people to arrive at an airport and catch a plane the same way they used to be able to catch a train. Airlines could place unreserved tickets on a community access system and get credited once a passenger buys an available seat so that passengers can virtually go anywhere on a moment's notice without having to go to any particular airline counter. The airline would get it's competitive price and passengers could choose when there are price differences. This is necessary given anti trust considerations. There is a whole class of individuals who never plan ahead that airlines loose as business not being true terminals like railroad stations. Unfortunately Amtrak seems to be imitating the airlines pre-reserved mess instead of going the way of European railways with ready same day when availble access as easy to find as one automated kiosk. Just because different carriers have different systems does not mean that unsold seats on flights should not be on a single terminal in the passenger terminal for immediate reservations. It is absurd that airlines think that the last moment is the time to gouge the passenger with the highest imaginable fares when at the same time they run standby operations. Suckers fly less then they might otherwise if they get last minute deals. At the same time advance bookings can still offer some discounts to compensate for advance cash flow. Rethink the hub system of some of the larger airlines. Airlines got sucked into the hub and spokes systems and they have passengers flying more miles for no good reason in many circumstances. Some passengers might actually prefer a multiple stop local bus route type flight than the nonsense of having to fly hundreds of miles out of the way to a hub because of some stupid theory that it ultimately saves money. If Chicago or Denver are actually not far out of the way than it makes no difference but if to get from LA to NYC one has to fly though Miami or Atlanta it starts to seem a bit stupid. Some fights even require a trip from say Detroit to Newark to get on the way to Portland, Oregon. This is as dumb as government subsiding flights to all locations at the same price the way the US post office subsidizes the same rates no mater the distance for letters. Re-thinking the nonsense and allowing airlines to trade routes between them in exchange for a waiver of anti trust nonsense with high prices to bring in new competition might be the better way to go. The industrial railways have an absolute monopoly on track rights and retain profitability that airlines are not permitted to have . There is a trade off but government could better help set rates based on costs rather than prevent some efficient route monopoly control. Competition should definitely always be allowed. Another way to do this would be to allow airports to allow airlines to use any gate instead of having to own the gates especially in markets where there is room for competition. These are just a few ideas. .