The Beginning of the End for Discount Airlines?

[DanJ]

High oil prices or not, airlines, as most businesses, charge what they can get away with. When people stop paying the prices, the prices fall.

 

By the way, just saw this little blurb online

 

"Standard & Poor’s Ratings Services lowered its ratings on JetBlue Airways, including lowering the long-term corporate credit rating to B from B+, and the unsecured debt rating to CCC+ from B-, due to the company’s weakened financial profile. The outlook is stable. Since the second half of 2004, the company’s results have been hurt by high fuel prices, with only minimal fuel hedges in place as an offset. Source: Dow Jones"

[Stillfloatin']

For the past few years, I've always given my business to SW for one major reason: their frequent flyer program that allowed me redeam certificates for ANY flight that had any open seats.

 

When they changed their policy last Feb, they lost me. Last month I tried to use my miles to book a flight to Reno (for a wedding) from OC, almost 9 weeks ahead, and there were ZERO seats available on Friday and Sunday, so I had to come in a day early and leave a day late. If I didn't get comped rooms and food at one of the casinos, it would not have been worth using.

 

Now that their fares aren't particularly competive, they don't offer me any incentive to take them. From now on, I will book based on price and convenience only. This loyal customer is gone. :mad:

[Lightsluvr]

For the past few years' date=' I've always given my business to SW for one major reason: their frequent flyer program that allowed me redeam certificates for ANY flight that had any open seats.

 

When they changed their policy last Feb, they lost me. Last month I tried to use my miles to book a flight to Reno (for a wedding) from OC, almost 9 weeks ahead, and there were ZERO seats available on Friday and Sunday, so I had to come in a day early and leave a day late. If I didn't get comped rooms and food at one of the casinos, it would not have been worth using.

 

Now that their fares aren't particularly competive, they don't offer me any incentive to take them. From now on, I will book based on price and convenience only. This loyal customer is gone. :mad:[/quote']

 

Until 2006, almost all of my business and personal travel was on SWA, for the reasons mentioned above. This year, over half of my flights have been on AA, because the fares were very similar and Rapid Rewards is very difficult to utilize... RR is no big deal anymore...

 

Sorry, SWA.

 

:cool:

 

LL

[traveler/]

The question was: Is this the beginning of the end for LCC?

I think the answer is no. There are many components that go into determining final cost of a ticket and profitability. All airlines, LCC or Legacy will have to adapt to stay competitive, and the ultimate winners will be the consumer. Might take a while.

[hdawson]

This report and chart should give a good prospect for the future of the Low Cost Carriers. Year after year, the LCCs top the service rankings of US domestic airlines.

 

http://www.usatoday.com/travel/flights/2007-04-02-airline-quality-report_N.htm

[bobbyleduck]

Reports of the death of the Low Cost Airline have been greatly exaggerated. I just booked airfare aboard Southwest for $226 per person for round trip from Portland, OR to Fort Lauderdale. That is the total cost, including all fees, and taxes.

[WELSH WIZARDS]

Reports of the death of the Low Cost Airline have been greatly exaggerated. I just booked airfare aboard Southwest for $226 per person for round trip from Portland, OR to Fort Lauderdale. That is the total cost, including all fees, and taxes.

Very FRUGAL of you Bobby. :) :D

[SelectSys]

Death of the LCC? Hardly. Take a look at the following link: http://en.wikipedia.org/wiki/List_of_low-cost_airlines

 

What is dying are the one size fit all airlines. They are facing the same pressures that overtook the generalist department stores in the US a couple of decades ago.

 

It will be interesting to see what happens in the long haul market to leading carriers like Singapore when airlines like AirAsia X and others start cranking up the capacity.

[Globaliser]

It will be interesting to see what happens in the long haul market to leading carriers like Singapore when airlines like AirAsia X and others start cranking up the capacity.

Singapore Airlines is in a category which should have no difficulty in dealing with the competition by adapting both product and marketing. This group of airlines is able to command a price premium because of their reputation for quality service, provided to markets which are prepared to pay a little extra money for a little extra service.

 

The long-haul airlines that may have difficulty in the longer-term are those whose products are difficult to distinguish from those offered by the low-fare airlines. Few markets will support a price premium for an essentially identical product.

[SelectSys]

Singapore Airlines is in a category which should have no difficulty in dealing with the competition by adapting both product and marketing. This group of airlines is able to command a price premium because of their reputation for quality service, provided to markets which are prepared to pay a little extra money for a little extra service.

 

The long-haul airlines that may have difficulty in the longer-term are those whose products are difficult to distinguish from those offered by the low-fare airlines. Few markets will support a price premium for an essentially identical product.

 

I don't know what it is like checking in for a flight in the UK on Singapore Airlines, but at LAX many/most of the people standing in line look pretty price sensitive to me. Perhaps once they start taking additional A380's they will be able to pack the Sky Suites and business cabin and still make a buck competing against the discounters. I agree that they are in a better position to compete than many others with a fresh fleet and great product.

I agree about the undifferentiated product. That was my original analogy to department stores. Specialization will come into play much more going forward both at the high, middle, and low end of the market. I am personally pulling for carriers like MaxJet to expand and be successful. I can pay a bit more, but not a whole lot more for a better flying experience.

[Globaliser]

I don't know what it is like checking in for a flight in the UK on Singapore Airlines, but at LAX many/most of the people standing in line look pretty price sensitive to me. Perhaps once they start taking additional A380's they will be able to pack the Sky Suites and business cabin and still make a buck competing against the discounters.

Appearances won't tell you much about the price of the passenger's ticket. But studying the market will show you a lot about what airlines achieve.

 

I can't speak for the US market, but in the UK market there are some good indicators of what the airlines can do. For example, look at a good consolidator's website for economy tickets for one-stop flights from London to Sydney. You'll almost always see that the top prices are demanded by British Airways and Qantas (which operate jointly as a single airline on this route). The next most expensive airlines (at about £20 to £50 cheaper) are usually Cathay Pacific and Singapore Airlines. Other airlines are then progressively cheaper as you go down the scale of perceived quality.

 

From this, you can see how the UK market, at least, is prepared to pay more to fly on airlines in this top category. I would be surprised if the same effect were not present in most of the markets in which Singapore Airlines operates. We're not talking about paying megabucks more - just tens of pounds or dollars per ticket.

[SelectSys]

Appearances won't tell you much about the price of the passenger's ticket. But studying the market will show you a lot about what airlines achieve.

 

I can't speak for the US market, but in the UK market there are some good indicators of what the airlines can do. For example, look at a good consolidator's website for economy tickets for one-stop flights from London to Sydney. You'll almost always see that the top prices are demanded by British Airways and Qantas (which operate jointly as a single airline on this route). The next most expensive airlines (at about £20 to £50 cheaper) are usually Cathay Pacific and Singapore Airlines. Other airlines are then progressively cheaper as you go down the scale of perceived quality.

 

From this, you can see how the UK market, at least, is prepared to pay more to fly on airlines in this top category. I would be surprised if the same effect were not present in most of the markets in which Singapore Airlines operates. We're not talking about paying megabucks more - just tens of pounds or dollars per ticket.

 

I didn't say that one could tell what a person paid for a ticket based on appearance, only that many people checking in at SIA looked price sensitive. If one's check-in luggage is based on old card board boxes held together with duct tape and thin nylon bags, my instincts suggest that the individual is probably looking for value in airfare.

 

I think part of the effect you see in the London-Sydney market for BA and Qantas is based on the these carriers frequent flyer programs. My primary carrier is AA and I will fly on them over other carriers at a slight price premium to get mileage credit and upgrades. If quality was the measure, both Cathy and Singapore would be more expensive based on independent airline rankings: http://www.worldairlineawards.com/Awards_2007/AirlineYear-2007.htm

 

I was curious about your analysis and looked at SIA pricing from online consolidators to 3 markets from LA - Bangalore (business), Bali (pleasure), Manilla (Navy/colonial ties). In each case SIA had fares very close to the bottom. It almost seemed that flight duration had as big or bigger effect on price as airline (bad schedule resulted in cheaper ticket price).

 

I do agree with you that some people within a particular market segment will pay a bit more quality. I still think that many or most people are driven largely based on price. How else can carriers like RyanAir thrive and grow by leaps and bounds?

[Globaliser]

I didn't say that one could tell what a person paid for a ticket based on appearance, only that many people checking in at SIA looked price sensitive. If one's check-in luggage is based on old card board boxes held together with duct tape and thin nylon bags, my instincts suggest that the individual is probably looking for value in airfare.

Value, perhaps. But (at least outside the US market) "low price" is not the same as "good value".

I think part of the effect you see in the London-Sydney market for BA and Qantas is based on the these carriers frequent flyer programs. My primary carrier is AA and I will fly on them over other carriers at a slight price premium to get mileage credit and upgrades. If quality was the measure, both Cathy and Singapore would be more expensive based on independent airline rankings: http://www.worldairlineawards.com/Awards_2007/AirlineYear-2007.htm

Frequent flyer schemes have very limited effect in the economy class market in the UK. The vast majority of passengers are not members of any frequent flyer scheme at all - (rightly or wrongly) they simply don't perceive themselves as flying often enough for it to be worth joining one.

 

And mileage earning is often not good on these fares, anyway. For example, flying BA and earning in the BA scheme earns you 25% of flown miles with nothing towards status. Flying Cathay Pacific on these fares would earn you a big fat nothing in either the BA or Qantas schemes. So the price premium achieved by BA and Qantas is most unlikely to be do to with the effect of frequent flyer schemes.

 

Rather, the main reasons that BA and Qantas earn their price premium are two-fold: perceived quality/reliability/security, and schedule/reach/flexibility. (The second point may be why SQ has problems securing a premium in the markets that you looked at.) Cathay Pacific and Singapore Airlines both score highly on the first, but less highly on the second.

I do agree with you that some people within a particular market segment will pay a bit more quality. I still think that many or most people are driven largely based on price. How else can carriers like RyanAir thrive and grow by leaps and bounds?

Ryanair has undoubtedly developed and grown a market which would hitherto not have thought of flying. And only a fool would suggest that much of the market completely ignores the question of price.

 

But (at least outside the US) there are big sections of the market for whom there is no single determinant of purchasing choice. Price is not king. It is just one factor to be considered, alongside others. For those sections of the market, Singapore Airlines and its peers position themselves to offer an attractive value proposition, rather than low price. And that's why - with suitable adaptation and responses to the low-fare competition - they should have no trouble in dealing with the competition.

[SelectSys]

Value, perhaps. But (at least outside the US market) "low price" is not the same as "good value".

 

Low price just makes it easier to achieve good value for a specific product.

 

Frequent flyer schemes have very limited effect in the economy class market in the UK. The vast majority of passengers are not members of any frequent flyer scheme at all - (rightly or wrongly) they simply don't perceive themselves as flying often enough for it to be worth joining one.

 

This is a distinct difference. Even many infrequent travelers in the States tend to be participants in frequent flyer programs. The key tie-in is with the branded credit cards that provide one or more miles for each dollar spent. Hotel and cruise companies have latched on to this as well. For example, I have noticed discussion of the RCCL card on this site from time to time.

 

And mileage earning is often not good on these fares, anyway. For example, flying BA and earning in the BA scheme earns you 25% of flown miles with nothing towards status. Flying Cathay Pacific on these fares would earn you a big fat nothing in either the BA or Qantas schemes. So the price premium achieved by BA and Qantas is most unlikely to be do to with the effect of frequent flyer schemes.

 

I have also heard that BA/Qantas have reduced seat capacity to Australia and now each code shares all flights with the other (the Emirates effect?). Reducing capacity would allow them to charge more for their dedicated passengers including frequent flyers.

 

Rather, the main reasons that BA and Qantas earn their price premium are two-fold: perceived quality/reliability/security, and schedule/reach/flexibility.

 

Certainly schedule/reach/flexibility betwen both carriers mains hubs makes sense. BA certainly has the slots at LHR to provide schedule flexibility.

 

(The second point may be why SQ has problems securing a premium in the markets that you looked at.)

 

These are competitive routes as no one airline dominates LAX like BA and Qantas do at thier "home" hubs. JAL, Air China, EVA, Korean, and Malaysian at a minimum compete on these routes with Singapore.

 

Ryanair has undoubtedly developed and grown a market which would hitherto not have thought of flying. And only a fool would suggest that much of the market completely ignores the question of price.

 

Not only are more people flying, but those that already fly are flying more often. Ryanair and the other discounters are driving down fares for all airlines across the board. Even if you hate Micheal O'Leary and his airline, as a consumer, you have to like having the choice

 

But (at least outside the US) there are big sections of the market for whom there is no single determinant of purchasing choice. Price is not king. It is just one factor to be considered, alongside others.

 

This is true in any market. Price is never the sole criteria. I just paid an extra $30 plus shipping to buy a hard to find gift for Christmas rather than running all over town to find it at the normal retail price.

 

For those sections of the market, Singapore Airlines and its peers position themselves to offer an attractive value proposition, rather than low price. And that's why - with suitable adaptation and responses to the low-fare competition - they should have no trouble in dealing with the competition.

 

That is the key, adapting to the competition and creating new models of business and good value propositions for customers. Without adaptation and reinvention today's champions and leaders can readily go extinct.

 

Thanks for the entertaining discussion!

[Globaliser]

I have also heard that BA/Qantas have reduced seat capacity to Australia and now each code shares all flights with the other (the Emirates effect?). Reducing capacity would allow them to charge more for their dedicated passengers including frequent flyers.

...

Certainly schedule/reach/flexibility betwen both carriers mains hubs makes sense. BA certainly has the slots at LHR to provide schedule flexibility.

...

These are competitive routes as no one airline dominates LAX like BA and Qantas do at thier "home" hubs. JAL, Air China, EVA, Korean, and Malaysian at a minimum compete on these routes with Singapore.

...

Not only are more people flying, but those that already fly are flying more often. Ryanair and the other discounters are driving down fares for all airlines across the board. Even if you hate Micheal O'Leary and his airline, as a consumer, you have to like having the choice

FWIW, the BA/QF codesharing pre-dates EK's entry onto the Australia route. But EK's entry and aggressive pricing has more recently bled off some of the demand for BA/QF, which - as you surmise - have reduced capacity to maintain their yields from those who choose to fly them.

 

However, the schedule flexibility provided by BA/QF doesn't stem from hub domination at either end, as this is by necessity a one-stop route, so BA/QF has to compete with lots of other sixth freedom airlines. Thus BA and QF each only send two aircraft a day from London to Sydney, for example, with QF sending two more to Melbourne. Although it's difficult to do a direct comparison with sixth freedom airlines that don't (any more) offer single-aircraft service between Australia and the UK, CX publishes 4-5 good connections a day to Sydney, and SQ and TG publish two each. And there is heaps of other competition: VS also offers direct service to Sydney; in addition there are single-connection trips by CA, CI, EK, EY, JL, KE, MH, UA and others - before you get onto the competitive double-connection routes.

 

BA/QF, CX and SQ all maintain their pricing premium in the face of this much competition, and those two factors are by far the most important in doing that. So this seems to show that SQ's pricing position on the routes you mention must be affected by other things - or perhaps just the market in which it's selling.

 

You're certainly right about the effect that the low-fare airlines have had on fares generally, in the markets in which they operate. Not only that, but many major airlines have also adopted other chunks of their model - one-way pricing and no minimum stays, for example, is something that I've done well out of since BA adopted these policies for short-haul routes. But to return to the original subject of the thread: It may well be that hardcore low-fare airlines (the paradigm of which is Ryanair) will not take over the world. In April 2006, shortly after this thread was started, Airline Business published an article entitled Blurring the model: Low cost airlines and regional carriers swap tactics - worth a read. And the passage of time since then has seen the blurring spread, with more "low-fare" airlines adopting "major airline" features such as lounges, frequent flyer schemes, baggage onlining and interlining, etc.

[SelectSys]

You're certainly right about the effect that the low-fare airlines have had on fares generally, in the markets in which they operate. Not only that, but many major airlines have also adopted other chunks of their model - one-way pricing and no minimum stays, for example, is something that I've done well out of since BA adopted these policies for short-haul routes. But to return to the original subject of the thread: It may well be that hardcore low-fare airlines (the paradigm of which is Ryanair) will not take over the world. In April 2006, shortly after this thread was started, Airline Business published an article entitled Blurring the model: Low cost airlines and regional carriers swap tactics - worth a read. And the passage of time since then has seen the blurring spread, with more "low-fare" airlines adopting "major airline" features such as lounges, frequent flyer schemes, baggage onlining and interlining, etc.

 

Agreed, a blurring has occured in the airline business. WN is no longer the least expensive carrier on routes in the US. Their service is on par or better than the coach experience on most of the leagacy carriers - AA, UA, DL. I am sure you saw that LH bought into B6 - more signs of blurring.

 

The interesting thing is that the trend is moving more and more towards the low-end of the market. While Skybus is leaving my home airport, SAN, FR-style carriers are starting to pop up in the states - creating an even more competitive environment biased towards lower price (at least list price).

 

What caused my initial reaction to this thread was the title statement claiming the end of discounters. From the land of Walmart, this just doesn't make sense. The trend in the market to me is generally downward with a smaller high-end luxury market.

 

My own hope is to see more at the premium economy level as I am not in the league to fly in J let alone F or SQ's SkySuites! I am looking forward to JQ's arrival on the west coast. It will be interesting to see how they how they price their premium service when competing against themselves!

 

BTW - I also like the flight global site.

[Globaliser]

My own hope is to see more at the premium economy level ...

I couldn't agree more!

[Capsu78]

I thought this article has some very interesting ideas as to what forward thinking airlines "could" look like 10 years from now.

 

http://www.buzzmachine.com/2007/12/27/the-social-flight/

 

Many many many Pros,s Cons in the comments too.

What say the experts here?

[Globaliser]

Wacky ideas.

 

The author clearly hasn't heard of the airlines on which you can already play games against other passengers via the in-flight entertainment system.

 

And the idea of a secondary after-market in airline tickets is just fanciful. He clearly has no idea of how airline pricing works, or why.

[SelectSys]

Wacky ideas.

 

The author clearly hasn't heard of the airlines on which you can already play games against other passengers via the in-flight entertainment system.

 

And the idea of a secondary after-market in airline tickets is just fanciful. He clearly has no idea of how airline pricing works, or why.

 

I think you are being a bit harsh. I think the author presents some interesting ideas and some not too far fetched:

 

1) Giving subsidies to attract the right kind of passengers. Other types business entities many of them leisure related do this all the time. Think restaurants, hotels, clubs, etc.

 

2) Auction market - a better yield management system would be exactly this. In a crude way reverse auctions already happen at the gate when flights are oversold and people receive compensation for rebooking. Making a real marketplace would be possible given the increase in computing capacity. It would be in the airlines interest to request that they buy seats back from one customer and then resell them to a higher bidder (or more valued customer).

 

3) Secondary market for tickets (again auction based) - this already exists in the US. WN award coupons and credits are sold all the time on ebay. Do a search of ebay items for sale using the following seach "southwest credit" or "southwest vouchers". Note that southwest vouchers are good for any flight where space exists.

 

4) The kind of IFE enterainment games are a far cry from what would be available if people could leverage their laptops and other devices via the internet. The IFE is a low-end "walled garden" compared to what is available over the net. Better internet access on planes will allow participation both from within and beyond the aircraft.

 

5) Arranging airline travel based on social networking sites - sounds like cruise critic member cruises to me. One of the comments in the blog entry suggests it is already happening:

 

"You might like to know about AirTroductions, which started in 2006 and allows passengers to create profiles and search for other members who are traveling on the same flights. If you like each other you can request seats together:

http://intelligenttravel.*****.com/it/2007/01/introducing_air.html

Two people who met via AirTroductions on their way to the Consumer Electronics Show in Vegas ended up starting their own company together: http://www.airtroductions.com/Anonymous/Events.aspx"

 

Clearly not everything he suggests will come to pass, but it isn't fair to dismiss it all as wacky.

[FlyerTalker]

1) Giving subsidies to attract the right kind of passengers. Other types business entities many of them leisure related do this all the time. Think restaurants, hotels, clubs, etc.

It's called "elite status" and airlines already have systems in place to reward their best customers.

3) Secondary market for tickets (again auction based) - this already exists in the US. WN award coupons and credits are sold all the time on ebay. Do a search of ebay items for sale using the following seach "southwest credit" or "southwest vouchers". Note that southwest vouchers are good for any flight where space exists.

Sales of Southwest vouchers on ebay have drastically reduced since the change to e-vouchers. Also, WN is more aggressively enforcing its rules prohibiting sales or bartering of awards.

 

Also, you no longer have the "if space exists" flexibility on WN. Standard awards are now capacity controlled. Their "Freedom Award" has most of the features of the old system (if a seat is available), but is still subject to blackout dates. The Freedom awards also cost twice as many flight credits (32 vs 16). WN states on their website that award seats may not be available on popular dates.

[SelectSys]

It's called "elite status" and airlines already have systems in place to reward their best customers.

 

I think the author is proposing something more public to create more of an image / brand. I think he suggests that by attracting high profile customers and creating a specific community an airline will attract more customers. As far as I can tell, current "elite status" is fairly anonymous. I am pretty sure that AA (my primary carrier) sells my info to other businesses (I should look at their program privacy policy) but no set of AAdvantage public "friendship" exist.

 

 

Sales of Southwest vouchers on ebay have drastically reduced since the change to e-vouchers. Also, WN is more aggressively enforcing its rules prohibiting sales or bartering of awards.

 

Also, you no longer have the "if space exists" flexibility on WN. Standard awards are now capacity controlled. Their "Freedom Award" has most of the features of the old system (if a seat is available), but is still subject to blackout dates. The Freedom awards also cost twice as many flight credits (32 vs 16). WN states on their website that award seats may not be available on popular dates.

 

Bummer about the changes in WN's programs. I don't fly them all that I often so I don't keep up with their changes. I can understand why they don't like reselling of vouchers as they are leaving money on the table even though from a macro economic perspective this practice has benefits. It seems that more of the reaons I previously really liked Southwest as an airline are diminishing. Another thing that bothers me is that don't allow same day free standby travel on discount tickets anymore.

 

In any event, I am sure the raw computing power and software capability exists to create a more real time market for air travel tickets as extensions of their yield managemet systems. Some airline will see it in their interest and create such a market to include the resale of tickets. Perhaps some clever, deep pocketed airline (EK?) might even create a futures market for air travel as a means of reducing revenue risk.

[Globaliser]

I think you are being a bit harsh. I think the author presents some interesting ideas and some not too far fetched:

There are certainly some that are interesting, and others that have some similarities with things done in real life, but it doesn't mean that they aren't wacky!

2) Auction market - a better yield management system would be exactly this. In a crude way reverse auctions already happen at the gate when flights are oversold and people receive compensation for rebooking. Making a real marketplace would be possible given the increase in computing capacity. It would be in the airlines interest to request that they buy seats back from one customer and then resell them to a higher bidder (or more valued customer).

 

3) Secondary market for tickets (again auction based) - this already exists in the US. WN award coupons and credits are sold all the time on ebay. Do a search of ebay items for sale using the following seach "southwest credit" or "southwest vouchers". Note that southwest vouchers are good for any flight where space exists.

There are rare occasions on which an airline might do well out of a secondary market for space on an aircraft. But not in the huge majority of cases, in which the airline still has new stock to sell at departure time and has no reason either to buy it back for resale, or to encourage the private trading of stock that has already been sold. It is unsurprising that the price at which the airline is prepared to buy back stock for resale (ie fully refundable fares) tend to be the highest price that the airline ever charges for such stock.

 

In addition, the stock remaining late in the selling cycle tends to sell for much higher prices than the stock that was sold a long time before.

 

The airline's interests are therefore in preventing the trading of lower-priced stock already sold, and in selling higher-priced new stock to later purchasers. I can't see this likely to change in the foreseeable future.

 

And I don't think that citing the illegal sale of awards etc on one airline is much evidence that a secondary market would work well!

4) The kind of IFE enterainment games are a far cry from what would be available if people could leverage their laptops and other devices via the internet. The IFE is a low-end "walled garden" compared to what is available over the net. Better internet access on planes will allow participation both from within and beyond the aircraft.

 

5) Arranging airline travel based on social networking sites - sounds like cruise critic member cruises to me. One of the comments in the blog entry suggests it is already happening:

I'm sure that more interaction between passengers could happen. But it isn't likely to attain the sort of critical mass that the author envisages, for reasons which are not difficult to understand. Privacy is foremost amongst them. Sites like FlyerTalk have been around almost for ever. And some of the regulars do socially network. But even amongst the regular participants on forums like that, there are many who will happily post and discuss on the Internet, but never reveal their travel plans in advance or even retrospectively despite there being every facility already to allow them to do that.

 

Obviously, specifically-arranged events are exceptions. Personally, I broke my FlyerTalk cover to go on an unusual trip to Scotland a few years back. But I would not normally reveal my own travel plans in advance, nor would I use a social networking site to do so. And most of my friends are even less trusting of Internet security than I am.

 

The depth of the ignorance of that author about how the airline industry works is illustrated by some choice passages:-

Yes, speculators could arbitrage seats, but so long as they’re nonrefundable, what problem is that for the airline? They become market makers. Besides, this sets a new market value for seats that in some cases will be higher than the airlines’ existing fares.

Er, the problem for the airline is that if the new customer buys stock that was earlier sold, refundable or otherwise, he will not buy new stock now at the higher price now being charged. And, er, the market value now for stock sold earlier will never be higher than the airline's price for new stock for sale now, unless the flight is completely sold out - which happens rarely.

The airline could also use this to predict and maximize load. What if there’s a sudden surge in demand for a destination the airline can see because bids appear in an auction marketplace for a certain route around certain dates (because of a new conference or festival or good media coverage for a new getaway or bargain)? The airline can add capacity, which keeps the airlines in control over arbitrageurs; the airline is always in control of supply and now it would know more about demand.

Er, do you think that airlines are ignorant of new conferences, festivals or media coverage? And would have to be alerted to this through prices in an auction market? And where is this capacity going to come from? Airlines have fleets of aircraft ready to be flown in to operate three or four extra flights on a certain day? Not these days, they don't.

While you’re at it, why not turn frequent-flier miles into an open market? In miles, the airlines have created a virtual currency with far greater reach and value than those on Second Life or Facebook. But they’re essentially illiquid. The airlines make it impossible to get frequent-flier seats with them unless you’re flying to Krakow on Christmas Day a decade hence. ... So open it up: Let us bid on frequent flier seats with our miles. Let us trade and barter our miles with each other — I’ll sell you this iPod for miles I want to use to get my vacation. This will again add value to the currency.

Er, perhaps the author might think about whether there will be any more award seats on offer under that system than at present? And if not (which is the case), won't there perhaps be a ceiling on the price (in miles) of the award seat, because there always comes a point when it's cheaper to buy the ticket for cash than to use one's frequent flyer miles?

 

And so on and so on. Wacky - I stand by that.

[Globaliser]

Reverting to the subject of the beginning of the end for discount airlines, BBC news reports today:-

Ryanair warns of profits 'storm'

 

Ryanair has warned that its profits could be halved this year as fuel costs rise and as the UK pound weakens.

 

The warning came as the budget airline reported that net profit dropped 27% to 35m euros ($52m; £26m) during the October to December quarter.

 

The drop was its first quarterly decline in a more than a year.

 

Chief executive Michael O'Leary said that the weakening profits were part of a cyclical downturn in the industry and a "perfect storm" may be lying ahead.

 

...

If it's true that airlines like Ryanair have largely succeeded by creating a market amongst people who would not previously have flown, or flown on a regular basis, then those people may be the first to feel the crunch that is now hitting us all. I wonder whether the discount airlines will actually feel the crunch worse than the established full service airlines, notwithstanding O'Leary's typical bravado.

[Globaliser]

Reverting to the subject of the beginning of the end for discount airlines, BBC news reports today:-

Ryanair warns of profits 'storm'

 

Ryanair has warned that its profits could be halved this year as fuel costs rise and as the UK pound weakens.

 

The warning came as the budget airline reported that net profit dropped 27% to 35m euros ($52m; £26m) during the October to December quarter.

 

The drop was its first quarterly decline in a more than a year.

 

Chief executive Michael O'Leary said that the weakening profits were part of a cyclical downturn in the industry and a "perfect storm" may be lying ahead.

 

...

If it's true that airlines like Ryanair have largely succeeded by creating a market amongst people who would not previously have flown, or flown on a regular basis, then those people may be the first to feel the crunch that is now hitting us all. I wonder whether the discount airlines will actually feel the crunch worse than the established full service airlines, notwithstanding O'Leary's typical bravado.