Quote:
Originally Posted by lonestar
sure it was a poor business model but it was based on lousy union contracts as well.. it was also based on what the other airlines pre-bankruptcies models..
and therefore completely out of date..
Not sure how much you know about the airline industry but since deregulation happens decades ago it is highly competitive with income streams..
one airline reduces fares, most otehrs match it.. I saw as many as seven changes in basic fares a few years back..
the airline years ago literally would call each other and tell the competition that they were changing fares Mostly before the age of big time computing..
the Feds put a stop to the calls ..
now they do not have to as all the fares loaded in each of their systems for distribution go through a clearing house. ARC so travel agents, GDS Global distributing Systems and the biggie online scheme such as expedia can see their fares..
all the airlines have computers that watch these types of changes and they have the ability to match them with in minutes..
all they need to do so is a decision maker to hit the button..
therefore the only real thing that management has control of are labor costs and supplier contracts.. for food, rents and planes, etc. While fuel is their biggest cost and well not much the can do about that..
Although Delta has just bought a shut down refinery in PA and has just reopened it to make jet fuel to their own standards while selling off the other refined products to conoco IIRC, they think this will save them $500,000,000.00 a year..
AA has had their hands tied for year and has gotten concession years ago from most of the union contracts they were not enough to save them..Their fleet is one of the oldest, however IIRC US Air fleet is older..
bad business model sure but labor costs are the second biggest expense for an airline after fuel.. When that is out of whack and LOCKED in to contracts the only place to go it to a JUDGE which they did everyone in the industry knew it was coming and frankly everyone was surprised they held off as long as they did.. they were trying to get new contracts with unions..
hope that helps..
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Poor business model based on cheap fuel and business flights.
Airlines are stuck because they can't really raise their prices much - if they do people stop traveling. Business travel is becoming more and more optional in a lot fields thanks to some of the teleconferencing options that are out there now.
The unions have no real choice here - if AA goes bankrupt then they get nothing anyways. Still I feel its always a shame that unions and their benefits get slashed in these sorts of negociations but there is usually little or no limitation of executive pay/compensation as part of the legal arrangements.