http://atcsdave.blogspot.com

Rob mentioned the apparently paradoxical airline practice of reducing fares below break-even in an attempt to defend market share. Certainly they do, and they often do it to a suicidal extent. I did learn, however (during my time negotiating a pilot contract), that in some rare instances this practice can make sense in the short term. An airline like the one where I spent my career has a “critical mass” market share in the hubs that it dominates. Once it achieves a market share equal to or greater than this critical mass number, then profit per seat mile becomes a significantly larger portion of revenue per seat mile in and out of this hub. This is due to pricing power being increased once this magic market share is attained. (pricing power, of course, is what has been lost in the past 20 years due to internet fare transparency).

Additionally, a large airline …. especially one with labor contracts …. is not capable of economically responding to significant swings in the utilization of all the parts that make up its system: aircraft can’t simply be parked; employees cannot simply be laid off; gate and hangar leases continue unabated. If an airline takes action to contract and realize significant cost reductions in these areas, there will generally be short term cost increases, and it will miss the next upturn.

Finally, the time at which the ridiculously low fare was made available to the public has a lot to do with determining whether or not it makes economic sense. An airline seat is like a rapidly ripening banana in the produce department of your grocery. Once that big Boeing pushes back from the gate, all empty seats are spoiled assets, with no residual value. So, any of those ATL-LAX seats that were filled for $100 each in the day or so prior to departure represent cash flow that the airline would have permanently forfeited otherwise. The trick, of course, is predicting seat demand and adjusting fare increases/decreases accordingly as departure nears. In the last couple of decades, the sought after stars of the industry have been the revenue management experts, who, along with their computer algorithms, can most accurately predict demand and maximize total the total revenue of each departure.

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On Joshua’s airport, KGBF …. have been there, and find it to be a great stop. Nice folks, good service and a classic FBO crew car with no brakes. There is an old country store near the college that has great hamburgers.

Thanks for the entertainment and info,

Kim

http://www.timesonline.co.uk/tol/news/world/europe/article6943308.ece

Ever wonder how solar airplanes would do in IFR? Any volunteers to fly this 5 days at a time around the world (@35mph?)