[AADFW]

Originally Posted by jimworcs

AADFW (Sorry, I don't know your name!)..

You can call me Kelly.

Originally Posted by jimworcs

There are different ways of analyzing the current situation; it is true that US based carriers have achieved profitability over the last couple of years...but the question is how was this achieved?

They have "achieved" this by eliminating competitors... reducing capacity and in doing so eliminating or downgrading secondary hubs. In the last 10 years, we have seen TWA, NorthWest, Continental, America West and soon, US Airways disappear. We now have 3 mega carriers who have further consolidated their dominance and control of the market.

The reduction in competition is extremely unhealthy for the future of the market. Three carriers acting "in concert" can effectively control the overall market. For example, if Delta decided to charge for carry on bags, and United and the new American followed suit, there is little the consumer can do to influence this. The choices and the capacity of the system simply does not allow for consumers to switch in meaningful numbers.

Agreed.

Originally Posted by jimworcs

I challenge the idea that the stripped down pricing model, with massively reduced levels of service and the so called "menu" of "optional fees" is "consumer driven" or that the average airline consumer "has become his own worst enemy". This is not how consumers behave.

This is where I think our opinion differs rather significantly. Consumer behavior rather than consolidation (or anything else for that matter) has been the #1 catalyst of the move towards the entire ancillary revenue model. Every value-based attempt airlines have made to woo consumers towards higher base fares in the deregulation era has failed unilaterally. Take, just as one example, the "more legroom in coach" effort launched by American Airlines back in 2000. It wasn't long until AA had to bolt back in the seats because folks just couldn't stomach paying an extra $35 or $50 not to have their legs crushed.

The historic pricing data bear this out quite clearly. In spite of all the ongoing mergers and consolidation, the average domestic ticket price rose 1.8% a year from 2004 to 2011. Adjusted for inflation, US domestic base airfares have actually risen very little since deregulation. So from a strictly "base fare" perspective, airfares have remained one of the great economic values available to consumers because consumer behavior (and in turn, discount carrier activity) has kept it this way. A vast majority of American airline consumers will ALWAYS go for the lower, unbundled base fare no matter how unpleasant the consequences of doing so are later. Since the market has clearly shown that travelers are willing to sacrifice comfort for lower fares, airlines have responded in kind to this consumer will by keeping the fares artificially low and then sticking it to passengers with fees.

Originally Posted by jimworcs

Look at other markets. In a healthy market, consumers will make a choice based on a variety of factors, including service, price, quality, comfort, convenience and utility. Low cost fast food restaurants did not kill the market for high end and high price, fine dining. Low cost, mid market and fine dining restaurants sit alongside each other comfortably, because a range of choice is provided. This applies in all healthy markets, consumers will behave rationally where meaningful choice is provided.

The airline industry is somewhat unique because of certain factors -- high barriers to entry, real or regulatory limits on capacity in some markets, and a variety of other conditions. I would point out that the tendency of deregulated industries to go through a period of fragmentation followed by reconsolidation and a quest to regain pricing power is hardly revolutionary. Fully agreed that it's not good for consumers!

Originally Posted by jimworcs

Meanwhile, US based carriers work hard to block competition. They fought to block any meaningful involvement by Virgin Group in the new Virgin America start up, so that by the time this was approved, the only involvement by Virgin was licensing the name. Why do they oppose so vigorously the involvement in the US market of foreign carriers? They oppose this even where there are reciprocal access arrangements. The reason is that these profitable foreign carriers offer models which challenge their orthodoxy and control. Imagine what Singapore Airlines, Lufthansa, BA or Emirates could bring to a US based subsidiary.

The reason they block this is because they know that these foreign carriers have the access to capital to purchase a carrier or invest in a start up which would present meaningful competition. There is no reason why you should not be able to fly to New York on a German owned airline, when you are going to see a show put on by Sony Corporation, travelling to the airport in a Toyota. It is protectionism and it protects their monopoly. The truth is, these mega hubs create barriers to entry to competitors and the big 3 know this.

Now I'm pretty much back in your corner. The U.S. government should work to remove barriers to competition by expanding airport capacity enough to allow new competitors to operate on routes. They should also seek to mitigate or eliminate preferential pricing and other agreements between hub-dominating carriers and their hub airports. And they should stop hiding behind the ridiculous excuse of protecting national security in preventing foreign airlines to compete for domestic traffic, either directly or by investing substantially in existing U.S. carriers. But of course, none of this will ever happen because we Americans are far too fat and lazy to take any meaningful action and pressure our legislators, other than to protect our guns and whatnot. (Half kidding.)

Originally Posted by jimworcs

The improvement in revenues and profitability and the severe decline in service standards are what you get when there is monopoly. *This lesson has been learned over many decades, why should it not apply to airlines?*

The antitrust division of the U.S. Justice Department will ultimately decide what constitutes a monopoly as the term relates to any violation of federal law. If any action is taken, my suspicion is that it will happen years from now. Unfortunately as with other industries (and as was once the case with U.S. telecommunication), the status quo will likely be taken for granted over a long period of time as increasing anti-consumer practices are phased in slowly. Eventually the monopolization will go too far and some bright young economist at the DOJ will come along and break it all up. And the airline industry's "regulatory cycle of life," so to speak, will in some form or fashion start anew.