"Jay Honeck" wrote in message
oups.com...
In the Airline biz they have Revenue Per Seat Mile.

Right, but -- correct me if I'm wrong -- aren't the airlines pretty
much universally losing money?

Sounds like their method is flawed, to me.

There's a couple layers of issues here.

First, the strategy of "yield management" is designed to try and maximize
the revenue per seat-mile. In and of itself this makes perfect sense. The
apparent oddities this leads to, like the Saturday-night stay rule, all make
perfect sense towards making each person pay as much as possible for their
seat. This, too, is logical: a vacationer heading to Miami does not value a
seat nearly as much as a businessman headed to an important meeting. This
benefits the vacationer because it allows for the availability of very cheap
seats, and benefits the businessman because it increases the odds he will be
able to get a seat at the last minute that he desperately needs.

Second is the issue of cost structure. No matter how you look at it, running
an airline is a hellish business. It's as capital-intensive as real estate,
only your main assets are always depreciating. Operating costs are
astounding, and not easily adjusted. Pilots, mechanics, FAs, gate leases,
etc. all add up very quickly, and it takes years to adjust the formula. So
newcomers will always have the advantage because they built their business
models around last year's conditions, and not the last decade's. But come
ten years from now those newcomers could be in just as bad shape.

Third, you have the destabilizing role of the low-cost carriers. The
critical thing that these guys have done is to throw out the yield
maximization strategy in favor of a simplified flat pricing model. And
because their built-in costs are much lower, they can undercut the majors'
prices at every step of the game. The only way for the majors to compete is
to reduce costs, and as we already explained, this takes years to
accomplish, years during which incredible sums of money fly out the door.
Their management has been at turns arrogant, ignorant, and incompetent, but
then this can be said of nearly every established company in every industry
at one time or another. Today's darlings will get their turn at the rack
sooner or later.

The problem that we have is that traditionally the low-cost carriers lived
by cherry-picking routes and thus could not be looked to to provide a truly
national network. This is a "must-have" in the same sense that the
Interstate highway system is a fundamental component of our economy and way
of life. Interestingly for us, the future is in some ways headed in our
direction. Regional jets are replacing not only the Saab 340s and Dash 8s,
but MD-80s and DC-9s as well. Many of the new airlines have all-RJ fleets
from the ground up. I suspect the smaller-is-better trend will continue as
far as technology and passenger comfort allows, with on-demand taxi services
using VLJs possibly displacing Part 121 carriers flying into less-dense
areas. Who knows.

-cwk.