PPRuNe Forums - View Single Post - American Airlines Nears Bankruptcy (merged)
Old 17th Mar 2003, 07:29
  #11 (permalink)  
FlyMD
 
Join Date: Mar 2003
Location: Switzerland
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B Sousa, your question is a valid one, but as already pointed out in this thread, the actual yield for the airline is dependent on the client segment you focus on... In short, it's so very easy to lose big money with full airplanes.
The perfect example is what happened to Swissair. A few years ago, Swissair's board made the "strategic" decision to start it's own alliance, instead of joining one, and to develop the Zurich "Hub" at all costs..
This meant 2 things: Firstly, you have to go "buy" the passenger all over Europe to make him transit at Zurich. To do this, you buy shares in a rag-tag collection of broke airlines all over the continent, and have them do 3 flights a day to Zurich. Then, to get the passenger, you sell him an intercontinental ticket from Zurich at the same price he would get one from anywhere else in Europe. 3 years ago, some bright guy at Swissair figured out that over 60% of all long-haul passengers on it's airplanes were actually "imported" from Warsaw, Brussels, Lisbon, etc..etc..
In actual fact, they were "funding" the long-haul segments with passengers by offering the connecting flight to Zurich free...
Secondly, you pay your regional carrier (Crossair) fixed fees to operate flights from small feeder airports, again to bring long-haul passengers to Zurich. For years, the legend had it that Crossair was a "money maker" led by it's smart and aggressive CEO.. In actual fact, Crossair was getting fixed "wet-lease" -type contracts from Swissair, making up 80% of Crossair's revenue, again to carry pax to Zurich to fill all those long-haul birds...
What finally brought the card-house down was neither the operating loss of Swissair, nor the even smaller operating loss of Crossair, but all those billions of debt the Swissair group had contracted buying those "deadbeat" airlines like Sabena, Air Littoral and the likes...
You can easily see the parralel here: to keep those shiny "luxury liners" full, AA had to keep buying market shares, burdening it's debt with a collection of other carriers that really had no intrinsic value.
So in the end, you can have full airplanes with load factors of 80% and more, and still lose a lot of money, just because you had to go "buy" all those passengers.
The reason why Southwest and the likes will survive the crunch is quite simply because they don't do stuff like that. Either they operate a segment themselves, or when they buy somebody else's airplanes, they make sure that the cost basis is similar to their own. Of course, they don't have to worry about the staggering costs of a long haul operation either...
Wonderful world of aviation...
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