Operators who dfeliberately run at a loss..

[Charlie Foxtrot India]

Someone tell me how we are supposed to compete with this.

Aeroplane A costs X to run. Private hire rate is X+Z, cross hire is X+Y.

Other operator cross hires aircraft off me at X+Y, then undercuts me and hires it out at X-Y, therefore making a loss of 2Y.

So, although other operator can rub hands in glee at shafting the competition, (who is also their supplier) and getting the hire, don't they realise that the competition they thought they had shafted has made a profit and they have made a loss?

Is this an act of desperation or stupidity? Or are there really fairies living under the money tree at the end of the garden?
:confused: :confused: :confused:

[CoodaShooda]

CFI
Has he paid you yet?

[SmoothCriminal]

Maybe these are the operators who send "Ze Cheque In Ze Mail"

;) ;)

Smoothie

[Hugh Jarse]

Ops normal for general aviation.

CFI, the opposition might be using their business as a sideline to lose money for a larger part of a (non aviation) business.

Sort of like using a "loss leader" to suck people into going into a shop for that ever elusive "too good to be true" bargain that is always conveniently sold out by the time you get there. Of course there are no 'rainchecks', but with a little luck and persuasion they can sell you another item (at full price) that will earn them a handsdome profit while you're in the store.

KMart, BigW and all the major retailers do it all the time.

To me (and most consumers) it's unconscionable. To them it's fair marketing.:mad:

[chinese chicken]

you could possibly no longer cross hire it to them, so long as no one else or only a few other operators have the same a/c type? then maybe the a/c gets hired directly from you, but would you be making less money at the end of the day then?

[Tinstaafl]

Maybe they're happy to wear an occasional loss in order to keep a regular customer supplied with an a/c? Perhaps to mollify the customer after a previously booking arrangement gets stuffed up?

Don't you have a system of preferred x/hire 'partners' at JT? One where a group of otherwise competing companies supply a/c to each other at a slightly reduced - but still profitable - rate? That way both companies still makes a profit on any particular x-hire.

The benefit is that when each of you suddenly needs an a/c then at least you can get one quickly & not make a loss while maintaining customer satisfaction.

It doesn't have to be every operator, just a mutually agreed x/hire rate between a few of you.

[PLovett]

Tinstaafl

Your suggestion would appear to be getting very close to breaching the Trade Practices Act on market collusion.

I don't have the references with me at the present (and I am too lazy to go hunt them up on the net :O ) but I suggest that if a group of you are entering into an arrangement to the exclusion of others in the market then there is a risk of a breach.;)

However, I don't think that a restriction on the use of the aircraft that is cross-hired would be a problem. ;)

Just a thought. :)

[YPJT]

What about a situation where said opposition is neither a registered company or business rather a club run by a committee bound by constitution not to engage in activities to the financial detriment of club and it's members? ;)

CFI, find out who the pilot hiring the aircraft is and suggest that as they are getting such a great deal - they should fly their socks off. :D

[Red Rat Lukey]

Just ask the big fella from Cirrus!!!!!!!!!!!

[flyboy6876]

PLovett

I do not think that a mutual agreement for x-hire such as this is a breach of the TPA. This is simply a supply agreement between companies and is not necessarily excluding other companies. This practice is quite common in all forms of business.

Regarding the overall topic.

As far as the company that is x-hiring is concerned and then renting out for a lesser amount, as has been said, I would think this is simply a customer service that they are providing. Again, I have seen this in other industries where you may take a loss on one product, to make a profit on another part of a sale, especially if the loss is only a small part of the overall picture.

If this was a regular practice, you would think that the customers of the business that is doing the x-hire would eventually move to the business which is renting out for the lesser amount. If this is that companies way of trying to drum up business it would eventually not work as the price would have to increase eventually and the new customers would simply leave.

Again, I would see all of this as normal business practice and not specific to the aviation industry. The main thing I guess is always to ensure that the end customer is not suffering.

Well, I hope all of that drivel makes sense to someone.:eek:

[gaunty]

Cooda,

CFI
Has he paid you yet?

Yep same history books.:cool:

YPJT
What about a situation where said opposition is neither a registered company or business rather a club run by a committee bound by constitution not to engage in activities to the financial detriment of club and it's members?

If they also happen to be the biggest on that field and you are a member, then, I would have some questions to ask at the next AGM.

CFI
I always ran a policy of NO, NOT, NEVER Crosshiring IN or OUT

By doing so you are placing your business, your equipment, your reputation your whole livelihood in someone elses hands.
Probably just to solve a stuff up or shortcoming in their own business and at the end of the day don't really care about yours.

Why make their business look better than it really is.

The liabilities that you incur/share with the other organisations handling of their business with your equipment just aren't IMHO worth the cuppla dollars of hire.

Yes I would always offer my services but the "client" would have to come and deal directly with me and meet MY standards and rules of business, including being invoiced directly by me.
Yes it also means that when you do have a problem you are on your own, but so be it, at least you retain control of your business and how it is run.

The customer is important but not that important that he puts your business in jeopardy.

So Woolies send a chap over to Coles to borrow a pallet of sugar when they run out??:p

[Capt Claret]

Gaunty,

What about the long standing agreement between Ansett and TAA/Australian/Qantas, where one competitors whatchyamacallit's bugga'd so they 'borrow' one from the competitor, knowing the favour will earn a quid-pro-quo?

I'd imagine the same happens with QF/VB to this day.

[gaunty]

Clarrie me old

I'd be amazed if that was happening now, but who knows.

Maybe via the services or under the auspices of the OEM, but I suspect the liability issues would now make direct "swap" hazardous indeed especially of used parts.

The problem is I think, the paperwork trail now required for anything that goes on or off the airframe has to go, unbroken, all the way back to the OEM.

Quid pro quo is OK until somebody gets their eye poked out.

[Lefthanded_Rock_Thrower]

CFI,

From what i've seen there are two distinct philosophies in GA,

1. an operator calculates how much it cost to run an aircraft, adds a profit and sells the product, always making a profit, this is a good business person.

2. an operator has a repayment each month of lets say $3,000. If the aircraft flies 6 hours at $300, he has to find $1200 just to pay the repayments. if this machine flies 20 hours at $250, he has money for fuel and insurance. also a good business person, asumeing the aircraft doesn't require an engine/prop in the first four or five years, he'll own the plane, then worry about a new engine/prop.

in many other industries such as transport (trucks) most operators hire purchase, why, less to repay each month, with aircraft this option is not possible, as we all know, most aeroplanes are older than their pilots, because new aircraft are too expensive. i know torres will disagree with this one, a PA31 would cost you around $5,000 a month, a C208 around $50,000, so the PA31 is easier to operate, as stated before there are very few GA operators that have such a monopoly on their district that option 1. is an option.

What can we do to stop this happening, lets Darwins Theories play out, lawyers and stupid people have ensured these aircraft prices are so high, mmmmm public liability.

[Foyl]

Re the TPA issue, forming supplier agreements is not a problem, but avoiding the allegation of price fixing is something that has to be carefully avoided (think about it - even if it's not true who wants to be investigated for it?). But (from dim dark memory of discussions long ago) not only is price fixing a hot potato there is also the potential to be seen to be misusing market power if one operator is significantly larger than the others, and/or has a type or types of aircraft which are not available to other operators. Another is denial of consumer choice (eg the customer alleges that they were mislead into accepting an arrangement they otherwise wouldn't have accepted had they known or been provided with information that another arrangement was available). All generally purely theoretical, but good food for thought before any agreements are made. Step one - get a really good lawyer who specialises in the field to make any contracts you enter into...

Hugh, not just unconcionable, I'm pretty sure that "loss leading" is actually an offence. If the goods are advertised for sale then they must be available for purchase for the price offered, otherwise they may find their local Department of Fair Trading asking them to "please explain".

[Charlie Foxtrot India]

Thanks for the replies folks.

Our cross-hire rates to others vary according to factors such as how quickly they pay, how often they hire, and how helpful they are to me if I ever need to cross-hire from them. Yes we agree on the price for a particular type of aircraft whichever way the cross-hire goes, nothing illegal about that. Usually it is a price around half way between cost and retail, so there is something in it for everyone; bums on seats, utilisation, happy customers and a bit of profit for all.

In this case, I have made my cut, the owners have their utilisation and income, the hirer has got very nice aeroplane at below cost price, but the operator in question makes a direct cash loss, in this case about 30% of what they turn over. Sounds OK for all except them, but in the long run the whole industry suffers from this sort of irresponsible (desperate?)behaviour, as the punters have unrealistic ideas about how much it really costs to fly, and see those who are making even the slimmest of profits as "greedy".

Still, far be it from me to stand in thier way if they want to fall in a heap.