6 ms·

Why haven't carriers like AA been displaced by more competent (and passenger friendly) alternatives yet?

soupboy 14y ago
"How do you become a millionaire? Make a billion dollars and then buy an airline." -- Warren Buffett [http://www.fool.com/investing/general/2012/05/23/if-you-have-to-invest-in-airlines-dont.aspx http://www.fool.com/investing/general/2012/05/23/if-you-have...]
- callmeed 14y ago
  To add to that, Virgin America is a favorite airline yet struggles to make a profit http://www.economist.com/blogs/gulliver/2012/10/virgin-america http://www.economist.com/blogs/gulliver/2012/10/virgin-ameri...
- drpancake 14y ago
  Thought that was a Branson quote: "If you want to be a millionaire, start with a billion dollars and launch a new airline." -- Richard Branson
  - Encosia 14y ago
    That sounds like something Richard Branson would say (I think I remember reading it in Business Stripped Bare), but I believe Buffett's quote predates Virgin Airlines entirely.
nickpinkston 14y ago
Airlines are a pretty shitty business: commodity product, many competitors, low margins, high capital costs, high regulatory risk, high exposure to ever-rising oil prices, etc. There's some areas in the higher end stuff, but right now JetBlue / Southwest are about as progressive as you get.
- mindcrime 14y ago
  Airlines are a pretty shitty business: commodity product, many competitors, low margins, high capital costs, high regulatory risk, high exposure to ever-rising oil prices, etc. I read an interesting blurb somewhere recently (forget where, sorry) that pointed out that it doesn't actually take that much capital to start and run a (small) airline. You can lease a plane and start out serving only one route, and you've got yourself an airline. Of course, how much capital is "a lot" is relative... let's just say that I won't be starting an airline anytime soon. But still, apparently it's easier to break into that business that you might think, looking at it from the outside.
- davidf18 14y ago
  Air Alaska is very innovative with using Satellite guidance for landings. It also has high margins compared with other airlines. http://www.nytimes.com/2013/03/03/business/alaska-airlines-flying-above-an-industrys-troubles.html?pagewanted=all http://www.nytimes.com/2013/03/03/business/alaska-airlines-f...
deleted 14y ago
[deleted]
JOnAgain 14y ago
It's a highly competitive industry with very thin (read often negative) margins, which does not attract a lot of "normal" competitors. It's also highly regulated and extremely capital intensive, making it further unattractive to compete with the incumbents. On top of that, you have to get space at airports which, if it's full, you just can't do. My understanding is that most airports in major US centers are "full" during peak times (morning and evening rush hours). Some major international ones (LAX, JFK) are probably full most of the time. All in all, it's a tough industry. That said, you get a few new entrants every decade. Frontier ('94), Jetblue ('2001?), Virgin America (2007). I'm sure one of them has tried being nicer to customers, but next time those customers went to buy a ticket they bought one on AA cause it was $10 cheaper or left 30 min later.
- scarmig 14y ago
  Virgin has, but that has cost it horribly. Someone did a focus group awhile back about all the nice things an airline could do. And everyone was really excited about all the niceties that were on offer. But then they asked everyone to raise their hands and to pull them down once they were no longer willing to pay that much. At around $30 extra, over half the people had put down their hands. At $50, all but one. For whatever reason, people de facto hate paying trivial amounts extra even in exchange for significant improvements. That's why we end up with really shitty flight experiences.
  - scholia 14y ago
    I just booked a couple of flights from Europe to Asia, and it took a while to find the sort of low prices I've paid in previous years. It turned out that half the ticket price was for airport fees and taxes, so the airline was charging more and getting less.
    - shoyer 14y ago
      Those "fuel surcharges" that add up to hundreds of dollars are imposed and collected by the airlines themselves. It's just another way for them to price their tickets.
chollida1 14y ago
Well when someone else learns to do what AA does at the scale of AA then it could happen. It's not like alot of smart people haven't' tried. The airline industry is littered with the corpses of failed companies.

"How do you become a millionaire? Make a billion dollars and then buy an airline." -- Warren Buffett [http://www.fool.com/investing/general/2012/05/23/if-you-have-to-invest-in-airlines-dont.aspx http://www.fool.com/investing/general/2012/05/23/if-you-have...]

callmeed 14y ago
To add to that, Virgin America is a favorite airline yet struggles to make a profit http://www.economist.com/blogs/gulliver/2012/10/virgin-america http://www.economist.com/blogs/gulliver/2012/10/virgin-ameri...
drpancake 14y ago
Thought that was a Branson quote: "If you want to be a millionaire, start with a billion dollars and launch a new airline." -- Richard Branson
- Encosia 14y ago
  That sounds like something Richard Branson would say (I think I remember reading it in Business Stripped Bare), but I believe Buffett's quote predates Virgin Airlines entirely.

nickpinkston 14y ago

Airlines are a pretty shitty business: commodity product, many competitors, low margins, high capital costs, high regulatory risk, high exposure to ever-rising oil prices, etc. There's some areas in the higher end stuff, but right now JetBlue / Southwest are about as progressive as you get.

mindcrime 14y ago
Airlines are a pretty shitty business: commodity product, many competitors, low margins, high capital costs, high regulatory risk, high exposure to ever-rising oil prices, etc. I read an interesting blurb somewhere recently (forget where, sorry) that pointed out that it doesn't actually take that much capital to start and run a (small) airline. You can lease a plane and start out serving only one route, and you've got yourself an airline. Of course, how much capital is "a lot" is relative... let's just say that I won't be starting an airline anytime soon. But still, apparently it's easier to break into that business that you might think, looking at it from the outside.
davidf18 14y ago
Air Alaska is very innovative with using Satellite guidance for landings. It also has high margins compared with other airlines. http://www.nytimes.com/2013/03/03/business/alaska-airlines-flying-above-an-industrys-troubles.html?pagewanted=all http://www.nytimes.com/2013/03/03/business/alaska-airlines-f...

deleted 14y ago

[deleted]

JOnAgain 14y ago

It's a highly competitive industry with very thin (read often negative) margins, which does not attract a lot of "normal" competitors. It's also highly regulated and extremely capital intensive, making it further unattractive to compete with the incumbents. On top of that, you have to get space at airports which, if it's full, you just can't do. My understanding is that most airports in major US centers are "full" during peak times (morning and evening rush hours). Some major international ones (LAX, JFK) are probably full most of the time. All in all, it's a tough industry. That said, you get a few new entrants every decade. Frontier ('94), Jetblue ('2001?), Virgin America (2007). I'm sure one of them has tried being nicer to customers, but next time those customers went to buy a ticket they bought one on AA cause it was $10 cheaper or left 30 min later.

scarmig 14y ago
Virgin has, but that has cost it horribly. Someone did a focus group awhile back about all the nice things an airline could do. And everyone was really excited about all the niceties that were on offer. But then they asked everyone to raise their hands and to pull them down once they were no longer willing to pay that much. At around $30 extra, over half the people had put down their hands. At $50, all but one. For whatever reason, people de facto hate paying trivial amounts extra even in exchange for significant improvements. That's why we end up with really shitty flight experiences.
- scholia 14y ago
  I just booked a couple of flights from Europe to Asia, and it took a while to find the sort of low prices I've paid in previous years. It turned out that half the ticket price was for airport fees and taxes, so the airline was charging more and getting less.
  - shoyer 14y ago
    Those "fuel surcharges" that add up to hundreds of dollars are imposed and collected by the airlines themselves. It's just another way for them to price their tickets.

chollida1 14y ago

Well when someone else learns to do what AA does at the scale of AA then it could happen. It's not like alot of smart people haven't' tried. The airline industry is littered with the corpses of failed companies.