What Is Killing The Modern Airlines?

[backsoon]

In the past 10 - 15 years we have witnessed many airlines collapse, change hands, go into involuntary amalgamations, alliances and so on. Many of them (too numerous to list) are in financial troubles today. I deliberately refuse to mention any names, because the trend is universal, on all continents, for all nations.

What or who is to blame? You will hear of reasons from all angles: - from global economic downturn to fuel prices, from demise of geotourism to rise of ecotourism, from threat of terrorism to ageing population, from political instabilities at home to political disturbances abroad, from rising costs of travel insurance to threats of medical conditions, from global warming to ecological disasters, from economic mismanagement to increased dangers due to ageing fleets, - the list can go on...

One reason, however, is never mentioned. "The on the ground costs". Please, do not ask me what are they made of, or how they are made up, it must be a closely quarded secret. Usually they are coming under the 'Fees, charges, surcharges, supercharges, additional charges and taxes' heading.

To illustrate my point, I am offered an airfare of 15,000Bt for a return trip with total distance about 24,000 km. The reputable international carrier will carry me, my luggage and my handbag, provide food, drinks and entertainment on a long trip, plus all the usual comforts... The total cost of travel, - 30,000Bt... !?

My heart is bleeding for the air carriers. Needles to say, it is bleeding for my money. I wander what are the feelings and opinions of the rest of travelling community? Please have your say...:jap:

[ukrules]

I think tax is big part of the problem, especially in some countries. The UK for example.

I know of some people who will fly out of France or Amsterdam to avoid paying hundreds of pounds in tax on a business class flight. They get a free day or two in Amsterdam or Paris and avoid paying several hundred pounds in tax. This is very bad for British airlines but the last government in the UK was run by a bunch of complete and utter morons so this kind of thing is to be expected.

[Rinrada]

415 quid London -Bangkok with Etti this time aint 2 bad.....and mixed with a couple of promos avec Air Asia ..??

also got a similar offer for next March for 440.....

[sarahsbloke]

In 2009 I could get a return LHR to BKK for 250UKP

Now it's 440UKP

The difference is UK government tax

But then again a return BKK to LHR is 600UKP and that, I can't explain at all!

[ukrules]

But then again a return BKK to LHR is 600UKP and that, I can't explain at all!

Anti competitive behaviour and unmitigated greed.

[nong38]

Planes allegedly cost millions, I know some are on lease bu they aint cheap and then you have the crew costs, fuel and admin costs. Then the airports want their fees, not content with rip off prices in the air side, but, its all a closely guarded secret, what we want is a whistleblower to tell us the real costs and what the competition is from one airport to another. I now the dutch and austrians cancelled the green tax for flying out of europe but I thought the tories were going to change it to make airlines pay rather than passengers to stop them running planes empty, I guess they will end up charging both. S bags

[SantiSuk]

The business school analysis in answer to the question in the title is overcapacity. Overcapacity caused by too many nations propping up ailing businesses for the sake of national pride (think Air Italia). Overcapacity caused by emerging nations wanting to demonstrate national pride (the Middle East comes to mind). Never ever invest in the airline industry or the motor industry (except in profitable parts of its supply chain).

[kropotkin]

Air transport has never been cheaper then today....... it is the "airport tax" that ads about 50% to the original price.

Does anybody know what the components of airport tax are ?

[britmaveric]

^security is a big part of it.

[theoldgit]

Air transport has never been cheaper then today....... it is the "airport tax" that ads about 50% to the original price.

Does anybody know what the components of airport tax are ?

The UK impose an APD, Air Passenger Duty, in steerage it's currently £50 to Thailand, increased to £75 from 1st November, and in Premium Economy, Business and First is £100 going up to £150 from Monday. As others have said the Netherlands have dropped this tax as it's seen as being counter productive, that's why some people have a stop over in Amsterdam on the way to Thailand, though I believe it has to be ticketed separately or you're still liable for tax.

There is a security charge but it's two or three GBP, some airlines add a fuel surcharge and that can be quite high and varies with the class of cabin, some carriers include it in the cost of the ticket and I think all these add ons make comparrison fairly difficult..

Edit, this link gives basic details of BA's extras http://www.britishairways.com/travel/ba6.jsp/seccharge/public/en_gb

Edited October 26, 2010 by theoldgit

[Sporting Dog]

but, as mentioned above, air travel is cheaper now than it has ever been.

[tartempion]

Planes allegedly cost millions, I know some are on lease bu they aint cheap and then you have the crew costs, fuel and admin costs. Then the airports want their fees, not content with rip off prices in the air side, but, its all a closely guarded secret,

No, it's not a closely guarded secret, the costs for flying and landing planes I mean.

I worked with a team to catalogue all costs at all airports and in the air called LHO in airline terms for Landing, Handling and Overflying.

Each airport claims different rules for landing: aircraft type, aircraft weight, number of passengers, day, night, weekday, sat/sun, low/high season, anything goes.

Parking, lighting, load/offload luggage, de-icing, push back, drive crew to hotel/plane, bus people, gate costs.

Traffic control from departure, over strange countries such as Iran (they once increased their fees by 400% and backdating!!!)

Our Eurocontrol monthly overflying invoice was 80 pages and a nightmare to check and we did not have that many planes....next get invoices from each country not under Eurocontrol.

We made a system where we predefined routes in a database and pulled routing costs from this based on the pilots report of flight route, that was the only part that worked.

We abandoned to build the system to calculate Landing and Handling costs: it was a moving target impossible to freeze to something usable.

Edited October 26, 2010 by tartempion

[nong38]

Planes allegedly cost millions, I know some are on lease bu they aint cheap and then you have the crew costs, fuel and admin costs. Then the airports want their fees, not content with rip off prices in the air side, but, its all a closely guarded secret,

No, it's not a closely guarded secret, the costs for flying and landing planes I mean.

I worked with a team to catalogue all costs at all airports and in the air called LHO in airline terms for Landing, Handling and Overflying.

Each airport claims different rules for landing: aircraft type, aircraft weight, number of passengers, day, night, weekday, sat/sun, low/high season, anything goes.

Parking, lighting, load/offload luggage, de-icing, push back, drive crew to hotel/plane, bus people, gate costs.

Traffic control from departure, over strange countries such as Iran (they once increased their fees by 400% and backdating!!!)

Our Eurocontrol monthly overflying invoice was 80 pages and a nightmare to check and we did not have that many planes....next get invoices from each country not under Eurocontrol.

We made a system where we predefined routes in a database and pulled routing costs from this based on the pilots report of flight route, that was the only part that worked.

We abandoned to build the system to calculate Landing and Handling costs: it was a moving target impossible to freeze to something usable.

Thanks for that but most of dont work in the Airline industry and do not know of these things all we see is a headline ticket price ex taxes etc and the headline price is never available, add on the taxes etc and suddenly your price has doubled. The airports also set about the captive audience as soon as they get airside with extortionate prices on almost everything, so not only do they hit the airlines they hit the passengers too. Have you looked how much a small can of beer costs airside as opposed to 7-11? Try 5X how can you justify that, I wont pay it. But the rest I have no choice, there the ticket price you want to fly or get the bus?

[wileycoyote]

Governments are knocking the airlinesfor 6 with continual fees:airport renovation,passenger tax,Green Tax for pollution ,next carbon emission levels

The general public are horrified by the effect thatb this is having on the ticket price & voting with their feet , and either travelling less or to destinations closer to their home country.

Personally ,with the demise of national airlines (Sabena,Swissair etc) due to inordinate costs and reduced subsidies from national governments ,I wonder how the Middle Eastern Airlines can afford to compete at their current level ?

[britmaveric]

^bit obvious subsidized fuel in the gulf states.

[richard_smith237]

I think tax is big part of the problem, especially in some countries. The UK for example.

I know of some people who will fly out of France or Amsterdam to avoid paying hundreds of pounds in tax on a business class flight. They get a free day or two in Amsterdam or Paris and avoid paying several hundred pounds in tax. This is very bad for British airlines but the last government in the UK was run by a bunch of complete and utter morons so this kind of thing is to be expected.

This is precisely what my wife and I will do this Christmas.

Flying into the UK and out of Paris is also convenient as the latter part of our trip will be in the French Alps. The flights are B8000 cheaper for both of us if we depart from France which swung our decision to have a night in Paris before flying out.

[wileycoyote]

^bit obvious subsidized fuel in the gulf states.

Fair point ,Britmaveric

However they have a massive debt problem on leasing the aircraft,hiring crew ,then over and above that the common factor with all the other carriers of landing duties,refuelling,airport services catering & slot fees to land in other countries.

I really think that the profusion of Middle Eastern Airlines is reaching bursting bubble proportions considering the downturn in passengers.

[kropotkin]

^bit obvious subsidized fuel in the gulf states.

Can somebody confirm?

I thought that fuel is extremely cheap, even after all the price rises.

What makes it expensive, is the tax on fuel....... BUT.... do airlines pay tax on fuel?

Does somebody know about this for sure?

[Gonsalviz]

But then again a return BKK to LHR is 600UKP and that, I can't explain at all!

Anti competitive behaviour and unmitigated greed.

Here, Here. And that's the truth.

Been in the industry for years.

[WilliaminBKK]

The industry is in choas for many reasons, one major cost for carriers is their distribution cost. The GDS (Global Distribution Costs) the computer boxes (Travelport/Amadeus/Sabre-Abacus) that sit in travel agencies cost a carrier per segement. The airlines pay millions and millions of dollars to give their high cost travel agents access to their content. The OTA's (Online Travel Agents) like Expedia and Travelocity ONLY source their content from the GDS. All of the GDS's were owned by the airlines years ago and it was in their best interest to have travel agents book in their host system, now they have been sold off and for major profit. An airline pays up to 3.76USD per segement meaning BKK-AUH-LHR-AUH-BKK would be a base charge of $15.04 plus each messaging fee, flight change, meal order, wheelchair, sked change. This is on top of what the airline pays to a central repository to distribute the fares to the 3 major GDS systems. The airline pays for active segments as well as passive segements, a ticketing agency vs sub agent, meanign double costs. There are reports that it can COST almost $50 to have one plane ticket sold by a travel agent. The real kicker is that the GDS offers an incentive to agents to book more and more ---some agents make $2.00 per segment, that model didn't go over well with airlines.

The airlines also pay a CRS to manage their inventory which in turn charges them, this host system manages GDS and their WEB offering. Airlines cut Travel Agent commission years ago and we see brick and mortar agencies closing all over the world as pax move to booking direct.

If you look at TG and compare to an OTA, the OTA in most cases will be much higher as they are only sourcing content from the GDS, in some markets the GDS will work with a local consolidator --- so in theory the GDS fee would be for the host (consolidator) to issue the ticket, then the OTA to use a passive PNR (Pax Name record) so it has their look and feel on the invoice ----killer costs to the airline

Some airlines are getting smarter and limiting certain content from the high cost distribution chain and you will only see the best offering on their web site. Ancillary products have left the GDS behind, as carriers try new and unique products the GDS cannot keep up with the add ons, they only appear on the carrier site, by design of course. Screen scrapers attempted to gather that content and make money delivering it to OTA's and TA's but that model is fractured as the airlines don't like to be compared on the lowest offering.

A true LCC (Low cost carrier) doesnt work with TA's ---Ryanair. Other LCC's only offer a partition for TA's on their web site avoiding the high cost distribution costs in the GDS.

I was always told if your dream was to own and operate a small airline, just buy a big one and wait.............

[theoldgit]

^^^^

Very informative and interesting, thanks for taking the time to post.

Your last comment reminds me of the often quoted response to the question "how can I make a small fortune in Thailand?" the response is of course "start with a large one".

[axact]

It gets me when people complain about flight costs to fly halfway around the world. If you don't like the price stay at home for a holiday and generate some income for your home countries businesses. Prices vary at different times of the year. Stop whining and consider yourself lucky to be able to afford to travel the world as there are many who can't.

Re cheaper to fly from other parts of europe than UK ? Not so in my case, I did the comparison and flights from France were a £100 more expensive for the same carrier than flying from the UK

Why is it some people are never satisfied and feel the need to complain.

[Junglejingle]

Airport taxes are the killers.....sometimes paying more for the taxes than the flight itself....doesn't make sense to me!

[moe666]

Maybe you should have asked with airlines going out of business how do certain airlines continue to fly their passengers in relative comfort and at a reasonable price. Airlines in question: Singapore Airlines, Cathay Pacific, Eva, and good old Southwest Airlines in the states( no international flights). These airlines seem to prosper when others go broke.

How about just poor management is what the problem is with airlines that fail. And good management makes airlines a sucess. These airlines that make it pay the same fees and taxes that the failures pay.

[PattayaParent]

I think tax is big part of the problem, especially in some countries. The UK for example.

I know of some people who will fly out of France or Amsterdam to avoid paying hundreds of pounds in tax on a business class flight. They get a free day or two in Amsterdam or Paris and avoid paying several hundred pounds in tax. This is very bad for British airlines but the last government in the UK was run by a bunch of complete and utter morons so this kind of thing is to be expected.

This is precisely what my wife and I will do this Christmas.

Flying into the UK and out of Paris is also convenient as the latter part of our trip will be in the French Alps. The flights are B8000 cheaper for both of us if we depart from France which swung our decision to have a night in Paris before flying out.

But how to get to Paris or Amsterdam?

Doesn't that cost money too?

As well as time and inconvenience if travelling overland.

[Ricardo]

The aviation-business has always been a cut-throat one, as Warren Buffet's famous remark illustrated, struggling airlines in a cyclical-industry are nothing new.

Latest-figures from IATA say that global air-travel is growing strongly, there was a thread on this recently, the reason for individual-airlines to be in trouble is that the inflexible/inefficient legacy-carriers are under pressure from the LCCs & the new Gulf-based carriers who are adding capacity and holding fares (and profits) down in a (so far fairly-successful) bid to grab market-share for their newly-established hubs. This has had a serious impact, more than the (now struggling) charter-airlines ever did, on the national scheduled-airlines such as Alitalia/Swissair/Sabena (gone) or Austrian/Iberia(?)/KLM (taken-over). Strategic-alliances are part of their fight-back.

Whether the likes of Emirates/Qatar/Etihad pay full-price for fuel is a moot point, certainly they have had easy-access to large amounts of capital, enabling them to rapidly build large-fleets of modern fuel-efficient aircraft. Aviation-fuel has historically been exempt from locally-imposed taxes.

Some EU-countries, such as the U.K., have imposed increasingly-serious departure-taxes, supposedly for environmental-reasons, which impact all operators to/from those markets, but probably hurt the locally-based airlines more than those for whom these are only part of a wider-network. This doesn't help the airlines, on the other hand one might argue, that they've been relatively-lightly taxed in the past, compared to other transport-operators.

Expect LCCs to continue to grow overall while smaller ones collapse, Gulf-based newbies to grab market-share, well-run national-airlines to trade on thinner margins, and inefficient national-airlines (did anyone mention TG ?) to suffer.

Overall aviation is growing ... do we really care what name is painted on the side of the A380 or a B787 we're inside ?

Edited October 28, 2010 by Ricardo

[Spee]

Interesting topic and replies.

Other than the airport fees and taxes, I would also suggest the involvement of national airlines (e.g., Thai Airways) is not conducive to profitability by the basic fact that government bureacracies are not profit-oriented or performance-oriented. Governments should be in the business of governing, not in the business of trying to run businesses.

I also think the post-nine-eleven response to airline security has been a knee jerk over-reaction, completely over the top. Many people avoid air travel because of the hassle. For me, if there is a choice between flying or driving in a 500-600 mile (1000 km) range, it is often far easier and more hassle-free to drive.

Finally, there is the sheer cost of modern aircraft and fuel. With the abundance of oil reserves in the world, there is absolutely no reason for fuel costs to be so high. For example, if the silly and stupid American government would open up Alaska and continental areas to drilling and public lands for processing oil shale, the world cost of oil would fall through the floor. That benefits everybody, more jobs, lower operating costs, you name it.

[Englander]

In 2009 I could get a return LHR to BKK for 250UKP

No you couldnt.

[lomatopo]

I confess I may be missing the OP’s point exactly given that there are almost no details provided, and that nearly every statement is flawed. I think the point may be that the OP priced an airfare, for a lengthy international round-trip, something a bit longer than BKK-LHR-BKK, and was unhappy with the total price of 30,000 THB, and/or unhappy with the price components? The OP decided not to purchase a ticket, is representative of all consumers, and thus is killing the airline industry. Not only doesn’t this make any sense, it isn’t supported by any facts. Without the details of the itinerary, and price, it is impossible to help the OP understand this pricing and packaging.

International air travel has increased every year, save 2001.

The airline sector has probably never been in such good and sound financial shape. They have become much more adept at controlling costs; labor is the second largest line item cost for an airline after fuel, managing capacity, managing inventory (seats) and increasing cargo. Airlines are public companies and their financial details are available to anyone.

Most retail search engines present a low-price, “base” fare to attract interest. Taxes, fees and surcharges are added on as purchase nears. This is hardly unusual in lower-cost internet-based retail distribution channels.

International airlines are not subsidized by governments and middle-eastern airlines are not able to get cheap fuel.

In general additional taxes and fees fall into several “buckets”:

1. National/country/federal/region value added tax; in the U.S. I think this is 7.5%. In the U.K. it varies based on distance, and is called Air Passenger Duty. In the OP’s case this might add up to 110 GBP (or even 220 GBP; I can’t figure out the HM R&C guidelines.)

2. Segment tax; in the U.S. I think this is $3.40 per segment (one take-off/one landing).

3. International arrival and departure tax; in the U.S. this may be $15.10 currently.

4. Security Fees; in the U.S. this is $2.50 per boarding, I think, and goes to the TSA.

5. Passenger Facility charges: this is a local tax, which varies by airport, I think it maxes out at $18 and goes to the local airport authority.

6. Fuel surcharges; denoted by “YQ”. These have largely been eliminated but were used by airlines to cover unforeseen fuel cost increases. This was done as a separate line item as it was then excluded from any discounting. Most airlines hedge fuel costs now.

I think items 1, 2, 3 & 4 go to the country where the ticket was issued, but there is probably some revenue sharing among IATA countries. I’ve excluded baggage fees.

Sample itinerary: BKK-LHR-BKK via PEK on CA (note: it is probably best to use ITAsoftware’s Matrix search engine)

Bangkok (BKK) to London (LHR) - Wed, Dec 15

Bangkok (BKK) to Beijing (PEK) - Wed, Dec 15

Air China 980 Dep: 1:05AM Arr: 6:30AM 4h 25m Boeing 777 Coach (S)

Layover in PEK 6h 5m

Beijing (PEK) to London (LHR) - Wed, Dec 15

Air China 937 Dep: 12:35PM Arr: 3:55PM 11h 20m Airbus A330 Coach (S)

London (LHR) to Bangkok (BKK) - Wed, Jan 12

London (LHR) to Beijing (PEK) - Wed, Jan 12

Air China 938 Dep: 5:40PM Arr: 12:00PM 10h 20m Airbus A330 Coach (S)

Layover in PEK Thu, Jan 13 1h 45m

Beijing (PEK) to Bangkok (BKK) - Thu, Jan 13

Air China 959 Dep: 1:45PM Arr: 6:05PM 5h 20m Boeing 757 Coach (S)

Cost per passenger (including taxes & fees) 31,295.00

Total cost for 1 passenger 31,295.00

* All prices shown in THB

Fare 1: Carrier CA SCR3MEU BKK to LON (rules)

Covers BKK-PEK (Coach), PEK-LHR (Coach) 8,999.00

Fare 2: Carrier CA SCR3MEU LON to BKK (rules)

Passenger type ADT, round trip fare, booking code S

Covers LHR-PEK (Coach), PEK-BKK (Coach) 8,999.00

CA YQ surcharge (YQ) 480.00

People's Republic of China Airport Fee (CN) 810.00

CA YR surcharge (YR) 6,690.00

Thailand Passenger Service Charge (TS) 700.00

United Kingdom Air Passengers Duty (GB) 3,530.00

United Kingdom Passenger Service Charge (UB) 1,085.00

Subtotal per passenger 31,295.00

Number of passengers x1

TOTAL AIRFARE & TAXES 31,295.00

Fare construction (can be useful to travel agents)

BKK CA X/BJS CA LON 290.29SCR3MEU CA X/BJS CA BKK 290.29SCR3MEU NUC 580.58 END ROE 31.003 XT 700TS 810CN 3530GB 1085UB 480YQ 6690YR

In this case the base fare is 17,998 THB, and the total taxes, fees and surcharges is 13,297 THB, for a total fare of 31,295 THB. Only an individual can determine if this a reasonable fare given their requirements.

Edited October 31, 2010 by lomatopo

[Gonsalviz]

Overall aviation is growing ... do we really care what name is painted on the side of the A380 or a B787 we're inside ?

I certainly do. Some airlines have a horrendous safety record and others are on the way.