Price cuts are nothing but a flight of fancy

I was a little shocked to read John Cristal’s letter (MW October 11) about the lack of initiatives from the major carriers to entice passengers back on board. I work for a major carrier (I am not providing the name – I speak purely from many years of experience in the industry) and I can assure Mr Cristal that many efforts are being made, both in pricing and in added value, to entice passengers to fly again. I realise it may be difficult for people outside the industry to understand our methods, but I feel this is because Mr Cristal and others who share his view do not see the big picture.

The situation we have can only be compared, in terms of revenue and yield, with the Gulf War. However the environment in which airlines operated was very different then. There were no such thing as low-cost carriers in the UK, domestic and European routes were still fairly profitable for full-service airlines and the rock-bottom pricing that we have seen over the past five years wasn’t even in its infancy. The introduction of budget airlines has hit the full-service carriers in the domestic and European markets very hard. It became impossible to compete with the fares offered by the low-cost airlines while maintaining the service that customers expected – although passengers accepted the “no-frills” approach from the new players they expected the existing airlines to continue offering the same service at the lower prices now available.

I don’t think people appreciate the costs of a full-service airline. Many of these carriers are the result of consolidation. For example, KLM UK came into being following the acquisition of Air UK by KLM. Air UK had been formed by the the amalgamation of four regional carriers. With acquisitions come aircraft, staff, offices, computer systems… all of which, probably differ in many ways from those of the buyer. Yet all of these have to be maintained until the new larger company can afford to rationalise. This means high fixed costs.

The low-cost carriers have this as their advantage. They start out as a completely new company, keeping costs down by having one central office. They keep staff numbers low, buy a fleet of one type of aircraft (usually 737s) and negotiate excellent parts and maintenance contracts. They operate mainly from one central hub and negotiate excellent deals with the hub airport. This is all on top of not having to pay for catering, lounges and other related service costs.

Considering all this, and the very competitive way in which scheduled full-service airlines have been pricing their seats, how can the full-service carriers be expected to encourage an even steeper drop in fares? They know from previous experience that this tactic simply pushes the market lower as people expect and hold out for cheap deals. I agree the airlines are desperate for business, but with every passenger carried there comes a certain cost and you can’t carry someone for less than that cost when you’re already suffering. As an airline you also have to consider whether you’re really going to get someone who is scared to death of a terrorist attack to travel simply because your seats are cheap, or are you simply encouraging the people who would have travelled anyway to pay an even lower fare?

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