One Passenger Airline charging by the Passenger’s Weight may offer new Funding Idea for Obamacare

Posted by PITHOCRATES - April 7th, 2013

Week in Review

When the price of oil soars it doesn’t affect the railroads that much.  Because fuel costs are not their greatest cost.  Maintaining that massive infrastructure is.  For wherever a train travels there has to be track.  It’s different for the airlines.  The only infrastructure they have is at the airports.  And the traffic control centers that keep order in the sky.  Once a plane is off the ground it doesn’t need anything but fuel in its tanks to go somewhere.  And because the flying infrastructure is so much less than the railroad infrastructure fuel costs are a much larger cost.  In fact, it’s their greatest cost of flying.  So when fuel costs rise ticket prices rise along with them.  And they start charging more bag fees.  As well as any other fee they can charge you to offset these soaring fuel costs.

Boeing made their 787, the Dreamliner, exceptionally light.  To reduce flying costs.  They used a lot of composite materials.  Two large engines because they’re lighter than 4 smaller engines.  They even used a new lithium-ion battery system to start up their auxiliary power unit.  And made it fly-by-wire to eliminate the hydraulic system that normally operates the control surfaces.  They did all of these things to fight the biggest enemy they have in flying.  Weight.  For the greater the weight the more fuel they burn.  And the less profitable they are.

Freight airlines charge their customers by the weight of the freight they wish to ship.  Because there is a direct correlation between the weight of their freight and the amount of fuel they have to burn to carry that freight.  In fact, all shippers charge by the weight.  Because in transportation weight is everything.  But there is one mode of transportation that we don’t charge by the weight.  Passenger air travel.  Until now, that is (see A tax on overweight airline passengers: a brutal airline policy by Robin Abcarian posted 4/3/2013 on the Los Angeles Times).

When teensy-weensy Samoa Airlines debuted its pay-by-the-kilo policy in January, I doubt it expected to set off an international controversy about fat discrimination.

But that’s what happened when news seeped out this week after the airline’s chief executive, Chris Langton, told ABC News radio in Australia that the system is not only fair but destined to catch on.

“Doesn’t matter whether you’re carrying freight or people,” explained Langton. “We’ve amalgamated the two and worked out a figure per kilo.”

Samoa Air, he added, has always weighed the human and non-human cargo it carries. “As any airline operator knows, they don’t run on seats, they run on weight,” said Langton. “There’s no doubt in my mind this is the concept of the future because anybody who travels has felt they’ve paid for half the passenger that’s sitting next to them…”

“Samoa Air, Introducing a world first: ‘Pay only for what you weigh’! We at Samoa Air are keeping airfares fair, by charging our passengers only for what they weigh. You are the master of your Air’fair’, you decide how much (or little) your ticket will cost. No more exorbitant excess baggage fees, or being charged for baggage you may not carry. Your weight plus your baggage items, is what you pay for. Simple. The Sky’s the Limit..!”

One bright note to this policy: Families with small children, who often feel persecuted when they travel, stand to benefit most from this policy. Since Samoa no longer charges by the seat, it will cost them a lot less to fly than it did before.

The appeal of this policy depends on your perspective.  If you’re of average weight sitting next to someone spilling over their seat into yours it may bother you knowing that you each paid the same price for a seat and resent the person encroaching on your seat.  But if you paid per the weight you bring onto the airplane then that person paid for the right to spill over into your seat.  Which they no doubt will do without worrying about how you feel.  As they paid more for their ticket than you paid for yours.  So the person who weighs less will get a discount to suffer the encroachment.  While the person who weighs more will have to pay a premium for the privilege to encroach.

Under the current system the people who weigh less subsidize the ticket prices of those who weigh more.  It’s not fair.  But it does save people the embarrassment of getting onto a scale when purchasing a ticket.  So should all airlines charge like all other modes of transportation?  Or should they continue to subsidize the obese?  Should we be fair?  Or should we be kind?

Chances are that government would step in and prevent airlines from charging by the weight.  Calling it a hate crime.  Even while they are waging a war on the obese themselves. Telling us what size soda we can buy.  And regulating many other aspects of our lives.  Especially now with Obamacare.  Because the obese are burdening our health care system with their health problems the government now has the right to regulate our lives.  And they have no problem calling us fat and obese.  But a private airline starts charging by the weight of the passenger?  Just don’t see how the government will allow that.  For it’s one thing for them to bully us.  But they won’t let these private businesses hurt people’s feelings by being fair.  So the people who are not overweight will continue to subsidize the flying cost of those who are overweight.

Until the government determines obese people are causing an unfair burden on society.  The obese have more health issues.  Which will consume more limited health care resources.  Also, flying these heavier people around will burn more fuel.  Putting more carbon emissions into the air.  Causing more breathing problems for everyone else.  As well as killing the planet with more global warming.  So while the airlines may not want to weigh people when selling them a ticket because of the potential backlash, the government won’t have a problem.  To cut the high cost of health care and to save the planet from global warming caused by carbon emissions they may even introduce a ‘fat’ tax.  Like any other sin tax.  To encourage people to choose to be healthier.  And to punish those who choose not to.  If they can force us to buy health insurance what can stop them from accessing a ‘fat’ tax?  Especially when they do have the right to tax us.

This is where national health care can take us.  When they begin paying the bill for health care they will have the right to do almost anything if they can identify it as a heath care issue.  Because it’s in the national interest.  They’ve painted bulls-eyes on the backs of smokers.  And drinkers.  With tobacco and alcohol taxes.  And you know they would love to tax us for being fat.  Perhaps even having our doctors file our weight with the IRS.  So they can bump our tax rates based on how obese we are.  If the tax dollars pay for health care they will say they have that right.  As the obese consume an unfair amount of those limited tax dollars.  Anything is possible with an out of control growing federal government faced with trillion dollar deficits.  Especially when they can call it a health care issue.

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High Fuel Costs makes Union Contracts too Costly on Qantas’ International Flights

Posted by PITHOCRATES - May 26th, 2012

Week in Review

There is an inverse relation between gas prices and driving distance on your summer vacation.  The higher the gas price the shorter your drive.  When gas is cheap you can travel across the country in a recreational vehicle.  When gas prices are high you may limit your drive to a single day.  Perhaps even a single fill up.  Because driving adds up.  If you fill up twice a day you may pay $150 at the gas pump.  If you drive two days out and two days back that’s $600 in driving costs.  Which you could put towards a nice hotel or some fun.  Or into your gas tank.  Which isn’t really a whole lot of fun.  Especially when you have some bored kids fighting each other in the back seat.

Fuel costs can make the difference between a nice vacation and a bad one.  And between a profitable operation and an unprofitable operation (see Australia’s Qantas to Split Business into Two by Reuters posted 5/22/2012 on CNBC).

Qantas Airways, said it plans to split its loss-making international and profitable domestic businesses, though Australia’s top airline was viewed by analysts as unlikely to spin off or sell the international operations…

The changes are part of a five-year turnaround plan aimed at shrinking costs and getting the international operations into profit…

The airline…is emerging from a bruising industrial dispute with unions…

Weak demand and high fuel prices are taking a toll on airline profits, pushing airlines across the world to cut costs and delay capital expenditure. 

The reason companies go through these bruising disputes with their unions is because of the good times when all other costs aren’t so bad.  When fuel was cheap the airlines were making some decent profits.  And it was affordable to be generous to their unions.  When they had little choice but to be generous.  For a strike during busy times is not good to the bottom line.  So they enter into these agreements that just cripple a company when fuel costs soar.

The international business is losing money because it takes a lot more fuel on those international routes.  And when demand is low it is very difficult to raise ticket prices.  Because even though Qantas is a quality airline there are other quality airlines out there trying to make it in an industry suffering from low demand.  And they are all trying to keep their ticket prices as low as possible to get the few passengers out there still flying.  It’s gotten so bad that some airlines are charging for things they’ve never charged for before. 

Such as carryon bags.  Which helps revenue in two ways.  It helps pay for fuel costs.  And it discourages passengers from carrying on luggage.  Which reduces weight and saves on fuel costs.  For an airline only puts into their fuel tanks the amount they need to fly.  They don’t top them off.  They count everything going onto that airplane and calculate the weight to add to the weight of the airplane and the weight of the fuel they carry.  The less the weight on that plane the less fuel they have to burn.

The short routes tend to be the more profitable ones.  There are more of them (one plane can make 2-3 round trips in a day).  And they burn less fuel.  That adds up to profitability.  Which is why Qantas is profitable on their domestic routes.  But not on their international routes.  And why the domestic business can pay the high union contracts.  While the international business can’t.

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American Airlines to file Bankruptcy to get their Labor and Pension Costs under Control

Posted by PITHOCRATES - December 4th, 2011

Week in Review

American Airlines is hurting.  They’ve lost about a billion dollars for each of the last 10 years.  Because of high fuel costs.  And high labor and pension costs (see American Airlines files for bankruptcy protection by DAVID KOENIG, AP, posted 11/29/2011 on Yahoo! News).

The parent company of American Airlines filed for bankruptcy protection Tuesday, seeking relief from crushing debt caused by high fuel prices and expensive labor contracts that its competitors shed years ago…

AMR Corp., which owns American, was one of the last major U.S. airline companies that had avoided bankruptcy. Rivals United and Delta used bankruptcy to shed costly labor contracts, reduce debt, and start making money again. They also grew through mergers.

American — the nation’s third-largest airline and proud of an 80-year history that reaches back to the dawn of passenger travel — was stuck with higher costs that meant it lost money when matching competitors’ lower fares…

AMR, however, wants to push ahead with plans to order 460 new jets from Boeing and Airbus and take delivery of more than 50 others already ordered. New planes would save American money on fuel and maintenance, but the orders will be subject to approval by the bankruptcy court.

The two greatest costs of an airline are fuel and labor.  Which have to be paid for by passengers buying tickets.  Airplanes are expensive but they’re fixed costs amortized over time.  Their other costs are relatively fixed and aren’t volatile.  It’s fuel and labor that will make or break an operation.  During good times unions demand generous pay and benefits packages.  Which airlines can pay during good times.  It’s either that or face a strike.  The problem is the bad times.  And there are always bad times.

Bad times are when people aren’t flying and airlines have to cut ticket prices to encourage them back onto their planes.  And high fuel prices.  Fuel costs are such a large percentage of an airline’s costs that spikes in fuel prices results in marginal routes losing money.  Put the two together and it’s impossible to pay those generous pay and benefits packages any more.

The losers will be American Airlines employees and AMR stockholders.

Shareholders almost certainly will be wiped out. The stock had already lost 79 percent of its value this year on fears of bankruptcy.

AMR has lost more than $12 billion since 2001, and analysts expect it will post more losses through 2012. Speculation about an AMR bankruptcy grew in recent weeks as the company was unable to win union approval for contracts that would reduce labor costs. The company said it was spending $600 million more a year than other airlines because of labor-contract rules — $800 million more including pension obligations.

On Tuesday, Horton said no single factor led to the bankruptcy filing. He said the company needed to cut costs because of the weak global economy, a credit downgrade that raised borrowing costs, and high, volatile fuel prices. The price of jet fuel has risen more than 60 percent in the past five years.

If you’re losing $1 billion a year you’re doing something wrong.  Either you’re not charging enough for tickets.  Or your costs are too great.  Competition sets the price of tickets.  So it’s not that.  Which leaves costs.

Approximately 80% of their losses are due to labor and pension costs.  And math doesn’t lie.  So it’s the labor and pension costs.   But wait a minute, you say.  What about that 60% increase in fuel costs?  Well, that could be a problem.  If it wasn’t for the fact that all the airlines are paying 60% more for fuel.  So you can’t blame the fuel costs.

You see, those other airlines can afford that 60% hike in fuel prices because they already went through a bankruptcy to get their labor and pension costs in order.  Which is what American Airlines needs to do.  If, that is, they want to keep flying airplanes.

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