GET THE POPCORN

I am clearly just not getting it. With the IT being capacity growth in the US domestic system. I read quotes and have been told that history does not matter this time Bill. It is different.

The only thing I see as different is the fact that industry balance sheets were healthy from a liquidity perspective and full of unencumbered assets to use as collateral. Then on the other side, liquidity continues to be plentiful.

The more things changed between March 2020 and today, the more things stayed the same. It is true that few saw the travel bounce that occurred after the availability of a vaccine and plans to distribute it became clear in March 2021.

That bounce required the industry to scramble. It was not ready to put capacity back into the system at the pace of vaccine availability. We also learned of a pilot supply issue for the industry and the fact that the military does not supply the commercial industry the way it did in the 1980s and 90s. (Really?)

There was a time when the marginal cost pricing model was widely accepted. It helped contribute to an industry that lost nearly $45 billion between 1979 - 2010. Then came the fully allocated cost pricing model - makes sense. But, the marginal cost pricing model returned and clearly is an adopted approach today. Revenue will be made up on volume.

I think it was Alfred Kahn who said: I do not know one airplane from another, they are just marginal costs with wings.

So when absolute costs go up, simply increase the size of the aircraft. Unit costs will decrease. Marginal costs will then be similar to the ULCCs. There will be no share shift in the US domestic market. New entrants will live a short life like virtually every upstart since deregulation. That will be the one area where today mirrors history.

In April, I gave a talk titled: Flight 031120: Departing Ubiquity Destined For Segmentation? Wrong again, but happy I put a question mark at the end. Best I can see, ubiquity will continue to describe delivery of the airline product.

How is investment in premium seats that much different than in 2019 when no all-in base fare is that much different from one carrier type to another? We have just finished a deep dive into the business and international traffic return and absolutely agree that United and Delta should be winners in that return.

When the news of United's order broke yesterday, it has been clear that United's aircraft size is simply too small relative to the industry, so of course bigger would be expected. I really liked the idea that there would be 75% more premium seats per departure. Then I read that UA would be aggressive in selling basic economy. Ubiquity again. Or, yawn!!

Then I read that Republic is going to do an IPO. Where is that growth going to come from with their cost structure? I digress.

Like I said, I am just clearly not getting it.

I am going to go get some butter because this will be anything but a pillow fight for market relevance.