Quickstatus, very interesting. Is anyone apart from eastwest101 aware what the price elasticity of demand is for (a) big business travellers (b) small business users (c) leisure travellers using our domestic airlines?
In theory (b) and (c) should be more responsive to changes in fares as eastwest101 asserts, but I've never come across any research about this. No doubt this is vital information for any well run airline given how they all try to minimise empty seats provided they can obtain a fare that covers their fixed and variable costs (while occasionally having 'loss leaders.')
Pretty much what
Quickstatus says in answer to this question and as you imply from your comments - price elasticity or price sensitivity ranges from totally inelastic (i.e. large government/public servants/politicians etc and highly profitable coporations (almost none of them at the moment = other peoples money) through to very discretionary/elastic (boys weekend away at the footy/bogan holiday to Bali for example). Only the yield managers would be able to put definate numbers.
Found a good summary for those interested (but no doubt there would be heaps more online):
Airline price discrimination | Economics Help
Air Travel Demand Elasticities: Concepts, Issues and Measurement: 1
The Effect of Price Elasticity of Demand in Airline Industry - Custom Essay Cheap
Common sense would tell us that airfares are a necessary part of doing business for a lot of corporates but only up to a certain point and if the corporate is operating at a loss or is struggling financially the travel budget is often targetted pretty early on from "No more J class flights unless >6hrs policies" to "No J class flights at all" then to "BFOD Y class only within certain travel windows" through to "Absolute BFOD rule with even Tiger and Jetstar specified if lower than VA or QF" then through to "No travel allowed at all = survival mode" and finally "You're all fired" = no travel and planned leisure travel cancelled due to unemployment.
There is the perception issue as well - if its widely reported and seen that airfares have risen and if customers get the "sticker shock" of seeing their normal economy PER-SYD return or say SYD-MEL return fares rise say 15% and they can't pass the cost onto the taxpayer/ their customers or their boss, then people start to consider other low cost alternatives (flying less or flying a LCC) or even more drastic alternatives such as teleconferencing or staying home and watching the footy (depends on reason for travel of course).
eastwest101, where have 'people' described VA's E190s as a 'money pit?' The most frequent comment I've seen about them is that they are a well regarded aircraft perceived as comfortable for passengers (which might be like a red rag to a bull for airline beancounters, not that I'm trying to answer my own question.)
Maybe it was the E170s that were described as expensive to operate?
I remember a few threads here and in other aviation forums (ppRUNE, Flyertalk, Airliners.net) where people were reporting that they couldn't break-even unless they were flying at 100% capacity (?) which sounds a little suspiscious to me. I would have thought that the airline economics of the A320 and B737 fleets in Australia would be reasonably well understood and couldn't see the E190 being too far out of whack considering we also see other peers such as the F100s, B717s and Dash8s and ATRs making some sort of money in Australia.
Your point remains that anything which is regarded as popular with customers (usually aircraft with lower density seating, less middle seats, more exit row seats, anything wider than usual, higher crew to pax ratios etc) is by definition a problem for the beancounters, its all a balancing act of maximising the seat density, profits & revenue and pain of customers right up to
but not beyond the point where the customers look at your competitors.
As
Quickstatus also says - everyone is breathing a sigh of relief that fuel prices are at historic lows, airlines have tried to remove the downside risk of high fuel prices by buying/leasing the newest/most efficient aircraft that they can into their fleets. But the inherant risk in this, is that they overpay for high capital cost items such as brand new expensive aircraft, and if fuel prices stay low for a while, find that competitors can enter the market with much cheaper older and slightly less fuel efficient aircraft and succesfully compete.
Its a matter of fuel prices plus whether the Qantas accounting tricks stick or come unhinged in the future vs SQ/EY & NZ maybe getting sick of losing money by their ownership of VA.
