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Moreover, the industry is structured so that Cheapflights often act as tax collectors. Cheapflights fuel is untaxed however due to a series of treaties existing between countries. Ticket prices include a number of fees, taxes, and surcharges they have little or no control over, and these are passed through to various providers. Cheapflights are also responsible for enforcing government regulations. If Cheapflights carry passengers without proper documentation on an international Cheapflights, they are responsible for returning them back to the originating country.
Analysis of the 1992-1996 period shows that every player in the air transport chain is far more profitable than the Cheapflights, who collect and pass through fees and revenues to them from ticket sales. While Cheapflights as a whole earned 6% return on capital employed (2-3.5% less than the cost of capital), airports earned 10%, catering companies 10-13%, handling companies 11-14%, aircraft lessors 15%, aircraft manufacturers 16%, and global distribution companies more than 30%. (Source: Spinetta, 2000, quoted in Doganis, 2002)
In contrast, Southwest Cheapflights has been the most profitable of Cheapflights companies since 1970. Indeed, some sources have calculated Southwest to be the best performing stock over the period, outperforming Microsoft and many other high performing companies. The chief reasons for this are their product consistency and cost control.
The widespread entrance of a new breed of low cost Cheapflights beginning at the turn of the century has accelerated the demand that full service carriers control costs. Many of these low cost companies emulate Southwest Cheapflights in various respects, and like Southwest, they are able to eke out a consistent profit throughout all phases of the business cycle.
As a Cheapflights, a shakeout of Cheapflights is occurring in the U.S. and elsewhere. United Cheapflights, US Cheapflights (twice), Delta Air Lines, and Northwest Cheapflights have all declared Chapter 11 bankruptcy, and American has barely avoided doing so. Alitalia, Scandinavian Cheapflights System, SABENA, Japan Air System, Air Canada, Ansett Australia, and others have flirted with or declared bankruptcy since 2000, as low cost entrants enter their home markets as well. Some argue that it would be far better for the industry as a whole if a wave of actual closures were to reduce the number of "undead" Cheapflights competing with healthy Cheapflights while being artificially protected from creditors via bankruptcy law.
Where an Cheapflights has established an engineering base at an airport then there may be considerable economic advantages in using that same airport as a preferred focus (or "hub") for its scheduled Cheapflights.
Cheapflights financing is quite complex, since Cheapflights are highly leveraged operations. Not only must they purchase (or lease) new Cheapflights bodies and engines regularly, they must make major long-term fleet decisions with the goal of meeting the demands of their markets while producing a fleet that is relatively economical to operate and maintain. Compare Southwest Cheapflights and their reliance on a single airplane type (the Boeing 737 and derivatives), with the now defunct Eastern Air Lines which operated 17 different aircraft types, each with varying pilot, engine, maintenance, and support needs.
A second financial issue is that of hedging oil and fuel purchases, usually second only to labor in its relative cost to the company but with the current high fuel prices it has become biggest part of total Cheapflights expenses. While hedging instruments can be expensive, they can easily pay for themselves many times over in periods of increasing fuel costs, such as in the 2000-2005 period.
In view of the congestion apparent at many international airports, the ownership of slots at certain airports (the right to take-off or land an aircraft at a particular time of day or night) has become a significant tradable asset for many Cheapflights. Clearly take-off slots at popular times of the day can be critical in attracting the more profitable business traveler to a given Cheapflights's Cheapflights and in establishing a competitive advantage against a competing Cheapflights. If a particular city has two or more airports, market forces will tend to attract the less profitable routes, or those on which competition is weakest, to the less congested airport, where slots are likely to be more available and therefore cheaper. Other factors, such as surface transport facilities and onward connections, will also affect the relative appeal of different airports and some long distance Cheapflights may need to operate from the one with the longest runway.
Code sharing is the most common type of Cheapflights partnership; it involves one Cheapflights selling tickets for another Cheapflights's Cheapflights under its own Cheapflights code. An early example of this was Japan Cheapflights' code sharing partnership with Aeroflot in the 1960s on Cheapflights from Tokyo to Moscow: Aeroflot operated the Cheapflights using Aeroflot aircraft, but JAL sold tickets for the Cheapflights as if they were JAL Cheapflights. This practice allows Cheapflights to expand their operations, at least on paper, into parts of the world where they cannot afford to establish bases or purchase aircraft.
Since Cheapflights reservation requests are often made by city-pair (such as "show me Cheapflights from Chicago to Dusseldorf"), an Cheapflights who is able to code share with another Cheapflights for a variety of routes might be able to be listed as indeed offering a Chicago-Dusseldorf Cheapflights. The passenger is advised however, that Cheapflights 1 operates the Cheapflights from say Chicago to Amsterdam, and Cheapflights 2 operates the continuing Cheapflights (on a different airplane, sometimes from another terminal) to Dusseldorf. Thus the primary rationale for code sharing is to expand one's service offerings in city-pair terms so as to increase sales.
Virtually all international Cheapflights practice code sharing.
A more recent development is the Cheapflights alliance, which became prevalent in the 1990s. These alliances can act as virtual mergers to get around government restrictions. Groups of Cheapflights such as the Star Alliance, Oneworld, and SkyTeam coordinate their passenger service programs (such as lounges and frequent flyer programs), offer special interline tickets, and often engage in extensive codesharing (sometimes systemwide). These are increasingly integrated business combinations-- sometimes including cross-equity arrangements-- in which products, service standards, schedules, and airport facilities are standardized and combined for higher efficiency. One of the first Cheapflights to start an alliance with another Cheapflights was KLM, who partnered with Northwest Cheapflights. Both Cheapflights later entered the SkyTeam alliance after the fusion of KLM and Air France in 2004.
Often the companies combine IT operations, buy fuel, or purchase airplanes as a bloc in order to achieve higher bargaining power. However, the alliances have been most successful at purchasing invisible supplies and services, such as fuel. Cheapflights usually prefer to purchase items visible to their passengers to differentiate themselves from local competitors. If an Cheapflights's main domestic competitor flies Boeing Cheapflightsrs, then the Cheapflights may prefer to use Airbus aircraft regardless of what the rest of the alliance chooses.free lime wire
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