Champion Air - Another one bites the dust

[Teller1900]

http://aircrewbuzz.com/2008/04/charter-carrier-champion-air-to-shut.html

It appears that Champion Air is the latest air carrier to fall victim to the high price of fuel. In a press release issued on the afternoon of March 31, 2008, the carrier's President and CEO, Lee Steele, said, "...Our business model is no longer viable in a world of $110 oil, a struggling economy and rapidly changing demand for our services. Those factors also have impeded our efforts to attract new capital and new investors."

 

[ScottM]

The solution to those high oil prices is to raise ticket prices. I am no MBA but it just seems to me that you have to actually make your income at least equal your expenditures or else you will go out of business.

 

[SCCutler]

Scott:

The airlines would dearly love to be able to do that, but it just ain't that simple.

 

[RotaryWingBob]

The solution to those high oil prices is to raise ticket prices. I am no MBA but it just seems to me that you have to actually make your income at least equal your expenditures or else you will go out of business.

Not necessarily true in the short run, Scott. What economic theory says about that it that if you can meet your fixed costs (rent, finance charges, etc. -- charges which don't vary with the number of flights) then you're better off staying in business even if you don't meet all of your variable costs (charges which do vary, such as fuel).

There's also probably enough competition that if carrier A raises prices and Carrier B doesn't, that Carrier B is going to capture some of carrier A's business.

 

[ScottM]

There's also probably enough competition that if carrier A raises prices and Carrier B doesn't, that Carrier B is going to capture some of carrier A's business.

I have a side business that does scuba diving instruction. At least once every three years somebody opens up in our area charing $99 scuba lessons. I charge $275 BTW. For about six month we loose customers, then when the other guy goes out of business because his profit is negative as a result of charging less than what it is actually costing him, we get our customers back. Market share at any cost is a losing proposition. The majors have been raising their ticket prices, they are holding on, just barely. What we are seeing over the past couple of weeks is the '$99 scuba' airlines going out of business.

 

[RotaryWingBob]

I have a side business that does scuba diving instruction. At least once every three years somebody opens up in our area charing $99 scuba lessons. I charge $275 BTW. For about six month we loose customers, then when the other guy goes out of business because his profit is negative as a result of charging less than what it is actually costing him, we get our customers back. Market share at any cost is a losing proposition. The majors have been raising their ticket prices, they are holding on, just barely. What we are seeing over the past couple of weeks is the '$99 scuba' airlines going out of business.

I just realized I stated my point backward. If you can make enough to cover your variable costs and contribute something towards the fixed cost then you're better off producing whatever it is that you do.

 

[Skip Miller]

The solution to those high oil prices is to raise ticket prices. I am no MBA but it just seems to me that you have to actually make your income at least equal your expenditures or else you will go out of business.

Scott, it is clear that you would never have made much headway in the dot.com era!

-Skip

 

[wsuffa]

The solution to those high oil prices is to raise ticket prices. I am no MBA but it just seems to me that you have to actually make your income at least equal your expenditures or else you will go out of business.

Not so easy as we discussed in the Colgan thread. Aside from corporate policies that dictate use of lowest cost carrier (and negotiated deals as to price), there is a price-point at which revenue drops off more quickly as you raise price.

Scott:

The airlines would dearly love to be able to do that, but it just ain't that simple.

Exactly correct - the airlines, more than any other industry, have yeild management down to a science. The pricing model they use has given them TONS of data on the price-demand curve for each market pair, as well as the exact cost of having one type of jet vs another on a route. So, the constraints are both competition AND elasticity of pricing. And competition is both about other carriers, alternate markets, and substitute means of transport (meaning, do we take the car or the train instead of the plane).

BTW, media is a similar challenge in terms of yeild management, although it doesn't deal with consumers....

 

[t0r0nad0]

Fares notwithstanding, Champion Air is kind of exempt from this argument. They are basically charter only, as I understand, and they only fly 727's, which are not exactly fuel-efficient. I see them at Hobby all the time flying sports charters in and out... I'll miss seeing those three-holers there, belching black smoke out behind them on the take-off roll and climb-out.

So, now we're up to 6 on the year:

Aloha
ATA
Big Sky
Champion Air
SkyBus
SkyWay

Any speculations on who's next? My guess would be another Regional or LCC - let's examine, shall we?

Virgin America - offering low fares and good services, I'm not sure how they're doing profit-wise, but they have Branson's deep pockets to keep them afloat.
JetBlue - They had their woes the first year or so, but by utilizing the ERJ-190 on some of their less popular routes, they've managed to move past that and do pretty well. I don't think they're going to go away any time soon.
Southwest - Yeah right, not even worth mentioning. Definitely not going anywhere.
Airtran - there's an interesting prospect, I don't know much about them or how they're doing. They do have a two aircraft type operation, which is pretty good for the bottom line. I wonder how a merger between them and Midwest Express (the only other domestic airline to use the 717) would play out? Has this been tried once already?
Midwest Express - In addition to their pax service, they also do a lot of sports charters. Aren't their airplanes an all business-class configuration? I think I remember reading that somewhere. My impression is that they're on decent footing, despite shutting down Skyway and farming those routes out to SkyWest.
SkyWest - This regional giant and its subsidiaries (Comair) are not going anywhere.
Mesa - Ditto SkyWest.
ExpressJet - As much as I hate to say it since they're based here in Houston, this seems like it might be a likely merger or closing candidate. Their bread-and-butter is their contract with Continental to do the Continental Express service, but they have lost several of those routes now to Colgan flying Saab A340's out of IAH, B1900's and Dash-8-200's (and now Q400's) out of CLE, and Dash-8-200's and Q400's out of EWR. Additionally, they have lost even more routes to Chautauqua flying E145's and CRJ-200's in CoEx colors too. I had heard at one point that they were going to do some Delta Connection routes, but I'm not sure if that ever came to be or if they did, if that's continuing. They did fly some routes for JBU while the software was being fixed on the E195's, but I think that's long since ended. Also, they have their own stand-alone service now, but that's limited on which markets they can serve due to their standing non-compete contract with COA.
Colgan - This airline is really expanding their routes as the airlines realize that jets on short-haul routes are not profitable. This will be even more so with the ever-increasing numbers of Q400's in the fleet. They are now owned by Pinnacle, so there is a possibility that the Colgan name will go away some day, but the airline itself won't be going out of business.

There are many more, but I don't have time to go into all of them right now. From what's been listed here, my money would be on XJet either folding or getting gobbled up by someone else. I'd love to hear the thoughts of those more knowledgeable than I...

 

[SCCutler]

I imagine Champion Air will have been profitable for most of its existence, and that they chose to simply shut 'er down rather than invest in new equipment, more efficient aircraft, to become competitive in the astronomical fuel price era. The risk-return equation is not good enough for them to justify making that next big leap.

Do not expect a bankruptcy from them, but rather, a quiet winding-up of operations, followed by the sale of their air carrier certificate for good money to someone else who will, most likely, start an airline and go broke with it. The "MG" code, for "MGM Grand Air," will fly again.

You heard it here first.

 

[wsuffa]

I imagine Champion Air will have been profitable for most of its existence, and that they chose to simply shut 'er down rather than invest in new equipment, more efficient aircraft, to become competitive in the astronomical fuel price era. The risk-return equation is not good enough for them to justify making that next big leap.

Do not expect a bankruptcy from them, but rather, a quiet winding-up of operations, followed by the sale of their air carrier certificate for good money to someone else who will, most likely, start an airline and go broke with it. The "MG" code, for "MGM Grand Air," will fly again.

You heard it here first.

Champion Air had a big NBA contract that's kinda withered off as the teams have started getting their own charters instead of working through that contract. Remember that it was originally established as a way for NW to pawn off some of their 727s - which are fuel, maintenance, and crew intensive.

I see it much the same way you do - there wasn't a lot of capital invested, and the operating costs made it profitable for a while.

 

[lawingr]

I thought Midwest Connect was shutting down soon?! My F-I-L's CFI flies for them and said they were shutting down. He is moving to Atlanta to fly for AirTrans.

 

[Ghery]

An article in the Honolulu Advertiser this morning indicated that Mesa may be hurting due to Delta trying to cancel their contract with them. $20M a month down the tubes if that happens. That, and the lawsuits against their Go! operation in Hawaii (which Hawaiian Airlines has won, and Aloha is likely to win) and Mesa may bite the dust, as well.

We shall see. What's that old Chinese curse? Oh, yeah. "May you live in interesting times!"

BTW, greetings from Kauai. Just another day in paradise. Too bad we have to come home on Saturday.

 

[flyingcheesehead]

I thought Midwest Connect was shutting down soon?!

Midwest Connect = Skyway. "Skyway-ex" on the radio.