doomed to fail???

[Don Hudson]

Barney;

First, the questions you've asked are on everyone's mind, but they're impossible to answer meaningfully.

However, if you really want to face that question seriously and without illusions, take a look at some of the forces at play and the figures publicly available:

1. Average # of passengers boarded each day this week - about 39,000. This time three years ago, AC was boarding around 55,000 and CAI probably another 28,000 or so. Temporary certainly, but how temporary? Will this "teach" passengers that they don't have to travel?

2. Hong Kong, once the money-maker for AC at two full flights per day (284 psgrs on the 340) seven days a week now carrying 90+/- psgrs each way on one flight/day.

3. ACPA flexibility has allowed the company to schedule its crews down to 65-67hrs from a high of 95 hrs in 2000. But with such contractual flexibility to go to 90-95hrs, even given simultaneous wage reductions, how long will it be before the Monitor (or the Justices) forces AC to use crews to maximize the productivity already available in the collective agreement, (or even further) thereby reducing need? How far can hours be reduced before the "cross-over", including the significant down-then-up training costs which you mention. I do not know!, but this is a factor which ought to be considered in the questions you ask.

4. We have the Kellar issue "in process" (to use an Airbus term) as well, and the requirement to hold a bid, soon, I think, (won't happen, but if equipment goes, a bid is necessary). How much will the Monitor (or Justice Farley or Justice Winkler?) involve himself in this specific issue?

Apropos this, these gentleman know how a contract historically comes about...by solving hundreds of issues as they arise between management and labour. Would they cancel it unilaterally and advocate an entirely new approach, or would they keep certain aspects of the present agreement, which really would be to both sides' advantage? Who knows.

These are some of the thoughts I have had (more times than not and like everyone else, at 2AM or so), since April 1rst.

Don

[IFG]

Hi, Dagger - While some incremental costs were probably eliminated by cutting the frills (I'm guessing deep in the single digit percentages), the main plank supporting the claimed Tango savings has to be the increase in density, ignoring the reduced yield potential per seat, and that contains some sleight of hand IMHO.

When you replace business class with steerage, it's a little disingenuous to average the previous ASM cost across all classes of seat, as I suspect was done to justify that 25% claim. Clearly the "real" cost of business class was higher per seat, both in required space on board, and amenities. This would make for a disproportionate share of the total ASM costs on the aircaft. I suspect the real before-and-after individual economy seat costs were nowhere near 25% apart.

Cheers, IFG

[BoomerPete]

Welcome back!

It's most certainly true that every airline fails to deliver good passenger service at least some of the time, so there are none of us here who can claim to be lily-white in that regard.

Whatever the actual level of employee customer service performance at AC, AC does have a problem if the public in general perceives it to be providing poor or indifferent service.

In my opinion, correcting the problem requires an overt and sustained display of service above and beyond the call by all of AC's employee groups. It matters not what the current results are, the goal is to change public opinion and to do that something greater than what currently exists must be provided.

If all of your parties recognize this public opinion issue as a problem and also recognize that the essential element of correcting the problem is an even greater employee effort in this area, it's not a long jump to get to the realization that the creation of a positive corporate and employee culture is the key to getting a large group of people to consistently deliver the "above and beyond" service necessary to change public opinion.

In fact, without a culture that supports and expects "above and beyond" there's little liklihood that an employee group facing as many uncertainties as yours is can effect the required change in public opinion. Fear is about the worst possible stimulator for enhanced customer service I can imagine, and yet it seems to be the only tool being used at the moment.

As a side note, most of my experiences with AC have been positive, but I did experience a flight last year that featured omissions and evasions of fact that demonstrated a clear lack of concern for the passenger. That one bad experience negated much of the good will generated by all of the previous positive ones and caused me to significantly lower my estimation of what I could expect from AC. Part of the problem with opinion is that, fairly or not, it takes only that one bad occurence to wipe out so much previous good work.

Pete

[BoomerPete]

Hi Don ...

Welcome back!

It's most certainly true that every airline fails to deliver good passenger service at least some of the time, so there are none of us here who can claim to be lily-white in that regard.

Whatever the actual level of employee customer service performance at AC however, AC does have a problem if the public in general perceives it to be providing poor or indifferent service.

In my opinion, correcting the problem requires an overt and sustained display of service above and beyond the call by all of AC's employee groups that interact with the customer. It matters not what the current results are, the goal is to change public opinion and to do that something greater than what currently exists must be provided.

If all of your parties recognize this public opinion issue as a problem and also recognize that an essential element of correcting the problem is an even greater employee effort in this area, it's not a really long jump to get to the realization that the creation of a positive corporate and employee culture with a commitment to service values is the key to getting a large group of people to consistently deliver the "above and beyond" service necessary to change public opinion.

In fact, without a culture that supports and expects "above and beyond" from managers and employees alike in their approach to the customer there's little liklihood that an employee group facing as many uncertainties as yours is can effect any positive change in public opinion. Fear is about the worst possible stimulator for enhanced customer service I can imagine, and yet it seems to be the only tool in use at the moment.

As a side note, most of my experiences with AC have been positive, but I did experience a flight last year that featured omissions and evasions of fact that demonstrated a clear lack of concern for the passenger. That one bad experience negated much of the good will generated by all of the previous positive ones and caused me to significantly lower my estimation of what I could expect from AC. Part of the problem with opinion is that, fairly or not, it takes only that one bad occurence to wipe out so much previous good work.

Pete

[Guest Bulkwheat]

Hello Don and Philip,

Great to see you both on this form as well. I thought that while the two of you were conversing I might be able to get your thoughts on an off topic matter but an important one none the less.

The topic that comes up on a daily basis amongst us junior AC pilots is the dreaded layoff question(s).

Will the Company layoff pilots?...If so, how many?...For how long?...When?....Will packages be offered to senior pilots that want to go?

I personally hope that the overwelming retirement numbers over the next many years, along with the incredible cost of downtraining and then uptraining

pilots will save us from layoff. To my knowledge the Company has only uttered the word "pilot layoffs" on one occasion in passing so to speak. The media reports that AC will be a smaller airline because we will be flying more 70 - 90 seat aircraft instead of the 400's or as many large aircraft. I don't believe they have said that Air Canada wants to dramatically reduce the fleet numbers.

Unfortunately my colleagues and I have noticed a thought trend lately amongst many co-workers that pilot layoffs are inevitable, period.

Just wondering what your thoughts are gentlemen?

Thanks..Barney

[Guest Bulkwheat]

Hello Don and Philip,

Great to see you both on this form as well. I thought that while the two of you were conversing I might be able to get your thoughts on an off topic matter but an important one none the less.

The topic that comes up on a daily basis amongst us junior AC pilots is the dreaded layoff question(s).

Will the Company layoff pilots?...If so, how many?...For how long?...When?....Will packages be offered to senior pilots that want to go?

I personally hope that the overwelming retirement numbers over the next many years, along with the incredible cost of downtraining and then uptraining

pilots will save us from layoff. To my knowledge the Company has only uttered the word "pilot layoffs" on one occasion in passing so to speak. The media reports that AC will be a smaller airline because we will be flying more 70 - 90 seat aircraft instead of the 400's or as many large aircraft. I don't believe they have said that Air Canada wants to dramatically reduce the fleet numbers.

Unfortunately my colleagues and I have noticed a thought trend lately amongst many co-workers that pilot layoffs are inevitable, period.

Just wondering what your thoughts are gentlemen?

Thanks..Barney

[Guest WA777]

Phillip

As I have said many times before, I am expecting new ominous precedents to be set by this whole CCAA process before the judge.....if we decide to stand around and just say 'they can't do that because it has never been done before and there are no precedents', I think we run the risk of watching all our careers and the company die....

[Guest Max Continuous]

In addition, there is still the question of present and future pension fund liabilities.

Wouldn't a company prefer to have more fixed costs associated with contribution levels in the future, rather than surfing the waves in the sun and then drowning in the troughs?

http://www.globeandmail.com/servlet/story/RTGAM.20030512.wxrpens/BNStory/Business/

[Guest WA777]

Philip

As I have said many times before, I am expecting new ominous precedents to be set by this whole CCAA process before the judge.....if we decide to stand around and just say 'they can't do that because it has never been done before and there are no precedents', I think we run the risk of watching all our careers and the company die....

[Guest Max Continuous]

IMO, I think that an analysis of the advantages and disadvantges of having Defined Contribution plans versus a Defined Benefit plan, might address this issue.

[dagger]

From a cost perspective, a J for Y swapout that increases total seating lowers your unit cost substanially. Yield is a revenue issue, but I would hazard a guess that on a route like Toronto-Ottawa where I have flown Tango that you will fill a J seat with a J-paying customer - as opposed to an employee or upgraded Y customer - perhaps 30-40% of the time but you will fill the two Y seats that take its place 85% of the time.

But from a sheer productivity point of view - cost per ASM - I believe the increased productivity is real, and of the magnitude suggested by management.

[Don Hudson]

Boomer;

Thank you.

Agree...its partly image, partly truth. The role of whipping boy is difficult to get rid of in a small community where others are perceived to be "struggling against all odds and against the Juggernaut", (far from the truth, but good copy).

Our task is to make our customers feel as though they were smart in spending their money at Air Canada. Its a thousand tiny acts of consideration and thought. Can't be done 100% of the time as we all know.

Also though, we need a little back-up from the media, who sell papers on negative stories about AC. While they won't print positive stuff, at least they can get off our backs as we change, (and change we will I think, depending upon how we view this filing).

Also, Air Canada needs to broaden its gaze and actually leave Quebec and Ontario for a bit and acknowledge the west. I'll leave that little steamer right there.

Cheers, BP,

Don

[IFG]

Hello again, Dagger - re: "a J for Y swapout that increases total seating lowers your unit cost substanially" - of course it does, just as it would if GM stopped production on all its full-size cars and SUV's, and replaced that capacity with all sub-compacts. The average cost per vehicle drops, but the average cost per sub-compact likely changes only a little bit. It is misleading to apply an averaged unit cost on various different products indiscriminately, and altho' they are both available seats, J and Y are different products. Most of that "increased productivity" on Tango is just such sleight of hand IMHO.

Agreed, yield is a separate issue (as would be price in the automotive analogy); only pointed out to highlight the difference in the products. Perhaps clouded the issue, tho'.

Cheers, IFG

[IFG]

Hello again, Dagger - re: "a J for Y swapout that increases total seating lowers your unit cost substanially" - of course it does, just as it would if GM stopped production on all its full-size cars and SUV's, and replaced that capacity with all sub-compacts. The average cost per vehicle drops, but the average cost per sub-compact likely changes only a little bit. It is misleading to apply an averaged unit cost on various different products indiscriminately, and altho' they are both available seats, J and Y are different products. Most of the reduced costs claimed on Tango is just such sleight of hand IMHO.

Agreed, yield is a separate issue (as would be price in the automotive analogy); only pointed out to highlight the difference in the products. Perhaps clouded the issue, tho'.

Cheers, IFG

[dagger]

I don't understand your definition of productivity. Does the Tango aircraft carry more people? Yes, Does it require more crew to handle those extra passengers. No. Seat mile costs are indeed a measure of productivity, Asset productivity for one, employee productivity, also. Short of having the pilots serve the food in place of flight attendants it is hard to see how productivity could be increased further.

[DEFCON]

"jurisprudence"

AS AC is a fed regulated business the true jurisprudence can if necessary be decided by the SCC.

[IFG]

Gosh, Dagger, conveying what seems a subtle but simple thought can be frustrating. I don't know whether you are being obtuse or I'm being unclear; I'll assume the latter (couldn't do anything about the former anyway.)

Tango sells a single product, an economy-class seat. When it was unveiled, a great saving was claimed in the production of this product. That was supported in large part by the following logic (numbers picked to make for simpler math):

A/C costs $16.0/mile to operate. It formerly had 120 seats, now has 160 seats, claiming cost savings of 25% (or 33% increased productivity - whatever) . Fallacy is that formerly there were 80 Y/40J, but cost is averaged to $.13/ASM. In fact, J is a more expensive product (justified by higher yields - no further down that "rabbit trail"). It tied up twice as much A/C productivity as Y, so "really", J cost was $.20/ASM, and Y was $.10/ASM (reason why they'd do that is down that yield trail again). Reconfigure to 160 all Y, and Y cost remains $.10/ASM, albeit providing more Y capacity.

In illustrating my contention about ASM shell games, I'm ignoring the much smaller but real savings from frill-cutting etc. If I was to hazard a guess without actual A/C seat #'s to crunch, I'd suggest around 5-10% actual savings on Y "production", and the rest is an ASM illusion.

Cheers, IFG

[IFG]

Gosh, Dagger, conveying what seems a subtle but simple thought can be frustrating. I don't know whether you are being obtuse or I'm being unclear; I'll assume the latter (couldn't do anything about the former anyway.)

Tango sells a single product, an economy-class seat. When it was unveiled, a great saving was claimed in the production of this product. That was supported in large part by the following logic (numbers picked to make for simpler math):

A/C costs $16.0/mile to operate. It formerly had 120 seats, now has 160 seats, claiming cost savings of 25% (or 33% increased productivity - whatever) . Fallacy is that formerly there were 80 Y/40J, but cost is averaged to $.13/ASM. In fact, J is a more expensive product (justified by higher yields - no further down that 'rabbit trail'). It tied up twice as much A/C productivity as Y, so "really", J cost was $.20/ASM, and Y was $.10/ASM (reason why they'd do that is down that yield trail again). Reconfigure to 160 all Y, and Y cost remains $.10/ASM, albeit providing more Y capacity.

In illustrating my contention about ASM shell games, I'm ignoring the much smaller but real savings from frill-cutting etc. If I was to hazard a guess without actual A/C seat #'s to crunch, I'd suggest around 5-10% actual savings on Y "production", and the rest is an ASM illusion.

Cheers, IFG

[Guest Thud]

Very interesting!

What's your background please?

[dagger]

I am reminded of the old Hedley Lamar line (that's right, Hedley)

"Nobody, does VOODOO like YOU DOU!"

Using your numbers, which I don't accept but will use as a base, if you had 40J seats at 20 cents/ASM and 80 seats at 10 cents/ASM and you go to 160 seats at 10 cents/ASM, you unit cost - cost per ASM - on that aircraft is lowered by 20 percent, assuming all other things (fuel, crew labor, landing fees, etc. ) are equal. You have added 40 seats at no additional block hour cost, ergo your per seat cost has to go down.

Fleetwide, if you add in net seats assuming no increase in block hour costs, you will lower you fleetwide unit costs.

[IFG]

OK, Dagger, I think you are being obtuse, altho' I like the H. Lamar line. Let's just say we each think the other's the Witch Doctor.

You keep insisting on rolling all classes of seats into the prior ASM calculation, which actually makes for an apparent reduction of 25%, not 20%. Your inability to differentiate between different costs for different products is surprising for one who so completely buys into RM's parade of various products, brands and companies.

As for my numbers, I clearly stated they were for simpler arithmetical demonstration; there's nothing in them to accept or reject, and of course they don't reflect AC's real-world allocations. The mathematical realities stand, tho'.

My example: Aircraft @ $16/mile = 80x$.10/mile[Y] + 40x$.20/mile[J] = 160x$.10/mile[allY]. Again, its not whether these #'s directly reflect AC's (they don't), but simply to point out that J seats use up more of the aircraft space/productivity/whatever, and should be costed out proportionately if you want to compare Y costs (before and after Tango if you've forgotten what generated all this). And yes, as you can see the example costs the aircraft identically covering incidentals, crew, fuel etc. equally.

Cost to offer economy seats = $.10/mile either way. Reconfiguration does reallocate J to Y, it also increases Y capacity further since Y seats use up less of the aircraft, but it doesn't really change the unit cost per Y seat (unless perhaps seat pitch is further reduced for Y - I'll assume AC didn't squeeze their Y seats by 25%).

I don't see what's so difficult to grasp here. If AC had started flying all Y, saying Y was profitable and J wasn't, making Y a better way to allocate resources, fine; but instead they claimed a huge cost reduction, perhaps to head off suggestions of predatory behaviour. In any case, when comparing Y, including J in cost averages for comparison is flim-flam.

That there is indeed a reduction in average cost/ASM when you eliminate the high end seats is irrelevant for considering the cost structure of only the cheap ones. If you must cling to the truth of that irrelevancy, well, not much more to say, is there?

Cheers, IFG

[dagger]

That there is indeed a reduction in average cost/ASM when you eliminate the high end seats is irrelevant for considering the cost structure of only the cheap ones.

Why would one only want to focus on the cheap seats? In a multiple product full service airline reducing the average cost per seat and the average cost per discount flight is imperative. If the object is to offer a differentiated fare structure, why wouldn'ty you isolate the costs per Tango flight and the revenues per Tango flight to come up with a productivity model.

Air Canada never said that Tango enabled it to achieve a system wide reduction in the cost of producing one category of seats. It said that on Tango flights vs the same aircraft flown in their former two-class configuration, there was a 25% reduction in seat-mile costs? You don't even dispute that. You seem to be challenging something that Air Canada never claimed.

With only a small portion of fleet capacity in Tango, it never did claim that Tango lowered system seat mile costs by 25 percent.

Obviously, the opportunity in Tango is to lower costs and therefore offer lower unrestricted fares, thus stimulating traffic and achieving higher load factors. So the airline has a much better chance of selling a Toronto-Vancouver RT fare of $1000 on Tango than a Toronto-Vancouver J RT of $4000.

Your own analogy about General Motors is inappropriate because you would have to prove to me that an assembly line can produce a lot more compacts per hour than SUVs.

However, let's say General Motors finds that SUVs aren't selling and people want smaller cars, and it decides to retool Lordstown, Ohio, to make Pontiac Sunfires instead of Cadillac Escalades, and if in doing so it it is able to sell lots of extra Sunfires, then it has achieved an increase in revenue with no increase in costs. If it can produce more Sunfires on the same assembly line than Escalades, then it has also amortized roughly the same amount of production cost over a larger number of units, thereby lowering the unit cost for the Lordstown plant. That is essentially what Air Canada claimed for Tango - that it had lowered the production cost of the seat inventory on those flights offering Tango. That was the point - lower costs on those flights so it could offer lower fares. For Air Canada to lower costs significantly on all flights, it would have to apply the Tango or Zip model to all flights, or it would have to change labour rates, or cut out amenities or services, or whatever, on a company-wide basis.

That is essentially what is about to happen.

[Guest texas]

Don't forget 40 more passengers is 40 more Nav Canada fees to collect, but the nav Can fees are the same, a tidy profit at no additional cost.

[IFG]

Cripes, Dagger, do you walk around on-line with one of those eye-pieces and an antenna sticking out of your ear? IAC, thanks for the reply in spite of my snippiness (this medium is a poor one for getting the "tone"). You wrote:

• "Why would one only want to focus on the cheap seats? In a multiple product full service airline reducing the average cost per seat and the average cost per discount flight is imperative. If the object is to offer a differentiated fare structure, why wouldn'ty you isolate the costs per Tango flight and the revenues per Tango flight to come up with a productivity model."

It's not so much that I'm focusing on cheap seats in a discussion of AC overall, I'm focusing on claims of cost reduction on Tango flights, and they only fly cheap seats. That differentiated fare structure, one assumes, would have been differentiated in costs as well. Since Tango is basically single class, why include other differentiated products in a cost comparison focused on Tango? I'm not talking about the much broader accounting of corporate performance, which necessarily averages out system-wide costs and revenue.

• "Air Canada never said that Tango enabled it to achieve a system wide reduction in the cost of producing one category of seats. It said that on Tango flights vs the same aircraft flown in their former two-class configuration, there was a 25% reduction in seat-mile costs? You don't even dispute that. You seem to be challenging something that Air Canada never claimed."

Of course it didn't make a system-wide claim, & nobody suggested that, but it made one for Tango, which only operates one class of seat. That 25% claim implies a specific lower cost on Tango, and since Tango only offers cheap seats, it implies that those cheap seats have a significantly lower cost than the equivalent cheap seat on any other AC aircraft. Otherwise, why start Tango at all? Other than the pretty minor operational savings you enumerated, I'm simply contending that a seat on Tango has almost the same cost as any other narrow-body cheaply priced AC seat on a given route.

• "With only a small portion of fleet capacity in Tango, it never did claim that Tango lowered system seat mile costs by 25 percent."

Neither did I suggest that they did. ??

• "Obviously, the opportunity in Tango is to lower costs and therefore offer lower unrestricted fares, thus stimulating traffic and achieving higher load factors. So the airline has a much better chance of selling a Toronto-Vancouver RT fare of $1000 on Tango than a Toronto-Vancouver J RT of $4000. "

Except for those marginal operational differences which you listed earlier, there's nothing here that indicates that the $1000 fare is any more profitable on a Tango flight than in the Y compartment of any other AC aircraft. That's my thrust in all this.

• "Your own analogy about General Motors is inappropriate because you would have to prove to me that an assembly line can produce a lot more compacts per hour than SUVs..... "

...Exactly why I abandoned it, Dagger ....

"....However, let's say General Motors finds that SUVs aren't selling and people want smaller cars, and it decides to retool Lordstown, Ohio, to make Pontiac Sunfires instead of Cadillac Escalades, and if in doing so it it is able to sell lots of extra Sunfires, then it has achieved an increase in revenue with no increase in costs. If it can produce more Sunfires on the same assembly line than Escalades, then it has also amortized roughly the same amount of production cost over a larger number of units, thereby lowering the unit cost for the Lordstown plant. That is essentially what Air Canada claimed for Tango - that it had lowered the production cost of the seat inventory on those flights offering Tango. That was the point - lower costs on those flights so it could offer lower fares. For Air Canada to lower costs significantly on all flights, it would have to apply the Tango or Zip model to all flights, or it would have to change labour rates, or cut out amenities or services, or whatever, on a company-wide basis....That is essentially what is about to happen."

... so we'll continue with that GM bit. In your invocation of it, yes Lordstown would produce more "units", but they'd be smaller and cheaper units. Has their total economic output gone up or down? More to the point here, were those Sunfires are in fact produced at any lower cost than any other plant? That's the analogous claim, to that of many here at least, when AC spooled up Tango. No quarrel with AC's capacity allocation (or GM's, both can and will deploy their resources best they can), just with the suggestion that it was allocated at significantly cheaper cost on Tango. As to your final comment, Roger that, and some here may not be giving it adequate consideration and concern - but that's another thread!

Cheers, IFG

[IFG]

Cripes, Dagger, do you walk around on-line with one of those eye-pieces and an antenna sticking out of your ear? IAC, thanks for the reply in spite of my prior snippiness (this medium is a poor one for getting the 'tone'). You wrote:

• "Why would one only want to focus on the cheap seats? In a multiple product full service airline reducing the average cost per seat and the average cost per discount flight is imperative. If the object is to offer a differentiated fare structure, why wouldn'ty you isolate the costs per Tango flight and the revenues per Tango flight to come up with a productivity model."

It's not so much that I'm focusing on cheap seats in a discussion of AC overall, I'm focusing on claims of cost reduction on Tango flights, and they only fly cheap seats. That differentiated fare structure, one assumes, would have been differentiated in costs as well. Since Tango is basically single class, why include other differentiated products in a cost comparison focused on Tango? I'm not talking about the much broader accounting of corporate performance, which necessarily averages out system-wide costs and revenue.

• "Air Canada never said that Tango enabled it to achieve a system wide reduction in the cost of producing one category of seats. It said that on Tango flights vs the same aircraft flown in their former two-class configuration, there was a 25% reduction in seat-mile costs? You don't even dispute that. You seem to be challenging something that Air Canada never claimed."

Of course it didn't make a system-wide claim, & nobody suggested that, but it made one for Tango, which only operates one class of seat. That 25% claim implies a specific lower cost on Tango, and since Tango only offers cheap seats, it implies that those cheap seats have a significantly lower cost than the equivalent cheap seat on any other AC aircraft. Otherwise, why start Tango at all? Other than the pretty minor operational savings you enumerated, I'm simply contending that a seat on Tango has almost the same cost as any other narrow-body cheaply priced AC seat on a given route.

• "With only a small portion of fleet capacity in Tango, it never did claim that Tango lowered system seat mile costs by 25 percent."

Neither did I suggest that they did. ??

• "Obviously, the opportunity in Tango is to lower costs and therefore offer lower unrestricted fares, thus stimulating traffic and achieving higher load factors. So the airline has a much better chance of selling a Toronto-Vancouver RT fare of $1000 on Tango than a Toronto-Vancouver J RT of $4000. "

Except for those marginal operational differences which you listed earlier, there's nothing here that indicates that the $1000 fare is any more profitable on a Tango flight than in the Y compartment of any other AC aircraft. That's my thrust in all this.

• "Your own analogy about General Motors is inappropriate because you would have to prove to me that an assembly line can produce a lot more compacts per hour than SUVs..... "

...Exactly why I abandoned it, Dagger ....

"....However, let's say General Motors finds that SUVs aren't selling and people want smaller cars, and it decides to retool Lordstown, Ohio, to make Pontiac Sunfires instead of Cadillac Escalades, and if in doing so it it is able to sell lots of extra Sunfires, then it has achieved an increase in revenue with no increase in costs. If it can produce more Sunfires on the same assembly line than Escalades, then it has also amortized roughly the same amount of production cost over a larger number of units, thereby lowering the unit cost for the Lordstown plant. That is essentially what Air Canada claimed for Tango - that it had lowered the production cost of the seat inventory on those flights offering Tango. That was the point - lower costs on those flights so it could offer lower fares. For Air Canada to lower costs significantly on all flights, it would have to apply the Tango or Zip model to all flights, or it would have to change labour rates, or cut out amenities or services, or whatever, on a company-wide basis....That is essentially what is about to happen."

... so we'll continue with that GM bit. In your invocation of it, yes Lordstown would produce more "units", but they'd be smaller and cheaper units. Has their total economic output gone up or down? More to the point here, were those Sunfires are in fact produced at any lower cost than any other plant? That's the analogous claim, to that of many here at least, when AC spooled up Tango. No quarrel with AC's capacity allocation (or GM's, both can and will deploy their resources best they can), just with the suggestion that it was allocated at significantly cheaper cost on Tango. As to your final comment, Roger that, and some here may not be giving it adequate consideration and concern - but that's another thread!

Cheers, IFG