Now that it is 2010, what can we expect?

 

Unlike this time last year, probably not much.  There was some momentum for change last year that really doesn’t exist this year.   Airlines will continue to fight to hold their own in the marketplace and with the reduction in capacities, even the worst of the lot will likely cling to life this year.

 

North America:

 

Major airlines of North America have made all the changes they can and all are managing their businesses and cash very closely right now.  I don’t expect much, if any, change to develop in the next 12 months but let’s take a look anyway.

 

American Airlines has some labor issues to address but with the current economic climate, they have been getting away with their efforts to defer those issues.  Labor unions would like to push a few issues with American but they’re smart enough to realize that now isn’t the time.   Most likely they’ll continue their face saving efforts at making a point with their members but I don’t expect any real labor action at this airline this year.  Perhaps, if things get better, we’ll see some movement in the 4th quarter.

 

United Airlines, my least favorite legacy airline, has similar issues that American has with labor but, again, those labor issues aren’t likely to see much movement either.   I suspect that United will continue to move more of their flights over to regional airline partners because its worked (for now) and their customers will find themselves on more and more regional jets.  Since price is the prime driver for customers right now, they’ll accept that move and hate the flights as much as they always have.

 

Delta/Northwest should see more of its operatioins combined and, possibly, a unified single operating certificate by the end of the year.  That doesn’t mean much for their customers since Northwest aircraft are being painted into Delta colors at a furious rate.  The service product is already being harmonized to a fair degree and it’s a good one already. 

 

I don’t see any major aircraft purchases and I remain interested in whether or not they’ll keep their 787 orders.  There has been rumour and innuendo that they won’t but I kind of think they will keep them.  Their 767 fleet is old (except for the 767-400) and I can’t think of a reason why you wouldn’t want to have the 787 begin filling the role of those aircraft.  I’ve wondered if their hints aren’t just an opportunity to get Boeing to get interested in offering a better deal for more aircraft. 

 

US Airways needs two things in this next year.  First, they need their pilots to get together and start operating as a single group.  As dangerous as it is to try to interfere with a union group, I wonder if US Airways won’t wade into the problem in an attempt to have a final resolution.  Certainly they could argue that they’ve been patient enough. 

 

They also need to manage their cash very, very closely.  Cash is blood to an airline and US Airways has a bit of risk in this department.  Should cash holdings be depleted more, they’ll have to start seeking that merger partner again and no one appears interested in marrying with them.  This is another reason it needs resolution for its labor problems.   That said, I don’t see US Airways disappearing or filing for bankruptcy again. 

 

Continental Airlines has felt the hurt this past year and its unlikely to feel much better this year.  Their business model depended a bit more on business class travel and the economy hurt that demand the most.  That said, I can’t imagine a better group of managers for keeping that airline on track through the rest of the downturn.  Things will hurt and belts will be tightened a bit more but I don’t see the service product changing.   When the economic downturn does really turn the corner, Continental will be better placed to succeed than many. 

 

Despite their recent move to the Star Alliance, I do *not* see Continental getting any closer to United Airlines whatsoever.

 

Low Cost Carriers / Regionals:

 

Southwest Airlines continues to manage itself to the tune of its own drummer and the results of their long(er) term thinking are showing left and right.   They’ve managed to make solid overtures to business clientele in areas that, I suspect, count more day in and day out.  

 

I don’t see a merger partner in the future for them except,  possibly, for Sun Country Airlines.  For some reason, I see this as a real winner for Southwest in that it gives them space and routes in Minneapolis / St. Paul, a labor group that is accustomed to delivering Southwest style service and which can be harmonized into the Southwest labor groups relatively easy.  There is no rumour of this purchase but Sun Country has its own problems and it’s a match that fits the Southwest acquisition model. 

 

I think Southwest will remain persistent in its Denver expansion and will work hard to create a network in the upper midwest states of Wisconsin, Minnesota, Illinois and Missouri.   The wild card, in my mind, is the Washington D.C.  area and the NYC/Boston areas.   Shuttle type service is what Southwest knows very well and I wonder if they won’t try very hard to organically grow their flights in these areas.  If so, Southwest needs to find an “in” at Washington Reagan airport.  To do this, they would need to buy a shuttle operation from US Airways and/or Delta.  Perhaps US Airways will be interested in such a sale if their cash holdings erode more. 

 

Frontier/Midwest/Republic:   I don’t know what happens here.  Midwest really isn’t an airline anymore.  It really isn’t even a brand anymore.  It’s a name for selling tickets.  Frontier remains an airline and a brand and Republic seems to want to continue caring for both.  Since Republic is managed by very smart people, I kind of think that they may look for a way to wind down the Midwest name over the next 12 to 18 months and make Frontier the primary airline.   A tasty cookie isn’t a good reason to keep the Midwest name around.

 

Airtran deserves some applause.  This airline has managed to grow itself some, find new markets and earn some money during one of the worst downturns in the airline industry.  

 

Their move into Milwaukee has succeeded and promises to continue to succeed.  Milwaukee is a loyal city, to be sure, but it is a city that appreciates value even more.  Airtran has managed to offer great value, good service and appeal to a city that just a couple of years ago was kind of anti-Airtran.   The one obstacle in their way is the arrival of Southwest, another airline very good at offering value and appealing to the Milwaukee kind of customer.   I think Airtran has the upper hand but they are by no means the sure winner in this market.  Southwest may be able to beat them with frequency.

 

Virgin America keeps showing up and usually right after I become convinced they’ll disappear.  I still don’t know what this airline does best and I still don’t see them as being a scrappy enough operation to fight their way into the cities it needs to be in.   Virgin continues to dance around Chicago (claiming they can’t get space but if they wanted it bad enough, they could).  Their product would servce cities such as Dalllas, Denver, Houston, Chicago, Atlanta, Baltimore, Philadelphia, and, perhaps, Cleveland/Cincinatti very well.  

 

Instead, they added flights from the west coast to Fort Lauderdale and talk about adding service to a Texas city such as Austin.  This is too timid.  The CEO, David Cush, seems afraid to compete against his old employer (AA) and that is a shame since they have a very competitive and attractive trans-continental product.   I would speculate on VA being bought by another airline but . . . why?  They just don’t have much there and seem to have little interest in exploiting real advantages that they do have.   Maybe they’ll just run out of money and get shut down.

 

Alaska Airlines has felt the heat from Virgin America but they continue to do pretty well with their little airline and they continue to do it without being aligned with a major.  I don’t see much changing for Alaska Airlines.  They’ll continue to be a scrappy airline with good service to a limited number of destinations.  And, somehow, that seems OK when it comes to Alaska.

 

Next up, the world.

Filed under: Airline Service by ajax