The Irish government has long threatened to sell its stake in Aer Lingus which is currently at 25.1%.  In fact, that intention seems to get announced annually while no action is really taken on the part of the government to actually engage in the sale.

A number of airlines have expressed at least some interest in acquiring the stake although those same airlines also express concern about the pension obligations that Aer Lingus has presently.  Most would prefer to see the Irish government get those obligations settled before a sale takes place in order to avoid the risk that the airline may be financially impacted by them sooner than later. 

Airlines such as Ryanair, who already owns 29.4% of Aer Lingus, as well as Qatar, Etihad and even JetBlue appear to have expressed strong interest in the airline stake.  I regard Ryanair as a very unlikely candidate simply because I think the Irish government has no desire to see the two airlines consolidated and, frankly, because Ryanair CEO Michael O’Leary already pisses them off regularly as it is.

Qatar and Etihad are interesting candidates and may well throw their hats into the ring but there is the issue of foreign ownership of the airline.  It is unlikely they would be permitted to acquire much more of a stake in the airline and, as a consequence, they’ll be unlikely to influence the airline’s operations as much as they may want.

JetBlue seems also unlikly for reasons having to do with the fact that JetBlue isn’t an international airline, not really, and its knowledge of the European marketplace is limited to say the least.  They do benefit from an existing close relationship with Aer Lingus but that can only go so far for JetBlue. 

One other entity sometimes considered is International Airlines Group, holding company for British Airways and Iberia Airlines.  That group is engaged in purchasing BMI presently and hasn’t stated a preference for Aer Lingus publicly.  However, IAG CEO Willie Walsh is a former Aer Lingus executive who knows the airline, knows the government and knows european airlines.  If the BMI purchase were to fall through or be impacted by regulatory requirements, I would not be surprised to see them turn their attention to Aer Lingus.

At the end of the day, I don’t think the Irish government really wants to sell its holdings.  The airline still operates as the flag airline of Ireland and its a source of pride for a country who feels strongly about representing itself internationally.  I think they like talking about the sale but I think no one wants to explore the political impact of such a sale very seriously.  It’s safer to hold onto the shares than suffer consequences in the voting booths.

As for Aer Lingus itself, I think they would like the government to help out with the pension obligations and then have the freedom to operate with less political influence than they currently experience.  That said, Aer Lingus has struggled more often than not to earn a profit and few see the carrier as a strategic purchase.  The airline needs better strategic relationships with other airlines and it is difficult to get those into place when the Irish government yields a heavy influence on the airline’s operations.

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Former American Airlines CEO Gerard Arpey made a comment at a Boston, Mass breakfast event recently in which he expressed that Southwest Airlines will face enormous challenges going forward and specifically from network carriers.

Frankly, I think it’s a bit early for Mr. Arpey to be opining on any airline other than American Airlines and certainly not when he left a company in bankruptcy after a long tenure.  It’s just bad form.

It also points to something that I think is constantly underestimated at Southwest Airlines.  Southwest is more than just a company focused on the next financial quarter’s results.  Its people really are its biggest asset and the esprit de corps that exists there is bigger than what the financial picture presents. 

Southwest does have higher costs in comparison to many these days.  It also continues to succeed where others don’t.  Focusing in on their costs alone is a mistake when it comes to that airline and Arpey just made the mistake.

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American Airlines unions are now asking for binding arbitration in their negotiations with American Airlines management as a pathway that they think will yield more satisfying results than a court order from bankruptcy.  In theory, this is quite likely the case.  However, that’s in theory.

I’m not sure arbitration works for the unions. Yes, it does force both sides to accept things they don’t want and both sides get some of what they do want.  However, arbitrators also have to consider the real facts surrounding what the business can support and the airline is far better positioned to press its case in this area.  Unions, on the other hand, aren’t. 

Furthermore, an agreement out of arbitration is still an agreement that the airline can get tossed out in court if the right argument is made.  The trick is in getting an arbitrated agreement that both parties can actually survive with and that a judge will find sensible and equitable. 

Moreover, another issue that arbitration doesn’t address, at least for AA’s management, is the need for quick resolution to labor.  American can hardly afford to spend months pleading its case, waiting many more months for an answer and then making a business plan.  It needs some certainty on the labor front in order to go forward with a business plan that addresses successful exit from bankruptcy.

I expect we will see AA resist arbitration, press its case on the publicity front with its unions and start action with the courts to change the labor agreements that way.

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Just about everyone under the sun has offered an opinion on American Airlines’ top level explanation of how they intend to enhance revenue in their bankruptcy restructuring.  The Cranky Flier has an interesting take on things as a function of what American offers in terms of a network.  Jamie Baker of J.P. Morgan has critcized the ideas roundly.  Even I offered extreme scepticism on the subject.

American’s idea is that through codeshares and a far higher percentage of flying being contracted out, they’ll gain more revenue. 

Codeshares aren’t a network.  They can add some incremental revenue but they are no substitute for having a strong network.  American’s network was pretty good until about 5 years ago.  Coincidentally, that’s when their profits nosedived.   American Airlines has their “cornerstone” strategy of sending traffic through Los Angeles, Chicago, DFW, New York or Miami.  Sadly, that leaves some gaps that other airlines don’t have.  (And this is the foundation of the Cranky Flier analysis.)

For instance, Miami doesn’t serve the Southeast.  It’s a gateway city for South America but it doesn’t act as a hub for the Southeast.  Not like Atlanta or Charlotte do.  There was a time when American tried using Raleigh, NC for this and it wasn’t a bad choice all in all but I would have contended that fighting US Airways for Charlotte would have been better. 

Los Angeles doesn’t serve the West Coast.  Again, it’s a gateway city for trans-Pacific flights but it isn’t a West Coast hub.  Phoenix is a hub and Salt Lake City is a hub and even Denver is a hub but Los Angeles isn’t a hub.  Now we have 2 significant portions of the United States being underserved by American in comparison to both United and Delta.

I even question the strength of New York City for a network.  Again, New York city is primarily a gateway and a final destination.  It’s not the best place to connect traffic to other domestic destinations.   Now we have weakness number 3 in the equation.  Codeshares won’t make up those deficits in those regions. 

Contracting flying isn’t going to provide more opportunities to connect people from those underserved areas either.  Whether the aircraft is 50 seats or 80 seats, no one in the Southeast is going to perceive the benefits of flying from, say, Birmingham, Alabama to DFW or Chicago to connect to a flight to New York City.  Nor are they going to be thrilled about Miami as a connecting point.  Now, Atlanta or Charlotte or Memphis doesn’t look too bad but American doesn’t have hubs in those cities.  Delta does.  US Airways does.  Even Southwest does. 

How did Southwest recognize the need for Atlanta in its system for serving the Southeast and American hasn’t yet seen a need for a true Southeast hub?

If you rely upon hubs and networks, you have to recognize that they come with some real inefficiencies.  Those inefficiencies can make connecting flights look very, very unattractive unless they lie more or less directly in the path of getting from Point A to Point B via Hub C.  

Will American merge to gain a better network?  Well, I think the current management will not seriously consider those options.  They see American as an airline great that should be the consumer, not the consumed.  On the other hand, I think American’s creditors are already frustrated with American’s ideas in bankruptcy and they may well force a change in thinking on that end. 

Who will it be?  There is only one decent choice: US Airways.  I like them for both their management team and their core strengths in the network just as Cranky Flier does.  However, the only way that merger succeeds is if US Airways is the consumer of AA and not the other way around and not through a “merger of equals”.  

Delta isn’t going to be the merger partner.  Too many regulatory issues exist in that marriage for it to be practical.  United isn’t going to be the merger partner because, again, too many regulatory issues exist.  A smaller airline can’t consume American and American has a terrible track record in buying small airlines and truly getting the value they present.  The only airline who has the gumption, team and, potentially, the money is US Airways.

My one issue w/ that merger is the huge labor issues that will exist.  There needs to be a plan in place to resolve both AA and US Airways labor conflicts that exist today.

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Last Friday, an American Airlines flight attendant on a Dallas / Fort Worth to Chicago flight kind of “lost it” prior to actual departure.  This flight attendant, seated in the rear of the flight,  used the PA to insist the aircraft wasn’t safe and did so for several minutes.  Flight attendants in the front first tried to use the PA to assure passengers and then went to the rear to address the flight attendant with the help of passengers.  Ultimately, it was determined that this was medical issue, not a security one.

Was the flight at risk?  No.  Passengers were at risk of being inconvenience as a result of the aircraft returning to the gate but there is actually little to nothing that a flight attendant could do to put an aircraft at risk either on the ground or in the air. 

There is no secret button to open doors, for instance.  If they won’t open for passengers, they won’t open for flight attendants. 

It’s unfortunate for this woman to have suffered this break and no doubt she’s likely feeling mortified by today over what happened.  But it isn’t a reflection on American Airlines or the woman that this happened. 

And for those of you on the flight running off to the media and claiming you were in fear for your lives:  grow up and act like an adult.

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It’s been said publicly by many that Frontier Airlines will be refocused on Denver again and that it will become an ULCC airline in the spirit of Spirit or Allegiant Airlines.  Many think this is difficult to imagine for Frontier and in some ways, I agree.  However, I think another ULCC isn’t such a bad idea.

The truth is that existing LCC carriers aren’t all that low cost any more.  Even the newest are raising fares right alongside the legacy airlines and that has significantly impacted the consumer and, I think, degraded demand.  Airlines are constricting capacity over and over and over again and while the rising fares do make up for that, it’s noticeable that every quarter we hear about an airline restricting growth or even contracting themselves in light of the market place.

I believe the reason we see Spirit and Allegiant doing as well as they do has a lot to do with the fact that they are the airlines who are able to stimulate and benefit from the incremental demand that appears with a lower air fare.  I’m referring to the Southwest effect, yes.  With the consolidation that has gone on for the past 6 years in this industry, I’ve wondered when new entrants were going to appear and I think the only reason they haven’t is due to the lack of available investment capital.   It’s hard to start a well funded airline right now.

But Frontier isn’t in need of that kind of capital.  Based in Denver, the airline could actually fight back against what are essentially 2 legacy airlines whose air fares are considerably higher today than they were 2 years ago.  There is money to be made there and money elsewhere too.

It requires lower costs and fees on everything, yes.  Frontier will need to add seats, reduce frills and start charging fees for anything it can find while lowering air fares dramatically.  This is real work but isn’t capital intensive work.  They can do this. 

Can they succeed?  I think that depends a great deal on the management team and its willingness to sharply execute a ULCC plan.  There is no need to take too long to implement the ULCC strategies.  Implement them and start undercutting your competition as fast as possible.  Move aggressively into markets where you can show a difference against the legacy carriers including Southwest Airlines.   It really isn’t as far fetched as it might seem at this point. 

The truth is that the airline marketplace has changed dramatically over the past 3 years as a result of the economy, fuel prices and consolidation.  Furthermore, most consumers have accepted the fee structures and despite hating them, they’re paying them.  So why not a ULCC that aggressively plays against the legacy airlines and older LCC carriers?  That model might not have been ready for prime time 5 years ago but a lot can change in 5 years.

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It was an interesting weekend in the American Airlines bankruptcy arena with AA pointing fingers at its unions with the message that they need to speed things up asap and the unions countering with AA isn’t bargaining in good faith.  As with almost all things having to do with labor and airlines, the truth lies somewhere in between.

I think AA is making a calculated play that if they press hard enough and get nothing but pushback, a bankruptcy judge will throw out the agreements in place presently and dictate terms to the unions.  Maybe.  Maybe not.  AA wants the deal that Delta, Northwest & United got which is basically getting the terms tossed and dictating new terms.  Well, the law has changed some in that respect since those bankruptcies.  The stakeholders all have a lot to lose and I don’t think the courts are going to just lay down and do what AA wants them to do. 

Actually, I think the judge is going to make them bargain a while and he should. 

As for the unions, I think their responses to the airline have been somewhat unrealistic in that preserving what you have at all costs for as many members as possible without making offers that truly do raise productivity significantly just makes you look stubborn and unwilling. 

The way to win this battle is to put something real on the table and be the first to do it.  Neither side has so far. 

Not for nothing, AA’s grand plan calls for massive labor savings and massive cost savings in other areas such as aircraft and still offers little reality in how it is going to increase revenues.  Stakeholders in this bankruptcy who are outside the AA family already know that that idea has flaws and I suspect that will get communicated in court with a massive reality check for the new management. 

In short, I think that AA and its management is going to be made to get real with itself and I think the board is going to experience some of that reality very soon as well.  I expect some board members to change and Chairman Horton is going to have to figure out how to really work a deal with labor while offering far more granularity on how he and his team will boost revenues.  Absent that answer, I expect a takeover for the company to materialize and, no, it won’t be a “merger of equals” from US Airways.  There won’t be any takeovers where there are equals.  Someone will take AA over, shake it out and make it perform appropriately.

The bad news is that if the latter happens, I expect labor to do worse in that situation rather than better.  That’s why I say it’s worthwhile for either side to get a real proposal on the table now and win rather than bicker at each other for an additional 6 months which likely results in a lot of that leadership looking for new jobs.

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Southwest Airlines has now been awarded a single operating certificate for itself and the Airtran brand as of Thursday of this week.  This means that Southwest can begin truly blending the operations by turning Airtran aircraft into SWA aircraft, moving crews into Southwest operations and operating SWA or Airtran aircraft on routes as they wish.

So far, Southwest gets a good report card on its integration efforts in that it has seen most labor groups come to a quick agreement on seniority integration and it has achieved this single certificate on time.  Smooth integrations yield the results expected from a merger and this would appear to be working in Southwest’s favor.

Going forward, we’ll see a steady transition with more and more routes being served in SWA colors and more crew and staff transitioning into SWA operations.  I would expect little, if any, drama at this point and that includes the SWA mechanics who threw their small temper tantrum but who have much to lose if they hold off too long and force the seniority integration into binding arbitration.

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The FAA wants to raise the requirements for serving as a first officer with an airline from 250 hours to 1500 hours (with some special exceptions depending on your training.)  They would also need a type specific rating for the airplane they’re assigned to fly.

This move is supposed to be for safety and, in some ways, it would appear to have merit.  After all, how could more experience before becoming an airline pilot actually hurt anyone, right?

But there is a flaw in this idea that hasn’t really been adequately debated in public.  There hasn’t been a rash of accidents caused by inexperienced 1st officers.  To the contrary, there have been some rather inexperienced captains making mistakes or not even being up to serving as a captain but 1st officer mistakes aren’t being cited as the cause in airliner accidents here or abroad. 

More to the point, there haven’t been a rash of airliner accidents.  Year after year, the airline industry improves on its safety record and that’s a great thing.  It’s also a result of the already incredibly stringent training required at airlines all over.  Flying an airliner is an unforgiving task and if there was an epidemic of inadquate training or just a lack of experience, we would see more airliners crashes. 

I’m all in favor of more safety when its warranted.  In this case, I strongly question whether it is warranted.  In addition, think these new requirements will severely impact airlines with respect to staffing and costs and given the admirable record of the industry, I’m not sure it helps anyone with respect to safety or anything else. 

Make no mistake.  There will be accidents in the future and some will be attributed to pilot error.  That happens.  As a result of Captain Sullenberger and his co-pilot, we have this misinformed idea that there is no substitute for grey hair in the cockpit when it comes to safety.  It is true that what Capt Sullenberger did that day was accomlished in part as a result of his experience.  However, many other younger and nominally less experienced pilots have accomplished equally impressive results in other situations.  

Take a look at the British Airways Flight 38 incident at London Heathrow where in just moments a crew had to belly flop a Boeing 777 short of the runway and did so without fatalities.  It was the First Officer who was flying that aircraft. 

The primary driver in these new requirements is the Colgan Air / Continental Express crash in the Buffalo, NY area and that was a real tragedy.  The First Officer was thought to be severely fatigued (and may or may not have been) but what everyone tends to forget is that it was the Captain who made the real mistakes and that captain was allowed to continue as a captain despite poor performance that had been noted in his records during his career.  In other words, had basic airline policy been followed stringently, it’s unlike he would have flown as a Captain and it is likely that whoever might have flown in his place would have known to push the stick forward to recover from that stall since that’s a rather basic piece of knowledge known to pilots.

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The core of Southwest’s reservations systems dates back to a system developed by Braniff International called “Cowboy”.  It is nearly 50 years old and Southwest bought it from Braniff in the 1980’s and just kept patching things onto it.

As a low cost strategy for an airline in the 1980s or 1990s, that made sense.  The problem is that the 1990s started more than 20 years ago. 

Southwest has been severely impacted in code share relationships as well as international flying as a result of their antiquated system.  They began investigation of a replacement system after they began to realize their inability to codeshare in a North American pact between themselves, WestJet and Volaris.  That work was put on hold coinciding with the Airtran merger announcement. 

Now, Southwest has already figured out it can use the Airtran system to facilitate international flying for the interim.  In fact, Southwest has *added* international flights to the Airtran network while removing domestic flights (to be replaced by Southwest flights) at the same time.  As an interim solution, that works.

But over the next 2 years, we’ll see Southwest evaporate Airtran domestically and that may leave a tiny international airline in place (Airtran) to help with international flying.  The problem is, they’re no closer to being able to integrate with Airtran’s reservations system than they are with any other airline.

Cobbling together systems and doing things low cost is fine and even the right thing to do in many ways today.  However, it is *not* the way to handle reservations for an airline that the 10th largest in the world (by traffic) and which has a fleet of nearly 700 aircraft and almost a 100 destinations.  It isn’t the way to handle reservations for an airline that is now consistently *missing* revenue opportunities with partner airlines such as Volaris.  In fact, Southwest was actually kind of good in pioneering codeshares with other quirky airlines and making it work.  Now, not so much.

So why is Southwest willing to invest Billions (with a “B”) on buying new aircraft from Boeing but not into a reservations system that it really needed now and which isn’t really being looked at for anytime in the near future?  

I think there are 2 main reasons.  First, the Airtran merger which is occupying a vast amount of resources and will be doing so for the next 2 years.  Southwest quite rightly recognizes that it has an exceptionally big task to complete in this area and that losing focus could cost them.  They’ll innovate as much as they can in the meantime but that job is just way bigger for way more people in the organization. 

Second, a new reservations system is scary.  Many have tried to build them, very few have ever succeeded.  Much of what exists out there today is fairly antiquated.  American Airlines has reportedly had monumental problems with the new system being designed for it by HP, for instance.   There is a reason why several airlines have migrated from half baked systems to SABRE, for instance.  Two of those have been Virgin America and jetBlue.   I suspect that Southwest looks at that landscape littered with failures and half successes and doesn’t relish the job.  I wouldn’t.

So what’s the solution?  I would try to figure out if the Airtran system could be scaled up to Southwest’s needs.   That’s the Navitaire Open Skies system that many have left.  The alternative is to bite the bullet and build an IT infrastructure around SABRE (or a similar legacy reservations system.)  The options are limited until someone builds a new, modern reservations system that works.  SABRE is one choice but other legacy systems such as Worldspan and Galileo still exist.  

My point is that no one has built a new, ground up system for airlines capable of handling all the needs of a major airline in the world in decades.  All systems are systems conceived of in the late 1960s or early 1970s which have been patched, added to and migrated over the years.   Anything remotely new is inadequate to the scope and scale that these same huge airlines operate from. 

Oddly enough, I think that Southwest would be wise to find a partner in this system.  It’s an airline that prefers it’s own ways, yes, but sharing that risk with other major airlines would be a wise move today, tomorrow and a decade from now.

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Vision Airlines, the charter airline that moved into scheduled operations throughout the Southeast, is apparently on ever shakier ground as a company.  Color me unsurprised.  The airline made grand announcements, entered markets and left them faster than a woman changing shoes at the shoe store and despite claims that some retreats were merely seasonal, it’s never come back. 

This is an airline with operations that should never have engaged in scheduled services.  It has used the wrong aircraft on the wrong routes and certainly for the wrong prices.  How do you compete with airlines such as Southwest and Airtran who, you know, fly to where people want to go instead of flying to destinations they do not want to go? 

Vision would be wise to shut this down sooner than later and retreat back to the charter operations it was able to fly economically.  At this point, continuing on is just an exercise in futility.

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The only people who are going to come out of American Airlines’ bankruptcy with a nice profit is the lawyers and consultants.  AA has hired a truckload of both to guide it through this bankruptcy although one would argue that, for the money, AA’s attorneys and consultants have provided much value thus far from what I can see.

The Allied Pilots Association, AA’s pilots union, has sent out a letter to its membership stating that they are now spending $500,000 per month on their own attorneys and consultants to represent their best interests during the bankruptcy.   No doubt other unions are engaged similarly at this point.

I think people need help and good counsel in these times but given the stated goals by all parties (get draconian labor cost cuts or maintain the status quo), I suspect that all parties are going to suffer long and hard during this process.  What each side needs is leadership willing to think outside the box.  What each side has is leadership determined to suck up to its stakeholders.

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Southwest Airlines mechanics have voted against the integration agreement crafted between their union and the Teamsters who represent Airtran mechanics.  Curiously, Airtran mechanics voted overwhelmingly for the integration agreement. 

This isn’t the worst setback for Southwest but it does make one wonder what was a part of that agreement that made it so unsatisfying for the mechanics?  This isn’t an area that should feel too threatened on either side as Southwest has a culture of inclusion and has a strong need for mechanics to service its aircraft.  I do not see how anyone could have perceived that their jobs or salaries were threatened.

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Airlines are trying to push air fares upwards now and they’re citing rising fuel costs.  Make no mistake, fuel costs are the bane of every airline’s daily existence and they must watch them and respond if they expect to earn a profit. 

And fuel costs have risen.  But let’s not forget that air fares rarely drop quickly when fuel costs fall.  So, yes, it’s necessary to raise prices when costs go up but that isn’t the only component going on here.

The truth is, US airlines have “gotten it” in a way that they haven’t over the past 40 years.  Capacity discipline on routes is the cornerstone to all of them succeeding and even their fare hikes and fare drops are negotiated in a public ballet of bids made by each airline to see if others will follow. 

But it’s capacity discipline that lets them raise fares and fuel costs that require them to try.

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Virgin Atlantic is expressing its dismay (formally) at the British Airways / IAG purchase of BMI from Lufthansa. 

This, of course, surprised absolutely no one except, perhaps, some lonely person staffing a North Pole research station. 

The truth is, Virgin Atlantic wanted BMI and Lufthansa didn’t want to sell to Virgin.  The perception is price but I do wonder if there wasn’t more to it than that.  The purchase by IAG is a good move as it allows British Airways to become an 1800 lbs gorilla instead of a mere 800lbs gorilla.  I honestly think the EU will allow that purchase to go through with, perhaps, a requirement that a token number of slots at Heathrow be sold.

I also think that Virgin’s argument that Scotland will be hurt by this purchase is disingenuous at best.   First and foremost, I’m not sure the rest of the EU including Britain cares very much about what happens to Edinburgh or Glasgow or Aberdeen.  Second, this isn’t about Scotland and Virgin would do much better to make the argument that it is about slots at Heathrow.  Slots that are extremely valuable and which constrain competition over and over again. 

One has to wonder why if Virgin is so concerned for Scotland’s welfare, it doesn’t buy some aircraft and run the routes itself.  In fact, I’ve been wondering for 2 years why Virgin doesn’t just operate a LCC carrier in Europe a la Virgin Blue but it doesn’t.  It did once buy a Belgium airline and operate an LCC carrier in Europe from Brussells but that adventure wasn’t successful.  Primarily because it was hubbed in Brussells and it was a purchased operation that didn’t itntegrate with Virgin Atlantic. 

For some reason, Sir Richard Branson and Virgin Atlantic seem quite afraid to organically build a domestic branch inside the UK and if it is reluctant to do so, why should anyone care about them in the BMI deal?

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Singapore Airlines is going to offer a final, special round trip flight between Singapore and Hong Kong to say goodbye to its passengers 747-400 fleet on April 6th.  Singapore has replaced its fleet of 747-400 aircraft with 777-300ER and Airbus A380 airplanes although it will continue to operate a cargo fleet of 747-400s.

Singapore has had a long history with the 747 and despite many wondering if they’ll take on the 747-8i, I do not think they will.  This airline has enough capacity and it is the one airline that continues to succeed with the A380 in every way.  Furthermore, the 777-300ER is more than capable of filling the roles found underneath the A380. 

The future is more direct flights and the A380 and 747-8i are airliners that serve massive trunk routes better.  There are only so many of those routes so I suspect airlines will focus on one or the other aircraft despite the fact that Lufthansa isn’t going to do that.  I’ll point out that Lufthansa also still operates A340 aircraft instead of 777s.  It’s the exception that proves the rule, really.

This is the first real goodbye for the 747 but it won’t be the last.  I strongly suspect we’ll see this happen at QANTAS some time soon as well, for instance.

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Southwest is doing something interesting with Airtran.  They are not only absorbing the airline, they’re using it as a proxy for getting heavily involved with international flying to the markets that should be very interesting to Southwest in the first place. 

The latest announcements are for routes to Cancun from Denver and Austin on Airtran equipment.  The knowledge base is there for flights to Mexico and the Caribbean from Airtran staff and Southwest has the strong bases in cities that Airtran has hardly flown to.  This is a powerful combination and it should work very, very well for Southwest.

It does bring to my mind a few questions.  Does this mean Southwest will adopt Airtrans’ reservations system?  Or does it mean that it is finally working hard to build its infrastracture for a newer, better reservations system?  Southwest needs this more than it needs an early delivery of the 737MAX.

I also wonder if Southwest won’t begin entering into Canada in the next two years.  There are a lot of very expensive routes to Canadian cities that could be very ripe for Southwest to enter into.   Chicago to Toronto comes to mind as just one excellent route (Currently, the best prices are WestJet codeshares on American Eagle and that tells the whole story right there.)

So far, I like how Southwest is using their acquisition for international travel and it may well end up being one of the truly great benefits to come from the merger.

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First Spanair and now Hungary’s Malev airlines have shut down suddenly leaving passengers stranded and lessors contemplating more used aircraft sitting on the market.  We all know what passengers go through when such a thing happens and we even know how crippling it can be to a small country when its main airline goes “poof”.

Europe and other parts of the world aren’t immune to the economic problems going on today in the airline industry.  However, we often get surprised by these shutdowns elsewhere because there is often two things at play that we don’t see much in the United States:  pride and a lack of transparency.

At the end of the day, it’s still quite the thing for a nation to have it’s own indigneous airline industry.  Practically speaking, it’s often silly in the world we live in today but it remains a focus for leaders in countries around the world.   There is a eason why Alitalia has survived as long as it has.

Furthermore, that pride leads countries and their airlines to hide financial problems rather than address them.  It’s not entirely the airlines’ fault.  Political pressure is brought to bear to keep airlines doing prideful things even when they make no economic sense.  Even worse, in 2012 we still have countries financing their airlines.

Nations keep making huge sums of money available to their national airlines to continue operating.  Money, to an airline, is oxygen and very hard to refuse.  But when here is no ultimate consequence for poor decisions, the airlines become very dependent on that kind of oxygen and never enforce self discipline in their operations.

This is two small airlines in Europe.  What needs to be considered is that there are quite a few larger ones in Europe that get both direct and indirect state support that are not only not financially solvent but aren’t being forced to consider the world they actually operate in. 

This is true for several parts of the world and I’ll wager that we’ll see both large and small, old and new airlines fail in the next few years.  Some will fail because countries can no longer afford to inject hundreds of millions of dollars into them and some will fail because of pride.  Still others will fail because, at the end of the day, they are a shell game.  (Lion Air and Kingfisher come to mind with respect to the latter.)

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AMR / American Airlines CEO, Tom Horton, has outlined “the plan” for American Airlines to restructure and succeed in today’s airlines markets.  That plan is really a set of goals and rather than dissect every one immediately, let’s take a look at some key points I think are weak.

1)  Increase revenues by $1 Billion through network and fleet optimizations and product improvements. 

This is vague.  And combined with the intended path to stick with the cornerstone markets strategy, I fail to see how these improvements come about since AA is under attack in most of those cornerstone markets and will be under attack by several airlines for the next few years.  I think they may well lose more revenue than gain if they adhere to the idea that their longstanding mainstay hubs are what brings it all home.

2)  Costs savings of $2 Billion a year through restructuring labor agreements, debt, leases and through improving agreements with third party vendors. 

Maybe but I think everyone at the table is smart enough to know that the vast majority of that will be expected to be realized from labor.  That’s a tough uphill battle with the unions.  They can get there but can it be done without thoroughly trashing the morale of the company which leads to a worse service product, not better?  I doubt it if we’re talking about the current management team.

There really isn’t much to the plan in terms of concrete pathways to success.  There are goals and promises but those plus $3.98 buys you a Starbucks cappucino.  Clearly American plans to make real gains by getting rid of bad and expensive leases, old aircraft, etc.  And that will help considerably.  But what gets ignored is just how much hide has to be taken out of a fairly angry labor pool.  Furthermore, American has had an increasing problem with revenue and I think it is primarily deriving from their insistence on the cornerstone market strategy.  That strategy is more or less “Let’s build even stronger hubs!”

The problem is, airlines such as Delta and United are already looking for revenue opportunities in many more different ways and some of those opportunities are coming at AA’s expense already.   I refer the reader to what is going on in the New York City area as well as Los Angeles.  And AA is already up against a much more competitive airline in the form of both United and Southwest Airlines in Chicago.  DFW is now getting attacked by several LCC carriers as well as Delta.  This doesn’t bode well.

I would maintain that evolution won’t get AA where it needs to be.  Revolution will and we won’t see revolution until the board of directors has changed.

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Ryanair’s CEO Michael O’Leary has decided to express his disappointment in what they’ve seen of the 737MAX so far.  He mentions that what they’ve seen from the A320NEO so far, they’re impressed but what they’ve seen of the 737MAX so far does not.  O’Leary, not surprisingly offers that anybody buying aircraft right now is nuts given the prices. 

But the world has changed.  It’s not the late 1990’s or early 2000’s and manufacturers are not struggling to sell aircraft.  To the contrary, they are struggling to meet demand based on orderbooks.  Ryanair got stunning prices for their original massive orders.  Enough so that they could buy them, operate them for a few years and sell them at a profit.  Neither Boeing nor Airbus is interested in making such deals anymore and rightfully so. 

Airlines put off buying large quantities of aircraft for quite a long time and now the legacy airlines not only want them, they need them.  If O’Leary and Company wish to continue to operate a successful ULCC, they’ll be lining up to buy them as well because they do offer the kind of incremental gain in efficiency that is going to make the world’s legacy airlines much more competitive with ULCC’s like Ryanair. 

The truth is, I think the Airbus A320NEO does fit Ryanair’s needs a bit better these days.  But that would require a fleet change that would take years to accomplish and with A320NEO delivery positions reaching “unobtanium” levels for the next decade, the 737MAX probably does offer the best option given their position.  One thing is sure, the COMAC 919 isn’t going to deliver what Ryanair needs and certainly not on time.  Airbus can’t build more even faster to meet the demand on the A320NEO even with some airlines orders going away.  So I’m not sure why O’Leary wants to make an enemy of Boeing.

The truth is, Boeing will be happy to sell to O’Leary and take his abuse while they do it.  They’re just not going to give away aircraft anymore and it appears that it will take O’Leary a while longer to realize the position he and his airline are in.

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