The perceived momentum that the A320NEO has is the subject of  a lot of speculation for the past month.  One comment getting repeated early and often by Airbus is that airlines don’t necessarily have a right to convert existing orders for 1st generation A320 class aircraft over to the A320NEO targeted for delivery sometime in 2016. 

Indeed, the orders it has garnered so far has been part of a larger orders for a mix between the 1st generation and NEO versions.   There are a few things worth remembering here.  First of all, 2016 is far enough in the future that airlines are only just approaching the time in which they would consider such purchases in most cases.  Second, Airbus’ really firm order for this aircraft is, so far, only from Virgin America.  Other orders are under a Memorandum of Understanding (MoU) which can remain quite fluid in terms of details.

Airbus needs the NEO to be successful right out of the gate.  Their stumbling around on the A350 is still firm in the minds of many airlines and what they’re proposing in the NEO is actually quite similar in approach to their first proposals for the A350.  If they garner enough orders, legitimacy ensues and they avoid criticism.  They also don’t want to kill their momentum on the A320 either.  The development for that 1st generation of aircraft is paid for and every aircraft they push out the door and into the hands of a customer embodies a lot of profit. 

It’s a delicate dance they have to perform for the next 12 to 18 months and keeping customers entrenched in the 1st generation A320 allows them to earn profit to pay for their other programs in development such as the A400 and A350 as well as keep face over the A380 which, at this point, appears doomed to be an unprofitable airliner. 

Speaking of the A380, one of those recent A320NEO orders includes the cancellation of 10 A380 aircraft as well.  ILFC has decided to pass on that airliner and stock up on A320 aircraft instead.  That is a smart decision for the lessor. 

If anyone believes that airlines will be forced into making new orders if they want the NEO version, they’re kidding themselves.  Airlines transfer orders from one aircraft type to another all of the time and neither Airbus nor Boeing would ever want to appear to not being cooperative with the airlines.  Keeping airlines in their camp is extremely important and not being flexibile is one way to encourage a customer to look at a competitors offerings.

John Leahy of Airbus predicts as many as 500 firm orders by this year’s Paris air show.  It is possible but I think we’ll see maybe orders for 200 to 300 aircraft and perhaps less than firm orders for another 300 by that time.  500 firm orders would be pretty impressive and I suspect it would drive Boeing crazy as well.

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With the various mergers and consolidation that we’ve seen over the past 3 years, there is quite a bit of speculation as to who is next in the merger game in the United States.   The truth is, with the exception of some very small players, I see no opportunities.

Sun Country is actively looking for a purchaser and I think it will find one but it won’t be for Sun Country’s business nearly as much for Sun Country’s Minneapolis / St. Paul gate space and, perhaps, a few routes.  Two candidates as buyers come to mind in this area:  Southwest and Frontier.  Both should find the opportunities in MSP attractive and Southwest is liable to also be attracted to the staff and equipment Sun Country is flying.  Sun Country flies the 737-700 and -800 and getting their hands on the -800 of which there are 10 available could help SWA get a jump start on an aircraft it needs.

Frontier has a little bit less incentive for MSP.  The aircraft fleet doesn’t match and they already have hubs and/or focus cities bracketing MSP in Denver, Kansas City and Milwaukee.  But getting to compete against Delta in MSP where it is by far the dominant airline could be attractive to Frontier. 

As far as other airlines go, I just don’t see it for now.  Airtran will be going away this year.  JetBlue is doing OK and while I think it could stand to grow, nothing is available and an attractive fit in areas where it could grow.  There is the ever so slight chance that JetBlue could make a bid for Frontier but Frontier’s new management hasn’t had very long to make a go of it with that brand and it doesn’t seem like they would want to be consumed.

Alaska Airlines is very profitable and doing very well with its multiple relationships with various legacy and international airlines.  They could be attractive to purchase but I think they would seriously resist overtures unless the economics just made their shareholders rich. 

American Airlines has too many labor problems and is busy coordinating with its OneWorld partners at this time.  This is an airline whose house is not in order and whose leadership is not really interested in acquisitions and who is not very visionary to begin with.   Without new and radically different leadership, I presently see AA maintaining the status quo.

US Airways is pretty profitable and has their act together in many ways operationally speaking.  They, too, have labor problems but somehow management manages to sit back and let labor fight among themselves while earning profits.  This is another airline that could stand to grow and the most attractive place to grow would be internationally.  The bad news is that they don’t have any long haul aircraft on order except the A350 and that isn’t due for quite some time.  What’s worse, there is no internationally strong airline for them to target for another purchase.   Obtaining long haul aircraft isn’t financially easy to do presently due to constrained credit markets and the popularity of their choice in long haul equipment (the A330.) 

In addition, in light of the uncertainty that fuel prices and the economy present, I think that any growth that airlines choose to do will be slow, methodical and very cautious.  It will be organic and through upsizing aircraft rather than many new routes. 

The merger game of this decade is still undecided.  Certainly Delta appears to have done well although their profits still seem very dependent on fuel prices.  But United is far from complete and they’re already experiencing more problems than Delta ever did.  Southwest and Airtran are working hard to consummate their relationship but Southwest has stumbled as much as they have succeeded in the past 2 years.  There is nothing to say that SWA will execute their merger with Airtran smoothly so far.   We hope they will but we don’t know they will.

Look for it to be quiet in the merger and acquisition game for the next 12 to 24 months absent the possibility of a few small acquisitions.  I expect well see the alliances spark up a bit more in the near future, however.

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Frontier Airlines has announced new services to Knoxville, Provo and Sioux Falls using the A319 for the former and the E170/190 jets for the latter cities last week.  Each will receive service from its Denver hub.  In addition, Frontier is adding additional service to Minneapolis / St. Paul and San Antonion from Kansas City which are both cities it already serves from Denver. 

I genuinely like the Embraer E170/190 jets for service to smaller cities as it offers a mainline type service to cities that traditionally would be served by cramped 50 seat regional jets used by other airlines.  It’s a nice service product and Frontier’s owner, Republic, gets to remain flexibile in how it deploys its fleet of those jets. 

I do wonder if Frontier isn’t kind of dancing out of the way of real competition though.  Its newest routes don’t strike me as something the airline is doing to fight against its LCC competition out there.  Nor do these new routes strike me as low hangling fruit for an airline like Frontier as well.  For instance, while I can understand flights from Provo and Sioux Falls to Denver, I struggle with the idea that there is a great deal of demand in Knoxville for a route that goes to Denver even if traffic can flow ownwards to other destinations.

As much as Frontier is a western states airline, it does seem to somewhat ignore opportunities on the west coast where it would seem its service product ought to thrive against the competition.   Mostly I’m struggling to see the strategy here.  2010 was definitely a “rebuilding” year for Frontier and perhaps its plans will become more clear as 2011 unravels.

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A new airline of sorts is planning to begin flights to and from Las Vegas.  The airline, LV Air, is planning to use 767 aircraft on charter flights and they’ve got some big plans.  They plan to refit these 767 with a Las Vegas-like interior including luxury seating, mood lighting, etc.  They also promise inflight texting and video as well as iPads for entertainment. 

But here is the one that I kind of balk at happening:  Holograms of celebrities for safety briefings. 

Initially, these flights will be between New York City and Las Vegas and the business model calls for casinos to buy seats on these flights for their high rollers.  What’s left over will be sold as charter space.

I don’t believe this will succeed, however.  It’s almost a certainty that the promised 767 aircraft are going to be very old models that will likely be expensive to refit with these luxuries and even more expensive to maintain afterwards.  Reducing the seat count to offer luxury seating to these high rollers will raise costs per available seat mile considerably and require higher and higher load factors for each flight. 

More importantly, if you’re a high roller who enjoys private flights to Las Vegas, why would you want to fly on this aircraft?  And what do you really get that you can’t enjoy in first class seating on an airline providing better frequency and schedule?

Holograms and iPads might attract the curious but they’re unlike to attract the customers long term.

So far, I cannot find information on the aircraft or what airport(s) they plan to fly into and out of.  There is a nifty video on their website but that’s it:  it’s a nifty video.  Interestingly, the video appears to show a 767-300 painted in LV Air colors rather than a -200 model. 

This strikes me as something like the trans-Atlantic all business class airlines from a few years ago.  It’s likely the wrong aircraft for such services and too many people have too many different options.  Even if it does experience some success initially, that will only cause major airlines to attack it on price and schedule. 

This airline says it will start service in 2011 (again, I cannot find a certain date for starting) which would imply work on these aircraft has already started.  They also project they can move more than 2 million passengers in the first 2 years.  I’m skeptical to say the least.  All of this is predicated on the idea that seat capacity to Las Vegas has been dramatically reduced over the past few years and it appears that they haven’t paid attention to the reason for that, namely that demand is down as well. 

I’ll be mildly surprised if they even start flying and I will be exceptionally surprised if they enjoy any success at all.

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WestJet of Canada and American Airlines have announced a codeshare deal where AA will put their flight numbers on up to 20 WestJet destinations in Canada not currently served by American Airlines.  This is in addition to WestJet’s brand new relationship with Delta which is an interline agreement.

WestJet was originally supposed to enter into a rather unique codeshare agreement with Southwest Airlines and Volaris (of Mexico) but chose to abandon the deal about 1 year ago when it decided that Southwest was taking too long to implement this and thought its fortunes were better served with another airline.

In many ways, WestJet is pursuing the Alaska Airlines model in being fairly agnostic as far as what airlines it will do a deal with.  The airline believes its future is better served with doing one-off deals with a variety of airlines rather than aligning itself with just one.   It isn’t an accident that WestJet’s CEO, Gregg Saretsky, is a former Alaska Airlines executive.

Curiously, WestJet is a Canadian low cost carrier that has based its operations on the 737-700 (with some -600 abnd -800 aircraft as well) and works much in the same model as Southwest.  It has two hubs, Toronto and Calgary, and pursues frequency on its trunk routes and serves a variety of small destinations throughout Canada as well.  They already fly to international destinations in the United States, the Caribbean and Mexico.  Also curious, this airline was founded with the help of David Neeleman while he waited out his non-compete clause with Southwest Airlines. 

WestJet has existing codeshare agreements with Cathay Pacific as well and interline agreements with British Airways, Air France, China Airlines and KLM. 

I can’t help but think that WestJet is the Canadian version of the airline that Southwest seeks to become and it would appear that WestJet is doing this with more agility and quicker execution than Southwest seems to be able to muster.

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Continental’s flight attendants have voted on a new 20 month agreement on pay and no furloughs as they prepare to merge into United Airlines.   The agreement gives the flight attendants the highest pay among legacy airline flight attendants.

When this merger began, United flight attendants attempted to co-op Continental flight attendants into their dissatisfaction with United and the Continental crews resisted expressing a desire to have a voice in their destiny.  This new agreement displays, once more, Continental management’s ability to work with their staff.

But can they work with United staff?  This is a bigger challenge than meets the eye.  United unions have no reason to trust Continental management as they have no real experience with them.  They do, however, have a long history with being shoved around by former and current United management.  These conflicts don’t evaporate because a few good guys take over.  It takes time to win that trust.

I think the crew integration going on with United has several more painful chapters ahead before things settle down and all parties do better.  Continental pilots are liable to continue to resist relaxing their current scope agreement (no more than 50 seat jets) and add in the fact that United pilots are generally a more “senior” bunch, I suspect they’ll be playing the spoiler for some time to come.

This merger isn’t as easy or as logical as the Delta/Northwest merger and doesn’t have the benefit of forward thinking union leaders like Lee Moak to help set a tone that lets things get worked out.

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Southwest has gotten a transition plan for its absorbtion of Airtran approved the FAA it would appear they are on track to close their merger later this spring.  The transition plan calls for both Southwest and Airtran to be operating on one certificate early in 2012. 

In addition, Southwest has gotten a transition agreement into place with its pilots’ union which establishes the procedural framework for integrating Airtran pilots into Southwest’s structure.  This does not mean that we yet know how Airtran pilots will be actually integrated into the Southwest seniority list.  The silence on that issue is probably an indicator that progress is being made.  Unions don’t usually start firing public shots at each other unless they feel like progress is being blocked. 

I expect we’ll see more announcements on the merger in the next few weeks and certainly after Airtran holds its vote on March 23.

On another front, Southwest’s Gary Kelly has said that Southwest plans to grow further in Milwaukee.  Like Airtran and Frontier, Southwest sees Milwaukee as a real opportunity and by taking over Airtran, it should have plenty of space and opportunity to continue its growth.  I expect that we’ll see Southwest continue its battle against Frontier in this city as well Denver where both have grown  but more at the expense of United than each other.  Southwest is now carrying more passengers out of Denver than Frontier. 

Finally, Southwest should start flying from the NYC area’s Newark Liberty International Airport.  Southwest gained important slots from ContiUnited as a function of their merger and they’ve now got approval from the airport to begin flying from 3 gates to 2 destinations (Midway and St. Louis). 

With toeholds in both La Guardia and Newark Airport as well as Long Island’s Islip airport, I expect that we’ll see Southwest look for other opportunities to grow each new airport’s flights.  La Guardia, I expect, will be the slower growth airport as slots are extremely valuable there and several airlines are vying to be New York City’s airline of choice.  

One wonders if service to Islip will continue in the face of this NYC area growth and I expect the answer is that the flights will stay as long as they remain profitable and there are no other better profit opportunities elsewhere.  In the near term, I expect they’ll stay.  Islip is nowhere close to NYC and Southwest has been serving primarily East Coast destinations from Islip with Chicago Midway being the one exception to that.  Chicago may perhaps be dropped but I expect that if Southwest has found it valuable to serve the airport today, it will find it to be profitable to do so in the future.  Currently, Southwest’s competition is US Airways at Islip.

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Southwest Airlines and iTunes are partnering up to promote Southwest’s new WiFi service (currently on 65 aircraft) by offering free music downloads.  InAirtainment will allow people to download this music while in the air.  A playlist of 20 free songs will be offered but there is a catch:  We’re not talking about top 40 songs here.  These songs will be from bands “about to fly” themselves.

Regardless of the value of the songs, this is a nice partnership and something a bit more unique than previous promotions for WiFi service.  The cachet of iTunes certainly helps promote the announcement. 

However, this also means that it has value only to those using iTunes and that potentially leaves a lot of people out of the promotion.  Nice approach but I think a partnership with someone like Amazon would have actually provided more value.  On the other hand, that kind of partnership would have also excluded iTunes users. 

It’s nice to see Southwest trying to be unique as usual but I have to give this promotion a B for its idea quality and a C- for its real value to the customer.

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With the uprisings now occuring in North Africa and the Middle East, oil prices are rising quickly and we’re seeing prices as I write this topping $100 / barrel.  Airlines are already sounding warning cries of higher fuel prices and their (potential) impact to revenues as well as fares and stock markets are reacting to this as well with airline stocks losing a fair bit of value.  Analysts are speculating whether or not airlines correctly anticipated this rise and, in my opinion, already unfairly criticizing anyone they can point to.

No one can plan for these events.  In fact, I don’t believe anyone can accurately plan for oil prices anymore.  The idea that oil prices can stay stable is fantasy at this point.  We cannot accurately predict what will happen to both demand and supply in the world at this time.  An economic recovery and  rise in production in one region might drive up demand.   A political crisis in an oil producing region may well constrict supply.  And to further complicate the issues, speculators in oil are not known for being very stable people either. 

Furthermore, no one is going to stabilize current oil prices as the factors that influence the prices are far too great for anyone one country or groups of countries to try to influence effectively. 

The best that airlines can do is manage in the “now” and let tomorrow worry about tomorrow.  Not for nothing, that is exactly the approach US Airways has been taking and with great success.  They have no fuel hedging in place and they’re realizing more from that than other airlines are from hedging strategies. 

Should airlines continue to hedge?  Absolutely but only with the goal of stabilizing and making their budgets for fuel costs predictable.  To pursue a strategy to completely offset the volatility of oil prices only spells disaster for them.  What that means is, yes, they should hedge some of their fuel costs to help stabilize their planning but to a certain degree they are at the whim of the market places.

Despite the doom for oil prices spelled out as a result of the uprisings previously mentioned, I think we’ll find that while there may be overthrows of government, the chances of reduced oil supplies are pretty slim.  If anything, the chances for rising supplies in the medium term are great which would actually mean lower fuel prices.  In the short term, they’ll be highly volatile and that’s life.

Expect rising airfares over the next 6 to 9 months and a slow reduction going forward after that.  Rising airfares will be a function of 2 major factors:  higher fuel prices and renewed capacity restraint on the part of most airlines in light of fuel price volatility. 

In the long term, the only major airlines I see being negatively impacted by these uprisings and it is potential only for now are the UAE based airlines such as Emirates, Etihad and Qatar.   Each of these airlines is heavily dependent upon their home countries being peaceful with strong economic growth and the certainty that those regimes have provided thus far.  Given the volatility in Bahrain and Yemen, I would say that if those uprisings spread further into other UAE members, those airlines fortunes may well be very negatively impacted.

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Virgin Atlantic engaged an investment bank (Deutsch Bank) to advise on its possibilities going forward as an airline after British Airways merged with Iberia and finally consummated its close partnership deal with American Airlines.  The objective was to find a path going forward for the airline and determine if a sale was in order.

Since then, a number of airlines have paid attention to the possibilities.  It’s reported that Etihad is interested and that both Star Alliance and Sky Team may make overtures to the airline.  Delta was reportedly expressing an interest early on as well.

The latest rumour is that Air France and Delta want to explore a purchase of some kind.  Both airlines are industry dominant and both lack something that many other airlines (and airline alliances) have:  Great access to London.

In Europe, this access is pretty important going forward and in the United States, Delta could do with a bit more London Heathrow access as well.  Will they succeed?  That depends largely on just how interested Richard Branson is when it comes to a sale.  Make no mistake:  this will not be a partnership.  Neither airline can afford to spend time working with a niche airline without greater control over its destiny.

And Singapore Airlines also owns a 49% stake in the airline as well.  While they are rumoured to be interested in being rid of their investment, I suspect Singapore Airlines is more interested in yielding a profit from their investment and protecting their own position in Europe as well that of their alliance (Star Alliance.)  Such a sale to SkyTeam members could be very detrimental to Star Alliance in the long run.

Finally, this raises the question of what becomes of the other Virgin airlines?  Does the mother of the brand go away leaving these other players orphans?  Or is their a consolidated move to bring the brands along in some fashion?  If I were sitting at Virgin Blue or Virgin America, I would be concerned for the future of my brand.

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Virgin America is starting service to Chicago O’Hare airport starting in May of this year.  Once again, these flights will connect Chicago to Los Angeles and San Francisco. 

And may I say that I like how VA introduced this service.  Like their general approach to new routes, new introductory fares were announced but they added a dash of spice by offering a Groupon buy of $77 worth of airfare for just $7 for flights originating in Chicago.  Nice move. as it created a nice buzz about the airline in an unconventional but very media worthy manner.

I like this Chicago move as much as I like the DFW move.  I do, however, hope that VA isn’t intending to just introduce new routes from Los Angels and San Francisco to new destinations.  It would be very nice to see some of the dots on this growing map of service connected.  Dallas and Chicago can connect, for instance.  Dallas and New York City could stand some nice competition as well.  Let’s hope that as VA adds more fleet, it grows its system more as a network than as destinations for California.

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Delta Airlines is going to introduce its own version of “premium economy” seating on its international flights.  In this case, it’s called Economy Comfort.  Users will get the same seat economy has but more leg room and some extra amenities such as no charge for drinks. 

Often when I consider what to write for this blog, I find myself wanting to be an advocate for the passenger as much as the airline geek as well.  The truth is, airline geeks can be a vicious bunch when it comes to understanding or embracing what the common passenger is experiencing. 

I think the common passenger experience on legacy and SuperLegacy airlines is appalling.  Sadly, so much of the improvements that would improve that passenger experience could come at little or no additional cost.  At the worst, they could come from legitimate fees designed to offer a better value proposition.

Seating is one of those value propositions that I think is horrific on most US airlines.  Seat pitch is terrible and we all know that it often is only reduced more and more.  We’ve even seen airlines introduce new “thinner” seats to to cram more seats onto an aircraft.  One consideration few ever gave to that proposition is that “thinner” really does equate to less comfortable as well.

When I consider how far we have come with respect to first and business class vs economy, I’m gravely disappointed.  It astonishes me that airlines will spend a fantastic amount of resources (and it really is fantastic) on what can amount to maybe 10 seats on a large widebody aircraft but will completely ignore challenging their seat supplier to supply a better seat for those in the economy section.

Make no mistake, while those in the front of the bus might represent real profit, it’s those in the back of the bus that make or break the airline when it comes to meeting its expenses.  Without those economy passengers, the airline would sink quickly.  Notice that all business class airlines have never thrived?

There have been tiny little improvements and changes over the years.  I actually like and enjoy the Airtran Recaro seats on their 737s, for instance.  But isn’t kind of shameful that Southwest Airlines offers what is arguably some of the best economy seating in the world?  Great leather seats with good seat pitch that, in many cases, exceeds legacy airlines pitch now and those same seats are not “thinner” or “harder”.  They’re comfortable.  Genuinely comfortable. 

But here’s the thing, it’s not that Southwest improved so much.  It’s that everyone actually got so much worse, really.

I”m not going to argue for more seat pitch.  If you’ve got 32″ of pitch, you win in my book.  If you’ve got 30″ of pitch or less, I consider you a chinchy airline with zero class.  In between, you’re lackluster and have no argument for purchase of a ticket except, possibly, price.  But I won’t even argue for more than 32″ of pitch. 

But don’t tell me that we can’t challenge seat designers to come up with a better seat that is cost effective to install, practical to maintain and which offers a better seating experience.  We can, we should and the airline who does will have a real and tangible value proposition to offer consumers.  Build it, advertise it and they will come.

In the meantime, I’ve no problem with charging for more seat pitch and a free drink (which I’ll point out wasn’t free but simply included in the increased price as in the days of old.)  I’ll often pay for such an amenity myself. 

However, let’s not get carried away lauding airlines for seat designs that, for the most part, reside solidly in 1970’s thinking.

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This winter season we’ve seen record cancellations due to major weather events and by all appearances, this isn’t over yet.  These cancellations will cost airlines their 1st quarter profitability in many cases and exacerbate the losses of other airlines as well.

One trend I’ve noticed is a number of flight crew blaming the 3 Hour Rule for creating these cancellations citing their opinion that their company won’t risk a 3 Hour Rule violation.   No doubt that at least some of these cancellations were in fact influenced by the rule. 

However, I’m not sure you can point to the 3 Hour Rule as the cause for losses.  Not yet anyway.  The weather events that have caused these massive cancellations would have no doubt caused them regardless of the rule.  It’s difficult to send an airplane out on a flight if the airport is closed due to blizzard conditions.  In other cases, while there may not have been a blizzard, there have been several airports dealing with unusual conditions (for their area) that have caused airport closing and/or reduced operations.  DFW and Dallas Love Field are two excellent examples.

I expect that sometime later this year, we’ll see airlines push for either a straight out repeal 0f the 3 Hour Rule (unlikely) or some modification for weather events (much more likely.)  I remain unsure if that would be justified because despite these huge cancellation numbers, I’m just not seeing any giant outcry over it either.  If anything, I suspect that the 3 Hour Rule is causing airlines to think earlier and be more proactive in their cancellation strategy and that is resulting in people being able to plan better and plan around these weather events. 

In addition, one winter’s weather does not make a trend.  It’s been a bad one so far and I continue to believe that we need 2 or more full year’s data to really determine the potential negative effects of the 3 Hour Rule.  And the real critical area is determining when and for what reason airlines are cancelling flights when the weather events are not so clear cut.  For instance, who is cancelling when strong winds impact runway choices at NYC airports and thereby reducing the hourly rate at which flights can land and take-off?

However the rest of this winter plays out, I expect to see the industry renew its efforts to modify the rule some time after the 1st Quarter financial results are in for our major airlines.  I do think there should be a debate on this subject and it should balance cancellations, the rule and what the passengers may be asked to put up with.  It’s quite possible that relaxing these rules to 4 hours may satisfy most parties in this fight.

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WestJet and Delta announced a signed interline agreement between the two airlines last Monday.  WestJet already has a number of interline agreements with other airlines and it appears to be behaving in the Alaska Airlines model more than anything else.  In other words, it will do a deal with whoever makes sense.

This is a great deal for Delta as it gives me them some access to the Canadian market that its alliance, Sky Team, lacks so far.  Only Star Alliance has some penetration in Canada via Air Canada.  I expect all both Sky Team and Oneworld to pursue WestJet as a candidate for their alliances in the attempt to lock out their competition from what is the only real “national” airline in Canada other than Air Canada.

This announcement also has to sting Southwest Airlines.  Southwest was set to enter into a similar agreement with WestJet but that crumbled apart when WestJet pulled out after waiting 2 years for that partnership to be enacted.  It was an ideal connection for Southwest and a big loss as well.  There won’t be another opportunity like that in Canada for a very long, long time. 

While Southwest Airlines hasn’t signaled any moves towards Canada yet, I actually expect them to do so but only after they are firmly capable of international flying in their IT systems.  They have a lot of their plate presently so I wouldn’t expect this in the next 2 years but I do expect it.  I also hope that Southwest learns from that experience and realizes that being a bit more agile when partnering with people is a good thing and waiting years to make it happen may well result in changing circumstances that put them out of the game.

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Delta President Ed Bastian says that air fares have to go higher to counter fuel costs even as it plans to add capacity in the next quarter.  And it isn’t just Delta that is adding capacity.

Air fares might need to go up to counter fuel costs but making that argument while you lose your capacity discipline and start chasing market share is just a different verse of the same song we’ve seen played out in the airline industry for the past 30 years.

Think the airlines learned their lesson?  I don’t and I think this is more evidence of that fact.  Load factors are very high and airlines think that means they can poach traffic from their competitors.  In fact, they can.

For the right price.

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Sen. James Inhofe of Oklahoma is about to introduce an amendment exempting certain nonscheduled air carriers from new FAA pilot fatigue rules.  This amendment would permit carriers to require pilots to fly longer hours, stay at the controls longer and return to work after a shorter rest period.

These nonsecheduled air carriers would be certain passenger charters and freight operators.  Specifically, it would benefit carriers such as Evergreen, Atlas Air and World Airways.  It’s no coincidence that carriers such as these carry more than 90% of military passenger traffic and much of their air cargo as well.

Exempting these carriers reduce the costs to the government and this seems to be a case of government making a better deal for itself.  This time, at the cost of pilots.  Pilot fatigue is a real worry and concern and shouldn’t be treated this way in order to get a better deal. 

Two thumbs down to the US Senate for making this move.

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Evidently Ryanair thinks it should be shutting down at least 10% of all routes it opens or it isn’t doing its job.  Its argument is that many of those routes have never been flown before and it is impossible to predict success for all of them. 

This makes considerable sense but it is also worth pointing out that Ryanair’s outsourcing model for ground support also allows them to contract away from unsuccessful routes without feeling pinned in by the costs to withdraw from a market.  In addition, its decisions on these routes are uninfluenced by other considerations such as regional flights feeding into these routes.

Other airlines could stand to be a bit more brutal over their routes as well.  All too often one set of routes is operated unprofitably to support the money it feeds into more successful routes.  The Ryanair model (and other LCC airlines as well) of insisting that route support itself is the better, more sustainble pathway to success.

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The merger between Chile’s LAN airlines and Brazil’s TAM airlines (to be called LATAM) is on hold while regulator examine what, to them, appears to be the formation of a continental monopoly.  Oddly enough, the objections come from Chile’s regulators right now with Brazil’s remaining reasonably quiet so far. 

The western half of South America doesn’t have much competition going on and success by LAN has been the result of operating an airline like a grown up rather than as a shiny bauble for governments to admire.  However, at the end of the day, it was still Chile’s airline and by extension, it was still western South America’s airline too. 

Brazil is the one marketplace that does have a tremendous amount of competition in the airline industry and it has done nothing but help fuel the economic growth that country has experienced.  To the outside observer, LAN was the strong airline in this union.  However, to those in South America, LAN almost appears to leaping off a cliff and becoming swallowed up by TAM (and by extension, Brazil.) 

There is, in many senses, an inferiority complex when it comes to how other nations in South America view Brazil.  It is viewed with jealousy and suspicion.  Jealousy because of their economic growth and success over the past 2 decades and suspicion because Brazil never had the same history as the rest of that continent including not sharing a common language (Spanish).  As such, this merger is viewed there as a potential loss of LAN and that worries many, particularly in LAN strongholds like Chile, Ecuador, Peru and now Colombia and Argentina.  Not one of those countries lacks jealousy and fear of Brazil and its power.

Is the merger needed?  No, not necessarily.  But allowing a SuperLegacy in South America to develop would be good for the whole continent, not just Brazil.  In fact, I would offer that Brazil wouldn’t see much impact but the remaining countries would only benefit.  It would put LATAM on par with other major world airlines and offer them negotiating power and financial strength to expand their route system in a way that wouldn’t necessarily require alliances.

Will it get approved?  Ultimately, I think so.  Politically, I think this has some hurdles before it happens.  Brazil will have some objections as well, I think, and I would expect this to take as much as 2 years to accomplish and several more before a harmonious brand is decided upon.

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V Australia and Delta Airlines have been fighting to enjoy anti-trust immunity with a mutual capacity agreement on routes between the United States and Australia.  So far, regulators are unconvinced that this would be a good thing for consumers and see it as an opportunity to gain market share only. 

To a degree, that’s true.  V Australia and Delta Airlines are the new boys on the block when it comes to US/Australia routes.   Their direct competitors are QANTAS and United Airlines who enjoyed near monopolies on those routes for years.  In addition, the lion’s share of the market belong to both of those airlines today as a result of their strong alliances (Oneworld and Star Alliance). 

I was glad that new competitors entered that market and I think we need more competition than just two airlines who want to behave as flag carriers.  On the other hand, I never thought that those routes could stand 4 competitors either.  Allowing an agreement between V Australia and Delta will help preserve the competition, I think, more than harm it. 

Both airlines promise not to reduce flights between the two countries and I believe that is true.  Instead, I think we would see the aircraft redeployed on other routes between the two countries to provide more coverage to both nations.  This would be a good thing.

In light of QANTAS’ move to switch its route to Dallas / Fort Worth from San Francisco to link up better with its Oneworld partner, it’s time for the regulators to calm down and get their assurances and allow Delta to make this partnership happen. 

If anything, a link up between these two airlines could result in better service for consumers.  V Australia can feed passengers over to its Virgin Blue domestic market whereas United Airlines has no such partner in Australia.  Since many of the objections come from Australian regulators, one must assume that there is some unequal treatment towards QANTAS going on here. 

I think reality will set in and we’ll see this agreement approved some time soon but not without certain guarantees and I think the two parties will have to make a move to show that they don’t want to harm QANTAS too much at the end of the day.

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American Airlines has sued Travelport to get a permanent injunction forcing Travelport to show its fares without bias in the Galileo reservations system.  No doubt the small amount of success in forcing a stalemate with Sabre has caused American to think that it can achieve similar results with other global distribution systems.

Maybe. Maybe not.  Achieving some relief in court only lasts a short time.  At one point or another, AA has to either walk away from the GDS companies or it has to do a deal.  A deal won’t get done in court.  Doing a deal requires both parties to work things out and the fact that AA is suing is a signal to the GDS companies that they are having some effect on AA’s bottom line.  Continuing to show solidarity among themselves can only result in putting more pressure on AA than the GDS companies.

And just because you sued doesn’t mean you’ll win.  If AA loses the latest battle, they’ll be on even worse footing than before.  All of this over something that will save just tens of millions for an operation that is generating more than $23 billion in revenue.

If I were  a shareholder in AA, I would be much more interested in the company resolving labor issues and raising productivity which could generate hundreds of millions for the company.  I would want to see the company heavily engaged in hedging its fuel costs and making them more predictable which could save hundreds of millions of dollars.  I would want to see growth into profitable long haul routes which can only be done by working things out with pilots. 

I would not want to see a public fight with GDS systems who can have a real and measurable effect on AA’s ability to sell tickets.

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