Just  a couple of weeks ago, American Airlines applied to fly the Los Angeles – Shanghai route with the Department of Transportation.  The DoT responded with a resounding “Yes!” in just one week.  United Airlines asked for the same route on Tuesday and got a “Yes!” in just one day.  Both airlines plan to fly this route with 777 aircraft.

I’m somewhat surprised that United wanted LA to Shanghai instead of a route from something resembling a hub for them such as San Francisco.  Now we have the spector of two SuperLegacy airlines flying in competition with each other on the same route with the same equipment and a need to win that is pretty high.

Ultimately, I give advantage to American Airlines on this one simply because of better feed into Los Angeles.  I believed that the SuperLegacy airlines would ultimately start to poach on each other’s territory but I also believed that it would take a while for these airlines to digest their situations before making a move like that.  This may be a special case but it does make me wonder if competition is heating up.  Especially on international routes and in light of the great success that Delta has had in expanding their international route system.

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The Department of Transportation continues to hoot about a reduction in “tarmac delays” and I want to reiterate that we don’t know anything yet.  The DoT claim of little or no additional cancellations is speculative really because . . . wait for it. . . we don’t have data on why a particular flight was cancelled.  Or, more accurately, we’re not specifically tracking flights that were cancelled because of the potential for long delay.  All we can go by is whether overall cancellations were up (in a year to year comparison by month) or down. 

The problem is that there are a number of other environmental and operational factors that will affect cancellations as well.  Did the airplane push back and find itself unable to start an engine when it neared take-off?  Did the flight get cancelled because a massive thunderstorm parked itself over the airport?  Did the airline simply run out of pilots to fly the flights?  Even if there was a cancellation because of a flight nearing a 3 hour limit, the chances are nearly certain that there were other concerns bringing it to that point in the first place.

With all of that said, I will say that it is pleasant to learn that there was just one 3 hour+ delay in August (by 20 minutes) and that no fines have been issued yet.  So much for those running around and talking about just how awful those fines will be when it comes to airlines finances.  In fact, when you read about the fines and see $27,500 per passenger, please keep in mind that that is the *maximum* fine that can be imposed.  Typically, the FAA imposes fines that come no where near what the maximums are.

In the end, let me repeat my mantra:   We are a long way away from being able to judge the harm or effectiveness of this rule.  We don’t know anything yet.  There are no trends and no one should be hooting or crying about it yet.  Shame on the FAA for continuing to call a victory over this.

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Airlines have spent a lot of time talking about how consolidation has helped the industry raise air fares and begin earning a profit.  It is constantly promoted as a very positive development and that is generally not refuted by anyone out there most of the time. 

But let’s take a look at the landscape and see what is going on.  In 2004, we had as major airlines the following:

1. American Airlines
2. United Airlines
3. Delta Airlines
4. Northwest Airlines
5. Continental Airlines
6. Southwest Airlines
7. Alaska Airlines
8. jetBlue Airlines
9. Airtran Airlines
10. America West Airlines
11. US Airways

These are in no particular order but each of the above could be described as viable operating entities that served large regions of the United States if not on a national basis.   Of the 11 listed, 5 were really completely national airlines, 3 were semi-national and 3 were regional. 

Now, if we consider recent mergers and the recently announced Southwest Airlines – Airtran merger, we have:

1. Delta Airlines
2. United Airlines
3. American Airlines
4. US Airways
5. Southwest Airlines
6. jetBlue
7. Alaska Airlines

Of these listed, 5 are national airlines (With Southwest moving from “semi national” to “national” in my opinion) and 2 which are really regional airlines primarily.  The 2 which I call “regional” do have flights outside of their core strengths but you can’t really call them even semi-national. 

I see 2 problems arising from this new landscape.  First, the top 3 airlines range in annual revenues between $23 Billion to $29 Billion.   US Airways had about $11 Billion in revenue, Southwest earned about $11 Billion and Airtran enjoyed roughly $2.5 Billion in revenue.  In other words, going forward US Airways and Southwest Airlines will be roughly half the size (in terms of revenue) that the top 3 enjoy.

Alaska Airlines, generally a good performer, earned about $3.5 Billion and jetBlue, also generally a good performer, earned $3.3 Billion.  They are each roughly 1/3 the size (in revenue) of the tier above them. 

My point is that there is a great inequality between the now extremely dominant SuperLegacy airlines and the tiers below them.  Between US Airways and Southwest, US Airways clearly remains an “at risk” airline due to the markets it continue to try to be dominant in.   Indeed, with the Southwest-Airtran merger, US Airways will see yet another market (Washington D.C.) finally being intruded upon by Southwest.

 There is little left to challenge the largest airlines in a region.  They will compete with themselves and it will take many years before you see Delta trying to encroach on American territory or United encroach on Delta territory.  Each of these SuperLegacy airlines needs to settle down.

My second point is barriers to entry.  Airlines have grown both in revenue and network so much now, there is a barrier to entry for new airlines or even existing airlines to enter new markets.  A 2nd tier airline has some chance of competing regionally but 3rd tier airlines are now faced with competing against SuperLegacies that can quite literally bury them with both capacity and staying power. 

In other words, going forward, it will be very difficult for airlines to be started that have any hope of competing in marketplaces because any marketplace that may have high air fares is also going to be dominated by SuperLegacy airlines that can fight off that competition with capacity and the ability (via revenues) to stay the long course with that strategy. 

Starting and operating an airline is a highly capital intensive affair.  It is possible to start an airline and build a network inside a region with fast growth.  jetBlue did it in a market that was highly competitive just 10 years ago.  However, while going from zero to 50 aircraft is somewhat doable still, growing beyond that is very expensive and difficult.  It’s hard to find investors willing to capitalize airlines with enough money to sustain that growth to a network that is served by 150 or more aircraft.

Furthermore, it’s difficult for airlines to make that leap from small to medium and keep their operations stable.  It often requires entire systems changes that stop growth and start a period of mediocrity that is often difficult to work past.   (Hello jetBlue)   In addition, it’s difficult to imagine the required resources to make the leap from medium to a truly national player because, so far, it really hasn’t been done except via mergers and that resulted in an airline (US Airways) that remains tied to cities that aren’t the most attractive for being a major player.  Just look at where US Airways isn’t a player such as New York City, Atlanta, DFW, Chicago, Denver, San Francisco (and arguably Los Angeles.) 

That means that SuperLegacies and major nationals are likely to go unchallenged for the foreseeable future.  Unchallenged airlines usually mean air fares that are high enough to slow economic growth in areas and service levels that will continue to be reduced over time.  It’s not good for customers and it isn’t good for the United States.

I wouldn’t argue that we need 6 SuperLegacy airlines (in terms of size) but I do think we need more national airlines (a la US Airways or Southwest) so that competitive pressure remains in place.  Even new regionals in the form of a jetBlue or Airtran would be good but . . .

How do they get started?  How do you make an argument to investors that capitalizing an airline with the intent of competing even on a regional level is a sound business investment at this point?  It was hard to do before the last 3 years but now it is almost ludicrous to enter a conference room an argue that you can sustain a bruising battle for market share on a profitable route with the remaining top 5 airlines.

In addition, we have tacitly endorsed airline systems that are inherently economically inefficient.  The hub and spoke systems just got a shot in the arm but they do not lend themselves to lean operations and high aircraft utilization.   But the sheer size of the networks we have agreed to now make it possible for those same inefficient operations to enjoy new life for a decade or longer now.

I do think airlines should enjoy profits.  I do not think they should enjoy profits just because they say they should.  The argument that airlines couldn’t enjoy profits in the US anymore without consolidation is refuted by the very performance of other airlines operating under a different model:  Southwest, jetBlue, and even Alaska Airlines and Airtran.  I just named 4 airlines who did enjoy profits on a pretty consistent basis over the last 10 years by not engaging in the SuperLegacy hub and spoke (only) operations systems.

I ask myself where innovation may come from to challenge existing airlines in the next 10 to 15 years and I presently don’t see any encouraging developments.  I don’t see any new David Neeleman’s looking at these conventional systems and thinking outside of the box when it comes to aircraft, routes or labor.   How does a brand new airline argue for competitive prices when shopping at Boeing or Airbus when compared to the SuperLegacies who can make a “top off” order larger than a new airlines’ initial order?

Airline fans can shout about the renewed prospects for earning money presently but I do wonder what we, as a country, have to shout about when we discover that lack of innovation in a few years.

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Last week, Delta’s CEO Richard Anderson and Alaska Airlines’ CEO Bill Ayer were in Portland, Oregon and offered some insight on just where the close relationship between Alaska and Delta might be going.

Delta now operates non-stop flights from Portland to Amsterdam and Tokyo that were originally subsidized by Portland’s airport but which are now declared “permanent” by Delta.  They see Paris as a potential next stop.

Apparently those flights to Amsterdam and Tokyo are running pretty full now and it appears that Alaska Airlines is the one to thank for feeding traffic to those flights.  Portland is often discounted as a small city but it’s a small city with some major industry that wants both trans-Atlantic and trans-Pacific flights.  Since Alaska Airlines is the only airline in the Pacific Northwest that has a network to feed such flights, their partnership with Delta is becoming closer and closer.

I think Delta wouldn’t mind purchasing Alaska Airlines but I also think the timing isn’t right for such a purchase.  It just feels like one step over the line in terms of how regulators might envision such a merger. 

In the next few years, look for all three of the SuperLegacy airlines to start eyeing Alaska Airlines.  Delta has the best partnership with them but Alaska is no stranger to Continental (United) and American Airlines either.  They’ll do a deal with whoever makes sense. 

That’s also why I think Southwest ought to give Alaska Airlines a long, hard look as well. 

In the meantime, let’s cross our fingers on behalf of Portland and hope they get that Paris flight.

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American Airlines has applied to fly non-stop between Los Angeles and Shanghai using their vaunted 777-200ER aircraft.  If permission is granted, it will be the only non-stop flight between the two cities.

I sound like a PR release.  Frankly, I hope AA gets the route and I do hope they actually arrange acceptable slots into Shanghai this time.  You may remember that AA ended up delaying the start of their Chicago-Beijing route because the slots they were given weren’t automatically changed to make them happy when they got closer to their first departure. 

I suspect AA is going to be applying for a lot of west coast to Asia routes in the near future.  The yield is good and so are the loads.  People to tend to fly their national airlines on such routes unlike those from the US to Europe.  It’s notable that this route would originate in one of their declared “core” cities, Los Angeles. 

Lately all the competition talk has been over New York City.  I think LA may end up 2011’s New York City when it comes to competition.  It’s one of the best cities to connect domestic flights to trans-Pacific flights and he who grabs the routes now is likely to keep them in the future.

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 USA Today had a story on how Delta is about to see several union votes in the coming months. Historically, Delta has been the one non-union legacy airline in the United States with just the pilots unionized.  Accordingly, Delta’s labor groups have enjoyed great flexibility and have avoided some of the rather harsh and (in my opinion) unfair treatment that many other groups at other airlines experience. 

Flight attendants at Delta don’t spend a decade unable to hold a line, for instance.  All employees have shared in the wealth of the airline in good times through both raises and stock plans.   As legacy airlines go, Delta is a pretty great place to work all in all.  No company is without its warts and no company avoids the odd period of poor management and Delta has both. 

Changes in labor union law for airlines have now made it a bit more advantageous to try to unionize groups one more time.  In the past, failure to vote (for any reason) was interpreted as a “no” vote.  Now, simple majority of those who did vote are all that is required to win a vote.  In the past, Delta flight attendants have rejected attempts to unionize both by explicitely voting no as well as just not voting.  Labor leaders think that this time, they can win.

And perhaps they can.  Delta now has Northwest Airlines’ 7000+ flight attendants under the same roof now and that is a very militant group.  It’s possible that combined with the rather stark minority of Delta flight attendants they could win this if anti-union flight attendants don’t explicitely vote “no” to this latest attempt.  Frankly, I don’t think this is as sure a thing as labor leaders seem to think.  Flight attendants may be many things but one thing they aren’t is stupid.  I think that instead of just not voting to say “no”, they’ll simply vote “no”.  They appear to remain in the majority right now and there is one thing that perhaps is being overlooked.

A lot of those Northwest FAs have now experienced the Delta Way.  They may be battle hardened and militant but I wonder how some may feel after spending some time in the Delta system and discovering a kinder, gentler company that rewards performance.  There may actually be some erosion in those ranks.

Make no mistake:  The risk for Delta is mighty here.  If there labor force becomes all union all the time, costs will go up considerably and for the world’s largest airline, that could reverse current profits pretty fast.  Those costs won’t go up just because of renegotiated labor contracts raising salaries either.  I’m certain the unions will introduce work rules that limit the flexibility that Delta current enjoys.  Limits equal higher costs. 

So far, Delta’s management is doing the right thing.  They’re making the argument that employees are treated exceptionally well at Delta and that changing something that has been very good for both parties can almost certainly result in something that is ultimately bad for both parties.  In fact, their arguments seem both articulate and intelligent and don’t appear to insult the intelligence of Delta employees nor do they appear to threaten either. 

Time will tell in this arena.  You can bet that both ContiUnited and American Airlines will be watching closely and even celebrating with glee if the worst happens.

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Here’s an odd one.  Singapore Airlines will be introducing its first flight to South America in 2011.   The new destination will be Sao Paolo in Brazil but the flight will be via Barcelona, Spain.   This seems to imply that there are liberal bi-lateral treaties between Singapore and Spain and/or Brazil that make this a worthwhile venture to attempt.

This marks Singapore Airlines’ 6th continent and when you consider just where and what Singapore is, that’s pretty impressive.  There is no official word on what equipment they’ll use but I feel certain this will *not* be an A380 flight.   Most likely this flight will start off as a 777-200ER.

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Aviation Week has a great photo of the first ContiUnited aircraft to be painted in the new combined livery of United Airlines (merged).  You can see the Boeing 737-900ER HERE. 

Many find the “United” part of this livery boring.  From a design point of view, I think everything looks much better than when this all started.  Continental’s livery has always been a bit Euro-White-Boring.  But it’s a clean and modern look and I don’t think the name “United” detracts at all.

Nice touch making the first aircraft a Continental aircraft.

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Captain Peter Burkill commanded British Airways flight 38 from Beijing which crashed at London Heathrow airport about 3 years ago.  By all informed accounts, his quick action (and that of others on the flight deck) are credited with landing that aircraft with no power and no fatalities.  However, in the immediately following months, Burkill came under pressure at British Airways and though he kept quiet as he was supposed to, he ultimately resigned and searched for another position as captain at another airline.

Unfortunately, because of his high profile association with the crash and, frankly, some rather irresponsible mud throwing in the media (particularly in the UK), he was unable to find another pilot position.  Now there are credible reports that he is being hired back by British Airways.  British Airways, to date, has only said that Burkill is an admired colleague and that he would be welcome back at the airline. 

I always thought it shameful just how much of his dirty laundry and that of other flight crew members was aired in the media over there.  It was prying and irrelevant to his skillful work as a captain that day.

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With the Southwest/Airtran merger announcement, there has been a lot of rampant speculation on what US Airways or American Airlines should do in the face of this industry consolidation.  Many see them about to come under pressure from financial markets and shareholders to find a pathway to play in this consolidation game. 

While you could argue that US Airways is at a disadvantage to any of the SuperLegacy airlines now, I don’t think that AA is so much at a disadvantage that they *must* do something.  In fact, their problem is that a merger doesn’t bring much to the table for them since they would be the surviving entity and they already have high costs.  US Airways is doing just fine for now and I think they can afford to be cagey for a while at the least.

The truth is, I think jetBlue will be under more pressure than any other airline.  Their growth is largely stalled right now and then continue to re-trench in existing markets.  They’re busy defending NYC, Boston and, to a lesser extent, the Northeast.   While I admire how jetBlue got its foothold by operating out of JFK airport, I also think that they’ve begun to forget just how much the Atlantic seaboard chews up airlines. 

Yes, they’ve got their nifty trans-continental routes to the west coast and they appear to do pretty good with those on some level.  What jetBlue doesn’t have is a clearly defined pathway forward.  What’s their stategy?  The status quo?  More and more trans-continental routes that don’t offer all that great aircraft utility?  More flights from the Northeast to Florida?  More flights from Florida to Caribbean leisure destinations?  None of that sounds very attractive.

Lest you think I’m speculating, read this story quoting CEO Dave Barger.   He states they’ll continue to focus on their “growth plan” for Boston and the Caribbean.  I’ll point out that Southwest Airlines is already a national airline with a hole in their network.  That changes with the addition of Airtran and they become *much* more competitive with jetBlue upon completion of the merger.  Yes, I think SWA will stumble some during integration but I do not think that will inhibit their ultimate success. 

Contrary to popular belief, there is some low hanging fruit out there for the right airline.  jetBlue has the right service product, labor costs and, frankly, network to go take advantage of that.  But there is no vision for that kind of growth.

I suspect one thing that is inhibiting such growth is aircraft financing.  It’s a tight credit market out there and good terms on aircraft aren’t nearly as easy to acquire as they once were.  However, there are airlines out there with plenty of the right equipment and who could possibly be bought for the right price. 

I think it’s jetBlue that finds itself under pressure for an acquisition and/or merger.  It can’t continue to grow in its existing markets.  There isn’t any room to grow without a bruising and expensive battle.  I think it is going to take new leadership at jetBlue.  Dave Barger does a great job of keeping operations going and maintaining the status quo but he has done a poor job of setting a vision for growth into new markets.  There is plenty of opportunity out there and many airlines are seeing it and executing a strategy for it.  That is going to put a lot of pressure on jetBlue in the next year or two to find a way to articulate what their next plan is.

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About 24 hours after the Southwest Airlines / Airtran announcement, rampant speculation on who American Airlines should partner with started up.  The truth is, while I can make an argument for them to merge/acquire US Airways, I think they’ll shy away from a merger.  If they do go shopping for an acquisition, I don’t think it will be oriented towards a real “merger” a la Delta/Northwest or ContiUnited. 

There are a couple of targets left.  Alaska Airlines strikes me as one that should interest Southwest, American Airlines and Delta.  I think it’s pretty hard to get a deal done with Delta because of regulatory issues particularly in the Seattle area.  I think it’s pretty hard to for AA to get a deal done with Alaska because both parties have high labor costs and AA just won’t know what to do with the rather unusual operations Alaska performs in Alaska. 

I don’t think anyone is going to buy jetBlue at present and jetBlue’s CEO says they’re going to grow organically.  I would be happy to see jetBlue just get outside of its NY/Florida comfort zone and stop treating the midwest like it has the plague.

Frontier could be an interesting proposition for jetBlue, I think.  Sadly, I also think that Republic Airways is going to hold on to Frontier for dear life given what’s going on in the regional airline world.  Nevertheless, I do think that jetBlue could harmonize Frontier’s service and routes to the jetBlue way and make something of that airline. 

US Airways?  Well, they are the somewhat pretty girl who never gets asked out anywhere except to make some other guy jealous.  Until they get their labor house in order, I think it’s going to stay that way.  Their executive corps, however, ought to be attractive to someone.  Despite all of US Airways weakenesses and their “East/West” style of ops, those guys make money.  There is a lot to be said for that. 

I think they are more attractive for bringing into a new alliance.  Currently, US Airways belongs to Star Alliance but ContiUnited kind of makes them look superfluous.  SkyTeam just doesn’t need them either.  Oneworld aka American Airlines/British Airways,  on the other hand, could perhaps take advantage of them.  The deal would have to be a bit sweet because US Airways, if nothing else, is enjoying a nice “under the radar” ride on Star Alliance right now. 

I can’t think of anyone who could find a use for Virgin America at this point except, well, the Virgin Group.  Even the Virgin Group seems to have a hard time seeing a real value for working with Virgin America.  If they had any money, I would point them to Frontier but I think Republic Airways would just laugh out loud.

The truth is, I think there is suddenly some opportunity out there to start a new airline.  I would look for weak airlines who have major hubs and very little competition.  Some place where business customers and leisure travelers alike are dissatisfied with their current offerings and restrictions.  Some place that has a history of embracing the airline industry and where you can hire experienced people to kick that venture off.  That would be a great place to start something new.  I wonder where such a place might be?

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Regulatory authorities are going to start seeing Southwest Airlines differently as a result of this merger.  SWA has done a great job of characterizing itself as the small underdog.  In truth, it’s a big airline and this merger is going to get authorities such as the Department of Transporation and Department of Justice to see it a bit differently.  SWA flexes more muscle against its own competitors than most realize and this move does eliminate a lot of problems that Airtran was giving it.  Airtran had lower costs and a nice service product and competed very, very well against SWA on major market routes.  SWA will forever be seen differently going forward now.

Southwest’s fleet strategy has always been a popular topic of conversation.  While it’s true that they’ve stayed close to their 737 roots, different aircraft types aren’t unheard of for them.  In the 1970’s and 1980’s, they briefly operated 727 aircraft.  In the 1980’s they bought Muse Air and operated their MD-80 aircraft for a while too.  The addition of the 737-500 was, in some senses, the addition of a different type for them as well. 

Adding the 717 isn’t quite the challenge for them that many think it is.  This purchase grows their fleet from approximately 550 aircraft to 602 737s and 86 717s or 686 aircraft total.  Let’s put that in perspective for a minute.  American Airlines has about 630 aircraft, Delta about 728 and the soon to be ContiUnited will have 700.  Southwest leaps past AA and plays in the SuperLegacy category on fleet numbers.  It will continue to lag behind on capacity measured as revenue passenger miles.  Nonetheless, SWA is a huge player on a global scale. 

There is already speculation about SWA “de-hubbing” Atlanta.  Well, I think the structure  of the routes into and out of Atlanta will change dramatically.  I think we’ll see a SWA-like operation in Atlanta after a period of time.  However, it will remain a “hub” in the sense that will be a major player in the SWA system just like other cities such as Phoenix, Los Angeles, Houston, Dallas, Denver and Chicago.  Those cities are hubs too.  SWA just doesn’t operate flights into their “hubs” like a network carrier does. 

I wonder if SWA isn’t missing an opportunity to reinvent itself with this purchase.  Airtran did many things very, very well and they are a profitable and very competitive carrier.  They introduced Sirius/XM Satellite Radio on their flights.  They were one of the very first airlines to have an all Aircell GoGo Wifi fleet.  Their business class product is popular and upgrades to that business class product were also profitable. 

There are some elements here that SWA could stand to step back and examine.  They aren’t nearly as far from their own business model as they think.  SWA is working hard to attract the business passenger and that business class product might well be worth keeping and even introducing across the fleet.  Southwest is introducing Row44 Wifi (too slowly in most people’s opinion) and now they have an airline that knows how to do it quickly.  They have a unique opportunity to take a look inside the viability of Aircell’s GoGo product and see if they don’t want to reverse course. 

I don’t think onboard entertainment is necessary but I do think the Airtran satellite radio offering is a great value added item on their flights and, again, it’s worth taking a look at.  I don’t want SWA to be jetBlue but the satellite radio quite possibly “fits” within their quirky nature. 

I don’t think many airlines, if any at all, will object to this merger.  It eliminates a lower cost competitor for them and replaces them with someone who has rising costs that are moving closer to legacy airline costs these days.  In addition, the sheer size of SWA and the access it gains to major slot-controlled markets such as NYC and Washington D.C. mean that legacy airlines can now argue that there *is* enough competition in those areas.  I wouldn’t be surprised if Delta and US Airways wanted to revisit their proposed slot swap deal in the near future.

Finally, there is another airline out there that kind of fits neatly into this mix.  An airline that would be as unconventional as a purchase for SWA but which would really be a west coast mirror equivalent of Airtran purchase.  Alaska Airlines.   If SWA is willing to take on integrating an LCC carrier like Airtran, it could take on integrating a sub-legacy carrier such as Alaska Airlines.  Especially one with a fleet type that remains compatible with SWA but which offers even more potential since Alaska Airlines operates a broad range of the 737 family. Such a purchase gives SWA a strong presence in all of the regions in the United States and an opportunity to see how a regional airline (Horizon Airlines) works using a very cost effective type:  the The Dash 8 / Q400.

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If nothing else, mergers today give me an opportunity to come up with monikers for them.  While the merger between Southwest Airlines and Airtran is being described as an acquisition, it is a merger with the Southwest brand surviving.  And this is a pretty big bite for Southwest. 

Southwest has made purchases before but never one nearly so big.  Airtran is a pretty big airline and pretty successful too.  Let’s take a look at the questions we all have.

The Boeing 717:  I think SWA will keep this in fleet for a while anyway.  The airplane works well within the Airtran model and I think SWA has been searching for a smaller aircraft it could operate for a while now.  The 737-500 never really worked that well for them and the -600 just had too high operating costs to be worthy.  This aircraft gives SWA an opportunity to play with their mix a bit more and its easy to integrate into scheduling because there are enough for a pilot base and it doesn’t change their flight attendant mix on other aircraft.  I think this aircraft will stick around for  a while and I think that if SWA does get rid of them eventually, we’ll continue to see a smaller aircraft in the SWA fleet a la the 717.

Flying from DFW.  CEO Gary Kelly says the Wright Amendment prohibits them from flying from DFW and so the integrated airline will cease DFW operations.   I can find nothing that prohibits SWA from flying from both airports and if Airtran departs DFW, this is going to be a pretty big blow to consumers in the area.  Airtran provided so much needed competition on some routes from DFW and if those go away, I think we’ll see fares from American Airlines rise astronomically.  DFW needs to explore this with these two airlines.

Union integration:  I think this is going to be a bit tricky.  On the whole, the SWA pilot and flight attendant contracts are much better than the corresponding contracts at Airtran.  If the SWA unions are willing to integrate somewhat fairly,  perhaps this won’t be too much of a problem.  I think those unions will be a bit fussy about bringing over the Airtran crews and I wouldn’t be surprised to see them try to simply “staple” the Airtran lists to the bottom of the SWA seniority lists.  Gary Kelly needs to do more on behalf of Airtran employees in this area and perhaps he will.

Milwaukee:  I think we see routes shrink in this city and fares go up.  Airtran won over Milwaukee and that wasn’t easy to do.  I don’t know if Southwest will succeed as well as Airtran in that market and suddenly I wonder if Frontier doesn’t have an opportunity in this city.  They know how to hold their own with SWA.

Management teams:  Expect to see a few Airtran executives move over to SWA.  Expect most to depart.  Southwest is a pretty insular company but even more so when it comes to its executive corps.  I wouldn’t be surprised if some Airtran executives are working on their “flare” this morning.

International flying:  I think Southwest will maintain the existing Airtran international routes and I think they’ll awkwardly explore ways to expand it in the distant future.  To withdraw it all at this point would be a big loss.

Airtran’s Business Class:  Say Buh-Bye.  Southwest will dump this product quickly.  Southwest never sees the value of business class and I think this will potentially be a mistake.  Airtran’s business class is pretty nice and very attractively priced.  Retaining it even if just for some markets might not be a bad idea.  Think NYC – Washington, D.C. here.

I think this merger will happen and I think it will ultimately result in a stronger airline.  However, I think it will also be very awkardly executed.  SWA does things its own way and always has.  It always stubbornly clings to its own methods and madness and that works pretty well for them.  However, they are a big boy airline now and it wouldn’t hurt to start looking a little more closely at how their fellow competitors are doing things.  I’m not suggesting change for the sake of change.  I’m suggesting that Airtran figured out how to do pretty well with products that are pretty different from SWA.  Others have too.  It’s worth looking at the other guy’s success before you throw out the bathwater. 

Sadly, I think SWA won’t do this and I think SWA will have some labor problems and I think this will take longer and be more awkward than it has to.  I do think SWA is every bit capable of losing some of the advantages that buying Airtran brings.   Like losing a reservations system that knows how to do things like codeshares and international flights.   This is a risky deal for SWA.  One they can conclude and profit from but I think this will be harder to do than many seem to.

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Southwest Airlines has announced a tentative merger/purchase agreement to buy Airtran Airlines for $1.4 billion today and, yes, I was completely surprised.  It’s a bold move and offers SWA huge access to Atlanta and competition Delta Airlines (who I imagine has already opened up the desk drawer and taken a swig of antacid this morning).  It offers more access to the NYC and Washington DC areas, too.   And it brings that international experience to the table as well.

As much as this is about growth and access to new markets, it’s also about eliminating some damaging competition in other markets.   SWA and Airtran are already beating each other up in the North East and in Milwaukee.  It was soon to be only a matter of time before the bumped heads elsewhere too.   This is as much about Southwest elimating that distraction and allowing it to focus on competing with the SuperLegacy airlines.  More tomorrow.

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You’re surprised, right?

The Chicago Tribune has a story on airline objections to baggage fee refunds and how most airlines are reacting to a proposed federal rule that such refunds be available.  The Airline Transport Association says this should be determined by the marketplace, not the federal government.  It claims that mandating such a thing will raise fares on everyone and a determining what constituted a timely delivered bag was subjective at best.

The ATA sounds like a political party at this point.  Actually, it sounds like the Republican party at this point.  No regulation!  No Rules!  No Taxes.  Leave Us Alone!  Get off our lawn!

I’m pretty sure I could determine what constituted a timely delivered bag.  If it is at the baggage carousel available for my pickup in no more than 60 minutes, it’s timely delivered.  (I’ll point out that this is more generous than Alaska Airlines at present.) If it isn’t delivered to me in a timely manner, my fee is refunded in the manner of payment I originally used for such a fee.  

Hey, if you want cake and you want to eat it, be prepared to pay for it.  It doesn’t come free.  It’s time even airlines get that message.  Don’t like the infrastructure such a rule might impose upon you?  Figure it out.  

Airlines earned over $3 Billion with a “B” in baggage fees between June 2009 and June 2010.  I know they love that revenue and I know it’s making a difference in their profits.  Thing is, if you charge a fee for something, you *should* be held to standard of performance.

Offering some points or making it incredibly difficult to obtain a refund falls short of a performance standard that anyone would find acceptable anywhere else.

And let me comment on this idea that the marketplace should determine this concept.  Bah!  We don’t have a free marketplace in the airline industry.  We have an ever increasing oligopoly that competes with itself on price but which cooperates in signaling policy behaviors on just about every other subject. 

Even restaurants have to operate within health standards and dry cleaners get to pay for what they lost.  Why should airlines be exempt from this?

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Lufthansa has announced a 48 plane order and while that isn’t all that remarkable compared to many aircraft orders these days, it’s an order that highlights two emerging developments in the airline world.  The Lufthansa order is for all Airbus equipment and it isn’t all for Lufthansa.

Some of this order is for its SWISS subsidiary (A320 family and A330), its Germanwings subsidiary (A320 family) and Lufthansa is getting more of the A320 and A330 family for itself.   The Airbus family concept is clearly allowing Lufthansa to take advantage of greater buying power as well as greater flexilibility amongs its various operations. 

Lufthansa can shift equipment to various subsidiary operations as demands change and can reconfigure that requipment relatively easy to meet the requirements of each subsidiary.  While many already knew and predicted this behaviour, it’s really remarkable in that its now become kind of matter of fact for an airline like Lufthansa.

This isn’t something Boeing really offers.  Not yet.  Boeing offers its 737 family, yes.  But it doesn’t have that type transition flexibility between a narrowbody family and a medium range/ long haul widebody family.  Not quite. 

The 787 and 777 will offer reduced transition times between the two types and that’s a good thing.  But there is no such animal between the 737 and its bigger siblings.  In addition, there is no real such thing between the 787/777 and the new 747-8i either. 

Boeing builds a great airliner and arguably they build a more cost efficient airliner in many respects when considering the aircraft and the trip itself.  What Boeing hasn’t yet instituted is a product line that is friendly across all kinds of operations that a large airline might have. 

It’s a core strength of Airbus and, frankly, a differentiator that, I think, will prove itself more and more valuable over the next two decades. 

The 737 replacement is a good place to start.  This will be a family of aircraft designed to meet the needs of airlines from about 150 seats up to 220 seats where the 787 will take over.  The 787 is advanced enough that making the 737 a baby 787, operationally speaking, could offer some additional value to airlines in the coming years. 

US Airlines haven’t exactly gone for this kind of family concept.  Not yet.  Northwest and United Airlines and US Airways all bought Airbus but they bought them without intending to realize the family concept from narrowbody to widebody.  I think that will change.  As we see SuperLegacy airlines develop, I think we’ll see a desire to harmonize more, not less over time.  More on that tomorrow.

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and gets fined for it.

The Chicago Tribune has a story about United Airlines self-reported 3+ hour tarmac delay violations in May.  In short, United diverted some aircraft due to weather problems.  These aircraft were on the “tarmac” for varying times but all in excess of 3 hours.  United ensured these passengers had water, snacks and were offered the opportunity to de-plane.  Then they self-reported this as a 3 Hour Rule violation and later determined that, no, in fact, they had complied.

The Department of Transportation hit them with a $12,000 fine for wasting their time.  $6000 paid now and $6000 to be paid if there are future violations of this nature. 

“United’s misreporting of this data wasted valuable Department resources,” said the Department of Transportation

I would offer that someone needs to smack the DoT on the back of the head for raising a storm about something that can and will happen when a new rule is introduced.  I don’t think it’s a perfect world and I realize that bureacracies can act oddly when presented with rules but anyone at the DoT with good sense should have floated the idea that this just be allowed to fade away.  The amount of the fine is trivial for both sides.  However, it was an arbitrary and petty way to behave towards someone trying to comply with a new rule.  It is also a great way to earn the enmity of the public in this kind of rule making.

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American Airlines parent company, AMR, shares have dropped based on analysts projecting larger losses for the full year of 2010 than originally expected, reports Bloomberg BusinessWeek.

Yes, AA isn’t projecte to earn a profit this year.  They will, instead, improve their performance over last year.  Or, to put it bluntly, survive and hope.

No one who follows the airline industry thinks that airlines are a great way to earn money.  Investing in airline stocks can be because that is about buying low and selling high which continues to be possible in the airline sector for some unfathomable reason. 

Even though it’s possible, you have to wonder why anyone would purchase the stock of an airline that already is the size of a SuperLegacy when it comes to revenue and network but which consistently underperforms compared to any other airline it directly competes with.  Make all the execuses for AA you want in the area of labor costs, not going bankrupt, etc.  At the end of the day, they appear to be just very good at surviving.  There were a few other airlines that were rather good at surviving.

TWA and Pan American come to mind. 

Yes, AA has labor cost problems and an older fleet and those get in the way of earning those pesky profits.  As time goes by, it seems to me that AA has managed to be very good at holding onto large amounts of cash and manuevering from one crisis to another.  However, they don’t seem to ever really solve their problems, do they?  They’ve got labor negotiations that have gone on for 4+ years now.  The issues surrounding those labor negotiations were a known value all the way back in 2003.  They have a  fleet that most in the business would have pointed out the liabilities of all the way back in 1999. 

It’s not that AA executives are bad.  They aren’t.  But over time one has to question if they’re good enough for the way the airline world is operating today.  Is following the AA way a successful model for the future?  Is it wrong to expect them to earn a profit at least when their industry competitors are?  Even if it isn’t as much unit profit? 

How much longer do the AA board of directors and their shareholders wait for performance that at least indicates movement that at least generally points in the same direction as the industry?  I would argue that it’s time to wonder if it isn’t time to think out of the box before AA is managed right into a nasty little corner without any options.  It’s  at least time to perform a objective analysis of whether or not to stick with the current team.

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Spirit Airlines has decided to do an Initial Public Offering (IPO) of stock and thinks the value will be about $300 million. Spirit is currently privately owned by a number of high profile investors who, it has been said, are ready to cash out of their investment. 

Does this mean they don’t like it?  No.  Their investors are venture capitalists and by their nature, they look for an exit once an investment has been successful.  Spirit has enjoyed that success and according to this story in USA Today, they make a good case.

Their aircraft utilization has risen from an acceptable 9 hours per day in 2006  to 13 hours per day.  They are now earning over $30 per passenger in ancillary revenue vs just $5 in 2006.   They’ve also managed to earn a profit for each of the last 3 years in what has been arguably the worst climate possible for airlines.  While they have had an initial loss for this year, blaming it on higher wages and fuel costs, expect another profit for the full fiscal year. 

Spirit isn’t an airline I would typically fly but I will concede that they have found an untapped market following what is almost a Ryanair+ business model.  They’ve lowered base fares dramatically and earned good revenue from “unbundling” their services and while many don’t like what they’ve done, their relatively full aircraft and annual profits point to the fact that many are happy to take the deal.

Spirit outlines their intent to retire debt and fund growth from this IPO and to do that, Spirit is going to have to branch out from their Florida/Gulf/Caribbean marketplace and attempt operations in other parts of this country.  They’ve done well with their Caribbean focus and I expect they’ll look for other cities to take advantage of that strength.  Perhaps in Texas or California.  It is interesting to me that they’re about to start service from Chicago O’Hare to Las Vegas and that’s their market:  inexpensive fares to leisure destinations.

Whether you like their approach to airline service, you can’t argue against their success and they do have a solid business case going forward.  They also face some risks going forward like any airline.  As they age, their labor costs will go up, for instance.  As they succeed in their various “fees”, other airlines will likely adopt some of their practices.  But Ryanair has an aging labor force and they continue to do well.  Other airlines in Europe have adopted Ryanair-like strategies.  Ryanair is still succeeding because they’re still executing their strategy better than anyone else.  Spirit has that same potential.

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There is a rumour that Sun Country Airlines may be in play for being purchased / merged with another airline.  Candidates suggested are Delta, Airtran and Southwest Airlines.

Delta?  Never gonna happen.  They don’t need Sun Country and they don’t need the regulatory headaches that a Sun Country purchase offers.

Airtran?  Kind of doubt it.  Airtran has been avoiding direct competition with legacies lately and they’ve got that area of the country covered with their operations in Milwaukee.  In addition, Aitran isn’t a 737-800 operator and doens’t need that headache at present.

Southwest?  Now that’s a marriage.  One that I suggested at the New Year in this post.  Mind you, I don’t think it will be for the weekly flights to London.  The fleet is compatible and despite concerns over it being entire leased, it’s a good fit and allows SWA to start 737-800 ops just that much sooner and on routes that are that much more lucrative. 

It also offers MSP gates and more opportunities to fly more places.  In fact, it offers just the right kind of opportunities:  international flying.  Southwest Airlines recognizes that international flying is something that they need to consider.  However, it involves an area of expertise that just isn’t at SWA and within their business model.

Sun Country offers that ready-made expertise and to a variety of destinations.  With that experience, SWA suddenly has the ability to go to Mexico and Canada which are already a part of its codeshare work (and where is that codeshare with Volaris, by the way?).  But the experience in the backend, reservations, visas, handling foreign currency, etc. is all offered with a Sun Country purchase. 

It’s a ready made solution for growth but it has one risk. Union agreements.  And Sun Country has a lof of employees who feel that Sun Country was never given an unfettered opportunity to grow.  Whether that’s true or not, it’s an obstacle.  If SWA can convince its unions to offer senior merging on a date of hire basis, it might work.  If SWA’s unions insist on a purchase being “stapled” to the back of the seniority list, it’s unlikely it will work.

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