Southwest Airlines’ flight attendant union has come to a tentative agreement on introducing the larger 737-800 into the SWA fleet.  By all I can see, this is a reasonable agreement  and reached in what has to be nearly an all time record time even for SWA.  When this originally came to light a bit over a month ago, there was rampant speculation (even on my part) that SWA made this public in order to cajole a recalcitrant union.  Now, the agreement has been reached and SWA is still working with their pilots who, if anything, should have even less of a problem agreeing to the addition.

So what was the fuss about?  Perhaps this once it was what the flight attendant union said it was.  They were contractually obligated to talk and they really saw no large obstacle to making it happen.  This just doesn’t feel like there was a real conflict brewing.  Suddenly it feels like the pilots might be hemming and hawing over this. 

Actually, I doubt even that.  Perhaps SWA and its unions will have complete agreement in a few weeks and make their order with Boeing.  No one yet has found a reason why adding the -800 is a bad idea for SWA.  Yes, there will be a slight change in the number of FA’s on these aircraft and, yes, it will add a slight level of complexity for managing scheduling.  However, the benefits are bigger and this potentially gives SWA a chance to find out if they’re ready to go to another level in the future.

Filed under: Airline Fleets, Airline News by ajax
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Now we have a picture, although somewhat fuzzy, of the WTO findings against both Boeing/USA and Airbus/EU that frankly brings me to a different conclusion than some.  Without going into the complex findings on both sides and we really don’t have a public ruling on the EU claim yet anyway, we can begin to see the disparity come into focus slightly. 

The disparity comes in two forms.  First, the value of the violations.  Most conventional wisdom saw about $20 Billion in various subsidies that the EU and/or Airbus would need to remedy over time.  More important, it was a fairly loud condemnation of certain practices that will require fundamental restructuring in the EU to accomodate.  In other words, the Airbus business model, at first glance, will have to change pretty substantively. 

The first analysis of the WTO claim against Boeing and the US is a bit different.  The value of the violations is somewhere in the rough vicinity of $5 billion with about $2 billion of that already remedied by Congress.  The real kicker is that remedying these violations doesn’t require a fundamental business model change. 

The EU is already positioning itself to call, once more, for negotiations on this subject.  A number of US and EU based analysts predicted a need for negotiations on this.  I’m going to go out on a limb and say that I’m not so sure the US will be that interested in negotiations.  The incentive to negotiate usually comes from two parties having a roughly equal interest in having something settled.  At first glance, that doesn’t exist here.  Boeing takes far less of a hit by simply sucking it up, making the remedies and continuing their stance that the EU must take care of their own house.  It puts them on the high ground both politically as well as in a business sense.

I think the US/Boeing will likely make some nominal objections to the WTO ruling but I suspect they’ll breath and comply and then press their case even harder against Airbus.  The EU and Airbus will fight, kick and scream about changes on their own ends.  I think political leaders from the EU, in particular leaders from France and Germany, will press their case directly with our President and other members of our government.   While I do think there are some in our government (mostly Republican oriented members) who will be willing to negotiate, the truth is that it is not politically smart to engage in that over  here. 

We have an economy that is staggering still.  We have a population of 350 million people that our government has a responsibility to and most of those people are entirely unconcerned with the health and welfare of European nations who, quite frankly, have been rather snide and ineffectual during the global economic crisis over the past 2 years.   For Europe, the chickens have come home to roost and the crowing is going to sound awfully loud in the mornings.

In the long run, making those changes actually benefits Airbus.  Bringing them into a market driven business model as opposed to a subsidy driven business model will bring tangible benefits such as real profit and revenue.  The political leaders of the EU are the ones who really have to take the hit.  Airbus has been a huge jobs program for many of them and there will be a lot of fallout if and when Airbus leans itself out.

I think this will affect the KC-X tanker bid as well.  Secretary of Defense William Gates has repeatedly said that subisides shouldn’t play an issue in this award.  In fact, he may well be right about that.  However, right and what is politically smart are frequently entirely different things.  With this conflict on subisides receiving new light and a more clear picture forming, there will be massive political will being exerted towards a US based award and that means Boeing.

I think the KC-X tanker award gets pushed away from a November award.  With it scheduled so soon after mid-term elections, the wise thing will be to take stock of who will be in power and measuring the responses to each potential award.  Given that, I suspect this award will definitely push until January and potentially gets pushed until March of next year.  

Boeing needs to win this on merit this time.  A delay makes that more possible rather than less possible.  It allows emotions to settle and a rational decision to be made rather than a politically reactive decision.  They’ve lost this award twice now.  Once through corrupt practices and once with a bad set of requirements.   They can’t afford a third loss because of political winds shifting after an emotionally made award to them.  Play it by the book, offer the best price and make certain that your bid fully describes the work and realistic delivery. 

This latest (confidential) WTO ruling isn’t going to settle everything soon.  There will be appeals and counterclaims for a few more years.  However, it does put Boeing on higher ground and if they’re smart, they’ll refrain from crowing (too much) and get to work on selling aircraft.

Negotiations to settle this between the EU and US are unlikely if not for the reasons stated earlier in this post, then for world political reasons.  Several countries have emerging aerospace industries that will be encroaching on Boeing / Airbus territory.  They want a seat at the table and a negotiation between the US and EU over this doesn’t afford them much say in how they can advance their interests.   Boeing can best fend off that encroachment by continuing to take the most free enterprise approach it can in this market.  The move above board they are, the more the US can advance their interests and access to markets from this point forward. 

Boeing can, however, appease some of those countries by working even harder to bring those companies into partnership with Boeing.   One of the best actions to take would be for Boeing to draw those companies in both manufacturing as well as marketing partnerships that are profitable for both sides.  The first company I would approach is Embraer despite Embraer’s lean towards Airbus at this time.  Embraer has the most mature product line and it’s a natural fit to slide into markets in partnership with Boeing and just behind the Boeing product line. 

But I wouldn’t ignore Russia and Japan either.  Russia knows how to build aircraft and with just the right nudge, they could be a very effective partner for Boeing.  They could potentially even be a low cost manufacturing center in a decade.  They are the only other country outside the US and the EU to ever build large aircraft successfully.  Japan offers great engineering resources and manufacturing skills that embody the kind of quality control that is a must.  If Japan had built hose 787 horizontal stabilizers, we would have never heard about quality problems on them.   That’s a lesson learned for Boeing.

Yes, everything has a way to go yet but Boeing suddenly looks a lot better today than it did a month ago as a result of the preliminary WTO ruling.  The picture isn’t in perfect focus yet but it did get much more clear.

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Two days ago, I took exception to a post made by the very popular blogger, The Cranky Flier, over statements made about the 3 Hour Rule.  The dialogue taking place over there highlights the biggest problems with arguments being made for and against the 3 Hour Rule.  Too many judgements are being made on both sides on the basis of incomplete data and emotional arguments rather than facts.

The FAA argued that tarmac delays were dramatically down versus a slight increase in cancellations and, I agree, crowing about it just a bit too much.  Cranky argued that the “slight increase” was in fact a 20% increase and there was an emotional reaction to that.  The problem is, no definition or data is being given for really measuring the impact of the rule on cancellations or the impact of the rule on people. 

Most of the original arguments made for a 3 Hour Rule were derived from exceptionally rare events.  Even when you considered those events in a seasonal context, they were vastly outside the norms.  Indeed, you might have been able to say that 3+ hour delays occurred infrequently enough to be considered statistically insignificant.  What we do know is that if your population of events is large enough, you’re going to have a few that occur far outside the norms. 

Further, we reacted emotionally to the conditions people sat through on many of those flights and really only to the subjective reactions on the part of people who spoke to the press.  We never heard from the person who just sat on the plane quietly for 7 hours and thanked his lucky stars he finally arrived home and got off.   That person doesn’t play well on CNN. 

I do think that there is an argument to be made for limits on the basis of health and welfare of individuals on flights.  I do not think it is wise to hold people on a MD-80 for 8 hours except in the case of major emergencies.

There are health issues to consider such as the close proximity and contact that occurs between a wide variety of people in that environment.  Air quality is another.  Sanitation is also a serious one.  Food and water is really a strong factor as well.  And let me point out that we will divert an entire aircraft to an unscheduled stop when someone is having a medical emergency.  There should be a discussion on how we value the health and welfare of people in these situations.  And just because 4 people want to go at all costs doesn’t mean that rises above the needs of 4 people who have serious health conditions that could well be impacted by a prolonged stay inside an aircraft. 

We should carefully evaluate anything we hear in the media about cancellations as well.  Should we be giving full weight to the person who had a flight cancelled and who suffered a 24 hour delay vs the other 10 people who had a flight cancelled and suffered a 5 hour delay?   Is a businessman’s need to get to the next meeting superior to the mother’s need to get her 2 young children off a plane because of health considerations?  The truth is, I don’t have black and white answers to questions like that but it would be good to see a debate on issues like that.  We, as consumers, should see a bit of argument on both sides and get a more complete picture before we start judging these moments purely on our needs at that particular moment.

As far as the data goes, we don’t know what the impact of this rule is.  We aren’t measuring the impact by the number of people per 100,000 travelers who are getting their flights cancelled specifically because of the 3 hour rule.  We know that cancellation rates go up and down.  Those cancellations can be caused by seasonal events, bad airline operations or, frankly, just a bad week of equipment failures at a particular airline (I believe it was AA who recently saw not one, not two but three 767s go INOP in a single day).  We do know that the overwhelming majority of flights never come close to spending 3 hours delay on the airfield.  Seriously, we do know that.  We know that the frequency of occurrence for delays going past 3 hours prior to the 3 Hour Rule was negligible by any standard. 

What I believe (which is different than objective fact) is that we also have a need for some kind of rule governing those instances that did fall outside all of the norms and which were not caused by major acts of god or major emergencies.  As Doug Parker said, the airlines did this to themselves in many respects.   There were enough instances that we, as a nation, found unacceptable given the particular circumstances around the event.  Airlines and airports didn’t deal with those situations considering what might be humane but instead were making objective decisions based on operational and financial data. 

Objective data and objective decisions are, generally speaking, good to have.  However, we live in a world with human beings who are very subjective creatures.  Yes, you really do have to give consideration to that. 

Statistically speaking, an increase in cancellations that sees a rise from 1.18 percent to 1.43 denotes an exceptionally slight increase from an objective point of view.  The FAA was right.  However, the FAA failed to consider the number of people who were potentially impacted by that slight increase and Cranky was right to point out that these incredibly slight increases do have an impact on a rather large number of people.  By Cranky’s math, that slight increase potentially affected 150,000 more people.  Are we satisfied with the idea that more people than the new Dallas Cowboys Stadium can hold were materially affected by a cancellation?  Well, we can’t even make that judgment because we don’t know all of the “why” behind each cancellation. 

But I think we can agree that it isn’t anything to brag about when 150,000 more people were affected by cancellations.  If nothing else, it is in appropriate to reduce people, human beings, to that kind of statement.

At some point we all should start acknowledging that our airline transportation system is imperfect and cannot delivery you to your destination 100% on time without any cancellations.  If you travel by air, you are going to be affected by a combination of factors virtually every time.  It’s time to be a bit more reasonable in our expectations.

On the other hand, it’s time for airlines to start acknowledging that as well.  One of the biggest causes of uproars over these kinds of situations is an airlines propensity to expect us to adhere to a byzantine set of rules governing our options when traveling while allowing themselves all manner of leeway for those same events.  Airlines want a $20 fee to check a bag but they don’t want to refund that money when they don’t perform.  However, when you miss flight due to a large traffic jam or weather event, you’re often expected to pay penalties and change fees for being affected by something outside your control. 

Not even Las Vegas has a better rigged game than the present US airline industry.  That is what is driving the perception that airlines are abusing people.  And I think it’s manifesting itself in reactions to the more outrageous although exceptionally infrequent events such as a long tarmac delay.  A little more balance between the airline and its customer is called for in my opinion.

Is it right for the government and/or the FAA to regulate some of this behaviour?  Absolutely.  Airlines are using public airways and other public infrastructure while serving the public.  They benefit from a great deal of government investment and expenditures.  The government is not created by the businesses for the businesses.  It’s here for the citizens.  The people who vote and who are ultimately and individually responsible for this nation.  That said, it doesn’t mean that the regulation and oversight needs to be hamhanded or political either.  However, just like no human being or airline is perfect, neither is government. 

Let’s be a bit more realistic about our expectations for all parties involved in this subject area.

Filed under: Airline News, Airline Service, Airports, Frequent Flier, security by ajax
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The FAA has proposed new rules to govern rest for pilots and I’m sure it will set off considerable debate.  I haven’t read the proposed rules in detail but the highlights didn’t really encourage me.  In fact, I don’t think fatigue is being addressed in those rules very well at all.  Instead, I think the perception of the problem is being addressed.

Pilots aren’t just fatigued because the number of hours they work in a day.  They aren’t fatigued because we only require 8 hours of rest period between duty time on successive days.  Both of those conditions do contribute, yes.  But one of the hidden problems has more to do with how a pilot has to manage his or her life with respect to their career.

Mind you, we aren’t requiring 8 hours (9 hours in the new rule) of sleep between duty periods.  Just rest.  Rest being largely defined as “do what you gotta do to get your stuff done and get some sort of sleep.”  A pilot entering a “rest period” still has to eat, bathe, tend to family obligations, etc, as well as sleep. 

In addition, many pilots have to commute to their duty stations.  A pilot assigned to New York City for duty may be commuting in from Topeka, Kansas.  That means to make a duty start time of 8am on a Monday, they probably left mid-day the previous day, flew to NYC, went to a “crash pad” or hotel room, had some kind of meal and some kind of sleep but then got up as early as 5am to make an 8am duty time.  That doesn’t allow for much rest much less *quality* rest.

If we’re going to have new rules, it would seem to be better to craft rules that allow for quality rest on a regular basis.  That doesn’t mean every night necessarily but it does mean more frequently than every 7 days too.  We need rules that, perhaps, govern how much time you can spend commuting in the 24 hours prior to your duty time.  Do we really want pilots spending 8 hours in a day to get to their duty station and then put them on the job for as much as 8 hours of flying and 12+ hours of duty time? 

Maybe pilots shouldn’t be allowed to spend more than 4 hours commuting to their job on their duty day and no more than 6 hours commuting the day before their duty day.  I’m certain there is a number to be found that would help reduce real fatigue. 

How many hours someone can work in a particular day is important, yes.  But how many hours they can work in a week and how many hours they spend commuting back and forth to their job is even more important.

These new rules were spurred by the Colgan Air crash in New York State.  Fatigue was cited as a contributing problem.  Let me point out that those pilots had commuted coast to coast and their “rest” was garned by sleeping on the aircraft they were commuting on and in pilot “quiet rooms” at airports.  That’s not rest, that’s a holding action at best.

Filed under: Airline News by ajax
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It was just shy of 8:15am and I was pulling into the parking lot of my company.  A company where I, as a senior manager, was in charge of our all our daily operations.  I was actually a bit annoyed because I was arriving 15 minutes late that day and I strongly believed in showing up exactly on time.

Each day, on the way to work, I was in the habit of listening to the National Public Radio news broadcast on our local public radio station.  Those who know me, know just how important it is, to me,  to get to listen to that twice a day. 

Moments before I was about to get out of the car, the news broadcaster, Carl Kasell,  who read the news on NPR suddenly stopped speaking, struggled for a brief moment and then said he had news just put in front of him that a small aircraft had just hit the World Trade Center in New York City.  When Carl Kasell hesitates and stutters, you stop and listen.  He is a consummate professional in his job.

I’m somewhat sad to admit that my first reaction was “It finally happened.  All that air traffic in the NYC area and now a commuter aircraft has run into a building.”  In fact, I assumed it must have been foggy or a day of low clouds and someone had made a bad mistake.

I went inside to my office, said hello to everyone and then shut my door to make business phone calls and read email in privacy.  Oblivious to what was unfolding in New York City and Washington D.C.

About 45 minutes later, my head buyer burst into my office and asked if I was aware that the world was crashing down and on fire.  She used those words and since she was ordinarily my most stable employee, that got my attention and I asked my friend who stood accusingly in my doorway what was going on.

“Planes just hit the World Trade Center and now it’s falling down.  And the Pentagon is on fire.”

That struck me like a 5lbs hammer. 

I came out of my office and we all turned on radios and even a TV (the benefits of working for a company that did direct sales of consumer electronics) to get news.  It was hard to get, actually.  Our phones were silent but you couldn’t get a phone line to call out either. 

I had had a new T-1 data line put into our office just a month earlier and when I couldn’t get any news websites to come up on my computer, I assumed the connection was bad until I realized I was still getting email.  All the news websites were flooded with traffic.

It took us a good 2 hours to settle down.  Unlike some companies, I kept our staff at the office and kept us together.  We really didn’t get any work done.  I pretended to attempt to merchandise for our Christmas catalog but I was just listening to radio and searching websites for any news I could.  Our phones were quiet and no customers were emailing us to ask where their new telephone was.  I thought it was important for us to stay together.  It seemed like if I sent everyone home, we would be weaker and more susceptible to what was going on. 

We did finally leave around 4pm.  I went home, made dinner and watched the news.  After a couple of hours, I went outside on my patio to sit and reflect without the news in my ear.  After about 5 minutes, I realized that it was silent outside. There was no aircraft traffic, there was no car traffic.  Ordinarily, even a quiet evening in my neighborhood is filled with noise from cars and other activities.  That night it was just silent. 

My phone rang after about an hour.  It was a friend from Australia calling to see if I was OK.  I pointed out that what was happening was in New York and Washington, not Dallas.  They explained that they knew I traveled on the spur of the moment frequently and they were worried I was up there or even on one of the aircraft.  Strangely, I got several more phone calls from friends outside the country that evening asking the same questions.  Friends from Russia and the UK and Canada. 

By that evening, I had already told several friends that hijackings will never be treated the same again.  I said things like “The rules have changed” and “The gloves are off”.  I knew air travel would never be quite the same and it isn’t.  Today, an attempted hijacking would be met with resistance by any and everyone.  Back then, the standard operating procedure was to cooperate and get the plane on the ground.  But hours later, I knew that wouldn’t be the case ever again.

Those moments that cause us to know them by where we were when they happened seem to come only once in a generation at most.   That was my generation’s “Kennedy moment”, if you will.  It was for anybody in the United States that day.   Now you’ve heard my story.

One of the most compelling parts about the events of September 11, 2001 is that there are so many different and interesting stories to hear.  I would like to hear yours.  Please comment to this blog entry and tell me where you were on September 11, 2001 and what your impressions were.

Filed under: Airline News by ajax
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The Department of Transportation has decided to recommend against anti-trust immunity between Delta Airlines and Virgin Blue airlines Virgin Blue and V Australia.   This decision caught many by surprise and I’ll confess to being somewhat suirprised but pleased as well.

The DoT seems to say that they don’t think Delta has worked to establish itself in the trans-oceanic market and hasn’t done a very good job of showing the benefits to the consumer.  There is some truth to that.  Delta and V Australia are both new entrants to the US-Australia routes and neither has really done that well so far but neither has seemed to have invested in developing that business all that well either.  The efforts made seem more pro forma than with enthusiasm. 

I also think that both parties felt that with two very established carriers between the two countries, an alliance between two new entries would just be automatically supported.  An assumption that I would have said is likely just a day ago. 

I think everyone could stand to take a moment and breath on these alliances.  Yes, they grow the network and they offer greater potential for profit but is an oligopoly of 3 really better than an oligopoly of 2?   The public good isn’t just served by profitable airlines.  The public good includes what is generally good for the consumer such as competition that offers varying levels of service and price. 

If you want an alliance across the ocean, prove you can be a player on that same set of routes first.  Better yet:  be creative and open up some new business rather than just continuing to try to compete on the ubiquitous California – Australia routes. 

Alliances are fine but let’s not forget the purpose of business and competition and what it has to offer.  If you want to be in business on a particular route, the preferred pathway should be making a long term investment and working for the traffic.  We should desire to start seeing *more* competition between these alliances, not a continued effort to stake out their “just share” of business in a particular market.  Carving things up into 3 equal shares serves no one’s interests at all.

Good on the DoT for doing the unexpected as well as doing it for a good reason.  I would like to see a bit more of that attitude in other future decisions.

Filed under: Airline News, Airlines Alliances by ajax
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British Airways Business Class subsidiary, OpenSkies, is introducing a money back guarantee to encourage new people to try their services between Newark/Washington D.C. and Paris.  Since their internal customer satisfaction surveys indicated that more than 96% of respondents would recommend OpenSkies, this seems like a rather safe bet to be making.

Offering such a thing is a relatively unheard of act in the airline business and it is a hint at the fact that airlines still need to attract customers, particularly business customers, in a rather innovative way.  It’s a rather satisfying guarantee because by its very nature, it’s unusual.  I suspect it will get some people to notice them and, perhaps, pay attention to them.  Especially if current Oneworld members are permitted to earn frequent flier miles on these flights.  I presume this will be possible since OpenSkies participates in BA’s Executive Club program.

But at the end of the day, OpenSkies is a tiny airline serving just two routes and this money back guarantee is unlikely to spread among larger airlines.  If they were serving more routes, it is possible that other airlines would match it on some limited basis. 

What would be nicer to see among airlines is a money back guarantee on the so called “services” that are now requiring extra fees such as the baggage fees or priority seat fees, etc.  Sadly, there is no sign of that developing at any airline.

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The pilots of Continental and United Airlines have decided to throw a whopper on the table and see if the stink gets them anywhere in their negotiations for a unified pilots’ contract for the proposed ContiUnited merger.  They want an end to all outsourcing of flights.  In other words, they want ContiUnited pilots to fly all the flights.

Never. Gonna. Happen.

Pilots want job security and I can’t blame them.  The investment in both time and money towards their career makes them much more tied to an airline to earn a living than most people experience in their lives.  The seniority system just compounds that issue for them even more. 

But airlines aren’t going to agree to eliminating regional airline partners for their flying.  They can’t.  It isn’t economically viable at the labor rates insisted upon by unions of these legacy airlines.

Each part could give a little on this.  Regional airlines don’t offer just cheap pilots.  They offer flexibility and less expensive flight attendants and even less expensive maintenance.   Both parties need to find a way to offer employees better job security in exchange for more competitive costs.

Given that this is most important for pilots, it seems to me that the SuperLegacy airlines might be better served by “leasing” not only their aircraft but their employees to these regional airlines in down times.  In other words, craft an agreement that allows the SuperLegacy pilots to displace the regional partner pilots when their laid off.  Lease those pilots at the regional partner rate and, at the least, preserve some job security. 

It’s one way to work within the seniority system.  A system that, frankly, pilot unions are using to make their membership become indentured to airines.  It’s a system that I disagree with but if you must preserve it, at least find some flexibility within it.

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Ryanair’s Michael O’Leary has done it again and raised the ire of pilots, agencies and even the public by suggesting that not every flight needs 2 pilots.  He made his suggestions in this Bloomberg Business Week story.

O’Leary suggests that by eliminating one pilot and ensuring that a flight attendant was “trained” to land the plane, airlines could save even more money and offer even cheaper flights.  And, as always, he’s got the media and other interested parties attention with his outrageous suggestion. 

Relax.  It isn’t going to happen.  O’Leary is masterful at getting free publicity with his comments to the press.  Just like suggesting pay toilets and standing room only fares, this one is more about getting in the news than it is actually about doing it.

The truth is, the workload for pilots is at its greatest on the very short flights he suggests pilots are unneeded on.   Even though it is possible for computers to take off, fly a route and land an aircraft, it’s still important to have situational awareness and our traffic control systems don’t provide that level of situational awareness.

Nevertheless, O’Leary is right about one thing.  You have to work at challenging present business models in this industry or you can fall behind.  One thing I do agree with him on:  Passengers aren’t nearly the delicate creatures they are made out to be. 

There is another thing I kind of like about the man.  He got Kate Hanni to bite at his bait on the one pilot concept and now she and her organization, FlyerRights.Org, are running around trying to get governmental organizations to assure her that such ideas won’t trickle into the United States. 

Of course they won’t.  They’re unworkable in terms of flight safety.  They’re unworkable in terms of the sheer legal liability they introduce.  And to pay them attention at all affords O’Leary and Ryanair a win.   It’s one very important way that Ryanair saves money and offers the very low fares that attract its large base of customers.

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British Airways CEO and soon to be chairman of the International Airlines Group, the holding company for the merged BA and Iberia airlines, says he and his company have a large list of acquisition and merger targets as part of a strategy to become the world’s largest airline.

It’s a strategy that would have the potential for really shaking up the airline world because it would be the first real multi-national airline (Air France/KLM and the soon to be BA/Iberia consolidations don’t count given that they are in the European Union.)  Yes, there are already cross-border airline but they’re typically between two countries within an economic union or with strong business ties between each other. 

A real multi-national airline would be much more like something between British Airways and American Airlines or Delta and Cathay Pacific. 

Obviously strong ownership restrictions in many countries would inhibit such a strategy and frankly I’m a bit skeptical of Walsh’s optimism that they can be overcome.  Furthermore, I think that such a grouping is an ill-fit for the current world we live in.  It potentially denies countries strategic capabilities that they both want and need.

Frankly, I think Walsh and the new International Airlines Group would be far better off just making their new airline work profitably for now.  They already have strong cultural problems to solve, I suspect, as well as the need to compete in the present markets they occupy.

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Steven Slater says he quit jetBlue.  jetBlue says he’s no longer with the company and comments no more on the subject. 

Regardless of the circumstances behind Slater’s official departure from jetBlue, it was time for him to go. 

It was time for him to go because he clearly had reached a point in his career where dealing with problematic passengers was more of a problem than he was perhaps prepared to tolerate.  I’ve said it once already but I’ll say it again:  The big shame in this episode is that the passenger wasn’t criticized more for their behaviour and banned from the airline.  All too often airlines accept that kind of behaviour tacitly in the belief that it will scare away customers.  I myself suspect it might only scare away the people you don’t want as customers to begin with.  My strongest suspicion is that it will scare no one away.

It was time for him to go because jetBlue can’t have that kind of liability in the air.  Once Mr. Slater acted out in public like that and abused emergency systems for his grand exit, he was a liability.  What if he did something again and this time is resulted in harm against a passenger or co-worker?  He created a record of not being in control of himself and that’s a liability for his employer. 

That said, jetBlue missed an opportunity to back its other employees and demonstrate that while bad behaviour from employees won’t be tolerated, nor will bad behaviour from passengers.  I truly believe it would have been a strong morale booster and it would have raised respect for jetBlue yet another notch.

But it was time to go.

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In an interview with TheStreet.Com, jetBlue CEO Dave Barger says that jetBlue has earned the right to grow.  His justification for that comes from jetBlue having positive cash flow, steady earnings and it’s contrarian nature that has lead to success at difficult airports.

Personally, I think all airlines have a “right” to grow.  I just think they have to make a busines case for it and as far as I’m concerned, have at it. 

I think this signals something else.  Here is an LCC announcing its attention to grow in almost insolent manner.  In particular, Barger declares their intentions at Washington Reagan National and fails to mention that his opportunity for growth there comes from a partnership with American Airlines that included a slot swap.

But this is somewhat classical behaviour on the part of LCC’s.  They see revenue opportunities on routes that legacy airlines are only, at best, barely managing to cling to and the LCC’s want to earn that money.  Their costs are lower and they can handle going in at a lower fare and capturing the business.  The only tool a legacy has to use to fight off that competition when that happens is adding frequency and matching prices for a sustained period.  It does work sometimes.  From time to time, a legacy airline can fight off an LCC intrusion but it’s hard and it does eat up cash and resources until it’s over.

That was easier to do when there were few LCC’s and they were focusing on peripheral airports and lesser routes.  Now we have quite a few LCC carriers and they want in on the big action.  That’s why we have Virgin American flying trans-continental routes, jetBlue flying from JFK and Southwest Airlines introducing itself at both La Guardia and now Newark airports. 

Can legacy airlines fight these attacts on many more fronts as the airline business recovers in the US?  Maybe.  At least to some degree.  But I suspect they’re going to have to be a bit more choosy on their fights and I think w’re going to see some markets where even SuperLegacy airlines concede, eventually, to LCC intrusion. 

Dave Barger and jetBlue are the first to declare their intentions but they won’t be the last.  It’s notable that all of the US LCC’s are earning good profits and increasing their revenue base (with the exception of Virgin America who has yet to earn a profit).  That makes for a warchest and with their sizes approaching a critical mass, they can afford to take on more and more legacy airlines.

Airtran did it in Atlanta.  jetBlue did it at JFK airport, Southwest did it in Denver and now it’s happening at Washington Reagan National.   It’s going to happen at more and more airports too. 

One alternative defense might be for more and more legacy airlines to strike deals with LCC carriers and offer them some success but access they can control as opposed to an all out fight that results in legacy airlines bleeding red with losses. 

Look for more airlines to declare their intentions and justify those intentions with their current earnings and revenue growth.

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When Delta decided to sell off several subsidiary regional airlines recently, we all noticed that Comair didn’t receive any takers.  It’s costs are higher and its equipment is more dated and now Comair is slimming down to reduce costs in the hope that it might become attractive enough to find a suitor.  Just the reduction in the CRJ100/200 fleet alone will save the airline considerable money but the workforce will be reduced as well.

Comair is unattractive because of its divergence from what legacy airlines need in a regional airline partner:  It isn’t so cheap anymore.  Comair is pretty old when you consider its life and various forms.  It’s had enough time to add on a senior workforce and its found itself boxed in with its equipment (partially because of what it invested in and partially because of scope clause limitations.)  It really tends to be more “legacy” than “regional” in its airline DNA these days.

And that sounds a lot like American Eagle.  American Eagle has an aging fleet, increasing labor costs and a workforce that is aging and gaining seniority rapidly.  So far, it remains profitable on some level but only because of its contract carriage on behalf of American Airlines.

What happens if American Airlines sells this airline and pursues contracts with other regional airline partners to lower its costs?  Suddenly American Eagle doesn’t look at all attractive given the kind of aircraft it is burdened with as well as its labor obligations.  Would American Eagle find a suitor?  Maybe but I somewhat doubt it at this point.  Regional airlines are consolidating and attempting to move upstream.  American Eagle doesn’t bring very much to the table and without those revenue guarantees from various airlines, it doesn’t look all that profitable either.

What I am beginning to wonder is whether or not we’re seeing the end of the first real cycle for regional airlines in the deregulated US market?  In other words, have regional airlines that have their roots in the 19080’s become marginalized by their growth in labor costs and fleet irrelevance much as the legacies found themselves suddenly experiencing in the late 80’s / early 90’s?  If so, that would indicate that new players will find it potentially profitable to enter the market with a young crew and a more modern and relevant fleet. 

If there are new entries, their barrier to entry will end up being scope clauses governing the size of jet that can be flown by a regional.  Some airlines have pretty restrictive scope clauses and some not so much.  Some of those restrictive scope clauses got amended as a result of bankruptcies and, notably, those that didn’t go through bankruptcy in the 2000’s (AA and Continental) have some of the most restrictive clauses.  

At the end of the day, it would appear that AA and Delta are unlikely to realize very much value from their “old” regional airline companies in a sale.  Any buyer with any experience at all is liable to realize that without some sort of guarantee of a revenue stream from the seller, these airlines (American Eagle and Comair) are unlikely to be positioned to earn very much profit going forward.  And who wants to buy a lame duck?

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American Airlines CEO Gerard Arpey has hinted that his company may well use their new 787s (when they arrive) for replacing 767’s and that they would make a good fit for flights between New York City and London.   This is in stark contrast to announcements we’ve heard from airlines such as Continental who are planning New Zealand and Africa flights with theirs.

There is no doubt that putting the newest aircraft and one with the amenities that the 787 promises on NYC-London routes certainly will serve the business class customer well.  However, many analysts have already speculated that the 767 may well continue to be an equal performer (or nearly so) on that kind of route.  The 787 is expected to realize its real benefits on routes in excess of 5000nm. 

AA already has a large fleet of 777-200ER aircraft configured for not that many more seats than their 787s and uses them on its long haul routes already.   Given that you would want to use those aircraft for those profitable routes, you have to find a place for the 787 and that means new routes and growth or replacement of existing airframes.  In this case, many of AA’s 767’s are rather old and a 787 replacement will still yield benefits that should be appreciable.

Nonetheless, it’s disappointing that AA’s hints point to replacements on existing routes rather than growth.  It is early days for that kind of speculation and that may well change.  Currently, AA doesn’t even have a new pilot agreement governing that aircraft as of yet.

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JAL is considering setting up a budget airline with some of the money it was given by the Japanese government to compete against the budget offerings of other airlines in Japan.  For the past 20 years, a number of airlines have conceived of this idea that an airline within an airline designed as an LCC is a great idea.  Continental has Continental Lite.  Delta had Song.  United had Ted and the list goes on.

If it is such a great idea, how come none of those offerings are around? 

They can have some value.  They can show an airline a model for operating differently and more cost effectively and that may be worth something. However, I don’t think the cost of setting up an entire new brand is worth learning those lessons.

Indeed, those budget airlines inevitably end up being a compromise to ensure that labor unions for the Mother Ship don’t spurt blood from their eyes and try to doom the airline.  As a compromise, they’re unsatisfying because they don’t yield the same results a real LCC aka budget airline enjoys.

The best thing a JAL can go is get on with the slashing.  Slash costs, labor and anything else that stand in the way of profitability including vanity routes and vanity aircraft.  Reduce your fleet to as few types as possible and get new labor contracts that ensure productivity that is on par with those you are competing with. 

In other words, rip the band-aid off, don’t tug at it slowly.  Get it done and the quicker you get it done, the quicker you start to show the rewards of your work and, hopefully, some of those rewards should be profits.  It’s very tough to do it and you definitely have to have the right leadership to get it done. 

I question the leadership at JAL if this is truly what’s being considered.  It’s delaying the inevitable and simply burning more cash than necessary.  Cash that came from the Japanese taxpayers. 

Often in the US, a hatchet man is hired to make the hard cuts and slash costs and once he’s done, he’s replaced with a different leader who is tasked with maintaining those savings and leading its staff to a happier place.  Indeed, Glenn Tilton was supposed to be one of those guys but he’s continued to hang on long after he was done. 

What JAL needs is an unconventional businessman who knows how to wield a hatchet.  Someone who is at least familiar with businesses that burn a lot of cash each day and which depend on reliable revenues to survive.   What they don’t need is someone interested in serving political masters who want jobs saved rather than businesses fixed.

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So, yesterday I ran across this story online by Bloomberg that you can read HERE.  The short version is that Tim Clark of Emirates denied that Emirates had any interest in purchasing a stake in American Airlines’ holding company, AMR.

Huh?

No, I don’t think they would be interested in that.  Why would a company like Emirates have any interest at all in purchasing a stake in an airline like AMR which has higher costs and which is partnered with the very airlines it competes against?

I suspect someone needed AMR stock to rise in the markets and started a rumour.  Now, a US Airways / AA partnership might just get some traction but I think we’re a good 9 to 12 months away from hearing about anything happening with US Airways.

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Mexicana Airlines ceased all operations after spending a few weeks trying to restructure and begin to figure a way out of bankruptcy.  It doesn’t really come as a giant surprise that one of the world’s oldest airlines stopped operating.  Unexplicably, Mexicana had stopped selling seats on their flights but kept operating them which left quite a few of us baffled.

Mexicana’s management blames high oil prices, labor and the swine flu outbreak and certainly all three contributed to the problems the airline had.  However, oil isn’t so high and swine flu really stopped being an issue on most people’s minds by late last year.  Labor is the real problem.

I often wonder why it is so hard for labor unions, particularly the kind that Mexicana has had to endure, really don’t seem to be able to grasp that even though an airline made your paycheck for several years, labor costs like that are unsustainable by anyone at the end.  Airlines can often wheeze through such things for years but there is always a reckoning and it always seems to shock unions when it results in a shutdown.  In fact, they always appear to refuse to believe it in some respects.

The maneuverings we saw around Mexicana for the last few weeks were somewhat pathetic to me.  New investors thought they saw an opportunity and moved in but, like many who do so, I think they suddenly learned just how cash intensive an airline is and wisely decided to put a stop to the burn quickly.

Will we see this airline rise again?  I sincerely doubt that Mexicana or its subsidiary companies will raise their wings again in their current form.  It’s possible someone will buy the brand and start an airline under the Mexicana name but it won’t be the Mexicana that just crashed and burned. 

It won’t be a foreign carrier coming to save them.  Mexico’s ownership laws forbid foreign ownership of their carriers above 25% and I think that’s a shame.  Someone like LAN or Avianca-TACA might have been willing to come in and invest, restructure and operate a viable entity.  Sadly, Mexico is more archaic than many Latin American countries these days when it comes to aviation and I sincerely doubt that Mexico’s government is going to move quickly to liberalize their ownership laws.

So, I think this is goodbye to Mexicana.  At least to this Mexicana.  To me, it’s a shame.  I’ve always liked their image and aircraft and kind of thought of them as the Braniff of Mexico.  Their colorful 727’s of the 70’s and 80’s were second only to Braniff’s and I simply also feel fond towards an airline that has a history dating back to the 1920’s and which was once connected to Juan Trippe and Pan Am.

Adios Mexicana.

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As part of the deal to allow Continental and United Airlines merge, the two airlines will be required to open up some space at Newark Liberty International Airport and guess who’s leasing the take-off and landing spots?

Southwest Airlines. 

I think this is smart of ContiUnited.  They could have found any number of airlines that would be acceptable to the Department of Justice and Department of Transportation but that would mean allowing an airline with potentially even lower costs gaining a foothold.

Instead, they did a deal with an airline that, on some level, allows them to compete.  Both airlines have experience competing with Southwest in various markets and both have managed to co-exist with Southwest without being driven out of markets.   In other words, I think they realized the devil they knew was a whole lot better than the devils they don’t. 

For Southwest, I think this is great.  They get enough slots to do 18 daily roundtrips from an airport that arguably is more convenient to Manhattan and they get to build on their operations in the area by operating from 2 of the 3 major airports in the NYC area.  (3 of 4 if you count Long Island’s Islip airport.)

No announcement was made on what flights SWA might operate from Newark but I have a few guesses.  They could connect to Dulles or Baltimore’s BWI for one.  I’m sure we’ll see some flights between Chicago’s Midway and Newark.  I wouldn’t be too surprised to see a flight or 3 to Houston, believe it or not. 

One thing is for sure, they won’t be flights on leisure routes.

When they’re able to, I would expect a few flights from the NYC to Dallas area and Newark would be a great airport operate those flights to and from.  In the meantime, I would not be one bit surprised to see SWA re-jigger their route system to offer a few one-stop flights between the two cities.   St. Louis or Kansas City could be choices for that.

Why do they only give up slots in Newark?  Continental and United have very little route overlap and the one airport that the two had dominance at was Newark.  Actually, Continental had overwhelming dominance at Newark but when you added in United’s flights to major markets, it crossed the line.  This is good news for ContiUnited and expect their merger to close in late November or early December pending approval from a few other agencies.

In the meantime, someone please hand Senator Oberstar from Minnesota a roll of Tums, please.

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The Transport Workers Union of American Airlines has rejected 2 out of 3 contracts that were being voted on.  Only the “Technical Specialists” guys accepted theirs and before you think that’s something positive, let me point out that a total of 78 members voted on that particular contract.  Rejection by the other two groups also includes a strike authorization.

What that doesn’t mean is that there is going to be a strike.  First, an impasse has to be declared and that is probably, at minimum, months away.  The two parties will enter into negotiations again and we’ll see what happens after that.

Laura Glading, president of the Association of Professional Flight Attendants, decided to chime in applauding the contract rejection and describing the pathway to success as a “struggle” against American Airlines.  Frankly, I really don’t think using language from the 1930’s and adopting an extremely loud and hostile stance towards anyone is going to get anyone anywhere. 

Regardless, I think American has a problem.  Virtually all of the unions are nowhere near agreeing on a contract and even though none of these negotiations appears very close to being declared an impasse, it does present risk to AA as a going concern.  These negotiations will only get tougher if American begins to earn quarterly or full year profits.  A great any of these unions represent frontline employees and embittered or angered employees don’t make for a successful customer service product. 

Even with AA’s recent executive reorganization, I don’t see any positioning being done to get these contracts concluded so the airline can go forward.  Ironically, the one group that has some appearance of perhaps being ready to get  a deal done are the pilots who’ve been waiting the longest to get a deal done. 

Both sides could stand some new leadership.  Sadly, I don’t see much evidence that that is going to happen.

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The Southwest Airlines Flight Attendants say that they don’t want to obstruct SWA from getting a larger 737 at all in response to speculation that this internal debate at SWA went public in order to force the hands of the Flight Attendants union. 

Instead, they simply point out that adding another aircraft, according to their current agreement, opens that same agreement up to renegotiation on issues such as pay and working conditions. 

Huh?

I don’t see any reassurances that they are for or against this still.  Instead, I see language that I would interpret to mean that they see an opportunity to renegotiate their contract earlier than the first date it becomes amendable.  It would appear that this remains a potential obstruction, to me anyway.  At the least, it appears opportunistic.

One thing to come out last year during SWA’s attempt to purchase Frontier as well as during its controversy on codeshares with WestJet and Volaris was that SWA employees wanted to see more flying ( and more employment opportunities as a result of that additional flying) on their metal, not another company’s.

This addition to the fleet of the 737-800 does just that for the Flight Attendants with absolutely no change in their working conditions on a per person basis. 

That would lead me to believe that SWA Flight Attendants do, in fact, present a possible obstacle to the addition of a new 737 type to their fleet.  And until they speak more clearly on their intent, I think they continue to present the most risk to this decision.

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