One of the biggest problems with how union leadership gets elected is, in my opinion, that those who do get elected generally do so on the platform that is most aggressive.  Whoever promises to fight for more than the other guy generally wins provided he or she can also appear to look aggressive too.   As a result, unions are led by the vocal minority and that leadership almost never represents a voice of reason.  Without a voice of reason, it’s extremely difficult to get an agreement in place.

American Airlines pilots have new union leadership.  Lloyd Hill is being replaced by David Bates and I got a look at what they’re promising. Mind you, union promises are like any other political promises.  No one expects all of them to come true but they are a gauge of just how much the elected has boxed himself into a corner.  Terry Maxon at the Dallas Morning News has written THIS aviation blog entry.  And here is a quote from the Dallas Morning News that is a quote of the Bates team:

Pay – Restoration, including retro plus annual raises plus permanent COLA raises after the amendable date. Scope – Protection and recapture of flying at both the top and bottom end of our fleet mix.

Stagnation – Mechanisms to deal with FO stagnation including a higher percentage of Captain’s pay.

Sequence Protection is the norm in the industry. Pilots should not be financially penalized because of marketing decisions, earth quakes, volcanoes, hurricanes or other planetary events.

Reserve – Our reserve system needs a complete overhaul. We need a system pilots can live with.

Vacation – Increased credit for vacation.

Sick – Enhanced sick provisions for pilots.

Pension – Pension protection for all pilots on the seniority list.

Profit Sharing – The economy is improving. APA should return to a profit sharing plan that mirrors the one management has for themselves.

 

NEVER . . . GOING . . . TO. . . HAPPEN.

In fact, if this is the negotiating position going into talks with AA, I foresee many more long talks taking place.  I think the pilots (or some other union) really wants a strike with AA.  They want a precedent for restoring that long lost pay and the pilots think they can set that precedent. 

AA cannot afford to give in on issues like that.  The productivity of pilots and flight crew compared to other airlines is already pretty bad.  Restoring that pay means the end of AA.  Management cannot meet those demands.  They cannot get close to meeting those demands.  To even arrive in the same state much less the same ballpark on those demands would mean the end of AA. 

Even worse, AA loses in any strike action that shuts down the airline.   I would guess that AA could survive, at most, 10 to 20 days of a strike and that’s it.  There are no resources available to assist them with keeping the airline in the air.  Not like British Airways has done (While BA seems like a “huge” airline, it’s actually a pretty small airline in terms of fleet size.  BA has about 250 aircraft total.  AA has considerably well over 600 aircraft.)

There are reasonable union leaders out there.  Delta’s Lee Moak is one.  Continental’s ALPA leader, Jay Pierce is pretty reasonable.  Those men have recognized the fundamental changes in the industry and they understand that a return to status quo not only isn’t going to happen, it isn’t in a pilot’s best interests to happen. 

And then we have Lloyd Hill giving way to David Bates & Team.  American Airlines let all of these talks go on for too long.   To have one union after another all lining up eager to be the one who “sticks” it to the airline is not a good position to be in.  To have so many labor contracts in talks at the same time is not a good position to be in.  AA is literally standing in a big hall staring at all the other unions who are each independently and cooperatively are determined to A) stick it to the current management team and B) win back  pay levels that were unsustainable 10 years ago and remain unsustainable today.  And those unions have both the power and, more importantly, the anger and fury to shut down the airline. 

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The United States and European Union concluded a new, expanded Open Skies agreement between the two parties which was expected after the initial agreement and was to allow for majority ownership of airlines in one country by an airline of another country.  This exists within the EU today but the US currently limits foreign ownership stakes to no more than 25% and the EU limits them to 49%. 

The next agreement was supposed to allow majority ownership and while this one does do that, there is a major hurdle still in the way.  The legislatures of both parties have to ratify this agreement.  Secretary of Transportation Ray LaHood signed the agreement but I question whether or not this is really going to happen. 

Airlines are a hot topic in the US and both the US and EU have economies that are very different than they were in 2007 when the first agreement was made.  Governments on both sides of the Atlantic have become much more protective of their industries over the past 2 years and airlines are something of a pride thing for both governments.  Although this comes with a stamp of approval from President Obama’s administration, it is somewhat difficult to imagine the current Congress ratifying the agreement. 

I suspect that the present Congress will defer this until after our national elections in November and if there is a party control change, I’ll expect this doesn’t come before Congress before next summer.  A Republican controlled Senate might be more inclined towards this deal but only because the Senate is, after all, supposed to be the voice of reason in Congress. 

I don’t see this as a game changer on either side of the ocean.  In fact, while our big concern is over a major European airline taking control of a US airline, I actually think the opposite is more likely.  I can see someone like American Airlines or Delta wanting to take control of a European partner and I think they have a better chance of financing the deal.  Particularly in Delta’s case.  The new ContinUnited company is going to be busy for a few years getting its act in order but could be an interesting acquisition for Lufthansa.

All in all, there is a new agreement that isn’t in effect and won’t be for some time to come.  Even when it does come into effect, I think ownership across the ocean is much more likely to come in the form of LCCs on both sides taking an interest in each other.  Or a larger carrier taking an interest in acquiring a smaller carrier here. 

Perhaps Virgin Atlantic may want to take full control of Virgin America (not necessarily a bad thing either in my opinion since they have a bit more nerve when it comes to competing.  Or let me point out that Lufthansa already owns a stake in jetBlue and may want to acquire it in full.   Maybe this lets Ryanair form its international division by acquiring an LCC here to provide feed on both sides of the pond.  Whatever happens as a result, it isn’t likely to really occur for another 1 to 2 years.

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and I say big deal.  A Virgin Atlantic flight from the UK to Newark (NYC) had to land at Bradley International Airport in Connecticut on Tuesday because of severe weather in the New York City area.   People were kept on board for 4 hours and some reports claim people were overheated and “passing out”.  The plane was described as “dark and hot” during the 4 hours it sat on the ground. 

I am somewhat skeptical of the drama myself.  4 hours is a long time but no one dies from sitting on an aircraft for 4 hours because of weather.  If they did die during such a time, it wasn’t because of the airplane or conditions.  All the stories I’ve read so far have that sensationalistic hint of excess in them. 

What about the 3 Hour Rule?  Well, Virgin Atlantic isn’t currently subject to that because this was an international flight and they are a foreign carrier.  I’ll note that the FAA wants to extend that rule to such flights and I don’t disagree with that.

Was this “wrong”?  Yeah, I do think so.  It’s customary for flights to land at that airport to wait out storms but that airport really isn’t capable of handling large international flights with customs and immigration needs.  The typical flight lands there, refuels and waits for the weather to clear enough for them to proceed.  Bradley International is very close to NYC and it is relatively cheap for a flight to land there and wait.   As a legal diversion airport, it is attractive to airlines for just those reasons.

However, is it the appropriate airport?  No, not really.  Lack of facilities to deal with large, widebody aircraft holding hundreds of passengers who need customs and immigrations processing make it a far less than ideal airport.  It’s acceptable as a diversion for an emergency, it is unacceptable as a diversion for weather, in my opinion.  There are plenty of airports in that general area who can deal with the passenger volumes and their international needs.   Airports such as Philadelphia, Baltimore and Boston.   I would point out that there are not one but 3 airports in the NYC area capable of handling that aircraft as well. 

Certainly the passengers have a right to be annoyed and feel inconvenienced (most were bussed to Newark and that would *really* annoy me) but to act as if this was a human rights violation is carrying it over the line.

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British Airways flight crew union, Unite, has signaled that it will ballot its members for another strike action against British Airways.  The date and conditions of the latest work action, if approved, are not yet determined and BA itself has no comment since it has not yet received the ballot notice.

This is a dangerous path for both the airline and the union leadership.  So far, the strike actions haven’t had nearly the impact that Unite would desire.  On the other hand, the sticking point(s) seem to revolve around union membership who lost travel benefits by participating in the strike.   BA offered to restore those privileges before the last go around but only at “entry level”. 

I have to say that while this strike action by Unite has struck me as ill-timed and poorly led over the issues, BA’s position over the travel benefits is senseless at this point.  It punishes membership (i.e. employees) instead of having an effect on the union leadership itself and it is the one thing that seems both petty and punitive at this point.  CEO Willie Walsh would be well advised to put full benefit restoration back on the table if only to assist in closing a deal and to avoid any more damage to morale.  It’s a small point and if Unite wants to crow about it, let them.  At the end of the day, any sensible person will realize who “won” in this fight.

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It was reported last week that Virgin America is now considering flights to Mexico as their next move and I’m now officially at the point of asking “What the hell?”

The original transcontinental flights kind of made sense to me.  The service product they offer is very attractive for transcontinental flights whether you’re in business class or economy.  And they’re clearly working for VA.

But then we see flights being added to Fort Lauderdale, Orlando and Las Vegas.  Even Las Vegas I kind of get because it allows a bit more utilization for the aircraft between transcon flights.  But West Coast to Fort Lauderdale and Orlando?  Even if they do make money, is that really the best use of VA’s time at this point?

There has been a lot of words from CEO David Cush about access to airports such as Chicago O’Hare and Newark and I get that it is expensive to enter those airports.  That happens in big cities dominated by large carriers.  However, other airlines have made them work, why hasn’t VA?

Access exists and being continually afraid of it is getting old.  I’ve pointed out in previous posts that there are *plenty* of destinations in the middle of the US who would love to enjoy VA’s service.  Airports in places such as Dallas / Fort Worth, Denver, St. Louis (with a big aerospace connection to both Seattle and Los Angeles which are existing VA destinations), Kansas City, Austin (big connections to the SF Bay area) , San Antonio (another aerospace connection) and I suspect that even Atlanta might welcome VA. 

But, no, the next vision is Mexico where competition from California is fierce and many other entrenched carriers are revisiting their business.  Perhaps it is to, again, increase utilization but all I’m seeing are primarily leisure destinations and/or convention destinations.  Not exactly the places where your yield is great and your service product is appreciated by high paying business class customers. 

David Cush says they’ll be profitable next quarter.  Great.  My question is, are you really viable as a choice 3 years from now? 

When does VA begin investing in the routes/businesses that its service product was designed for?  When do we see them willing to compete with established airlines (most particularly AA)?  Don’t tell me it can’t be done because I’ll point to jetBlue which started at JFK airport.  Don’t tell me most of those destinations aren’t LCC friendly because I’ll point to Southwest and Airtran.

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USA Today’s Today in the Sky blog reported on an American Airlines flight attendant who stepped in as a First Officer on a 767 flight when the regular First Officer was suddenly afflicted with severe stomach flu-like symptoms.  You can read the story HERE.

According to American Airlines, protocol is to search for off-duty AA pilots first and then the next best alternative.  Flight attendant Patti DeLuna (61) was qualified as a commercial pilot some time ago and while her pilot’s license wasn’t current, she was able to help fill in for the ill first officer.  The plane landed without incident.

American points out that it is perfectly possible to land the 767 with one pilot and I’m sure that Ms. Fagan helped the captain of the flight with his checklists and monitored speed and altitude during the landing.   American Flight 1612 was flying from San Francisco to Chicago on Monday, June 14th.

It really is just like something out of the movies.

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AA CEO Gerard Arpey has been getting somewhat loud in his refusal to acknowledge that there may be value in a merger between AA and US Airways.   His argument is that once you have scale, adding scale doesn’t bring much to the table.  Further, he doesn’t think that US Airways brings AA much considering the hubs that AA is focusing on (Dallas, Chicago, NYC, Los Angeles).  You can read more HERE.

Arpey was responding to analysts who pointed out that AA bought TWA to maintain its dominance when United was going to merge with US Airways and why wouldn’t AA want that now. 

The thing is, no, it doesn’t fit within their current 4 hub/cornerstone strategy.  However, that strategy isn’t showing much potential in returning AA to profit either.  AA is the only legacy airline not projected to earn a profit for this year.  I’ve said it in previous posts and I’ll say it once more.  AA and its executive team doesn’t know how to do merger and doesn’t know how to integrate another airline and, more importantly, doesn’t want a merger because it will, most likely spell the end of some of their careers at AA. 

I don’t think Doug Parker would lead such a merger but suddenly he looks like a decent successor to Arpey, doesn’t he?  Particularly if Arpey wasn’t leading a merger very well.  Consider that US Airways, by far the weakest of legacy airlines, is going to earn a profit this year and they’re doing it despite labor issues and their 2nd tier hub system.  That’s remarkable.  American’s team could learn a few things from US Airways, I suspect. 

There is a message here from analysts.  That message is: “Do something.  Perform.  Show us the money.  You don’t have an unlimited amount of time to perform.”  

It is significant that analysts are now putting the heat on and show no inclination to let up on American.  To the contrary, they’re now openly questioning the potential for success in Arpey’s strategy for the airline going forward.

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The Wall Street Journal is reporting that the two pilots of the Northwest Airlines jet who allowed their flight to fly past its destination last year will not get their jobs back.  You can read the story HERE.  Captain Timothy Cheney has chosen to retire in lieu of fighting for his job and First Officer Richard Cole is reported as “no longer with the company”.  Northwest Airlines is now owned by Delta.

Both pilots had their licenses revoked after the incident but reached an agreement with the FAA a few months ago that would conceivably allow them to have their licenses reinstated after certain requirements were met. 

Apparently those requirements won’t be met while working for Delta and I couldn’t be happier.  There was agregious negligence involved in what happened and neither pilot has satisfactorily explained the event.

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Continental Airlines has announced the second 787 route that it will initiate with the arrival of the Boeing 787.  The first was from Houston to Auckland, NZ.  This time, it’s Houston to Lagos, Nigeria and I’m seeing a trend here. 

Continental is clearly intending to make Houston much more of a international gateway city and that makes some sense to me.  Houston Intercontinental Airport isn’t overcrowded, has excellent feed to it domestically and the new 787 makes a lot of long, thin routes not only possible but profitable. 

It doesn’t hurt that there is a fair bit of oil business in Nigeria too. 

This flight will be subject to a fair bit of regulatory approval and planning on the part of ContiUnited but it is both sensible and doable.  It’s clear that the 787 will be used to expand opportunities rather than simply replace existing aircraft, at least by ContiUnited anyways. 

It’s also further proof that very large aircraft flying hub to hub (hello A380 and B747) as a model for international travel is going to be reduced as these new, next generation widebody aircraft come online.

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 Update (16:30 CDT):  Spirit has now cancelled flights through Thursday.  No signs of any reconciliation between the pilots and the company.

Spirit Airlines pilots went on strike starting with flights on Saturday and the latest news says that flights are cancelled at least through Wednesday.  So far,  I cannot discern that any resolution is imminent either.  Since Spirit serve a very small portion of the US and since manyof its flights are Caribbean and Latin American in nature, the President will not be calling an end to this strike and bring both parties to a table. 

This has got to be hurting Spirit badly financially and from what I hear, they don’t have a whole lot of cash on hand to withstand the strike.  In addition, Spirit made some noise in the days leading up to the strike that they would try to cotinue as many flights as possible using either management pilots or through hiring other airlines to fly their routes.  Not only did that not happen, it doesn’t appear as if there were any plan of any kind to do this.  It isn’t good to lead your customers on like that.

The pilots wants a “fair” contract and, in this case, fair is what the other guy is earning.   But who is the other guy?  Is it a Delta pilot or an Airtran pilot?  A Southwest pilot or a jetBlue pilot?  The current offer on the table brings Spirit pilots to about par with Airtran and they still don’t like that.  It is notable that Airtran pilots aren’t even happy with that anymore as they’ve had a strike authorization vote recently themselves. 

In addition, another part of the offer gives these pilots a minimum 0f 4 days between trips and that is kind of unprecedented as a part of a contract and, to me, seems to be a huge quality of life gain.  At the end of the day, I can’t figure out what would make the pilots happy (they sure aren’t talking specifics in the public media) and I’m beginning to think that Spirit’s management can’t figure it out either.  Unless it’s just a whole lot more money than on the table right now.

If so, then I think there are going to be two losers in this strike.  Spirit is privately owned and while they’ve made a profit, the owners aren’t interested in pumping more money into the airline than they already have.  These are venture capitalists and those guys know that sometimes its best to pull the plug and find something else to do with the assets.  Spirit’s management doesn’t have anything to lose by remaining steadfast with their current offer.  If they offer more, they’ll likely become unprofitable (this airline really is an Ultra Low Cost Carrier) since part of their model is keeping costs like labor and fuel as low as possible.  If they become unprofitable, the owners will likely pull the plug there too.

Spirit pilots are high risk for losing their jobs . . . permanently.  There are only so many days that Spirit can survive before it declares bankruptcy.  Once it does, it isn’t likely to come back in some form and that means those pilots now have to restart their careers somewhere else.  It is notable that there isn’t a whole lot of hiring going on among airlines these days.   To a certain extent, you have to accept that when you work for a LCC or ULCC, you’re not going to earn premium salaries no matter who you are and no matter what is happening elsewhere in the industry.  Rising to Airtran standards seems not too bad all in all particularly when consider the quality of life issues that are also getting addressed.

Yes, the pilots have been trying to amend their contract for over 3 years.  Yes, that seems like a long time.  No, it really isn’t a long time when you look at pilots and their negotiations at other airlines.   Is it fair to take so long? No, not in my opinion but that is the fault of the Railway Labor Act, not the airline(s). 

In this situation, I think a bird in the hand is a whole lot better than a pink slip and I think that pink slip could arrive as early as this coming Friday.  Spirit has some cash but the owners are wise enough, I suspect, to realize that preserving that cash is a better idea than it is to hold out against a long strike.

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American Airlines recently announced the retirement of the current CEO at American Eagle and then announced that Dan Garton, current EVP of Marketing at AA will become CEO of American Eagle (while initially retaining his duties as EVP.)  Then they announced their intention to revisit the sale of American Eagle.

I can understand why since American Eagle is probably undervalued presently as a business and its sale would refill the coffers at American nicely.  Analysts and shareholders want to see some financial action at American and this is a good way to provide it.

However, it might be a bit of folly too.  Just because it is undervalued doesn’t mean it doesn’t have value at American in its present form.  I wouldn’t be a bit surprised to learn that it is bringing a nice load of cash in the form of operating profits that AA isn’t seeing elsewhere.  I wonder if the one time gain is worth the long term loss. 

Operationally, American Eagle is a pretty well run airline and provides a great deal of stability for AA’s regional routes.  Giving that up in favor of potential savings from low bidding regional airlines might have made sense 5 years ago but now I’m not so sure.  It is another case of AA being a bit slow to react and make adjustments to the markets.  If they had went ahead with bankruptcy, quite a few cost issues would be settled and they would be much better positioned against their competition from the SuperLegacies.  If they had sold American Eagle a few years ago, they would have benefited much more from cheaper contracts on regional flying from independent regional airlines. 

Now even independent regional airlines are working hard to raise their revenues from contracts with legacies and the regional routes are becoming more and more competitive.  Keeping American Eagle in house may let them respond better to changes at this point.  Or, at the least, it seems the lesser of two evils. 

Even if they do rid themselves of American Eagle, American Airlines still has fairly restrictive scope clauses in its contract with pilots and that needs to be amended before they can contract to fly larger aircraft on longer routes via any regional airline.  Keeping American Eagle in house and allowing pilots to “flow” between AE and AA might make those scope changes easier to obtain in negotiations and I think that has a lot of value for the future.

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CEO David Cush of Virgin America made statements this week saying that he was the latest wave of consolidation as an opportunity to preserve and even extend competition on the government’s part.  Cush noted that the obstacles to a new airline entering a market are A) gate space B) landing and take-off slots and C) frequent flier programs. 

It is notable that Virgin America has been essentially shut out of routes that it not only wants to fly but which it was designed to fly.  These are trans-continental routes to destinations such as Chicago and Newark. 

He states that VA’s position is that those landing slots are public assets and greater access to them is good for everyone.

I couldn’t agree more and I’ve said so before.  Allowing dominance at gateway and/or hub cities is a bad idea.  There should always be a mechanism for a new airline to enter a market if only to offer a toehold opportunity.   I’ve supported seaonal auctions for those slots at slot controlled airports and I believe airports could do a far better job of allocating assets such as gate space too.

However, I also take note that Virgin America has so far avoided any opportunities at destinations that are dominated by one airline and, in particular, dominated by American Airlines.  (Cush is a former AA executive.)  I would point out that VA could be flying routes from California to Dallas, for instance and they have so far studiously avoided that and instead chose to explore options like California – Florida (a notoriously low yield set of routes). 

An Dallas isn’t the only place.  VA has had opportunity to fly to Chicago but has refused to enter the market because the gate space that is available is less than perfect.   Another opportunity might be California – St. Louis:  there are huge aerospace and defense industries with ties to each other in both locations.  It’s also notable that, again, St. Louis is an AA and SWA city. 

I would love to see middle America experience an airline like Virgin America or jetBlue.  I think it contains some greatly overlooked opportunities.  There couldn’t be a better time to explore those opportunities while legacy airlines are otherwise occupied in managing cash and stemming losses. 

Yes, let’s open the markets up.  However, if you’re going to talk to the talk, please walk the walk.

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The Dallas Morning News Aviation Blog has this post HERE about analysts beginning to like the idea of a merger between American  Airlines and US Airways.   This marriage occurred to me back in April and you can read my post HERE.  Eric Torbensen at the Dallas Morning News thinks it is a terrible idea and I disagree.

The real reason to perhaps not do a merger between these two airlines is that American Airlines is terrible at mergers.  Their employees don’t embrace them and their executive corps approaches them like predators.  As a result, mergers at AA tend to be plain “consumption” rather than growth or partnership.

Now, if they could embrace a merger, I believe one such as this could be good for them.  First, a merger like this wouldn’t definitely not be sexy.  The sexy merger partners are now fully occupied and, frankly, there was perhaps just one that really would have qualified as sexy and doable for AA and that was Northwest Airlines.  They’re gone. But just because an AA / US Airways marriage isn’t the sexiest thing on the planet and just because it doesn’t necessarily bring the gains that another partner would have provided doesn’t mean that it doesn’t make financial sense. 

This one could.  Look at the route maps first.  US Airways offers a hub presence in two areas of the United States where AA is actually a bit weak.  Phoenix is a nice hub in the web and while it isn’t the strongest hub in the country, it does pretty well.  Yes, Southwest is there but guess what?  AA knows how to compete with Southwest. 

Charlotte is a nice Southeastern US hub that pvovides coverage in area that AA hasn’t gotten much traction.  AA tried having a hub in Raleigh (didn’t work) and has, from time to time, tried to expand Nashville.  It has Miami but that really is more of an international gateway city than it is a domestic hub.   So AA has presence in some weak(ish) focus cities for the SE that the Charlotte hub could change for them. 

So, in terms of a domestic network, it works.  It really is quite complementary to AA’s existing system.

There is some compatibility between the executive leadership of the two companies.  Doug Parker is a former AA manager, for example (and his wife still is an AA flight attendant) and some of the other executive staff has roots in AA as well.  Some that don’t are from Northwest and the cultures between Northwest and American Airlines aren’t dissimilar either. 

But let’s talk about the romantic international part of this.  No, US Airways doesn’t offer much to AA that it doesn’t already have.  It’s US Airways weakest area.  But it isn’t a money loser and there are some hidden benefits.  American can probably either A) redirect feed for those flights to one of their existing gateway cities or B) bolster the US Airways international product and make the US Airways international flights a bit more of a competitor.    The smart team would do both.

There is another benefit:  A more diversified fleet.  There is some overlap between the two companies (737, 757 and 767 equipment but the US Airways mainstay aircraft are Airbus aircraft now.  The A320 series aircraft could be useful to redeploy onto AA routes currently being served by the MD-80 fleet.  The Airbus A330 equipment could be redeployed to AA routes requiring a little more capacity than a 767 but which aren’t in need of a 777’s size or range.

Finally, such a merger would offer Oneworld domestic coverage in areas of the US where it is definitely weak.  The Oneworld alliance leans on AA only in the US and the other two alliances were bolstered by at least 2 airlines domestically.  This is a great opportunity to improve the Oneworld alliance. 

There is value in such a marriage.  The problem is, the people who know how to do this kind of marriage and make it work are at US Airways, not AA.  Doug Parker and Company understand the value of a union like this and know that you embrace the partners strength and use it.  Gerard Arpey and Company come from a school that is more about being a predator and consuming your competition without really embracing them as partners.  Since AA is so much larger than US Airways, it’s Arpey who would lead such a merger and I don’t think he’s the right one. 

Actually, I think Doug Parker could do fantastic things for AA.  If he can succeed with US Airway’s assets and weaknesses, he very likely could do wonders for an airline like AA with its resources.  But the AA board would have to want him and despite the recent flare ups against Arpey from analysts, Gerard Arpey still holds the full confidence of AA’s board of directos.  He isn’t going anywhere anytime soon.

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A sharp reversal in the fortunes of worldwide airlines is being predicted now, most notably by IATA.  More than $2.5 Billion (with a “B”) in profit is now the target for the world’s airlines.  That sounds great to a lot of people and I think that number is soft.

Yes, load factors are up and business travel is up for now.  That’s great and I love that several US legacy airlines are projected to earn a profit for 2010.  However, I look to our east at Europe and its economic troubles and wonder if the recovery really is there. 

The aptly named PIGS of the European Union (Portugal, Italy, Greece and Spain) as well as a number of much smaller nations that are members of either the EU or NATO or both are all suffering badly.  Badly enough that the world’s financial markets are now betting against them and that means a lack of confidence.  A number of people are suddenly decrying the fall in the value of the Euro because that means European companies and countries suddenly have far less purchasing power relative to the dollar.  Short term, that’s a problem.  Long term, the Euro was vastly overvalued largely due to a lack of transparency on the part of EU member nations and how their central banks were operating as well as regulating their financial industries.

Sadly, the EU can’t depend on very much assistance from the United States.  Oh, we will try to help quite a bit but we went all in at the table many months ago and there just isn’t much resources left on our part.  The thing is, we at least acknowledged our exposure, however painful and bitter that was, up front and went to work on getting things fixed.  At this point, the financial markets know there really aren’t any bad chickens that could come home to roost in our farm.  That isn’t the case in Europe.

Europe has the potential to be a drag on our economy for another 2 years and a bigger influence on Southeast Asian countries as well as China and India.  Suddenly, I’m talking about North America, Europe, and half of Asia.  That’s a pretty big marketplace and I think that to declare an airline recovery all but certain is a bit premature. 

I think US airlines, even North American airlines, will do reasonably well domestically and regionally.  I think the lucrative and profitable international arenas are soft at best and it would be wise to continue to play this as conservatively as possible.  

We still don’t have a clear picture of just how much jeopardy Europe is in.  We don’t even have a clear picture of how much flexibility they have to deal with a moderate case of the doldrums much less a worst case scenario.  What’s more, Europe reacts more slowly than the US does because it requires the coordination of tens of governments vs one.   And some of the larger EU economies are feeling resentful of being obligated to “help out” their smaller, less well managed brothers.  This is a region that remains fractured by national interests.

I ferverently hope things do recover in this industry.  I don’t think the outlook is nearly as rosy as it appears.  I believe there is 2 to 3 years of real pain to be felt in Europe and I believe a lot of that pain is going to be in the form of a further sharp decline in the value of the Euro.  That means less money to spend on traveling to other places, less money to purchase capital equipment and greatly reduced budgets in the European governments for defense/aerospace purchases.  

It would be unsurprising to me to see the Euro valued at $0.90 to $1.00 by early next year.  The one piece of good news is that this should keep oil prices relatively low (and by relative, I mean relative to 2 years ago.)  That will help airlines on the cost side some but it isn’t a source of profit.  Profit comes from people traveling on your aircraft in strong numbers day in and day out.

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It’s being reported that EasyJet will be testing a new volcanic ash detector that will be mounted in the tail wings of its aircraft.  Reported similar to weather radar, this uses infrared cameras to detect ash.  It’s being called the “silver bullet” to Europe’s volcanic ash problem and reportedly is supported by the CAA.

And I think this is a big mistake.  I would be very surprised that this could be invented and then installed for test on aircraft in this short of a period and be effective enough to be a “silver bullet” for anything.  It’s this kind of reaction to the kind of problem ash has caused in Europe that leads to false confidence.

And that false confidence can lead to crashes and fatalities.  There has been too much effort on the part of Europe’s airlines to diminish the risk and denigrate the aviation authorities.  We are, after all, talking about something that has been known to shut down multiple engines on large aircraft although, so far, we haven’t lost a modern airframe to it. 

Nonetheless, something that takes out 4 modern jet engines almost simultaneously is nothing to be trifled with.  I agree that the  wholesale shutdowns in Europe were likely overdone.  However, acting as if ash can be detected (when it never really has been before and world authorities were really unable to do so as recently as 2 months ago) and avoided with a simple system conceived of and installed on test aircraft in just 2 months is silly. 

I really do fear consequences from this hubris.

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A federal appeals court overturned a federal district court ruling granting an injunction to the America West pilots who were dis-enfranchised when former US Airways pilots balked at an abritration ruling during the America West / US Airways merger that integrated seniority in a manner that more “blended” the seniority lists. 

US Airways pilots wanted a “date of hire” integration whereas the America West pilots favored a “blending” of the two lists.  Since seniority is everything at an airline, the US Airways pilots felt they had a lot to lose.

This has been going on now for 4 years and, frankly, I believe the US Airways pilots have not only done the America West pilots a disservice, they’ve hurt themselves as well. 

The original arbitration was done “in house” by ALPA between the two unions for each airline.  It was to be binding and while it didn’t settle everything to everyone’s satisfaction, it was as about as fair as one could get in such a situation. 

America West pilots shouldn’t be materially harmed by a merger when it was, after all, their company taking over US Airways.  Likewise, US Airways pilots shouldn’t be “stapled” to the bottom of the list at America West.  The original ruling did neither.  America West pilots weren’t significantly harmed by the initial ruling and, hey, US Airways pilots got to keep their jobs.

It is arguable that without the merger, US Airways would have likely gone into their third bankruptcy and they would not have survived.  Further, America West management corps has done quite a credible job of managing an airline that, among legacy airlines, is probably at a material disadvantage. 

US Airways pilots didn’t like the initial ruling and decided to form a new union for all pilots.  Since they had a  slightly larger number of pilots between the two groups, they got a new union (US Allied Pilots Association) certified and America West pilots rightfully didn’t like that and sued.  Using larger numbers like that was dirty pool.

This new ruling basically says that USAPA hasn’t materially harmed the America West pilots yet and, therefore, should be allowed to negotiate on behalf of all pilots until there is harm.  In essence, they (the court) said “Hey, this is a bit premature.”

I couldn’t disagree more.  Intent on the part of USAPA has been clear from the beginning.  They want a date of hire seniority list and now they have the ability to go negotiate such a deal.  Those negotiations with US Airways are liable to take 2 to 4 years before an agreement is in place.  In other words, it could be 2 to 4 years before these America West pilots can “prove” harm.

The rationale being used is, in my mind, flawed with respect to timeline, etc.  There was already a union (the same union for both airlines) certified at the time.  There was binding arbitration.  If arbitration isn’t binding, then what is it?  Allowing the original agreement to be nullified by establishing a new union with a slight majority of votes is just plain wrong.  

Who wins?  US Airways, of course.  They get to continue to pay pilots according to agreements that have been amendable for a long time at lower pay rates than much of the industry and a dollar saved today is worth 2 dollars tomorrow. 

Who loses?  Both parties to this disagreement.  They are looking at another 2 to 4 years before an agreement is in place and if that new agreement is based on date of hire, there will be another court battle that is likely to overturn that agreement.  Then you can tack on another 3 to 4 years to resolve that dispute. 

When everything is done, these pilots are looking at as much as 12+ years to settle this.

The fair settlement is a blending and everyone gets together and negotiates a new contract and gets that done in 2 or 3 years.  Then everyone earns more. 

A 12 year timeline potentially devestates senior pilots at both airlines who will retire before that conclusion. 

The best conclusion would be for pilots on both sides to get together, toss out the existing leadership in favor of a blending and then get to work on getting that new agreement asap.  Sadly, I don’t think that will happen.  The intransigence on the part of US Airways pilots is just to fixed for them to be moved into a real compromise.

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The DoT has proposed new consumer protections on Wednesday and most aren’t unreasonable.  First, they’re proposing to require airlines to post complete information on baggage fees and offer refunds and/or reimbursement(s) for delayed baggage.  I couldn’t agree more.  When airlines began charging these fees, their attitude was the fee was for “transporting” the luggage and I believed that no matter what their stance, if you charge a fee for it, then you should also be prepared to offer minimum guarantees for that fee.  Alaska Airlines sort of did this.  No one else has and that’s wrong.  In fact, the stories of people trying to get refunds of their baggage fees when their baggage went missing or became delayed are just horrid. 

If you charge a fee for it, be prepared to be held to a standard.  The argument that it is a free market out there isn’t true anyway. 

Second, the Feds want better and more fair fare advertising.  Again, I couldn’t agree more.  One of the best things that happened for airlines in the past 3 years was a la carte pricing.  Except those a la carte prices never showed you your “all in” price until you were inputting your credit card for payment.  Customers should be able to see what they’re buying up front and they should know their options *before* their purchase is complete. 

Third, they want to ban price increases after a ticket is purchased.  Now, I’m not sure what they mean about this.  If they mean once you buy a ticket, it should cost more to change that ticket to another date, I’m not sure I agree.  I’ll be working to learn more about the intent here before I pass final judgement. 

Fourth, they want to require timely notice of flight status.  Mmmm, I’m not sure what their standard is but in my experience, this isn’t an area that airlines are doing a bad job in.  Yes, sometimes status is a bit tardy but I wouldn’t say it is impossible to get information on flight status or even see it updated regularly.  Again, I want to learn more about the intent here but I suspect this isn’t an area where we need much protection.

Fifth, they want to require special notice of bag fee increases and notification of baggage fees when a consumer purchases a ticket.  Again, I agree.  If the airlines want to charge these fees, then there should be prominent disclosure of these fees and they should be disclosed well in advance of the final purchase. 

Sixth, they want to increase the limits to be paid for being bumped.  Again, I agree with this.  The existing limits were created in an era when a hundred dollars was real money.  Bumping is at an all time high with the increased load factors on various airlines.  The consequences for overbooking and then inconveniencing a traveler should rise with the times. 

Finally, it’s my understanding that they want to tighten up and/or close loop-holes in the 3 hour rule.  Personally, I would wait 12 months before going any further down this road.  I’m in agreement with the 3 hour rule but I also think that it’s wise to make sure there are no severe unintended consequences as a result of the current rule.  One area I do think could be improved is preventing airlines from acting punitively towards passengers who do want to disembark from an aircraft.  The Feds should have required re-booking on another flight with no additional fees in the original rule or, at the least, set a maximum change fee for re-booking. 

All in all, airlines asked for this, in my opinion.  They’ve often abused customers in ways that we don’t see in virtually any other industry.  In fact, their ability to abuse customers points out that the airline industry is not a free market place.  It really is more of an oligopoly and one that even many LCC airlines happily participate in.  I look forward to reading more comments from others on these proposals and when I have more firm information on the exact nature of these changes, I’ll be commenting again.

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4 days of vacation and not reviewing anything to do with the airlines (or defense industry or the oil leak in the gulf) and it was quite relaxing.

Right.  Well, I see British Airways and Unite still haven’t got their act together.  These two desperately need binding arbitration.  British Airways needs it in order to bring back a degree of certainty to their operations.  Unite needs it to, well, preserve some semblance of the idea that they “won” something.  British Airways is winning this conflict now.  They’re winning it in public opinion and they’re winning it when it comes to employee viewpoints.  For Unite to continue without a deal only weakens them week by week.

I see that all kinds of politicians are questioning details of the Continental / United merger.  Oddly enough, many of them are from Texas and those folks are questioning the wisdom of Houston losing the Continental HQ.   Well, so do I but for vastly different reasons.  Houston is not going to be dimished as a hub nor is it going to lose many jobs.  In fact, I suspect they won’t lose any jobs in terms of “count” but I do think there will be transitions and changes.  This is a prestige objection on the part of Senator Kay Bailey Hutchison.  She lost the race for the Republican nomination for Governor in Texas and she desperately needs to appear to be looking out after “the people” in Texas if she expects to keep her seat in the Senate. 

I simply think it is stupid to move HQ to Chicago because it is fantastically more expensive there.  That’s all.

I saw a few stories about Australian airline JetStar adopting the iPad for inflight entertainment.  And, unlike most bloggers on the airline industry, I don’t care really.  I don’t see it as an industry trend, I don’t see it as unwise and I don’t think it’ll be but a blip on the airline horizon.  iPads are cool and probably cheap to deploy.  Oh, and you can deploy them quickly too.  Will it be a trend? I doubt it but I don’t care.  I really don’t. 

Boeing refuses to say whether or not they’ll bring a 787 to the annual flightshow in England this year in Farnborough.  They say they’ll make that decision closer to the show.  I say they would be insane not to give their customers a taste.  If they’re refusing to say, it may only be because they don’t know if their GE equipped test planes will fly their first flights on time.   Still, if I were to be money on an outcome, I’d be betting that ZA001, the first to fly, will be there all shiny and spiffy.  Maybe they’ll bring ZA003 which has seats.  One way or another, I’m betting there is a 787 at Farnborough. 

I refuse to talk about the person(s) who were left on United aircraft over the past few weeks. 

It’s been over a month since the new “tarmac rules” have been in place.  Am I the only one to notice only the soft sounds of crickets so far?  We’re 1 month into the thunderstorm season and nary a peep from anyone except Kate Hanni of FlyerRights.Org who wants rules in place to keep airlines from being punitive against people who want off an aircraft.  Actually, I somewhat support the notion but I think Kate Hanni is the wrong supporter for such a measure.  She’s got too much mud on her.

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A friend of mine pointed me to this little gem from the Motley Fool investing website about American Airlines.  You can read it HERE.  In short, they apparently do a “throw this stock away” column/editorial/advice on a regular basis and AA is the target of this week’s column.   In short, they find AA a less than credible buy because of their vastly higher costs compared to other legacy airlines.

And I couldn’t agree more.  American Airlines recently stated that it thought its costs were about $500 million more than other airlines in the United States and their only guidance on that is that, over time, other airlines should see their costs rise and AA will then be more competitive.

Yeah, not so sure about that myself.  American Airlines has very poor labor relations these days while other legacy airlines have worked hard to repair those relationships and/or maintain good relationships and the benefits are showing more and more.  Those airlines aren’t distracted by labor strife, aren’t affected by poor service from angered employees and manage to negotiate fare wages and other compensation that works for both sides. 

What makes AA think that is going to change?  Maybe it will for one or two airlines but it isn’t going to change through the whole industry.  In the meantime, American will continue to burn its cash reserves and probably not earn a profit for this year while several others not only will earn a profit but quite possibly earn record operating profits. 

Combine this with financial analysts revolting a bit against AA in April where the question was asked of Chairman and CEO Gerard Arpey:  “Is that all you got?”

There is an increasingly apparent divergence between AA and its other legacy brethren.  All other legacy airlines are being run by people that do appear to understand that the game has fundamentally changed again and are resigned to flexing enough to work with that change.  AA shows all signs of hopefully waiting in the corner of the room for everything to go back to the way it was.  They should have gone into bankruptcy back when they had the chance in 2003.  That is what would have resulted in a more competitive airline.

The chances of low oil prices and a red hot economy coming back to save AA anytime soon are as about as good as I’ve got a chance of taking a trip to Australia this afternoon.  It’s possible, theoretically, but no one is betting even a dollar on it. 

I continue to hope that one of the other legacy airlines will see this weakness in AA and start some action in DFW.  We could use a little old fashioned competition in this town.

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Continental Airlines announced their first route to use their soon to arrive 787 aircraft.  It will be from Houston to Auckland, NZ and if nothing else, this is just fun to think about.   Tentatively scheduled for November of 2011, it’s a long way off still and I would regard it as being subject to a lot of things going right such as the aircraft arriving in time. 

This is exactly why I believe aircraft such as the A380 and 747-8 have a very limited role in the future of air travel.  We now have aircraft that, in the broad scale, are medium sized but very long range capable.  The 777-200LR was the first but even that aircraft is a touch big for some routes.  Not so for the 787-8.  The 787-8 is a 767/A330 sized aircraft capable of handling longer, thinner routes that, frankly, really don’t get flown today. 

Houston to Auckland may strike many as a little weird but it really isn’t.  It puts Auckland within range of the middle of the United States with a full load and margin for safety.  Suddenly there are a whole lot of cities on the East Coast and in the Midwest that can enjoy 1 stop service to New Zealand.  Previously those people had to fly to the West Coast and, in many cases, had to make 2 stops before arriving in LA.  Even if they had to make one stop, this flight will mean less travel time “door to door” than ever experienced before. 

Houston might seem an odd gateway to Auckland but it isn’t.  Consider the hub cities the new ContiUnited will have.  You can feed traffic from NYC, Philadelphia, Washington DC, Cleveland, Chicago and Houston to that flight.  That’s probably not enough to fill a 747-800 but it’s plenty to fill a 787-8 aircraft and I suspect a lot of that traffic will tend towards a more premium customer. 

The United part of the airline will continue to handle West Coast to Australia trips.  Air New Zealand will probably keep their routes from New Zealand to the US but ContiUnited will now be the first to open up the eastern half of the US to Down Under.  That’s huge and a bit of a blow to both Delta (SkyTeam) and American Airlines (Oneworld).  This could potentially see Delta and/or AA opening up routes using the 787 to similar destinations Down Under. 

Will it happen?  I think so but it does have a certain fairy tale quality to it.  I remember Aviation.Net members discussing such fantasy routes as far back as 2005 I think and when such things get fantasized on Aviation.Net, I tend to believe they’re too good to be true.  However, I believe this has a better than 50% chance of happening because it fits well within how Continental is run, the Star Alliance network and its what a SuperLegacy network airline should be flying when it comes to long haul destinations.

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