Apparently the nation’s airlines have decided that their best strategy is to add yet another fee for this summer. This time it’s a peak travel surcharge. See the CNN story HERE. The question is, will it work? Would you pay from $10 to $30 more over the published fare for a ticket this summer?
I wouldn’t. Quick research on my favorite routes show the fares are already climbing rapidly and in two cases have nearly doubled for the least expensive ticket. The economy hasn’t recovered, people are not earning more and unemployment is still exceptionally high. I think air fares are very inelastic in price for consumers this summer if only for the leisure travelers.
Capacity is still way down and clearly the airlines think they can earn more and not lose traffic. Maybe they’re right too. But I like to do a bit of content analysis on for sale ads from time to time to gauge where we might be when it comes to disposable income. If you take a look at the ads online someplace such as Craigslist and see what’s being sold and at what price, you can often get a reasonably good feel for whether or not people feel they have enough income for luxuries.
Right now, I see a lot of firesales on goods. Nearly new televisions, computers, appliances, etc. tell me that people are still trying to make do or survive. I suspect a lot of people will defer travel for their vacations this summer in the end. Advance bookings were strong in March and April, yes. Prices were also exceptionally low in March and April. A round trip flight from DFW to MKE in late July has climbed more than 20% in price already and that is on a hyper-competitive route.
Will the airlines “stick together” on these surcharges? I think someone might break in a week or two. Unlike most fees, these surcharges are showing up in booking engines and it is quite possible one or more airlines might “break” from the pack as soon as sales soften. In addition, while the legacies are doing this, the LCC’s aren’t showing many signs of adopting it yet except Airtran who did choose to add a “flate rate” surcharge of $10 for 25 days in the period marked from June 10 to August 22. Once again, Airtran acts a bit smarter.
Time will tell but I don’t see us enjoying a summer where all economic signs point to consumer confidence. As I write this, the stock markets have had a big sell off over fears of volatility in Europe with respect to weak economies and a weakening Euro. Unemployment rates haven’t made a real reversal in direction. Gasoline prices are a bit up and food prices are too. It’s doesn’t take much to reduce the disposable income of an average household and uncertainty means most will play it safe rather than just “accepting” yet another fare hike.
There is a whole lot of speculation on British Airways and its future. I noticed one reporter speculating on whether British Airways reputation will ever recover. I’ve seen other stories speculating on their financial viability for the next year. Still another story actually was making a “buy” recommendation on their stock. In other words, it’s great sport to speculate on BA right now.
In many respects, BA’s problems with its labor are of its own making. Long after many other global airlines wised up and trimmed their costs, BA was plunging ahead with its so very “British” service product. Management continued to pay very generous salaries to crews, buy aircraft and send the “flag” to odd places in the world. It was unsustainable, particularly in Europe, but they persisted along just like a drunken Alitalia as long as they could.
Two things happened. First, Willie Walsh showed up from Aer Lingus where he spent most of his career and where he built a reputation as a CEO by transforming Aer Lingus from a doddering state owned airline into an enterprise capable of competing with the best, Ryanair. Walsh learned how to lean out a company, maintain good service levels and operate an airline in this century.
Second, the world airline economy crashed with unprecedented oil prices and an unprecedented decline in business travel all at the same time.
Walsh rightly identified that BA had to be more productive. Indeed, rather than just focus on slashing staff, he wanted concessions that allowed BA to simply compete with other airlines on productivity. He’s worked tirelessly to reduce costs, manage money better, maintain service and improve productivity. He’s done this despite years of relative neglect on the part of previous CEOs and, yes, he’s been brash about doing it.
I’ll be honest. He rubbed me the wrong way when he showed up at BA and, more importently, in the global press. As time has gone by, I’ve changed my mind in many ways. Now, he strikes me as much more a leader than just a cost slasher. I’m impressed with his read of his airlines economic situation as well as his take on the markets served by British Airways.
My own take on most of BA’s employees is that most “get it”. The pilots even get it and that’s saying something because pilots are generally the most militant of all labor groups. You see, few countries have better examples for losing entire industries due to obstinate labor actions that ignore changing markets and economic climates than Britain. Seriously, take a look at what happened to their car industry in the 1970’s. Or their aviation industry from the 1970’s through the 1980’s.
I’ve noticed that most British citizens who are engaged in the world understand that demanding your cake no matter what the circumstances doesn’t work and often removes an industry from your country forever. It isn’t that they are anti-labor, it’s that they have, in most cases, become a pragmatic people and that’s good for them.
Then there is Unite, the labor union representing crew staff (flight attendants) for British Airways. This cheery crew has set about to inflict real and serious damage upon the airline at every opportune moment and over issues that most in the company agree have to change. It’s as if all the labor organizers who struck against the British car industry took a 30 year holiday and showed up drunk and clueless to lead Unite.
It’s hard to respect a union that seeks to inflict strikes on both the airline and the traveling public during, oh say, the Christmas Holiday Season. Or after their employer announced record losses well in excess of $800 million dollars. It’s particularly strange to see them make these choices despite the fact that a large minority of their own membership are crossing the picket lines to support their airline. No, actually, it’s downright bizarre.
If Willie Walsh (and the board of directors) understand anything, it is that they cannot lose the issue in this strike. Failure to “win” on the productivity issues will set a precedent and likely see the downfall of the airline show up shortly thereafter. While Walsh has been a very stern and scrappy fighter in all this conflict with Unite, he has, by all appearances to me, also shown great restraint in not allowing this to be personal. He continues to show this restraint despite Unite making it not only very personal for Walsh but for anyone who attempts to help the airline as an employee.
I’ll grant that the one petty thing I take issue with Walsh on is the travel privileges restrictions he imposed on any crew that struck. That was a misstep and one that he pursued for too long. It is nice to see that he’s offered to reinstate those privileges in the last round of negotiations.
Here is a kicker, during the last negotiations where Walsh was offering those privileges back, one union negotiator (Derek Simpson) was “twittering” about the negotiations in real time from his Blackberry.
What. . . the. . . hell?
Anyone in the industry accepts that union leadership is going to tend to be loud and bombastic and even full of threats in public and especially when the cameras are own. It’s also accepted that those same people will be restrained, professional and serious in negotiations. Playing games with Twitter during negotiations is just a wild breach of protocol and, frankly, does a great misservice to the Unite membership.
Why? How do you engage in negotiations with people who play games like that and then act as if it is nothing after the fact? It’s very difficult to do and very hard to establish trust after a breach like that.
It also insults the public following this strike. Yes, even the public knows that is a breach. And it was completely unnecessary given just how close the two parties are to having an agreement. Indeed, British Airways essentially came to an agreement when the leadership of Unite then attempted to re-open settled areas of the disagreement. They longer Unite’s leadership continues to act as they have, the more they have to lose in both public opinion as well as negotiating leverage.
The issues that BA is fighting for with Walsh’s leadership are recognized as so important that other airlines are lending support to BA and many of them are BA’s arch enemies in the marketplace. Seriously, who would have ever thought that Ryanair would be leasing aircraft and staff to BA in order to maintain airline schedules during strikes.
I think BA will win. I hope that Walsh survives this strike but I do have some small doubts about that unless he manages to close this deal soon. I don’t think BA’s reputation is in tatters for the rest of its life. It will take a short while and that will be that. Anyone declaring that they’ll “never fly BA again” over this strike is almost 99.9% certainly full of it. They’ll fly them the very next time the price is right for where they’re going. I don’t think BA is going to become insolvent over this but I think they’re looking at several years to rebuild their financial strength again.
The one curious thing (to me) about all of this is the apparent lack of government involvement in this conflict. If this had been going on in the US, someone would have stepped in by now and insisted on binding arbritration and cooling off periods. Both BA and Unite could use one of those.
Continental has announced that 15 of about 150 pilots furloughed in 2008 will be recalled back to the company. Another 100 who took voluntary leave will also be coming back. Supposedly this is because of some planned growth on Continental’s part including the addition of 2 new Boeing 777 aircraft in the near future.
It’s a good piece of news both for these pilots and the industry. Delta has announced it will be hiring some additional pilots as well.
But the Continental news has me wondering even more about how Continental and United pilots will integrate their seniority. If I were a betting man, I would bet that United pilots have a higher average seniority and that means a seniority merge could result in a lot of Continental pilots getting bumped back down. Seniority determines pay so it will be a contentious issue. Sadly, neither group has someone like Delta ALPA leader Lee Moak to guide them through in a reasonable way.
On Tuesday of this past week, several aircraft had to divert to the local airport in Pueblo, Colorado because of weather over Denver. On one flight, the Southwest crew decided to order pizza for their passengers who ultimately had a 4 hour wait in the aircraft. You can read more HERE. Not only was it a smart thing to do to defuse any passenger tensions (food keeps people calmer), it was worth it for the news exposure alone. It’s nice to see an airline’s crew just do good.
Airtran pilots overwhelmingly voted to authorize their leadership to call a strike yesterday. More than 96% of eligible voters made that decision and there is a picket line at the Pfister Hotel in Milwaukee, WI where Airtran is holding its annual shareholder’s meeting.
The pilot contract became amendable in 2005 and pilots have been negotiating since then for better pay, healthcare and other things. Their goal is to be paid on par with Alaska Airlines’ pilots, an airline of similar size.
While a strike would still be many months away, this is the last thing Airtran needs and, frankly, I’m a bit suprised to learn that negotiations have been going on that long. Which leads me to the belief that we have a broken union system among airlines under the Railway Labor Act. I don’t believe negotiations should simply take a few months and I do believe they could take as much as 2 years. However, 5 years is too long.
Contracts don’t “expire” for airline unions. They become amendable after a certain time. That means that airlines cannot abritrarily impose terms on unions after a contract expires. That does strike me as fair. However, it also means that airline management has a vested interest in drawing out these talks as long as possible. A dollar paid tomorrow costs less than a dollar paid today.
Both parties should have a economic incentive to see these negotiations completed in a reasonable time limit. I do think that 2 years is enough and I wonder if we should amend the law that requires binding arbitration after 2 years of negotiations. Mandate that arbitration must deliver a decision within 6 months after that 2 year limit. Why? Because neither the airlines nor the unions really want binding arbitration. It results in contracts that no one is particularly happy about and that means an incentive to engage in meaninful negotiations in a timely manner.
Airlines should already have an incentive to see these negotiations concluded. When these negotiations last for that long, both sides become “hardened” into their positions and that only raises risk for the airline. Once that airlines’ risk goes up, it often affects its stock price. Strikes affect revenues in a bad way and bad labor relations affect revenues in a bad way.
However, when it comes to pilots, it is time to re-orient these contracts away from total compensation. It would be better to find ways to encourage new hiring and better quality of life over a numerically higher compensation rate. If an airline can grow and hire, that only means success for everyone involved. Achieving better quality of life in these jobs would lead to happier, more productive pilots who want to work instead of engage in conflicts over compensation. Happier, more productive pilots mean a better chance for success as an airline.
The union for British Airways’ cabin crew, Unite, has produced this video to argue their case in the public. While emotional appeals have little value to me, I will say that I think that US unions could take a cue from this video in their approach. This video (titled Brutish Airways) is more “real” yet subtle and I think something like this would work very well in the United States.
In a story on Money Magazine’s website HERE, we find out that airlines wouldn’t mind seeing more regulation.
More regulation of derivatives trading in the oil markets that is. Most airlines buy and sell futures in the markets to offset the costs of their fuel. That is, in order to stabilize their costs in fuel, they trade in fuel futures to make their costs more predictable. For more info, you can read these posts HERE and HERE.
One thing that has hurt airlines over the past 3 years is how volatile the oil markets have been. Wild swings in prices have occured because traders are “betting” on the prices being really high or really low. Because the capital in the markets has few places to be used right now, that capital is attracted to things that are more “sure bets” like oil. The truth is, oil will not collapse like mortgage derivatives did. There has been more and more speculation in oil because there are fewer and fewer places to speculate.
Airlines have resented this because it made what was a very sensible thing for them to do a very volatile thing for them to do. It’s brought less control to their equation now. And they would like to see that changed with a bit more regulation involved in the trading of derivatives.
Trading in derivatives is a complex business that very few people can engage in reliably. Lots of people think they get it and they really don’t. I have a degree in economics and finance and the most I would profess to knowing is the basic structure of that kind of trading. Airlines have pretty good traders but they don’t trade in oil or jet fuel. They trade in derivatives based on fuel oil which tracks closely to the pump price of jet fuel.
What can they do? They can either find another commodity to hedge with that tracks closely to the price of their fuel in a stable manner or they can wait for capital to seek profits elsewhere. The latter is probably not going to happen for some time.
Should there be better regulation in derivatives trading? Yes, there certainly should be more transparency in the transactions. People are now trading in the oil markets to simply make money rather than ever take delivery of an oil future. We don’t know their needs, liquidity or who they’re answerable to when these trades are going on. It would probably be more appropriate for this to be more exposed in the marketplace. Why? Because people won’t take “bets” from sketchy or insolvent entities. Just like a bookie won’t take a bet from someone who doesn’t have the cash to back it up.
The National Mediation Board (responsible for governing union relationships with respect to airlines and railways) has issued a new ruling that could affect airlines and their union relationships dramatically. In the past, a campaign for unionization had to claim a majority of votes from the entire pool of laborers. By simply not voting, it was presumed that your vote was against unionization. Now the majority need only be of those who actually voted.
Will it affect airlines? In the short run, yes, I think so. I thinkt here will be a strong push to organize unrepresented labor groups at a number of airlines including Delta, jetBlue and Airtran among others. However, I also think that this will mean that union members will simply vote instead of choosing to abstain in the long run. I do think we’ll see some new unions at airlines.
Is it fair to airlines? Not in my opinion. These rules have become too onerous and one-sided in the airline business. I also think this will harm labor groups at the airlines. I believe that this development will also lead to the NMB requiring longer and longer labor negotiations before permitting a strike. Some groups are in negotiations for as much as 4 years now and the problem with that is circumstances in the airline business can dramatically change in just months. Imagine how different the landscape becomes over 4 years?
New rules are probably in order but the structuring of those rules should give each side opportunities and risks for coming to agreement. I suspect that one thing that led to this rule change is the rash of mergers we’ve had over the past 10 years. Legislators see airlines growing bigger and bigger which gives the impression that they also have more and more market power among labor. That couldn’t be farther from the truth.
If anything, this industry needs more deregulation with respect to labor rather than more. Airlines should be less constrained by seniority and have access to at least a semi-free market for meeting their labor needs. Likewise, labor groups should have access to timely negotiations and contract renewals.
All in all, I see more barriers (as a result of this rule) to acting in an agile manner to quickly changing markets and that will be bad for both sides.
Well, over New Jersey, actually. He just lives there.
CNN had THIS report today about Continental Flight 9 from Newark, NJ to Japan having to return to Newark airport after developing hydraulic problems shortly after take off. Because the aircraft was full of fuel for the long flight, fuel had to be dumped until the aircraft had a safe landing weight.
An aircraft that can take-off with one weight can’t necessarily land with that same weight without risking damage (or worse) to the aircraft. So fuel is dumped. At least it is with large widebody aircraft such as the 777. Otherwise the aircraft would have to stay airborn for 6 or more hours until it had burned off enough fuel. The fuel vaporizes long before reaching the ground in almost all cases. It’s regrettable but also unavoidable.
Southwest Airlines reports that it flew slightly less passengers than this time last year but managed to earn 18 to 19% more in revenue for each mile a passenger flew. In other words, Southwest is doing better due to higher fares and fees.
But wait, Southwest doesn’t charge bag fees, right? Well, it charges $50 for the third bag and it does have additional fees for extra services such as priority boarding.
Southwest saw just a 0.6% decrease in the number of passengers which is way less than most airlines. It saw a considerably higher amount of revenue which is way better than most airlines. It would appear that their strategy of no bag fees may in fact be working very well for them. It’s time for legacy airlines to quit saying they see no evidence that their passenger counts are eroding.
I still don’t like this merger too much. I like that the identify remains mostly Continental and I like the fact that the Continental management appears to be the group that will run the airline. However, I see quite a few risks here.
1) While I have more confidence in the Continental management team than United’s, I’ll point out that Jeff Smisek is still a somewhat untested airline CEO. He’s had about 4 months in the job at Continental and he’s been pretty aggressive in just those 4 months. So far, I think I would be a bit more comfortable with Larry Kellner in control. He wasn’t quite so “in your face” but still managed to be very tough when it came to making decisions.
2) Glenn Tilton appears to be given a nice cushy position as non-executive Chairman of the new company but I’m not so sure he won’t try to influence the direction of the company. He was brought in to execute a bankruptcy and always appeared to want to sell the company and move on but his actions said a bit more. Is he ready to take a back seat? I’m not so sure he is. This isn’t a man who is used to taking a back seat to anyone.
3) Employees and labor. United employees might have something to look forward to in a management team that acts like it wants to run an airline. However, Continental employees appear to be having some trouble figuring out why this is good for them. They had it good and now they can look forward to some rather bad karma and aggressive behaviour from their brothers and sisters at United.
I also have trouble seeing United’s labor unions cooperating. They’re pretty militant and often remind me of American Airlines’ labor group. While Continental’s labor groups generally accept that it is a new world out there, United’s seem to want to return to the glory days of the mid 1990’s. And who decides seniority integrations? Better yet, is the bad example set by US Airways EAST/WEST groups going to set a precedent for becoming recalcitrant if they don’t like the decision? Part of me believes that United’s labor groups will most likely attempt to shove their desires down Continental’s groups’ throats.
4) Fleets in these airlines show some opportunities but they also show some risks. In the Boeing area, there is some room to “harmonize” the fleets. Both operate 767’s, for instance, but different variants. That’s a good thing if the pilot and flight crews are able to agree on seniority lists and get on with things. It’s a bad thing if you have to use one part of the company to operate one variant and another to operate another variant. The same is true on the 777 and 757 fleets.
Both have orders for 787 aircraft and I suspect those will remain on the books . United ordered A350’s and I kind of think those orders might just go away. It’s the domestic fleet I wonder about. UAL uses primarily A320 series aircraft and CAL uses primarily 737 series aircraft. Again, if the pilots and flight crew can get together on labor agreements and seniority, it would be good to settle on one type. The two aircraft are so similar that it is silly to operate two different fleets serving the same purpose. (This really isn’t the case in the Delta/Northwest situation where the fleets were dissimilar enough to offer some opportunity for “right sizing”.)
5) Regional airlines. United has relied more and more on regional airlines to serve mainline routes. Continental has used them much more in the model of a traditional feeder network and primarily because of scope clauses with their pilots. There are more than 10 different regional airlines serving the two airlines. They need to consolidate and, frankly, they should consider buying 2 or 3 of those regional airlines and harmonizing their services a bit more. Right now, I see a mad scramble to keep a lot of different kinds of regional aircraft in service with the two and I think those regional airlines are going to do anything they can to keep their contracts. Service will suffer with so much competition.
6) Service products. Continental has a nice, focused service product for two classes (economy and business) that has worked fantastically for them. United has 3 or 4 depending on how you count them. First, business, economy plus and economy. How do you harmonize these service offerings and keep both frequent flier groups happy. A lot of Continental OnePass members already feel a bit cheated with the entry into Star Alliance and what it entitled them to on United and US Airways. Those travelers count and you have to find a way to keep them happy. Whose program survives and, at the same time, how do you keep from diluting the program(s) by being all things to all people?
Call me crazy but if I had been Continental, I would have encouraged a US Airways / United merger just to watch that organization melt down while I made plans to capture their business the old fashioned way: By competing with good service.
I just saw THIS Seattle Post-Intelligencer Blog entry with the photo of the proposed livery for UAL/CAL. I have to say that it is a pretty handsome look. Everything is Continental (including the typeface I believe) except the name.
Now, this morning, I’ve seen several reports that the new combined airline will use the Continental livery and logo but the United name. If nothing else, at least I can look forward to not seeing that horrid United livery anymore.
There are now reports that the boards of both United Airlines and Continental Airlines have approved an agreement that sees UAL buying CAL for approximately its current market price of $3.2 billion. It is an all stock deal where Continental shareholders will receive 1.05 shares of United for their Continental stock.
The Washington Post reports that the new company will have a 16 member board with 2 seats reserved for labor unions. The combined companies will have employees number over 90,000 and a combined fleet of more than 690 aircraft.
Official announcement of the deal is said to come on Monday morning.
It’s basically the deal we’ve all been hearing about for 2 weeks now. UAL buys CAL, the company uses the United name and the Continental executive team runs most of the show. Read the CNN/Money Magazine article HERE.
This news story HERE from Reuters indicates that United Airlines and Continental Airlines have agreed on stock pricing and the share price would seem to indicate that Continental got what it wanted. If true, that would seem to indicate that Continental is for most purposes running this show. I still wonder what becomes of John Tague at United.
One story coming out this week is about comments from WestJet executive John McCleod stating that WestJet would still like to get a deal done with Southwest on codesharing. Southwest terminated their original agreement a few weeks ago after WestJet supposedly asked for modifications that were untenable to Southwest and after WestJet’s new CEO, Greg Saretsky, indicated his preference for doing a codeshare with Delta. What muddied the waters even more was a comment last week from Richard Andersen of Delta during a financial analyst call about how they had executed a codeshare agreement with WestJet which was then “clarified” by Delta PR people. Delta PR people said they did not, in fact, have an agreement in place.
This sounds like a romance drama my 15 year old daughter would get caught up in.
I never thought WestJet’s moves over the past month made sense. It felt like WestJet considered itself bigger than it was and more of a player than it was. Let’s remember that WestJet is a Canadian airline operating in the Southwest LCC model. And even though it is Canada’s second largest airline, that ain’t saying much when you consider the population of Canada and the size of Air Canada as compared to airlines in the US. Canada is a country of 34 million people or roughly 1/10th of the population of the United States.
Southwest’s home state of Texas has a population of 24 million people.
Southwest, on the other hand, would be considered a major player on any continent. They carry a lot of people every day and they do it with high marks for service, reliability and value. And they’ve done it for nearly 40 years. They are also not complete strangers to codeshares and we have already seen what a life-giving experience it is for Southwest to participate in a codeshare with an airline. As an airline, they are definitely not participating in their first rodeo. They make their mistakes but they are definitely a world class competitor too.
I can only imagine that Delta (and the rest of SkyTeam) look at WestJet and wonder when it will grow up enough to have the training wheels removed from its bicycle. They play Texas Hold ‘Em poker for high stakes in the airline world and it’s kind of hard to believe that WestJet really thought they would be taken seriously by the likes of Delta, the world’s largest airline by any metric.
Could Southwest do a deal with them still? Yes, I think so. Southwest is friendly, a great place to work and it treats its staff well. It doesn’t like to be taken advantage of but the people running Southwest are businessmen and businesswomen at the end of the day. A deal still provides both partners with something good. But WestJet is going to have to decide who it wants to be a bride to and stick with it. I’d say the signal was sent but it wasn’t exactly loud enough or specific enough. I expect another overture by WestJet before Southwest turns its attention back to WestJet.
American Airlines is a pretty conservative organization. It doesn’t hire from outside the airline very often and it manages itself pretty closely. It is, in many ways, the IBM of the US Airline industry. Well, the IBM of the 1970’s anyway.
Mergers and acquisitions haven’t been a very successful pathway for American. One look at the TWA “merger” which was really a purchase and you’ll understand why. They tend to focus on their core strengths and it is particularly difficult for them to adopt new staff and destinations. Purchases, for them, seem to be more about keeping dominance in a particular area rather than growing their business.
When Delta and Northwest started off on their merger, it was easy to understand why AA was unruffled by the development. There was no assurance of success on any level be it financial or operational. Being the biggest isn’t AA’s game nearly as much as being the strongest and I’m sure their management corps looked at that merger and decided it wasn’t something to worry too much about.
But Delta has had better financial success than AA and it seems to be “right sizing” aircraft to routes and enjoying better yield and that has got to be attention getting on some level. It got Continental’s attention apparently. If the Continental / United deal does go through, I have to wonder who AA starts to look at. It’s one thing to have an aberration in Delta but it is a whole other bag of bananas to have Delta/Northwest and United/Continental next door to you.
So, is it US Airways? They aren’t just the logical choice because they’re the only legacy airline left. There is a certain sensibility to the idea. AA has no hubs out west (just a large presence at LA) and, in fact, has no dominance in any of the areas where US Airways does operate. Well, Philadelphia is close to Washington DC and NYC but it isn’t the DC or NYC market either. AA has no southeastern presence either. Miami is a hub but it isn’t an regional hub like Atlanta or Charlotte.
There isn’t much fleet compatibility there and I’m not sure there needs to be. Delta has shown that as long as you have an economy of scale in the aircraft type, you can have it in the fleet and use it to your advantage by rightsizing your aircraft to the route.
Labor problems? Well, AA is kind of used to labor problems and their labor unions are so strong that I kind of wonder if they wouldn’t smack all those US Airways EAST/WEST conflicts into shape. If nothing else, it would give the EAST/WEST unions something to unify over.
Say, did you know that US Airways CEO Doug Parker used to work for AA? His wife still does. Guess who US Airways’ President Scott Kirby used to work for? Sabre when it was a division of AMR, the holding company for AA. Two more of the executive team come from Northwest Airlines from an era when they really weren’t that different from AA culturally speaking.
Both airlines have a lot of debt. The US Airways team has actually proven itself to be pretty scrappy in many areas. They cleaned up the Philly problem from US Airways EAST, managed their finances carefully and have continued to be a player despite unresolved challenges. Neither has really made money though.
However, a real merger, not just a purchase and dissolution but a merger, has some potential even if AA’s team retains most of the control. It has some of the same potential that Delta / Northwest had and fewer of the risks that a United/Continental merger has. It helps the Oneworld alliance as well.
While I think AA could do it, I also think the chances for them to screw up a real merger are far higher than I would give many other airlines. I think they would approach it as a takeover and attempt to dominante everything. And as a result, I think we would see the hubs in Phoenix, Philadelphia and Charlotte slowly fade away over time with nothing much to show for its effort after 10 years.
The 3 hour rule officially starts on April 29th, this Thursday. The media is starting to bubble with lots of quotes from spokespeople at various Airlines and many of those quotes are about cancelled flights. There appear to be about 3 levels of fury in these quotes. Level 1 isn’t really fury more than it is resigned acceptance and is represented mostly by Southwest and American Airlines (which kind of surprises me).
Level 2 is what I’ve started thinking of as the “Happy Threat”. These airlines are announcing in cheery PR tones that they’ll “try hard” but it is likely that lots of flights might get cancelled. Then there is Level 3 which really isn’t from the PR department so much as the CEO (Can you say Jeff Smisek) who are basically attempting to make it out to be the FAA evil plan to wreak havoc on the airline system.
Here is what I think you’ll see happen on Thursday and Friday. The sounds of crickets chirping. This rule is only going to affect a small portion of flights over the course of a year and is likely to only affect a small-ish portion of flights on a day of catastrophic weather. It is notable that despite a pretty bad winter in the Northeast, the airlines dealt with it much better with proactive measures that, yes, included some cancellations but also included things like encouraging people to rebook and leave earlier and later or postponing their trips. The airlines did a great job of handling the weather delays this winter and let’s give them a small round of applause.
Should you be worried? Nope. Not right now. There is no sense in worrying about something that, statistically, is less likely to happen to you than a traffic accident. Worry when you’re approaching your travel date. Look at the weather expected from about 3 days out. If it looks a bit catastrophic in its potential, start looking into your options such as leaving a bit earlier (your airline may be happy to waive change fees to do so), leaving a bit later (why not book on a flight the day after the weather and be the first to have re-scheduled instead of the last?) and monitor the situation a couple of times a day until departure.
Even if you have no options, don’t panic. Just because the 3 hour rule is in effect doesn’t mean your flight is getting cancelled. It DOES NOT MEAN THIS. The overwhelming chances are that your flight will leave. This isn’t a rule that governs when you must board and take off. This rule governs the time it might be taking to transit from the gate to the runway and then takeoff. 3 hours is a *long* time to make that transit.
In addition, just because you are out there and about to take off but approaching the 3 hour limit doesn’t mean your flight is getting cancelled. If it is unsafe to return to the gate and disembark people, pilots can continue on. If air traffic control determines that it is unsafe for your aircraft to leave the line or that it will impact other aircraft too much, they can give a waiver for the 3 hour rule too. There are plenty of outs.
Seriously, this isn’t anything to get worked up about as a traveler for 99.5% of the time. It simply isn’t. And even if you are in the that 0.5% period, you still have a very small chance of seeing your flight outright cancelled. If you’re traveling on critical business and you really do need to get out, then watch the weather, check your options and, frankly, I’d suggest consider using the Cranky Concierge as a lifeline in the event you do get a cancellation.
Should you be worried with respect to the NYC area? Well, JFK does have that runway under construction and just about everyone thought the plans for mitigating against delays were a bit optimistic. Essentially, the two big players (American and jetBlue) agreed to retain a winter schedule until mid-summer. A better plan would have been to cut everyone’s slots by some percentage and then tell the airlines to plan a schedule around that. Adding a bit of safety margin into that by extending it to the end of July or first of August would be smarter still.
Are there going to be some extra delays and/or cancellations here? Yes, I think so. However, I don’t think the primary “cause” of those is going to be the 3 Hour rule. The primary cause will be an overscheduled airport missing a critical runway and airlines without a plan to realistically deal with that. The secondary cause may be the 3 hour rule.
Bottom line: Avoid departing JFK if you can. If you can’t, try scheduling for non-peak time departures (such as the morning instead of the afternoon or evening. Monitor the weather, have a backup plan, set up an account with the Cranky Concierge. Personally, I find it difficult to believe that the NYC traveler *must* go through JFK to go somewhere. I suppose there are a few limited circumstances requiring it but I’d look strongly at traveling via La Guardia or Newark instead of JFK when making plans.
This is *not* a time to be married to the idea of traveling on an airline because you like accruing their miles. Seriously, are miles that are worth probably no more than $20 for a trip of 1000 miles so important that it takes precedence over everything else? Is it not better to avoid incurring the expenses that a delay brings such as food, lodging, potentially lost baggage, etc?
It’s been reported that United Airlines and Continental are at an impasse in their merger talks over how shares of each company would be valued in a transaction. Essentially there are several ways a price can be set on a share and much of it depends on the day or date they agree upon. For more on that complexity, you can read THIS. The short story is that United favors a methodolgy to their advantage and Continental favors a methodology to theirs. No big surprise except that whatever is decided can affect the value of the deal to certain shareholders by millions.
Oddly enough, my concerns about this merger don’t get past the several other issues. Rumour has it that the agreement has Jeff Smisek (CEO of Continental) becoming CEO of the new company and Glenn Tilton becomes non-executive Chairman. The new company retains the United brand and remains in Chicago. My question is why?
United is an inferior brand to Continental among the favored high revenue passengers. It’s name recognition abroad isn’t so much greater than Continentals that that is a good reason. And why would anyone want the costs of being headquartered in Chicago? Continental has a nice HQ down in Houston where they control an airport and in a right to work state.
Most importantly, Continental has good relations with its labor unions and United has abysmal relations with its unions. Why would you want to preserve a status quo that sees United labor taking over with seething resentment?
The Delta / Northwest merger did result in a company that was valued more than its two separate companies. That new company has not yet made a profit. Bigger equals better has not really yet been proved in that merger and they managed to accomplish it by taking care of labor issues (or at the least the dealbreaker labor issue) first. And only then with the assistance of a pilot’s union chairman (Lee Moak) who “got it” when it came to what the airline industry is today.
There is no evidence that the labor unions of either company are going to be happy about this. How do you think Continental labor is going to feel about being taken over by the Bitter Unions of United? Not good I suspect. What is Continentals management team going to think of having to move to Chicago and deal with the mess that is United?
It almost seems as if Continental is suffering from an inferiority complex. There is no need for this merger on their part and there is no need to entangle themselves with a company that hasn’t got a single good thing going for it as it is. Yet they appear willing to submit themselves to a fading airline glory who hasn’t done much right in the past 20 years.
United’s shares are up since the merger rumours about it has started. Considerably up. Continental’s not so much. There is a message there. United’s owners see hope in a good company like Continental being mated up with their jalopy of an airline. Continental’s owners don’t seem all that thrilled with the idea. This isn’t potentially increasing the shareholder value for Continental’s shareholders. There is no guarantee that this marriage will result in a company valued more than its parts. There isn’t any concrete evidence that this will result in a profitable company. Isn’t time we be concerned a bit with airlines being profitable rather than shareholder value rising temporarily anyway?
I’d actually feel more positive about a merger if Continental took over US Airways instead. This potential merger just smells bad to me and it feels like no good can come from this.
During American Airlines earnings call yesterday, one financial analyst got a little rough with AA and, more specifically, Gerard Arpey and Tom Horton. By rough, I mean the question posed was “Is that all you got?” The Dallas Morning News Aviation Blog has a good description of the exchange HERE.
They make a good point. American Airlines has really been a disappointment for a decade and the leadership has frequently leaned on multi-year plans and talks of how well things are going and what can be expected from new deals and new alliances. Sometimes it is talk of how one time expenses got in the way of a profit, etc. At the end of the day, you really should deliver something now and then. I would point you to Continental as an excellent example of this.
American Airlines didn’t file bankruptcy. Everyone talks about how they did the right thing and didn’t file bankruptcy. The employees gave back 30% or more of their salary instead. Problem is, when your competition (United, US Airways, Northwest, Delta) does file bankruptcy and does lower its costs and does streamline its operations and does reinvigorate its workforce, they’ve got you boxed in. All the airlines in that list gained a permanent advantage over AA and regardless of the talk of “doing the right thing”, AA has a big disadvantage.
What’s really frustrating isn’t that disadvantage. What really irritates people is the leadership’s habit of deferring and delaying to another day many of the problems that do, at some point, need to be solved. It’s the risk created by ignoring, deferring or delaying the resolutions of these problems that makes one so irritated and, dare I say, now a bit unconfident about AA’s long term future?
They have an old, fuel inefficient, passenger inefficient fleet. Much of that renewal has been deferred resulting in a fleet of aircraft that is more maintenance intensive, which carries fewer passengers per segment and which burns more fuel doing it.
There isn’t a labor group at AA that isn’t spoiling for a fight at this point. The risk of one or another getting their way and having a strike is increasing month by month. For 4 years, we’ve seen AA labor groups have their contracts become amendable, negotiations begin and then . . . nothing. There is no sense of urgency on AA management’s part to have this settled.
These issues and more make it appear as if no one is really solving problems. They’re deferring them, delaying their resolution or, in some cases, just ignoring them but no one is showing up, raising their hand and saying “We solved this problem. It won’t be on our plate anymore going forward.”
The thing is, bankruptcy would have done that for them. There would have been final solutions and the airline would be coping with immediate problems instead of being bogged down with what is really nearly 20 years of baggage. My point is, I’m not sure bankruptcy *was* doing the right thing.
It’s OK to describe problem resolutions as ongoing for a year or two or maybe even three. It’s been going on a lot longer than that at AA and JP Morgan analyst Jamie Baker has noticed. And I think this is just the beginning.
