The Fort Worth Star-Telegram is hosting a video produced by American Airlines to show their idea of the 787 flying in AA colors.  You can watch it HERE.

Apparently someone in the media department of AA doesn’t know about the inability to have a “polished” fuselage yet.

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American Airlines just announced that it intends to purchase up to 100 Boeing 787 aircraft between 2012 and 2020 reports the Dallas Morning News Aviation Blog.

What I’m most curious about is this:  What color will they paint them?  American has had the tradition of not painting their aircraft although they have painted American Eagle aircraft white (they had to since most of the regional jet aircraft *must* be painted due to the alloy used for their skin) and they did paint their A300 aircraft grey (for the same reason as the regional jet aircraft). 

The 787 is made primarily of carbon fibre reinforced plastics and will not be able to be polished.  So, what color will they paint them?  Grey?  Doubtful just because grey doesn’t really represent their image well.  White?  Possibly but then they begin to blend in with several other airlines.   Could this force the introduction of a modified or new identity for American Airlines?

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The stock markets have slipped considerably again today (Friday October 10, 2008) and things continue to remain very volatile and probably will for another 10 days or so.  The consequence is that oil prices are plummeting.  Why?  Because a lot of speculative money was invested in oil as the value of the dollar dropped and inflation began to increase over the past 2 years.  Oil was an investment that preserved some value and for the past year has yielded some high profits for investors.

Now those same investors need their cash to cover other investments and they are selling their oil futures like crazy to recover their liquidity.   Today oil is selling at about $80 / barrel and that means much cheaper gasoline and jet fuel for the near future.    For airlines without fuel hedges or with few fuel hedges, that’s good news.

Oil could decline to as little as $60 / barrel but most likely will stabilize between $70 and $90 / barrel over the long term.  By the way, most airlines operating models are currently built to make a very decent profit with that oil price. 

For airlines who got a bit aggressive over the last year and bet on oil continuing its hurried rise towards $200 / barrel, that’s bad news.  You see, some airlines have already been reporting fuel hedge losses because of the slow decline in oil prices.   To better understand hedging and what has been going on, you can read THIS.

United Airlines appears to be particularly vulnerable to the fuel hedge losses.  It’s a good news / bad news thing for them.  For the near future, fuel should be cheaper and if revenue stays about the same, they should be fine.  They’ll be hit by fuel hedge losses but they’ll recover some of that loss in better profits from running an airline. 

If, on the other hand, revenue declines, then airlines like United (and there are others) will suffer from both fuel hedge losses as well as a decline in profits.    I suspect most airlines of any size will weather that problem because it is unlikely that they are hedged at high prices for very far in the future.  Maybe a year to a year and half. 

For those of you wishing evil on Southwest Airlines, don’t.  They’ll largely be unaffected one way or another.  They might experience some slight fuel hedge losses (unlikely) but more likely they simply will make less money from fuel hedges and more from profit.   Their revenue is far less dependent upon the high priced business class fares and that means their demand is more inelastic than most airlines.  They might see a slight decline in leisure travel but I suspect that that will hold more or less as people who want to travel transition from a legacy carrier to an LCC such as Southwest.

We live in interesting times.  At least gasoline will be cheap for a while.

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The Fort Worth Star Telegram has run a story about how airlines will be required to report ground delays more accurately and robustly for the public.  As you can imagine, many airlines welcome this development much like they welcome $200 / barrel oil. 

The truth is, if I were an airline CEO, I would welcome this development even if I knew I was about to look pretty bad.  It’s this kind of feedback and scrutiny that can drive a company to do some soul searching and really seek solutions to their problems.  It is unpleasant and solving those problems can be difficult but they are a key ingredient for success. 

I would even be tempted to use it in labor negotiations.  I would ask for performance pegged to improving those statistics and maintaining them as well.  In return, I would peg compensation (including substantial incentive pay) for labor to those same statistics. 

And, hey, by the way, here is a novel idea:  Let’s measure your management team by those very same statistics.  They may be imperfect statistics but they are relatively honest.  More important, why shouldn’t a management team be measured against the very same stats as the labor team?  That would seem to align their interests far more than anything else attempted. 

The statistics we see on airlines are imperfect and no airline is thrilled about making them available because they can also reveal competitive data to, well, the competitors.   However, a successful business worries more about improving itself and a lot less about what their competitors are doing.   First and foremost, the airline industry is a service industry and success in that industry does seem to be closely tied to service performance.  Doing what you say you are going to do seems to be the basic metric by which most customers judge you.

Those who deliver what they promise in a consistent and fair manner tend to be the most profitable airlines.  They also tend to be the airlines who have improved their morale, empowered their employees and, yes, compensated those same employees fairly. 

I hope the airlines embrace the sunshine and enjoy the disinfectant. 

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The Dallas Morning News Aviation Blog reported that Sun Country Airlines has filed chapter 11 bankruptcy citing recent financial trouble caused, in part, by its parent company, Petters Group Worldwide and the just resigned CEO of that firm (who is also being investigated for criminal fraud.)

 I wonder if anyone truly believes this company is going to survive in the present aviation climate as a leisure airline flying from a Minneapolis / St. Paul hub?   They would appear to be an unattractive acquisition for anyone who might have the financial muscle and now they get to face the start of competition with Southwest Airlines next March.    Obviously I would feel a great deal of sympathy for workers who are displaced by Sun Country folding but I also have to wonder if Chapter 11 is in the best interests of the shareholder(s) or the creditors.   It might be time for this one to throw in the towel.

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The Dallas Morning News Aviation Blog is reporting that Southwest Airlines just announced that they will begin flights out of Minneapolis / St. Paul next March.  The first flight will be to Chicago Midway which is no surprise. 

For some time, pundits have claimed that Southwest couldn’t enter this fortress hub and now they are.   To me, this is exciting news because I think that Milwaukee might not be very far behind as a station.  There is a lot of originating traffic between Milwaukee, Minneapolis / St. Paul, Chicago, St. Louis, Denver, Detroit and Kansas City.  If you look at the type of flying one would do between those city pairs, it looks exactly like a Southwest Airlines strategy.   What’s more, Southwest is already very strong in all of those cities except MSP and MKE.  The cost to start those routes and market them are relatively low since the airline only has to introduce itself in two of those cities. 

I feel certain that Southwest will grow MSP and then turn its attention to Milwaukee either in late 2009 or early 2010.   Sooner if they can so that they can compete against Airtran there.   This is good news for Minneapolis / St. Paul and probably bad news for Sun Country Airlines, an airline that has been faltering in the MSP market for a few years now.   I would be tempted to mark Sun Country Airlines as a possible purchase by Southwest because their facilities  and base in MSP has some value for Southwest.  Even their fleet, Boeing 737-800s, comes close to matching Southwest’s (B737-300/500/700) but I suspect they know that all they have to do is wait and much of it will be theirs anyway.

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USA Today’s Today in the Sky blog brought attention to Porter Airlines announcement that they’ll be entering the Chicago (MDW) to Toronto (City Centre) market.  Porter Airlines flies sub-500nm routes using Bombardier’s Q400 aircraft, a turbo-prop commuter airplane.

The Q400 offers 4 abreast seating (no middle seats), near jet speeds and a 34″ pitch economy seat for up to 70 passengers while using as much as 40% less fuel (per seat) than mainline or regional jet aircraft.  Makes you wonder why more airlines don’t use this aircraft, doesn’t it?  Me too.

Porter Airlines is flying this aircraft on exactly the right routes.  They experience similar block times as mainline jets (the time used from departing the gate and arriving at the next gate) with a better than average on time record in part because this aircraft can use shorter, less crowded runways and also because it flies in less congested airspace (from 15,000 to 25,000 ft). 

I would love to see an airline like this operate in the Midwest area or Texas as I firmly believe it is a winning model.  Porter Airlines will have to prove this out in Canada and perhaps one day someone in the US will take notice. 

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Northwest Airlines shareholders approved their merger deal with Delta Airlines this morning.  Delta shareholders meet to approve the merger this afternoon. 

While this is for most purposes a pro forma part of the process, it is another step forward in this merger.

What I continue to wonder about is the new corporate identity.  Will Northwest’s heritage and history survive in some small way?  I’ve seen some concepts done by people that turn the Delta “widget” into point on a compass.  PlaneBuzz has some images that show it looking something like THIS.

And I must say I like the concepts.  I do think the circle on the fuselage is a bit busy but it works on the tail just fine.   I suspect, however, that the Delta identity will remain the same and Northwest’s identity will fade away as airplanes and uniforms are changed over.

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USA Today’s Today In The Sky is reporting that Frontier Airlines has gone to their bankruptcy judge and asked him to break the Teamster’s contract in order to allow some heavy maintenance to be done off shore (Central America most likely.)

 I’ll confess that I have so far been surprised at Frontier’s relatively smooth, up to this date, reorganization.  This latest development seems to indicate that all is not as it seems and they may only just now be working on the hard stuff.  The hard stuff is, quite honestly, renegotiating labor contracts and getting commitments from all the stakeholders to play nice in the emergence from bankruptcy. 

They remain on my death watch simply because they continue to be squeezed on both sides by Southwest Airlines and United Airlines in Denver.  In addition, they no longer have any fuel hedges (they had to be given up on going into bankruptcy) and while oil prices are lower than their peak just a couple of months ago, they remain volatile. 

Even with renegotiated labor contracts and concessions from lenders, they still have to compete with their system based in Denver and that’s a tough market.  Denver really isn’t large enough to support 3 major airlines battling it out in the long run.  A quick look at what happened in Hawaii between go! Airlines (A Mesa Airlines subsidiary), Hawaiian Airlines and Aloha Airlines (who went into liquidation) is all you need to read the tea leaves.  Whoever has staying power wins and, right now, that would be Southwest and United.

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I received some photos of a United 737 taxiing through high water at Chicago’s O’Hare Airport when it was inundated with rain from the remnants of Hurricane Ike.

This is the photo:

I can only imagine how those engines were babied as they moved through the water.  And I can only imagine just how miserable it must have been to be working as ground crew too.

I’m back from a brief vacation trip and I’ll be posting regularly again.

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The Dallas Morning News Aviation Blog just had this post.  United Airlines has just made it known that they expect some rather heavy losses in their fuel hedging program.  Fuel hedge are common practice among airlines to make fuel prices predictable (rather than necessarily always cheaper) and therefore allow airlines to financially plan for their needs.   Southwest Airlines is arguably the most successful at this strategy.

A fuel hedge is a kind of bet.  An airline purchases contracts and options to buy fuel oil (not jet fuel but fuel oil which tracks in line with jet fuel prices) at a specified price.  If an airline thinks fuel prices will go up, they will buy options and contracts for these fuels for a current market price for delivery some time in the future.  If in fact the prices go up, they sell these contracts for a profit and use the money to offset their jet fuel costs.   If the prices go down and the airline bets that they’ll go up, they suffer additional losses and the cost of their fuel goes up against their plans.

Since hedging is a risky business, a wise airline only hedges a portion of their fuel costs per quarter so they are not completely exposed to the risk of having bet wrong.  In addition, they’ll bet conservatively on prices so that the risk they expose themselves to is minimized as much as possible.  To manage all of this properly requires an army of financial analysts and hedging experts. 

The problem with hedges is you can both make and lose a lot money with them.  When you make a lot of gains, it becomes intoxicating to any airline.   The temptation is to hedge more and more and bet on directions that seem pre-ordained.  Just 1.5 months ago, everyone was betting that oil might go as high as $200 / barrel.  Just this last Monday (September 15, 2008), oil was trading at $97 / barrel.   United bet wrong and now has to report that they have had both real and unrealized losses involved with the trading.  Unrealized losses require them to hold cash in reserve to meet those potential costs.   That is “restricted” cash.

Lately you hear airlines talk about how much unrestricted cash they have on hand.  Southwest Airlines, American Airlines and others will have quite literally billions of unrestricted cash.  That is the money for which there are no real or potential obligations attached.  Going into a period of economic uncertainty, having a large amount of unrestricted cash is good because you can suffer short term losses and still operate sensibly.  If you have too little, you’ll quickly be forced to constrain your operations which quite often leads to a cycle of contraction for an airline.  Because they don’t have the cash, they become smaller and because they’ve become smaller, they have even less cash.

American Airlines continues to survive these industry contractions because they have a huge amount of unrestricted cash held in reserve.  It gives them maneuvering room and they are probably the best in the business when it comes to managing their finances.  That is one reason why they did not have to go into bankruptcy in the post September 11 industry crisis.

To return to hedges.  A hedge becomes risky when you are buying contracts that approach the forecasted market price of the fuel.  Ideally, you want to have options and contracts that are substantially lower than your current year’s price of fuel.  That way, if fuel prices drop your contracts will still realize a gain.  If you buy too close to market prices, particularly in a volatile market such as what oil is experiencing, you run a very real and damaging risk of being obligated to buy those commodoties at prices that are higher than the current market rate.

Hedges have often been described as an insurance policy against high fuel prices.  They aren’t.  They are a way of smoothing the peaks and valleys of fuel prices.  If you smooth those peaks and valleys, you can more accurately plan your financial obligations and that potentially allows you to make more money available for purchasing goods and labor.

The losses reported by United Airlines are just one more reason why I watch them carefully.  You can’t suffer those kinds of losses very often and, once again, it appears that their business plan is not accomodating the current market conditions in the airline industry. 

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The Fort Worth Star Telegram Sky Talk blog reports today that American Airlines has, in fact, won a reprieve from starting their Chicago-Beijing flights until 2010.  While this approval wasn’t unexpected, it is disappointing.  I wrote about this in a previous entry  and detailed my own objections to granting these delays.  Citing economic conditions for a delay is not, in my opinion, a satisfactory justification.  These airlines made rosy promises and commitments to serve these routes and to simply throw up your hands and ask for the status quo to be maintained is both unjustified and unfair to other airlines.

There are plenty of airlines who wanted these authorities and, quite frankly, got shoved aside in favor of airlines already serving China.  I could certainly understand and approve of a short delay if planned equipment remained unavailable due to delivery problems from an aircraft manufacturer but that isn’t the case here. 

US Air has also asked for delays on their Philadelphia – China route (and cited economic conditions as well but I suspect that the fact that they have been unable to source aircraft for that route also plays a part in things.  The aircraft that makes the most sense for them, an A340, is an expensive and fuel inefficient aircraft (when compared to A330 and B777 aircraft.  They don’t want to add yet another aircraft type to their fleet and they don’t want to lose the route so they have approached the current economic climate in the airline industry as a blessing on this route.

When the Department of Transportation grants these requests for the stated reasons, they maintain the status quo and that means that airlines are not forced to either re-tune their operations and they are not required to truly compete with each other.  Neither consumers nor the nation have anything to lose by forcing the airlines to adopt business models that are realistic for themselves.  If they cannot serve the routes, someone else who is willing to try should be given a chance.

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Today in the Sky, a USA Today Blog, has posted THIS story about United Airlines doubling their 2nd checked bag fee from $25 to $50.   Citing volatile oil prices and the fact that oil remains almost double what it was a year ago, United Airlines is raising this fee for a 2nd checked bag with the usual disclaimers (elite frequent flier members, business class passengers, etc don’t pay the fee.)

While the checked bag fees may be working for some airlines, it still strikes me as dishonest.  What United is saying essentially is that it costs them $50 to carry that second bag in addition to all the other fees you are now charged for flying their airline.  Not really true.  What they want is more revenue to fly profitably and I’ve no objection to them asking for that.  But to couch this as necessary for checking bags is just silly and fosters resentment from passengers. 

This fee affects a relatively small portion of travelers and will likely have the effect of simply reducing the number of 2nd bags checked.  Travelers will instead stuff more into a carry on and 1st bag. 

Please note that Southwest Airlines continues to charge no fees until the 3rd bag is checked.  All of these additional fees just leave a foul taste in one’s mouth over legacy airlines in general.  How long before they suggest tipping flight attendants in order to reduce their salaries?

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The Dallas Morning News had This Story this morning.  It seems that Continental Airlines has found itself unable to resist charging a fee ($15) for the first piece of luggage to be checked.  It was encouraging to me that they had resisted this up to now and it is disappointing to see them join the band wagon.  No doubt the argument is that they are leaving money on the table by not charging this fee.  This also changes my mind some on the idea that someone will break away from this pattern among the legacy carriers.  These fees may be around for a lot longer than I originally thought.

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The USA Today Aviation Blog, Today In The Sky, reported on who operates the worst 30 late flights of the last month.  They are:

July’s 30 most-chronically delayed flights
1. Delta subsidiary Comair Flight 5292 (Minneapolis/St. Paul to New York JFK; late 100% of the time by an average of 134 minutes)
2. Delta subsidiary Comair Flight 5614 (Charlotte to JFK; 100%; 121 minutes)
3. Delta subsidiary Comair Flight 5491 (Albany to JFK; 100%; 97 minutes)
4. Delta subsidiary Comair Flight 5739 (JFK to Pittsburgh; 96.8%; 83 minutes)
5. Delta subsidiary Comair Flight 5440 (Washington Dulles to JFK; 96.8%; 83 minutes)
6. Delta subsidiary Comair Flight 5610 (BWI to JFK; 96.3%; 115 minutes)
7. Delta subsidiary Comair Flight 5588 (Norfolk to JFK; 96.2%; 132 minutes)
8. Delta subsidiary Comair Flight 5496 (Philadelphia to Boston; 95.5%; 83 minutes)
9. Delta affiliate Pinnacle 2021 (Charlotte to Atlanta; 94.7%; 97 minutes)
10. Delta subsidiary Comair Flight 5287 (JFK to Minneapolis; 93.6%; 103 minutes)
11. JetBlue Flight 1076 (Richmond to JFK; 93.6%; 78 minutes)
12. JetBlue Flight 136 (Fort Myers to JFK; 93.6%; 76 minutes)
13. JetBlue Flight 1108 (Raleigh/Durham to JFK; 93.3%; 111 minutes)
14. JetBlue Flight 1056 (Pittsburgh to JFK; 93.3%; 92 minutes)
15. Continental affiliate ExpressJet Flight 2412 (Providence to Newark; 93.3%; 69 minutes)
16. JetBlue Flight 160 (Denver to JFK; 93.3%; 58 minutes)
17. AirTran Flight 311 (Milwaukee to New York LaGuardia; 93.3%; 56 minutes)
18. American affiliate American Eagle Flight 4783 (Washington National to Boston; 92.6%; 72 minutes)
19. Delta subsidiary Comair Flight 5640 (Raleigh/Durham to JFK; 92.3%; 98 minutes)
20. JetBlue Flight 160 (JFK to Dulles; 92.3%; 73 minutes)
21. Delta subsidiary Comair Flight 5438 (Tampa to LaGuardia; 92.3%; 62 minutes)
22. United affiliate Mesa Flight 7297 (Chicago O’Hare to Allentown; 92.3%; 59 minutes)
23. Delta subsidiary Comair Flight 5678 (LaGuardia to Jacksonville, Fla.; 92.3%; 53 minutes)
24. Delta subsidiary Comair Flight 5592 (Richmond to JFK; 92%; 80 minutes)
25. American Flight 1629 (Miami to San Juan; 91.3%; 92 minutes)
26. Delta subsidiary Comair Flight 5741 (O’Hare to Cincinnati; 90.9%; 103 minutes)
27. Delta subsidiary Comair Flight 5366 (Detroit to JFK; 90.9%; 86 minutes)
28. Delta affiliate Atlantic Southeast 4358 (Atlanta to JFK; 90.9%; 84 minutes)
29. Delta subsidiary Comair Flight 5496 (Boston to Bangor; 90.9%; 72 minutes)
30. Delta subsidiary Comair Flight 5515 (Detroit to Cincinnati; 90.9%; 68 minutes)

 

22 of those 30 flights involve travel to or from the New York City area and of those, 16 were to JFK airport.  A little more scrutiny reveals that 15 of the 16 involving JFK were flights operated as commuter flights using regional jets.  One would be tempted to simply associate most of the problem with Comair (Delta’s regional affiliate flying many of those chronically late flights) but if it was just Comair’s operations, they would have fantastically late flights for other city pairs as well. 

I’m sure a pattern is revealing itself here.

First, airports in the New York City area and JFK Airport in particular cannot accomodate the flights unless it is a perfect day.  Since those airports are subject to severe weather both in the summer and winter, a fair number of those flights simply never take off or arrive on time.  Ever.  If there is one minor disruption at a peak flying hour, schedules for most airlines at those airports are shattered.

Second, because those flights are regional jets flown mostly by legacy airline “connector” airlines, they take low priority when it comes to dispatching.  If Delta has 25 mainline aircraft scheduled into the airport and another 20 regional jets, then it will give priority to dispatching those mainline aircraft first for the simple reason that there are more passengers on those airplanes.  Regional jets are carrying generally less than 60 passengers on those aircraft and by letting those aircraft arrive late in favor of mainline airplanes, they disrupt the fewest passengers.

However, doesn’t it seem a bit deceptive to have flights scheduled for a route that is 100% late?  Wouldn’t it seem deceptive to schedule flights that cannot arrive at least 60% on time with late being no more than 45 minutes at the worst?  Of course it does.  Airlines ask for and get performance guarantees when they buy aircraft.  A new airplane generally has to be within 2 or 3% of the guarantee or airlines receive performance penalty payments and sometimes negotiate their way out of the purchase contracts.  If Boeing delivered an airplane that was 100% over its fuel burn, they would be out of business.  If they delivered an airplane that was 10% over its fuel burn they would be out of business. 

The public puts up with this because it is pretty hard to find out just how reliable a flight is when booking a seat.  It can be done but I just did it on a hypothetical flight from DFW to ORD (Chicago) and it took me more than 12 minutes to check out the statistics on just 3 flights.  If those first 3 revealed themselves to be too late on average, I would have spent more time identifying one that wasn’t too late and that did have a seat at the price I wanted to pay.  Selling services that perform that badly would constitute fraud in many other service sectors. 

What if airlines had to publish their dispatch reliability and schedule reliabiilty along with a fare?  It would sure make the consumer approach his purchases differently, wouldn’t it?  After all, how willing are you to pay for a full fare economy seat if you know that the flight you are purchasing it on runs 100% late and by as much as 130 minutes?  You probably wouldn’t buy the ticket at almost any price if you are business traveler because those travelers need some predictability and reliability in their schedules.  Likewise, wouldn’t you be willing to pay an extra $20 or $30 to take a different flight at a similar time that *does* have a good track record?

One way to evaluate your prospects for a particular trip is to look at which airlines serve that city pair and what their actual performance is for that route.  FlightStats.Com is a good website for this information but don’t be afraid to insist your business travel agent ensure you are on a flight with good dispatch reliability and on time statistics.  It is cheaper to pay $50 more for a good flight than to risk your entire schedule on a flight that has a 100% chance of making you miss a connection and blow an entire business day. 

The greater the transparency in the airline industry, the better the service will be.   If we required a variety of statistics be published by airlines in their flight listings, I would be willing to bet there would be a wholesale change in consumer behavior towards those airlines.  Good for good airlines and bad for bad airlines.  Shouldn’t it always be that way?

Update:  I’m told by a frequent flyer who flies Continental most often that Continental *does* publish their performance stats on their website when booking a ticket.  To a degree, that is unsurprising since Continental Airlines is one of the very few airlines that has consistently followed a policy of measuring their performance with very real metrics.  A policy that started with Gordon Bethune and has been continued by Larry Kellner.  Well done.

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A number of airlines have been asking for permission to delay the start of flights to China from the United States.  The Dallas Morning News reported that American Airlines now has filed for such permission on their Chicago-Beijing route authority. Both US Airways and United Airlines have also asked for the same thing on their recent route authorities.

US Airways lacks the aircraft type for making the trip from Philadelphia and United Airlines, who does have the equipment, simply doesn’t want to fly to their new destination in the current economic climate.  These kind of routes cost a tremendous amount of money to operate and without some certainty that they’ll make money, the risk doesn’t seem worth it right now.  To the winners of these authorities at least.

The airline industry has played the “save us” card on these routes by making the argument that just because their economic situation changed, they should be given a second or third chance to find a more convenient time to operate these routes.  Yes, the entire industry has experienced a lot of challenges and, yes, the cost of fuel is certainly the biggest. 

However, we are not without other airlines who I suspect would be happy to operate these routes.  Why wait for an airline to decide its ready to fly them when we can identify other airlines that are willing to fly them right now.  I suspect that both Delta and Continental Airlines would give serious consideration to even removing equipment from a different route in order to be able to fly these routes.  Northwest, who already operates a large number of Asian routes, might well be tickled to death to offer more service.

It is time to go back to a “use it or lose it” model.  Giving airlines 2nd and 3rd chances only removes the incentive to figure out how to operate in today’s climate.  An airline should have no more than 12 months to operate a route authority from the date it is awarded.  If it cannot or will not, then its time to seek other “bids” for these routes.   When you deny such routes to Delta (who asked for ATL-Beijing) and give the to American Airlines (who wanted DFW-Beijing but ultimately asked for and got Chicago-Beijing) who then asks to defer their operation, you are putting Delta at a competitive disadvantage and American Airlines gains. 

Let the airlines who can and will operate these routes, have the routes.  Don’t permit large legacy airlines operating in fear the opportunity to “sit” on the routes and prevent that economic growth to someone else. 

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India’s Hindustan Aeronautics Ltd (HAL) has announced plans to build yet another 70 to 90 seat Indian regional jet.  While we don’t have details on its configuration yet, it will likely be powered by a version of the Pratt & Whitney GTF engine (Geared Turbo Fan) and with that seating configuration, I expect a 2 x 2 seating configuration.

But does the world need yet another regional jet in that configuration?  Probably not.  Right now Embraer and Bombardier are both offering highly efficient regional jets in that seating configuration and Embraer’s family ranges from 70 to 110 seats and offers cross cockpit compatibility.  Bombardier of Canada has the CRJ700/900 at present and is close to flying its prototype CRJ1000.  Russia’s Sukhoi is hard at work producing their Sukhoi Super Jet, another regional jet in yet the same configuration as all the others.  China’s AVIC I is producing the ARJ21-900, a 5 across regional jet for China’s growing routes.  If you thought I was done, I’m not.  Japan’s Mitsubishi is also producing a very similar regional jet using the new Pratt & Whitney GTF.

While both Bombardier and Embraer have enormous backlogs for their aircraft, they also have a very credible track record in building aircraft.  They also have families of aircraft that allow airlines to right size their fleets to routes while at the same time keeping maintenance costs reasonable.  I question whether Mitsubishi, AVIC I or Sukhoi can offer airlines the same capability for some time to come.  I also question whether these airplanes offer the right economics for many airlines.

A similar turbo prop aircraft can offer similar seating, comfort and travel times for less than half the operating cost on stage length of 400 nm or less.  I continue to believe that there will be a shift to aircraft that offer both the operating economies and capital costs that make such routes go from marginal to profitable.  Indeed, many mainline legacy airlines have contracts with pilots that are far less restrictive when it comes to seating capacities on such aircraft.  For instance, American Airlines has contracts in place that disallow American Eagle (and other commuter airlines serving American Airlines) from flying these new, higher capacity jets.

Continental Airlines showed us the way to a new profitability when they introduced the Bombardier / De Haviland Q400 on routes in the northeast.  Horizon Airlines confirmed their future by choosing to eliminate their CRJ aircraft and older Dash 8-200 aircraft and now they are being replaced with new, modern Q400 airplanes. 

The world doesn’t need another new regional jet no matter who built it.  It needs high capacity turbo-props and 110 to 140 seat mainline aircraft.

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Virgin Atlantic reported a $50million (USD) increase in profits for their just completed financial year.  Given the financial circumstances for all airlines, it impresses me to no end that they have managed to not only make a profit but increase it against rising fuel costs.  To me, this points to service being the prime key to financial success.  Say what you want about Virgin Atlantic (and many people do), they do have a well deserved reputation for being a good, consistent service product.  Look at any airline that doesn’t have this key element and you’ll find them fighting for their lives.

Airlines such as VA, Southwest Airlines, Singapore Airlines (as well as many others) are concentrating on their service and meeting the expectations of customers and it shows.

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I saw this video  from Delta Airlines on the RunwayGirl Blog this morning.  This has to be one of the best safety demo videos I’ve ever seen.  Notice the visual cues shown for each part of the video.  The perspectives shown are from a passenger’s view and seem to make the location, purpose or use of various safety items a lot easier to identify.

And the cute flight attendant doesn’t hurt. 

Filed under: Airline News by ajax
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The Milwaukee Journal-Sentinel (newspaper of my birthplace), has this report on Midwest Airlines being late in paying over $1million in gate fees.  Midwest is on my death watch list and this news doesn’t improve their standing at all.  The story mentions that they are contemplating bankruptcy and I should mention that because of changes in the US bankruptcy law, bankruptcy isn’t an easy choice to make anymore.  Those changes in the law are, in part, what drove both Northwest Airlines and Delta Airlines to file bankruptcy in September 2005 on the same day.

Updates to the bankruptcy code now make it more difficult for an airline to file bankruptcy, continue flying and weather debt and fare wars.   Until October of 2005, most airlines used chapter 11 bankruptcy to essentially buy time when competitive pressures put them at a severe disadvantage.   However, Midwest has likely been weighing the chances of obtaining DIP financing (Debtor in Possession) and given their high labor costs, vastly reduced network and fleet, most would not view this as a healthy choice for investment.  In addition to high labor costs, the airline is headquartered and based in Milwaukee, a city known for strong union influence. 

Northwest’s 47% stake in Midwest also makes the airline an unattractive target for a merger to other airlines.  It is possible that Northwest will be ordered to divest itself of its holdings as a condition of approving its merger with Delta but it is not in their interest to do so one day earlier than mandated.  By holding onto Midwest, they make Milwaukee a kind of “fortress airport” that rebuffs other airlines attempts to enter the market such as Airtran.

If Midwest were to go into bankruptcy, it would be very difficult for them to make a case for proceeding alone.  They would have to look for a buyer and while Airtran could be interested, they have already begun to establish Milwaukee as a focus city and other than some assets (namely the B717 aircraft), I’m not sure what else they have to gain by buying Midwest now. 

 To survive, Midwest Airlines would have to enter into Chapter 11, break its labor agreements and obtain enough financing to purchase new (to them) long range aircraft that would support its original network all the while fighting off Northwest, Airtran and any other airline that smells blood.  That’s a tall order for any management team in this industry.

Filed under: Airline News, Death Watch by ajax
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