The Teamsters are trying to gain the right to represent mechanics at both American Airlines and US Airways in separate campaigns. Today, they’ve presented signatures of, supposedly, more than 50% of the mechanics at American Airlines.

Meanwhile, the TWU and the IAM are agreeging to jointly love each other and represent groundworkers at the new merged airlines. But they’re both denouncing the Teamsters move to represent the mechanics.

American Airlines’ mechanics are currently represented by the TWU who are, according to some, perceived as not having done enough to preserve jobs.

It’s also notable that the Teamsters have taken some heavy losses in union elections of late.

What’s it all mean? It means that unions cannot actually get together and do a good job of both representing their membership, preserving jobs and working with an airline.

The impact will not be to American Airlines. It will come at the expense of union members. What union members are failing to realize is that they have limited amount of power and they are completely replaceable.

I would refer the mechanics to the mechanics of Northwest Airlines and their strike in 2005/2006.  Northwest Airlines was able to fly through the strike and while it was somewhat impacted, the airline survived nicely and got a settlement with the strikers that worked to their advantage.  At no time did the striking mechanics affect the airline in such a way that it became critical.

Some might dispute that.  I would point out that that strike lasted 15 months.  American Airlines (and US Airways) can find plenty of people to service their aircraft should the need arise.

The best thing that the TWU did for mechanics and others at American Airlines was that they did preserve jobs.  Far more than I would imagine possible.  They got their members a stake in the new company which will bring significant value to the table and they struck a deal that could be re-negotiated for better terms (and was) if someone else got a better deal.

If you can’t celebrate that and prefer shooting yourself in the foot, you deserve to be out of a job.

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I like the idea of Porter Airlines.  This is an airline that actually operates using Bombardier Q400 aircraft from a small, inner city airport in Toronto and does so profitably.  It uses the Bombardier Q400 in a manner I’ve always suspected would earn great money for an airline.

I like this airline because it represents a business model I have strongly advocated for flights of the type that Porter flies.  It flies its aircraft on routes that fall roughly within an 800nm radius of its home airport, YTZ, or better known as Billy Bishop Toronto Airport.

Instead of cramming seats into the aircraft with a 30″ or less pitch, Porter offers a generous 34″ pitch seat that is roughly as wide as that which is in an Airbus A320 or Boeing 737.

The seat is attached to an extremely fuel efficient turboprop airplane that is also quiet and able to fly as fast as a jet (door to door) on routes less than 400nm and nearly as fast on routes up to 800nm.

The airline makes money and now it wants to fly jets.  Specifically, it wants to fly Bombardier CS100 jets from the tiny Toronto inner city airport which currently doesn’t have a runway long enough for the jets and which actually bans jets.

Making the necessary changes both physically to the airport and to the laws is very daunting to say the least.  And we are talking about Canada here, not the United States.

Porter has made an interesting play.  It’s got an order for new Canadian made jets that are very important to the Canadian aerospace industry that is contingent on Canadian federal and provincial and city governments caving in to its demands.

We think this foolish.  Porter’s success dosn’t come from flying from that small airport nearly as much as it comes from the aircraft it uses.  Highly efficient turboprops.

To be true, Toronto’s main airport (YYZ) is incredibly expensive to fly from and does offer two strong competitors (Air Canada and WestJet) and so what.  It is, at most, a level playing field.

If Porter wants to fly jets, let them fly jets . . . from YYZ.  Turning Billy Bishop into a Canadian London City Airport just isn’t the right thing to do in this case.  Even London City Airport has more infrastructure than this small airfield.

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Virgin America has been flying since 2007 and by all accounts is an excellent experience for travelers.  By many accounts, the airline sees very good load factors as well.  Their airplanes are new, their entertainment appears well done and their executive team is experienced.

But they still don’t make money.  Each quarter we hear about how profit is just around the corner.

Now we’re hearing that by deferring aircraft deliveries and restructuring debt, Virgin America will make a profit and enjoy an IPO immediately thereafter.

I think maybe not.  There is something wrong here that I fear is not going to be fixed by restructuring debt or deferring aircraft deliveries.  Airlines are earning exceptional profits at this point and Virgin America still can’t get its act together enough to get close to a profit.

Is it the debt side?  I’m sure there is some drag there but I more strongly suspect that the revenue side isn’t being addressed appropriately.

What I suspect is that Virgin America is lowering its prices on routes to get market share and isn’t earning enough revenue to be profitable.  And that’s shame.

The airline has a problem in marketing, I think.  It’s a flash airline.  It looks like it’s for thin people who are actors and models.  It doesn’t look like an inviting airline for the everyman who needs to fly from Los Angeles to Dallas.

So what does Virgin America need to stay alive?

It might need a new CEO and a new marketing person.  It might be important to be “flash” to Virgin Brands Richard Branson but even Virgin Australia / Virgin Blue doesn’t ignore the common man in its marketing.

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American Airlines has started its first ever flight from Dallas / Fort Worth to Seoul, Korea and this is a bit of a big deal for the airline as it represents a completely new destination for the airline as opposed to a return to service.

Curiously, Dallas airline Braniff International offered service from Los Angeles to Seoul using its new 747-SP aircraft in the late 1970’s.  It was not possible to fly from DFW to Seoul non-stop at that time as even the long range 747 didn’t have quite the range necessary for such a flight.  It’s even more notable that Braniff failed on that route in a very bad way.

Load factors on those flights served to quicken the airline’s problems leading to bankruptcy.  At that time, South Korea was still governed primarily by the military and it was highly nationalistic in protecting its own airline, Korean Air Lines.  So the route award to Braniff was made to be very problematic for Braniff to operate an attractive flight to Seoul.

Had that flight been introduced 10 years later or 10 years and from DFW, it likely would have succeeded.  The ties between Korea and Dallas are signicant both in terms of residents of the DFW Area as well as in the telecom/electronics industries.

American Airlines should have every opportunity to succeed with this route and we applaud its development as it signals a desire to improve revenues and expand on opportunities to Asia from non-West Coast cities.

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Southwest Airlines will initiate service to Richmond (VA), Memphis (TN) and Pensacola (FL) on November 3 and these are the last 3 stations Southwest needs to initiate service to Airtran only stations.

All three of these cities are good for airlines and they certainly were good for Airtran but I do sense something here that I think will get ignored by the new leadership team at Southwest.

Success at these cities will not depend entirely on business travelers.  It won’t be possible to make these cities continued successes without paying attention to those who brung ya to this dance.

That would be the non-business traveler.  Actually, it’s the “not corporate” travelers who make or break airlines in those cities.  The entrepreneurs who don’t think it funny to pay exorbitant business fares to make their trips.  These entrepreneurs will either get the ticket they need at the price they need to pay for they won’t go.  They look an awful lot like leisure travelers but they aren’t quite.  They’re not buying the SWA “Wanna Get Away” fares but they’re also not tolerant of paying any fare necessary.

They are shoppers and they discriminate and they do not possess loyalty to an airline because of a points program.

And ignoring these consumers at these kinds of stations will result in once successful Airtran stations becoming failures under the Southwest model of “We’re not the cheapest anymore!”

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United Airlines has ordered 30 E-175 Embraer jets to use in the United Express fleet.  The aircraft will have 76 seats and offers 10% savings in costs over their current 50 seat fleet.

It’s a good aircraft for the airline but it also points out something that, I think, might indicate a lack of competitiveness on the part of United.

10% improvement over the current 50 seat jets?  Really?  If that is the case and if demand is as good as people say it is, why would United not buy Embraer 190 aircraft instead?  It’s possible that its labor agreements don’t permit it to and, if true, that will hurt United badly in the coming years.

The Embraer E-175 is a fine airplane but it doesn’t offer the seat costs the E-190/195 offer and this isn’t a “new” aircraft family anymore.  It seems like it must be but it isn’t.  These aircraft came online in 2002 which makes their design originating from about 1999.  That’s 11 years or more in age for these airplanes and a lot has happened in the aircraft world since their rollout.

What United needs is the seat costs that American Airlines will enjoy in about 18 months as new aircraft come online and American is able to contract with airlines to obtain and operate bigger regional jets.

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Alaska Airlines is adding flights to hubs of its major partners from Portland, Oregon and I think this is long overdue.

Seattle has been Alaska Airlines’ “hub” but Portland, Oregon has always contributed a major portion of traffic to Alaska.

Since Delta’s pull back from Dallas / Fort Worth, there have been no non-stop flights between Portland and Dallas / Fort Worth.  That is American Airlines’ domain.

In addition, Delta “owns” all the flights between Portland and Atlanta.

Alaska Airlines will be able to provide the Alaska Airlines experience both to its own passengers as well as both AA and DL who codeshare with Alaska Airlines.  It’s a good fit all around and Portland has missed having such flights for a long time.

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In a Forbes online story, Southwest Airlines Chief Marketing Officer Kevin Krone finally tried to answer the question many of us have been wondering:

What’s up with the generic TV commercials?

Apparently it is about being Southwest Airlines but not the old Southwest Airlines but, actually, connected to the old Southwest Airlines while remembering that they’re different now but, in fact, they aren’t because they’re still being a disruptor even if they aren’t trying to win leisure passengers but, rather business passengers now despite that being their business model 40 years ago.

Yeah, I’m confused too.

I have seen this over and over and over again:  Change for change’s sake.

Southwest isn’t trying to win.  It’s newly minted Vice President Whiz Bangs are trying to find a way to make a name for themselves instead of being stewards in running one of the most successful airlines in aviation history.

Since when is Southwest not interested in that incremental passenger called the leisure traveler?  It’s those incremental passengers that often earn the profit on a flight.

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United Airlines has reported a 1st quarter loss of $417 million which is almost 60% of United Airlines’ 2012 total year loss of $723 million.

Yes, in the first quarter of 2013, United Airlines has lost 57% of the total losses for 2012.  For those keeping score, we have still got 3 more quarters to go.

There is runway for United Airlines to make this up.  I don’t think they will.  Not this year.  United isn’t running on all cylinders, not yet anyway and I see nothing to signal a dramatic change in their approach to earning money.  CEO Jeff Smisek points to a slightly improved operational record and while it is true, it isn’t the answer.

United has lost a lot of high paying customers and it isn’t earning enough revenue and it needs a strategy that reverses that course.

I’m now in the position of wondering if Jeff Smisek was the right CEO for this integration.  One thing that stands out:  Smisek isn’t very prominent in leading this airline.  Other Continental leaders were far more prominent and stood out in front with their employees.  I get the sense that Smisek is more like United leaders who hide in a tall building hoping problems might go away.  It’s his perception to change.

Maybe they should interview Tom Horton.

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US airways has announced a $55 million profit (excluding special items, etc) vs American Airlines’ $8 million profit (excluding special items) and that’s coming from an inferior network and an airline that is roughly 1/3 the size of American Airlines.

This is great for US Airways, great affirmation for the team that will run the new American Airlines and I do wonder when these folks will get this merger done.  My best guess is October but they’ll suitably impress me if they get it consummated by September.

This merger integration will be fascinating to watch in comparison to the Delta/Northwest and Continental/United mergers.  US Airways CEO Doug Parker and his team all have merger integration experience but none have experience with the scale that the new airline will possess.  It will be hard for them to balance the pull of the AA insitutionalization with the attraction to adopting the US Airways Way.

What I most look forward to is seeing the new airline about 18 months after the merger deal is closed.  I want to see how the AA network is reorganized and made to work by the US Airways team and Robert Isom in particular.

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The FAA has approved the design change made by Boeing to address lithium ion battery risks on the 787.  The FAA will make a directive on how the fix should be made and it will make FAA inspectors available to expedite the repairs.  Boeing has had kits and staff ready to deploy to customers for making these fixes and I would imagine that Boeing has told them “go”.

A couple of observations:

1)  Boeing will destroy its reputation for many years to come with both the public and airlines if this fix proves to be inadequate.  I would want to be very, very sure and very certain that those batteries are contained against everything short of an act of god.  Spin and damage control will not fix that problem.

2)  Nothing that I can so far find has any guidance on what kind of ETOPS the FAA will permit with the 787.  There was, originally, speculation that the FAA and other agencies would be inclined to not grant enough ETOPS time to be useful to 787 users.   If this fix works, then it should not have an impact on ETOPS.  If the original ETOPS granted is amended to be something considerably less, then I think that reflects a lack of confidence on the part of the FAA.

I would expect a practical return to service for the airlines being some time at the end of May or the first of June.

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US Airways is, supposedly, being sued by two people who were flying as non-revenue passengers in first class for being asked to remove their hoodies and dress according to a dress code.

Why?  Because paying first class passengers were allowed to fly in hoodies.

It has long been common practice for airlines to enforce a dress code for those flying as non-revenue passengers.  Those dress codes are no longer nearly as strict as they used to be.  Today, “nice casual” or “business casual” is generally accepted even in First Class.

When I flew as non-revenue First Class passenger in the 1970’s, you wore a suit.  Period.  End of story.

The idea behind the dress code is not hard to understand.  You are expected to dress well to represent the company among paying passengers and so that you do not run the risk of drawing attention to yourself as a non-revenue passenger.  Paying passengers tend to resent people getting for free what they paid for.

Airlines vary some on what they’ll allow but I do not believe any US airline would permit hoodies and bluejeans in First Class by a non-revenue passenger.  (And if any airline would permit it, I would suggest they shouldn’t.)

Are dress codes wrong or class driven?

No, they’re not.  If you are flying as a non-revenue passenger, you are doing so on the courtesy of the airline.  They airline makes this privilege available to certain people as a benefit and a courtesy.  It is not a mandatory thing for them to supply and it really is a privilege.

So in return for not paying hundreds of dollars for your ticket, the airlines want you to dress appropriate, blend in well and represent the company appropriately.

They also want you to shut up about flying as a non-revenue passenger.  That is not for public consumption . . . ever.

And since these two jokers were on “buddy passes” which are tickets supplied by an employee of the airline, I can assure you that the employee who supplied them is mortified and no doubt started distancing themselves from these two creeps as soon as possible.  This is the kind of thing that gets one’s flight privileges lifted or suspended.

I feel bad for the US Airways employee who did these two jerks a favor and I hope this person is able to make it right with the company and their managers and retain their good name within the company.

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Frontier Airlines has been trying some rather weird destinations over the last year.  Weird for this airline and weird for any airline.

The airline has started flights into Trenton, NJ for instance.  Now it’s just announced Wilmington, Delaware as an alternative to Philadelphia and Baltimore’s main airports.

When a company is running around and trying very hard to go head to head with competitors, there is a problem.  Frontier has been killed in Milwaukee and has been roughed up badly in Denver, it’s home base.  Other focus cities have been discontinued but there is something more going on here.

I don’t know what this airline does anymore.

I don’t know what service level it offers, I can’t identify a market it has aligned itself with and it is getting hard to figure out where the airline flies to.  These airport choices defy explanation to me.  Wilmington, DE might seem like a decent alternative to Philadelphia until you realize that those 30 miles separating the two airports represents a significant inconvenience to most in the Philadelphia area.  It’s a matter of traffic and logistcs.  30 miles isn’t 30 minutes of travel.  It’s not even 60 minutes of travel in many cases.  It’s considerably more and people in that city don’t need more complications.

More importantly, the people of Philadelphia aren’t screaming for low fares either.  Nor is Baltimore.

How this airline is hanging on at this point defies my imagination.  The fact that Republic can’t even sell this airline says something.

I honestly believe that if David Neeleman were still running JetBlue, he would have bought both Frontier and Virgin America and merged them into a national domestic airline.  But Neeleman isn’t around and no other airline executive exists with enough vision and courage to make something like that work.

As much as I want regional mainline airlines to exist, I can’t find a good argument for Frontier at this point.  Who flies them and why do they bother?

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American Airlines lost $192 million in February and there is virtually nothing there to blame on the bankruptcy.  You can even see significant cost reductions where you would expect to see them.

And that’s the rub.  Costs are the 1st half of the equation.  If you don’t solve for the second half, you’re done.

That second half is revenues which do not reflect any work done in the last year to improve them.  To the contrary.

Once more, this is why I strongly believe that Doug Parker & Company are the right choice for leading the merged US Airways / American Airlines.  It’s also why I strongly believe that Tom Horton should be leaving when this merger deal closes.  This bankruptcy reorganization reflects emphasis on cost cutting only.

Anyone who believes the rebranding effort that was rolled out in January was an effort to improve revenues has got to look at the bigger picture.

A new aircraft livery and logo doesn’t attract customers.  And it’s the fallacy many “finance” people make.  Customers come to your business because you have a good or great service offering at a value oriented price.  Period.

And the US Airways team understands that.

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Several days ago, I wrote about new Southwest Airlines CFO Tammy Romo making comments about perhaps putting restrictions and/or fees onto the Wanna Get Away fares of Southwest.   Today, I was told that she also was asked at the JP Morgan Conference if Bags Fly Free was an essential part of Southwest’s brand and her answer was “no”.

I disagree vehemently.  Not only has it been an acknowledged huge revenue driver for Southwest Airlines, it is the component that keeps Southwest Airlines on the right side of “customer friendly” as a brand.

Get rid of this feature and you have just lost the ability to distinguish between Southwest and the other members of the Big 4 going forward.  And I think CEO Gary Kelly knows that.

So is CFO Tammy Romo going rogue in the attempts to drive policy and make a name for herself?   I might expect that of someone who was new(ish) to the company but Romo has 20 years with Southwest.

So is someone sending a trial balloon up to see how both customers and analysts react to the idea?  This isn’t really SWA’s style but I suppose anything is possible.

Or has crazy broken out at Southwest  Airlines and we’re about to witness the demise of greatness?

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Brian Lusk of Southwest Airlines’ own blog has passed away.  I didn’t know him and I had to find out on the Cranky Flier website but I wanted to make my own mention of it because Lusk really did some great Flashback Friday blog entries for the Southwest Blog over the years.  They never once failed to suck me into their time capsule and take me on a cool trip through aviation history.

My sympathies to his family and to his Southwest Family.

Curiously, Lusk’s last entry had recently drew me in (again) because it had the covers of various SWA corporate annual reports.  I have some about 15 year’s worth of Braniff’s.

Here is his last entry:

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There is an anti-trust hearing on the US Airways / American Airlines merger and, as is common, Congressmen are voicing loud concerns about air fares rising and loss of hubs.  This does, at first glance, make them seem For The People but . . . are they?

I’m not a free market capitalist.  In fact, I’m pretty moderate in my views on business in general and regulation.  I think some regulation is extremely important.  I think the financial meltdown of 2008 is the most evidence that anyone needs for a decade or two.

It is ironic that I find this merger more satisfying on what is going on with this merger.  In previous mergers, it really was clear that certain hubs would be downgraded to focus cities at best.  For instance, the close proximity of hubs in Memphis, Cincinatti and Atlanta made it pretty certain that Memphis and Cincinatti would be sacrificed for Atlanta no matter what Richard Anderson told Congressional committees.   I think the same ultimate outcome is quite likely for Cleveland in the United / Continental merger.

In this merger . . . I can’t see hubs going away.  Assumptions being made about Miami being superior, potentially, to Charlotte causes me to laugh.  Charlotte is a far more strategically important hub on the domestic front.  Miami is and will remain a gateway city for all destinations south.  If I question anything, I question how things will work out between Phoenix and Los Angeles.  While I believe both will remain much as they are in many respects, I’ll concede that things are murkier their.  I think Los Angeles becomes a gateway city and Phoenix becomes a domestic hub.  Much the same is true between Philadelphia, New York City and Washington D.C.

But, bottom line, I don’t see hubs getting reduced in this merger.

As for air fares rising?  Well, they may well go up some.  They may well not.  Here is the critical question in my mind:  Why are air fares that prevent airlines from earning a return on investment that is great enough to cover the cost of capital something we don’t want?  In other words, why might it be desirable for airlines to be market limited to air fares that don’t earn them enough profit to be a viable business over the long term?

Consolidation in the marketplace is largely due to the fact that we deregulated the market side of the airline industry but never deregulated the labor side of the industry.  Airlines needed more market power and then finally figured out how to do it effectively.

Let’s not bash airlines for raising air fares when the industry has lost Billions (with a “B”) of Dollars over the past decade.  Our response, ordinarily, would be if you’re losing money and your cost competitive, you need to raise your prices.

Air fares have gone up in areas where they were unprofitable.  Unprofitable city pair have moved into profitable territory in many cases.  That is as it should be.  Bargain basement fares designed to win market share instead of profit are probably gone for a long, long time.  It was nice while it was here but let’s not kid ourselves into believing that those kind of fares are what we deserve.

However, there are many markets and city-pairs that were earning excessive profits which are now experiencing real competition for the first time as a result of these mergers.  Those fares are going down as they should be.  One great example is American Airlines “owning” the DFW/NYC city pair and now . . . not so much.  They have some competition, fares have gone down and it is far more reasonable to fly that route than it has been in a long, long time.

Were I to respond to Congress about claims of higher air fares, I would say something like this:

“Absolutely air fares are going up as a result of this merger . . . in some markets.  And they should go up because we are not earning a business appropriate profit in those markets.

However, air fares are absolutely going down in other markets because you now are going to have very big, very powerful airlines that will need to compete hard on routes in order to support business growth.  We will experience more competition on more routes over time and higher yielding fares will go down as a result.

Businesses are in business to earn a fair and reasonable profit and let’s not vilify that intent.”

And let’s be cognizant of that last statement.  There are a lot of businesses who earn an unfair and unreasonable profit and even do so with massive government subsidies.  The oil industry is one that comes to mind with some companies earning profits that are greater than the GDP of some small nations.

The airline industry, on the other hand, really not only isn’t subsidized but is probably overtaxed in many ways.  In fact, I would seek to start a dialogue on the fact that despite economic benefit accruing to entire communities, only users are taxed and heavily so.  Airports, for instance, are public infrastructure that offer benefits yet we seek to fund them with taxes only on users.   Highways are public infrastructure too but we tax everyone, not just users, for them because the benefits accrue in many ways.

But the airline industry is most inept at making such arguments and generally resorts to a “crouch” position when dealing with most things.  When they do bow their backs at government, they often overplay their hands as well.  It’s an industry that could learn something from the oil business. . . or corn growers.

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I saw today’s Cranky Flier mentioning a pretty disturbing incident experienced by Matthew of Live and Let’s Fly Blog.  This isn’t a case of United beating the stuffing out of a guitar or American Airlines picking a fight with an actor.  This is, in some ways, worse.

Because it wasn’t a mistake.  It was abuse of a passenger.

I’ve witnessed this kind of bullying.  While I’m unaware of the exact flight attendant or captain, it’s symptomatic of what is a general trend in the airplane these days.  Control by bullying.

This passenger presents a potential challenge for me because he’s knowledgeable about what he can and cannot do and he’s willing to question my authority on certain issues.  Off he goes by any means possible.  Captains are now very reticent to tell flight crew to grow up and act like adults because there is a bit of a culture of protection that exists among flight crew that can result in blow back on him.

I believe the blogger and while the Captain and Flight Attendant in this situation might have a different viewpoint of sorts in all of this, they don’t really have an excuse, do they?

This wasn’t done to this gentleman out of an abundance of caution.  It was done to punish and control and it was an abuse of authority.  Is that what we pay for when we buy a ticket to travel somewhere?

And if this kind of thing happens to high mileage frequent fliers who write blogs, what is happening to economy passengers that is going unreported?

People who lie to control their own customers are abominable and should suffer consequences within this company.  People who don’t exhibit courage enough to arbitrate a situation involving a customer that clearly has not gone out of control are abhorrent and should be retrained in leadership before being permitted to command an airliner again.

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Over the past 2 or 3 weeks, mainstream media has often made statements that the merger between American Airlines and US Airways was going to lead to less competition and higher prices.  A number of generic talking heads make it sound as if this is a no brainer.

Is it?  I’m not so sure.

Fares are up over the past 4 years, without any doubt.  Are these fare increases due to less competition?  I think that argument is rather simplistic.  I think that, among the airlines, capacity discipline has resulted in higher air fares far more than reduced competition.  There is a new generation of leadership among the airlines who rightly identified that grabbing all market share was insanity and focusing your business on routes that provide a real return on investment was far wiser.

And it’s worked.  Richard Anderson of Delta, Jeff Smisek of United, Doug Parker of US airways and even Gary Kelly of Southwest Airlines have all focused intensely on managing capacity of their airliners.  If capacity needed to be increased, it was done by upscaling the airliner serving the route slightly rather than by adding an entire new flight to a route.  These men have managed capacity growth at their airlines with great discipline.

In many cases, fleets have contracted in count but maintained neutral or ever so slight positive capacity growth with upscaling.  An example of this has been Southwest adopting the 737-800.  They are growing capacity, where needed, by introducing the 737-800 to routes with that demand.  They are replacing seats on the 737-700 to grow that capacity from 137 seats / aircraft to 143 seats without impacting seat pitch.  This is wise, conservative capacity discipline and it has led to significantly increased ability to raise fares.

Airlines have also been far less reticent to enter markets that have been dominated by legacy airlines in the past.  Virgin America identified opportunities on routes to and from Dallas and Chicago, for instance.  They’re squarely aiming themselves at American Airlines and United Airlines and just a few years ago they would expect a capacity fight from those legacy airlines.  Today, those same legacy airlines aren’t fighting back by dumping capacity and below cost fares onto the routes.  (Or at least not nearly as they once did.)

Delta has been quite willing to start routes against airlines such as American Airlines (NYC to DFW, for instance) when there has always been a unspoken agreement that AA owned that route and no one would bother them over it.  Just as Delta had Atlanta to NYC and Northwest had Minneapolis/St. Paul to NYC.

The competition is there and it’s not only putting pressure on prices, it’s putting pressure on the right prices.  Those routes previously dominated by a single airline who was charging fantastical prices even for economy seats are now being challenged by equal airlines which are lowering high fares.

No, low fares aren’t being made lower.  Yes, in many cases low fares have gone up significantly.  They should have gone up as they reflect a very marginal business case.  Under the new rules, those routes must independently earn a return on investment or they aren’t worth it.  The choice at that point is to raise a fare or quit the route.

And because costs are now more or less aligned across the industry, all need to raise fares and there is a harmony in that.  Those costs will, over time, start to diverge some and when they do, the advantage will go to those with lowest costs.  Right now, the advantage goes to those who are most productive within the cost structure.

Southwest, for instance, is most productive despite the fact that they have some of the highest costs of any airline in the US now.  It’s their advantage and as long as they maintain it, they’ll succeed well.  It allows them to stay on parity with their competition and it allows them to cooperate with fare increases.

It’s daunting when an airfare goes up $100 to fly somewhere.  On a personal level, I feel that pain too.  I fly far less today than I did just 5 years ago for just that reason.  But . . . costs have gone up everywhere.  We, as individuals, see significant increases in our costs on a daily basis.  Gasoline is far higher today and so are things such as milk and even meats.  Electricity costs more and so do things like car tires.  We shouldn’t be surprised that costs are higher at airlines requiring more money to exist.

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When Tom Horton leaves the merged American Airlines Group in a little over a year, he will leave with just shy of $20 million in compensation.  Half of that will be cash, half will be in stock.  Between now and then, Horton will continue to serve as CEO of American Airlines until the merger deal closes in about 6 months or so.  His duties will include preparing the company for integration and providing leadership on merger activities as well as being a careful conservator of the business itself.

After the merger deal closes, Doug Parker will take on those responsibilities for the combined airlines will operate as American Airlines Group.  Horton will continue on as non-executive chairman of the board for American Airlines Group and serve in that role until the first annual shareholder meeting after that (expected to be May 2014.)

Horton has served as Chairman and CEO of AMR for just over a year to date.  He has arguably done a very good job on the cost restructuring of AMR during bankruptcy.  He has basically served best as the man he is:  an excellent CFO.

A $20 million kiss goodbye is too much.  The rewards here are inconsistent with length of term and inconsistent with his role in the merger.  I strongly suspect this merger took as long as it did because the AMR board has been pushing hard to compensation like this for Horton and others.

This deal is also a bad example to be set for unions who just got beat up very badly in the bankruptcy process.  It’s a bad example for all employees and it will be very hard for them to swallow this, I think.  Sorry but when a company has entered into bankruptcy and you had a role in that direction (and Horton did have a role in it), you shouldn’t be rewarded this way for brutally abusing both creditors and employees to reposition the company.  Bankruptcy means you are unable to pay your debts and need to reorganize yourself to do so.  Let’s not forget that.

High compensation should come after successful performance of the company.  That period of performance should be between 3 and 5 years after the merger.  I think this compensation will badly hurt feelings among the unions and potentially put Doug Parker in a very sticky place on his first day as CEO of the new company.

And, frankly, I think there is too much credit taking and too much “setting the record” straight going on with Horton.  Methinks he doth protest too much.  And I think he doesn’t acknowledge his role in what happened in the first place.  See this Dallas Morning News Story.  I find myself asking when does someone in AMR leadership take responsibility for what has happened with employees and the company.

I also think it poor sport to publicly accuse your replacement of poor behavior on the very day your endorse his abilities.

Filed under: Airline News by ajax
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