I’ve had some time to think about the new Virgin Atlantic / Delta Airlines deal and several things have occurred to me which make this a bigger threat than I think anyone necessarily perceived including me.

Virgin Atlantic knows its trade across the Atlantic and its got the London Heathrow slots to make a  lot happen for Delta.  For the first time in 30 years, American Airlines and British Airways may be facing a very real threat to their lucrative trans-Atlantic business.

Virgin has the aircraft and airports slots and Delta has the network.  Delta has the network feed into New York City and enough network to actually draw Oneworld (AA/BA) customers away from Dallas and Chicago to Atlanta and New York City and even Detroit.  AA and BA won’t lose their O&D traffic in those cities but it could lose a great deal of the network feed into those cities in favor of a Delta solution.

This will happen just as American Airlines prepares to scale up its operations with 777-300ER aircraft onto those routes and just as British Airways prepares to take delivery of its first Airbus A380s.  If Willie Walsh and Tom Horton aren’t cursing Richard Anderson, they should be.

Virgin has 747-400 and Airbus A340-600 aircraft that it can throw at routes to the US and a newish fleet at that which represents great service and certainly service competitive with AA and BA.

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As the clock ticks towards the end of the year, more and more people are weighing in on the potential American Airlines / US Airways merger that’s been cooking for a few months now.  I have a few thoughts on this:

1)  It is curious to me that Tom Horton continues to describe himself as neutral on the merger idea on the one hand but also argues for a post bankruptcy merger any time the door is theoretically closed at a meeting.

2)  The fact that the pilots have been engaged on this leads me to believe that an offer is imminent.

3)  If an offer is imminent, someone has found a way to let Tom Horton exit gracefully.  I’m guessing the plan here is something similar to what Glenn Tilton got in the ContiUnited merger.  I’m also guessing that Tom reckons that if Doug Parker blows things, he may yet be able to step into the CEO role again.

4)  Not all pilots are eager for this.  There is a new blog started by about 35 AA pilots, mostly captains and mostly from the DFW base.  The fact that most are captains from the DFW base leads me to believe that these are fairly senior captains who may feel a touch threatened with respect to retaining their seniority against similar US Air (EAST) pilots.

Seniority is going to be a touchy issue for pilots and other crew.  It won’t be Delta like in the integration largely because rational thought isn’t in place for either union involved (APA or USAPA).  If this were an ALPA/ALPA integration, the odds for a smoother integration would go up.

You know what?  Smooth or unsmooth, it doesn’t really matter.  US Airways has already proved it knows how to run a split operation.  Furthermore, there is now federal law that will govern a seniority integration in this case and that should prevent a USAPA-like embroglio.

Some pilots from both unions point to Doug Parker and US Airways not being able to integrate their employees in the previous merger and that’s not quite true.  There was an arbitrated decision that very senior US Air (EAST) pilots threw a temper tantrum over and tossed out by electing a new union organization.  Parker & company couldn’t even be sure who to negotiate with for the last several years much less solve a problem.

Parker & company keep making offers to US Airways flight attendants and they keep voting them down asking for more.  And who wins in those situations?  Parker & company.  Because the NLRB won’t let the crews strike and does keep the new agreements coming which proves that progress can be made and that therefore justifies not letting the unions strike.  Meanwhile, US Airways keeps paying the old rates.

At some point, you need to make the deal you can get, not the deal you want.  US Airways crews haven’t been able to get their act together to realize that much less make it happen.

I rate a merger announcement as 80% probable at this point but I’m not sure that I agree that it will happen before the end of the year.  I can see this deal getting announced in the 2nd week of January, however.

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Southwest Airlines has made a few announcements that I think signal some more evolution in the future.  First was SWA VP Bob Jordan announcing that some time in 2013, Southwest will begin charging a cancel fee of a sort.

Currently, once you buy a ticket on Southwest, you essentially buy a “value” that should you miss or cancel your flight, you can use the credit towards a future flight (generally you must use this credit within 12 months).  Southwest plans to charge a “cancel fee” if you don’t call and cancel your flight.   This new service fee will be oriented towards SWA’s most restrictive fare categories.

In addition, Southwest is preparing to engage in a multi-stage codeshare rollout with Airtran.   Southwest will start slowly with a test beginning at the end of this year with several intermediate phases to follow and a complete roll out finished by April.  This is a big milestone for Southwest in its merger integration.

At first glance, one would be tempted to believe that these two items are fairly unrelated but they aren’t.  Southwest chose Amadeus software for its new reservations system and these two items signal that the software implementation has come quite a way.

It has to have or Southwest would be unable to implement the above steps.  I’m pretty impressed that Southwest has progressed this far in a new system implementation over the last year and I don’t think Southwest would be talking about these items if it hadn’t fairly solved most of its problems in these implementations.  Furthermore, I think it speaks well of choosing a tried and true system in Amadeus rather than asking someone to write all new software.

Airlines do better adjusting their business model to fit well tested software than they do creating all new systems.

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Leeham News has a short blog entry referencing this article about Southwest and its Airtran merger and integration.  It is difficult to figure out where to begin in trashing this story.  But let’s take a shot at it:

1. Southwest Airlines will remain a single aircraft type using the 737 in the various variants it has today and in which it plans to have in the 737MAX.  The 717 has been offloaded to Delta and will be gone in a fairly short period of time.
2. Airtran is not based around the 717 solely.  It, too, uses the 737-700 which is also a significant part of the Airtran fleet.
3. Airtran is a hub and spoke operation but it’s major hub is Atlanta only with significant focus cities (a la SWA) elsewhere.
4. Airtran does not operate just primarily into major hub airports.  It has had a significant number of flights into cities that are smaller than the typical SWA destination that it made profitable using the 717.
5. As SWA takes over Airtran routes, it’s adapting them to SWA’s point to point model.
6. SWA has huge focus cities which kind of resemble hubs.
7. Atlanta was the only airport that SWA could fly into in that area.  There was no smaller, inner city airport.
8. SWA has been operating into and out of major hub airports already.  Notice its operations, for instance, into La Guardia and Newark airports.  It’s operated out of LAX for a long, long time.  Phoenix as well.  Same for Denver.  It’s figured out the “how to operate at a major airport” problem for a long time.
9. Airtran does present Latin American opportunities but also Caribbean opportunities and SWA has already announced plans for Puerto Rico as a first step.
10. It completely misses the point that Airtran, as a subsidiary operating entity gives SWA the chance to accelerate international flights via the Airtran reservations system.

I’m sure people see my point.  This isn’t SWA’s first rodeo and for sure it knows how to deal with a variety of destinations and airports.  What it completely ignores is SWA’s already high and rising labor costs which is an area of concern.  The creators of that “report” would know this if, you know, they had listened to Gary Kelly’s concerns expressed at a variety of quarterly earnings calls.

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It’s occurred to me that American Airlines may want an accelerated pilot contract hearing in bankruptcy court for multiple reasons.  First, it enables them to woo the Unsecured Creditor’s Committee towards their stand-alone plan.

Second, they have 777-300ER aircraft arriving shortly and that pilot contract allows them to train pilots and presumably stay on schedule for entry into service for that aircraft.  I rather believe that this is  the prime driver.

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There are some reports filtering around that Delta may be interested in taking on an investment in Virgin Atlantic.  Specifically, the reports say that Delta is interested in buying the 49% ownership share that Singapore Airlines holds currently.

Singapore Airlines has wanted to exit this relationship for some time now so that part makes sense.  Singapore Airlines has also been a constraint for Virgin Atlantic in prior years because Singapore has some veto on how Virgin may operate and market itself in the Asia Pacific region.

However, the real speculation is that many think this is Delta’s opportunity to gain better access to London Heathrow airport.  It’s possible that Delta might be persuasive in getting Virgin to work with it on slots but somehow I think this isn’t exactly what Virgin has in mind.  Those slots are extremely valuable assets.

Would this mean an airline alliance for Virgin Atlantic?  I think so.  Even Richard Branson has hinted around at the idea of Virgin joining such an entity and there was some speculation that Star Alliance might be the most interested party.  But SkyTeam could work, too.

The problem is that Virgin isn’t a very attractive party in the alliance game.  It has no local network to offer partners.  In light of that, I think Delta sees Virgin’s value and success diminishing over time and it could wield influence in the not so distant future to get Virgin to release slots and gate space to it in London.  Even that leaves Delta somewhat at a disadvantage since there is no regional network to connect to beyond London.  Not really.

SkyTeam’s alliance partners in Europe are Air France and KLM predominantly.  Neither have substantial networks out of London and don’t seem to plan anyway at present either.

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American Airlines says it has lost $164 million in October with $72 million of that related to bankruptcy expenses leaving $92 million related to its operations.  The company says that about $40 million of that is related to Superstorm Sandy and another $45 million was due to the recent operational troubles it experienced in October.

Every airline is reporting losses from Superstorm Sandy and $40 million does kind of pass the gut check.  However, I think attributing $45 million in losses to recent troubles in October is a bit . . . convenient.  And it certainly doesn’t take responsibility for those problems.  Let’s be mindful of the fact that the airline and union went back to the negotiating table in early October and operations regained sanity.

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Two respected analysts (William Swelbar and Aaron Gellman) in the airline industry have come out swinging at the AMR – US Airways merger in small but significant ways.  Each questions the value of such a merger to American Airlines in terms of synergies.

Synergies of a merger are important and should be talked about with respect to a merger in this industry but they aren’t everything about a merger.  They are, in short, the talking point that the world understands.

In the case of American Airlines and US Airways, many scoff because of US Airways exceptionally weak position in international markets.  That’s where the sexy and fairly profitable flying is today.  But the day to day bread and butter of a US airline remains in the domestic markets.

The domestic synergies between the two airlines amount to a savings in costs with respect to a combined infrastructure to serve such an airline (less labor needed to serve the two combined entities, less overhead since one reservations system is used, etc.) and they amount to opportunities generated with a larger network.  Curiously, no one ever seems to talk much about how US Airways has two hubs that slot into areas of the country where AA is at its weakest.

Not only are those areas where AA is at its weakest (the West Coast and Southeast), but they are where US Airways actually performs really well.  That ain’t nothing.

Furthermore, despite AA’s Corners Strategy, American Airlines is now far from a dominant Northeast airline in New York City or Washington D.C.  US Airways plays very well there.  They have their shuttle operation and excellent position in Washington DC.  While US Airways gave up market share in NYC to Delta in exchange for its position in Washington DC, if you combine US Airways operations in NYC with AA’s, it started to look good and respectable again.  That ain’t nothing either.

Swelbar talks about the labor conflicts at such a merged entity.  I would like to make an observation:  A conflict free merger with respect to labor is bar far the exception to the norm.  Delta and Northwest got it and that’s nice.  Southwest and Airtran are doing OK but that was a different situation really.  ContiUnited hasn’t had it so good.  Few airlines ever did have it very good with labor in a merger.  It’s a fact of life.  So, how, then, is it much of a disadvantage? US Airways has actually proved that a profitable airline can be run despite unions biting at each other left and right.  If anything, its been an advantage for US Airways.

But there is a benefit to such a merger and particularly so to American Airlines that gets ignored by both these academic analysts:  US Airways management takes over.  It is pretty much agreed that the American Airlines management and board of directors is dysfunctional and even in this merger they have not taken full advantage of the opportunity to come out the other side a lean, competitive company.  With the roadmaps for doing so set in the examples of Delta, Northwest, US Airways,  America West and United Airlines, you would think that there had been more slash and burn than there has been.

Finally, there is room for more consolidation and the ugly truth is that both these airlines need each other.  There is nobody else left to work with and there is, perhaps, just one opportunity to pull this off and save both airlines.  They need each other and the sad fact is that they need each other equally but for different reasons.  That’s OK but it’s time to acknowledge the elephant in the corner.

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Iberia Airlines, Spanish airline of the International Airlines Group, is in real trouble.  Spain’s economy is horrific and competition from low cost carriers is killing them.  Sounds like British Airways, right?

IAG CEO Willie Walsh says that there will be a massive restructuring of the airline with as many as 4500 people made redundant.

Mind you, he’s probably dead right about what needs to happen.  I also think he’s going to be suffer the rage of Spanish unions and that will be an experience that makes his tangle with British Airways flight attendants seem like a summer romance.

Iberia’s problems, which come from having lived as a government sanctioned flag carrier for years (this is getting to be too familiar), have to do with a bloated staff, an unproductive set of agreements with flight crew and a Spanish economy that is miserable.

None of this was really unknown when Iberia and British Airways combined.  So why did they do it?  Pressure from other European airline mergers.  British Airways felt it needed a merger or risk being diminished by other European airlines.

Now they’ve got their merger and one side of the partnership is a pair of rubber boots filled with cement.   If Willie Walsh is able to restructure Iberia and bring them back into profitability, I will nominate him for Amazing Airline CEO of the Decade.

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The Allied Pilots Association and American Airlines have reached a tentative agreement for a new contract.  APA President Keith Wilson seems optimistic about it and describes it as an industry standard contract.  American Airlines seems to think it’s got a deal as well.

I’m pleased to hear a deal has been reached but . . .

There was a deal a few months ago that the pilots voted down.  We’ll see just how much the deal has changed once some details leak.  It’s possible that the pilots are ready for a deal and, if so, they’ll be likely to vote on it.

Maybe I’m cynical but I remain a little skeptical that this deal is truly done.

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Airlines are flying into the New York City airports with extra fuel loaded in order to mitigate against any potential fuel shortages as a result of Superstorm Sandy.

It’s an expensive proposition in that when you carry more fuel than needed, you must carry more fuel to carry more fuel.  Yes, it’s a complex equation.

That said, it probably isn’t a bad strategy for airlines over the next week or two.  It mitigates airlines’ risk of delayed or cancelled flights due to fuel shortages.  New York airports, however, continue to say that there is an ample supply of fuel and that they are receiving fuel from refineries.

Delta Airlines purchased their own refinery and kept it up and operating during the hurricane based on weather forecasts they received indicating a low risk of damage.  Right now, Delta looks pretty smart with its refinery purchase not only for its tempering of fuel prices for Delta but also for its assured supply to New York City.

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Terry Maxon, who I respect immensely in the business of airline reporting, has a story in the Dallas Morning News saying that sources close to the potential merger between American Airlines and US Airways say an official offer is imminent.

All parties involved were supposed to meet last week in New York City but that meeting was delayed after Hurricane Sandy.

The radio silence since October 31st, the date the non-disclosure agreement between the two airlines was to expire, has made me curious.  The NDA was extended for more time between the two parties.

It’s hard to read the tea leaves on this one and at this point.  American Airlines and its executive team isn’t in the worst position possible although their position hasn’t improved measurably either.  My expectation was that the AA team would stall for more time.

To make this deal attractive, US Airways will have to make an offer that creditors find hard to refuse.  The expected valuation of the company upon bankruptcy exit is likely to be $6 Billion or more.

The combined revenues of each company would be approximately $36 Billion and that exceeds that of Delta and United Airlines.  The synergies that would result have the potential to offer profitability that might approach that of Delta and that isn’t trivial.

The creditors have to balance what their holdings would be worth with a stand-alone exit and what the prospects of AA are as a stand-alone company against what value might be created over the same time combined with US Airways.  Creditors aren’t going to sell their holdings as soon as the markets open upon bankruptcy exit.   My guess is that the time frame they’ll consider is somewhere between 3 and 5 years.

If I’m a creditor, I’m interested in the executive team that can create the most value over that time period.  Based on that, US Airways as a merger partner looks very attractive based on their performance with a sub-par network.  I would not be concerned about the ability of the US Airways team to integrate or operate the new airline as this team has proven that it can run an airline and that it knows American Airlines.  And it really does know American Airlines.

This is the part where pilots would have been very wise to have taken the deal they were offered this past summer.  With a 13.5% equity stake in the new airline, they would have been in a stronger position to profit.  I wonder if the creditors would be as excited about such a large stake in the airline given to the pilots with a US Airways merger involved.

We may hear something soon but we won’t hear it today, in my opinion.  I would look for an announcement next Monday or Tuesday at the earliest as I suspect all voices will need to be heard for the next few days.

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AMR has reported a net loss of $291 million for September which includes $160 million in special bankruptcy charges.  This means that American Airlines had a significant loss for September regardless.  And I would remind readers of the artificially low costs AA is experiencing right now as well.

Yes, this absolutely had to do with the pilots conniption with the company but I assure you that the pilots didn’t do $131 million in damages with their behavior either.  That would be so spectacular as to cause the airline to head immediately to court for relief.   Furthermore, the pilot problem is at the least 50% of AA’s fault in the first place.

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Over the last 40 years, a lot of criticism has been made of Southwest at various times and Southwest has managed to prove people wrong about its decisions over and over again.  For instance, analysts are just screaming for Southwest to put baggage fees into place and Southwest just as adamantly refuses to do so.

I’m a fan of Southwest for many reasons.  First and foremost for their track record in delivering annuals  profits.  They work hard to do this and should be admired and appreciated for it.  The truth is, I think their stock gets short shrift over and over again on this point alone.  It’s as if everyone has been waiting 40 years to pounce on a failure of theirs.

I think they’ve been very smart to keep baggage fees out of their system.  It’s a key discriminator at this point and by now they have enough hard fact to back up this decision.  People need to give this a rest.

They are starting to take flack for their fare prices going up and up but I don’t think that this is deserved.  Southwest is as good at revenue management as anyone else and better than most.  And even though it hits me in the pocketbook, fares *should* go up some.

They take hits for their high(er) labor costs now.  Yes, their labor is paid very, very well.  Their labor also delivers very, very well.  Yes, their pilots earn exceptional salaries but they also work like mad to earn it.  This is a group that actually fights to take on more flights rather than fewer each month.  When the company needs operational efficiency, they deliver in a variety of forms.  Peace and efficiency from a labor group is a vastly underrated value in my opinion.  j

They do have hubs although they are referred to as focus cities.  They aren’t traditional hubs and Southwest works a hub like no one else.  They deliver more people through their gate space than is generally imagined possible.  They skillfully schedule flights through these hubs to not only make connections possible but also to offer many, many one-stop, no plane change flights between some rather unusual city pairs.  And do it so well that they can deliver a total travel time that meets (and sometimes exceeds) the performance of non-stop flights on other airlines.

But I am unimpressed with two aspects of Southwest Airlines.

I’ve said it before and I’ll say it again:  Where the hell is an upgraded IT system?  An airline of the size and scope that SWA is should not be using a relic reservations system that has Braniff International’s original COWBOY system at its core.  It was a great move on SWA’s part to buy it and incorporate it in the 1980’s.  That was truly a smart way to go.  It was fine that they kept building on top of it all through the 90’s and even in the early 2000’s.

It’s appalling that Southwest hasn’t fixed this glaring problem in the last 5 years.  The airline has changed and the airline industry has changed.  Southwest hasn’t changed its IT systems to meet those challenges well.  It’s long overdue.  My greatest fear is that they are working on this internally, too. Building a strong, world class reservations system for an airline of its size is no trivial task and should have been outsourced to someone who had a system on the shelf.   Given the state of reservations systems in general, it defies my imagination why SWA wouldn’t have bought into one of the strong legacy systems and moved on with other tasks.  SABRE or SHARES could have done the job and done it at a fair price.

I also don’t like the feelings I get with SWA’s merger integration.  I don’t get a sense of urgency on SWA’s part to get this done.  Certainly not when SWA is predicting that merger integration won’t be complete until 2015.  The minimum time it would be for that is 27 months from now.  It’s likely to take as much as 36 more months and only if the airline manages to get the Airtran system talking to the SWA system.

I have an ugly feeling that SWA is going to use the Airtran reservations system as its “international” reservations system, too.

I think the merger integration has distracted the airline from looking at growth opportunities elsewhere.  Yes, the airline grew with the addition of Airtran.  It’s now contracting considerably and it bothers me that we don’t see Southwest making any growth moves at present.  More than anything, I get a sense that SWA is creeping into conservatism just because the entire industry is as well.

Where is the next big purchase of slots at Newark or La Guardia or Washington National?

What preparations are being made to exploit Dallas Love Field in 2014 when the Wright Amendment goes away?

We saw a move in Houston to create an opportunity for international destinations in Central America and then. . . everything went silent.

I honestly think SWA needs more help in their merger integration.  In particular so that they can get their creative executives back to work on developing more growth and more profits.

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I believe the non-disclosure agreement that US Airways enjoys with American Airlines expires at the end of this month.  Am I the only one looking forward to that media storm?

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Terry Maxon of the Dallas Morning News has a summary of 3rd Quarter Earnings that brings clear light to how airlines have done these past 3 months.  Before going further, let me say that both companies and pundits like to exclude special items from their analysis of earnings.  It is the airlines’ way of saying “Yeah But!”

Yeah, but if we had not screwed up on our hedges, we would have made this much.  Yeah, but if we had not had to pay off a bunch of senior employees to leave, we would have made this much.

I don’t like Yeah Buts.  Special items occur every month, every quarter and every year.  More so than ever before.  It’s time to accept that it is what it is regardless of how special items affect performance.   Now on to a few observations:

Delta Airlines is doing exactly what CEO Richard Anderson said was necessary in the airline industry.  They are raising their margins considerably to truly cover their capital costs as well as their operating costs.  Well done.  Very, very well done. Admittedly, they are farthest down the road in the New World Order of consolidation but it is a consummate performance nonetheless.

Alaska Airlines:  Ditto!  They are playing their game perfectly right now.

Hawaiian Airlines:  Again, well done and particularly so in light of where their market was just a few short years ago when it comes to competition.  Yes, they face less complex challenges than continental US airlines but they still are performing well.

US Airways:  I’ve already said it once this week.  These guys know how to run an airline and earn a profit even under trying circumstances.  They make a better case for merger with their financial results than any PR machine could make publicly in the news.

United Airlines:  It’s time for these guys to get a little more on the ball.  One begins to sense a certain lag in realizing their synergies and having a seamless system.  Special items shouldn’t be killing your entire net income at this point.

JetBlue:  Nice job but kind of a yawn.  We’ve been seeing roughly the same level of performance for years with no substantial growth whatsoever.  I’d rather have Alaska Airlines than JetBlue at this point.

Southwest:  I think their recent performance reflects their merger.  What I think hasn’t been brought up but should be is that their merger isn’t exactly brand new at this point and the lag is primarily due to how ill equipped they were to absorb another airline with respect to their systems.  Consider this:  SWA has made noise about how their IT systems impact their ability to do business with the rest of the world for a bit over 5 years.  They are operationally seeking to do business with the rest of the world in many different ways and they are certainly changing the way they operate to be more in line with a legacy airline.  SO WHY HASN’T THE IT PROBLEM BEEN ADDRESSED AGGRESSIVELY AT THIS POINT?

American Airlines:  B’ah.  Even with artificially contained costs and a fairly friendly bankruptcy judge, they continue to lose money.  What’s the definition of insanity?  Doing the same thing over and over again expecting a different result?

Summary:  It’s no surprise that the two top performers are also partners and close ones at that.  These are airlines that know what they’re doing and who exercise strict discipline in operating their airlines.  Yes, I’m talking about Alaska Airlines and Delta.

No one is talking about growth, everyone is talking about capacity restraints and raising margins.  Well, all except American Airlines.  That alone speaks volumes.

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US Airways has, again, reported record net income for its 3rd quarter and, once again, has made a better argument for a merger than any of the posturing that goes on in the press.

This is an executive team that continues to deal with contentious crew issues, a still separated flight system and yet has managed to fix major customer issues and operate an on-time, profitable airline. Believe me when I say that that isn’t happening simply because they have some low(ish) labor costs.

Costs are *not* the only key item for profitable, successful airlines.  You have to attract people to your business and keep them there.  That’s about service and US Airways is a whole lot better airline today for the money than it ever was before.

The executive team manages to outperform many airlines on earnings vs revenues  and does it from sub-standard hubs.  US Airways has all of the handicaps, none of the advantages and earned $192 million on revenues of $3.5 billion.  American Airlines managed to lose money on revenues of $7 billion and that’s with their costs artificially depressed at this point due to bankruptcy.

Hey AA?  Do you like apples?

Yes?

How do you like those apples?

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US Airways pilots feel there is nothing in the way of negotiating a new combined contract with US Airways after a ruling made last week that essentially said that the airline and union may do so but there is no cover from a lawsuit necessarily.  A ruling that I feel probably lacked the clarity all were hoping for but which was  a correct ruling.  You can’t give legal cover to people from lawsuits like that.  You don’t know the nature of the lawsuit until it happens.

I agree that US Airways pilots are in desperate need of a new contract.  It’s been 7 years now and it’s time for a successful airline such as US Airways have a truly combined operation.  This is true for US Airways flight attendants as well.

But primary fault in this delay is largely due to the pilots.  Neither group (US Airways and American West pilots are the two groups) could agree on seniority integration and after an arbitration ruling, the US Airways (original) group broke away from ALPA (who represented both groups)  and by sheer numbers formed a new union.  The two sides have been at war in a courtroom since.

And US Airways doesn’t know who the legitimate combined union is really since there has been no ruling on the fight itself.

Successful airline merger seniority integrations that have taken place since the US Airways merger were based on relative seniority.  This meant that for seniority purposes only, the two lists were merged in a manner that more or less preserved each parties seniority position in the new company.

It’s our view that this is both reasonable and right as a method for combining pilot groups (or other labor groups).

Sadly, US Airways (original) pilots want date of hire as the defining measure for seniority integration.  This would lead to a large group of US Airways (original) pilots sitting at the top of the food chain and blocking promotion for years for the younger America West group.  Not very fair and particularly so when you consider this:
It was US Airways (original) that was bankrupt (again) and about to sink to the ocean floor.  Not America West.   America West was health and in possession of an excellent management team who ultimately proved to be more than capable of not just running a combined operation but improving operations tremendously while consistently earning profits.

Yes, I think that US Airways pilots deserve a contract.

I also think the two groups should shake hands, adopt the original arbitration ruling and immediately go to the negotiating table for a new contract with unity.   That’s what moves this process forward.

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American Airlines pilots are now reporting what they’re after in negotiations with American Airlines management and I find it . . . ambitious.  The highlights of their “asks” are:

• Eliminate Group II pay band and move the A-319 into Group III, with a weighted industry average before year three

• Pay rates that align us with our network-carrier peers at Delta and United

• Codeshare restrictions in line with those in the US Airways conditional labor agreement

• Contract duration that is shorter than the six-year duration in management’s “last, best, final offer”

• An industry-standard pension

• An equity claim that can be monetized and has an established “hard floor” protection

• Scope limits that include a hard cap or percentage limits on the 50- to 76-seat jets

To a degree, when you enter into negotiations at airlines, you ask for the world, promise the world to your membership and ultimately settle for something less than the world.

These goals are too much for the present situation.  They don’t set appropriate expectations for either side.

Changing airliners around into different pay groups will materially affect American Airlines’ cost plans.  AA has a solution for that problem:  Impose terms and live with the pilots bad behavior.

Negotiating for pay rates that are equivalent to those of both Delta and United pilots is too aggressive.  Let’s not forget that pilots at both those airlines paid their dues with lower rates and got their airlines to a high performing level before they earned those industry leading rates.  AA pilots haven’t paid their dues and I’m beginning to wonder if anyone bothered to tell them that the AIRLINE IS IN BANKRUPTCY.

Codeshare restrictions are about preserving jobs.  I get that and even approve.  I think that airlines should fly their flights and compete rather than buddy up in every possible way out there.  But I would also point out that while the bankruptcy judge didn’t let AA have carte blanche on codeshares, he pretty much let them get as much they needed and wanted.  This shouldn’t be the hot button issues that the union keeps making into.  American Airlines isn’t going to be a Virtual Airline.

Contract duration seems silly at this point too.  The pilots are already into their 6th year of negotiating a contract now.  Get something in place that allows both parties to go to work on their jobs.  Quit making a fuss and causing a distraction every 3 years when it comes to pay.  Take the 6 year duration and the stability and the benefit it will provide the company as well as you.  Going for a 3 year duration in the hopes that you’ll get an even better rate is just . . . silly.  There isn’t room in the airline industry to see those pay rates grow substantially and there won’t be for years to come.  Sorry guys, you’re fighting for a right that potentially leaves you at a greater disadvantage.

Industry standard pension:  How about you guys take an Industry Standard 401K like the rest of us.

Equity claim:  I’m fine with this but if the pilots want this, they *have* to give something up to get it.  You don’t get industry standard/industry leading benefits and wages plus a substantial equity claim that can be converted to cash and distributed to pilots as well.  That is called having your cake and eating it.  I really do wonder if anyone has mentioned that AMERICAN AIRLINES IS IN BANKRUPTCY.

Scope limits:  I’m in violent disagreement here.  I actually think that AA has limited itself too much with scope limits even now.  There will be growth on routes and routes that are 60 seat commuter routes today may well be 90 seat routes 10 years from now.  But a 90 seat route isn’t a mainline route.  Not in this decade.  There is a solution here:  Offer low, low pay rates to American Airlines to take on this flying internally.  Ask for an apprentice program that hires and trains new pilots and puts them into this commuter flying at “industry standard” regional airline rates with a growth path to mainline flying internal to the company.  But make it *cheap* for AA.  The upside?  The union gets these pilots earlier and has them “feeding” the union earlier in the process and they get to control one hell of a lot of more pilots than they otherwise would.

I don’t think we’ll see a successful agreement out of these latest talks.  I think reality hasn’t hit either party in a substantive way and I think that pilots will decry management and start impacting operations again after these negotiations break down.  I think the prospect of a real contract is slim and I begin to wonder if AA shouldn’t impose terms and take the operational hit for another month or two and let pilots get tired of their behavior.  Or, better yet, impose terms and hire yet another law firm to be prepared to seek an injunction against pilots when they start their slow down again.

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Spirit Airlines is establishing a crew base in the Dallas area to support the flights it is adding furiously into and out of DFW airport.  This is in addition to the maintenance base it has just established at DFW.

Clearly Spirit plans to stay and that puts a big thorn in American Airlines’ side, I think.  Leisure travel isn’t the bread and butter of AA but it is what can fill their aircraft for incremental revenue.  Spirit will drain that off some.  In addition, I do expect that Spirit will put downward pressure on prices at American Airlines.

SWA will see a similar drain of those occasional leisure travelers but its brand loyalty and ever increasing business traffic help alleviate that impact considerably.

Bottom line:  Spirit sees long term opportunity in the DFW area and I couldn’t agree more.  The idea that DFW is an expensive airport to operate from is no longer entirely valid and hasn’t been for some time.  In addition, it is no more and no less impacted by traffic and/or weather events.  This makes DFW an attractive airport and other airlines should sit up and pay attention.

Filed under: Airline News by ajax
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