Delta / Northwest is not only big with respect to the number and type of airplanes they have, they are also big for the number of hubs they are currently operating.  Conventional wisdom continues to bet that some of those hubs will be closed or rationalized just as it bets that the airline fleet will be reduced.

My guess is that there really won’t be a reduction in hubs of any real significance with the exception of two.  This new airline has two hubs in close proximity, Memphis and Covington/Cincinatti, and each serves similar markets.  However, rather than being combined into one, I suspect that Memphis will likely be de-emphasized into a “focus” city with more connecting traffic routed through Covington/Cincinatti.  The yields in each city are very good but Covington/Cincinatti is by far the city with the best yields.  Memphis is likely to remain as a focus city because it is a good gateway to the central midwest section of the US.

All other hubs in the US such as Atlanta, Minneapolis / St. Paul, Detroit, and Salt Lake City have the airline as a dominant carrier and there is no reason to combine any of them with respect to the routes they serve. 

Now, both airlines operate significant flights from gateway cities such as Los Angeles and New York and it is quite likely that the airline will work hard to combine some flights going to the same cities.   For instance, flights from the New York area going to the same destinations in Europe will be combined to raise the load factors on the equipment being used.  However, Europe presents an interesting problem because Northwest has been in a close relationship with KLM and has used Amsterdam as a “hub” to connect to other cities in Europe.  Delta, on the other hand, is used to flying direct flights to a variety of cities in Europe without a hub or close partner.  I suspect the relationship with KLM will be reduced so that Delta can raise the loads on its own flights to smaller European cities.

Northwest comes to the table with a hub in Tokyo, Japan and they have 5th Freedom Rights to pickup and carry traffic from Tokyo to other cities in Asia.   On the surface, that would appear to be a very valuable asset.  However, the value of that arrangement was far greater when the political climate in Asia was much different and the range of aircraft made it more convenient to fly to a central hub.   Today, it can be much more profitable to fly direct to a variety of Asian cities using newer, long range aircraft such as the Boeing 777 and the about to be introduced 787.  I have no doubt that the Tokyo hub will be retained in some form because the yields from traffic originating in Tokyo to other Asian cities is still well worth the effort but I suspect that there will be a renewed emphasis on point to point flying as things evolve in the new airline.

The thing most likely to change at Delta’s hubs will be the aircraft equipment.  With a wide variety of equipment to choose from, it would be unsurprising to see a shift of long haul aircraft between the hubs in order to improve yields, load factors and even to explore new routes.  That will be done slowly and carefully so that Delta doesn’t have to service too many different types of aircraft at each hub.  Once again, aircraft being used at various hubs to service various areas will probably be rationalized.  It would be unsurprising to see A330s shifted to longer South American and African routes with B767-400’s moved to trans-atlantic routes originating in MSP and DTW. 

Los Angeles will probably see a greater concentration of 747 aircraft being used on trans-Pacific flights.  New York and Atlanta will probably see 777 aircraft moved in for long range, point to point flying to destinations in India, South America and even Asia.  

At present, Delta has 4 different types of long range aircraft in the 747, 777, A330 and 767 with another on the the way (787).   Since Delta already operates GE powered 777-200ER/LR aircraft, they’ll likely place an order for some 777-300ER aircraft and use those to replace the aging 747 aircraft.  That will reduce flying by one type.  The A330 aircraft will be retained until a fleet of 787-9/10 aircraft can be purchased and then the A330 will likely be let go.   Delta’s 767-400 aircraft is fairly new but it will probably suffer the same fate as the A330 in being replaced by 787 aircraft in the future.  Suddenly, two basic types with 2 sub-types between them can service all the long haul routes and, at the same time, offer some harmony at each hub. 

I do wonder if Northwest’s 787 orders will be switched from Rolls Royce engines to GE GEnx engines.  That would permit Delta to operate two basic aircraft types that would use the same brand of engine and engines that share some basic design philosophy as well. 

The tricky part of managing all of these hubs for Delta will be the domestic fleet which is comprised of Airbus A320 series, Boeing 737 series, DC-9 series and MD80/90 series aircraft.  Because it is more efficient to perform maintenance on a domestic fleet that keeps the aircraft close to a maintenance center, I do wonder which hubs will get which aircraft.   Both Airbus and Boeing offer good choices for domestic fleets in the A320 and 737 series.  The DC-9 fleet is old and will be retired over the next couple of years so it isn’t a factor.  The MD-80/90 aircraft isn’t exactly old but it does become somewhat of an orphan and they don’t offer the fuel effiency that the A320 and 737 offer.  It’s quite possible that Delta will retain both the A320 and 737 series and simply order more of both until they can choose a next generation domestic fleet type from Boeing or Airbus.   I do believe that the MD80/90 fleet will be selected for retirement in the next 2 years. 

The exciting part of this merger will be watching the decisions that Delta makes about its new future. 

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The US Justice Department approved the merger between Delta Airlines and Northwest Airlines today.   The two companies will now begin to work on executing the combination as quickly as possible and it should culminate with a combined operating certificate in 1 to 2 years. 

In the meantime, Delta and Northwest have already made a great deal of progress towards completing the merger.  The executive team has been selected, agreements with pilots have been obtained and each company has been working pretty hard towards merging the culture of each airline together.  While no doubt there are bumps in the road still to be encountered, this particular merger shows great signs of being accomplished with relatively little strife. 

Flight Attendants are targeted for being a trouble area.  Delta’s flight attendants are non-union and while there have been a few votes over the years to unionize, all have failed pretty soundly.  Northwest’s flight attendants are unionized and have been characterized as even miitant.  Delta’s CEO, Richard Anderson, has urged that everyone work together and while his stated preference is for no further unionization (and he has backed that up by being very willing to negotiate differences), he also has said that he and the rest of the executive team will abide by whatever vote there is.  It is likely that the flight attendants will have a vote after the merger is officially executed and it is likely that it will be in favor of unionization since a combination of Northwest’s flight attendants with the minority of Delta flight attendants in favor of a union would win any vote.

While both CEOs of each airline have professed that such a diverse fleet of aircraft will permit them to “right size” aircraft to a particular route, it is highly likely that the fleet will be pared down over time.   Northwest’s youngest aircraft are manufactured by Airbus and Delta’s fleet is comprised entirely of Boeing products.   Certainly both major aircraft manufacturers will see an opportunity with this merger and both will be pitching their mainstay aircraft lines, the Airbus A320 series and the Boeing 737 series.  With an gentleman’s agreement in place between Delta and Boeing that gives Delta preferential delivery slots, this is Boeing’s opportunity to lose.

A good guess is that, initially, the Douglas DC-9 fleet will continue to be eliminated and bases for the Airbus A320 and Boeing 737 fleets will be established at selected hubs.   It is possible that the Airbus A330 fleet will be phased out in favor of more Boeing products such as the new 787 of which Northwest already has a significant order on.  The 747 fleet will most likely be phased out over time in favor of the 777-300 and which Delta already owns in the 200ER/LR version. 

The combination of these two airlines will form the world’s largest airline both by revenue and traffic.  This will even dwarf American Airlines by a significant degree.  However, because of industry contraction and the obvious economies and advantages to be gained by constraining capacity in markets that the new Delta will be dominant in, it is likely that the airline will actually contract both its fleet and, to some degree, its employees.  However, major layoffs of any significant numbers are very unlikely and most contraction is likely to be done through natural attrition.

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American Airlines has just announced its intention to drop minimum mileage accruals for non-elite AAdvantage members.  Here is the emailed announcement:

Dear ,

Effective January 1, 2009, we are discontinuing the minimum mileage guarantee for non-elite status members for flights on American Airlines, American Eagle^®, AmericanConnection^®, oneworld^® member airlines, AAdvantage^® participating airlines as well as rail service and codeshare service booked under an AA flight number.

With this change, customers will earn AAdvantage miles equal to the actual distance flown or the applicable percentage* of the miles flown, and any associated bonuses will be calculated accordingly. Similarly, elite status qualifying miles and points earned for travel on eligible flights will also be based on the actual miles earned. AAdvantage Executive Platinum^®, AAdvantage Platinum^® and AAdvantage Gold^® members are exempt from this change.

The new policy will apply to non-elite status members traveling on or after January 1, 2009, regardless of when the ticket was booked or purchased. Flights flown on or before December 31, 2008, will continue to accrue AAdvantage miles under the current policy. For more information, visit AA.com/AAdvantage.

Thank you for your business. We look forward to seeing you onboard soon.

Sincerely,

Rob Friedman
President
AAdvantage Marketing Programs

What does it mean?  Not a whole lot for most people.  Most flights are more than 500 miles and therefore accrue actual mileage.  For Texas based fliers to regional cities, it means you accrue actual mileage instead of a minimum.  However, most people who might be annoyed by this are actually Elite AAdvantage members and therefore *will* accrue the minimum. 

 

All in all, it’s just another mild erosion of another frequent flier program.  Some airlines have already implemented this program (US Airways for instance) and some have done so in a modified form. 

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The Fort Worth Star Telegram Sky Talk Blog has written about the APA pilots union representing American Eagle Pilots now has a new contract and there are a few things of interest to me.  First, this contract got negotiated in almost absolute silence.  There was no real posturing in public and neither side managed to say inflammatory things to the press. 

Second, the instructions to the APA (Allied Pilots Association) negotiating team was to obtain real life improvements to the pilots quality of life and work.   Increased flexiblity (for pilots) and other tangible but not necessarily measurable changes were obtained but no salary concessions were given.  American Eagle got a contract amendment that apparently satisfied both sides needs.

Now, American Eagle pilots are not overpaid to begin with but they are well paid and they do have a pathway to upgrade into American Airlines’ mainline system which is a bit unusual for a regional airline.  American probably did not need to obtain wage concessions but I suspect that they wouldn’t ever mind paying less too. 

The really striking thing about this development is that American Eagle pilots apparently realized that there were no wage gains to be made but they *could* obtain a better quality of work life.  Such concessions from American Eagle may have cost them little or nothing to give.  Both sides won.

This is in direct contrast to the Allied Pilots Association representing American Airline mainline pilots.  These guys have decided that there need to be “givebacks” and that their world is severely impacted by executives who won bonuses.  Personally, I do agree that awarding bonuses to executives when the company has *not* financially performed nor rewarded its lower level employees is wrong.  Very wrong. 

However, if AA pilots think that there is room to give back $3 Billion (yes, that Billion with a “B”) in wages, they are kidding themselves.  If they think there is room give back $1 Billion, they are kidding themselves.  I suspect they could gain quite a bit of work life improvements themselves if they were willing to offer some concessions on productivity. 

And they face yet another problem.  In This Blog Entry, I describe the history of how pilot compensatioin began and why it is a problem today.  American Airline pilots realized that with the announcement that AA is buying new Boeing 787 aircraft, the old model might not fit for compensation.  You see, the 787 is considerably lighter (as a function of its high carbon fibre reinforced plastic construction) than it would ordinarily be.  Much lighter.  A very dim light has come on over their heads and they have begun to realize that, perhaps, pilot pay should be based on criteria having to do with something other than weight and distance. 

You see, the new 787-9 aircraft are capable of carrying almost as many people just as far as a 777-200 but with a lot less weight.  The pilots will want compensation equal to or at least close to a 777 pilot and they’ll begin to look for justifications for that.  Those justifications will inevitably lead to a discussion on all pilot pay because future aircraft such as the 737-RS will also likely be constructed in such a way as to offer the same capacity at less weight as current generation 737 models.  

For once there will need to be a rational agreement on how to pay pilots that involve new measurements instead of the ones in use for 80 years.  This is an opportunity for AA to obtain some sort of deregulation on the cost side of the equation and set new negotiating precedents for other union relationships in the future.

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I would love to speak to a group of pilots from a legacy carrier.  Particularly from American Airlines.  I want to ask them just exactly what *their* vision is for their airline.  What aircraft would it fly, how would *all* the employees would be compensated and what work rules would they want if it was the pilots running the show.

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Airlines have made many changes to their pricing models in the past year or two that have been annoyances or worse to passengers.   The Cranky Flier makes note of American Airlines moving to an a la carte pricing model such as what Air Canada uses in the near future and notes the benefit of choosing what you want up front and paying for it when you purchase a ticket instead of being nickel and dimed at each phase of traveling.

There has been a lot of discussion among many airline blogs and websites over these charges and quite frankly I’ve changed my mind in some respects.  I think the key is to identify what is an appropriate “extra” charge and what isn’t.   After some thought and reconsideration, I do not believe that food and soft drinks necessarily belong in the “must have” category.  To the contrary, it is difficult to find another mode of transportation where food and drink is complimentary.   So, go ahead and charge for it, I say.  As long as you have a convenient method for accepting payment, I’m sure it will work and, more importantly, be accepted in the long run.

Do pillows and blankets require an extra charge?  Frankly, I would do away with them on domestic trips all together.  Put them on international flights of 6 hours or more and, sure, go ahead and make them complimentary but get rid of those comforts on domestic trips.  If you haven’t dressed appropriately for traveling on an airplane, why should an airline provide you with a blanket?  For those of you traveling in halter tops or wearing sandals, let me suggest that that is a foolish way to dress for air travel anyway. 

Luggage is a tricky area.  I personally believe that at least one bag should be checked free.  At least for domestic travel.  Maybe 2 bags free for international travel.  I do think there is an implied agreement to tansport your baggage when you buy an airline ticket.  However, I do NOT think there is an implied agreement to transport your entire wardrobe.  Sorry but if you need to take a lot of things, then buy a full sized piece of luggage and pack it until it holds 49.99 lbs and then stop.  Or pay that fee. 

Since we’re talking about luggage, let’s talk about carry on pieces.  I typically travel with a briefcase and a medium sized roll-on piece of luggage.  I do not carry on the medium sized piece because it is slightly too large for the overhead bins so I do check it.   Frequently when I’ve arrived at an airport, I discover that I’m getting into a car/taxi/bus with people who carried their stuff aboard.  Why?  Because baggage does get delivered in a timely manner to most carousels and baggage rarely goes missing *if* you have packed and identified it appropriately.  Oh, be sure to tip that sky cap who checked your bag too. 

But you do not need to bring an overstuffed carry on into the airplane and then smack it into place with both hands as you crush my suit jacket that was laid carefully above.  Time for business travelers to get real.  Everyone *thinks* they are the world’s best packers and always insist that they “always” bring that on board.  I don’t think so.  If it didn’t fit into that MD-80 overhead today, it didn’t fit in there yesterday.   Who are you trying to kid?

So, if you are forced to gate check a bag that didn’t fit into the overhead compartment (again), then let the airlines charge you $25 for that one too.   After all, they have figured out how to run a credit card on board an airplane. 

What else?  Oh, yeah.  Seating.  Let’s have a variety of seat pitches and price those accordingly.  But instead of telling me about upon check in, pitch them to me on the travel websites as an upgrade.  Airlines should insist these travel websites should include upgrade pricing to an economy plus seating.  Why not charge $10 / hour / seat for 34″ or 36″ of seat pitch?  Would I pay such a fee?  Sure.  I’d probaby pay it if it was $15 / hour / seat.  Or I might pay it for the flight segment that I most wanted to relax in at the least. 

How about offering early or improved seat assignments for a fee?  Would I pay $10 to get a window or aisle seat 30 days in advance.  Without a doubt.  Would I pay $20 for such a chance?  In several instances, yes, I would. 

And, yes, let’s go ahead and get these charges taken care of before I arrive for check in.  Tally my choices online and present me with a total charge to pay when I pay for my ticket.  Let me pay, in advance, for a beverage or two on that flight from DFW to PDX and just note it on my boarding pass with a tear off area for the flight attendant to “collect” my fee.  Or just give them an advance manifest of customer names who have paid, in advance, their drink or food fees.

But don’t tell me that I have to pay $30 or $50 more to transport my suitcase.  That’s a joke.  A second one, sure.  Go ahead.  I’d probably pay it gladly anyway.  But not that first checked bag. 

Filed under: Airline Seating, Airline Service by ajax
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USA Today’s Today in the Sky blog has a story about Airtran now offering upgrades to business class (space available of course) after a passenger has boarded the aircraft.  This is smart for a few reasons.  One, it’s one more opportunity to get that revenue.  Two, passengers may well be much more motivated to buy that uprade if they see the seat.  Three, passengers may well be much, much more motivated to buy that upgrade upon discovering that economy is full.

Filed under: Airline News, Airline Seating, Airline Service by ajax
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These days there is much ado about various First Class and Business Class services on a variety of airlines.  The introduction of the A380 brought a new level of first class service from Emirates, Singapore and QANTAS.  Even their business class on those aircraft are more in line with First Class on any other. 

A week ago, I visited the Fort Worth air show at Alliance Airport.  While that show (and most others) tends to be oriented around military aircraft, I did get to tour the new Pink Ribbon American Airlines 777.  Like all 777’s tend to be, it was an impressive 3-class aircraft.  At least for First Class and Business Class.   Indeed, I actually thought that the Business Class arrangement on that aircraft was as good as First Class with respect to how I would value it on space and comfort.   AA’s First Class separates you more from fellow passengers but I don’t think its seat or entertainment is necessarily any better.

In any case, what I wonder about is Economy Class.  In this airline world, Economy Class remains largely what it was 30 years ago.  If anything, instead of rising in service or comfort, it has, perhaps, fallen just a bit.  Seat pitch is reduced.  The seating itself tends to be older and less comfortable on most airlines.  There is rarely entertainment and only on international flights.  

In my world, I put a premium first on seat pitch, then seat width and then on seat location (the opportunities to get either a window or aisle seat.)  In almost every case, entertainment means nothing to me.  While I acknowledge that it *does* excite some people, I would wager that if you gave a person a choice between a 34″ pitch seat with no entertainment and a 32″ pitch seat with entertainment, you would sell more of the former.  At least on most domestic flights. 

There appears to be no game changer for Economy Class.  There is no incentive to improve economy class service for almost any airline.  American’s 3-class 777 offers 2-5-2 seating (imagine sitting in one of those 3 middle seats) that is not one iota more comfortable in any way.  The one amenity, that I could observe, was a personal entertainment screen.  That was it.  I sat in the economy seat and it did not seem, to me, to be any different in pitch, width or general comfort than a AA MD-80 seat. 

There really isn’t any incentive for most airlines to improve this experience either.  By operating fortress hubs, the airline knows that most economy class passengers are a captive market.  There really isn’t much choice when choosing an airline for most destinations.  The only incentive for an airline to change seating comes from either being able to fit more seats onto an aircraft or to provide a seat that lasts longer.  

Delta is going to introduce such a seat using Thompson Cozy Suites.  You can see more about it HERE.  It is more comfortable and it does allow Delta to add some seats to their aircraft but they also have contract to use it exclusively (at least for a while).   jet Blue and United do offer some economy plus seating but they market it poorly.  Most passengers are unaware of it as an option to search for and only learn about it at check-in as an upgrade option. 

Wouldn’t it be nice to see a game changer for economy class for once?  A seat that offers some comfort and space even if it costs just a bit more to purchase.   Keep the free soda and coffee.  Keep the entertainment because I can carry a tiny MP3 player for music and I really prefer a book to a TV show anyway.   Keep the food and the pillows and the blanket because I can dress appropriately and probably sleep better with just a touch more room.  Find us a seat that we can sit comfortably in for 3 hours and I’ll buy your ticket every time.

Filed under: Airline Fleets, Airline Seating, Airline Service by ajax
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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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1)  Robert Forman Six, legendary CEO of Continental Airlines, once had a Wild West Fast Draw team called “The Six Guns”.  Made up entirely of Continental management, these men were genuine “fast draw” artists with western revolvers.  Bob Six was a “fanner” and unlike most fanners, he was particularly accurate.  One other team member was the future President and CEO of Braniff International:  Harding Lawrence.

2)  American Airlines was once owned and controlled by E. L. Cord who owned the Cord, Auburn and Dusenberg automobile brands.  It was E. L. Cord who elevated a young accountant in his late 20’s to the presidency of American Airlines.   That man was Cyrus Rowlett Smith, known universally as C.R. Smith and who lead American Airlines from 1934 to 1968 and then again from 1973 to 1974.  Mr. Smith is buried in the Arlington National Cemetery because he served in the US Army during World War II and reached the rank of Major General before leaving the service to return to American Airlines.

3) Most people, even aviation enthusiasts, believe that the second commercial jetliner to be built was the Boeing 707.  In truth, it was the Avro C102 Jetliner built in Canada.  The C102 was introduced just two weeks after the DeHaviland Comet in 1949 and years before the Boeing Model 367-80 prototype jetliner.   Resembling the DeHaviland Comet with 2 jet engines contained within each wing, it actually flew faster than the Comet and carrying about 50 passengers, it was ideally suited to short and intermediate routes in the U.S.   The plane was never built because the Canadian government ordered Avro to concentrate all their resources on the military jet interceptor, the CF-100.  No examples were ever preserved although the nose section of the prototype was saved and given to the Canada Aviation Museum in Ottawa.

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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.

Filed under: Airline News, Death Watch by ajax
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I just discovered a new blog called Dispatcher’s Diaries.  An airline dispatcher is the unseen force in making an airline run well and ontime.  It’s brand new but I recommend reading its first posts.  It already gives a rare glimpse into another side of the airline world. 

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A fair fare would probably be identified by most people as an air fare that accounts for the true costs of flying from point A to point B non-stop using the right aircraft to supply the capacity.  As a matter of fact, that was what the Civil Aeronautics Board tried to adjudicate when setting fares. 

Now, such a model might sound familiar.  It sounds like what LCC carriers such as Southwest Airlines and Airtran do.  In many sense, yes it is.   Legacy carriers, focused on hubs, hurt themselves with those hubs every time they carry a connecting passenger.   The hub and spoke system demands that they carry more passengers a farther distance using more resources and economies of scale no longer allow them to make a profit doing so. 

Let’s use as an example travel from Midland / Odessa to Albuquerque.   You have 3 basic choices for travel in this scenario.  You can fly Southwest Airlines non-stop for about $260 round trip or you can choose another carrier for a non-direct, connecting route that starts at about $550 round trip.   Another carrier might be American Airlines, Continental Airlines or Delta Airlines. 

If you choose American Airlines, you’ll fly EAST to DFW and then WEST again to ABQ and it will take  . . . wait for it . . . from 4.5 to 6.5 hours to complete your travel.  Since you are connecting via DFW, you’ll be making two take-offs and two landings and one of those landings (remember, part of an airline’s cost is a landing fee) will be at a major hub airport.  Take offs are expensive too.  They are the part of the flight that consumes the most fuel so two take-offs is bad.

If you fly Continental Airlines, you’ll connect through IAH (Houston) and the economics are the same but the distance flown is even greater.   If you fly Delta, you’ll first fly to Houston and then to Dallas and then to ABQ and your price will be in excess of $1000 round trip.  By the way, your total travel time using Delta will be over 10 hours.

Now, if American Airlines or Continental Airlines (let’s just leave Delta out of this because such a scenario is absurd) want to compete for the passengers traveling from Odessa to Albuquerque, they have to offer a fare that is somewhat competitive.  If they do, they’ll come at least close to matching Southwest’s fare of about $300 and that means that their costs are higher and they make less profit or no profit.   Since Southwest has the lowest costs, they get to set the price. 

Now, some people such as Robert Crandall advocate re-regulation of fares in some form.  In a speech to the Wings Club in June 2008, Mr. Crandall offered that this might take the form of mandating a “minimum fare” that is the sum of “locals”.   What he suggests is that a fare between two cities that connects via a hub should be the sum of the fare(s) between Point A to Point B (a hub) and Point B (a hub still) to Point C (the final destination.  In the alternative, he suggests that flights that connect via a hub be required to have a “connection” charge.  His goal is to remove any incentives airlines might have at present for operating a hub.  It becomes officially un-economic to fly that route via a hub.

Quite honestly, I find that a poor solution since he proposes to disrupt the systems of the very airlines that his solution purports to help in the long term.  It disrupts a 30 year institution among legacy carriers and assumes the staff and leadership who have operated in such a manner to be able to adjust to a new model that they have no experience with.  It is, at best, a very awkward solution to the problem and only addresses revenues (once again) instead of the whole equation.  Even more important, it is hard to imagine the political will required for such a change.

No doubt the adjustments have to be made and I would suggest that might need to take the form of actually allowing a large legacy carrier to go out of business (which then removes some barriers to entry for other, more efficient carriers) or you have to find a way to reasonably deregulate costs so that airlines no longer must use hubs to fight for their very existence.  Those costs are principally labor.  The latter solution is better (both in the short and long terms) because it doesn’t necessarily involve massive unemployment or relocation for employees. 

An airline needs to be able to efficiently locate staff at various “base” cities in a way in which costs are not concentrated in one particular city because it is merely a popular place to live.  You don’t want all of your high cost employees (i.e. the senior staff) to locate themselves in Miami where much of your traffic might be low yield leisure travel.   Second, an airline needs to be able to competitively bid for staff on an open market.   A seniority system as used by airline unions ties staff to one airline and forces the airline to “wait out” their term of employment (as much as 40 years) until they can hire new, lower cost staff to fill a particular position.  Further, it denies them access to qualified personnel for expansion because staff won’t leave another airline for a new job because they don’t want to start out at the bottom of the seniority list.

If we deregulated (by legislation) the seniority system in airlines as a first start, airlines could suddenly re-allocate labor and gain more productivity and reduce their costs on routes where necessary.   For a first round, you could even leave in a seniority system for earning pay and determining furloughs but just remove the seniority system as it pertains to bidding for line routes and it would allow the airline to locate their labor (by cost) where they most needed it and gain more productivity.  That change alone might well serve to offer legacy carriers a legitimate opportunity to earn a profit regularly (with all other things being operated effectively).  It would at least be a good first step in trying to solve the problem.

Filed under: Deregulation, Trivia by ajax
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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.

Filed under: Airline News, Airline Service by ajax
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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. 

Filed under: Airline Fleets, Airline News, Airline Seating, Airline Service by ajax
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Almost all airlines in the United States operate from hubs.  Going from West to East, they are (in no specific order), Phoenix, Salt Lake City, Denver, Dallas / Fort Worth, Houston, Minneapolis / St. Paul, Chicago, Detroit, Cincinatti, Memphis, Atlanta, Cleveland, Philadelphia, and NYC.  There are a few other cities that some might argue are hubs but which I think are more “focus” cities than the above cities.

One way airlines have reorganized themselves to meet the cost pressures of non-deregulation on the costs side of the airline industry is to simply start “connection” and/or “feeder” airlines or to contract with those airlines.  Some examples are American Eagle, Mesa Airlines, Comair, Compass and Express Jet.  There are others too.  These airlines fly regional aircraft (regional jets and turbo-prop aircraft) on behalf of the mainline airlines.   Unions permitted these airlines by getting “scope” clauses in the contracts that limit the size of the aircraft to be operated. 

Often those scope clauses originally limited airlines to flying regional aircraft that had 50-odd seats or less.  What they didn’t do was limit the kind of flying such aircraft might be asked to do.   As things evolved post-1978 deregulation, airlines began to establish large hubs with multiple banks of flights each day.  They did so in order to “concentrate” their operations and take advantage of economies of scale.   Over time, mainline aircraft departing from a hub either went to other hubs or to larger 1st and 2nd tier cities.  Mainline aircraft stopped serving the smaller third tier cities (for example Des Moines or Jackson, MS.)  It never occured to unions to limit both scope and distance in those contracts because originally it was assumed that regional aircraft couldn’t serve route sectors of much more than 200 to 300 nm. 

Instead, mainline airlines used their feeder airlines to pick up traffic in those cities and carry it to a hub where the passenger then transferred to a mainline aircraft or another regional flight to get to their final destination.  For instance,  a passenger might fly American Eagle from Des Moines to Chicago, transfer to an American Airlines flight using mainline aircraft and continue on to a final destination such as Los Angeles.  

Prior to 1978 deregulation, American Airlines might have flown a route from Chicago to Los Angeles with intermediate stops in Des Moines and, say, Salt Lake City.  Remember this is a hypothetical example.  While hubs were beginning to develop or had developed, those entities really resembled what we call focus cities today.  It was a concentration of traffic and opportunity to rotate aircraft through maintenance facilities but it wasn’t a fortress hub that we see in places such as DFW or MSP today.

Over time, new aircraft such as regional jets that had greater capacity and speed than original “feeder” aircraft such as the EMB Brasilias or SAAB 340 aircraft were introduced.  These regional jets were capable of mainline aircraft speeds and altitudes and were capable of flying route segments in excess of 400 nautical miles.  Since the cost structure for such aircraft was an order of magnitude less than that for mainline service, airlines began to realize that they could use these aircraft to serve routes that contained a lot of O&D traffic for more point to point flying. 

Suddenly, American Eagle wasn’t just serving cities from DFW that were in Texas and surrounding states.  With regional jets, it began serving medium haul, thin traffic routes from DFW.  One example is the one I gave yesterday:  DFW to MKE.   That route has a lot of O&D traffic (Origin and Destination) but very little connecting traffic.  What that means is that people flying from MKE to DFW were terminating their trip at DFW instead of necessarily continuing on to another destination and vice versa.  If a MKE passenger wanted to get to Denver, they would fly either to Chicago or MSP to connect or possibly direct on a United Airlines “connection airline”. 

The feeder/connection airlines evolved into the “point to point” service provider for small to medium markets.  The reason is that airlines can only afford the flight crew labor costs for routes where the yield (profit from revenue) justified those costs.  The only way to find that yield is to concentrate flights through hubs.  One example, again, is DFW.  American Airlines “feeds” traffic from all over its network (including American Eagle’s network) into DFW where they “concentrate” that traffic and redistribute it to other routes.  This means that those routes load factors remain very high for each flight. 

On the surface, that sounds efficient.  However, there are some underlying factors that reveal it to be inefficient to operate such hubs.  First, it means that you have to schedule your traffic in banks of flights.  You want your flights to arrive at about the same time and then take off again at about the same time.  In order to manage that, your departure times at outlying stations may have to be excessively inconvenient to passengers.   Your airport service staff tends to work in concentrations with excessive idle time in between banks of flights.  You still have to pay them and they remain there because you service large banks of flights at one time.  An airline must have that staff in place over the full duty period to accomodate those peak periods.

Such hubs also tend demand fleets that are largely homogenized.  American Airlines, for instance, standardized on the MD-80 for these flights (and now is doing so on the B737-800) and therefore has to find routes that fit the aircraft instead of aircraft that fit the routes.  Because they must fill so many seats on mainline routes to make a profit, it drives them to feed more and more traffic into the hubs.

Hubs also can cause system wide service disruptions.  A bad weather day in Chicago can wreck two major legacy carriers systems (United and American Airlines) for multiple days because any disruption ripples outward through the whole system.  Since all flights go to or depart from the hub, there is no flexibility to “route around” the problem city.  

All of those issues inhibit a legacy carrier from earning long term profits and they haven’t earned reliably for over 20 years now. 

The best example of how best to operate in today’s airline market is, no surprise, Southwest Airlines.  While they do have several cities that look and feel like hubs, they really aren’t when compared to other airlines.  They are focus cities.  Those focus cities permit some concentration but they really exist to provide some operational flexibility and maintenance. 

Southwest Airlines focuses on flying point to point routes and high frequency commuter flights.  If you try to get from one city to another on Southwest’s system, you are very likely to fly there direct and in many cases non-stop.   The percentage of traffic on flights from focus cities that is “connecting” is relatively small compared to legacy airlines. 

When a flight from Southwest Airlines departs DAL (Dallas Love Field) for ABQ (Albuquerque), it isn’t coming back that day most likely.  Instead, it will continue on to, perhaps, Phoenix and then to Portland where it will turn and head to Los Angeles and then, maybe, to Denver.  The plane  goes through 3 focus cities but at all times it is carrying O&D traffic primarily. 

That point to point system with focus cities permits them to offer highly convenient flights that fly direct (in other words, a passenger doesn’t have to get off the plane and board another one) and they get a higher utilization rate out of both the aircraft and crew because they aren’t sitting at hub for 1 to 2 hours waiting for their flight to depart again.  Instead, Southwest crews do fast turnarounds at focus cities (20 to 40 minutes) and depart for still another city.  Southwest not only gets high utilization from their aircraft but they also get high utilization from their flight crews. 

Southwest Airlines’ crews are paid competively and even generously but the airline also gets far more productivity from them in a given duty period.   Ironically, Southwest crews also fly less fatiguing schedules overall and spend more nights at home than most other aircrews.   Southwest captains earn as much or more than any other Boeing 737 captain but because they negotiate not just raises but flexibility in their contracts, their standard of living is quite a bit higher than it would be at most legacy carriers.   They offer more productivity in return for working an easier duty period at a competitive salary. 

They also don’t fly small commuter aircraft and they don’t avoid flying to 3rd tier markets.  Southwest flies B737 equipment to cities such as Indianapolis, Odessa, Corpus Christi and Brimingham.  Every other airline serves those markets with primarily regional jets and Southwest manages to earn more profit flying to those same cities using mainline aircraft that is more than 100% larger.   Not because their crews are “cheaper” but because their crews (and their unions) bargain for more than just money.  It’s a competitive negotiation with real give and take and, as a result, Southwest gets high productivity without working their crews longer hours, bad morale or high turnover. 

Next we’ll look at why seemingly “fair” fares can’t earn real profits for most US carriers. 

Filed under: Deregulation, Trivia by ajax
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