No, seriously, where is it? This is an aircraft that conversations began on in 2004. It’s 2010 and I still don’t really know much about the aircraft despite being a keen industry observer.
Mind you, I’ve heard the range promises and the seat costs promises but I haven’t seen the meat. In fact, isn’t it a bit distressing that this aircraft is cloaked in so much secrecy that we still don’t know its final definition? The few facts we have heard have actually originated from the few airlines that have ordered the aircraft in numbers. Those facts haven’t been entirely good either.
When Emirates starts talking about how the 777-300 still has an advantage, you might have a problem. This is an airline that loves to play the two majors off each other. Ordinarily, I’d expect Emirates to be trying to goad Boeing into building something new or something revised.
Still, it’s time to start talking about this aircraft in more detail rather than with John Leahy’s rosy marketing promises. It’s time to start hearing more about its real capabilities and how it will compete in the real world with the 787 and 777. Right now, I really don’t know much at all and that really makes me question whether an entry into service for 2013 is even remotely possible at this point.
A friend of mine pointed me to this little gem from the Motley Fool investing website about American Airlines. You can read it HERE. In short, they apparently do a “throw this stock away” column/editorial/advice on a regular basis and AA is the target of this week’s column. In short, they find AA a less than credible buy because of their vastly higher costs compared to other legacy airlines.
And I couldn’t agree more. American Airlines recently stated that it thought its costs were about $500 million more than other airlines in the United States and their only guidance on that is that, over time, other airlines should see their costs rise and AA will then be more competitive.
Yeah, not so sure about that myself. American Airlines has very poor labor relations these days while other legacy airlines have worked hard to repair those relationships and/or maintain good relationships and the benefits are showing more and more. Those airlines aren’t distracted by labor strife, aren’t affected by poor service from angered employees and manage to negotiate fare wages and other compensation that works for both sides.
What makes AA think that is going to change? Maybe it will for one or two airlines but it isn’t going to change through the whole industry. In the meantime, American will continue to burn its cash reserves and probably not earn a profit for this year while several others not only will earn a profit but quite possibly earn record operating profits.
Combine this with financial analysts revolting a bit against AA in April where the question was asked of Chairman and CEO Gerard Arpey: “Is that all you got?”
There is an increasingly apparent divergence between AA and its other legacy brethren. All other legacy airlines are being run by people that do appear to understand that the game has fundamentally changed again and are resigned to flexing enough to work with that change. AA shows all signs of hopefully waiting in the corner of the room for everything to go back to the way it was. They should have gone into bankruptcy back when they had the chance in 2003. That is what would have resulted in a more competitive airline.
The chances of low oil prices and a red hot economy coming back to save AA anytime soon are as about as good as I’ve got a chance of taking a trip to Australia this afternoon. It’s possible, theoretically, but no one is betting even a dollar on it.
I continue to hope that one of the other legacy airlines will see this weakness in AA and start some action in DFW. We could use a little old fashioned competition in this town.
Continental Airlines announced their first route to use their soon to arrive 787 aircraft. It will be from Houston to Auckland, NZ and if nothing else, this is just fun to think about. Tentatively scheduled for November of 2011, it’s a long way off still and I would regard it as being subject to a lot of things going right such as the aircraft arriving in time.
This is exactly why I believe aircraft such as the A380 and 747-8 have a very limited role in the future of air travel. We now have aircraft that, in the broad scale, are medium sized but very long range capable. The 777-200LR was the first but even that aircraft is a touch big for some routes. Not so for the 787-8. The 787-8 is a 767/A330 sized aircraft capable of handling longer, thinner routes that, frankly, really don’t get flown today.
Houston to Auckland may strike many as a little weird but it really isn’t. It puts Auckland within range of the middle of the United States with a full load and margin for safety. Suddenly there are a whole lot of cities on the East Coast and in the Midwest that can enjoy 1 stop service to New Zealand. Previously those people had to fly to the West Coast and, in many cases, had to make 2 stops before arriving in LA. Even if they had to make one stop, this flight will mean less travel time “door to door” than ever experienced before.
Houston might seem an odd gateway to Auckland but it isn’t. Consider the hub cities the new ContiUnited will have. You can feed traffic from NYC, Philadelphia, Washington DC, Cleveland, Chicago and Houston to that flight. That’s probably not enough to fill a 747-800 but it’s plenty to fill a 787-8 aircraft and I suspect a lot of that traffic will tend towards a more premium customer.
The United part of the airline will continue to handle West Coast to Australia trips. Air New Zealand will probably keep their routes from New Zealand to the US but ContiUnited will now be the first to open up the eastern half of the US to Down Under. That’s huge and a bit of a blow to both Delta (SkyTeam) and American Airlines (Oneworld). This could potentially see Delta and/or AA opening up routes using the 787 to similar destinations Down Under.
Will it happen? I think so but it does have a certain fairy tale quality to it. I remember Aviation.Net members discussing such fantasy routes as far back as 2005 I think and when such things get fantasized on Aviation.Net, I tend to believe they’re too good to be true. However, I believe this has a better than 50% chance of happening because it fits well within how Continental is run, the Star Alliance network and its what a SuperLegacy network airline should be flying when it comes to long haul destinations.
Last week, someone I know was scheduled to fly to Las Vegas from DFW on US Airways. Their teenage child had gone into the hospital at the first of the week due to a severe and hard to cure infection. She couldn’t take the trip because of this and asked me what to do. I gave her the phone number to US Airways and told her to call and describe why she couldn’t make the trip. I also warned not to expect much, if anything, because it was the most Economy of Economy fares.
US Airways heard the reason, called the hospital to verify the hospitalization and then called back to waive the change fee ($150) and give a credit for the value of the flight ($260) usable for the next 12 months. I advised my friend to call US Airways an hour later and just confirm that the credit and conditions were in fact on the record locater and they were.
Not only was it a satisfying experience but it was handled expeditiously and with sensitivity. I have to give US Airways a lot of credit for how this was handled and its proof that not everything goes wrong in the airline world.
Apparently the nation’s airlines have decided that their best strategy is to add yet another fee for this summer. This time it’s a peak travel surcharge. See the CNN story HERE. The question is, will it work? Would you pay from $10 to $30 more over the published fare for a ticket this summer?
I wouldn’t. Quick research on my favorite routes show the fares are already climbing rapidly and in two cases have nearly doubled for the least expensive ticket. The economy hasn’t recovered, people are not earning more and unemployment is still exceptionally high. I think air fares are very inelastic in price for consumers this summer if only for the leisure travelers.
Capacity is still way down and clearly the airlines think they can earn more and not lose traffic. Maybe they’re right too. But I like to do a bit of content analysis on for sale ads from time to time to gauge where we might be when it comes to disposable income. If you take a look at the ads online someplace such as Craigslist and see what’s being sold and at what price, you can often get a reasonably good feel for whether or not people feel they have enough income for luxuries.
Right now, I see a lot of firesales on goods. Nearly new televisions, computers, appliances, etc. tell me that people are still trying to make do or survive. I suspect a lot of people will defer travel for their vacations this summer in the end. Advance bookings were strong in March and April, yes. Prices were also exceptionally low in March and April. A round trip flight from DFW to MKE in late July has climbed more than 20% in price already and that is on a hyper-competitive route.
Will the airlines “stick together” on these surcharges? I think someone might break in a week or two. Unlike most fees, these surcharges are showing up in booking engines and it is quite possible one or more airlines might “break” from the pack as soon as sales soften. In addition, while the legacies are doing this, the LCC’s aren’t showing many signs of adopting it yet except Airtran who did choose to add a “flate rate” surcharge of $10 for 25 days in the period marked from June 10 to August 22. Once again, Airtran acts a bit smarter.
Time will tell but I don’t see us enjoying a summer where all economic signs point to consumer confidence. As I write this, the stock markets have had a big sell off over fears of volatility in Europe with respect to weak economies and a weakening Euro. Unemployment rates haven’t made a real reversal in direction. Gasoline prices are a bit up and food prices are too. It’s doesn’t take much to reduce the disposable income of an average household and uncertainty means most will play it safe rather than just “accepting” yet another fare hike.
There is a whole lot of speculation on British Airways and its future. I noticed one reporter speculating on whether British Airways reputation will ever recover. I’ve seen other stories speculating on their financial viability for the next year. Still another story actually was making a “buy” recommendation on their stock. In other words, it’s great sport to speculate on BA right now.
In many respects, BA’s problems with its labor are of its own making. Long after many other global airlines wised up and trimmed their costs, BA was plunging ahead with its so very “British” service product. Management continued to pay very generous salaries to crews, buy aircraft and send the “flag” to odd places in the world. It was unsustainable, particularly in Europe, but they persisted along just like a drunken Alitalia as long as they could.
Two things happened. First, Willie Walsh showed up from Aer Lingus where he spent most of his career and where he built a reputation as a CEO by transforming Aer Lingus from a doddering state owned airline into an enterprise capable of competing with the best, Ryanair. Walsh learned how to lean out a company, maintain good service levels and operate an airline in this century.
Second, the world airline economy crashed with unprecedented oil prices and an unprecedented decline in business travel all at the same time.
Walsh rightly identified that BA had to be more productive. Indeed, rather than just focus on slashing staff, he wanted concessions that allowed BA to simply compete with other airlines on productivity. He’s worked tirelessly to reduce costs, manage money better, maintain service and improve productivity. He’s done this despite years of relative neglect on the part of previous CEOs and, yes, he’s been brash about doing it.
I’ll be honest. He rubbed me the wrong way when he showed up at BA and, more importently, in the global press. As time has gone by, I’ve changed my mind in many ways. Now, he strikes me as much more a leader than just a cost slasher. I’m impressed with his read of his airlines economic situation as well as his take on the markets served by British Airways.
My own take on most of BA’s employees is that most “get it”. The pilots even get it and that’s saying something because pilots are generally the most militant of all labor groups. You see, few countries have better examples for losing entire industries due to obstinate labor actions that ignore changing markets and economic climates than Britain. Seriously, take a look at what happened to their car industry in the 1970’s. Or their aviation industry from the 1970’s through the 1980’s.
I’ve noticed that most British citizens who are engaged in the world understand that demanding your cake no matter what the circumstances doesn’t work and often removes an industry from your country forever. It isn’t that they are anti-labor, it’s that they have, in most cases, become a pragmatic people and that’s good for them.
Then there is Unite, the labor union representing crew staff (flight attendants) for British Airways. This cheery crew has set about to inflict real and serious damage upon the airline at every opportune moment and over issues that most in the company agree have to change. It’s as if all the labor organizers who struck against the British car industry took a 30 year holiday and showed up drunk and clueless to lead Unite.
It’s hard to respect a union that seeks to inflict strikes on both the airline and the traveling public during, oh say, the Christmas Holiday Season. Or after their employer announced record losses well in excess of $800 million dollars. It’s particularly strange to see them make these choices despite the fact that a large minority of their own membership are crossing the picket lines to support their airline. No, actually, it’s downright bizarre.
If Willie Walsh (and the board of directors) understand anything, it is that they cannot lose the issue in this strike. Failure to “win” on the productivity issues will set a precedent and likely see the downfall of the airline show up shortly thereafter. While Walsh has been a very stern and scrappy fighter in all this conflict with Unite, he has, by all appearances to me, also shown great restraint in not allowing this to be personal. He continues to show this restraint despite Unite making it not only very personal for Walsh but for anyone who attempts to help the airline as an employee.
I’ll grant that the one petty thing I take issue with Walsh on is the travel privileges restrictions he imposed on any crew that struck. That was a misstep and one that he pursued for too long. It is nice to see that he’s offered to reinstate those privileges in the last round of negotiations.
Here is a kicker, during the last negotiations where Walsh was offering those privileges back, one union negotiator (Derek Simpson) was “twittering” about the negotiations in real time from his Blackberry.
What. . . the. . . hell?
Anyone in the industry accepts that union leadership is going to tend to be loud and bombastic and even full of threats in public and especially when the cameras are own. It’s also accepted that those same people will be restrained, professional and serious in negotiations. Playing games with Twitter during negotiations is just a wild breach of protocol and, frankly, does a great misservice to the Unite membership.
Why? How do you engage in negotiations with people who play games like that and then act as if it is nothing after the fact? It’s very difficult to do and very hard to establish trust after a breach like that.
It also insults the public following this strike. Yes, even the public knows that is a breach. And it was completely unnecessary given just how close the two parties are to having an agreement. Indeed, British Airways essentially came to an agreement when the leadership of Unite then attempted to re-open settled areas of the disagreement. They longer Unite’s leadership continues to act as they have, the more they have to lose in both public opinion as well as negotiating leverage.
The issues that BA is fighting for with Walsh’s leadership are recognized as so important that other airlines are lending support to BA and many of them are BA’s arch enemies in the marketplace. Seriously, who would have ever thought that Ryanair would be leasing aircraft and staff to BA in order to maintain airline schedules during strikes.
I think BA will win. I hope that Walsh survives this strike but I do have some small doubts about that unless he manages to close this deal soon. I don’t think BA’s reputation is in tatters for the rest of its life. It will take a short while and that will be that. Anyone declaring that they’ll “never fly BA again” over this strike is almost 99.9% certainly full of it. They’ll fly them the very next time the price is right for where they’re going. I don’t think BA is going to become insolvent over this but I think they’re looking at several years to rebuild their financial strength again.
The one curious thing (to me) about all of this is the apparent lack of government involvement in this conflict. If this had been going on in the US, someone would have stepped in by now and insisted on binding arbritration and cooling off periods. Both BA and Unite could use one of those.
Continental has announced that 15 of about 150 pilots furloughed in 2008 will be recalled back to the company. Another 100 who took voluntary leave will also be coming back. Supposedly this is because of some planned growth on Continental’s part including the addition of 2 new Boeing 777 aircraft in the near future.
It’s a good piece of news both for these pilots and the industry. Delta has announced it will be hiring some additional pilots as well.
But the Continental news has me wondering even more about how Continental and United pilots will integrate their seniority. If I were a betting man, I would bet that United pilots have a higher average seniority and that means a seniority merge could result in a lot of Continental pilots getting bumped back down. Seniority determines pay so it will be a contentious issue. Sadly, neither group has someone like Delta ALPA leader Lee Moak to guide them through in a reasonable way.
On Tuesday of this past week, several aircraft had to divert to the local airport in Pueblo, Colorado because of weather over Denver. On one flight, the Southwest crew decided to order pizza for their passengers who ultimately had a 4 hour wait in the aircraft. You can read more HERE. Not only was it a smart thing to do to defuse any passenger tensions (food keeps people calmer), it was worth it for the news exposure alone. It’s nice to see an airline’s crew just do good.
I just found out that Robert Serling, an author on the aviation industry and writer of a number of fictional books revolving around the airline industry has passed away at the age of 92. He died on May 6th and was diagnosed with cancer just days earlier. Robert Serling, brother to Rod Serling of the TV series “The Twilight Zone”, was quite literally my favorite aviation author. I discovered him many years ago when I bought a book of his on Boeing. I’ve since read virtually every book he’s written and I’ll miss his writing quite a bit. His last book on Alaska Airlines was as good as any other he’s done.
You can read a more extensive LA Times obituary on Mr. Serling HERE. The new York Times Obituary is HERE.
It’s being reported by Aviation Week that a Morgan Stanley financial analyst is now predicting that Boeing will soon announce a 737 replacement development program. See that article HERE. Her reasoning is somewhat sound but is also tinged with a financial analysts viewpoint.
Financial analysts see a re-engine program adding little if anything to Boeing’s financial performance. A new aircraft would potentially garner hundreds if not thousands of orders during the development period and that backlog of orders would offer confidence to the financial world. Fortunately, engineers run Boeing. Creating an aircraft for the sake of a balance sheet is an unwise move unless many other criteria are met as well. Most of those criteria are engineering related such as engine development maturity, new materials (CFRP for instance) maturity, etc.
This analyst also speculates that a re-engined B737 vs a re-engined A320 could still be 8 to 10% less efficient than the Airbus product. Now her engineering prowess is really showing. The two aircraft are neck and neck now. Both would need substantial engineering changes to accomodate a new engine. The new Pratt & Whitney GTF engine still is not showing the performance that has been promised. In fact, in a Boeing vs Airbus matchup between like models, the Boeing generally has the lowest trip costs so far. It’s an almost insignificant advantage but it exists and it shows this analyst hasn’t done too much homework.
Finally, there is more talk of this new aircraft being a twin-aisle development for faster boarding. This one I doubt. A twin-aisle wouldn’t just require a larger fuselage but it would potentially be heavier if kept as a circular cross section. A new fuselage shape might lend itself to such a development but I really doubt it. The 737 market is from about 130 to 180 seats. A twin aisle means a shorter length and that means things like a taller tail. It would imply more “structure” being necessary and more structure generally means more weight. More weight means higher costs. Perhaps a new fuselage shape might work but that means lots of new engineering and materials potentially. I wouldn’t rule it out completely but I would give it an extremely low probability.
That said, I would be less surprised to learn of a “twin” development of two sub-families somewhat similar to the 757/767 developments. An aircraft family capable of serving from 120 to 160 passengers and, perhaps, another serving 160 to 200 passengers with a great deal of commonality might be the answer everyone is looking for. That would allow Boeing to optimize their aircraft structures for missions in those categories and, at the same time, potentially offer commonality in engines, aircraft systems and pilot ratings.
I continue to believe Boeing will announce a new program in the next 18 to 24 months. I do believe it will be for a single aisle airliner(s) and I do believe that it may have an entry into service late in the decade. Everything else is just a guess. For earlier comments on this, you can read THIS blog entry.
The argument that current 737 owners are afraid that a re-engine or new development program will hurt their aircraft values is barely valid. It may hurt their values but if Boeing can engineer a new aircraft meeting offering a great gain in efficiency, then it is time to start developing it. If they cannot, then they’ll wait. There is no value to either Boeing or the airlines in waiting longer than necessary. When the risks reach an appropriate level, they will launch this. The question is, have those risks gotten to a point that they are acceptable?
I was asked today why so often one has to connect flights between two gates so far apart at most airports. To me, the answer seemed simple until I realized that, to the average passenger, it probably seems intentionally capricious.
It isn’t. Our airports are old and even if they’ve been renovated over time, most were renovated and/or re-planned prior to September 11, 2001. Almost all of our major airports were designed and built in an era when there was little perceived risk of danger, attacks or other mayhem. They were also designed predominantly in an era when hub flying was, quite literally, non-existent. Even the most recent modern airport built, DIA or Denver, was designed at the cusp of hub to hub flying and built as hub to hub flying developed. It was designed a little bit to accomodate this but not a lot.
Being built or renovated prior to September 11th 2001 means that little consideration was given to the need for accomodating large groups of people for security. Overnight we went from short and timely waits through security to egregiously long waits in security. Yes, over time, we have improved those waits considerably but the bottlenecks still exist and they will continue to exist until we rebuild to accomodate their flow.
That means that when you are connecting at many major airports, you have to exit one terminal and re-enter through security to get into another terminal. It exacerbates the time to connect between gates and seems almost malicious in its design. Some airports have lessened the impact of this by building connectors between terminals, some haven’t. Some have the funds for re-designing flow between terminals, most don’t.
The real problem is the hub to hub flying. For the majority of flyers, we know that they will now connect through at least one airport to get to their destination. It will be rare that the flight they’re on will merely stop and continue on to their destination. At least on legacy airlines. Most airports were planned, designed and built in an era where such flying just didn’t exist. Almost every one of our major airports in this country was built in the pre-deregulation era and have since experienced so much growth and encroachment, they lack the room to reconfigure in many cases (Think JFK or Chicago O’Hare airports.)
It was rare in the pre-deregulation era to ever “connect” through a city. Connections were “line” connections or you were interlining between two airlines. There were far fewer flights (frequency) between destinations as well. It didn’t seem reasonable to accomodate connections when they were only possible in many cities once or twice a day.
Then came hub flying pioneered by TWA and built upon by Braniff, American Airlines, Eastern and Delta. These airlines built fortress strength in cities such as St. Louis, Kansas City, Dallas, Atlanta, Miami and Chicago. Consider this: the most modern airport in that group is Dallas and it dates back to the early 1970’s. It predates hub flying altogether.
DFW airport is a prime example of an airport built perfectly . . . for point to point flying. Conceived as an airport capable of hosting as many as 6 massive terminals with as many as 20+ gates each, this airport was built for an airline to dominate a terminal each. That lasted for just a few years, too. Braniff had 2W, American had 2E, Delta had 4E and other airlines “shared” 3E. If any of those airlines “shared” their terminals, it was with one or two minor international partners. For instance, Braniff accomodated Mexicana in those days but we are literally talking about 1 flight a day.
A people moving system was built (and it never did its job properly and only very recently in the last few years got replaced) for the occasional “connecting” people but it wasn’t presumed to be something that was built to accomodate high numbers of passengers connecting between gates, airlines or terminals.
Today, DFW is hub to one airline who is spread across 4 terminals. American Airlines holds the gates in three entire terminals and in part of the newest international terminal. They do attempt to rationalize some of their services by having the “commuter” flights from DFW to cities such as Chicago, LA and New York depart and arrive regularly in the same place. However, it is impossible for them to design a system that allows connecting passengers some assurance of being able to only have to walk or transports themselves to a nearby gate. The design of the airport doesn’t allow it and it really can’t even be reconfigured or redesigned to do it.
The next best solution is an “airside” people moving system. It’s called SkyLink and it connects people on the “secure” side of terminals. It now takes just 9 minutes to go between the two farthest points (a trip that on the old Airtran system took as long as 30 minutes) and its trains run every 2 minutes. It’s a sensible solution. The problem is, most people remain completely unaware of the system. In the last 2 or 3 times I’ve been there, I’ve been asked at least once where the old Airtrans train went (the old stations are gutted and most you cannot enter anymore.) Airports could do a great deal more communicating how to get from point A to point B at their airports.
Detroit is a great example of that. In 2007, at the NW terminal, I never could really figure out how their people movers worked. Actually, let’s say it seemed like more work to figure it out than it was to just walk. So I walked. Communicating how to travel within an airport is the problem in many cases and airports are pretty stingy with providing human resources or maps or interactive guides on how to accomplish it.
We do need better and newer airports in the future. We need better terminal designs and we need better traffic flows between terminals. Unfortunately, I honestly don’t think this will take place in most cities for another 40 or 50 years. Maybe more. I’m serious. Most airports are encroached upon on all sides by urban development. They don’t have room to build a new terminal system and that means building a new airport at a new location. Consider that that hasn’t been successfully done since Denver was “transitioned” 15 years ago and there are no real plans for such a thing to happen in another city at the present. Airports can take decades to plan, design and build.
It will happen but it probably won’t happen until I’m literally a very elderly man.
Airtran pilots overwhelmingly voted to authorize their leadership to call a strike yesterday. More than 96% of eligible voters made that decision and there is a picket line at the Pfister Hotel in Milwaukee, WI where Airtran is holding its annual shareholder’s meeting.
The pilot contract became amendable in 2005 and pilots have been negotiating since then for better pay, healthcare and other things. Their goal is to be paid on par with Alaska Airlines’ pilots, an airline of similar size.
While a strike would still be many months away, this is the last thing Airtran needs and, frankly, I’m a bit suprised to learn that negotiations have been going on that long. Which leads me to the belief that we have a broken union system among airlines under the Railway Labor Act. I don’t believe negotiations should simply take a few months and I do believe they could take as much as 2 years. However, 5 years is too long.
Contracts don’t “expire” for airline unions. They become amendable after a certain time. That means that airlines cannot abritrarily impose terms on unions after a contract expires. That does strike me as fair. However, it also means that airline management has a vested interest in drawing out these talks as long as possible. A dollar paid tomorrow costs less than a dollar paid today.
Both parties should have a economic incentive to see these negotiations completed in a reasonable time limit. I do think that 2 years is enough and I wonder if we should amend the law that requires binding arbitration after 2 years of negotiations. Mandate that arbitration must deliver a decision within 6 months after that 2 year limit. Why? Because neither the airlines nor the unions really want binding arbitration. It results in contracts that no one is particularly happy about and that means an incentive to engage in meaninful negotiations in a timely manner.
Airlines should already have an incentive to see these negotiations concluded. When these negotiations last for that long, both sides become “hardened” into their positions and that only raises risk for the airline. Once that airlines’ risk goes up, it often affects its stock price. Strikes affect revenues in a bad way and bad labor relations affect revenues in a bad way.
However, when it comes to pilots, it is time to re-orient these contracts away from total compensation. It would be better to find ways to encourage new hiring and better quality of life over a numerically higher compensation rate. If an airline can grow and hire, that only means success for everyone involved. Achieving better quality of life in these jobs would lead to happier, more productive pilots who want to work instead of engage in conflicts over compensation. Happier, more productive pilots mean a better chance for success as an airline.
The union for British Airways’ cabin crew, Unite, has produced this video to argue their case in the public. While emotional appeals have little value to me, I will say that I think that US unions could take a cue from this video in their approach. This video (titled Brutish Airways) is more “real” yet subtle and I think something like this would work very well in the United States.
In a story on Money Magazine’s website HERE, we find out that airlines wouldn’t mind seeing more regulation.
More regulation of derivatives trading in the oil markets that is. Most airlines buy and sell futures in the markets to offset the costs of their fuel. That is, in order to stabilize their costs in fuel, they trade in fuel futures to make their costs more predictable. For more info, you can read these posts HERE and HERE.
One thing that has hurt airlines over the past 3 years is how volatile the oil markets have been. Wild swings in prices have occured because traders are “betting” on the prices being really high or really low. Because the capital in the markets has few places to be used right now, that capital is attracted to things that are more “sure bets” like oil. The truth is, oil will not collapse like mortgage derivatives did. There has been more and more speculation in oil because there are fewer and fewer places to speculate.
Airlines have resented this because it made what was a very sensible thing for them to do a very volatile thing for them to do. It’s brought less control to their equation now. And they would like to see that changed with a bit more regulation involved in the trading of derivatives.
Trading in derivatives is a complex business that very few people can engage in reliably. Lots of people think they get it and they really don’t. I have a degree in economics and finance and the most I would profess to knowing is the basic structure of that kind of trading. Airlines have pretty good traders but they don’t trade in oil or jet fuel. They trade in derivatives based on fuel oil which tracks closely to the pump price of jet fuel.
What can they do? They can either find another commodity to hedge with that tracks closely to the price of their fuel in a stable manner or they can wait for capital to seek profits elsewhere. The latter is probably not going to happen for some time.
Should there be better regulation in derivatives trading? Yes, there certainly should be more transparency in the transactions. People are now trading in the oil markets to simply make money rather than ever take delivery of an oil future. We don’t know their needs, liquidity or who they’re answerable to when these trades are going on. It would probably be more appropriate for this to be more exposed in the marketplace. Why? Because people won’t take “bets” from sketchy or insolvent entities. Just like a bookie won’t take a bet from someone who doesn’t have the cash to back it up.
Welcome to the re-launch of the FlyingColors blog. You may see things change still a bit more as I’m still tweaking it but I hope you enjoy it as before and, perhaps, find it a bit more readable.
Ordinarily I don’t like to speak on tragedies in the airline world. CNN has this STORY on a woman who, in 1971, survived a fall of more than 2 miles from an disintegrating airliner (Lockheed turbo-prop) into the Amazon jungle. She survived and then managed to make her way through the jungle for 10 days until she found help. It is an an impressive feat.
One very noticeable development with the announced United Airlines / Continental Airlines merger is that 2 of the 3 major airline alliances (SkyTeam, Star Alliance and Oneworld) now have Super-Legacy airlines participating in it. SkyTeam has Air France/KLM and Delta (Delta/Northwest). Star Alliance will have United/Continental and, so far, will continue to have US Airways in the US market.
Oneworld has American Airlines. A lone airline ever increasingly burdened with debt and who shows little sign of recovering in a market that several airlines have shown improvement in. Oneworld has the fewest airline partners although it arguably maintains global coverage. I see some opportunity for a few of its partners, too.
QANTAS has long had ties to both British Airways and American Airlines but I wonder if they aren’t looking around and realizing that there may be better opportunities with Star or SkyTeam. They compete with British Airways on many international routes so I wonder how much love they feel on that side. It’s true that AA provides them with lots of feed in the US but several other partners could do the same in the same cities. In fact, I suspect SkyTeam would love to have them on board. United (Star) already flies US/Australia routes. In addition, Air New Zealand is a Star member and doing nicely on trans-pacific routes too.
Oneworld doesn’t directly access Canada and has mediocre ties to Africa (via European partners) and Latin America is perhaps a bit underserved in that LAN is the only partner there and their concentration is on the west coast of South America. The Far East remains well served by Cathay and JAL but India is conspicuously missing. That’s a country of 1 billion (with a “B”) people. You would think that having a regional partner in India would be a priority. Southeast Asia is weak as it is basically served with flights to and from that region but not within. There is another 1 billion people located in that region.
There are several European partners but I do notice that there are two primary hubs: London and Madrid. Not the hubs most people want to fly in and out of. London is congested and prone to delays and Madrid is served by Iberia, not an airline with a great reputation. It also doesn’t “feel” like a convenient hub.
What is more noticeable is that the founding partners of Oneworld were mainstay legacy airlines. Airlines that have not seen any revolution to date and who often are burdened with some of the highest costs to operate in their regions.
With the ever growing size of both Star and SkyTeam, I do wonder if there will be any room for Oneworld. Could the Oneworld alliance be absorbed by the other two?
Are airline ticket prices high? That’s a hard question to answer. I suspect it depends on the class of travel and the advance purchase state of your ticket. And a lot of other things. They’re not higher than they were 30 years ago. But even to me, an airline enthusiast, they seem a bit high right now. Or, more accurately, the general airline ticket seems to be of low value to me right now. You don’t get much for what you pay.
When I was searching for some unrelated information on the web recently, I happend to run across an image of a Braniff International Ad from 1980. I hope this LINK works. Notice the airfares listed? Tampa to DFW is $112 one way. Tampa to Seattle is just $159.50 each way.
Those might even strike us as reasonable advance purchase economy fares today. But this was 1980. A dollar was worth quite a bit in those days. A Big Mac hamburger sold for about a dollar in 1980. Today, a Big Mac is considerably over $3.00.
But those airline fares don’t appear to have changed much, do they? Let’s keep in mind that 1980 was a bad year for airlines and a particularly bad year for Braniff. Fares were low (relatively speaking) because deregulation had just occurred and airlines were scrambling for market share. Even at those low prices, not a lot of people were buying. That would come later. However, I’ll also point out that the “value” of an airine ticket in those days was far higher than it is today. You got a meal, free beverages, no bag fees, a comfortable seat pitch and flight attendants who appeared to enjoy their job.
The next time you purchase an airline ticket, think about those prices. Keeping those prices low has meant trimming costs every year. Yes, airline tickets are cheap today Hughes Air. Yes, airlines would love for them to go up a bit. I’m agnostic on the idea that airlines need to earn more money on each ticket. Maybe they do. Or maybe we’ve preserved the airline industry too much by permitting multiple bankruptcies and government cover. If anything, I’m tempted to argue that we need less regulation and more competition in that business than ever before.
