Boeing has announced that it is closing its facility in Wichita, KS in 2013 due to waning projects for that facility.  Work will be transferred to its San Antonio and SEATAC area facilities primarily.  The closure means a loss of more than 2000 jobs and it will hurt many in the Wichita area.

It’s become clear that Boeing realizes that it needs to locate its work in areas that can provide a cost structure that makes them competitive in the world.  Sadly, that means some facilities with militant unions and/or old infrastructure are going to lose to newer sites in “right to work states”. 

What it doesn’t mean is that Boeing believes it can do without the aerospace knowledge it has in Washington State.  Boeing wisely recognizes that it must rely heavily upon workers there for its continued existence.  At least for the next 1 to 2 decades.  That said, I also think that we’ll see Boeing diversify its operations more and more across the United States as well as into other countries.  Local and regional impacts to its production can’t be tolerated nearly as much in the future if Boeing is to remain a viable choice for airlines.

Filed under: Airline News by ajax
No Comments »

2011 wasn’t the worst year for airlines and 2012 won’t be either.  Instead, I think we’ll see more of the same in most respects.

Airlines will continue to constrain their capacity and that will show more discipine than I thought they had 3 years ago.  They’ve proven me wrong and I think the results are too good for them to not to continue over the next 12 months.

Fuel costs will continue to be a difficult thing for airlines to manage.  There will continue to be volatility but I don’t think we’ll see anything like 2008/2009.  The financial crisis in Europe will reduce some demand on oil but I see no real economic growth in any part of the world that will drive demand either.  The truth is that the emerging economies are largely dependent upon demand from both Europe and North America and neither of those economies will see high growth in 2012.

Airlines will continue to make large orders for more fuel efficient narrow body aircraft.  This only makes sense as the gains are more than enough to justify the purchases and now is the time to gain an advantage in bargaining with both Boeing and Airbus.  Furthermore, airlines need to hedge against their labor costs which will only grow over time.

Aircraft manufacturers have a much more sure path for the next 10 years now.  Boeing will be biding its time on improvements to the 777 until it sees more definition of the A350-1000 and it will throw its resources into ramping up 787 production, 787-9 development and 737MAX development.  It’s possible that we’ll see a real 787-10 announcement in 2012 but, if so, probably not until the latter part of the year.

Airbus has to get its act together on the A350 and try very, very hard to prevent too much schedule slip.  Despite its efforts, I think we’ll see more schedule slip and it won’t reveal the entire picture as that unfolds.  While I don’t expect quite the same delay as the 787 saw, it will be a significant delay and it will impact Airbus.  They’ll also try to flog the A380 as much as possible and may even succeed with small orders in parts of the world it hasn’t penetrated much to date.  I do not see any US based orders for the A380.  Furthermore, Airbus made some big promises for the A320NEO and it’s got to work hard to deliver on those.  They’ve made it out like the A320NEO is a no-brainer for development and while it is an incremental improvement, the engineering to deliver is non-trivial.

Bombardier will work its tail off to sell more of the CSeries and I think it may even succeed.  The sweet spot its lineup offers will become more attractive to airlines once they see Bombardier actually perform in the development and test of this aircraft.  The CS100 isn’t the attractive aircraft but its the one that will fly and deliver first.  Once the performance of that aircraft is established, I think we’ll see orders from US and European airlines come in large numbers.

Embraer has got a nice grip on the regional airliner business but it also has a problem in that, right now, there is no growth path into a larger plane for purchasers.  It has plans to work on re-engining the E-Series but I think they’ll concede the need to develop a larger airliner as well.  The Bombardier CSeries presents just a touch too much threat in the future. 

I don’t think we’ll see much from the other regional airliners being developed.  The Mitsubishi MRJ doesn’t feel quite right for airlines to me and doesn’t offer a growth path into a larger airliner.  The orders its racked up so far are fairly paltry and at risk, in my opinion.

The Sukhoi SuperJet, on the other hand, has a real chance, I think.  It’s Westernized, it’s flying and it does feel like its the right size.  The real challenge in this aircraft is ensuring support and with Boeing as a consultant, it may well have some help in that arena.  If it does succeed, that success will begin in Europe as well as for airlines of lesser developed areas such as the Middle East, India and the Far East.   If any orders come from the US, it will be years in the making.

If anything stirs in the US airline industry, I think it will be in the LCC arena and I think it will be small(ish) if anything.  I do not think we’ll see any legacy consolidation despite wishful thinkers for a US Airways / AA merger.  Something like that becomes much more likely in 2013.

I think American Airlines will plod through its bankruptcy in 2012 with a bit of scandal here and there.  I think its labor force is about to take a beating on wages and benefits and I think the resulting bitterness will last for years.   I also think that United and Delta will be growing a bit more concerned about AA late in 2012 once they have a picture of what AA’s cost structures are likely to be.

2011 was largely a “rebuilding” year for the airline industry.  2012 will be largely so as well.  Until the world economies recover, the best the industry can hope to do is manage its problems and earn a bit of money.  That’s eminently possible for them to do.

Filed under: Airline News by ajax
No Comments »

World Alliances

I’m not sure we’ll see much in this territory for SkyTeam or Star Alliance.  They’ll continue to succeed and be smart in their attempts to gain more dominance in more parts of the world.  I think Oneworld is going to be smarting through this next year as a function of health problems at founding members American Airlines and QANTAS.  I also think that gaining the LATAM membership is not nearly as “sure” as they think it is. 

The Middle East

After ordering an insane amount of widebodies in 2011, Emirates will order another insane amount of widebody aircraft and beat up on Boeing about its 747-8i.  This has begun to feel like an addiction problem.

India

The airline industry in India has imploded and we’re just watching the mushroom cloud of debris settle.  For 2012, more explosions and more governmental heads will push even deeper into the sand.   Air India has already become the new Alitalia.

The Far East

Chinese airlines will order more aircraft and I expect we’ll see orders from them for 777s and A380s and possibly some A350s.  Not unlike 2011.  I don’t think we’ll hear about any stunning orders from that part of the world, however. 

China will tout its COMAC C919 even harder and most of us will try desperately to keep from laughing even harder.  Ryanair will back away from this aircraft quietly, I think. 

Japan will find ANA deploying more and more 787s on more and more routes with more and more success with that aircraft.  JAL will take delivery of its 787s and find that they not only work well for JALs needs but actually exceed expectations.  I think we’ll see an order for some more Boeing aircraft from JAL this year and I think it will be the 737MAX and 777-300ER.  No huge numbers but large enough to make a splash.

South America

LATAM got its approval from Brazilian and Chilean authorities (barely) and LATAM will begin consolidating its operations to make more money.  I think we’ll see a largish order from LATAM and it will be for an airliner to replace aircraft on both the Brazilian and Chilean side of the airline.   The aircraft of choice will be, I think, the Airbus A320NEO and I think they’ll bump up orders for the 787 and 777 as well.   TAM has 27 A350-900s ordered and I think that order *might* be at risk.  The strategy of using Airbus for narrow bodies and Boeing for wide bodies seems to be a smart one for airlines in that region.

I don’t think we’ll see more consolidation in South America but I do see South America becoming a bit of a battle ground between airline alliances.  Most see LATAM going with Oneworld and while I can’t disagree with the arguments, I think that SkyTeam and/or Star Alliance might just swoop in with one hell of a package that may be too hard to resist.  If this happens, Oneworld and American Airlines gets kicked in the groin in South America.

Aerolineas Argentinas?  The Alitalia of South America in 2011 and the same in 2012.  Enough said.

Europe:

British Airways managed to get through 2011 without any huge problems and saw Willie Walsh move up to the CEO position of International Airlines Group which means Willie’s still in charge.  Iberia, British Airways’ sister airline, saw Willie stirring things up with plans for a LCC subsidiary.  Iberia pilots decided to strike because shooting onself in the foot can’t be just an Indian thing.   IAG also managed to get a tentative deal to buy BMI from Lufthansa and become the Emperor of slots at London Heathrow . . . maybe.

Virgin Atlantic didn’t die, didn’t find new partners and didn’t extricate itself from the chokehold that Singapore Airlines has on it.  Richard Branson actually didn’t make the news very often except to shout, stamp his feet and act insulted that Virgin Atlantic wasn’t able to do a deal to win BMI.  Expect Virgin Atlantic aircraft to start carrying some message against the IAG deal for BMI.  I actually think that Virgin Atlantic will have to find an airline alliance to join and if I’m right, I would lay very heavy odds on it being the Star Alliance. 

Lufthansa did itself a favor and got rid of BMI and I expect they’ll continue their very conservative mangement of the airline and the subsidiary airlines.  I do wonder how much longer Lufthansa can rely upon its A340 aircraft and somewhat expect Lufthansa to bite the bullet and buy the 777.

KLM/Air France:  I see nothing here at all.  Not in 2012.  I don’t expect a large widebody order nor a narrowbody order. 

I do expect Ryanair to make an order and I do think it will be the 737MAX.  In fact, I think it may well end up being the 737MAX-9 instead of the 737MAX-8.  Instead of repudiating the C919, Michael O’Leary will just quit talking about it.  Instead, he’ll suggest stripper poles could be installed on Ryanair aircraft. 

All in all, I think it will be a tough year for European airlines.  The financial crisis on that continent will make it very hard to earn an honest profit and Middle Eastern airlines will continue to erode the long haul traffic that European airlines have enjoyed for decades.

Tomorrow, a summary of what I see for 2012 and the world airline industry.

Filed under: Airline News by ajax
2 Comments »

Over the past 12 months, FlyingColors has doubled its readership and has seen nearly 1000 blog entries reached with enough words written to equal a book with over 1700 pages.  But enough about me, let’s look at the last year in the airline world.

North America:

Southwest Airlines did its deal with Airtran and bought itself an Atlanta base of operations and some very valuable landing slots at Northeastern airports.  As if that wasn’t enough, it made a firm deal on a bunch of 737MAX aircraft and agreed to take on even more 737-800 aircraft for its routes.  However, the airline wasn’t without some trouble:  Airtran pilots tried real hard to step on their on feet in a seniority deal with Southwest Airline pilots.

American Airlines struggled (more) and lost more than a Billion dollars (again).  Instead of making any real progress with its labor force, it decided to file bankruptcy but not before having made a historic order for aircraft from both Airbus and Boeing for the A320 and 737 series aircraft (with both A320, A320NEO, 737 and 737MAX in the mix).  2011 also saw long term CEO Gerard Arpey depart the company (to work with former Continental CEO Larry Kellner) and AA President Tom Horton took over.

Virgin America has horned in on American’s routes, Frontier has struggled more and more under Republic Airways leadership and US Airways still doesn’t have pilots or flight attendants integrated onto one seniority list.  JetBlue decided to fly more to the Caribbean, entrench itself even more at JFK airport and blew it during an October snowstorm (again).    United and Delta made money.  Quite a bit actually.

I think we’ll see Frontier either spun off rapidly in 2012 or the rapid decline of the airline necessitating bankruptcy of Republic Airways.  I don’t see a real strong suitor for Frontier except, perhaps, JetBlue but since Frontier isn’t based at JFK airport, I do wonder at JetBlue interest in an airline like Frontier.

I think we’ll see Alaska Airlines find even more odd partners for its success and still manage to cozy up close to Delta while doing it.  Southwest will start painting Airtran aircraft in its colors and operating even more great deals to more places from Atlanta but I also think that if any slots at JFK, LGA, EWR, IAD or DCA come available for purchase, Southwest will bid the cost of a Boeing and lose again.

I think it’s possible that Virgin America will make money in 2012 and I think it is really possible that we’ll all be pleasantly surprised by that.  The determining factor?  Cost of fuel. 

United will order a nice chunk of aircraft and I’ll bet that it will be an order similar in mix to the American Airlines order from both Airbus and Boeing.  However, I do not think it will be similar in size.  I think it will be a partial fleet replacement with lots of options for incremental change in the fleet.

I think Delta will continue to make a big pile of money with very little controversy surrounding it except that I think Delta will look for and execute a plan to encroach on more Legacy and SuperLegacy airline routes as it has announced its intention to do so from La Guardia Airport.   I also think that Delta will decide its not afraid of Southwest and it will decide to give Southwest a taste of bullying it hasn’t experienced before.   Particularly in Atlanta.  It’s not just an opportunity for Southwest to succeed in Atlanta but it is also an opportunity for Delta to capture lost customers.

I think we’ll see capacity restraint for another year and higher air fares than seen in a long, long time.  I do not expect to see another new airline show up and I think we may well see one true LCC depart the picture if things get particularly rough with respect to fuel prices or competition.  Milwaukee will become the regional airport it was intended to be instead of a bloody battleground between LCC airlines.

Tomorrow:  The rest of the world

Filed under: Airline News by ajax
No Comments »

I am somewhat stunned at the lack of nominations for choices of Airline of the Year.  That said, I did manage to spend quite a bit of time thinking about the subject.

Domestic airline of the year isn’t hard and withour further ado, I name:

American Airlines

Believe it or not, it was a touch call.  I did consider Southwest Airlines as well for the obvious reasons of its own moves throughout 2011.  However, I think that American Airlines was more consistently in the news for both good and bad reasons.  The airline spent 2011 managing its problems, announcing poor financial results, trying to come to agreements with its labor groups (and sometimes failing), buying a new fleet from both Boeing and Airbus and, finally, announcing its bankruptcy.   Southwest Airlines was in the news quite a bit as well but more inconsistently overall.

For International Airline of the Year, it was harder.  A number of airlines made heavy news at one point or another.  Most recently, QANTAS had quite a thundercloud around it with its shutout of labor.   Lion Air made noise with its Boeing 737MAX purchase committment as well.  LAN and TAM airlines were prominent as a function of their tortured merger needing approval in 2 different South American countries. 

 But there is one airline who did make more noise as a function of its creation and how its managed its brands.  For International Airline of the Year, I name:

International Airlines Group (IAG), operator of the British Airways and Iberia .

IAG is perceived as an airline holding company but it really isn’t operating like that and for proof look no further to Willie Walsh and his prominence in answering Iberia’s labor problems late in the year.  They are two brands that will operate and are already operating quite closely together.  They’ll harmonize more over time but IAG is “the airline”. 

In addition to operating as an airline in 2011, Willie Walsh’s prominence on issues regarding both brands and aircraft purchases, IAG also managed to snatch the purchase of BMI right out from under Virgin Atlantic (though the deal still has to be approved in the European Union.)

Over the next many days, I’ll be doing my traditional year in review for 2011 on what has happened and what will happen with airlines in 2012.

Filed under: Airline News by ajax
1 Comment »