It’s funny, some people think Southwest showed some LUV for the Airtran 717 fleet when the merger was announced between the two companies. In fact, Gary Kelly simply said that, at that moment, the 717 was intriguing to SWA and certainly not a harmful aircraft to Southwest’s fleet plans overall.
After the merger, Gary Kelly started talking about how they don’t fit and they don’t want them.
The 717 is a good aircraft and it would fit some of Southwest’s flying quite nicely but . . . it would complicate scheduling and I think that’s what Mr. Kelly doesn’t want. If Southwest has a 737-700 go technical at an airport, it’s not a problem to drag another 737-500/700/800 up to the gate and hand it over to the pilots and flight crew to use for their needs. You can’t drag a 717 up to the gate and hand it over to the same pilots.
I think the 717 is leaving and I think it will be gone in 2 to 2 1/2 years. Holly Hegeman of Plane Business says they are going to Delta and its a done deal. I say they’re leaving and they’ll find homes somewhere. Boeing Capital if nowhere else. Delta probably could and would be interested in them as they are cheap and fit a seat count that Delta had and no longer has in its mainline fleet. (DC-9-30/40/50 aircraft are leaving the fleet)
The real shame, in my opinion, is that the 717-200 wasn’t expanded into a longer range 717-300/300ER aircraft. I think that would have breathed real life into that airframe and I think it wouldn’t have hurt the 737 line at all. But it became an orphan and, as such, it became unattractive to most airlines. That said, it will remain in the world for at least another decade if not more and it’s got some highly efficient engines that justify its purchase when combined with the used market price for a 717.
One comment from travelers that constantly defeats my imagination is the comment about an experience on an airline that was terrible and that they therefore will never travel that airline again. I inevitably ask when this experience occurred and I inevitably find out it was 10 or more years ago. In one case, a woman I met admitted she stopped flying Continental as a result of such a bad experience back in 1993. She said so in 2010.
Airlines change. In the case of the Continental Woman, had she tried Continental just 3 years later, she would have been pleasantly surprised. Furthermore, stories of bad experiences become anecdotal folklore out there and particularly so over the past 10 years. The world wide web and social media have not only spread anecdotal stories but have encouraged them to flower and provided them with staying power that would have been unimaginable in the 1990s.
You can’t judge an airline based on a single experience. In fact, I would argue that you have to try the airline at least 3 times to start making a judgement. Things happen on every airline.
You also can’t judge an airline entirely on experiences based in one hub. I find American Airlines flight attendants to be old, surly and unpleasant out of DFW but I also know that they’re much better out of New York City bases. The hub has an effect. One can expect a higher number of problems from hubs such as Atlanta, Chicago or New York City than one can from hubs in Denver, DFW or Salt Lake City.
But even if you have had a few bad experiences on an airline, if its been 10 years, you’re experiences are likely out of date and you’re hurting yourself. I myself expended a lot of effort to not fly US Airways (America West) as recently as 2008. It’s 4 years later and I would heartily recommend them to travelers at this point. In fact, I would strongly recommend them over airlines such as American Airlines and Delta. Your chances of a good experience would be higher on US Airways.
Airlines change over time and its worth looking around for current comments before ruling them out as a choice. You may not only save money but experience less impact to your schedule and arrive in a happier state of mind.
A JetBlue Captain began acting erratically on a flight from New York City to Las Vegas. When the captain left the cockpit, the co-pilot locked the door and passengers ultimately restrained the man. The captain began speaking about threats from Afghanistan, Iraq and other places. No doubt he’s suffering from a break and there is nothing funny about that.
The worst part? The aircraft diverted to Amarillo.
I’m pretty sure there were no convenient JetBlue aircraft in the area to fly out there and take over.
It’s notable that not a single analyst, commentator, blogger, newsman or businessman really is enamored of American Airlines’ plan for improving revenue. The plan, at the top level, is: Farm out more flying, try harder at our embattled hubs, rely on our Oneworld relationship.
What is continually pointed out is that working harder and doing more isn’t a plan. Relying on partner international airlines to provide feed isn’t very solid and where it has been deployed as a strategy, it hasn’t yielded the projected results. There are few new partnerships American can engage in at this point as well. They’ve done that work already.
American Airlines has a real problem in several of its hubs. JFK aka New York City is under assault by Delta and United and American is losing more and more traffic there. LAX really isn’t a hub and it too is under lots of competitive pressure. In Chicago, American is #2 against United at O’Hare airport and it is seeing its traffic decline there, too. Southwest is nipping at American from the bottom side by deploying routes out of Midway Airport that offer a real alternative to the businessman traveling to or from Chicago.
Yes, they have Dallas / Fort Worth. American is, by far, the dominant airline at DFW airport and it shows in the fares offered from DFW today. However, other airlines (Virgin America, JetBlue) smell blood and are entering the market place with a service product that is highly attractive to businessmen. Southwest Airlines will slip its leash at Love Field in about 2 years and then American really feels pressure from Southwest at two of its hubs. It’s also the hub with the most expenses. Labor is senior at that hub and recalcitrant at best. You can’t expect American Airlines to maintain its dominance there either. It will remain the major airline there but its share of the marketplace can be expected to decline rapidly over the next 2 years and then its routes will be under assault from all directions.
There is a reason why Delta put a large parcel of flights on the DFW-La Guardia route. They can compete on that route and American is limited in how it can respond. Creditors won’t be amused at American Airlines losing money on those routes to fight off competition.
American has other things against it as well. Its IT system is aging. Its service product is substandard even to LCC carriers. It’s fleet is old and while it will be renewed, much of that renewal doesn’t take place for several years yet. Its website is atrocious and can’t even let a person pre-pay a checked baggage online if a customer so desires. There is no ancillary revenue strategy (there are ancillary revenue products in place but no strategy to truly win passengers.) It’s an airline that, today, is designed to offend passengers and no one is talking about how that gets fixed.
That’s the reason everyone continues to contemplate a US Airways / American Airlines merger. The US Airways team has done all that despite being hamstrung with labor woes and inferior hubs. They know how to make it work and the competitive landscape makes American Airlines hubs in certain areas look much more attractive when someone else is running the game.
I think we’ll start to hear real talk of mergers with US Airways in about 2 months. It won’t take long for creditors to lose their patience at this point.
The relationships that American Airlines has with its unions has been pretty bad for quite some time. This really all kicked off with executive bonuses that were perceived to be out of line with airline performance both financially and operationally. What’s worse, unions weren’t rewarded when executives were and the criteria for reward was fuzzy at best.
The relationships have only gotten worse over time. In fact, I would attribute the rather militant direction of leadership for its flight attendants union, APFA, has been a direct result of American Airlines inability to establish any kind of rapport with that union in particular.
In short, there is no trust between the parties at all. It’s gone and it doesn’t appear that executive leadership wants to improve those relationships. The truth is that the executive team probably correctly realizes that that can’t be done in time to get the cost reductions it needs. So why try to make friends right now? It’s not an incorrect judgement.
These relationships are going to stink for a long, long time. The courts will impose new terms and those terms will likely be oriented more towards productivity than just a reduction in pay. American could get all it wants in the form of lower pay but the airline needs contracts that allow productivity to improve in order to be truly competitive with other national airlines in the United States. Other airlines have that (as a function of bankruptcy) and they don’t.
The exceptional shame of this all is that the unions won’t have much voice in the process. They’re not well funded (in comparison to American Airlines) and any giveback at this point means almost certain loss of office for leadership of these unions.
American needs action now so it can maintain some control over its destiny. Actually, it’s American Airlines executives who need action now to maintain some control over their destiny. Failure to get cost reductions and enumerate a plan for revenue growth will result in a merger or a change in leadership. The executive team has months, not year, to ensure their future.
The unions will fight. They will argue loudly on behalf of their membership. But there isn’t much to win here in court or out of court. There is plenty of established law and precedent that says they will see reductions pay and changes in work rules that will allow American Airlines to sit roughly on par with its main competitors.
And the relationships are so bad now, there isn’t any reason to just go to court and get it done. One way or another, there will be bad blood between management and unions and the sooner this is done, the sooner management can think about ways to repair the relationship in the future.
Customer service rankings of airlines are very interesting to me these days because it is the LCC carriers such as Southwest Airlines, JetBlue and Virgin America who are doing very well in these. There was a time when legacy airlines such as American Airlines, United Airlines, Delta Airlines, etc would be the ones to garner high rankings and largely because they were regarded as full service airlines.
Before I go further, let’s just toss out first/business class experiences. They are typically quite good no matter what airline you are on and it isn’t worth doing too much comparison. The truth is, if you’re flying in first or business class on most any airline, you’re going to be well taken care of.
Economy class is where the differentiation takes place. Legacy airlines have dumbed down their service so much over the past 4 years that few customers see real value in flying on these airlines. The typical customer flying mainline service from one of these airlines can expect a cramped seat on an older aircraft on a flight whose departure and arrival are far more dependent upon a hub system that can have immediate ripple effects when there are problems at a hub. In addition, that customer can expect to pay for checking baggage and even privileges such as a well placed seat or softdrink. Best (or worst) of all: the consumer can expect a less than friendly experience from service staff and that extends from the front door of the airport to the back of the aircraft.
That isn’t the experience on most LCC carriers. To the contrary, a passenger can generally expect to *not* pay for checking a bag, not pay for a non-alcoholic drink, not pay for a snack and even not pay for changing a ticket (Southwest). The aircraft are far newer and frequently have onboard entertainment available for purchase and WiFi for a small service fee. The service staff tend to be friendlier from front of airport to back of aircraft and the fee structures that do exist don’t generally come off as someone nickel & diming the passenger.
In short, the LCC carriers are generally offering far greater value for the price of an air fare than the legacy airlines are.
The truth is that LCC carriers aren’t really low cost anymore in terms of sheer price. In fact, it’s been noted that LCC fares are ranging far higher than once before and often they let the legacy carriers set the price in markets. Where the LCC carriers are winning is in the value delivered: few or no fees, better service, more comfortable aircraft, etc.
Ironically, this is how airlines differentiated themselves until the late 1970s. Then, airlines didn’t get to differentiate on price because fares were set by regulatory authorities. Instead, they could differentiate on schedule and service and they certainly did so. People often flew those airlines based on the kind of service they enjoyed. A TWA passenger wasn’t typically a Braniff passenger. An American Airlines passenger wasn’t typically a Pan Am passenger.
That’s happening again. A Southwest passenger tends to not be a JetBlue or Virgin America passenger and vice versa. The differentiation is on service. Southwest passengers tend to like the reliable, consistent and fast service. JetBlue passengers enjoy the amenities vs price. Virgin America passengers like the full service approach versus legacy airlines.
If you believe that your experiences on legacy carriers has been lacking, I couldn’t shout loud enough in favor of going to the LCC carriers for your needs. The service experiences are far superior (in general) and for the same or lower price. Each has their own loyalty programs that are as generous as anyone else’s as well.
This is an area where Virgin America does very well. They are entering traditional route markets and competing on service for the business traveler successfully. Their schedules are well suited to those travelers, their service product is superior and their prices are vastly more reasonable on those same routes.
And that’s the way it will continue to trend. Legacy carriers who’ve even got their act together are still competing largely on price alone and while that works to a degree, it doesn’t work well over the long term. To a degree, this is being answered with Economy Plus seating on these flights but those service options largely make it possible for the airlines to offer the frequent flier an “upgrade” that isn’t what an upgrade used to be. If it was intended as a real service upgrade of value, the pricing for that seating would be far more competitive than it is.
LCC carriers will continue in this path because they have a sustainable service model and a business model that allows the airline to earn the profits necessary to be sustainable as an airline. They haven’t lost sight of the fact that service with a smile wins customers and keeps them.
The global airlines of the Middle East such as Etihad, Emirates and Qatar have been the focus of a lot of attention for the past several years. Primarily because of their massive orders for aircraft and the size of the aircraft ordered. Anticipated double digit growth that is implied in these orders as well as the competition that legacy airlines from the US, Europe and even Asia are experiencing has brought real competitive concerns to the discussion of the global airline industry.
Bill Swelbar writes about some of these competitive issues in a blog entry of his HERE.
The Swelbar blog is a great read for me because it looks at our industry with more objectivity than one often finds among airline blogs including my own. His analysis of the evolving nature of competition and the next direction it appears to be taking particularly with respect to Etihad, Emirates and Qatar is dead on. I do, however, think that rather than accept the competitive world, many governments will seek to protect their airline industries from this competition for far longer than might be suggested by Swelbar.
The inevitability of change is almost certainly true. The pace of that change is what I question. I also question the outcomes of that change.
Governments, even the US government, get fairly protective of airline industries because they serve not just a business need but a strategic need as well. Airlines based in those countries and which must answer to those governments are viewed as necessary. Those governments do not want a foreign owned domestic airline saying “no” to them in times of strategic needs. Whether or not this is practical or even necessary anymore is another question. I would actually argue that it is somewhat necessary but it could also be accomodated with new laws or even through the use of existing laws and still permit foreign ownership of airlines.
I also think that legacy airlines may be underestimated. New airliners are going to make these airlines more competitive and allow them to offer more point to point services that remove the need for the interim hub connection to travel ultra long distances. We’re already seeing this occur with the 777, 787 and A380. Next generation 777s will strip away that need even more. And as services go to a more “point to point” model, I think we’ll see less demand for the A380 over the next 10 years rather than more. Sadly, I don’t think the 747-8i fits very well into this picture. More to the point, a 777-9x likely fills the 747 role better than even the latest model.
I also think that legacy airlines are, to a point, “getting it” when it comes to creating a business that is sustainable. The capacity restraint shown over the past 4 years alone has been remarkable in the US airline industry and all airlines show no sign of losing that discipline. This business seems to have finally understood the need for sustainability and profitability.
The one factor that, in my opinion, continues to be the wild card is the expectations of the financial markets on these airlines. Airlines have an exceptionally bad reputation as an investment and those markets look for profits every quarter. The nature of the airline business and the impact that the global markets can have on its profitability cause me to believe that airline profitability should, perhaps, be measured over a period of 3 years rather than a single financial quarter.
If in any 3 years an airline can demonstrate a profit, I would argue it is a healthy business.
I say this because I was struck by how much news it made when Southwest Airlines’ CFO predicted a loss for the 1st quarter of 2012 for that airline. Once again, pundits immediately began speculating on whether or not Southwest was a sustainable airline anymore. We’re talking about an airline that has had decades of annual profits in an industry where that is essentially unheard of. A bad quarter does not make a bad airline.
I think that airlines such as Emirates, Qatar and Etihad may be driving the markets and competitive threat but I also think they may well influence world legacy airlines to get their acts in order even more. It’s quite likely that we’ll see a few of those airlines fail. It’s even more likely that we’ll see the bulk of them re-tool, evolve and compete successfully. That’s good for the industry and that’s good for the consumer.
American Airlines has fired flight attendant Gailen David for his satirical videos about his company. David has worked for American Airlines for 25 years. American says that David was fired for his website being against the company interest and not the videos. The APFA has said it will file a termination grievance on David’s behalf and has expressed their support for him.
Gailen David operates the website The Sky Steward and I’ve often heard him on the podcast, The Crew Lounge. He’s fairly witty and offers excellent advice to travelers.
There is no doubt that his satire is difficult to face in light of American’s present situation. It’s tough for managers and it’s tough for the company. Is it harm? Actually, I think not. Satire has the effect of causing people to see genuine issues that mere introspection doesn’t reveal. That discomfort felt is better resolved by solving the problems rather than attacking the mirror that reveals them.
Gailen, you have the support of this blog and I hope you win your job back if you so choose.
United Airlines performed its cut-over to the Continental based IT systems for reservations and frequent flier programs nearly 2 weeks ago. By all accounts, this was probably about as smooth as it could have gone for merging two legacy airline systems. That doesn’t mean there were no problems, it means it was better than most. There was problems, some complaints and some frequent fliers saw accounts with incorrect mileage and other passengers found it difficult to get their seat assignments.
At present, there are a few who are still experiencing problems and United is still responding to larger than normal call volumes but here is the good news: flights are flying and people are getting on those flights and arriving at their destinations. There are issues that remain to be fixed.
There are, however, quite a vocal minority complaining loudly and I see media picking up on this and describing United’s transition as being far worse than any real appearance gives. In USA Today’s Today in the Sky Blog, we see customer’s such as ultra elite frequent fliers making complaints about United (not Continental) agents being unfamiliar with Continental’s SHARES system still or having trouble making a seat assignment at a kiosk. There are others from frequent flier enthusiast websites complaining that United changed the miles accrued for routes. How much did they change? In most cases by less than 20 miles.
I have message for those people: Grow up and act like adults.
If someone is missing a flight due to incompetence or is unable to book a frequent flier award due to incompetence, I’m willing to hear your complaint. If something is taking you 500% longer to accomplish than previously, I might even be willing to listen. But, seriously, do we really want to be complaining about whether or not a gate agent knows the SHARES system completely yet? Do you really want to moan about the fact that San Francisco-Hong Kong flight went from accruing 6921 miles to 6909 miles? That’s a difference of 12 route miles or 0.17% change in mileage. Not 17 percent but 0.17 percent.
Complaints like that give credence to my belief that the customer is absolutely NOT always right. A principle that I will point out is in violent agreement with a former industry leader named Gordon Bethune.
The Irish government has long threatened to sell its stake in Aer Lingus which is currently at 25.1%. In fact, that intention seems to get announced annually while no action is really taken on the part of the government to actually engage in the sale.
A number of airlines have expressed at least some interest in acquiring the stake although those same airlines also express concern about the pension obligations that Aer Lingus has presently. Most would prefer to see the Irish government get those obligations settled before a sale takes place in order to avoid the risk that the airline may be financially impacted by them sooner than later.
Airlines such as Ryanair, who already owns 29.4% of Aer Lingus, as well as Qatar, Etihad and even JetBlue appear to have expressed strong interest in the airline stake. I regard Ryanair as a very unlikely candidate simply because I think the Irish government has no desire to see the two airlines consolidated and, frankly, because Ryanair CEO Michael O’Leary already pisses them off regularly as it is.
Qatar and Etihad are interesting candidates and may well throw their hats into the ring but there is the issue of foreign ownership of the airline. It is unlikely they would be permitted to acquire much more of a stake in the airline and, as a consequence, they’ll be unlikely to influence the airline’s operations as much as they may want.
JetBlue seems also unlikly for reasons having to do with the fact that JetBlue isn’t an international airline, not really, and its knowledge of the European marketplace is limited to say the least. They do benefit from an existing close relationship with Aer Lingus but that can only go so far for JetBlue.
One other entity sometimes considered is International Airlines Group, holding company for British Airways and Iberia Airlines. That group is engaged in purchasing BMI presently and hasn’t stated a preference for Aer Lingus publicly. However, IAG CEO Willie Walsh is a former Aer Lingus executive who knows the airline, knows the government and knows european airlines. If the BMI purchase were to fall through or be impacted by regulatory requirements, I would not be surprised to see them turn their attention to Aer Lingus.
At the end of the day, I don’t think the Irish government really wants to sell its holdings. The airline still operates as the flag airline of Ireland and its a source of pride for a country who feels strongly about representing itself internationally. I think they like talking about the sale but I think no one wants to explore the political impact of such a sale very seriously. It’s safer to hold onto the shares than suffer consequences in the voting booths.
As for Aer Lingus itself, I think they would like the government to help out with the pension obligations and then have the freedom to operate with less political influence than they currently experience. That said, Aer Lingus has struggled more often than not to earn a profit and few see the carrier as a strategic purchase. The airline needs better strategic relationships with other airlines and it is difficult to get those into place when the Irish government yields a heavy influence on the airline’s operations.
Every airline under the sun is submitting applications to the FAA to fly a route that is outside the perimeter rule for Reagan National Airport in Washington, D.C. Virgin America wants to fly from San Francisco to DCA. Southwest and JetBlue want to provide non-stop flights between DCA and Austin. Southwest plans to offer follow on service from Austin to San Diego. Alaska Airlines wants Portland, Oregon to DCA.
Like I said, everyone wants a piece of the action. Why? Well, those flights outside the perimeter are typically good revenue earners because they are limited on those routes, provide direct connectivity to politicians and businessmen and provide access to an airport that is very difficult to get.
And once you have those slots, you’re often able to reuse them for something else that falls within the original constraints of the award if you want. A toehold at DCA is very, very valuable to an airline.
Who gets them? I actually tip this towards the JetBlue and Southwest proposals for connectivity to Austin. It fits within a strong need. I think that flights to San Francisco and Portland aren’t as attractive because there is decent competition on those routes albeit via Dulles airport. I do think that connecting state capitols and, in particular, those of politically powerful states such as Texas, will be an unofficial driver in this choice.
Former American Airlines CEO Gerard Arpey made a comment at a Boston, Mass breakfast event recently in which he expressed that Southwest Airlines will face enormous challenges going forward and specifically from network carriers.
Frankly, I think it’s a bit early for Mr. Arpey to be opining on any airline other than American Airlines and certainly not when he left a company in bankruptcy after a long tenure. It’s just bad form.
It also points to something that I think is constantly underestimated at Southwest Airlines. Southwest is more than just a company focused on the next financial quarter’s results. Its people really are its biggest asset and the esprit de corps that exists there is bigger than what the financial picture presents.
Southwest does have higher costs in comparison to many these days. It also continues to succeed where others don’t. Focusing in on their costs alone is a mistake when it comes to that airline and Arpey just made the mistake.
American Airlines unions are now asking for binding arbitration in their negotiations with American Airlines management as a pathway that they think will yield more satisfying results than a court order from bankruptcy. In theory, this is quite likely the case. However, that’s in theory.
I’m not sure arbitration works for the unions. Yes, it does force both sides to accept things they don’t want and both sides get some of what they do want. However, arbitrators also have to consider the real facts surrounding what the business can support and the airline is far better positioned to press its case in this area. Unions, on the other hand, aren’t.
Furthermore, an agreement out of arbitration is still an agreement that the airline can get tossed out in court if the right argument is made. The trick is in getting an arbitrated agreement that both parties can actually survive with and that a judge will find sensible and equitable.
Moreover, another issue that arbitration doesn’t address, at least for AA’s management, is the need for quick resolution to labor. American can hardly afford to spend months pleading its case, waiting many more months for an answer and then making a business plan. It needs some certainty on the labor front in order to go forward with a business plan that addresses successful exit from bankruptcy.
I expect we will see AA resist arbitration, press its case on the publicity front with its unions and start action with the courts to change the labor agreements that way.
Just about everyone under the sun has offered an opinion on American Airlines’ top level explanation of how they intend to enhance revenue in their bankruptcy restructuring. The Cranky Flier has an interesting take on things as a function of what American offers in terms of a network. Jamie Baker of J.P. Morgan has critcized the ideas roundly. Even I offered extreme scepticism on the subject.
American’s idea is that through codeshares and a far higher percentage of flying being contracted out, they’ll gain more revenue.
Codeshares aren’t a network. They can add some incremental revenue but they are no substitute for having a strong network. American’s network was pretty good until about 5 years ago. Coincidentally, that’s when their profits nosedived. American Airlines has their “cornerstone” strategy of sending traffic through Los Angeles, Chicago, DFW, New York or Miami. Sadly, that leaves some gaps that other airlines don’t have. (And this is the foundation of the Cranky Flier analysis.)
For instance, Miami doesn’t serve the Southeast. It’s a gateway city for South America but it doesn’t act as a hub for the Southeast. Not like Atlanta or Charlotte do. There was a time when American tried using Raleigh, NC for this and it wasn’t a bad choice all in all but I would have contended that fighting US Airways for Charlotte would have been better.
Los Angeles doesn’t serve the West Coast. Again, it’s a gateway city for trans-Pacific flights but it isn’t a West Coast hub. Phoenix is a hub and Salt Lake City is a hub and even Denver is a hub but Los Angeles isn’t a hub. Now we have 2 significant portions of the United States being underserved by American in comparison to both United and Delta.
I even question the strength of New York City for a network. Again, New York city is primarily a gateway and a final destination. It’s not the best place to connect traffic to other domestic destinations. Now we have weakness number 3 in the equation. Codeshares won’t make up those deficits in those regions.
Contracting flying isn’t going to provide more opportunities to connect people from those underserved areas either. Whether the aircraft is 50 seats or 80 seats, no one in the Southeast is going to perceive the benefits of flying from, say, Birmingham, Alabama to DFW or Chicago to connect to a flight to New York City. Nor are they going to be thrilled about Miami as a connecting point. Now, Atlanta or Charlotte or Memphis doesn’t look too bad but American doesn’t have hubs in those cities. Delta does. US Airways does. Even Southwest does.
How did Southwest recognize the need for Atlanta in its system for serving the Southeast and American hasn’t yet seen a need for a true Southeast hub?
If you rely upon hubs and networks, you have to recognize that they come with some real inefficiencies. Those inefficiencies can make connecting flights look very, very unattractive unless they lie more or less directly in the path of getting from Point A to Point B via Hub C.
Will American merge to gain a better network? Well, I think the current management will not seriously consider those options. They see American as an airline great that should be the consumer, not the consumed. On the other hand, I think American’s creditors are already frustrated with American’s ideas in bankruptcy and they may well force a change in thinking on that end.
Who will it be? There is only one decent choice: US Airways. I like them for both their management team and their core strengths in the network just as Cranky Flier does. However, the only way that merger succeeds is if US Airways is the consumer of AA and not the other way around and not through a “merger of equals”.
Delta isn’t going to be the merger partner. Too many regulatory issues exist in that marriage for it to be practical. United isn’t going to be the merger partner because, again, too many regulatory issues exist. A smaller airline can’t consume American and American has a terrible track record in buying small airlines and truly getting the value they present. The only airline who has the gumption, team and, potentially, the money is US Airways.
My one issue w/ that merger is the huge labor issues that will exist. There needs to be a plan in place to resolve both AA and US Airways labor conflicts that exist today.
Last Friday, an American Airlines flight attendant on a Dallas / Fort Worth to Chicago flight kind of “lost it” prior to actual departure. This flight attendant, seated in the rear of the flight, used the PA to insist the aircraft wasn’t safe and did so for several minutes. Flight attendants in the front first tried to use the PA to assure passengers and then went to the rear to address the flight attendant with the help of passengers. Ultimately, it was determined that this was medical issue, not a security one.
Was the flight at risk? No. Passengers were at risk of being inconvenience as a result of the aircraft returning to the gate but there is actually little to nothing that a flight attendant could do to put an aircraft at risk either on the ground or in the air.
There is no secret button to open doors, for instance. If they won’t open for passengers, they won’t open for flight attendants.
It’s unfortunate for this woman to have suffered this break and no doubt she’s likely feeling mortified by today over what happened. But it isn’t a reflection on American Airlines or the woman that this happened.
And for those of you on the flight running off to the media and claiming you were in fear for your lives: grow up and act like an adult.
A number of analysts have noted that the real goal for Airbus this next year is to sell production slots that are open for current A320 aircraft up to and including EIS for the A320NEO aircraft. Both Boeing and Airbus need to find ways to preserve value on existing aircraft lines until their new generation aircraft enter into service as well.
It’s a delicate line they each walk. You want to satisfy airlines with new aircraft but some of those who buy aircraft are lessors and you don’t want to anger them by depreciating their assets they already hold. And a market glut of aircraft can result in depreciating demand for your new generation aircraft because the capital costs for current generation aircraft can become low enough to make sense for airlines to buy and use.
A good example of that last part is Delta buying more and more MD-90 aircraft. The capital costs are low compared to current Boeing aircraft and the airliner provides close to current Boeing efficiencies.
Both manufacturers know that their order books are soft. Both know that some who have ordered both current and next generation aircraft aren’t necessarily going to be around to take delivery on those aircraft 5 years from now. One great example is Lion Airways order from Boeing. The dirty secret about that order is that Lion isn’t an airline with significant risk both in operations and financially.
Airbus need to work hard getting their current production sold until their aircraft are in place but without depreciating values and without massive discounts to encourage orders. It’s a tall order and a difficult challenge for both manufacturers.
It’s been said publicly by many that Frontier Airlines will be refocused on Denver again and that it will become an ULCC airline in the spirit of Spirit or Allegiant Airlines. Many think this is difficult to imagine for Frontier and in some ways, I agree. However, I think another ULCC isn’t such a bad idea.
The truth is that existing LCC carriers aren’t all that low cost any more. Even the newest are raising fares right alongside the legacy airlines and that has significantly impacted the consumer and, I think, degraded demand. Airlines are constricting capacity over and over and over again and while the rising fares do make up for that, it’s noticeable that every quarter we hear about an airline restricting growth or even contracting themselves in light of the market place.
I believe the reason we see Spirit and Allegiant doing as well as they do has a lot to do with the fact that they are the airlines who are able to stimulate and benefit from the incremental demand that appears with a lower air fare. I’m referring to the Southwest effect, yes. With the consolidation that has gone on for the past 6 years in this industry, I’ve wondered when new entrants were going to appear and I think the only reason they haven’t is due to the lack of available investment capital. It’s hard to start a well funded airline right now.
But Frontier isn’t in need of that kind of capital. Based in Denver, the airline could actually fight back against what are essentially 2 legacy airlines whose air fares are considerably higher today than they were 2 years ago. There is money to be made there and money elsewhere too.
It requires lower costs and fees on everything, yes. Frontier will need to add seats, reduce frills and start charging fees for anything it can find while lowering air fares dramatically. This is real work but isn’t capital intensive work. They can do this.
Can they succeed? I think that depends a great deal on the management team and its willingness to sharply execute a ULCC plan. There is no need to take too long to implement the ULCC strategies. Implement them and start undercutting your competition as fast as possible. Move aggressively into markets where you can show a difference against the legacy carriers including Southwest Airlines. It really isn’t as far fetched as it might seem at this point.
The truth is that the airline marketplace has changed dramatically over the past 3 years as a result of the economy, fuel prices and consolidation. Furthermore, most consumers have accepted the fee structures and despite hating them, they’re paying them. So why not a ULCC that aggressively plays against the legacy airlines and older LCC carriers? That model might not have been ready for prime time 5 years ago but a lot can change in 5 years.
It was an interesting weekend in the American Airlines bankruptcy arena with AA pointing fingers at its unions with the message that they need to speed things up asap and the unions countering with AA isn’t bargaining in good faith. As with almost all things having to do with labor and airlines, the truth lies somewhere in between.
I think AA is making a calculated play that if they press hard enough and get nothing but pushback, a bankruptcy judge will throw out the agreements in place presently and dictate terms to the unions. Maybe. Maybe not. AA wants the deal that Delta, Northwest & United got which is basically getting the terms tossed and dictating new terms. Well, the law has changed some in that respect since those bankruptcies. The stakeholders all have a lot to lose and I don’t think the courts are going to just lay down and do what AA wants them to do.
Actually, I think the judge is going to make them bargain a while and he should.
As for the unions, I think their responses to the airline have been somewhat unrealistic in that preserving what you have at all costs for as many members as possible without making offers that truly do raise productivity significantly just makes you look stubborn and unwilling.
The way to win this battle is to put something real on the table and be the first to do it. Neither side has so far.
Not for nothing, AA’s grand plan calls for massive labor savings and massive cost savings in other areas such as aircraft and still offers little reality in how it is going to increase revenues. Stakeholders in this bankruptcy who are outside the AA family already know that that idea has flaws and I suspect that will get communicated in court with a massive reality check for the new management.
In short, I think that AA and its management is going to be made to get real with itself and I think the board is going to experience some of that reality very soon as well. I expect some board members to change and Chairman Horton is going to have to figure out how to really work a deal with labor while offering far more granularity on how he and his team will boost revenues. Absent that answer, I expect a takeover for the company to materialize and, no, it won’t be a “merger of equals” from US Airways. There won’t be any takeovers where there are equals. Someone will take AA over, shake it out and make it perform appropriately.
The bad news is that if the latter happens, I expect labor to do worse in that situation rather than better. That’s why I say it’s worthwhile for either side to get a real proposal on the table now and win rather than bicker at each other for an additional 6 months which likely results in a lot of that leadership looking for new jobs.
