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

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

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

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

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

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

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

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

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

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

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

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Love Field Airport in Dallas has been a source of a lot of pain for the City of Dallas and, in particular, the city council.  It was an airport that was supposed to go away and thanks to Southwest Airlines, it’s an airport valued by quite a few people even today.

I’ve never understood why this city hates its airport as much as Dallas does.  When I worked at Love Field in the late 1980’s and early 1990’s, the disrepair that much of those facilities were in was shocking.  It was if the landlord was doing everything it can to make the airport unattractive so that the one tenant hanging on (Southwest) would just leave, damn it.

Even after the compromise on the Wright Amendment, we’re not seeing Dallas build an excellent airport designed to serve the needs of the area, it’s building an airport designed to constrain operations at the airport.   When I look at how Dallas treats Love Field and compare it to, say, Midway Airport in Chicago, I become ashamed of the greater Dallas Metroplex and it’s attitude towards an asset that could be a jewel.

Love Field has some history to it.  Braniff’s Dallas Operations and Maintenance base building is located on the east side of the airport on Lemmon Avenue.  It was an airline building with many firsts and for quite some time represented the connection between Dallas and its airline, Braniff International.

The building was occupied and used even after Braniff’s bankruptcy and dissolution but has been unoccupied for about 20 years.  Now the city wants to tear it down.

I’ll be honest, I’m not completely invested in the idea that that building must remain at Love Field.  I am, however, invested in the idea that Love Field should be developed and related businesses ought to be encouraged and focused in a manner such that the airport looks more like an asset that represents a strong city.  The eastern side of the airport along Lemmon Avenue isn’t that attractive today and hasn’t been for 25 years.  That’s the city’s fault.  It ignored the airport and the properties along that side for years and largely because the neighborhood immediately bordering that side is comprised of very long income families.

Or it was until that neighborhood started to be revitalized.

Here is the building today:

A not for profit organization has started a campaign to save this building.  The Flying Cr0wn Land Group has this website:

http://www.savebraniff.com/

They have submitted numerous proposals to the City of Dallas’ Director of Aviation, Mark Duebner, whereby the property would be taken over, re-developed with the existing building and done at no cost to the city.  They want to preserve the building and use it for mixed businesses and even preserve the Braniff name in its remodeling.

They have investors lined up, a list of tenants lined up and have made several attempts to get Mr. Duebner to pay attention.  Curiously, he has refused to do so over and over and over again.

I also just like these guy’s plans.  It’s an attractive idea, it fits better than a car dealer and we ought to take chances on the out of the ordinary idea because it is those ideas that can often become the germ of real revitalization.

Now I understand why.  Mr. Duebner has made a deal with a Dallas BidnessMan, Randall Reed, to demolish the building and redevelop it into a Lincoln car dealer as well as a hanger and fuel farm.  A car dealer is the last thing Lemmon Avenue needs more of.  If you live in the Dallas area, you know this.  And it doesn’t strike me as “good” for the city’s Good Neighbor Policy towards surrounding residents either.

What’s the difference between a garish car lot and a redeveloped business center?  One hell of a lot.

Can the Flying Crown Land Group truly do all it thinks it can do?  They appear to have a plan, they assert they have the money lined up necessary for development and they not only submitted a proposal that exceed that which Randall Reed has proposed, it’s better in tax revenue for the city and better for the neighborhood.

So why are we ignoring this?  What harms comes to the city when a building that is BUILT FOR THE AIRPORT AND IS CONSISTENT WITH ARCHITECTURE AND THE SURROUNDING CITY ARCHITECTURE is kept and made new and useful again with the same or better tax revenues?  How does the city benefit with another car dealer and particularly so on Lemmon Avenue?

I smell a rat and I suspect that smell may be coming from those running Dallas’ airport.  Pay close attention because if the razing occurs and the deal is done with Randall Reed, I would ask us all to find out who Mr. Duebner is working for one year from now.

So, I’m going to ask something of readers I’ve never asked for.

1) Please forward links to this blog entry to your aviation friends.  Create a stir and I don’t care if you know someone in Dallas or not.  Let’s get Dallas people aware of this brand of stupid by creating as much of a stir as possible.

2) Go sign the petition.  Particularly if you are local to Dallas.  Save Braniff is the link.

3) Contact your Council-Critter on the Dallas City Council and protest the stupid. It’s your airport and you do have a voice.

4) Call Mr. Duebner and ask him how his brand of stupid is better for you, a Dallas citizen.  His office number is (214) 670-6080

You can also read stories in the Dallas Morning News about this Here and Here.

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US Airways flight attendant Bette Nash has achieved 55 years of service with the airline but her history is rather unique in my opinion.  Ms. Nash started her career with Eastern Airlines flying Lockheed 1049 aircraft and shortly thereafter transferred into the Eastern Air Shuttle operation based in Washington, D.C.  in 1961.

Ms. Nash worked this shuttle system for the next 52 years.  The Eastern Air Shuttle was operated by Eastern Airlines between New York City, Boston and Washington D.C. from 1961 until it became the Trump Shuttle in 1989.  The system was operated as the Trump Shuttle from 1989 until 1992 when it was purchased by US Airways and operated as the US Air Shuttle (old US Air) and the US Airways Shuttle (post merger with America West).

52 years serving the shuttle system is, in my opinion, a big accomplishment.  Congratulations on your service, Ms. Nash.

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Lest anyone of you believe that the new movie, Flight, bears any resemblance to the real world, ALPA has released a statement defending its pilots:

“Hollywood dramas can make riveting entertainment and a compelling character study may sell tickets, but fiction on a movie screen doesn’t represent a profession in the real world.

“The more than fifty thousand ALPA pilots in the United States and Canada embody the highest possible standards of training and professionalism.

“These standards are borne out every day, as we safely transport hundreds of thousands of passengers and tens of thousands of tons of cargo across the country and around the world.

“We all enjoy being entertained, but a thrilling tale should not be mistaken for the true story of extraordinary safety and professionalism among airline pilots.”

I admire how they carefully ignore the number of incidents in which pilots have been found to be intoxicated and about to pilot an aircraft over the last 5 years.

Dear Pilots:  The history of Hollywood has made it clear that what goes on in that movie is sheer fantasy.  Should anyone in the public think that a pilot could be that drunk and pull off a recovery like that, well, you wouldn’t want them flying with you anyway.

Your professionalism is already well known and the public knows that pilots both in North America and across the world act with care and are trained extremely well (except the guy in China who managed to fly without a license).  There is no need to be paranoid that people might think that that is an ordinary reality.  I have a suggestion:  Get out and see a movie and relax.

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

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

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

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

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

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

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

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

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

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

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Emirates wants more from Boeing and they want it in the form of a very long range, large capacity 777-X.  Boeing has been holding meetings with customers regularly to survey needs and find a solid definition for the next iteration of the 777 and reportedly all are very excited about what Boeing has except the Middle Eastern customers such as Emirates.

Emirates wants both the capacity and a bit more range.  Likely it’s interested in seeing enough range to fly from Dubai to Los Angeles with a full load.  Notably, this is what it really wanted to see out of the 747-8i as well.

No airliner ever failed from having too much range, that much is true.  Range can translate into 2 things for a customer:  the ability to serve long, thin routes and the ability to service slightly shorter routes with a full load.

Current ultra-long haul, high capacity airliners available are:

• A380 with 500 passengers (plus or minus about 30) for 8300nm of range.
• 747-8i with 400 passengers (plus or minus about 40) for 8000nm of range.
• 777-300ER with 350 passengers (plus or minus about 40) for 7900nm of range.
• A350-1000 with about 300 passengers (plus or minus about 30) for 8300nm of range

The Dubai-Los Angeles route is just a hair over 8300nm in distance and therefore really needs an aircraft with about 8800nm of range.  Boeing could give this to Emirates with the addition of a fuel tank or two, I suspect.

But both Boeing and now Airbus seem to be resisting going much past 8000nm because only a tiny handful of airlines need this range.  The rest are doing missions with these aircraft that are significantly less than 8000nm in distance.

There is also the issue of range costing more fuel than it might be worth at some point.  Each gallon of extra fuel costs more gallons of fuel to carry it.  There is a point of diminishing returns.

I think we’ll see the next generation of long haul, high capacity aircraft get performance improvements that may boost the range just long enough for the 8300nm mission but they won’t be here today or tomorrow.

Ultimately, I strongly believe that the ultra long routes will be better served by aircraft more in the style of the 787, 777-200LR and the A350-800/900.  I kind of expect Airbus to come up with a LR version of those A350 models for their treasured Eastern customers.

Will Boeing do it?  If Alan Mullaly were at the helm, I would say yes.  No airliner ever got harmed by additional range capability and just because it is there doesn’t mean the airlines have to use it all of the time.   Today, I think probably not.  Boeing’s board is increasingly cautious about spending money to build class winning aircraft.  They are mostly focused on derivatives and James McNerny, CEO of Boeing, seems content to have 90% solutions for Boeing customers.

Should they do it?  Yes, I would.  I would work very hard to get enough weight off the aircraft to allow a near 9000nm range in the large and smaller capacity versions of the 777-X.  Why?  Because airlines like Emirates will potentially buy a few hundred of them and no other airliner is going to complain about having more potential if it needs it.  In short, they’ll attract more customers and sales.  It isn’t Boeing’s job to figure out how an airline wants to operate.  It’s Boeing’s job to build and sell aircraft that customers want.

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American Airlines enjoyed a 58% on-time rate in September.  The sound and fury of very angry pilots and an operation not coping well.  To put things in perspective, United Airlines experienced an 82% on time rate and Delta had a 89.7% on time rate.

US Airways, AA’s suitor for a merger, managed an 87% on time rate and was the 2nd best CONUS legacy airline behind Delta.  Southwest Airlines was right behind US Airways at 86.5% and was tied with another airline for that position:

American Eagle.

Yes, American Eagle managed an 87.5% on-time rate.  A regional jet operation that traditionally doesn’t do as well as its mainline partner ran absolutely great ops for September.

I have a suggestion for US Airways if they manage to strike a deal with AA:  Get Dan Garton back from American Eagle quick.  Garton is one of those rare AA executives who manages to outperform and yet never quite get the respect for his achievements.  He’s done very well at American Eagle and did very well at AA before getting shoved aside in favor of Tom Horton as heir apparent.  I like Garton and I like the way he communicates to American Eagle employees.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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No, this isn’t an announcement of Southwest Airlines serving its first international destination.  Puerto Rico, you see, is a United States Territory.  Airtran already serves Puerto Rico (and several international destinations) and this is an announcement of Southwest replacing Airtran service with Puerto Rico with Southwest service.

That said, it should provide some real experience to Southwest in serving an off-shore destination and help them identify weaknesses in preparation for serving true international destinations.  One wonders if Southwest taking advantage of the human capital it has in Airtran for doing international services.

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Virgin America has a net loss of $671 million.  It’s a great airline and certainly the one that everyone said they wanted but . . . it ain’t making money.

And it should be by now.  Virgin America never quite seems to close the revenue gap despite promises that that will happen.  Yes, they have succeeded on many routes and, yes, they are popular with the business traveler who has tried them but . . .

Virgin America doesn’t offer the business traveler what he wants:  Frequent flier miles that go someplace they want to go.

The true business flyer already can access great service and comfortable seats.  They get upgraded on the legacy airlines and sniff at the lowly economy fliers who trudge past them.  They don’t *need* more service.  It’s a nice to have when it comes to Virgin America for these travelers but not a must have.

What the legacy airlines have that Virgin doesn’t is frequent flier miles that give these people the chance to fly their family to great destinations for vacation.  Virgin America doesn’t.  Unless you want to go from San Francisco to New York City.  Not many do.

As much as I want to support Virgin America as a contender, there comes a time when such an airline needs to go away.  I believe that time might be arriving since they have no (announced) plan to improve revenues and profits.  Their advantage is evaporating quickly against legacy airlines and despite their low costs, they can’t even beat Alaska Airlines.

Who should buy them?  You know, a great businessman such as David Neeleman could put JetBlue, Virgin America and Frontier together and create a national airline.  I’m just pointing out the opportunities here since each airline uses the same aircraft type (Virgin and Frontier use the CFM powered version while JetBlue uses the IAE powered version) and which would suddenly have focus cities that cover the East Coast, West Coast and even part of the Midwest.

It’s not a foolish idea.  There are synergies there that would serve all three airlines.  Each has some valuable slots at slot controlled airports. And a 3 way combination isn’t entirely unprecedented in this industry either.

Use JetBlue’s reservations and IT infrastructure.  Use Virgin America’s A320 orders for expansion and use Frontier’s assets to build a real Midwest operation.

But it would take a very visionary airline industry leader.  Someone who has started successful airlines and who is brave enough to take advantage of opportunities and who knows how to compete with major legacy airlines.  Someone who, you know, is driven and leads well.  A guy who speaks both English and Portuguese.

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United Airlines is in discussions with Airbus about the A350-1000 as a replacement for aging 747 and 777 aircraft in the United fleet.  A significant portion of the United 777 fleet is comprised of very early build 777 aircraft (-200 series) and their 747s are particularly old as well.

United already has 787 aircraft on order (both on the Continental and United airlines sides of the house) as well as the A350-900.  While Continental executives are largely in charge of the airline today, I would suggest that Boeing pay attention.

It would be tempting to say that this is United rattling Boeing’s cage to get going on the 777-X.  I would agree that it has the secondary purpose of that but I also think United wants to know what it can get its hands on fairly quickly to replace a fleet of fuel inefficient aircraft that will begin to cripple profitability in a few years.

We’re not talking about replacing already old aircraft today, we are talking about replacing them in the 2018 to 2022 time period.  By then, these aircraft will be extremely fuel inefficient compared to other US fleets and time is of the essence.

When your capital costs for such an airliner are greater than $200 million for a single aircraft in that class, you want to buy the very most efficient aircraft you can get.  You want the best technologies because 20 years later, that is what you’ll be stuck with.

Whether Boeing thinks the current 777 lineup is still competitive on a spreadsheet, it is ignoring that it isn’t competitive in perception.  I’ll put it simply:

A350-1000:  New, efficient, modern, new

777-300ER:  Older, somewhat efficient, somewhat modern, not new.

Boeing needs the 777-X and it needs it today and airlines are signaling to Boeing that if Boeing doesn’t build it, they’ll buy it from someone else.

Curiously, Boeing already got this message handed to them over the A320NEO.  You would think that they had learned their lesson (again) and would be paying attention to airlines over the jumbo issue.  US Airlines can’t afford to be just loyal to Boeing anymore.  They must buy the best of the best and Airbus is the equal of Boeing in all categories.

If Boeing wants to sell some aircraft, it’s time to get authorization to offer and build a new range of 777 aircraft for its customers.  Customers who’ve plainly said “If you build it, we’ll buy it.  If you don’t, we’ll buy it from someone else.”

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