Short version:  Non-disclosure agreements keep getting extended for more talks.  Conventional wisdom has it that most issues have a solution framework and that there are perhaps one or two sticking points.

First, who owns how much of the new entity.   The word on the street has the offer amounting to 70% of the entity being owned by AA creditors and 30% being held by US Airways shareholders.   Part of me says this is a touch inequitable but it might be palatable enough for US Airways shareholders to do the deal.

Second:  Who runs the show.  Doug Parker would seem to have the inside track based on his performance at US Airways but apparently Tom Horton (and possibly others) are making an argument for Tom Horton to be Chairman and CEO or, at the least, Chairman, of the new company.  This argument is based on the fact that Horton & Company have run a large international airline before and . . . Parker & Company has not.

Financial analysts see the consensus that this is not what should happen.   The key risks there are that Tom Horton has no employee support and particularly none from unions and lacks a certain credibility with this plan to grow capacity as much as 20% in saturated markets.  I’ll go one further:  Horton and his team have never focused on the revenue side of the business.   It’s always been about managing money and assets as opposed to growing the business.

Parker & Company have a strong reputation for returning value to shareholders, managing their operations closely and responding to problems with solutions that work.  Moreover, Parker & Company haven’t exactly been managing some 20 airplane LCC carrier either.  US Airways may not be quite the size of AA but it’s no small entity.   It’s the 10th largest airline in the world by fleet size (AA is 6th).  In Revenue passenger miles, US Airways is 11th and AA is 2nd.

US Airways does fly a number of international routes.  They just don’t fly to quite as many destinations or with as much frequency.  It’s not like Doug Parker doesn’t know how to establish a route to a South American city.   His team established a route from Charlotte, NC to Rio de Janeiro, Brazil and made it work.  That’s saying something and I want to see what they can do with AA resources.

I also think that the Horton Team just might have overplayed their hand recently with these rapid fire introductions of branding, uniforms, aircraft liveries, etc.  These acts were, in my opinion, designed to help bolster their argument that they should be in charge.  Now I think they are starting to sound shrill and I think many who care (such as the unsecured creditors) aren’t impressed with this team putting the cart before the horse several times over the past 2 months.

At this point, I rate a merger probability as nearly certain.  I think that the most that will be given to Tom Horton is a non-executive Chairman role (such as Glenn Tilton) set to expire after a few years.  Maybe.  If he stops futzing around.  I think many very capable AA executives will be retained.  I think some won’t be.  The truth is that there is a rich garden of talent at AA that can be mined.  There is a reason why Virgin Atlantic hired their next CEO from AA and why Virgin America got theirs from AA too.

I think we’ll hear the merger announcement sometime between now and February 15th.  That’s a pure guess on my part based only my sense of timing and mood in this affair.

The only thing that could make me happier in that announcement would be the news that that awful livery will be stopped and redesigned immediately.

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Southwest Airlines CEO Gary Kelly made a statement in a TV interview where he said never say never when it comes to adding baggage fees at Southwest Airlines.

Before anyone over interprets:  He also said that there are no plans to do so in 2013.

He also said that he believed that Southwest’s customers would tell SWA if it wanted that unbundled fee added and he is absolutely right.  The customers will indicate to Southwest just how much of an unbundled carrier it wants it to be and that is as it should be.

It occurs to me that Southwest could soundly smack airlines such as Delta, American and United by lowering its fares and adding a baggage fee.  I doubt the revenue picture would change much at all on a per passenger basis but the fundamentally lower fares would put real pressure on the SuperLegacy airlines (with or without their lower costs.)  Why?  Because those carriers have a unique disadvantage against Southwest with respect to costs:  The SuperLegacy Airlines all incur the hub & spoke network costs that Southwest avoids.  And while Southwest pays some of the highest labor rates in the industry now, they also get the highest productivity in the industry as well.  That offsets those costs considerably.

Imagine you are American Airlines and Southwest lowers fares against you on the top 25 routes out of the DFW area and adds a baggage fee that is $5 cheaper than yours.  If I’m the AA CEO, I reach for the Tums.

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I found this video on Facebook (Braniff Flying Colors).  I never knew it existed and it’s got some rare treats for airline enthusiasts.  Some of the most unique views of Concorde in flight, for instance.  And you’ve heard about Harding Lawrence but in this film you get to *hear* Harding Lawrence.  I had forgotten what he sounded like.

The owner doesn’t support embedding the video so here it is:

Braniff Concorde

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American Airlines announced yesterday that they will be developing new uniforms for its service staff.  Pilots, flight attendants, customer service agents and others will be given a new look and AA has engaged the designers Ken Kaufman and Isaac Franco to do the work.

This isn’t about the need to urgently rebrand the airline.  This is about AA attempting to create a story to send their message to the  unsecured creditors that everything will be OK if they permit a stand alone bankruptcy exit.  AA and its executive team has been working frantically from a PR point of view to send this message and particularly so this month.

The problem is that it is becoming rather shrill.  Yet, they manage to do this while choking off US Airways with a non-disclosure agreement.  That NDA doesn’t prevent US Airways speaking privately though.

What bothers me is how they’re working so hard to stay on script and timing without paying attention to feedback.  For instance, the overwhelming poor feedback on their livery would, in my opinion, ordinarily ask for a pause in the efforts.

But that’s the problem with the current team:  They are extremely deaf to critical feedback and particularly so when it comes to external sources and even external stakeholders.  If I’m a member of the UCC, I’m going to be annoyed with the persistence being shown here without regard to putting first things first.

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United Airlines has posted a $620million loss for the 4th quarter and a 2012 loss of $723 million and that, my friends, isn’t trivial.  Conventional wisdom has it that this is the cost of a poor integration.  I think the integration has gone poorly and has impacted the company but I think the poor integration is an indicator of something else.

This management team isn’t working very well together.

We are at the point where United should be seeing its operations mesh together nicely and, instead, we’re seeing ever greater impacts from the merger on the bottom line.  Good, strong management working together makes this airline work better, not worse.  It’s notable that the combined operation earned $840 million in profit for 2011 when it really wasn’t integrated.   In one year, there is a direction change equivalent of 180 degrees.

This is a management problem.   Various management groups are executing the integration of their parts without regard to whether or not other parts are ready for that integration.  This is the source of their reservations integration.  It was pushed forward despite other parties not being ready so that a box could be checked on integration progress.

At some point, this becomes intolerable to external stakeholders.  In the meantime, I would hope that leadership calls a halt to integration efforts and executes a 360 degree review of each department and what its progress has been to date and what each expect to accomplish before allowing anyone to move forward any further.  In that process, I would hope that managers who are executing without coordination are replaced with managers who understand that this is a dance party that needs to work together rather than just a group of individuals seeking an ultimate payout as reward for checking the box.

Jeff Smisek described the integration being particularly tough in 2012 but also declared that things were back on track.  My problem with that is that just because you say it, doesn’t make it so.  Time will tell but, for the moment, a huge 4th quarter loss contrasted against other airlines who’ve had great years doesn’t signal that things are “back on track.”

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American Airlines has inked a deal with Republic Airways to flying under the American Eagle brand.  Republic will operate 53 Embraer E-175 jets with 12 first class seats and 64 coach seats.  The contract will last 12 years from the time the aircraft are put into service and the full complement won’t be in service until 2015.

If I were American Eagle or an employee of American Eagle, this would worry me.

It’s clear that no matter who runs AA in the future, contracting out American Eagle services will only increase, not decrease.  In addition, it will likely go to regional airlines that either have the equipment today or the orders for the equipment already in place.

American Eagle has neither.  It’s fleet is primarily comprised of the ERJ-135/140/145 aircraft although they do have 47 Bombardier CRJ-700 aircraft.  If the team at American Eagle wasn’t getting ready for a new world order, they should be doing so as of this morning.

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While reporting and commenting on both 4th Qtr and 2012 earnings, US Airways CEO Doug Parker emphatically stated that they (US Airways) had nothing to say about a merger with American Airlines at this time since they continue to operate under a non-disclosure agreement.  All of this is right and proper and I must say that I have been impressed that all parties seem to be honoring this pretty well with the exception of AA CEO Tom Horton who continues to say a lot without saying it by making passive-aggressive comments at each public event.

But Doug Parker and his team haven’t had to say much vocally because their performance, once again, continues to make the argument for them.

$37 million profit in the 4th Qtr despite Hurricane Sandy impacts and this contrasts with Delta announcing just $7 million.  Revenue growth of 3.9 percent in 4Q as well.

A 2012 profit of $637 million on record profits of $13.8 billion.  Again, this contrasts with a profit of $71 million for 2011.

These guys are killing it and they know it and this has to be getting the attention of creditors and other bankruptcy stakeholders.

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I think it kind of got missed that the CWA union election for passenger service agents did not succeed for the union.  About 6000 agents voted (out of approximately 7800 agents total) and the election did not pass by about 150 votes.

Did AA win?  Actually, I think not.  These kinds of elections are very difficult for unions and unions have to show real value to people who need every bit of their paycheck to live on.

If the US Airways merger does happen, expect another election potentially.  US Airways passenger service agents are represented jointly by two unions:  The CWA and Teamsters.

This issue isn’t over, the first couple of chapters in this story have merely been completed so far.

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Delta Airlines has announced changes to its frequent flier program that will make it vastly more revenue driven.  Their intent is to get a minimum spend from a flier before granting status in the program.

There are others who can discuss the nuances of the changes.  I want to talk about what is more of a fundamental change than I think most appreciate.

This is a statement by a major airline, the second such statement to be made, that says your status is going to be connected more strongly to how much you actually benefit us (the airline) on an annual basis.

Southwest Airlines did this with its new, much more complex points system in its own program.  If you buy full fare tickets and fly long distances (which are presumably more expensive than short distances), you’re going to be awarded far more points.

Delta didn’t quite go this far but it is saying that it wants a minimum amount of revenue from a customer before it grants status in its program.  It’s no longer about how many points you’ve earned, not entirely anyway.  Points aren’t that hard to acquire (although I would argue that acquiring is silly in the first place in most cases) and airlines are granting upgrades and free tickets to many people who fly quite infrequently and at the lowest economy fare possible.

Not only do I think Delta will stick with this change, I think we’ll see other airlines edge towards similar changes over the next 2 to 3 years.

Why?  Because our airlines have made a clear decision to ensure that they are earning the cost of their capital and they don’t want or need anyone bleeding them of freebies without some basic level of revenue being paid.

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This flight is operated by Loganair in Scotland between two small islands in the Orkneys.  The flight is between Westray and Papa Westray islands and apparently if the winds are right it could be done in as little as 50 seconds.  Take a look:

 
[youtube http://www.youtube.com/watch?v=fwyVWaCAD2A&version=3&hl=en_US&rel=0]
 
 
I’ll bet you hope I don’t play a video of the world’s longest flight in its entirety.

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Terry Maxon at the Dallas Morning News made a post about Mike Boyd responding to American Airlines’ rebranding and livery change. The short version is that Boyd was scathing in his criticism of American Airlines management for doing this now.

And it mirrors some of my own feelings posted earlier today.

If one considers the priorities just prior to and during bankruptcy, rebranding efforts should have been suspended upon entering into bankruptcy.  I assure you millions of dollars were spent on it leading up to the unveiling of the new livery.

I do think AA needed rebranding ultimately but whether it got done today or a year from now wasn’t really important.  Delivering a great customer service product is the priority right now.

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So, it’s been a couple of days now and I’ve had time to reflect more and time to look at the new AA logo and livery again with fresh eyes.  Here are my final thoughts:

1)  I think they *nailed* it with the silver paint for the fuselage.

2) I think the “blade” aka the stylized aircraft tail next to the name is growing on me some but I still think what is supposed to represent an eagle’s head actually implies a star more.  It’s a touch too stylized, in my opinion.  That said, it’s OK and I think that it is strong enough to be associated with the name going forward.  As people see it, they’ll tag it as AA.

3)  Hate the tail more than I did yesterday.  I simply think it is way too generic and has no connection to the history or branding of American Airlines.

4)  As much as I think the billboard title on the fuselage was absolutely the right way to go . . . I just don’t think it stands out enough against the silver fuselage.  It needs a different color, I think.

It’s interesting to me that when asked if this branding would be redone in the event of a merger, Tom Horton said he didn’t think so.   Well, I think it would be.  I think you would see the silver paint retained.  I think it’s possible the logo would be retained in some form.  But I think there are two things you would see the US Airways crew change immediately.

The tail of the aircraft would be cleaned up considerably.  The billboard “American” title on the fuselage would be made bolder.  And the fact that Tom Horton’s good friend Doug Parker hasn’t paid a public compliment to AA over the re-branding kind of indicates that they are, at best, lukewarm to the concept.  US Airways did issue this statment:

“We applaud our friends at American as the new brand elements and livery mark the culmination of a significant amount of work and coordination, and clearly those efforts have produced a compelling result.”

Make of that what you will.

Does AA need a new brand?  Yes.  Did it need one *today*?  Nope.  There were interim solutions that could have been employed.  Does this new brand move them forward?  Logo wise, yes, I think they’re there mostly.  Does the livery do anything for them?  No, I think if you parked that aircraft at a major european hub it would be lost in a sea of Euro Styling and particularly with those colors.  Heck, I kind of wonder how it would stand out taxiing through Atlanta’s airport.  I see a livery done by committee rather than a leader and its notable that they say this has been in the works for 2 years.

To misquote a certain financial analyst at JP Morgan Chase:  “Really Tom?  Is this all you’ve got?”

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With the temporary grounding of the 787 and the program review kicking off on the design and certification of this airliner, there is more and more fear of it.  I agree that the battery failure looks horrific.  Some (Christine Negroni is sounding particularly shrill to me.) are derailing into what, to me, seems like hysteria, over the battery failure in Boston.

The battery issue in Japan was not a fire.  It was found to be “swollen” and that it had leaked electrolyte.  An important issue but not a fire.

Facts are important in this situation and there is one hell of a lot of speculation going on.  So let me join in:

I find it very curious that these problems have cropped up suddenly and, so far, on one airline’s aircraft.  I keep wondering if there is something being done incorrectly in the operation of the airliner to cause this problem.  I would have expected more failures to occur at this point than what has occurred it was a fundamental flaw in the design.

It’s possible the quality assurance for the battery manufacturing is not very good.  It’s possible that the battery design itself is flawed.  It’s possible that the pilots are operating the aircraft in a manner that is overheating these batteries because of an unanticipated design issue. It could be a battery protection circuit issue or a design flaw in that circuit.

We’ll get the answers.  The problem will be solved in one way or another.

I even think the comparisons to the DC-10 and AA Flight 191 are a bit amusing in one respect:  Flight 191 happened because someone was performing an unapproved procedure to maintain an engine.  In other words, the aircraft was being handled incorrectly during maintenance.

But to run around shrieking “Danger! Danger!” is really kind of foolish.  Wait for facts, then make judgements.

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Update 04:  Best funny comment I’ve seen so far is:  “So, I see AirFrance and Pepsi had a Cubana love child??”  Seen on Airliners.net.

Update 03:  I am amused.  I’ve seen it suggested on Terry Maxon’s blog that the livery is inspired by Greyhound (which gave me a good laugh but no doubt really isn’t true.)  On a third pass over the livery, now I’m feeling like it was designed for the United States Postal Service.   What I’m not getting is any strong connection to the history of American Airlines.  It didn’t inspire me forward and it didn’t connect me to all that is positive about AA’s history.

Update 02:  So far, I am not seeing much in the way of positive response to this livery.  I expected quite a few people to immediately dismiss it but I also thought I’d see some people speak out for it.  Not yet.

Update 01:   It would be very easy to see the US Airways logo embodied in that tail design, I think.  What I’m referencing is the bar representation.  I suspect Doug Parker would be OK with it mostly.

I also think that the billboard title is less obvious than it could be against that fuselage.

I’m still digesting it, however.

Here it is.  A screenshot of their new livery captured from American Airlines’ website.

I think this new livery is going to spark a lot of controversy.  My own thoughts:  My first reaction to the tail wasn’t good but it’s already growing on me.  I don’t like the highly stylized “aircraft tail” symbol in front of the billboard titles for American.  For some reason, it reminds me of Lan Chile.  I also don’t like how they’ve extended the red bars of the tail down below the horizontal stabilizer.

My first reaction is to give this a B or B+.  I feel like I’ve seen better created by amateurs online.  But let’s digest this one first before going all Pulp Fiction on it.  I actually liked THIS and THIS one more.

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There is now news chatter that AA is unveiling their new livery at DFW airport this morning at 9:00am.  More as it shows up.

Reportedly it will be on a nearly new 737-800 done in Victorville, CA.

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Tim Clark, CEO of Emirates, has made a variety of statements regarding the airline industry and the world as a whole to Gulf Business. 

Clark sees another steep escalation of oil prices as being disastrous for the airline industry as a whole (I agree) and even for the world.  He blames world speculation in oil as being the source of the problem and calls it greed.

I think speculation in oil has raised the prices significantly.  What’s worse, that rise in cost is not well reflected in inflation values for both the United States as well as other nations.  Inflation calculations don’t consider the rise in the cost of fuel for our cars.

But I’m not sure that I blame speculators entirely either.  The truth is that we’ve had sustained financial crisis of one kind or another since 2008.  The US Dollar has devalued considerably as has the Euro as well.  Oil is a dollar denominated commodity presently.  There has been some desire to sell oil in Euros as well but that wouldn’t fix the problem one iota.  The Euro is, if anything, less “sure” than the dollar whatever its present value.

The key to lower oil prices is fiscal and monetary policies that are consistent, stable and sustainable over the long term in the United States and other western nations.   The markets are attracted to oil because it is a hedge against inflation presently.  We think there is little to no inflation at work presently and that’s just not the case.  In fact, we have quite a bit of inflation presently which isn’t accounted for.

It’s not so much greed on the part of speculators or oil companies as it is a result of sustained economic crisis.  When we handle our crisis and have plans in place that are sustainable for the long term, things will improve.

Lest any reader think I’m advocating a political party here, I’m not.  The truth is that I believe that our crisis is a result of both sides of the aisle attempting to have it all their way.  I think our solutions are to be found in the exercise of compromise and I think both sides have done us a great disservice in fighting this out in public.  The truth is that if I blame anyone, I blame Congress and, in particular, the House of Representatives for acting like a pack of middle school aged teenagers.  I see similar behaviors in Europe and elsewhere.

We deserve exactly who we vote for and apparently we deserve obstinate ideologists who would rather shoot both feet off to save face with their electors.

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iPads in the cockpit isn’t exactly news at this point.  Many large legacy carriers have issued them to their pilots to use as Electronic Flight Bags.  The iPads store current flight charts and display them electronically with better organization and that’s a good thing for pilots.  It can reduce the weight a pilot has to lug around by as much as 30lbs.

In fact, with two pilots per aircraft and a savings as much as 60lbs, that actually translates into money savings for airlines in the form of fuel.

The presence of iPads in the cockpit has also caused the consumer to believe that leaving their electronic devices turned on at all times is really OK.  It isn’t.

Pilots aren’t using WiFi in the cockpit.  In fact, they aren’t supposed to use WiFi in the cockpit at all.  That is turned off on the iPads.  And lest you believe that’s an overabundance of caution, you would be dead wrong.  There is enough data to show that unshielded use of cellphones and/or WiFi devices in or near the cockpit can affect flight displays or controls.

Delta is asking for a waiver to use their iPads’ WiFi in the cockpit to use a weather turbulence app as a test.  They contend that the wattage of the iPad’s WiFi is not enough to affect instrumentation on the Boeing 737.

Will we see connectivity in the cockpit?  Yes, I think we will.   The challenge here is that you can shield new instrumentation from the dangers of WiFi fairly easily but that means expensive replacements for equipment on legacy aircraft.  In other words, airlines aren’t going to do this until its time to refresh cockpits or buy new aircraft.  So expect to see this evolution take place literally over the next 2 decades.

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Jeremy Clarkson is an automotive journalist who writes and serves as the presenter on the original UK based Top Gear automotive show.  He’s known for his outbursts from time to time and his outbursts tend to be very dramatic and almost always offend someone.

It would appear that American Airlines lost his wife’s bag recently and Clarkson took to Twitter to chastise them.  You can see a story about this HERE.

But here is a sampling of his Tweets:

“American Airlines. Literally the worst thing…….in the world.”

“People of the world. DO NOT USE American Airlines.”

“If American Airlines was a country, it would be North Korea.”

And people think I’m rough on them.

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Hawaiian Airlines has made an order for the A321NEO which, I think, causes trouble for Boeing.  It’s a validation of the A321 as a 757 replacement that, I think, Boeing didn’t need showing up given its desire to sell the 737MAX-9.  It is increasingly clear that the new A321 isn’t going to be the dog that the current A321 has been.  Good on Airbus.

Hawaiian is clearly going to make trouble for a couple of airlines with this purchase.  The first is Alaska Airlines.  When Hawaiian takes delivery, it can start to compete with Alaska on the smaller routes such as Bellingham to Hawaii.  Hawaiian succeeds quite well in this area when it goes up against other airlines with its Airbus A330 and Boeing 767 aircraft.  It knows how to attract the right passengers at the right fares.

The other airline that, I think, will be a surprise to some is Southwest.  It’s clear that Southwest has been eyeing the Hawaiian markets for some time and it has even talked about its need to gain ETOPS experience in order to do this.  I think Hawaiian is responding to this threat by bringing its games to the kinds of markets Southwest might be tempted to enter.

And that brings me to a criticism I have for Southwest:  This airline isn’t responding in a very agile way to opening up new markets and opportunities.  By the time it studies and prepares for new flying outside its comfort zone, the opportunity is often gone.  Witness its vaunted codeshare deal with WestJet and Volaris as more evidence.  Southwest could have been flying those Hawaiian routes as soon as this year but the conventional wisdom is that Southwest won’t have itself ready for this challenge until 2015 or about 2 or more years from now.

2 years is an eternity in the airline business.

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About a year ago, a few airlines started to enter the DFW market and that made me thrilled.  For all too long, American Airlines has dominated virtually all routes from Dallas / Fort Worth to all other destinations.  It’s even been able to manage keeping its pricing up on intra-Texas flights against Southwest.  The last time a truly competitive fare was found in Dallas was when Delta was still here operating a hub.

I saw the entrance of Virgin America on routes between DFW and LAX/SFO as a great start and American Airlines clearly didn’t like the competition because it did what it always does and tried to scare away the airline.  Virgin America CEO David Cush has never said anything but glowing things about VA’s performance to and from DFW.

JetBlue came to town as well with 3 flights to and from Boston.  Boston is a route that is, again, dominated by American Airlines and which had very high fares and by all reports, those flights do very well, too.

Spirit Airlines has come as well and they’re killing it.  Spirit has been adding routes and now is adding a crew base in Dallas because it’s discovered an untapped demand that is the result of very little competition in Dallas.  Hey, folks who live here like a good deal as much as anyone when it comes to a leisure destination.

But a year later, I see two airlines (JetBlue and Virgin America) maintaining their status quo.  I wonder what it is about the middle of the United States and Texas that scares these two airlines so much.  Particularly when you have a major legacy carrier sitting here airling and another LCC carrier (Southwest) raising fare prices in this market considerably.  There is some low hanging fruit.

If I had been Virgin America, I would have targeted Dallas for routes on LAX and SFO for sure.  I would also have laid on flights to New York City and Washington D.C.   I would have opened up a gate in Chicago and connected LAX, SFO, NYC, Washington, D.C. and DFW to Chicago in a heartbeat.

If I had been JetBlue, I would have added flights to New York City, not just Boston and I would have looked at some point to point flying to its Caribbean destinations as well.  We’re as close to the Caribbean as anyone in the Northeast and it’s a popular vacation destination for this area.

But it hasn’t been done.  A year later, these two airlines sit with their timid schedule into and out of Dallas from their strongholds while AA prepares to come out of bankruptcy as a cost competitive airline that potentially is mated with US Airways.  I would have spent the last year building loyalty on routes that those airlines could serve well by offering the fares people want here and getting them just a little too addicted to excellent service on modern aircraft.

It’s disappointing to me, the consumer, because I think that DFW is a destination where a lot of “upstart” airlines could succeed more.  The fear towards AA and SWA defies my imagination at this point.  And there is Spirit Airlines who is taking advantage of the moment and growing like crazy.  Go figure.

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