American Airlines had 14 aircraft delayed on the tarmac at DFW airport as a result of a minor snowfall in the Dallas / Fort Worth area. 9 of these flights were American Eagle flights and 5 were American Airlines flights.
No doubt American Airlines will moan and groan over this and claim the weather precluded them being able to do anything. Sorry but when you control 3/4ths of the airport terminal capacity and it isn’t a major storm with lightning, you don’t have many excuses here.
The weather was miserable on that day. Light to medium rain fell until around the noon hour and then snow fell for several hours following that. The snow fall didn’t accumulate fast and certainly didn’t completely kill visibility. Delays such as these at DFW airport on the part of American Airlines just doesn’t compute under most circumstances. It was possible to disembark people and park aircraft. It’s notable that Christmas Day actually isn’t even a very heavily traveled day.
There is a story on USA Today’s website lamenting the disappearance of the Southwest Effect and using Atlanta and Southwest’s entrance into that market as an example of it not working anymore.
The Southwest Effect is the effect Southwest has had on poorly served markets when it has entered the market. In short, Southwest stimulated a great deal of passenger traffic every time it entered a new city and this was cited all the way back in 1993.
The problem is that the airline industry is a very different beast today. In 1993, Southwest was a one of a kind airline. By 2000, we saw airlines such as JetBlue with enhanced service products start to take-off. Others, such as Airtran, were performing their own Southwest maneuevers in various markets.
Starting in 2008, industry capacity started to contract and has largely done so for over 4 years now. Legacy airlines have gone through bankrtupcy and now often enjoy labor rates that are on par with most low cost carrier labor rates. In some cases, they’re lower.
No one has quite managed to replicate Southwest’s productivity though. Despite exceptionally high labor rates, the airline still manages to be one of the most productive in the industry and continues to keep its customers exceptionally happy.
It’s true that Southwest has evolved. It is no longer seeking to be the absolute lowest fare on the block. They’ve discovered that they can grow as the airline who offers the best value on the block. A strategy that I agree with because high value is chased by people with good incomes.
In the case of Atlanta, I think it’s silly to expect Southwest to stimulate traffic. That has been the fortress hub of Airtran for more than a decade and if there was any traffic to be stimulated by low fares, Airtran already did so. There is a reason why Southwest bought Airtran and it wasn’t because it wanted Boeing 717s.
Southwest is now adopting new strategies where I do think we’ll see traffic stimulated. Those routes are to Central and South America as well as the Caribbean. There is a reason why United (Continental) panicked over Southwest’s desire to build an international terminal in Houston: There is both traffic to be “stolen” as well as generated with that operation in an area where legacy airlines have been enjoying exceptionally high (and profitable) fares for quite some time.
In fact, if Southwest figures out this international flying and is able to manage it with its productivity needs, I think we’ll see Southwest stimulate traffic to Mexico, Central America and Canada. All markets that could use some good old fashioned competition from someone like Southwest.
Will they do so on Hawaii routes? No. In fact, I actually believe that Southwest would be better off with a code share parter on Hawaii routes than operating such routes by themselves. There is a great deal of capacity on those routes as well as a great deal of competition. Why not simply strike a deal with Hawaiian Airlines and move on to other areas that yield more traffic, more profit and offer more potential? Hawaii might have been a good idea in 2005, it isn’t today.
At the end of the day, there is something important to remember about Southwest: They aren’t in business to create cool things like the “Southwest Effect”, they are in business to earn a respectable profit. Anything that comes from meeting that goal is secondary and its presence or absence isn’t indicative of the airline. What should be lamented, if it ever does happen, is Southwest no longer providing a profit after 40 years. So far, it not only hasn’t happened but there is no evidence of a trend towards it happening.
There has been some development in the investigation(s) going on to determine the nature of the battery problem on the 787. Primarily, it is now known that the battery in the Boston 787 incident as the source of the fire in that there is a battery cell that has been identified as the source.
The battery manufacturer has been investigated closely and no quality assurance problems have been identified in their facilities.
Boeing has asked for and received permission for test flights and has done at least one successfully. No surprise there.
Let’s not forget that this airliner has been flying around in tests and for airlines for over 3 years now. While there is no doubt that a problem could have persisted through testing and introduction into service, if it were an easy problem to reproduce, it would have been a problem that came to light sooner than this.
The alarming part of the problem isn’t the whether the battery is of good design or even if the charging and control systems are the source of the problem. It’s that when those batteries go, they really go.
I expect that Boeing has made changes to controls and/or how the battery is mounted and maintained and is performing test flights with instrumentation to get the FAA to approve an interim fix. Then there will be an expectation that the battery will either be redesigned or replaced with safer technology. Both could take as much as a year to do.
Would the FAA approve an interim fix? I absolutely think so. Sadly, that decision may be driven more by economics than science which means that we’ll have some doubt about the interim fix as its deployed.
I am beginning to think that Boeing is shoving its head deeper and deeper into a hole over this problem and mostly because Boeing CEO Jim McNerney seems bent on just issuing assurance after assurance in the belief that Boeing credibility is the paramount thing to rely upon here.
Despite Boeing’s assurances that they take this seriously and are heavily engaged in a fix, I can’t escape the feeling that they’re trying hard to explain this away as opposed to performing a full mea culpa and dig in with an honest root cause analysis that serves everyone’s concerns at this point.
In fact, I believe doing the latter will cost far less over the long run than the antics going on presently.
Now the latest news has Tom Horton holding a non-executive chairman of the board position until some time in 2014 (that’s more a compromise than I expected) and Doug Parker assuming that role afterwards.
The company is expected to be valued at $10.5 to $11 Billion with about $3 Billion of that credited to US Airways. The boards of each company are expected to meet mid–week and I expect an announcement on Thursday morning by my best guess.
It should be interesting to see how much the smile on Tom Horton’s face is strained and whether or not he takes credit for the merger.
United Airlines has managed to improve its on-time rate to a record 82.8 (Domestic) and 80.5 (Foreign) for January and it’s handing out $100 bills to its employees for the achievement. Incentives such as this have been a big deal in the former Continental culture and it is nice to hear that they are being continued today within the United structure.
It’s nice just to hear United succeeding at something like this because you don’t get those numbers unless your organization is working together. Clearly, they are working together better.
Should we give Jeff Smisek a $100 bill if he turns a profit for Q1 2013?
Digging into news items more today, I have found more explanation for this desire to have Tom Horton remain as Chairman of American Airlines.
Apparently it is the American Airlines Board of Directors who are pushing for this and some even for an executive chairmanship and in the interests of “protecting” the board on the promises of revenue synergies being promised from the merger.
What’s interesting to me is that the board, largely unchanged over the last year, wasn’t pushing for this kind of conservatorship more than a year ago.
Questions I would ask are these:
Why is Doug Parker’s track record of return on investment at US Airways inferior to Tom Horton’s track record given the profits that Parker and his team have realized with an inferior airline network?
Why is it preferential to put controls on Doug Parker in this merger that we wouldn’t, for instance, put on Tom Horton himself in a stand alone exit from bankruptcy?
Why are AA’s interests valued so highly in this merger and US Airways interests so low?
As an unsecured creditor, would I not want to see the management team in charge be the people who have the best chance for success in the marketplace and who do return shareholder value since my “payback” will largely be in the form of an equity stake in the company?
And, if #4 is true, why would I want to constrain that with leadership that while fiscally good has ignored the revenue picture for 10 years or more?
I sense overreaching by the board and when I consider the composition of AA’s board of director’s, I think I know why. AA’s board is dominated by financial interests who favor conservation of capital in all situations. They are one of the most conservative boards you could find on an airline and most independent directors lack direct airline experience.
US Airways board is very different. It is seeded with airline experience, entrepreneurial experience and is generally more diverse both in geography as well as industry.
Again, let me point out that Doug Parker is no fool. He has an excellent education and has had excellent multi-airline experience which was founded on a long stint in finance at American Airlines itself and has since managed America West/US Airways for a 12 year tenure with great success in returning a disadvantaged airline organization to health despite severe industry economic challenges and ever increasing competition from very large SuperLegacy airlines. that’s the guy you bet on and that’s the guy you don’t hamstring.
If Doug Parker or his team were foolish, unwise or inexperienced, they would not have achieved consistent successful results that largely outshine the rest of the industry.
And I would remind AA’s Board of Director’s that they chose to ride the Gerard Arpey horse and they chose to ride the similar legacy in Tom Horton with the results of a company entering into bankruptcy because of an inability to lead and an inability to generate increasing revenues. The strategy was waiting for other airlines’ costs to rise and meet their own. What makes you think your entity is so much more valuable today than it was 14 months ago?
Terry Maxon with the Dallas Morning News is reporting on the Aviation Blog there that the solid rumour is that Tom Horton will be non-executive Chairman and Doug Parker will be CEO of a merged US Airways and American Airlines.
Since Terry rarely gets things wrong, I believe that this is the almost certain outcome.
It’s likely that I will take flak for this but I don’t like it as an idea. Tom Horton as non-executive chairman would have seemed like a good compromise last May or even last July. Not now.
Horton & Company have clung too hard to their ideas and I fear that even as non-executive Chairman, he’ll wield too much influence if only by being able to second guess Doug Parker and his team.
Let’s not forget that, according to Horton, Tom Horton was the guy to think of a merger long before Parker.
And then there is the branding fiasco and multiple superfluous announcements about change, often scheduled to take place in 2017 or later.
Sorry but I think Horton interferes and prevents success more than he helps. And the Board of Directors as well as the unsecured creditors would be wise to find another non-executive Chairman before letting this happen. Ask Gordon Bethune to do it. Ask Doug Steenland to do it. Ask someone else.
In fact, I think that finding someone else to serve as non-executive chairman could be the very best thing for this company. I really do. But Tom Horton should not be the one to serve in that role. He’s a lightening bolt for controversy among employees and a potential critic of Doug Parker as he sets off to do something very, very hard in the best of circumstances.
Let me point out that if it is about wanting to reward Horton for something, there is nothing preventing the company from awarding him stock and/or options in this deal. Nothing really. Horton will work again, too. He is a very, very talented finance guy and there are companies who need his skills.
It will be much cheaper to bribe him away from this than it will be to have him hovering over Doug Parker and trying to wait in the wings hoping Parker will fail and he can take control again. Seriously, don’t do this. It hurts the chances of the merged company and at best it doesn’t help.
The Fort Worth Star Telegram SkyTalk blog has a story about a bond analyst blasting the American Airlines management for their latest request to extend their deadline for presenting a plan for bankruptcy exit. In her note to investors, Gimme Credit Vicki Bryan said:
“AMR management has been coming off as more arrogant than confident, in our view, with destructive diversions and posturing that almost has boarded on the ridiculous. From CEO Tom Horton’s “revelation” back in July that the merger with US Airways actually was his idea in the first place (oh really? If so, he apparently couldn’t pull it off. See our note on 7/25/12) to the unveiling last week of expensive (and unappealing) corporate rebranding and garish new livery on planes that most likely will be owned by somebody else soon,”
This is what I mean about putting the cart before the horse in this process. There are way too many attempts to pre-emptively announce developments and changes to control the outcome. At what point does a board of directors or an unsecured creditor’s committee direct that their inclinations and desires are what controls an outcome rather than the CEO’s desires. Even if that desire is a multi-million dollar payout if they exit as a stand-alone organization.
And let me ask you this: Why should multi-million dollar payouts to an executive team take precedence over what is the right outcome for those holding AMR debt?
I found a blog being maintained by an American Airlines pilot yesterday that was quite the experience. Unlike most, this pilot was an ardent defender of Tom Horton and credits him with moving the airline forward through the large aircraft orders made and for making a case to grow the business to the board of directors all prior to Gerard Arpey’s resignation. This blogger also contends that a merger will merely bring the America West / US Airways cat fight over seniority into the Allied Pilots Association and that stand alone is a better thing for pilots. There is more there but we’ll leave it alone now.
I have a few specific and general thoughts here.
First, crediting Tom Horton with the aircraft order strikes me as overly generous. More so the financing as being innovative. To be true, things were negotiated in these orders that have the manufacturers generally providing financing for these purchases and I’m entirely unsurprised at this since the order was largely a historic one and getting a piece of it required the manufacturers to make an attractive deal. But if we’re to credit Tom Horton for this order, let’s also credit him for the company devolving into bankruptcy as well. We tend to pin that on Arpey alone and the truth is that Tom Horton was as much a right hand man in the operation of the airline (often to the exclusion of many other capable executives such as Dan Garton) and if we’re handing out credit, let’s hand out all the credit.
As for being the man to grow the airline, I would also point out that Tom Horton has possessed enough influence at the company pre & post Gerard Arpey to have already brought a great deal of influence into this direction. He did have Gerard Arpey’s ear and let’s not portray the relationship that existed between the two as fundamentally different. It just wasn’t. Again, if Tom Horton was a visionary, his vision appears to have been ignored entirely until Arpey’s departure and we know that that just isn’t true.
Let’s also note that Tom Horton served as CFO for AT&T until it was purchased by SBC (Southwestern Bell). During his time there, he essentially presided over AT&T not succeeding and needing a merger to survive and hence the merger/acquisition by SBC. It has long been said that Horton realized he wasn’t going to replace the CEO and that current CEO of SBC, Randall Stephenson, had the inside track. This in fact turned out to be true when Stephenson replaced former SBC/AT&T CEO Ed Whiteacre.
Enough of that. The truth is that as I think of the conversation as it surrounds this merger between US Airways and American Airlines, it always boils down to arguments about seniority amongst labor. I agree that integration of work forces is an important element in this merger and any other mergers among airlines. The idea that a smooth integration is the norm of a successful merger is not correct, however.
We tend to look at the Delta/Northwest merger as the way it ought to always be done. In truth, I wish it were that way but that was a very, very special case and even in that one the pilots nearly did the merger in but for the leadership of Lee Moak in that process.
In reality, mergers between airlines are almost always messy. Integration is always difficult. Successful airline mergers shouldn’t be measured in those terms. In fact, I would argue that if the merger grew the airline, its revenues and its profits after a 5 year period, it was successful. Messy or not. (You’ve still got time United but the clock is ticking.)
The labor issues always revolve around seniority and a system of union representation that dates back more than 50 years. The union system and its focus on seniority has made life exceptionally difficult for those employees for decades. Today, among almost all legacy airlines, there is no job portability. A pilot who merely finds dissatisfaction with his employer cannot leave and go to another airline without starting literally at the bottom-most rung again. This is a major barrier to portability.
And if those same employees had some portability, I think that we would discover that airlines wouldn’t be in such a bad financial position in terms of labor costs and airline employees would actually be able to “vote with their feet” when an airline management treated them poorly.
Mind you, I’m not arguing against unions. They’re the choice of the labor force. I’m arguing against the idea that seniority and job security should be the overwhelming issue in representing their interests. At the end of the day and in light of the furloughs and layoffs and ever increasingly slowed advancement that exists at an airline, is seniority really providing job security anymore? And how about job satisfaction?
At the end of the day, airline employees love their inherent jobs but they’re also inherently disssatisfied with their management, their wages and their quality of life. The roadblock to fixing those dissatisfactions is seniority. This makes me wonder when someone is going try to come up with a better model for the future.
Wouldn’t it be great if an airline Captain with Airline A could quit a bad job and go to work for Airline B and be compensated on the basis of his experience and qualifications immediately instead of having to sit at the bottom of a seniority list and forever be “beneath” his peers who started at Airline B at the beginning of their careers?
And wouldn’t it be interesting to see airlines compete for airline pilots on the basis of that experience? Remember that a desirable airline pilot isn’t just one with 10 or more years of experience. It’s a person who has shown good judgement, safe judgement, efficiency and a can do attitude. If I’m starting an airline, that’s who I want. And an airline startup can’t really get those guys. They’re stuck with the airlines they work for by and large.
Seniority imposes too much pain on both the employee and the employer at this stage in the game. It is hurting competitiveness among airlines and impacting employees/labor in a very negative way over the long term.
Alaska Airlines and American Airlines announced an expanded code share agreement between the two airlines on Monday. The focus is on American Airlines putting its codes on Alaska Airlines routes from the San Francisco Bay Area and Alaska Airlines putting its codes on American Airlines routes from the Los Angeles area.
Alaska is ready to do business with anyone that it makes sense to do business with. For them, this is about expanding options with another airlines to gain incremental benefits.
For American Airlines, this is about more than just gaining some incremental benefits. This is about expanding a partnership with an airline on the West Coast and making the argument that the current AA leadership team is ready to work on the airlines’ revenue problems with a bankruptcy exit.
The next step for AA will be announcing an expanded code share with Jetblue in the Northeast.
Will it work? Well, personally, I think not. Code shares like these are what you actually make of them. To date, American Airlines hasn’t really made much of its domestic code shares because it has always preferred to capture the all the revenue for itself in most domestic situations. They don’t mind the incremental benefit to their foreign route network and anything that puts a passenger on a flight for a good fare is OK with them but it isn’t their focus. Other airlines often try hard to drive sensible synergies with their code shares but American’s team just doesn’t seem to do this much.
Financial analysts aren’t fooled by these moves nor are those on the unsecured creditors committee. What existing creditors and bondholders want is an airline that has long term viability for realizing profits that look a lot more like Delta’s. A patchwork plan of code shares doesn’t get them there.
There are a couple of very striking things I notice about the world’s powerhouse airlines and particularly those who are not only surviving but thriving: They are heavily engaged in building global networks and constantly tweaking their domestic and/or regional networks to support these global networks.
Witness these airlines: Delta Airlines (who is arguably doing it better than anyone else at present), Emirates, British Airways, Air France | KLM, Lufthansa.
These airlines in one form or another have acknowledged that change in their regional networks is a constant process and that reaching around the globe is necessary.
What the US Airways / AA merger won’t have is a truly global network.
American Airlines has relied upon its Oneworld partners to provide this to them and that has reflected poorly on American Airlines. Domestically, it makes them appear to *need* these partners rather than being the case of providing a seemless service product around the globe. The only routes in which AA works on itself are to Europe and those routes involving the UK have been half maintained by British Airways still.
Consider that British Airways supplies almost half the seats between DFW and London Heathrow and this is on a route to and from AA’s most valuable hub. Chicago to London sees British Airways supply more than half the seats. In the New York to London market, British Airways supplies 7 of the 12 flights and even a greater proportion of the seats.
On the Pacific routes that AA does have, the partnerships of flights and capacity with Oneworld partners is a bit more equitable. Partners do about half of the capacity from my look into things. But it is notable that it took QANTAS to put a 747-400ER on a route between Dallas and Australia and that it is QANTAS who is enjoying that revenue far more than American Airlines is.
AA has some good core strength to Europe and South America. US Airways has the same strengths. There will be consolidation in this area. Expect New York, Philadelphia and Miami to be the gateway cities in this merger.
Expect Charlotte, NC to be downgraded to a domestic hub. Charlotte’s few European routes will transfer to Philadelphia and/or New York and/or Miami. Charlotte’s Caribbean and South American flights will transfer to Miami (and rightly so) and a some to DFW.
Expect Los Angeles to be the West Coast gateway city and Phoenix will be downgraded to a domestic hub with passengers route to Dallas for flights over the Atlantic and to Los Angeles for Pacific flights.
But that is what I expect them to do with the resources they have today. What they will also need to do is build core strength to new destinations with aircraft freed up from consolidation. USAmerican Airlines will need to deploy more strength to Asia and it should strongly consider operating flights to the Middle East and Africa. They will even have an opportunity to perhaps explore South Africa as an opportunity through its South American flights.
And whoever gets the 787 first, QANTAS or USAmerican, direct routes to Sydney and Melbourne need to be established from DFW. There should be multiple frequencies here.
Make no mistake, I do think Parker & Company is the right management team but they need to find a risk taker on the AA side to do strong business development in the above named areas. This is a weakness on both sides but much more so among the US Airways team. If the entrepreneurial spirit for this business development does not exist on either team, they need to hire it as soon as possible. I would hire a senior level executive from a multi-national airline as fast as possible and give him or her a budget of resources and money significant enough to build a strong revenue stream from these weak spots.
And I wouldn’t wait to do it. The longer USAmerican waits to address these core foreign route weaknesses, the more Delta will capitalize on them and the more chance there is that United will regain momentum.
Consolidate these foreign strengths quickly and immediately go to work on route development to destinations outside my core strengths. I would also stop relying upon Oneworld partners to give me circuitous and service unequal routes to these places.
Delta has a couple of new(ish) inflight safety videos and they each feature a cameo by Deltalina (see the last video). They’re clever and different enough to be worth watching both versions.
When US Airways and American Airlines merge, there will be a great deal of talk about synergies and how they are complementary. And if it isn’t about that, it will be people talking about how they aren’t complementary and that this is a shotgun wedding. Everyone will be critic and that includes me.
So I’m going to do it now.
I have actually liked the idea of an AA / US Airways merger for a while. I do see US Airways bolstering AA’s domestic network in certain areas. What I never liked was the idea of an AA executive running the show because the first thing that would be done is a shutdown Phoenix and probably Charlotte, NC, too. That’s what American Airlines executives do when they merge an airline.
Many will see Phoenix get drawn down into insignificance in this merger because of AA’s focus on Los Angeles. I disagree. I think you’ll see a distribution of flights and the network between the two cities. I think Los Angeles will be used for a West Coast gateway to the Pacific and Asia but I think Phoenix will continue to be used to focus domestic connecting traffic in the Western United States. It’s a more practical hub to use for that. Los Angeles and particularly LAX is not the airport to use for that kind of thing. You use LAX to connect traffic in California and to foreign destinations. You don’t use it to connect traffic to Tuscon. Bottom line: I think both remain hubs.
Dallas and Chicago stay right where they are. They probably add some flights but nothing really changes in a big way.
Charlotte, North Carolina stays. It fits much better into the Southeast United States as a connecting hub than Miami. Miami is a miserable place to connect to anything but the Caribbean & South America. Charlotte is a great place to connect to cities all over the Southeast and will help AA bracket both Delta and Southwest Airlines in that area.
Philadelphia will remain a hub and may see more traffic connecting there for foreign destinations. New York is a miserable place to connect for anything including foreign destinations. Philadelphia will remain a strong domestic city and we may well see some expansion of flights to and from this city from AA strongholds.
New York City remains much as it is with some increased network feed to AA flights to Europe and foreign destinations. The new airline isn’t going to cede ground even more in this city and it has an obligation to work to feed its Oneworld partners there.
Miami is named as an AA hub. It’s really more a gateway city just like LAX and New York City are. Miami will neither increase nor decrease in importance. I expect more domestic feed to Miami to connect to foreign destinations but that’s it.
There isn’t really much route overlap between the two airlines. There isn’t much consolidation to see from this merger. This will be about redistributing resources to maximize revenue opportunities and domestic routes will get shifted around and replanned around new opportunities.
Terry Maxon at the Airline Biz Blog of the Dallas Morning News has photos of the new 777-300ER in the new livery colors introduced by American a couple of weeks ago. It isn’t quite as jarring as that of the 737-800 we’ve already seen. That said, I still think it’s a very ugly tail and in conflict with the logo now in use. I still like the silver and I still think the stylized eagle implies a star more than an eagle.
Alaska Airlines
Alaska Airlines had a captain faint while in the cockpit on a flight over Oregon. The first officer declared an emergency and landed the aircraft on a priority basis in Portland. Another captain ferried to Portland and flew the flight the rest of the way. The captain who fainted was an industry veteran with a current medical certificate. He gained consciousness in the cockpit and removed himself from the cockpit to the back of the plane where he was tended to by an onboard doctor. The only real problem here is if Michael O’Leary of Ryanair gets wind of a 737-800 being landed by a single pilot.
All Nippon Airlines
All Nippon Airlines (ANA) says that its losses due to the 787 grounding are now up to just over $15million. Once the final effect of the grounding is known, ANA (and other airlines) will likely enter into discussions with Boeing over compensation for their losses. No doubt Boeing will see this an opportunity to book more orders for aircraft.
