I’ve long noticed that Alaska Airlines has maintained an exceptionally high stock price relative to other airlines.  As I write this, Alaska is at about $51 / share while Delta is at about $18 / share.

I honestly do not know Alaska’s strategy for stock prices.  This is an airline that does a good job on itself and despite it’s legacy airline roots and relatively high costs, it turns a profit very well.  That in itself helps with the share prices.

Yet, I can’t help but keep wondering if Alaska’s high share prices have given it shareholders who tend to invest for a longer view than the typical airline investor.  I wonder if it has enough breathing space to make the right decisions and hence the reason it performs so well financially.

United Airlines stock price is pretty high right now at $30 / share but I actually don’t know why.  It’s not an airline that has so far shown itself to be capable of benefiting from its merger.  I suspect that investors in United are simply hoping that good news will miraculously appear one day soon.

All airline share prices are up but it is curious to me that Alaska has performed so well.  It’s worthy of debate and investigation.

Filed under: Airline News by ajax
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Now we have a real net profit for American Airlines in May of $65 million.  It is something to crow about and it is worth celebrating at American Airlines.

Let’s take a moment and let them enjoy that truly good news.

Since this announcement was made and since I’ve read Tom Horton’s comments on this profit and expectations for the 2nd quarter (a profit for the 2nd quarter is expected), I have had a very odd, uneasy feeling.

Would it be tempting for someone to sabotage this merger in the hopes of running the airline as a standalone?

Filed under: Mergers and Bankruptcy by ajax
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By several accounts, the US Justice Department is investigating the US Airways / American Airlines merger and a focus appears to be on the control of approximately 70% of all the slots at the airport by a single airline.

I would think so.

Frankly, I had not appreciated just how dominate this arrange would be at this airport.  I feel certain that the combined airline will be required to give up slots to merge and it won’t be a tiny few.

It would be nice if the airlines could arrange a deal themselves rather than be forced to give these up for a giveaway.  I suspect Parker & Company could strike a deal that would see value going to an airline while they received value in return.

And this highlights, once again, the problem with slots and how they’re awarded to airlines at our major airports.  There needs to be a better way that is more dynamic for the market place.

Filed under: Mergers and Bankruptcy by ajax
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It pays to shop around and it pays to question whether or not a Low Cost Carrier really is low cost.

Just for fun, I looked around for flights from the DFW area to Portland, Oregon and I used Labor Day weekend as my target as it was a weekend where we should see some restrictions and fairly high travel.  In other words, I wanted to make it a popular time to travel that would see realistic fares.

I checked out Spirit Airlines and found a roundtrip all-in fare of $320 and that didn’t seem all that great to me given what we know about their many fees.  Next, I checked out my favorite airline, Southwest Airlines, and found a very high fare available for just over $500.

Yes, over $500 to fly Southwest to Portland, Oregon from Dallas and it was a connecting flight.  This is way too much.

Like Goldilocks, I found the bed that was just comfortable enough:  United Airlines with an all-in fare of just $367.00.  It, too, was connecting (through San Francisco) but not with an terrible flight time involved.

Yes, I would pay a fee to check a bag on United but that fee would be less than Spirit’s typically and I would get to fly on a vastly more comfortable aircraft.

United’s 31″ of seat pitch vs Spirit’s 29″ of seat pitch.  It makes a huge difference.

So, the Low Cost Carrier wasn’t, the Ultra Low Cost Carrier wasn’t and the legacy airline was the best fit.

Lesson learned?

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Around the world, airlines are making record setting orders for new narrowbody aircraft.  We airlines in Southeast Asia and Europe being particularly aggressive while here in the United States airlines are far less so (even American Airlines who desperately needed a new fleet.)

In the United States, most of these orders are being made to replace modest portions of fleets that are nearing the outer limits of age.  100 737s for Delta Airlines just means that old aircraft get replaced with new aircraft.  No real change in fleet size.

Now, many US airlines are modestly upgauging their fleets with slightly larger aircraft.  An A319 buyer is going to the A320.  A 737-700 user goes with a 737-800.  This capacity growth amounts to just meeting organic growth in a modest economy such as the United States.

However, in Europe and Southeast Asia, I suspect something else is going 0n.  Some airlines will use some portion of their order to replace their oldest aircraft (Ryanair and easyJet) but I think the vast portion of their orders are going to go towards growth.

In Europe, I think we will see another fare bloodbath before things settle.  This won’t be just between Ryanair and Easyjet either.  Expect all the other low cost European carriers to be involved.  Norwegian, Germanwings, Air Berlin and Monarch all come to mind as airlines that are likely to be affected by a battle.

In Southeast Asia, the competition is already massive with prices already about as low as they should go with airlines planning double digit growth for multiple years.  Someone and something has to give here.  Yes, low cost carriers in this region are revolutionizing travel but they’re also often operating at a loss for marketshare.  Does this sound familiar?

I expect we will see one or more airlines in this region go bankrupt and I have in mind one particular entity:  Lion Air.

Economic growth in Southeast Asia doesn’t occur at all societal levels and that kind of airline growth isn’t sustainable in that region.  Someone will go out of business or will go bankrupt.  Bet on it.

Filed under: Airline Fleets by ajax
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Alaska Airlines is being excoriated by Alaska residents primarily in Fairbanks for switching their flights between their fair city and Anchorage over to Bombardier Q400 turboprops.   No more jet service.

I have a few words for Fairbanks residents:  Alaska Airlines just did you a big favor.

Fairbanks is likely to get more frequency on flight segments where it will take absolutely no longer to fly the segment.  The Q400 is made for such service and it can provide it reliably and, most importantly, at lower cost than the 737.

Flight durations won’t change.  Dispatch reliability won’t change.  Frequencies will go up.  How is that bad?

Fairbanks will retain jet service to Seattle and Portland, Oregon and it will keep jet service on one 747-400 Combi flight between Fairbanks and Anchorage.

There appears to be a perception that these aircraft are dramatically noisier than the 737.  They are not.  There is also a perception that they cannot climb very high.  They can climb quite high.  Each aircraft can climb as high as one would ordinarily want to climb on a flight segment that short.

There is a perception that the Q400 isn’t good in mountain turbulence.  Those in Fairbanks should observe that all the flights between Portland, Oregon and Seattle, Washington are in the Q400 directly over mountain ranges.

There is a perception that weather will be a real issue for passengers.  Possibly for a small number.  Possibly and depending on whether or not Alaska Airlines makes accomodations for its passengers (I think they’ll handle special circumstances just fine.)   Let me also point out that the climates in both Anchorage and Fairbanks aren’t exactly North Pole-like.   It can get very cold there during storms and winter months.  About the same as what is seen in International Falls, Minnesota where they fly turboprops in and out of all year round.

There is a perception that turboprops are more prone to icing.  They are not.  The altitudes in which icing occur are altitudes that both the 737 and the Q400 spend about the same amount of time in.  Both have anti-icing features and they work well.

And I want to point out one more thing:  Fairbanks city population is 31,000 people.  The entire metropolitan area is 97,500 people.  Waco, TX has 125,000 city population and 235,000 metropolitan population.  Waco doesn’t get 737 aircraft either.  In fact, Fairbanks is roughly equivalent to Sherman, TX in population sizes and Sherman, TX doesn’t even get commercial air service.  Take a minute to go lookup Sherman, TX and we’ll wait until you’re done.

Anchorage – Fairbanks sees about 11 flights a day in aircraft ranging in size from a small 30 seat turboprop to a large 737-400 with 144 seats.  ERA Aviation is flying the same class of turboprop between the two cities multiple times per day with zero problems.

So, basically, there is no problem here.  Just pride over issues that don’t exist.

Filed under: Airline Service by ajax
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The order games have begun at the Paris Air Show and there is one takeaway you should absolutely get from it:

It means absolutely nothing.  For at least this year.

Both Boeing and Airbus will land orders, cry out in joy that they won this customer or that but the status quo will largely be maintained.

Airbus will engage in its silly and, in fact, already has by announcing an order for 20 A380 aircraft by Doric Leasing.  Until proven otherwise, this feels like a silly order by a company who isn’t a “name” in aircraft leasing and who perhaps doesn’t understand just how limited the use of the A380 is for most airlines.  Without a few airlines named as taking up these aircraft, I’m not sure I believe the order.

Boeing has announced its easiest order ever for this year:  GECAS is ordering 10 787-10 aircraft.

Also notable is EasyJet who has ordered 135 A320 aircraft (35 CEO aircraft and 100 NEO aircraft) and it’s notable because I think Boeing might have been able to win this on price.  Yet it appears Boeing wasn’t even trying to contend.

And Boeing has officially launched its 787-10 with United Airlines being the US launch partner with an order for 20 of the aircraft.  Other “launch partners” are British Airways (an order for 10) and Singapore Airlines (an order for 10).

This won’t be a year of shock and awe and I suspect many will be glad for it as the industry has had enough shock and awe over the past few years to last quite a while.

Filed under: Airline Fleets by ajax
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Memphis has heard the bad news.  Delta has said that due to continuing financial losses on routes from that city, it is “de-hubbing” the city.  The process will start after Labor Day and Delta says it will keep a large presence in the city.

Memphis sees this as bad, I see it as good.  Having hub status was prestige but I’m not sure it was real value.  In fact, air fares from Memphis were kind of high and while the service frequencies were nice, they probably weren’t necessary if Delta couldn’t earn a solid profit there.

They’ve got Southwest moving in and I think they’ll be surprised to see how Southwest might “luv” Memphis.  This is an opportunity to put a lot of point to point connections through Memphis that may serve its purposes far better in the long run.  And businesses won’t mind having a significant airline presence that offers useful routes and value oriented prices.

I look for Southwest Airlines to turn this into real opportunity for itself as it can build point to point flights to and from Memphis that will provide real profits and which will fit very well into Southwest’s existing destinations.

Filed under: Airline News by ajax
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The executive leadership announced for the merged entities of US Airways and American Airlines (AMR) aka American Airlines Group tells a good story.

First, Doug Parker is firmly in charge.  Very firmly.  Second, Doug Parker is going to go forward trusting the team that got him where he is today.

The team is:

• Scott Kirby, 45, president overseeing marketing, sales and operations.
• Elise Eberwein, 48, executive vice president for human resources and communications.
• Beverly Goulet, 58,  chief integration officer. (AA executive now)
• Robert Isom, 49, chief operating officer for US Airways, COO for American Airlines Group.
• Stephen Johnson, 56, executive vice president for corporate affairs such as legal and regulatory issues.
• Derek Kerr, 48, chief financial officer.
• Maya Leibman, 47, chief information officer overseeing technology systems.  (AA executive now)
• William Ris, 65, senior vice president for government affairs.  (AA executive now)

Additionally, Dan Garton (CEO of American Eagle) will be leaving and I’m sorry to hear that.  I do hope that Garton may have another very good position lined up elsewhere.  He had been made CEO and President of American Eagle with expectation that it would become an independent company for him to run.  Now, not so much.

These were the right choices.  This is a real “A” team lineup.  This is not a political lineup but a real lineup of truly the best people for the positions.  Will Ris will leave soon but he’ll be of great benefit for the next few years of integration.  Beverly Goulet is essential as she knows where all the bodies are buried and she is very, very smart.  Maya Leibman is exceptionally talented and brings something that this new airline will need:  Someone who has been there and done that on reservations systems.  She’ll have the unenviable task of merging systems here and her knowledge of what has already been tried will be very helpful.

If I’m an investor or employee of the company, I am very happy about this announcement.

If I’m middle management at American Airlines, I’m a little shaken and worried for my future.

What this is not is a repeat performance of the ContiUnited merger.  Jeff Smisek went political with that merger and consented to keeping United staffers under pressure from then Chairman Glenn Tilton.  Retaining those people retained United’s old way of doing things and kept the Continental Breath of Fresh Air from entering the organization.  I’m not sure Smisek can turn it around at this point.

But Doug Parker has clearly decided to use those who do have a successful track record and who brought him to this dance.  He’s clearly positioning himself to follow the Delta / Northwest model of “how to integrate two airlines” and I firmly believe that this should cause creditors and financial analysts to get much more comfortable with the merger and its approval.

Filed under: Mergers and Bankruptcy by ajax
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United Airlines would be considered a big player in the ancillary fee department of airlines in the United States.  They had really 4 classes of service, for instance, long before most when they adopted Economy Plus.  Most recently, they became national news for their decision to raise already high ticket change fees another $50.

If there are going to be fees, I hope more airlines also take United’s approach to offering some value in the process.  United is now offering subscription plans that would either allow a passengers to routinely check bags for a year without additional fees or another plan that would permit travel in Economy Plus for a year without additional fees.

United isn’t just offering one plan either.  Checked baggage subscription plans offering opportunities to carry one or two bags and also offer the opportunity through widened regions.  Their simplest plan (1 bag) in the domestic United States is just $349 and one of their most expensive, two bags checked globally, is $799.

There is value in those fees for the frequent traveler.

Economy Plus works similarly.  For a base fee, the traveler would be able to access Economy Plus on a space available basis for $499.  It’s $599 if we add in Hawaii and/or Alaska.  For global access, it is $699.

But remember that that is on a space available basis and space available comes after top tier elites in that area.  There may be value here or may not be.

What’s the catch?  Well, top tier frequent travelers already get access to these things and this is really aimed towards the frequent flier that is traveling just a few times a year.  It fits a niche.

If fees aren’t going away, programs like these are good values for those who travel more than very occasionally and other airlines would be smart to emulate them.

Filed under: Airline Fees by ajax
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Congressmen have a well known fondness for Reagan National Airport in Washington, D.C.   They can work their 5 or 6 day week and catch a flight from this airport to home in short time.  The drive to Dulles can be very painful and particularly so towards the end of a week.

So Congress doesn’t want the merged airline of US Airways and American Airlines (aka American Airlines Group) to lose slots because of their merger.  The fear is that lost slots will result in lost routes to home states for Congressmen.

They aren’t wrong to fear this.  A divestiture of slots at Reagan National would almost certainly see them fall into the hand(s) of low cost carriers, at least in part. Low cost carriers won’t use those slots to fly to Albany, NY non-stop.

They will be used by a Southwest Airlines to fly to someplace like Austin, TX.  Or, perhaps, JetBlue to fly to Denver.

Should the new carrier be allowed to keep all its slots at Reagan National?  I’m sure everyone in the airline industry would shout out “Yes!”.  Personally, I think that certain airports with Reagan National being a perfect example should not be dominated by one airline.  Greater access by other airlines at that airport would be more appropriate.

Why?  Because it isn’t all about the people who live in Washington D.C.  It’s also about the people who live in other cities who have that need to travel to Washington D.C.  A little more competition and a little less domination at airports would be preferable.

Filed under: Airline Seating, Mergers and Bankruptcy by ajax
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I am of the opinion that people complain way too much for taxes and express way too little gratitude for the services provide for those taxes.  Everyone complains about road taxes, no one ever speaks positively for the fact that we have an interstate highway connecting two major cities.

However, I also think airlines and airline flights are over taxed.  Too much of the infrastructure (airports, FAA, etc) are financed with taxes on airline flights.  We’ve reached the point where a double digit percentage of the total cost of a domestic flight are often taxes.  That is too much.

In addition, by taxing only airline travelers, we end up not taxing others who benefit from that transportation infrastructure.

It’s not just the passengers who benefit from airports and airline flights.  Those airline flights and the ability to fly between point A and point B directly benefit our economies in many ways.  The provide a pathway for commerce to take place between two companies or locations or regions that otherwise would not exist.

Now the government wants to raise taxes more on airline flights and couches it as necessary to pay deficits and infrastructure costs and suggest it’s an inflation increase at best.

Taxes were very onerous long before today and they only increase.  There are many different taxes and they are largely imposed upon passengers to support airports, airport parking, airport roads, air traffic control, etc.  And we’re really not done with taxing travelers even at that point.

Consider the hotel and car rental taxes imposed on travelers in destination cities that can often be as much as 40% of the total cost of a car rental or 25% of a hotel rental.  That’s excessive.

Passengers should expect taxes on their travel.  Airlines should expect taxes for the infrastructure they use.  But the citizens of this country need to recognize that they benefit greatly from this commerce whether they fly or not and, as such, should also pay a portion.

Filed under: Airline News by ajax
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