US Airways and American Airlines want to know two things from the Department of Justice.

First, they want to know the details of what the Justice Department did in evaluating four previous airline mergers in the past decade.  The DoJ doesn’t want to give up this information and says what they did in the past is not relevant.  Only the current market conditions are relevant.

It’s true that the law says that mergers must be based on the hear and now essentially.  However, how that evaluation is done is another story altogether.  The airlines will try to make the case that by changing the “how” of evaluating mergers affects they outcome.

And they would be right.  One item that has been glaring to all since this nonsense began is that the DoJ chose to evaluate airport pairs rather than city pairs and dismissed the market power of LCCs altogether in that evaluation.  I think that US and AA will (rightly) make the point that in changing how an merger was evaluated, they changed the perception of the effects and therefore the DoJs suit has no merit since it did not use accepted practices that have provided analysis for mergers for a substantial period of time.

In other words, evaluated with the methods and tools, the US/AA merger would pass scrutiny because of the market conditions that would be uncovered by these methodologies.

Second, US and AA want to know who the DOJ talked to in evaluating this merger.  The reasons here likely have to do with two things:  They want to know the source of bias in how the DoJ chose to evaluate this merger and I suspect they think that some other airline or airlines were attempting to torpedo the merger.

What’s that?  You are shocked?  Shocked that some other airline may be attempting to arrange a clumsy backdoor outcome in the airline industry?

I’ve thought about this for 3 days.  I think that US and AA are on to something here.  And I think that it is jetBlue and/or Delta who may be playing that game.  If I put money on things, I would guess that Delta likely spoke unfavorably using its recent experience in doing its deal with US Airways over New York City (La Guardia) slots.  I think that Delta used its experiences with the DoJ during that last deal to color the market dominance picture with the DoJ.

I also think that Dave Barger decided to take advantage of a moment to portray jetBlue as a poor, underfed, uncared for LCC who never has advantages over anything.  Mostly because jetBlue would love to have some dominance at Washington Reagan National.  Take note of the fact that CEO Barger recently opined that US/AA ought to be made to give up all the AA held slots at Washington Reagan National if a merger is allowed.

I do believe that Washington Reagan National should be required to be “opened up” a bit by slot givebacks by both airlines.

I also think that any airline with greater than 50% dominance at any slot controlled airport should be required to lease out or divest themselves of slots to get under that 50% control.

But, hey, I’m a radical compared to the DoJ.

There is a hint of clumsiness in how the DoJ has gone about this over and over.  And it does smell of influence.  I also expect that, by now, US and AA have been told off the record of such discussions by those closer to the DoJ investigation.  If there has been influence, we’ll find out in a short while.  The airline industry has never been known for its ability to finesse anything.

Filed under: Airline News, Mergers and Bankruptcy by ajax
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In an unrelated story about United Airlines in the New York City area, some interesting statistics were noted by the Dallas Morning News.

The two SuperLegacy carriers, United Airlines and Delta, have 24.7% and 21.3% market share respectively.  No giant surprise but let’s look at what the next two airlines are in that market:

jetBlue:  13.3%

American Airlines:  12.3%

Yes, jetBlue beats AA in that market.  Let’s look at the next two airlines:

US Airways:  4.4%

Southwest:  2.8%

If we combined American Airlines, US Airways and Southwest in the NYC marketplace, we would have an airline with just 19.5% share of the market.  Still less than Delta and still considerably less than United.

And be mindful of the fact that SWA isn’t even considered a player in the NYC market as they’ve been unable to obtain gates or additional landing slots at the airports.

Care to guess who comes after Southwest?  That would be British Airways and Air Canada.  Yes, two foreign carriers are next in line with shares of 1.4% and 1.2% respectively.

On the tail end are Spirit and Virgin America with about 1% of the market each.

So when we talk about how there is an imbalance in the marketplace, let’s be mindful of the fact that the top two largest airlines (United and Delta) combine to own nearly 50% of one of the most competitive markets in the world.

And if you combined both AA and US Airways, they would still be at a significant disadvantage with just 16.7% of the NYC market.

I don’t disagree that the combination’s dominance in Washington D.C. should require divestiture of slots by those two airlines.

But the economic pricing power that the two SuperLegacy airlines have today are so great that they will gain more share over time rather than less with the current market conditions.  More of that market share means even more pricing power which means even greater increases in air fares.

But, hey, far be it for me to introduce rational thought in the US Airways / AA merger argument.

Filed under: Airline Service, Airports, Mergers and Bankruptcy by ajax
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A study was done on which airlines in the US were most fuel efficient and the scores are in.  First, let’s take a look at them:

I find a few interesting and anecdotal observations to make in this list.  Be aware that this study was done using 2010 data.

First, notice that the “happiest” airlines are nearer the top.  That doesn’t mean all of them are happier places to work, it means that it is notable that many of the leaders are also airlines who take reasonably good care of their airlines.

Second, let’s take note that those that are better than the industry average are airlines who are far less involved in “hub” flight operations.  This makes sense as the airplanes are flown more efficiently in a point to point orientation.  Why does this make a difference?  Part of the fuel efficiency measure is centered on the airline making fewer connections to get between a city pair.

Third:  Old fleets made of old MD-80 aircraft are clearly not performing well for airlines.  That said, two of the more profitable airlines out there have them (Delta and Allegiant).

Fourth:  Hubs with less weather impact and with more central locations may be best.  Continental Airlines had Houston, United had Chicago and Denver and Southwest uses secondary airports for focus cities (Chicago, Dallas).

Fifth:  Newer fleets clearly are favored and the reason is obvious, I think.

Sixth:  No matter how many “advantages” you might have, bad leadership shines through nontheless. I’m talking about American Airlines.

Filed under: Airline Fleets by ajax
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jetBlue CEO Dave Barger has decided that jetBlue *does* have a dog in the merger fight and has announced his (jetBlue’s) belief that American Airlines should lose all its slots at Washington Reagan National Airport if the merger goes through.

He means those slots held by AMR, not the new American Airlines.

He may even have a point but Mr. Barger would be well advised to pay close attention to what airports his own airlines dominates at before deciding he does have a dog in the fight.  That dog might bite him.

jetBlue holds a lot of slots at JFK airport and cooperates with American Airlines.

Maybe American Airlines (new) should have to discontinue its lucrative relationship with jetBlue due to dominance in the NYC, Boston and Washington areas.

Blatant land grabs are shameful no matter who makes them.  I realize that those slots are something all airlines covet.  If you cover them so badly, advocate a fair and equitable system for allocating them that remains dynamic over time.

Filed under: Airline Service, Airports, Mergers and Bankruptcy by ajax
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A while back Alaska Airlines decided to use its subsidiary Horizon Air to provide most of the service between its Anchorage hub and Fairbanks Alaska.  I wrote about this decision when it was made and notice that they are preparing to introduce this change in the near future.

The Q400 was insulted by Fairbanks, to be honest.  It was regarded as a big insult to the city of Fairbanks who failed to recognize that those 30% savings were needed on routes between the two cities.  Let’s be clear:  air fares between these two cities are highly competitive yielding as little as about $130 per seat.  A Q400 makes it possible for Alaska Airlines to better serve the route.

As they are introducing the aircraft to the city, I thought it might be interesting to offer a few links to photographs of the cabin of the aircraft just so people could see just what citizens of Alaska are getting.

Alaska Airlines Cabin

Alaska Airlines Aisle

One other item of note:  Alaska Airlines / Horizon Air’s biggest competition on this route comes from Era Alaska.  Era Alaska uses the Q400’s father, the Dash-8-100 on that same route.

Filed under: Airline Service by ajax
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AMR and US Airways each filed their response to the Department of Justice lawsuit and you can find all manner of references to it online yourself.   The theme is what is important.

The DoJ and many anti-trust experts say that the law says a merger must be evaluated in the context of “now” rather than on the history of an industry.  In other words, while a merger between Delta and Northwest may have been “good” for consumers in 2008, that has no bearing on an American Airlines / US Airways merger in 2013.

The two airlines have indicated they feel otherwise and I’m inclined to agree because it’s those other mergers that have set the stage for the market conditions today.  Each airlines’ responses give a hint as to how they will defend themselves in court in the near future.

Both airlines make the case that the DoJ context for evaluating the merger was wrong in that by evaluating airport pairs and doing so on a connecting basis runs contrary to reality.  I agree.  In fact, time and again we have seen that the airlines with hierarchical superiority on a route (non-stop flights, one-stop flights, two-stop flights, etc) are the ones who tend to dominate on a route.  For example, on a route such as DFW to LGA (Dallas to New York City), the airlines with non-stops will carry most of the traffic whereas the airlines with just one-stops and two-stops will simply follow the prices set by the non-stop airlines.

Put another way, comparing one-stop conditions to non-stop conditions doesn’t yield a rational picture of the market.  These two airlines really want that to be the prevailing view because when it comes to where they directly compete on non-stop routes, there is a very tiny amount of overlap.  I think the airlines have a good chance of causing this to be the relevant view in this trial.  It passes the “sniff” test.

The second theme is that the airline industry spent approximately 30 years in a condition that prompted serial bankruptcies, mergers and conditions that found the airlines unable to deliver a consistent financial performance no matter who the airline was.  The question asked is why would the DoJ wish to perpetuate conditions that might financially advantage individual consumers but which is unsustainable as an industry?

They aren’t wrong.  I myself wondered if the airlines would ever be able to find some steady state in which to not only operate in but earn reliable profits in.  They have managed this admirably since 2009 or so and it has gotten a bit better.  Airlines earn profits despite a very weak economy and continuing oil shocks.  This is what we want.

And let me point out that no airline is running around and earning egregious profits at anyone’s expense even today.  Not a single one of them is ExxonMobil earning billions of dollars in profits each year.

I think that to make the argument that mergers continue to be needed to ensure a healthy industry is going to be more of a struggle.  Presumably attorneys and experts who are far above my pay grade will find a convincing way to do so.  I am skeptical not because I think it is an unworthy argument.  I am skeptical because I think it is an argument that doesn’t address anti-trust law very well.  It’s not a “consumer” argument in the eyes of most although I would argue that a healthy and competitive airline industry *is* best for the consumer even if prices are higher than they were in 2005.

Finally, they are clearly going to talk about markets in both domestic and international terms.  Here is where the arguments get very strong.  When they break down the market shares domestically, they rightly point out that the combination of these two airlines hardly ripples the market shares.  Southwest is the biggest airline domestically and has been for years.  The  merged US Airways and American Airlines won’t challenge them for dominance.

While you are chewing that over, let’s go to the international side of things and consider that not only do the airlines have to compete against each other on routes but that they also have to compete against other international airlines who, fairly frequently, enjoy lower costs than those same US airlines.

I like the domestic and international market arguments a lot because they embody clear, relatively easy to understand facts.  They are truthful and pass a lot of sniff tests.  This is where the DoJ made its biggest mistakes because it decided to “create” a picture of where the consumer was impacted that was based on carefully chosen criteria which ignored other, substantially mitigating facts.

This is where the lawsuit is won, in my opinion.  These are the facts that one should hang one’s hat on and they have the additional benefit of being very true.

Filed under: Airline News by ajax
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It’s been a long while since I wrote about anything involving the TSA but I managed to catch wind of an interesting little thing going on at a local (to me) airport.

Evidently 9 people were involved in a theft ring where employee parking passes were being stolen and re-sold at DFW airport.  These passes allowed people to use airport parking a great deal more economically, if you know what I mean.

What does this have to do with the TSA?

8 of those 9 people worked for the TSA.

Am I shocked?  No.  We have real world concerns about security in airports regarding legitimate threats to people.  There are real and tangible security threats that exist and are even focused on the US.

What’s our answer?  The TSA:  Our front line security against these threats.

At least when they’re not stealing from co-workers cars.

Filed under: Airports, security by ajax
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There is a reason why I’m writing this today.  It’s because a newspaper has printed story about Norwegian Air Shuttle grounding their 787 aircraft.

Except they didn’t.  The detail of the story simply outlines that twice Norwegian has technical problems with their brand new 787s causing them to cancel a flight.

This happens like . . . with absolute certainty with new airliners entering an airline fleet.

The aircraft weren’t “grounded”.  Not even briefly.  They went technical forcing a flight cancellation.  That’s it.

Now, it is common for media to over-blow airline events and I almost always ignore such stories these days because their just silly.  You could devote a whole blog to debunking such things and that’s not how I want to spend my time.

But in this case, I will.  Why?

Because that story was in the New York Times website titled “Airline in Norway Says It Briefly Grounded Dreamliners”.  This story was written by someone named Nicola Clark.  On the New York Times website, it says this about Nicola:

Nicola Clark has reported on French business for the International Herald Tribune since 2001, covering a number of industries, including aviation, banking and media. She received an Aerospace Journalist of the Year award in 2007 from the World Leadership Forum for her writing about the Airbus A380 crisis. After earning a masters degree in international affairs from Columbia University in New York in 1993, she worked for news agencies in New York, Tokyo, London and Paris covering financial markets.

So, here is my deal:  This story was stupid.  It covers an airline having a couple of technical problems with an aircraft which is not news.  This is never news.  This isn’t the news that should be reported.  It sure isn’t the news that should be reported by someone who has evidently been recognized as “Aerospace Journalist of the Year” from something called the World Leadership Forum.

I realize that the title of that story could have easily been done by an editor who is also stupid.  But writing a story about an aircraft having a couple of problems just as every other aircraft experiences from time to time forcing a couple of cancellations is atrocious journalism.

Filed under: Airline News by ajax
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Over the past week, I keep thinking about a few things related to the US Government’s stance on the US Airways / American Airlines merger and, specifically, their cited concerns about the merger.  Here they are in no particular order:

• The DoJ was remarkably absent when the Wright Amendment undoing was being done.  Love Field Airport was essentially made a single airline airport . . . forever.
• American Airlines now controls the following terminals at DFW International Airport:  Terminal A, Terminal B, Terminal C and parts of Terminal D.  The remaining terminals available to other airlines are . . . Terminal E
• Delta . . . Atlanta . . . enough said.
• No one seems to be trying to preserve flights to and from small cities in other parts of the country but anyone who wants to remove silly flights into Reagan National is deemed a danger.
• Delta . . . Minneapolis . . . enough said.
• Delta . . . Detroit . . . enough said.
• United . . . Houston . . . stranglehold.
• Southwest . . . Love Field and Midway airports

By the mandate cited by the DoJ, the antitrust department would appear to have a strong duty to investigate and correct these defects as soon as possible.

Filed under: Airline Service, Airports, Deregulation, Mergers and Bankruptcy by ajax
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Delta Airlines has announced an order for some Airbus aircraft and before anyone signals that this is the end of days moment for Boeing . . . relax.

Delta today is comprised of Delta yesterday and Northwest Airlines of yesterday as well.  Northwest Airlines was a big user of Airbus aircraft.  The organization does have a great deal of experience operating Airbus aircraft now.

Furthermore, no airline of Delta’s size can afford to continue to buy from one single supplier and be responsible to both their company as well as their shareholders.

And who says Airbus builds a bad product?  I sure don’t.  Delta has learned that the A330 works very well for them sitting between their 777-200 and 747-400 aircraft.  Part of this order is a “top up” of the A330-300 type to the tune of 10 additional aircraft.  Delta has (10) Airbus A330-200s and (20) Airbus A330-300s already and an additional (10) A330-300 aircraft sounds, to me, like Airbus is growing some capacity at the top end of their fleet.

The A330-300 is their second largest aircraft seating-wise, believe it or not.

And Delta ordered (30) A321 aircraft as well.  This is an airplane that arguably most US based airlines will be buying as it has been identified as a 757 replacement on certain missions.  Given that just 30 of them have been ordered, I suspect that the A321 offers a better replacement than the 737-900ER  in certain missions likely requiring more density rather than range.

No airline can afford to skip Airbus at this point.  Likewise, no airline should skip Boeing either.  Each manufacturer has viable products that can meet needs.  Aircraft manufacturers can no longer offer delivery positions that make it possible to stay in one product family.  Well, not easily anyway.

Filed under: Airline Fleets, Airline News by ajax
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British Airways has announced its intentions to start a London (Heathrow) to Austin, TX flight initially flying 5x a week (all but SAT and WED) going to daily later in 2014.  This new flight will start early next year and I’m pretty sure it marks the very first trans-Atlantic flight for Austin.

No, this won’t be using a 777 or a 747.  It will be done with a 787-8 and it is a perfect example of what the 787 allows an airline to do. If British Airways can make this route successful at all, it will yield more revenue than asking American Airlines to bring the passenger to Dallas or United Airlines to bring the passenger to Houston.

But there are implications for the vaunted alliances and, in this case, Oneworld.

Why is it in an airline’s best interest to remain in an alliance and even a trans-Atlantic joint venture if it can simply deploy the right sized aircraft to the route and pick off all the low hanging fruit.

There are also implications for airlines who have not adopted the 787 in any great numbers.  Some airlines continue to view the 787 as a 767 when, in fact, it isn’t.  If all you ever needed was a 767, you would probably be better off buying a 767 from Boeing new (they still offer them).  The 787 can do 767 missions but the genius of owning one is that it can also provide exceptional flexibility and provide more opportunities for profit than the 767 ever had a hope of providing.

Flexibility, we’re learning, is a key component to earning profits at airlines.

I believe that Delta Airlines has shown great restraint and excellent analysis in how it has so far managed its fleet in almost every respect.  The one area I did not believe to be smart was their deferral of 787 aircraft. Tying their fortunes to continued use of their 767s will impact their ability to be flexible and entreprenurial on a global scale.

Likewise, I believe that we’ll see United Airlines start to truly exploit the possibilities of their 787 aircraft in the near future and that will provide competitive intensity to Delta Airlines that we have not yet seen so far.

Filed under: Airline Fleets, Airline News, Airline Service by ajax
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US Airways and American Airlines have gotten what they have asked for and will be going to court quickly over their lawsuit filed by the Department of Justice to “kill” the merger.

The trial will start on November 25 and likely last about 2 weeks.  There is a massive amount of discovery that must take place between now and then.  The quick trial makes this the airlines’ trial to lose at this point.  They must have all their ducks in a row to make this work for them.

There is a key maxim to go by in trials:  He who is prepared most often wins.

Believe it or not, even when the stakes are this high people sometimes show up unprepared.

I think the merger chances went up with this trial date but let’s understand somethings here:

1. This is a very high stakes poker game in which a settlement would be extraordinary.
2. The government’s case is weak based on all modern historical standards by which anyone would testify.
3. If the government loses this case, consumers are actually kind of harmed but it will have not achieved any givebacks from the airlines for Reagan National
4. Political pressure in this case will be enormous.
5. Factual data will rule here, not emotional arguments.

The airlines need to be very sure to show up over-prepared at this point.  This is their case to lose now and acting as if the argument in their favor is self-evident will result in the Department of Justice walking away with a win.

You cannot possibly be over-prepared for this case.

It’s time for the airlines to stop the bluster and outrage and get to work.

And will someone remind Doug Parker that the fat lady hasn’t sung yet?

Filed under: Airline News by ajax
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A big part of the Department of Justice’s complaint about mergers is the concentration of airlines at major hubs and, most particularly, at slot controlled airports.

Well, even more specifically, they don’t want to see US Airways stranglehold on Reagan National Airport to change.

Wait.  What’s that you say?  DoJ wants them to give up slots?  Well, no, not exactly.

The DoJ approved US Airways getting their stranglehold.  The DoJ likes the stranglehold that US Airways provides.  It just doesn’t want that stranglehold changing.

This is the crazy that slots produce.  And it’s why I continue to believe that slot controlled airports need to periodically put all the slots up for auction for use for a set period of time.  Yes, I want an auction to lease those slots on at least an annual basis.

Why?  Because it does improve competition.  Airlines who wish to gain access can, at the right price.  At the same time, no airline will have an incentive to buy a slot and then use it inefficiently.

Right now, airlines are serving these airports with slots they are considered to “own” and use these slots to serve routes to hold control of an airport instead of, you know, earning an appropriate ROI on the route.

When a commuter flight between Charleston, WV and Reagan National provides 30 fares vs using that same slot for a flight between Reagan National and Dallas which has maybe as much as 130 fares being charged, you start to see the inefficiency.

But for some reason, no one wants smaller communities to lose those flights to the seat of power.  I do.  Those flights can’t yield enough to be efficient and should be relegated to flying to Washington Dulles airport instead.

It’s the idea of slots being owned by airlines that I object to.  I think they have to exist but I also think that the government should be earning money from them and they should be regularly available for re-allocation according to what someone is willing to pay for them.

I don’t wish harm to small communities but it’s time to recognize that there needs to be more cost efficient ways to serve these destinations as well.  Providing these cities with high frequency non stop flights each day is inefficient.  It’s time to allow the market(s) to find other, better ways to serve these cities.

Filed under: Airline Service, Airports by ajax
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