Southwest Airlines holds the unenviable #12 (out of 14) position for on-time arrivals on the latest list released.  Hawaiian (surprise, surprise) is first and Alaska and Delta follow in 2nd and 3rd place respectively.

Southwest didn’t use to hold that position . . . ever.  In fact, it held #1 positions in on time for a long, long time.

Now, yes, they’re bigger and they’re busier but . . . here is the thing:

Delta is #3.  US Airways is #5 and American Airlines is #9.

Southwest is losing this battle badly and it isn’t just because they’ve entered non-traditional markets either.  When people ask CEO Gary Kelly about a culture loss, these are the things that come to my mind.  He refutes that culture loss but I don’t think that it is fair to believe that culture at Southwest is the same it ever was.

There are operational problems at the airline.  Their systems are creaking under the loads they’ve been placed under.  They have no systemized approach for scaling up to their demand and their not leaving happy employees in their path.

So, when people call out a deterioration of culture at the airline and they really do mean things going down hill such as on time arrivals, it’s best not to say “Oh no.  We’re fine!”  Acknowledge the problem and start to address it rather than acting as if there is no problem.

Otherwise, you start to look like American Airlines circa 2010.

Filed under: Airline Service by ajax
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Airlines such as American Airlines and Delta Airlines are sharply reducing the number of flights they are flying to Venezuela at this time.  The problem is that while they like the flying, they can’t get their money out of Venezuela.

Most recently, American Airlines has said it has over $700 million that it cannot retrieve from the greedy hands of Venezuela’s government.  $700 million is a lot of money for any company and even for an airline, that’s a lot of cash. News reports now say that nearly $4 billion (with a “b”) is being restricted by Venezuela due to currency restrictions in place.

Venezuela (and some other countries) are greatly restricting the amount of foreign currency that can leave the country at any one time.  Because of rampant inflation and hyper-inflation induced by socialist movements in such countries, these nations now have a severe problem is coming up with enough “hard” currency to pay their global bills.

That’s significant when it comes to Venezuela because this is a nation that has had a profitable oil export going on for years.  Typically that brings in more than enough foreign currency to balance outflows for most nations.

The worst of this is that as these balances grow in these countries, they look more and more attractive to hold on to.  $4.9 billion is a lot of money to a nation such as Venezuela.  In fact, it’s about 1% of Venezuela GDP.

Think about that for a moment.  For foreign airlines alone, Venezuela is intentionally restricting as much as 1% of its GDP.

How is this done?  The nation devalues its currency strongly and regularly.  An airline such as American Airlines sell a ticket for say, $200, it’s paid for (in Venezuela) in Venezuelan Bolivars at the official exchange rate.   That exchange rate is set by the government.  But the government changes that rate arbitrarily and lower before that money gets to the airline.  Here is a simplified example:

SuperStar Airlines sells tickets in Venezuela for Bs 1000.00 (One thousand Venezuelan Bolivars).  Juan Diaz purchases a ticket and pays in cash Bs 1000.00.  The exchange rate is (officially set by Venezuela) set at 4 Bolivars to $1 US.  The airline collects this money into a Venezuelan bank account in that currency.  Now, periodically, SuperStar Airlines would like to have that currency sent back to its headquarters in the United States.  But the Venezuelan government makes this very difficult to do because it’s a large sum of money.  Basically, this currency has to be sold for dollars and the only place those dollars can be purchased (legally) is the Venezuelan government.

So the Venezuelan government “sells” dollars for an exchange rate that is set at Bs 5 to $1 and suddenly the money that SuperStar Airlines has is now worth much less.

What makes this worse is that the Venezuelan government is maintaining several different exchange rates that are “official” and those are egregiously unfair to the businesses such as airlines operating to and from that nation.  In addition, the government is devaluing its currency more in the exchange rates that primarily effect foreign businesses.  Furthermore, it’s only permitting a trickle of cash to be exchanged and sent out of the country at a time.

This results in a condition where it just doesn’t make sense to fly to Venezuela.  Actually, it doesn’t make sense to do any business in Venezuela and one could be tempted to call Venezuela the Alitalia of countries at this point.  When you can’t make money and take it back home periodically at a rate that allows you to earn a reasonable profit, you just have to stop doing business in that country.

This is what many airlines are doing now.   One thing that the former President (of Venezuela) Hugo Chavez understood was that he needed foreign businesses to do business in Venezuela and he kept this game at a tolerable level.  New President Maduro and his government is not making it tolerable because to do so means they cannot throw money at their citizens to stay in power.

And staying in power is important.

This is very reminiscent of how many nations in South America operated in the 1960’s, 1970’s and 1980’s.  And it killed those economies.  Airlines had to be very creative with how they got money out of those countries legally.  Braniff was very good at this but even Braniff would find itself doing very odd things from time to time.  For instance, its leather seats came from leather from Argentina. That leather was “exported” by Braniff because they had to buy something to take “value” out of the country.  Leather was a  way to get “value” out of Argentina.   Other times, executives would travel to the Latin American country in question, buy financial instruments of various types (often bonds) and then stuff their suitcases with them and come home.  I know this because that is exactly what my father had to do at Braniff more than once.

When an airline gets to the point that it says it is untenable to continue business in a nation, that’s pretty bad.  Airlines will do business with just about anyone if there is money to be made.

I strongly suspect that Venezuela’s response will be that their airline will fly people where they need to go.  Except . . . how will that airline gets its money out of those countries when they use retaliatory measures (allowed) against Venezuela?  This is only one chapter of a multi-story chapter.  Stay tuned for more.

Filed under: Airline News, Trivia by ajax
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I read a story from Forbes recently where the possibilities that the 787 opened up were discussed.  Specifically, how new routes to China were springing up now that the 787 was available to do “long and thin” routes for airlines.

United Airlines opened up a thrice weekly route from San Francisco to Chengdu (in the interior of China) that is 6857 miles in length.  Not nearly the maximum distance a 787 can fly but certainly a distance that isn’t flown often.  That is the equivalent of flying across the United States from coast to coast 3 times.

The reason that route is possible is because the 787 delivers seat costs that are less than much larger airliners (777, 747, A380) despite it being able to seat just over 200 people.  The United Airlines 787 seats just 219 people, for instance.

On that San Francisco – Chengdu route 40 years ago, the route would have been flown from San Francisco to some place such as Japan on a 747 where a smaller but still long-legged airliner such as the DC-8 would carry some passengers onwards to Chengdu, a distance of 2100 more miles.

That is the magic of airliners today:  direct routes instead of spoke-hub–hub-spoke.

It’s why airlines do want range and the idea that airlines will accept less range for a cheaper vehicle is somewhat suspect in my opinion.

It’s why I believe that the A380 is a niche airliner and will forever be a niche airliner.  Why should I fly from Dallas to Dubai to Mumbai on Emirates when I could theoretically hop on an American Airlines’ 787 and fly from DFW to Mumbai direct?  (And very doable on the 787-9, I might add.)

This is the quiet revolution of the 787.  It isn’t the carbon fibre or engines.  It’s the very cost effective airliner for such routes.

Filed under: Aircraft Development, Airline Service by ajax
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Am I the only one to notice that American Airlines’ social media has suddenly become both entertaining and fun?  I used to go months without seeing posts from American Airlines on Facebook and now I see multiple posts each day and they are funny and moving and entertaining.  It sets a great tone for this airline and I hope its nurtured.

Some examples are:

• a post of an airplane wing against a sunrise backdrop in the sky with the words “O beautiful for spacious skies…” on 4th of July.
• Another sunrise photo with an AA tail at a airport gate with “The early bird gets the worm…”
• A post on a Wednesday with a photo of a 777 taking off that says “Hump Day? More like #WheelsUpWednesday!”
• A photo of an AA Captain who happens to be a woman that says:  ““Fifteen years ago, another female captain brought her 7-year-old son on a work trip. Throughout the sequence and on the layovers in the Caribbean, he took it all in. On the flight back into Miami, one of the flight attendants asked if he wanted to be a pilot when he grew up.

  He scrunched up his face and, with complete disdain, said, ‘No, that’s a GIRL’S job!’” – Capt. Kathi Durst, Fleet Captain 737”

These posts are fun, saucy and I hope they continue.  Great job, American Airlines

Filed under: Trivia by ajax
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The Spirit of ’76 / Braniff Flying Colors

Filed under: Airline History, Trivia by ajax
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First Quarter earnings last year in 2013 for United Airlines was a disappointing loss of $362 million.  United worked extra hard to deliver even worse results in 2014 with a loss of $580 million.

All of this in the face of historic and near historic profits being enjoyed by airlines across the United States.  American Airlines Group is having a banner day but we’ll have to excuse some of that blistering performance as it’s most recently out of bankruptcy and it has yet to stabilized in its merger.  Regardless of my dampening the mood on AAG, they have done far better out of the gates than virtually any other airline and that ain’t nothin’.

It bets the question of what will happen to United Airlines and I keep visiting this subject as things keep getting worse.  I strongly suspect we will see a change in leadership in the near future at that airline as these results won’t be tolerated for very much longer.

That won’t solve the problem, however.  United’s problems are both organizational as well as culture based.  This isn’t an airline whose employees want transformative change.  In fact, there is a belief that if the leadership would just get out of the way and give them what they want in salaries, the airline will operate profitably. Each union holds the company hostage with poor performances and behavior that is a patient wait for the company to start to teeter again.

Overthrowing leadership rarely gets you what you want.  An ailing airline doesn’t provide leadership in salaries, growth or quality of life.

It will take a transforming leader to turn United Airlines around at this point and I think that person will be very hard and very elusive to find.  Such a leader will have to gain the trust of both sides of the company (United and Continental) will simultaneously imposing change and bringing about vastly better operational efficiency.

That’s a tall order for that airline.  Who do you hire?

It will be tempting for someone to hire a CFO from another airline.  United has enough financial management to run 4 or 5 airlines.  Those good enough for the job have the dream jobs of their careers already.

And the excellent Continental Airlines leadership is just kind of . . . gone.

It will be tempting to find someone who is already a top CEO or who has retired from an already successful company.  I believe United will need someone hungry to lead and transform rather than someone who has the mission to act as steward for the airline.

The right leader is always out there.  The trick is to find her or him in time.  The UAL Board will have to remove the current leadership, find a steward and then go on a search to find the right person for the company.  Waiting very long simply means that the company loses more money.  The merger is almost 4 years old now and no modern airline merger had bled red ink like this one.

I would go look at the leadership at airlines such as American Airlines Group (but be prepared to fight Doug Parker hard for any of them), Southwest Airlines and Delta Airlines.  I would look hard at Alaska Airlines as well.  Find your man, give him carte blanche to execute change and step back to see what happens.

Filed under: Airline News by ajax
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