In what I will declare to be the most greedy of moves for 2011, most US airlines have decided to raise fares to offset the FAA taxes that have (temporarily) disappeared as a result of Congress’ inaction on a new bill for the FAA.
By most US airlines, I mean airlines such as American, United, Continental, Delta, US Airways, Southwest, AirTran and JetBlue. By raising fares, I mean they’ve raised them about 7.5% to offset the taxes that disappeared. A few airlines such as Virgin America, Frontier Airlines and Alaska Airlines have so far not raised fares to grab that cash.
I am immensely disappointed in this development and particularly disappointed that I find both SWA and Airtran in that group. Airlines don’t deserve this money and it is shameful behaviour to run and grab it.
American Airlines has had a pretty curious fleet at times and they’ve tried out more than one dud in their fleet as well. Two such examples are the Convair CV-990 and the MD-11. Neither really worked out that well for AA.
American has also owned a variety of foreign aircraft over the years and has just announced it’s buying foreign again in the form of the Airbus A320 family.
Can you name the 4 foreign aircraft families American has previously owned? The answer after the fold: (more…)
In addition to its blockbuster aircraft order, American Airlines also announced it was “spinning off” American Eagle airlines to free AA up to use other regional airlines. I’m not sure how you spin this as good news either. Your mother company doesn’t want you anymore because your too expensive now. How do you sell a company that no other airline will want to use? By issuing stock to existing AMR shareholders.
American Eagle is in bad shape to compete in the real world. It lacks a fleet that other airlines would want and it burdened with quite a few ERJ-140 aircraft that no one wants. They aren’t useful anymore and they’re getting kind of old for a regional airliner these days.
The good news for pilots there is that they have an escape path from this train wreck in the making. Existing American Eagle pilots will have the right to “upgrade” to American Airlines as American Airlines has need for new pilots. Let’s take note that there are first officers flying the MD-80 aircraft who’ve been on reserve for 10+ years. It sounds good that they have an escape path but that escape path is currently blocked.
Yes, American Airlines probably should use other, more cost efficient regional airlines. No, they aren’t really going to get much money for American Eagle. They’ll be rid of it but that’s the best that can be said.
Anyone notice that AMR lost money again? $250million plus compared to other mainline legacy and SuperLegacy airlines who have, once again, earned good profits in a crappy economic climate. American has improved its cash holdings by arranging a sale and leaseback of 30+ aircraft and that will give them some breathing room but there are lingering problems that don’t appear to be getting addressed by the board of directors.
First and foremost, what about your labor problems. How can a company operate healthy if most of its service staff are angry, sad, bitterly disappointed, hateful and resentful they work in the airline industry? You don’t earn profits despite that condition, you earn them when you fix that condition. Why this isn’t a public discussion for AA, I do not know. Directors aren’t requiring that the hard work be done. Instead, they appear to continue to bless the existing conditions in the hope that one day other airlines will have just as crappy a situation as they do.
That isn’t sustainable.
And that goes to the other problem. AMR leadership. Many saw the “historic” aircraft order as “bold” leadership. I’ll point out that A) this was long overdue by a few years and B) it cost they virtually nothing to make the order. There was no “risk” or “vision” involved. That isn’t bold leadership.
We haven’t heard about how AA is going to focus on profitable routes and a profitable network system. We haven’t heard how AA plans to compete against 2 mega-carriers in its midst who are operating profitably and who are addressing their problems (successfully and unsuccessfully, the point is that they are addressing them). We haven’t heard a word about how AA plans to deal with a coming storm of competition with Southwest Airlines who will be able to operate what flights it wants to domestically from Love Field airport in just a couple of years.
Partnerships with others don’t fix problems. Aircraft orders don’t fix problems (although I’ll concede that if they had these aircraft today, they would be a lot better off). Selling off assets to improve cash holdings doesn’t put you in position to win against your competition, it just allows you to fight a holding action longer.
What does turn around an airline (or any other business), is strong management and leadership from the front. American Airlines hasn’t got that.
I wrote a long blog post early yesterday morning about American and the rumoured order it was about to make. Then, later in the day, the rumours started flying that it would announce the order today (Wednesday). And, boy, did they.
Let’s look at the details first:
460 aircraft on firm order with both Boeing and Airbus
Boeing sells AA an additional 100 current 737NG aircraft.
Boeing sells AA 100 737RE aircraft with the CFM LEAP engine.
AA takes another 40 options for the 737NG and another 60 options for teh 737RE.
Airbus sells AA 260 A320 Family Aircraft
130 are for current generation A320 family with the sharklets to be introduced in 2012.
130 are for A320NEO aircraft (with arrival in 2017 and so much for talk that the A320NEO line was sold out.)
The aircraft will begin arriving from both lines in 2013 and American Airlines thinks it will have one of the youngest fleets in about 5 years.
So what does it mean? Well, for one, the cost to announce this order was tiny compared to a traditional order. These aircraft will be on operational leases and it appears AA didn’t have to put much money down for these firms orders (if any.)
This order will be of dramatic benefit for the airline when it comes to saving on fuel. If AA had a fully modern fleet now, it’s likely it would not have lost money this past quarter. The benefit in fuel savings on this order will take a while to be realized.
This is the first official mention of a 737 re-engine and I think we’re going to see some gnashing of teeth on the part of some airlines over the idea that a fresh design is likely 10+ years away. This might be good for AA, it isn’t good, necessarily for Southwest Airlines or Ryanair.
This is a big win for CFM and its LEAP56 engine and while the engine is only announced for the 737RE, it is almost certain that that engine will be chosen for the A320 family.
What this isn’t is a loss for Boeing. The post I composed and just deleted talked about how having a single source for your aircraft wasn’t really practical for an airline of AA’s size and all other SuperLegacy and Legacy airlines operate mixed fleets already as a function of a merger. What those airlines have learned is that neither Boeing nor Airbus has a supply chain that can meet all their needs all of the time and on time. It wasn’t irrational for AA to go to Airbus.
However, this is a pretty big loss for Boeing in the psychological warfare arena of aircraft sales. This will be spun many ways but at the end of the day, Boeing got bruised and is not the aircraft manufacturer who gets to crow about success today. Expect other SuperLegacy airlines to take a long, hard look at this deal and begin to negotiate for their own SuperDeals on aircraft with both manufacturers.
Why did Airbus win more orders? Because AA already has a large 737 fleet. It didn’t need quite as many 737s. This really is an order of equals practically speaking.
I do think the A321NEO will be the 757-ish replacement and I do not think that AA will upsize aircraft to the 737-900ER down the line. Therefore, I think the A320 family order will be either
A) A full mix of A319/320/321 aircraft with multiple bases or
B) A320/A321 aircraft with focused bases
I rather doubt that the A319 or the B737-700 will be ordered at all. This order is about a marginal increase in capacity over time for most routes with the 757s leaving ever so slowly over time.
And that points out a glaring gap that I haven’t seen anyone talk about yet. Through this order and previous small orders, American Airlines will have upguaged their entire fleet and particularly so in the next 5 to 7 years. Presently, the smallest aircraft in its fleet will be the 737-800 or A320 at roughly 160 seats.
What serves the 120 to 150 seat range? The MD-80’s are departing and rightfully so. American Eagle has CRJ-700s that are configured from 63 to 65 seats and AA is currently scope clause limited on how many of these aircraft it can fly. Now, AA has also announced that it will spin off American Eagle soon and we’ll talk about that in a future post but that only means AA can (and will) access other regional airlines for its sub-100 seat flying.
What fills the gap? If AA manages to get a new pilot agreement that allows AA to subcontract its sub 150 seat flying, I’ll be rather shocked. I do not think the pilots are going to cede that territory under the current contract or whatever agreement is made for the near future.
I realize that AA has been serving markets that might demand a 120 to 130 seat aircraft with higher frequency using smaller jets but it can’t do that forever. Is there another order for aircraft lurking in the background here? Maybe. The Bombardier CSeries does fit that whole very nicely and does it in harmony with this announced order. In fact, it presently is the only airliner that does. Embraer gets close but it doesn’t quite get there. If I were Bombardier, I would be knocking on American Airlines’ door with a most excellent finance package for its CSeries CS100 and CS300.
There is one more question lingering as well . . .
How will American Airlines paint its A320 family? The aircraft cannot be polished like its 737 counterparts. I strongly suspect we’ll see a metallic silver used with the current paint scheme over that.
Boeing Commercial Aircraft President Jim Albaugh met with American Airlines executives, including CEO Gerard Arpey, a couple of days ago and I think, tentatively, this is a positive development with Boeing. On the surface, it certainly signals that Boeing does consider American Airlines a very important customer. It *might* signal that Boeing has started to realize that airlines really aren’t just poking at them over a new single aisle aircraft.
I say might because there is a tendency for Boeing to not always recognize that a customer really is at risk until the very last moment.
Nevertheless, Boeing presidents don’t go calling on just every airline executive team on a whim. It would be my hope that Boeing got an earful on what is needed and, more importantly, the timing for meeting that need. For about a year, all we’ve heard is trade studies about re-engining vs new single aisle aircraft and that things tilt a bit towards an all new aircraft for 2019.
I think airlines would like to hear about a new single aisle aircraft kicking off development asap with entry into service around 2017. There is probably some wiggle room there but only after commitments have been made.
While news reports say Albaugh visited American Airlines, I do wonder if Southwest wasn’t visitied as well. If not, I expect we’ll see another cannon shot across Boeing’s bow from SWA in the near future.
American Eagle / American Airlines is being singled out for having (14) 3-hour delays out of a total of 16 in May. That’s quite a lot and they happened all on one day when there was, so to speak, a perfect storm of weather going on in Chicago. By all accounts, passengers held on board for 3+ hours were treated very well and that’s the good news from all of this.
Some would say that American had no choice in this particular instance but I ask everyone to consider what I think are interesting facts about this particular day in Chicago. First, it happened at one of the world’s busiest airports, Chicago. Second, the diversity of airlines at Chicago is exceptional for any airport. Third, not one but two airlines are hubbed at Chicago’s O’Hare airport: American and United.
I’m not sure I buy that all 14 were unavoidable since by all appearances, most every other airline managed to figure out their problems and take care of them. It’s worth looking into to find out why American Eagle was so much more impacted by this than, say, United Airlines or its regional airlines.
I also think that the conditions of weather at O’Hare are exactly what the 3-Hour rule has provided for when it comes to exceptions to it. The weather would not allow deplaning in several instances (and I do buy this) and the congestion wouldn’t necessarily allow safe and effective returns to the gates either.
This development isn’t a reason to revisit the rule although I’ve stated before and I’ll state it again: I think this should be a 4 hour rule. It would allow more flow of passengers through airports in these situations and fewer cancellations while stopping egregious delays that effectively end up trapping customers in long, thin, metal tubes.
While I think the rule would be better revised to 4 hours, I also think that before we give American Airlines a pass, a little investigation should be performed to see how the airline was addressing these delays and what, if any, real and practical alternatives were available.
American Airlines apparently is playing the Ryanair game with both Boeing and Airbus by using a 250 aircraft orders as both a carrot and a stick. And now we know why John Leahy was hinting at Boeing losing a major network carrier.
Make no mistake, this really would be a very big loss for Boeing. The question is whether or not Boeing is taking American seriously in this. Some might be tempted to think it’s a bluff, I do not think it is anything resembling a bluff. The A320NEO is something that American needs more than most network airlines.
Instead, this is a “put up or shut up” move to Boeing and I’ll wager that it won’t be the last. Airlines want to know what Boeing is going to do and waiting very much longer is likely going to result in either more orders for Airbus or renegade orders to Bombardier and Embraer.
And Boeing can’t be just a medium to large aircraft builder. It needs this single aisle market for many reasons and the airlines are dissatisfied with Boeing’s tentative approach to what it plans to offers airlines next. To be fair, even the 737NG is getting a bit long in the tooth and promising incremental improvements isn’t going to satisfy airlines anymore. Much like the new and improved A330 that Airbus tried to sell many years ago didn’t fly either.
Two young men who were stuck at DFW airport for several hours decided to spend their time in the American Airlines terminal having fun. Wheel chair races, esclator hijinx and even sneaking a beer from one of the closed restaurants are all a part of their video. Yes, they made a video of the thing. The 2 minute video actually is well produced and edited. View it here:
There is some rumbling out there about American Airlines’ decision to change their boarding process in the hopes of improving boarding throughout the cabin. The change reduces boarding groups from 10 to 6 and tries to spread people throughout the cabin in each group.
Anyone who has seen boarding on an airplane in the last two years would certainly have to agree that there has to be a better way. I’ll even admit that the current systems have every appearance of being chaotic and even unfair to many.
Whether or not American’s new system is creating chaos or just requiring an adjustment phase really isn’t to be determined yet. I will say that I applaud any airline attempting to make this process more harmonious I’m not sure if it can be made harmonious but I agree that different things should be tried.
And I have a suggestion. Board those who do not have carry-on luggage first. Allow those people a purse and/or briefcase but that’s it. They likely paid to have their luggage checked and ought to have access to bin space first.
Last Thursday, there were a number of reports (mostly based on a Bloomberg report) that said that American Airlines was in discussions with Airbus to buy 100 A320 class airliners.
As you can imagine, this spurred quite a bit of speculation.
Many have the incorrect idea that AA is contractually committed to buying Boeing only. They are not. There is a gentleman’s agreement that has been followed since the 1990’s that has had AA getting preferred aircraft pricing and early slots in return for remaining an all Boeing customer. There is no financial penalty for walking away from this except what AA might not get in preferred positions and pricing.
And I’m not even sure that exists. The truth is, AA is big enough to get preferred pricing and early slots regardless. They wield enough buying power to make any aircraft manufacturer sit up and pay attention. So it doesn’t hurt for AA to talk to Airbus.
Is the Airbus A320/A321 the right aircraft? Quite possibly. The A321 will do a better job of fitting AA’s requirements for a Boeing 757 replacement compared to the equivalent 737-900ER. It will fit almost all of the missions the 757 is currently serving (except for trans-Atlantic flights) and it will do it with pretty good efficiency compared to what Boeing is offering right now.
Are they serious? Well, I wouldn’t be surprised if this was both a warning shot over the bow to Boeing as well as a serious discussion. American Airlines really does need a better fleet going forward and it cannot afford to wait until 2019/2020 to get started. The 737-800 is a good fit as a MD-80 replacement but not as a 757 replacement. Boeing’s 737-900ER has worked well for Continental but I don’t think it would work too well for American because of range and payload.
American needs better seat mile costs on its routes and it can achieve those because it can fill its aircraft with business passengers. Diversifying between manufacturers isn’t a bad idea anyway as it makes things just a bit more competitive and the airlines probably gains from that.
This may well be the “major network carrier” that Airbus COO John Leahy has spoken of with respect to the A320NEO. If it is and if there is an order, it will be a major blow to Boeing. Not because Airbus invaded the United States (they’ve already done that) but because AA would be regarded as one of Boeing’s most solid customers.
I wouldn’t say this is a done deal but I would say that we now have reason 998 why Boeing should, you know, get with the program.
Spirit Airlines has announced that it will begin flying between Dallas and Chicago (DFW to ORD) on August 18th. Right now, I see 2 frequencies each way between the cities and they’re pretty convenient times.
This is smart on the part of Spirit because they’re striking at American Airlines as a function of performing this service at DFW to ORD and they’re competing with SWA on value. Both AA and SWA have far more frequencies but the typical Spirit customer can be bled off from both companies for different reasons.
This might spur a price competition between the 3 airlines but I kind of doubt it. Spirit has many downsides too. Everything is a fee on this airline and some of those fees are pretty expensive. The seating is *not* even as comfortable as American Airlines (and I consider AA to be pretty uncomfortable.) The frequencies aren’t enought o compete for any business traffic but, then, Spirit isn’t after the business traveler anyway.
I’m glad to see them enter into the market. However, I’ll also say that it is highly unlikely that I would ever use them myself.
American Airlines has ordered a 6th 777-300ER now and indicates more may be on the horizon. One does have to wonder about the piecemeal orders they’ve made so far. Why not order in blocks rather than an aircraft every few months?
Analysts aren’t so high on these purchases believing that it raises AA’s cash burn. AA counters that the economics are excellent and will allow American to earn more and that’s probably true.
It’s a good aircraft and most airlines are migrating from -200s to -300s because if you can fill the aircraft, you do make more profit. American has a number of routes that could benefit both across the Pacific and Atlantic oceans as well as potentially to South America. It may well be a better way to grow capacity as well.
But I think analysts (and me as well) are wondering just when American is going to address other problems that are causing high cash burns. That would be the failure to come to an agreement on new labor contracts with their staff that would permit the airline to get on with focusing on profitable operation of the airline.
Just weeks ago, Alaska Airlines went paperless in their cockpit with respect to their flight manuals by issuing iPads to their pilots. They also expect to replace their flight charts by adding those to the iPads as well.
Now American Airlines is moving a step forward with that by testing iPads to replace pilots charts. All of this is being done under the FAA’s Electronic Flight Bag program and it’s good for everyone involved.
The move saves airlines big money on paying for paper chart updates and saves big weight on the aircraft because each pilot carries as much as 30lbs of paper in manuals and charts. Multiply that by the number of pilots on board and it really can save fuel costs too.
And I like it because it’s time to use technology like this more. Are the iPads the right tool? Why not? They are fairly robust, long lived in battery life and much easier to carry. But if the iPad proves not to be quite robust enough, Panasonic makes a fully ruggedized tablet PC now and if it is good enough for the military, it’s certainly good enough for a pilot.
Delta Airlines and Virgin Australia have gotten their approvals for an anti-trust immunity agreement to cooperate across the Pacific between the United States and Australia. They did so, in part, by promising to keep up frequencies between the two countries.
This doesn’t mean that routes won’t be rationalized. The frequencies will stay the same, the routes won’t. These two airlines will deploy their 777 aircraft on routes that are complimentary rather than competitive. Expect V Australia 777s to start arriving in San Francisco to replace QANTAS’ recently withdrawn flights.
Delta’s 777-200LR aircraft can potentially make the flight between Atlanta and Sydney (although with a touch of payload restriction) and provide competition to QANTAS’ new 747-400ER flights to Dallas/Fort Worth.
And for the first time, there is real competition for the QANTAS/British Airway/American Airlines Oneworld consortium. Virgin Australia can provide domestic connections to Delta in Australia and Delta can provide domestic connections to Virgin Australia in the United States.
John Borghetti, CEO of Virgin Australia (and formerly an executive with QANTAS) has made it clear that he intends that Virgin Australia be a strong competitor with QANTAS rather than an constant underdog and he has experience with building networks as a result of working for QANTAS for many years.
Look for quite a bit of new competition on routes between the United States and Australia and I think United is going to be the airline to take the hit. United has pretty old aircraft with a pretty old service product and no partners in Australia to assist with feed. They also have no new large widebody aircraft to carry passengers with either although they will have the 787-8 with which they can start direct flights to New Zealand and Australia from cities in the United States that have never traditionally seen direct flights.
Virgin America is doing what I have wished an LCC carrier would do to American Airlines for 10 years: compete with them. In December, they took up the challenge to compete against AA on the DFW-LAX/SFO markets and they’ve done pretty well. Virgin America knew going in that it was an long term investment and that they would see a strong reaction from AA. Of course, that’s no surprise since VA CEO David Cush is a former senior AA executive.
Now Virgin America is set to start competing with American Airlines and United Airlines on routes between Chicago and LAX/SFO. The response from American Airlines tells a story. According to the Dallas Morning News Aviation Blog, American Airlines is giving away a “special gift” that includes:
“. . . a $100 discount for future travel that is booked on AA.com, a $150 voucher for bookings on AAVacations.com, 5,000 AAdvantage miles and an Admirals Club pass and $50 discount on a one-year membership.”
If Virgin America was looking for any confirmation of the threat it presents to AA, there it is. That’s a pretty special gift to try to keep business customers away from VA. As incentives go, that’s a pretty surprisingly high price to pay.
And it doesn’t surprise me in the least. The VA product should compete exceptionally well against the AA offerings. The difference in the physical service product alone is the difference between night and day.
I’ve now heard a number of first hand stories from people flying VA out of the Dallas area and, anecdotally, I’d say that AA is in real trouble. The responses I’ve heard have uniformly been expressed as shockingly impressed with the aircraft, service product and staffing. This is from corporate travelers, not the occasional vacation flyers.
I think VA has identified that it can compete and it can erode American Airlines’ strengths on routes and I think we’ll see VA look to do it on more and more American Airlines “core” routes while they also nibble on United Airlines as well. Right now, I would say that Delta is somewhat safe from VA but they also have Southwest to worry about so they aren’t exempt from pressures.
It started with an announcement from American Airlines that they had received an inquiry from the US Justice Department whose anti-trust department has decided to look into the behaviours of Global Distribution Systems. AA barely contained its glee in the announcement and just a short while later the GDS companies themselves announced that they, too, had received inquiries.
Does this spell the beginning of the end? No, not at all. In fact, I’ll wager that ultimately there will be no case and the GDS systems will be left alone. But it’s a bit of a black eye in the interim and certainly a PR win for AA (and US Airways) in the meantime.
Ultimately, the GDS systems will have to find a way to lower costs for airlines and a way to make it possible for airlines to customize their product. The truth is, GDS systems have a very old architecture for distributing these airline tickets and it needs innovation.
The best solution for both sides of the argument is working out better arrangements altogether. They still need each other and, at the same time, neither can do without the other’s business permanently just to make a point.
Airlines want to be treated as valued customers rather than as captives to system that has no regard for the changing business models they’re experiencing. This deveolopment may in fact cause GDS companies to start self examination in this respect.
American Airlines and QANTAS are filing for anti-trust immunity for a joint business agreement between the two airlines across the Pacific between the US and Australia. This doesn’t mean revenue sharing at the moment because American Airlines doesn’t have flights on those routes.
This request doesn’t come as a surprise whatsoever and fits neatly within what AA has been doing with all of its Oneworld partners. Not only does AA not have flights to Australia and New Zealand now, I honestly don’t believe they’ll have them in the future.
There is a reason why QANTAS is coming to DFW airport and it isn’t to provide interim lift for AA. I’m certain American sees QANTAS as the perfect airline to operate those routes and sees itself as the aggregator of traffic for QANTAS.
Last week, a total of three Muslim imams were denied travel to Charlotte, North Carolina by two different airlines. One in New York City by American Airlines (who offered no real reason why) and two more by Atlantic Southeast Airlines operating for Delta Airlines (because a pilot felt that some passengers remained uncomfortable with their presence despite not one but two security screenings.)
I’ve already posted about this and I’ve already said shame on Delta. I’ll say shame on American Airlines as well.
Focusing on someone’s religion as a security risk is extremely foolhardy. Ignorance is not an acceptable excuse even where security is concerned. More importantly, we’ve already experience far too many of these incidents in the past 10 years to excuse flight crew or security personnel behaviour on this subject.
Denying these people the ability to fly is tantamount to making them second class citizens (whatever their nationality) for no other reason than their religion. As a nation, we have historically resisted allowing religion to be a reason to persecute someone but in the case of muslims and particularly Muslims wearing traditional robes and headgear, we seem to have suddenly accepted that that is OK. Just because someone speaks a foreign language (Arabic or any other language indigenous to a Muslim culture), we’ve almost enthusiastically treated those people as security risks.
This is sheer stupidity for two reasons. First and foremost, it goes against the very grain of our nation and our constitution and the gains we’ve made with respect to civil rights over the past 50 years. It’s an insult to our national culture and our national laws.
Second, it shows we aren’t being objective about our security concerns. Good security comes from good objectivity, not subjectivity. You can no more point to Muslims as a risk by virture of their terrorist acts than you can point to Catholics as being a risk by virture of the terrorist acts of the IRA. In fact, I would point out that if that was valid criteria, you would actually be at greater risk from Irish Catholics than you would a Muslim from Yemen because the Irish Catholic can far more easily “blend in” with our national background.
As far as I can tell, we don’t ban Irish Catholics from flights because of their religion or accent. Oddly enough, we do not even ban Hindi people because of their association with violent Hindu extremists.
I blame the government for promoting this behaviour but I particularly blame the airlines for allowing their staff to practice it. The best and only response to either of the incidents from last week would have been to find a flight crew that has good sense and board these people for their flights. Tolerating this racism within a company is stupid and bad business.
An abundance of cautiou doesn’t mean you get to give into predjudice. And let me point out that if we continue to tolerate this, there is no reason that some other class of people can’t be identified in the future to practice this predjudice against. That class could be white women over 50 or black children or hispanic males over 20 or white men between 30 and 40. You aren’t immune to this potential.
Then there is Rageh Al-Murisi, the man who banged on an American Airlines cockpit door on a flight to San Francisco. It’s notable that this man wasn’t dressed in a way that would particularly identify him as a Muslim or an imam and he got onto his plane.
Richard Anderson, CEO of Delta Airlines, has pointedly and consistently talked about managing an airline for a profit and while that seems like a no brainer, I’m not sure everyone does that.
Delta has recently announced cuts in capacity and while that, too, seems like a no brainer, I think people miss Delta’s point. If a route isn’t earning a profit it needs to go. Few airlines use this as their criteria. The larger point from Delta is that it isn’t about market share and I agree.
In addition to capacity cuts, Delta has also announced a program targeted towards early retirements to trim their labor force as well. This is to match capacity cuts and rightfully so. Oh, mind you, I think this is also about getting the work force to average a younger age in seniority as well but that is something airlines have to do on a regular basis as their work force tend to stay with not nearly as much “churn” as other large companies experience.
Southwest has always managed for a profit and it has proven it can be done. It’s kept its workforce levels consistent with its business and, more importantly, it doesn’t fly routes that cannot regularly produce profit. Not for nothing, this is one reason why several cities are worried that SWA will cut Airtran routes currently serving them with subsidies. SWA doesn’t see subsidies as a sustainable profit model.
There is something that I often remember my father telling me about the airline business (he’s a former EVP from an airline no longer in business and from 30 years ago. You have to look at ever route between two cities as a small, entreprenurial business. You have to invest in the business and you have to get a return on that investment in a timely manner. Failing that, you have to drop it and move on to other opportunities.
This is what Delta is doing. Instead of managing for surival, they’re managing for profit. Instead of managing for sheer size, they’re managing for profit. Instead of managing on the basis of what another guy is doing, they’re managing for profit. In Delta’s most recent earnings call, Richard Anderson made the comment: “This isn’t a hobby.” and I think that underscores the proper attitude about being results oriented.
This is not what we seeing American Airlines doing. It wasn’t my sense that United Airlines was doing this pre-merger with Continental and it isn’t necessarily my sense that even some LCC carriers such as JetBlue are making this their goal. Notably, I do think that US Airways is doing this and the results show.
So when does someone ask when AA’s management team plans to manage for profit? I haven’t seen AA manage their route system for profitability. I haven’t seen them manage their labor force for profits. I haven’t seen them manage their fleet for profitability. I’ve seen them managing for the status quo in the hopes that other airlines will return to AA’s fate when it comes to costs.
The question is, why should you expect that when there has been a fundamental change in your competitors attitudes towards managing their business for profit?
American Airlines will be testing streaming video on two WiFi equipped airliners using the existing onboard GoGo system. Apparently the GoGo system was robust enough to store this video and rather than be streamed from a ground location, the content will be stored onboard the aircraft and distributed via the onboard WiFi system.
I think wireless is a great idea for aircraft. Weight is a fundamental issue on airplanes and WiFi allows this to be overcome in many cases. However, I’m not so sure WiFi is ripe for this yet. Streaming video is a bandwith hog even when sent to laptop devices (which in most cases can accept higher definition on screens that are often now as much as 17″. What happens when 50 people stream video from the same system at the same time on the same WiFi system?
Ensuring robust enough servers is easy. Ensuring robust enough WiFi is not. If customers experience buffering delays, this will be an epic fail in the test. Especially if they’re paying for this content. While you can boost WiFi bandwith by streaming it on an “N” standard, “N” standard is still pretty new. New laptop users will have it but not necessarily laptops that are as little as 3 years old. Bandwith is still a problem to solve.
I hope this is relatively successful. My instincts tell me that aircraft aren’t ready for streaming video via WiFi with the current technology. At minimum, I think you may need to be using “N” standard for this. In fact, the real solution might be a power outlet and an ethernet connection at every seat which is fundamentally cheaper and lighter than an entire IFE system at every seat.
