I think just about everyone was at least a little surprised at the announcement of the QANTAS flight between DFW and Brisbane, Australia.   It was a subject that would pop up on the radar now and then but generally dismissed with skepticism of it ever happening.  Particularly with the equipment that QANTAS had for making the flight, namely the 747-400ER.

Flights between the United States and Australia have been the domain of west coast cities such as Los Angeles and San Francisco and the primary equipment has been the 747-400.  The aircraft available to make such a flight has already changed and is due to change a bit more in the future.  The 747 got used more because of its range and ability to haul a passenger load with a strong load of cargo.  Generally, long flights like that work best if there is enough demand for a 747 because seat costs go down.

Now the 777-300 is plying trans-Atlantic routes between the US and Australia and soon will be on routes between the US and New Zealand.  It’s a good aircraft for the trip because of the 777’s ability to fly it non-stop, carry a load of cargo and a fairly large complement of passengers.  We’ll see these West Coast to Down Under flights fracture a bit more in the future when the 787-8/9 come online with airlines.

So why the 747 and DFW?  Well, it’s notable that SFO is losing its flight with QANTAS but that makes sense now.  San Francisco is the domain of United, not American Airlines and QANTAS is partners with AA via Oneworld.  Los Angeles remains and it should remain as a Western US departure point between for Oneworld. 

Until now, Oneworld has had to feed all its traffic from all over the United States to either Los Angeles or San Francisco and while LA is a Oneworld focus city, all other Oneworld focus cities are east of the Rocky Mountains.  They are Dallas/Fort Worth, Chicago, New York and Miami.   In that group, there was only one city that made sense with the aircraft available today:  DFW.

The other thing that has changed is the new anti-trust immune cooperative agreements that are forming in Oneworld.  First there is the trans-Atlantic Oneworld partnerships and second is the trans-Pacific(Japan) Oneworld partnership.  Next is logically AA/QANTAS. 

With DFW and Los Angeles as that “hub”, Oneworld can feed traffic to DFW from points east of the Rocky Mountains and from points in Mexico, Central America and South America all to DFW.  Yes, AA can feed that 747 nicely.  And if they do it well enough, you can bet on seeing an Airbus A380 being switched into that route. 

DFW gets a nice boost from all of this as well.  It’s already started to transition back into a more “international” airport than it has bee in some time.  British Airways is now using a 747 on one of its flights to DFW and AA is using more 777s for its flights to Europe.  It will continue to grow as a Oneworld “hub” both because of its good location (not nearly as affected by weather as other potential hubs) as well as the availability of room to grow. 

I would be completely unsurprised at the addition of another direct route to Tokyo and a direct flight to China in the near future.   Currently AA has 2 flights to Japan via 777s and I think we may see one more or, alternatively, we may see JAL start flying one of those flights with its own 777.  AA has wanted to fly direct to China from DFW (and it should) but has so far been blocked by its pilots over duty time rules that AA wanted a variance for from the union.  The flight they wanted to do ultimately went to Chicago instead.  Expect AA to make another run at such a route.

One thing I don’t think we’ll see is a lot of additional routes from Los Angeles to Oneworld destinations.  It’s a crowded airport with limited room to grow.  Delta/Sky Team has a strong base in Seattle and United/Star Alliance has got strength in San Francisco.   Dallas / Fort Worth offers the growth opportunities now with the ability to fly longer range flights using the 787 and 777 and I think we’ll see more and more long haul flights from DFW.

I have to say that I’m very pleased for DFW and I see this as a very good development for American Airlines as well.  It’s nice to see opportunities created like this within Oneworld and on AA’s part, too.

Filed under: Airline News, Airlines Alliances, Airports by ajax
No Comments »

One thing that has become clear as a result of the conflicts between American Airlines and global distribution systems and online travel agencies:  there is, at the least, a need to change the transaction model.

One thing American Airlines is right about is lowering the costs per ticket sold via these systems.  In a modern world, the IT infrastructure should provide lower costs now.  If the GDS companies want to retain this business, they need to come up with an e-commerce model that works for present day airline needs. 

Those needs are accomodating the unbundled services and fees that airlines are now using to enhance revenue as well as upselling customers into better services.  The present systems are basically the same old distribution systems that have existed for decades with a web interface on the front. 

The airlines would be better served by establishing a standard for others to work from.  The requirements for what airlines need today and what they may need tomorrow should be established first and the GDS companies and online travel agencies need to re-think their own business model some too. 

But allowing one airline to push out of the system and establish its own standard doesn’t necessarily permit transparency.  These companies need that transparency because they do their business on the basis of schedule and price.  Their value added is in offering you the best available fare for your schedule and in establishing complicated itineraries. 

The transaction costs associated with offering fares/tickets through such a system should be less than $1.00 per ticket if operated under a modern and well designed system.  It’s no more a complex purchase than buying something on Ebay. 

Airlines have an industry group and they can write these requirements and they should.  GDS and OTA companies have a place in this industry as well and they need not fear their imminent demise but only as long as they do move along with the times.  It’s 2011 now and systems that date back as far as the 1960’s should be put to bed no matter how much renovation they’ve gone through.

Filed under: Airline News by ajax
No Comments »

I went to work on figuring out air fares to travel from Dallas to Chicago as well as from Norfolk, VA to Chicago today and made a startling discovery.

The air fares got a bit more confusing all of the sudden.

Why?  Because American Airlines is no longer being listed (or emphasized at the least) on my 3 favorite travel websites.  And it looks as if the other airlines might just be tweaking their availability on AA routes to take advantage. 

How would they do that?  By offering flights that are connections because suddenly it appears as if they are the only available game on those routes.  I’ve never seen so many different Delta connections at what is a pretty good price between Dallas and Chicago and let me remind you that Delta has no hubs in either city.

I found great fares and, no surprise here, they were on Southwest instead of the others.  In addition, I did check AA fares on their website because despite my strong desire to avoid AA, I may have to fly into O’Hare airport instead.  Their fares are exceptionally low compared to previous times that I’ve checked them.  Off the top of my head, I’d say they’re lower between DFW and ORD than I’ve seen them in 3+ years. 

Also interesting, to me, is that United (with a hub in Chicago) is *not* the cheapest fare between DFW and ORD.  Not by a long distance.  It’s Delta and Frontier leading that pack on online travel agency sites. 

US Air gets the nod now between Richmond, VA (alternate for Norfolk in the case of my other traveling partner) instead of American Airlines. 

American Airlines might say they’re doing fine but I suspect they may not being doing as fine as they say.  The picture presented out there suddenly is a very different landscape and to the traveling consumer who isn’t an airline fanboy or an AA enthusiast, the choices being presented are very much new and different and even attractive.

Filed under: Airline News by ajax
2 Comments »

At the beginning of each new year, I like to review what I thought would happen over the previous year and where I think things might go in the next year.  Let’s take a look.

North America:

I thought that not much would happen with AA labor in the past year and that pretty much was the case.  We’ve now seen several years of virtually no movement on solving these issues and I suspect that 2012 is the year that we see some kind of movement.  Look for the flight attendants to be the aggressive parties but the pilots to be the leaders.  All they need is a management group that wants to get something done.  This might end up being a make or break year for AA CEO Gerard Arpey and it could well be based on coming to an agreement with their labor groups.

United Airlines (and Continental) really didn’t go where I thought which was the status quo.  Instead, they merged and got going on getting somewhere and I like that.  I didn’t think they would merge and said so at the beginning of last year.  They proved me wrong.  However, I think CEO Jeff Smisek hasn’t considered carefully what he needs to get agreement on to move forward with each phase of the merger.  Look for this year to be good for United financially but bad on getting labor groups to agree on something.  I don’t think they are headed in the same direction as US Airways . . . yet.

This is a year for Delta Airlines to continue rationalizing its routes and aircraft.  They spent much of last year doing so and saw great financial results.  However, their goal of a sustained 10%+ profit margin makes me think we’re going to see some weird stuff out of them somewhere around the beginning of spring.  Probably in the form of new and innovative fees.

US Airways pretty much performed as predicted and I like how they are earning a profit but I hate how they still have no agreement with their flight crews that will permit them to quit operating two airlines in one.  If Doug Parker were to have a New Year’s Resolution, it should be to hire someone who’ll get that taken care of this year.

LCC(s) and Regionals:

I didn’t see a merger partner for Southwest except, perhaps, Sun Country.  Southwest proved me very wrong on that but I like the results.  One concern I have is the somewhat “plodding” progress towards consummating this merger into one company.  Does it indicate a plodding approach to actually consolidating operations?  One good thing is this brings the potential for greater international flights and, hey, Southwest, consider just keeping that Airtran reservations system and then spending some real time to pick or develop a new one that will last another 30 years.  You could do a lot worse.

Frontier/Republic is holding its own and I thought they would hold their own.  I think they’ll hold their own this year but I don’t see them merging with anyone and I don’t see them growing subtantially either.  Brian Bedford could prove me wrong and I hope he does.

Airtran made the Milwaukee market.  They deserve the credit for the huge growth that city has seen in air travel.  Southwest needs to commit to doing the same when they lead the game.

I slammed Virgin America a few times last year for appearing to be afraid to compete.  In particular, with American Airlines.  Finally, Virgin America made the plunge and came to DFW with flights from both San Francisco and Los Angeles.  I liked the move and I think there is room for them to grow here.  Time will tell.  One thing I’ve noticed so far:  AA doesn’t seem to be attacking them quite as badly as one would have expected from AA just 5 years ago.   Mr. Cush, let me suggest that you could really do well with some flights from DFW to the NYC area.  In particular, to Newark. 

Alaska Airlines has moved closer to Delta in the past year and that worries me a bit for Alaska.  They’ve generally been an airline willing to do a deal with anyone that made sense.  Now, they appear to be more and more the Delta lackey and that could harm them in the long run.  Another thing:  Alaska doesn’t have any more logicical merger partners that make sense.  American Airlines may have missed an opportunity here by not getting closer to Alaska instead of withdrawing more and more. 

I don’t think we’re going to see any big mergers in the US this year.  We might see one minor merger and that’s OK with us.  I think this year we’ll see legacy and SuperLegacy airlines attempt to earn as much money as they can to retire as much debt as they can and to bank as much war chest as they’re able.  However, I see competition heating up this summer and I think the LCC and new entrant carriers are going to put pressure on the legacy and SuperLegacy airlines in the form of adding capacity *and* routes.  The question is, will the industry discipline we’ve seen hold strong or will someone crack?

Filed under: Airline News by ajax
No Comments »

In the Global Distribution System aka Online Travel Agent Wars with American Airlines, SABRE just dropped a bomb and announced that it will discontinue AA listing one month before their contract ends in August and it will list AA different between now and then.

Care to guess who owns Travelocity?  That’s right.  SABRE does. 

So far, AA continues to insist that it is comfortable with booking levels at present while it remains in discussions with both Orbitz and Expedia. 

This really doesn’t feel like something that AA is going to win on its terms.  There may be some adjustments because, after all, Orbitz, Expedia and Travelocity all have something to lose as well.  However, this whole push on the part of AA is beginning to smell a lot like its attempt to “rationalize” fares under CEO Crandall back in the 90’s.  That didn’t work out too well for AA either.

Care to guess who used to own SABRE and who developed the system as a subsidiary company?  That’s right, American Airlines did.

Filed under: Airline News by ajax
1 Comment »

Expedia has made another move against American Airlines in removing them from their system altogether now.  That means that American is no longer listed on 2 of the 3 biggest online travel agencies:  Orbitz and Expedia.   As I write this, they remain on Travelocity.

American says that they aren’t experiencing any decline in business and that may remain the truth for now as they’ve been in the media enough to remind people to go directly to their website for booking passage to a destination.  But that doesn’t mean this works for AA in the long run.  It’s notable that neither Delta nor United nor any other airline has decided to remove their listings from the big 3 agencies and that might just be because they are enjoying even better bookings all of the sudden.

American says this is about offering a better experience for the consumer by offering their direction connection that will tailor flights to the person shopping.  Online travel agencies says that that methodology means that American controls what the shopper sees instead of giving the shopper the chance to see the lowest fares. 

The truth is, the online travel agencies are more “right” in this fight than AA is.  This is about raising revenues by only letting the customer see what AA wants them to see based on their history. 

Airlines such as Southwest and jetBlue have made their business rely upon their own websites for booking historically and they have done fine with that approach.  Now both airlines are seeing value in being listed alongside others on some of these sites and that is as much based on accessing a larger audience as it is the fact that they have competitive fares.

I suspect we may see a different set of results from either party in another 2 to 4 weeks.  Both sides have to determine the real impact to their business models and then decide if the lost revenue (and believe me when I say both sides are losing money over this spat) is worth it in the short term.

Filed under: Airline Fees, Airline News by ajax
1 Comment »

ContiUnited Airlines has decided to add a “peak travel” surcharge adding $10 to each segment of a ticket and American Airlines raised the ante by raising fares about $22 which Delta Airlines matched.

Higher oil prices which lead to higher fuel prices is leading to this drive to earn more most likely.  However, it’s notable who is leading this rise in air fares.  It’s the SuperLegacy airlines and this points out just how much pricing power these folks potentially have. 

It’s unlikely that the LCC carriers will exploit these air fare increases immediately.  Everyone in this business needs to recover and rebuild their war chest.  Some have quite a bit on their plates already (Hello Southwest) and some are just battered from a few bad years (Hello jetBlue). 

I still think we’ll see serious fuel charges in the future and especially on international flights.  But all this potential for profit is going to do something else:  attract new entrants to the business.  And there are plenty of opportunities to compete against high fare SuperLegacy and Legacy airlines.  If these profits (via air fare increases) hang around for the next 6 to 12 months, I do think we’ll see someone announce the start of a new airline. 

In the meantime, the smart traveler will book early and book off-peak flights.

Filed under: Airline News by ajax
1 Comment »

When slots to fly from the United States to Tokyo’s Haneda airport, there was a mad rush to be awarded one or more by almost all the major airlines.  Access to Haneda airport is seen as very valuable to an airline since it is much closer to central Tokyo.

American Airlines won one of those slots to fly from New York City to Tokyo and had originally scheduled their flights to start in late January.  Now, American Airlines is asking for a “modest” extension to March.  Why?  Because business is slow for January.

I’ve always had a problem with airlines winning these opportunities and then later deciding to defer service to a more convenient time.  When these proposals are made, a great deal of justification for the award takes place in the form of arguing that traffic exists to sustain that service.  The demand is there and the airline promises essentially that it will offer the best service possible.

If that was true enough to win the award, then it’s true enough to fly the route when you originally schedule it.  If an airline cannot deliver on its promises in its proposal, that slot should be given to someone who will execute on that route.  While I agree that this really is a very modest delay being requested, it is contingent on the idea that business will pick up and nothing guarantees that it will.  It is all predicated on assuptions that may or may not be true.

An award for a route should require that an airline deliver on its promises or suffer the penalty of winning the award.

Filed under: Airline News, Airline Service by ajax
1 Comment »

American Airlines was allowed to cancel its contracts with Orbitz by a Chicago based judge 3 days ago.  Orbitz and AA have had a dispute going on for several months now.  American Airlines wants to supply a direct connection to travel agencies and travel agencies want to use global distribution systems such as SABRE and Travelport’s Worldspan.  American says that their direct connection is cheaper and faster.

Both travel agencies and airlines will be watching how this dispute plays out.  American has tried before to be a leader in air fares with big consequences.  They attempted to rationalize fares in the early 1990’s with disastrous results that lead to AA returning to fare structures like its competitors again.

If AA is successful, count on other airlines following its lead.  However, success isn’t just winning in a courtroom and denying fares to Orbitz.  Success comes from AA not suffering a revenue drop from pulling its fares from Orbitz.  It’s quite possible that consumers won’t notice that AA’s fares are missing on Orbitz and they’ll book with other airlines.  If AA can’t maintain its sales, it may be forced to work with Orbitz again. 

If American is able to maintain its revenue and execute this plan against other online travel agencies such as Expedia and Travelocity, we’ll likely see other airlines folllow in AA’s footsteps.  My own take is that this is a risky move for AA since air fares are largely a commodity in the marketplace that are bought on price primarily.  This may give other airlines an opportunity to game the situation and raise air fares and benefit more from those air fare increases than AA can.

In a move that certainly surprised me, Expedia decided to “de-preference” American in a show of support of Orbitz.  Expedia has adjusted its system to show AA at the end of list of available airlines and no longer will show its fares.  This move was done to support Orbitz and out of concern of what AA will do when its contract with AA comes to an end in several weeks. 

“American Airlines has shown it only intends to do business with travel agencies through a new model that is anti-consumer and anti-choice.

“We believe American Airlines’ proposed direct connect model will result in higher costs and reduced transparency for consumers, making it difficult to compare AA ticket prices and options with offerings by other airlines.

“American Airlines’ direct connect model is of questionable, if any, benefit to travelers, costly to build and maintain and would compromise travel agents’ ability to provide travelers with the best selection.”

That’s going to hurt AA but I also think that AA may engage Expedia legally to stop that behaviour in the near term while it concludes its fight with Orbitz.  There is a signal here:  Airlines aren’t the only ones who have figured out how to work together to sustain their business models.

I think that AA is throwing its weight around like it continues to be the big dog among airlines.  In actual fact, they are the #3 airline by revenues in the US and they are the least profitable of the legacy and SuperLegacy airlines.  This isn’t a position of strength particularly when you consider the pressure AA is feeling to improve its profitability.

Filed under: Airline News by ajax
1 Comment »

Virgin America is set to start 2 flights a day between Dallas and Los Angeles and 2 flights a day between Dallas and San Francisco and it began this past Wednesday with a party.  As expected, American Airlines is already responding.  AA is boosting its frequencies by 2 flights a day and they’re offering extra frequent flier points for booking on their flights as well as prizes for selected travelers.

It’s a typical AA response and one they’ve used against other entrants onto what they regard as their turf.  But is it enough?

In the past, new entrants have typically offered a service product that is no better than their so the competition was based on price and frequency.  While frequency is likely going to be a selling point, I’m not sure it’s going to be as much a factor this time since VA has decided to schedule its flights in what appears to be perfect “business” times.  Their morning flight to Los Angeles departs at 7:00am and their evening flight at 4:35pm.  This offers good arrivals times into LA and good departure times from DFW airport.  Their flights departing DFW for San Francisco leave at 8:00am and 2:15pm and while I’m not a fan of the latter, the former fits nicely too.

This might end up more about service product this time and VA has a service product that beats AA hands down.  American offers you a choice of their clapped out MD-80s, 757s or the possibility of their new 737s.  However, those 737s are equipped with less comfortable seats, no in flight entertainment and WiFi on AA is spotty.  Virgin offers WiFi on all their aircraft, in flight entertainment on all their aircraft, more comfortable seats on all their aircraft and better food and drink for purchase. 

Business travelers, especially those whose company has shunted them to economy, would be wise to give this product a try.  Anyone traveling on these routes would be wise to support VA in its entrance to the DFW market because this is exactly the kind of competition that AA hasn’t had for years on its routes from Dallas.  VA picked two very good routes to enter as they had exceptionally high fares.  I just checked on fares to both LAX and SFO for next Wednesday and found a low fare of $129 each way ($250 RT) available for both routes and that compares to fares that were in excess of $400 round trip on American.

I have an interest in seeing Virgin succeed on these routes.  I live in the DFW area and I’ve spent nearly 10 years getting angrier and angrier over the exceptionally high fares that AA has enjoyed a variety of routes departing DFW.  I’ve become so upset at the treatment I’ve received on AA that I’ve actively sought connecting flights on other airlines to avoid American’s “service”.   This is exactly the kind of new entrant DFW needs and stands in stark contrast to the others that have come here such as Spirit Airlines. 

Virgin America’s CEO is David Cush, a former American Airlines veteran executive and he gets what it will take to survive the attack from American.  I’m cautiously optimistic that he’ll recognize that there are plenty of other opportunities in this market and executing on them now puts his airline in position to do well even against Southwest after the Wright Amendment is fully lifted.

For those of you chasing the frequent flier status game, take a look at this new airline coming to DFW.  You’ll get better treatment and more opportunities for comfort and service for simply paying a lower fare than you’ll ever get as an AAdvantage Gold or Platinum member on routes such as these.  Do you want status and an old aircraft or service and a new aircraft?

Filed under: Airline News by ajax
1 Comment »

American Airlines is switching its 2 flights per day from Springfield, IL to Chicago over to their DFW hub next April.  By doing so, AA will be eligible to dip into available grants setup to defer start up costs on new routes. 

One of the things that irritates me the most about how the US airline world has become distorted has to be how regional jets are used.  We don’t use them on regional routes.  Well, they’re still used on those routes but far more often we use them on long, ultra thin routes like Springfield, IL to DFW.  Or how about the time I flew from DFW to Cleveland on a Continental Express ERJ-140. 

The truth is, any flights from Springfield, IL should be going to regional hubs that are nearby.  We should see larger turbo-props flying passengers from Springfield to Chicago, St. Louis and Memphis.   I don’t know if Springfield can honestly justify the 6 flights per day it has to Chicago at this time but, if it can, I would argue that 1 or 2 of those flights is superfluous at best. 

Small airports like Springfield get access to all kinds of grants and other funding that permit them to attempt to attract new services and, hopefully, help grow their local economy.  But those grants are used to distort markets and encourage flights that would never exist if they had to be justified on the real market demand.   How is Springfield, Illinois truly better served by 2 flights per day to the DFW area for AA/Oneworld connections to the rest of the world when it can access pretty much the same parts of the world easier (and more economically) through Chicago?

The truth is, if you look at just a 350nm radius emanating from Springfield, you’ll find that the options on a regional basis to hubs and/or focus cities that actually have both political and business ties to Springfield, you realize just how insane it is to be flying a Springfield to Dallas route of 630nm using an ERJ-14X aircraft. 

Cities like Springfield should be cultivating multiple routes to multiple hubs/focus cities near them.  They should seek to offer broad based links to their entire region instead of a link to one part of their region (Chicago) and another link to an area entirely outside of their economic sphere (Dallas).    Using Springfield as an example and defining their “region” as being roughly 350nm diameter, they could target links to Chicago, Milwaukee, Detroit, Indianapolis, St. Louis, Kansas City, Minneapolis / St. Paul, Memphis, Nashville and even Cincinatti and Columbus. 

Grants and incentives have a tendency to drive decisions towards things that are clearly serving a narrow, immediate “want” rather than a broad based, market driven “need”.  I would far rather see grants help improve airports themselves and let the municipal, state and business leaders of a city make a business case to airlines for routes they need.  All too often, when I see a route like DFW-Springfield, I wonder what local business executive wants that route for his convenience and to what other businesses detriment is it being done?

Filed under: Airline News, Airports by ajax
3 Comments »

American Airlines has announced that they’ll be enjoying an even closer relationship now.  In addition to their codeshare/interline agreement, they’ll be adding additional flights including one from JFK to Budapest, Hungary. 

Even more exciting, they’ll have a reciprocal frequent flier agreement.  (and that’s why moving your reservations system to something real like Sabre is a good idea.  Are you listening Southwest?)

Filed under: Airline News, Airline Service by ajax
No Comments »

American Airlines has announced that it will be offering Happy Hour prices on its drinks in December on flights departing between 5:00 and 5:59pm. 

First, that’s a short duration and I already see a problem.  Is this scheduled departure time?  What if the plane departs 2 hours late?  Second, for flights departing in just one hour of each day?  Really?  Even TGIFriday’s gives you more time than that.

Third, and more importantly, do we really need to be encouraging people to drink on flights?  Drunk passengers are a top pet peeve for both passengers and flight crew.  It is pretty much agreed among frequent travelers that drinking alcohol on flights is a bad idea.  It dehydrates you and the alcohol does seem to have a more measurable effect and can result in things like headaches and bodyaches and a general unpleasant feeling while traveling. 

But AA wants you to enjoy a happy hour during your holiday travel.  This has bad idea written all over it.

Filed under: Airline News by ajax
1 Comment »

It’s been announced that jetBlue and Emirates will have an interline agreement functioning through JFK airport and within the next few days, it will be possible to buy thru passage to destinations between the two airlines.   JetBlue has been arranging and aligning itself with a number of airline partners through this type of agreement and Emirates makes the seventh such agreement.  American Airlines was announced just a few months ago and jetBlue has been enjoying an arrangement with Lufthansa (a major shareholder with seats on the board) for some time now.

CEO Dave Barger has described this as an open architecture and that means they are doing deals with whoever it makes sense to do a deal with.  The problem is the potential for conflict among the various partners.  For instance, one can only imagine how amused Lufthansa was to learn of this since their CEO has been a vocal critic of the advantages that Emirates enjoys in international travel.  

This isn’t exactly new.  Alaska Airlines has been engaged in similar practices with a variety of partners both domestic and international for years.  In Alaska Airlines’ case, it’s made sense and worked to a fair degree although in part because Seattle, it’s hub, is not a hub or really a focus city for anyone else.   However, over time, Alaska did business with so many partners who were competing with each other individually, it began to annoy some.  For instance, AA has been gradually drifting away from its partnership with Alaska and Delta has been strengthening this partnership.

Ultimately, Alaska has found that it really does, in a sense, have to dance with the partner who is making a difference to their bottom line. Of late, that’s been Delta and when one airline substantially bigger than you starts contributing significant revenues to your balance sheet, it is only a matter of time before it starts conditioning those results upon receiving certain concessions.

JetBlue sees opportunity and there is opportunity at present from all of its partners.  However, over time, someone is going to start making a bigger difference to the bottom line than someone else.  Emirates has great potential for this as does American Airlines.  Just between AA, Emiratese and Lufthansa, you have two airlines aligned with different alliances and one airline who isn’t but who knows how to provide massive long haul feed.  The potential for conflict is huge in the future.

Maintaining some kind of balance between its partners is going to be key to keeping this open architecture.  Like any business, dependence upon one partner can lead to inequalities that drive your business in directions you never wanted to go in.  The size of airlines that jetBlue is partnering with indicates just how massive that potential is and no one should ever make the mistake that a huge airline won’t one day decide to use its influence to diminish the influence of other airlines its competing with. 

Frankly, I think it benefits a small airline to pick a dance partner and stick with it.  If jetBlue wanted to enjoy feed from other airlines, it would have been better served to have chosen an alliance and worked within its system where there is some understanding that picking apart a partner is counterproductive.  Under the current model, no one partner has any great incentive to remain loyal if the competitive environment evolves.

Filed under: Airline News by ajax
No Comments »

Damned if you don’t.  American’s labor woes are getting in the way of both the company and labor moving forward.  It’s a Mexican stand-off at this point.  Management has the argument that any higher labor costs would result in the company losing money again and potentially failing.  If it runs close to the line of failing, it’s either a liquidation (unlikely) or a bankruptcy reorgnization (very likely) or a purchase (somewhat likely).  In any of those situations, labor stands to lose and lose big.

Labor, on the other hand, has a knife to the throat(s) of current management.  If they win big gains, it’s the end of the current regime.  If any of the unions (particularly cabin crew or pilots) win the right to “self help” aka a strike, it’s the end of the current regime.  And the the end of the current regime may mean a reorgnization ultimately as well. 

Neither side can necessarily afford to stick with their current leadership.  AA’s management has allowed this to fester for a very long time and, I think, has gone past the time that would be regarded as “reasonable” to come to some agreement that would allow the company to move forward.  At least in the eyes of many shareholders.  Likewise, the unions don’t have a deal and don’t have a prospect of a deal and with the stance of “all or nothing”, stand to harm their memberships far more than help them. 

We’ve already seen the pilot’s leadership change to a more reasonable president but I see no evidence of that potentially happening among the other groups.  Not right now. 

If the brinksmanship continues, look for a regime change at AA.  If there is a regime change at AA that does not result in movement in the agreements, look for regime change of the leadership of flight attendants.  Then sit back and wait for the bankruptcy filing for reorgnization.

What seems even more dismal is this question:  Who wants to buy AA or American Eagle?

Filed under: Airline News by ajax
No Comments »

American Airlines is threatening to stop making their tickets available through Orbitz.  Instead of supply this data through a global distribution system provider, it wants Orbitz (and ultimately companies just like Orbitz) to make a direct connection to AA instead. 

At first glance, this would appear to be much ado about nothing but it isn’t.  When Orbitz and others like them get their data through a GDS, they get all the info and they’re able to display fares with a reasonable amount of transparency and thereby show the most competitive fare(s) available.  If they begin to make direct connections, airlines will suddenly have the ability to control what is fed into systems like Orbitz and Orbitz doesn’t like that.

Orbitz (and the others) are popular with the consumer because they are offering competitive choice and that service product promise is to show the lowest fare currently available.  What if an airline is able to decide that those people will only see somewhat competitive fares on those systems and reserve the best values for display on their own website?  That will ultimately drive traffic away from the travel agencies (Orbitz, etc) and towards the airline’s sites where only partner companies will participate in access to the customer.

Furthermore, by eroding the value of the travel agency websites, the airlines would be able to make the picture for what a competitive fare is a bit more “fuzzy” to the consumer.  The last thing airlines want is a competitive marketplace.  The first thing that you, as a consumer, want is a competitive marketplace. 

But it’s that competition that is making it so hard for airlines to raise prices.  Right now, one airline essentially “bids up” the price of a fare and then waits to see if other airlines match it.  If they don’t, the first airline will drop its price back to the old market price.  If they do match it, then suddenly all fares are raised but they are once again perfectly competitive which means market share for those customers doesn’t change. 

Airlines want things as fuzzy as possible and as difficult as possible to price shop because that potentially allows them to raise the prices more.  Right now, airline A might have 10 flights on a route and airline B may only have 3.  But if airline B sells at a lower price, airline A has no real choice but to match it.  This is because we see all the lowest fares displayed on a website and a price differential as little as $5 can change market share quite a bit. 

This is one reason why I believe Southwest should seriously consider getting back on the grid, so to speak.  They offer competitive prices (particularly when you consider their policies on bag fees) that aren’t displayed alongside all the other airlines on these travel agency websites.  In fact, they offer the two things that most customers want:  low fares (or at least competitive) and frequency. 

Ultimately, I expect that American Airlines will have to accomodate Orbitz in some manner.  I say this because no other airline is making this attempt at the same time.  Not having their fares displayed alongside their customers in the present circumstances will mean a potential loss of market share.  Things would look worse for Orbitz if the other airlines were trying to do the same thing.

Filed under: Airline News by ajax
1 Comment »

American Airlines remains the concern of every analyst when it comes to asking the question about its long term viability.  It isn’t that this airline is about to die, it’s that there remain so many things going against it still.

They have some of the highest if not the highest labor costs among the airlines and they have labor groups who are out to get what they had before the givebacks earlier in the decade.  What’s more, they don’t seem to have a coherent plan for dealing with that problem.

They have an aging fleet that puts them behind other airlines including the SuperLegacy airlines who did renew their fleet some over the last 7 years while American remained largely entrenched in the MD-80s until 2 years ago.  Even now, they’re a bit behind in keeping pace with the need for greater fuel efficiency.  It’s arguable that without the huge spike in oil prices a few years ago, American would still be sitting on their fuel hog MD-80s. 

They’ve been stymied on growth with other airlines “poaching” on their territories and others reducing their costs via bankruptcy and have only now started to, perhaps, grow their network organically. 

American did finally get their trans-Atlantic alliance with British Airways and Iberia Airlines.  Only time will show us if that alliance is worth it and while it may be worth something, American missed out on being able to take advantage of such a thing for more than decade by stubbornly clinging to the idea of mating up with BA. 

They also won their Japanese battle by keeping JAL in the OneWorld system and they’re on track to win immunity in a trans-Pacific alliance with them as well.  But JAL has a long way to go before it is a profitable and viable airline.  Delta and United, however, have good systems to Asia and a good network inside the Far East. 

I do like their interline agreements with jetBlue and WestJet and it would appear that someone at American is thinking “innovative” for once.  But will AA be patient enough for those to work and will they be entreprenurial enough to expand upon such concepts?  History says no but I say the decision on that can’t be made for at least a year.

This isn’t an airline that will go bankrupt in the next few years.  It is an airline that appears destined to remain very lackluster in comparison with basically all the other airlines in the United States.  And why would you invest in lackluster when you can have rock star in so many others?

Filed under: Airline News by ajax
No Comments »

We’ve heard all about the soaring profits at airlines this past week but I wonder if many have noticed the other element in the news:  new flights being added at various legacy and SuperLegacy hubs. 

So far, these new flights have all the appearance of being targeted towards building core strengths at various hubs and focus cities.  American Airlines is building LAX (although mostly through American Eagle flights) for instance and United and American are starting long haul flights from LAX to Shanghai, too.

While we’ve seen very modest capacity growths in the first 2 quarters indicating that airlines were just (barely) keeping pace with demand, this most recent quarter finds announcements that indicate that everyone is trying to nudge themselves towards a bit more growth than before. 

Let me point out that even Southwest’s intentions on buying the 737-800 is a form of capacity growth.  They’ll use that aircraft on routes where there ability to fly frequency is constrained. 

The signs are there but it’s the 4th quarter results and announcements that should signal a trend.  We won’t really know where things are headed until announcements on intentions for next summer are made.

Filed under: Airline News by ajax
No Comments »

Instead of engaging in analyst speak for the earnings results airlines are reporting this week and the next, let’s sum it up real quick:  Airlines are earning record profits this quarter (again) and American Airlines continues to appear the weak animal on the plains with not one but two lions starting to eye it. 

The “records” being set with these profits are a bit deceiving.  Delta has had record profits.  It’s also roughly twice the size it was before the economic crash.  United has record profits, ditto.  US Airways has record profits and, yes, they’re roughly twice the size they used to be too.  When Southwest adds Airtran to their company, we’ll likely see new record profits there too. 

What’s driving these profits?  Well, certainly some synergies from the mergers although I suspect they aren’t as great as they are touted to be when these airlines were lobbying for approval of their mergers.  US Airways doesn’t have all those synergies in their flight crews and they’re still performing impressively. 

Network?  Well, again, I think it certainly helps a bit.  I believe the larger networks are improving load factors somewhat and that’s good.  On the other hand, is it all about the network?  No, not really.  I refer you to the fact that US Airways has a lousy network and, again, they’re doing very, very well.

I think the continuing restraint on capacity growth is driving these profits.  That’s great and I am very impressed that the airlines have held themselves in check as well as they have.  It’s nice to see profits in this industry and there are a whole lot of people who need to be paid back for their investments.  This will help do that. 

The question is . . . Will it last?  I’m skeptical.  Very skeptical.  First, some of the load factors we are seeing as “averages” are astronomically high when considered against the past 30 year history of the business.  Even Southwest is enjoying exceptionally high load factors and their business model isn’t based on high load factors at all.  I don’t think such load factors are sustainable.  In fact, I think they are too high as an average for these legacy/SuperLegacy carriers. 

I think branded regional airlines and LCC carriers are going to see a lot of opportunity over the next few quarters to start whittling away at these profits.  Someone will blink and they will add capacity.  When one starts to grow their capacity, many will follow, at least on competitive routes, because self-restraint in this business is dependent upon everyone exercising some. 

If we do continue to see these profits for another year or two, I also think we’ll see new entrants into the market place.  The Sirens will be calling to investors and it will be an irrestible call. 

You can bet that each airline is analyzing their competitors right now and you can also bet that the question being asked is how can we grow or add capacity through better utilization of our fleet right now.  Tomorrow, the question will be about what they can add to their fleet to grow that capacity.  Those questions are being asked internally right now and I do think we’re looking at least a couple more financial quarters of self-discipline.  I also think someone will likely blink when they begin to plan and announce intentions for next year’s summer season.

Filed under: Airline News by ajax
No Comments »

American Airlines and WestJet Airlines have announced an interline agreement yesterday and, once again, I didn’t see this coming.  If anything, I would have expected this to develop between WestJet and Delta, not American Airlines. 

The agreement will allow customers to connect seemlessly (with one ticket) to 25 new Canadian destinations with American Airlines (and American Eagle) feeding that traffic to six gateway cities in Canada.  Presumably it will work both ways (Canada to the US) and it is notable that the press announcement mentions a “phase 2” which will feed traffic back and forth to WestJet flights from the US to Canada as well. 

This is a pretty good win for American.  It gives Oneworld (via AA) an entrance into Canada where they’ll compete against the Star Alliance and Air Canada.  It leaves Delta sitting out in the cold with no other airline in Canada for them to connect with.  That, alone, is a bold move.

It also kind of swats at Southwest and its original intentions on Canada via an earlier codeshare agreement it had with WestJet but which was terminated earlier this year after a disagreement with WestJet. 

That sound is the door slamming shut. 

This will sting other carriers in the US and it’ll force them to access Canada through a much more expensive pathway:  flying there themselves. 

With both this agreement and the earlier one AA did with jetBlue, it’s clear that there is some innovative thinking going on at American suddenly and now I wonder what comes next.  I’ve been pretty hard on AA this year but I have to say that I like this move and I think it will benefit them and WestJet a great deal.

Filed under: Airline News by ajax
No Comments »