Delta Airlines has a great 2012 holiday video.

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I’ve had some time to think about the new Virgin Atlantic / Delta Airlines deal and several things have occurred to me which make this a bigger threat than I think anyone necessarily perceived including me.

Virgin Atlantic knows its trade across the Atlantic and its got the London Heathrow slots to make a  lot happen for Delta.  For the first time in 30 years, American Airlines and British Airways may be facing a very real threat to their lucrative trans-Atlantic business.

Virgin has the aircraft and airports slots and Delta has the network.  Delta has the network feed into New York City and enough network to actually draw Oneworld (AA/BA) customers away from Dallas and Chicago to Atlanta and New York City and even Detroit.  AA and BA won’t lose their O&D traffic in those cities but it could lose a great deal of the network feed into those cities in favor of a Delta solution.

This will happen just as American Airlines prepares to scale up its operations with 777-300ER aircraft onto those routes and just as British Airways prepares to take delivery of its first Airbus A380s.  If Willie Walsh and Tom Horton aren’t cursing Richard Anderson, they should be.

Virgin has 747-400 and Airbus A340-600 aircraft that it can throw at routes to the US and a newish fleet at that which represents great service and certainly service competitive with AA and BA.

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As the clock ticks towards the end of the year, more and more people are weighing in on the potential American Airlines / US Airways merger that’s been cooking for a few months now.  I have a few thoughts on this:

1)  It is curious to me that Tom Horton continues to describe himself as neutral on the merger idea on the one hand but also argues for a post bankruptcy merger any time the door is theoretically closed at a meeting.

2)  The fact that the pilots have been engaged on this leads me to believe that an offer is imminent.

3)  If an offer is imminent, someone has found a way to let Tom Horton exit gracefully.  I’m guessing the plan here is something similar to what Glenn Tilton got in the ContiUnited merger.  I’m also guessing that Tom reckons that if Doug Parker blows things, he may yet be able to step into the CEO role again.

4)  Not all pilots are eager for this.  There is a new blog started by about 35 AA pilots, mostly captains and mostly from the DFW base.  The fact that most are captains from the DFW base leads me to believe that these are fairly senior captains who may feel a touch threatened with respect to retaining their seniority against similar US Air (EAST) pilots.

Seniority is going to be a touchy issue for pilots and other crew.  It won’t be Delta like in the integration largely because rational thought isn’t in place for either union involved (APA or USAPA).  If this were an ALPA/ALPA integration, the odds for a smoother integration would go up.

You know what?  Smooth or unsmooth, it doesn’t really matter.  US Airways has already proved it knows how to run a split operation.  Furthermore, there is now federal law that will govern a seniority integration in this case and that should prevent a USAPA-like embroglio.

Some pilots from both unions point to Doug Parker and US Airways not being able to integrate their employees in the previous merger and that’s not quite true.  There was an arbitrated decision that very senior US Air (EAST) pilots threw a temper tantrum over and tossed out by electing a new union organization.  Parker & company couldn’t even be sure who to negotiate with for the last several years much less solve a problem.

Parker & company keep making offers to US Airways flight attendants and they keep voting them down asking for more.  And who wins in those situations?  Parker & company.  Because the NLRB won’t let the crews strike and does keep the new agreements coming which proves that progress can be made and that therefore justifies not letting the unions strike.  Meanwhile, US Airways keeps paying the old rates.

At some point, you need to make the deal you can get, not the deal you want.  US Airways crews haven’t been able to get their act together to realize that much less make it happen.

I rate a merger announcement as 80% probable at this point but I’m not sure that I agree that it will happen before the end of the year.  I can see this deal getting announced in the 2nd week of January, however.

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Southwest Airlines has made a few announcements that I think signal some more evolution in the future.  First was SWA VP Bob Jordan announcing that some time in 2013, Southwest will begin charging a cancel fee of a sort.

Currently, once you buy a ticket on Southwest, you essentially buy a “value” that should you miss or cancel your flight, you can use the credit towards a future flight (generally you must use this credit within 12 months).  Southwest plans to charge a “cancel fee” if you don’t call and cancel your flight.   This new service fee will be oriented towards SWA’s most restrictive fare categories.

In addition, Southwest is preparing to engage in a multi-stage codeshare rollout with Airtran.   Southwest will start slowly with a test beginning at the end of this year with several intermediate phases to follow and a complete roll out finished by April.  This is a big milestone for Southwest in its merger integration.

At first glance, one would be tempted to believe that these two items are fairly unrelated but they aren’t.  Southwest chose Amadeus software for its new reservations system and these two items signal that the software implementation has come quite a way.

It has to have or Southwest would be unable to implement the above steps.  I’m pretty impressed that Southwest has progressed this far in a new system implementation over the last year and I don’t think Southwest would be talking about these items if it hadn’t fairly solved most of its problems in these implementations.  Furthermore, I think it speaks well of choosing a tried and true system in Amadeus rather than asking someone to write all new software.

Airlines do better adjusting their business model to fit well tested software than they do creating all new systems.

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Leeham News has a short blog entry referencing this article about Southwest and its Airtran merger and integration.  It is difficult to figure out where to begin in trashing this story.  But let’s take a shot at it:

1. Southwest Airlines will remain a single aircraft type using the 737 in the various variants it has today and in which it plans to have in the 737MAX.  The 717 has been offloaded to Delta and will be gone in a fairly short period of time.
2. Airtran is not based around the 717 solely.  It, too, uses the 737-700 which is also a significant part of the Airtran fleet.
3. Airtran is a hub and spoke operation but it’s major hub is Atlanta only with significant focus cities (a la SWA) elsewhere.
4. Airtran does not operate just primarily into major hub airports.  It has had a significant number of flights into cities that are smaller than the typical SWA destination that it made profitable using the 717.
5. As SWA takes over Airtran routes, it’s adapting them to SWA’s point to point model.
6. SWA has huge focus cities which kind of resemble hubs.
7. Atlanta was the only airport that SWA could fly into in that area.  There was no smaller, inner city airport.
8. SWA has been operating into and out of major hub airports already.  Notice its operations, for instance, into La Guardia and Newark airports.  It’s operated out of LAX for a long, long time.  Phoenix as well.  Same for Denver.  It’s figured out the “how to operate at a major airport” problem for a long time.
9. Airtran does present Latin American opportunities but also Caribbean opportunities and SWA has already announced plans for Puerto Rico as a first step.
10. It completely misses the point that Airtran, as a subsidiary operating entity gives SWA the chance to accelerate international flights via the Airtran reservations system.

I’m sure people see my point.  This isn’t SWA’s first rodeo and for sure it knows how to deal with a variety of destinations and airports.  What it completely ignores is SWA’s already high and rising labor costs which is an area of concern.  The creators of that “report” would know this if, you know, they had listened to Gary Kelly’s concerns expressed at a variety of quarterly earnings calls.

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It’s occurred to me that American Airlines may want an accelerated pilot contract hearing in bankruptcy court for multiple reasons.  First, it enables them to woo the Unsecured Creditor’s Committee towards their stand-alone plan.

Second, they have 777-300ER aircraft arriving shortly and that pilot contract allows them to train pilots and presumably stay on schedule for entry into service for that aircraft.  I rather believe that this is  the prime driver.

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With the AA Pilot Contract ratified by the Allied Pilots Association, speculation as to what’s next has gone into full overdrive.  Some think American Airlines will make a case for its stand-alone bankruptcy exit plan and some think this clears the last hurdle for a merger with US Airways.

American Airlines has asked that the court set a hearing to approve the contract more quickly than the customary 21 days.  I suspect that request is more about checking the box quickly than anything.  With this contract settled, American Airlines is done with the big challenges of reorganization in its mind.

Is it done?  Frankly, we’ve seen them address costs in a very aggressive manner and not just in the area of labor.  AA’s fleet has been slashed of aircraft and leases on other aircraft have been renegotiated.  Costs have been addressed more than adequately.

But where is the revenue plan?  It remains the cornerstone market strategy of old.  Routes haven’t been radically altered and hubs haven’t been re-tooled and new markets haven’t been explored.  Bankruptcy reorganization gives AA time to work on this area too and it appears there has been no real interest in putting in the same effort here as what has been done to costs.

My concern is that American Airlines has achieved another 10 year holding action.  Time will tell but this reorganization feels like the company has puts its hopes into the cost cutting basket without truly addressing the need to grow revenue and, frankly, repair relations with employees.

I sit amazed that the company hasn’t acknowledged its challenges going forward with respect to employee morale.  Were I an analyst, I would be worried about this companies exit from bankruptcy not because the employees would intentionally sink the ship but because a service company such as an airline is extremely dependent upon its employees providing a positive experience.

American Airlines seems to think it’s still the dominant player in all its markets and that people don’t have choice.  That’s just not true.  Los Angeles and New York City are extremely competitive marketplaces and areas where other airlines have been much more aggressive than AA to date.  Chicago is a very, very competitive market with United Airlines and Southwest Airlines eating at American’s constituency every day.  Miami / Fort Lauderdale has a tremendous amount of LCC competition and airlines are flying to South America from other gateway cities and competing just fine with AA.  Dallas / Fort Worth has increasing competition at DFW airport and the prospect of a fairly unlimited Southwest Airlines in 2014.

The differentiating difference for an airline over the next 3 ot 5 years in the SuperLegacy category is going to be service and its those employees who have been roughed up badly who will be delivering it.  What’s being done to sooth those wounds and what’s being done to incentivize a positive experience for passenger?  A plan for this would be a good thing.

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There are some reports filtering around that Delta may be interested in taking on an investment in Virgin Atlantic.  Specifically, the reports say that Delta is interested in buying the 49% ownership share that Singapore Airlines holds currently.

Singapore Airlines has wanted to exit this relationship for some time now so that part makes sense.  Singapore Airlines has also been a constraint for Virgin Atlantic in prior years because Singapore has some veto on how Virgin may operate and market itself in the Asia Pacific region.

However, the real speculation is that many think this is Delta’s opportunity to gain better access to London Heathrow airport.  It’s possible that Delta might be persuasive in getting Virgin to work with it on slots but somehow I think this isn’t exactly what Virgin has in mind.  Those slots are extremely valuable assets.

Would this mean an airline alliance for Virgin Atlantic?  I think so.  Even Richard Branson has hinted around at the idea of Virgin joining such an entity and there was some speculation that Star Alliance might be the most interested party.  But SkyTeam could work, too.

The problem is that Virgin isn’t a very attractive party in the alliance game.  It has no local network to offer partners.  In light of that, I think Delta sees Virgin’s value and success diminishing over time and it could wield influence in the not so distant future to get Virgin to release slots and gate space to it in London.  Even that leaves Delta somewhat at a disadvantage since there is no regional network to connect to beyond London.  Not really.

SkyTeam’s alliance partners in Europe are Air France and KLM predominantly.  Neither have substantial networks out of London and don’t seem to plan anyway at present either.

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American Airlines says it has lost $164 million in October with $72 million of that related to bankruptcy expenses leaving $92 million related to its operations.  The company says that about $40 million of that is related to Superstorm Sandy and another $45 million was due to the recent operational troubles it experienced in October.

Every airline is reporting losses from Superstorm Sandy and $40 million does kind of pass the gut check.  However, I think attributing $45 million in losses to recent troubles in October is a bit . . . convenient.  And it certainly doesn’t take responsibility for those problems.  Let’s be mindful of the fact that the airline and union went back to the negotiating table in early October and operations regained sanity.

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Two respected analysts (William Swelbar and Aaron Gellman) in the airline industry have come out swinging at the AMR – US Airways merger in small but significant ways.  Each questions the value of such a merger to American Airlines in terms of synergies.

Synergies of a merger are important and should be talked about with respect to a merger in this industry but they aren’t everything about a merger.  They are, in short, the talking point that the world understands.

In the case of American Airlines and US Airways, many scoff because of US Airways exceptionally weak position in international markets.  That’s where the sexy and fairly profitable flying is today.  But the day to day bread and butter of a US airline remains in the domestic markets.

The domestic synergies between the two airlines amount to a savings in costs with respect to a combined infrastructure to serve such an airline (less labor needed to serve the two combined entities, less overhead since one reservations system is used, etc.) and they amount to opportunities generated with a larger network.  Curiously, no one ever seems to talk much about how US Airways has two hubs that slot into areas of the country where AA is at its weakest.

Not only are those areas where AA is at its weakest (the West Coast and Southeast), but they are where US Airways actually performs really well.  That ain’t nothing.

Furthermore, despite AA’s Corners Strategy, American Airlines is now far from a dominant Northeast airline in New York City or Washington D.C.  US Airways plays very well there.  They have their shuttle operation and excellent position in Washington DC.  While US Airways gave up market share in NYC to Delta in exchange for its position in Washington DC, if you combine US Airways operations in NYC with AA’s, it started to look good and respectable again.  That ain’t nothing either.

Swelbar talks about the labor conflicts at such a merged entity.  I would like to make an observation:  A conflict free merger with respect to labor is bar far the exception to the norm.  Delta and Northwest got it and that’s nice.  Southwest and Airtran are doing OK but that was a different situation really.  ContiUnited hasn’t had it so good.  Few airlines ever did have it very good with labor in a merger.  It’s a fact of life.  So, how, then, is it much of a disadvantage? US Airways has actually proved that a profitable airline can be run despite unions biting at each other left and right.  If anything, its been an advantage for US Airways.

But there is a benefit to such a merger and particularly so to American Airlines that gets ignored by both these academic analysts:  US Airways management takes over.  It is pretty much agreed that the American Airlines management and board of directors is dysfunctional and even in this merger they have not taken full advantage of the opportunity to come out the other side a lean, competitive company.  With the roadmaps for doing so set in the examples of Delta, Northwest, US Airways,  America West and United Airlines, you would think that there had been more slash and burn than there has been.

Finally, there is room for more consolidation and the ugly truth is that both these airlines need each other.  There is nobody else left to work with and there is, perhaps, just one opportunity to pull this off and save both airlines.  They need each other and the sad fact is that they need each other equally but for different reasons.  That’s OK but it’s time to acknowledge the elephant in the corner.

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Love Field Airport in Dallas has been a source of a lot of pain for the City of Dallas and, in particular, the city council.  It was an airport that was supposed to go away and thanks to Southwest Airlines, it’s an airport valued by quite a few people even today.

I’ve never understood why this city hates its airport as much as Dallas does.  When I worked at Love Field in the late 1980’s and early 1990’s, the disrepair that much of those facilities were in was shocking.  It was if the landlord was doing everything it can to make the airport unattractive so that the one tenant hanging on (Southwest) would just leave, damn it.

Even after the compromise on the Wright Amendment, we’re not seeing Dallas build an excellent airport designed to serve the needs of the area, it’s building an airport designed to constrain operations at the airport.   When I look at how Dallas treats Love Field and compare it to, say, Midway Airport in Chicago, I become ashamed of the greater Dallas Metroplex and it’s attitude towards an asset that could be a jewel.

Love Field has some history to it.  Braniff’s Dallas Operations and Maintenance base building is located on the east side of the airport on Lemmon Avenue.  It was an airline building with many firsts and for quite some time represented the connection between Dallas and its airline, Braniff International.

The building was occupied and used even after Braniff’s bankruptcy and dissolution but has been unoccupied for about 20 years.  Now the city wants to tear it down.

I’ll be honest, I’m not completely invested in the idea that that building must remain at Love Field.  I am, however, invested in the idea that Love Field should be developed and related businesses ought to be encouraged and focused in a manner such that the airport looks more like an asset that represents a strong city.  The eastern side of the airport along Lemmon Avenue isn’t that attractive today and hasn’t been for 25 years.  That’s the city’s fault.  It ignored the airport and the properties along that side for years and largely because the neighborhood immediately bordering that side is comprised of very long income families.

Or it was until that neighborhood started to be revitalized.

Here is the building today:

A not for profit organization has started a campaign to save this building.  The Flying Cr0wn Land Group has this website:

http://www.savebraniff.com/

They have submitted numerous proposals to the City of Dallas’ Director of Aviation, Mark Duebner, whereby the property would be taken over, re-developed with the existing building and done at no cost to the city.  They want to preserve the building and use it for mixed businesses and even preserve the Braniff name in its remodeling.

They have investors lined up, a list of tenants lined up and have made several attempts to get Mr. Duebner to pay attention.  Curiously, he has refused to do so over and over and over again.

I also just like these guy’s plans.  It’s an attractive idea, it fits better than a car dealer and we ought to take chances on the out of the ordinary idea because it is those ideas that can often become the germ of real revitalization.

Now I understand why.  Mr. Duebner has made a deal with a Dallas BidnessMan, Randall Reed, to demolish the building and redevelop it into a Lincoln car dealer as well as a hanger and fuel farm.  A car dealer is the last thing Lemmon Avenue needs more of.  If you live in the Dallas area, you know this.  And it doesn’t strike me as “good” for the city’s Good Neighbor Policy towards surrounding residents either.

What’s the difference between a garish car lot and a redeveloped business center?  One hell of a lot.

Can the Flying Crown Land Group truly do all it thinks it can do?  They appear to have a plan, they assert they have the money lined up necessary for development and they not only submitted a proposal that exceed that which Randall Reed has proposed, it’s better in tax revenue for the city and better for the neighborhood.

So why are we ignoring this?  What harms comes to the city when a building that is BUILT FOR THE AIRPORT AND IS CONSISTENT WITH ARCHITECTURE AND THE SURROUNDING CITY ARCHITECTURE is kept and made new and useful again with the same or better tax revenues?  How does the city benefit with another car dealer and particularly so on Lemmon Avenue?

I smell a rat and I suspect that smell may be coming from those running Dallas’ airport.  Pay close attention because if the razing occurs and the deal is done with Randall Reed, I would ask us all to find out who Mr. Duebner is working for one year from now.

So, I’m going to ask something of readers I’ve never asked for.

1) Please forward links to this blog entry to your aviation friends.  Create a stir and I don’t care if you know someone in Dallas or not.  Let’s get Dallas people aware of this brand of stupid by creating as much of a stir as possible.

2) Go sign the petition.  Particularly if you are local to Dallas.  Save Braniff is the link.

3) Contact your Council-Critter on the Dallas City Council and protest the stupid. It’s your airport and you do have a voice.

4) Call Mr. Duebner and ask him how his brand of stupid is better for you, a Dallas citizen.  His office number is (214) 670-6080

You can also read stories in the Dallas Morning News about this Here and Here.

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US Airways flight attendant Bette Nash has achieved 55 years of service with the airline but her history is rather unique in my opinion.  Ms. Nash started her career with Eastern Airlines flying Lockheed 1049 aircraft and shortly thereafter transferred into the Eastern Air Shuttle operation based in Washington, D.C.  in 1961.

Ms. Nash worked this shuttle system for the next 52 years.  The Eastern Air Shuttle was operated by Eastern Airlines between New York City, Boston and Washington D.C. from 1961 until it became the Trump Shuttle in 1989.  The system was operated as the Trump Shuttle from 1989 until 1992 when it was purchased by US Airways and operated as the US Air Shuttle (old US Air) and the US Airways Shuttle (post merger with America West).

52 years serving the shuttle system is, in my opinion, a big accomplishment.  Congratulations on your service, Ms. Nash.

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Lest anyone of you believe that the new movie, Flight, bears any resemblance to the real world, ALPA has released a statement defending its pilots:

“Hollywood dramas can make riveting entertainment and a compelling character study may sell tickets, but fiction on a movie screen doesn’t represent a profession in the real world.

“The more than fifty thousand ALPA pilots in the United States and Canada embody the highest possible standards of training and professionalism.

“These standards are borne out every day, as we safely transport hundreds of thousands of passengers and tens of thousands of tons of cargo across the country and around the world.

“We all enjoy being entertained, but a thrilling tale should not be mistaken for the true story of extraordinary safety and professionalism among airline pilots.”

I admire how they carefully ignore the number of incidents in which pilots have been found to be intoxicated and about to pilot an aircraft over the last 5 years.

Dear Pilots:  The history of Hollywood has made it clear that what goes on in that movie is sheer fantasy.  Should anyone in the public think that a pilot could be that drunk and pull off a recovery like that, well, you wouldn’t want them flying with you anyway.

Your professionalism is already well known and the public knows that pilots both in North America and across the world act with care and are trained extremely well (except the guy in China who managed to fly without a license).  There is no need to be paranoid that people might think that that is an ordinary reality.  I have a suggestion:  Get out and see a movie and relax.

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Iberia Airlines, Spanish airline of the International Airlines Group, is in real trouble.  Spain’s economy is horrific and competition from low cost carriers is killing them.  Sounds like British Airways, right?

IAG CEO Willie Walsh says that there will be a massive restructuring of the airline with as many as 4500 people made redundant.

Mind you, he’s probably dead right about what needs to happen.  I also think he’s going to be suffer the rage of Spanish unions and that will be an experience that makes his tangle with British Airways flight attendants seem like a summer romance.

Iberia’s problems, which come from having lived as a government sanctioned flag carrier for years (this is getting to be too familiar), have to do with a bloated staff, an unproductive set of agreements with flight crew and a Spanish economy that is miserable.

None of this was really unknown when Iberia and British Airways combined.  So why did they do it?  Pressure from other European airline mergers.  British Airways felt it needed a merger or risk being diminished by other European airlines.

Now they’ve got their merger and one side of the partnership is a pair of rubber boots filled with cement.   If Willie Walsh is able to restructure Iberia and bring them back into profitability, I will nominate him for Amazing Airline CEO of the Decade.

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The Allied Pilots Association and American Airlines have reached a tentative agreement for a new contract.  APA President Keith Wilson seems optimistic about it and describes it as an industry standard contract.  American Airlines seems to think it’s got a deal as well.

I’m pleased to hear a deal has been reached but . . .

There was a deal a few months ago that the pilots voted down.  We’ll see just how much the deal has changed once some details leak.  It’s possible that the pilots are ready for a deal and, if so, they’ll be likely to vote on it.

Maybe I’m cynical but I remain a little skeptical that this deal is truly done.

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Emirates wants more from Boeing and they want it in the form of a very long range, large capacity 777-X.  Boeing has been holding meetings with customers regularly to survey needs and find a solid definition for the next iteration of the 777 and reportedly all are very excited about what Boeing has except the Middle Eastern customers such as Emirates.

Emirates wants both the capacity and a bit more range.  Likely it’s interested in seeing enough range to fly from Dubai to Los Angeles with a full load.  Notably, this is what it really wanted to see out of the 747-8i as well.

No airliner ever failed from having too much range, that much is true.  Range can translate into 2 things for a customer:  the ability to serve long, thin routes and the ability to service slightly shorter routes with a full load.

Current ultra-long haul, high capacity airliners available are:

• A380 with 500 passengers (plus or minus about 30) for 8300nm of range.
• 747-8i with 400 passengers (plus or minus about 40) for 8000nm of range.
• 777-300ER with 350 passengers (plus or minus about 40) for 7900nm of range.
• A350-1000 with about 300 passengers (plus or minus about 30) for 8300nm of range

The Dubai-Los Angeles route is just a hair over 8300nm in distance and therefore really needs an aircraft with about 8800nm of range.  Boeing could give this to Emirates with the addition of a fuel tank or two, I suspect.

But both Boeing and now Airbus seem to be resisting going much past 8000nm because only a tiny handful of airlines need this range.  The rest are doing missions with these aircraft that are significantly less than 8000nm in distance.

There is also the issue of range costing more fuel than it might be worth at some point.  Each gallon of extra fuel costs more gallons of fuel to carry it.  There is a point of diminishing returns.

I think we’ll see the next generation of long haul, high capacity aircraft get performance improvements that may boost the range just long enough for the 8300nm mission but they won’t be here today or tomorrow.

Ultimately, I strongly believe that the ultra long routes will be better served by aircraft more in the style of the 787, 777-200LR and the A350-800/900.  I kind of expect Airbus to come up with a LR version of those A350 models for their treasured Eastern customers.

Will Boeing do it?  If Alan Mullaly were at the helm, I would say yes.  No airliner ever got harmed by additional range capability and just because it is there doesn’t mean the airlines have to use it all of the time.   Today, I think probably not.  Boeing’s board is increasingly cautious about spending money to build class winning aircraft.  They are mostly focused on derivatives and James McNerny, CEO of Boeing, seems content to have 90% solutions for Boeing customers.

Should they do it?  Yes, I would.  I would work very hard to get enough weight off the aircraft to allow a near 9000nm range in the large and smaller capacity versions of the 777-X.  Why?  Because airlines like Emirates will potentially buy a few hundred of them and no other airliner is going to complain about having more potential if it needs it.  In short, they’ll attract more customers and sales.  It isn’t Boeing’s job to figure out how an airline wants to operate.  It’s Boeing’s job to build and sell aircraft that customers want.

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American Airlines enjoyed a 58% on-time rate in September.  The sound and fury of very angry pilots and an operation not coping well.  To put things in perspective, United Airlines experienced an 82% on time rate and Delta had a 89.7% on time rate.

US Airways, AA’s suitor for a merger, managed an 87% on time rate and was the 2nd best CONUS legacy airline behind Delta.  Southwest Airlines was right behind US Airways at 86.5% and was tied with another airline for that position:

American Eagle.

Yes, American Eagle managed an 87.5% on-time rate.  A regional jet operation that traditionally doesn’t do as well as its mainline partner ran absolutely great ops for September.

I have a suggestion for US Airways if they manage to strike a deal with AA:  Get Dan Garton back from American Eagle quick.  Garton is one of those rare AA executives who manages to outperform and yet never quite get the respect for his achievements.  He’s done very well at American Eagle and did very well at AA before getting shoved aside in favor of Tom Horton as heir apparent.  I like Garton and I like the way he communicates to American Eagle employees.

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Airlines are flying into the New York City airports with extra fuel loaded in order to mitigate against any potential fuel shortages as a result of Superstorm Sandy.

It’s an expensive proposition in that when you carry more fuel than needed, you must carry more fuel to carry more fuel.  Yes, it’s a complex equation.

That said, it probably isn’t a bad strategy for airlines over the next week or two.  It mitigates airlines’ risk of delayed or cancelled flights due to fuel shortages.  New York airports, however, continue to say that there is an ample supply of fuel and that they are receiving fuel from refineries.

Delta Airlines purchased their own refinery and kept it up and operating during the hurricane based on weather forecasts they received indicating a low risk of damage.  Right now, Delta looks pretty smart with its refinery purchase not only for its tempering of fuel prices for Delta but also for its assured supply to New York City.

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Terry Maxon, who I respect immensely in the business of airline reporting, has a story in the Dallas Morning News saying that sources close to the potential merger between American Airlines and US Airways say an official offer is imminent.

All parties involved were supposed to meet last week in New York City but that meeting was delayed after Hurricane Sandy.

The radio silence since October 31st, the date the non-disclosure agreement between the two airlines was to expire, has made me curious.  The NDA was extended for more time between the two parties.

It’s hard to read the tea leaves on this one and at this point.  American Airlines and its executive team isn’t in the worst position possible although their position hasn’t improved measurably either.  My expectation was that the AA team would stall for more time.

To make this deal attractive, US Airways will have to make an offer that creditors find hard to refuse.  The expected valuation of the company upon bankruptcy exit is likely to be $6 Billion or more.

The combined revenues of each company would be approximately $36 Billion and that exceeds that of Delta and United Airlines.  The synergies that would result have the potential to offer profitability that might approach that of Delta and that isn’t trivial.

The creditors have to balance what their holdings would be worth with a stand-alone exit and what the prospects of AA are as a stand-alone company against what value might be created over the same time combined with US Airways.  Creditors aren’t going to sell their holdings as soon as the markets open upon bankruptcy exit.   My guess is that the time frame they’ll consider is somewhere between 3 and 5 years.

If I’m a creditor, I’m interested in the executive team that can create the most value over that time period.  Based on that, US Airways as a merger partner looks very attractive based on their performance with a sub-par network.  I would not be concerned about the ability of the US Airways team to integrate or operate the new airline as this team has proven that it can run an airline and that it knows American Airlines.  And it really does know American Airlines.

This is the part where pilots would have been very wise to have taken the deal they were offered this past summer.  With a 13.5% equity stake in the new airline, they would have been in a stronger position to profit.  I wonder if the creditors would be as excited about such a large stake in the airline given to the pilots with a US Airways merger involved.

We may hear something soon but we won’t hear it today, in my opinion.  I would look for an announcement next Monday or Tuesday at the earliest as I suspect all voices will need to be heard for the next few days.

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No, this isn’t an announcement of Southwest Airlines serving its first international destination.  Puerto Rico, you see, is a United States Territory.  Airtran already serves Puerto Rico (and several international destinations) and this is an announcement of Southwest replacing Airtran service with Puerto Rico with Southwest service.

That said, it should provide some real experience to Southwest in serving an off-shore destination and help them identify weaknesses in preparation for serving true international destinations.  One wonders if Southwest taking advantage of the human capital it has in Airtran for doing international services.

Filed under: Airline Service by ajax
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