Airtran pilots overwhelmingly voted to authorize their leadership to call a strike yesterday. More than 96% of eligible voters made that decision and there is a picket line at the Pfister Hotel in Milwaukee, WI where Airtran is holding its annual shareholder’s meeting.
The pilot contract became amendable in 2005 and pilots have been negotiating since then for better pay, healthcare and other things. Their goal is to be paid on par with Alaska Airlines’ pilots, an airline of similar size.
While a strike would still be many months away, this is the last thing Airtran needs and, frankly, I’m a bit suprised to learn that negotiations have been going on that long. Which leads me to the belief that we have a broken union system among airlines under the Railway Labor Act. I don’t believe negotiations should simply take a few months and I do believe they could take as much as 2 years. However, 5 years is too long.
Contracts don’t “expire” for airline unions. They become amendable after a certain time. That means that airlines cannot abritrarily impose terms on unions after a contract expires. That does strike me as fair. However, it also means that airline management has a vested interest in drawing out these talks as long as possible. A dollar paid tomorrow costs less than a dollar paid today.
Both parties should have a economic incentive to see these negotiations completed in a reasonable time limit. I do think that 2 years is enough and I wonder if we should amend the law that requires binding arbitration after 2 years of negotiations. Mandate that arbitration must deliver a decision within 6 months after that 2 year limit. Why? Because neither the airlines nor the unions really want binding arbitration. It results in contracts that no one is particularly happy about and that means an incentive to engage in meaninful negotiations in a timely manner.
Airlines should already have an incentive to see these negotiations concluded. When these negotiations last for that long, both sides become “hardened” into their positions and that only raises risk for the airline. Once that airlines’ risk goes up, it often affects its stock price. Strikes affect revenues in a bad way and bad labor relations affect revenues in a bad way.
However, when it comes to pilots, it is time to re-orient these contracts away from total compensation. It would be better to find ways to encourage new hiring and better quality of life over a numerically higher compensation rate. If an airline can grow and hire, that only means success for everyone involved. Achieving better quality of life in these jobs would lead to happier, more productive pilots who want to work instead of engage in conflicts over compensation. Happier, more productive pilots mean a better chance for success as an airline.
Airtran has expressed how happy it is that they did not win their fight to acquire Midwest Airlines a fwe years ago and notes that they are the dominant player in Milwaukee now. My feelings as well. It is sometimes difficult to grow a business because of the capital requirements but it’s also very, very hard to integrate two airlines and it rarely realizes the expected benefits often touted during merger talks.
Bob Fornaro, CEO of Airtran, has also expressed interest in what might be happening with industry consolidation through purchases and mergers and says they want to play a part. However, it isn’t the role you think. Airtran sees those developments as opportunities to pick up assets such as aircraft, slots and routes that may have to be divested as a result of a merger between two entities.
I’m pretty sure that Gary Kelly (CEO of Southwest) would add a “hell yes!” to that.
The airline industry has seen a lot of growth among the LCC carriers (and whatever you think, US Airways is *not* an LCC carrier despites its stock exchange identifier) and virtually all of that growth has been organic. These airlines do the work of identifying good business targets and building the business of the route properly. Each route between two cities is rally a “mini” business of the airline. To build that business requires investment, time and good analytical skills. Maintaining that business requires good analytical skills and agility.
Legacy carriers shun executives from LCC carriers. If I were to take over as CEO of a legacy carrier, I would head hunt avidly among the LCC carriers. Those are the industry executives with the talent and skills to run an airline today. Unfortunately, legacy carriers tend to promote within and stick with their legacy management corps.
Spirit Airlines has announced new fees for carry-on luggage. Yes, carry-on luggage. If you want to know who the *real* Ryanair Airlines is in the US, it is Spirit. If you’re a member of their $9 Fare Club and pay for your carry on online, you’ll pay $20 for a carry-on bag. If you don’t book your bag online but pay for it up to the ticket counter, you’ll pay $30. If you don’t belong to the Fare Club and have to pay at the gate, it’s $45.
Mind you, Spirit also charges $19.00 for 1st bag *checked* too.
In general, I disapprove of baggage fees for any 1st bag but in Sprit’s case, I’m OK with it. Why? Look at their air fares. If you play their game, you still save an incredible amount of money on their flights. Only fools pay additional fees on their airfares that make the total cost approach other airlines.
In a twisted way, Spirit’s fees kind of make more sense to me. They’re unabashedly charging for the right conveniences and with scaled levels. It is hard to argue against that approach.
Will other US airlines adopt this approach? Maybe. Frankly, it may well be the more sensible approach to fees but if you do see an airline adopt this, you’ll see them lower or eliminate their 1st checked bag fee I suspect. Airtran could be a good candidate for this approach perhaps. I suspect the legacy airlines may avoid it as it targets their favorite customers: the business traveler. I definitely see Ryanair taking this challenge on in the near future. It fits perfectly within their strategy.
The Dallas Morning News ran THISstory on Wednesday about new cooperation between American Airlines and jetBlue. In short, the two airlines will swap slots at JFK airport (AA to *gain* 12 slot pairs) and Washington Reagan National Airport (jetBlue to *gain* 8 slot pairs) and start cooperating (interline agreement) on flights where they do not compete.
It will become possible for a passenger in Burlington, VT to fly jetBlue to JFK and then seemlessly transfer to American Airlines to fly to London Heathrow airport. This is a good thing for both airlines. AA gains the opportunity for more feed into its major trunk routes (not flown by jetBlue) and jetBlue gets feed for its more obscure routes not served by American or American Eagle. These feeds will take place both at JFK and Boston’s Logan Airport in the Northeast and, most importantly, these “complete” flights are only available via American Airlines at the present. jetBlue doesn’t have the capability to offer such things yet.
Both airlines get to increase their potential strengths at airports where they want to compete harder and it’s a deal that is much more likely to happen with the FAA’s blessing than the Delta/US Airways deal currently under proposal. The deal also likely works to keep an airline such as Southwest Airlines or Airtran marginalized at those three airports without appearing to suppress all LCC competition since the deal is with jetBlue after all. This is smart.
However, it greatly disappoints me that jetBlue has taken this route. It isn’t unprecedented since jetBlue is already cooperating with airlines such as Lufthansa (who owns 17.5% of jetBlue) and Aer Lingus but it is disappointing because it shows jetBlue willing to be a 2nd tier partner with a legacy instead of building upon its own successes. Can you really see jetBlue adding flights from the NYC area to destinations in Texas or Chicago now? That would be highly unlikely.
It would appear that jetBlue has decided the status quo is good enough instead of challenging other airlines in new markets as was their mandate and focus when starting the airline. It’s a safe play and even profitable in the short term but it limits their ability to compete and deliver new service in the long term. Now it sounds as if their strategy is to be more like Alaska Airlines (friend to many, enemy of very few) and a lot less scrappy like Southwest, Airtran or Frontier/Midwest.
First there was this video from Southwest Airlines promoting the fact that the first 2 bags on SWA fly free. The “competitor” is blurred out but quite obviously Airtran, their closest rival in the LCC wars. (In fact, there is an interesting mistake in the interior scene of the “competitor’s” aircraft.)
Then Airtran came back with their own video and I have to say that their response was, in my opinion, a direct hit on Southwest Airlines. Well done, Airtran. Now we’ll see how Southwest comes back (and you can believe they will.)
Since I wrote this post HERE in mid January, I’ve kept an eye on airfares between these two cities. A check made yesterday revealed that advanced purchase (and not too advanced as in less than 30 day) fares are now at $158.00 on American Airlines and Airtran. They are a few dollars higher on Midwest and a few more dollars higher on the Frontier flight that is actually the Midwest flight.
Airtran hasn’t started these flights yet and when they do, they’re planning to use SkyWest CRJ-200 aircraft for those trips. Not the most comfortable airliner for 2+ hours of flight. It’s interesting to note that since I last visited this subject, AA has upgraded its equipment to CRJ-700 aircraft on most of the flights with just one ERJ-145 remaining. Midwest/Frontier continues to use Embraer E-170 equipment and both those aircraft are quite tolerable for the trip.
Even more interesting, Southwest Airlines is now offering not one but two “direct” flights with no plane change between the two cities and their cheapest available fares match Airtran’s offerings. The flight times are 3 hours, 10 minutes which is just shy of an hour more than the others nominally. In other words, they’ve shortened up the transit time by 20 minutes and when you consider where you live in Dallas, flying through Love Field just might make that a wash at this point. You also get to fly a mainline Boeing 737 instead of a regional jet. The real kicker is no bag fees on Southwest which, in many cases, makes Southwest the cheaper flight and potentially no longer than the others “door to door” for many in the Dallas area.
I would say that if Airtran does expect to keep this route, the CRJ-200 isn’t going to be adequate for that route. They’ll need to offer the kind of service they have on their B717 aircraft to siphon away traffic from both AA and Midwest.
I found THIS little nugget today announcing that Airtran will hold its annual shareholder meeting in Milwaukee on May 18th this year. At first glance, I might accuse Airtran of just pandering to the Milwaukee market. On further reflection, this is a bit more than just pandering. It’s too much effort for just pandering. It strikes me more as respect quite honestly.
I’m sure most see this as a shot aimed at Midwest Airlines since Midwest is considered Milwaukee’s home town airline. But I’m not sure it is aimed at Midwest so much as it might be aimed at both Southwest Airlines, American Airlines, Delta and United. There just isn’t any brand for Midwest even in Milwaukee anymore and to think it might still exist is to not give enough credit to those who live in Milwaukee. They aren’t fools, they can read newspapers and they’re just as smart as any other market.
But Milwaukee is a loyal city and I think Airtran is making the right moves in Milwaukee. Rather than just showing to offer a good fare, they’re investing in the city and I suspect that Milwaukee will respond to that. That’s why I think this move is aimed much more at Southwest, American and, yes, even United and Delta. AA, Delta and United all serve Milwaukee primarily through their nearby hubs and have never shown much respect for Milwaukee as a market. At least not until Airtran and Southwest showed up.
Southwest is the newest airline to arrive but Milwaukee has courted them for years without success. Southwest didn’t pay too close attention to Milwaukee until Airtran did. Only Airtran showed up, grew their presence in the market and now is respecting the city by making it a focus city, an employee domicile and now their shareholder meeting site. This all is very smart on the part of Airtran and it will get noticed.
There has been a great deal of talk about Midwest Airlines and Republic Airways’ intention to consolidate that brand with its Frontier brand in the near future. Most notable is that few people seem to be decrying the loss of Midwest Airlines anymore. Certainly not like they were when Airtran attempted to take them over a few years ago.
Midwest ceased being an airline last year and became a brand only. When Frontier and Republic equipment began to fly its routes, the distinguishing features of that brand were eroded heavily. Now it’s basically a logo and a location and no one seems to care anymore and that means the brand has little, if any, value.
Will Frontier be the new brand? No one has really said much about what the plans are but there have been a few vague hints that it might be a new brand altogether. The fact that anybody is talking about this in vague public hints really shows just how much Sean Menke is already missed in getting this thing figured out.
Frontier has an excellent brand and one that could well work in Milwaukee just as good as it has in Denver. Frontier had better service differentiation and a better selection of products than Midwest ever hoped to have. It’s nationally known and folks in Denver have learned to be very loyal to it. Others could too.
A new brand is the mis-step that I think many are wondering about. You can only have so much of a “virtual” airline in operation until people begin to wonder who they’re flying with. Dilution of both brands in favor of a much more generic but new brand is not a good idea.
There are signs the industry is, perhaps, starting to slowly recover. That recovery is likely to be slow and painful and it isn’t the time to be trying to introduce yet another new airline brand to the country and compete against established airlines who are arguably better situated to compete already (SWA, Airtran).
Republic would be far better off to work on consolidating the operations between both Midwest and Frontier and standardizing on the Frontier brand which means getting the Frontier services onto all aircraft too. Marketing and sales then will have much better guidance on what they’re selling and who they are selling it to. No matter what the brand’s name, it’s time to get a cohesive marketing plan together and begin executing it on all fronts including online social media as well as local sales efforts. Wait too much longer and Frontier, as a brand, is liable to go the way of Midwest and I’ve already pointed out that that brand suddenly has no value to anyone anymore even in its home market.
Instead of mergers galore, I think what this industry really needs is growth.
To most people, that sounds crazy in light of the present economic situation in the industry. It depends on who I think should be growing, doesn’t it? We need to see more growth and expansion from airlines like SWA, Airtran and jetBlue. Heck, let’s throw Virgin America into that mix too. Those are the airlines that are going to drive service and price in this business for the foreseeable future.
Now, how they should grow is up for debate. Each of those airlines is pretty good at what it does and how it does it so trying to merge with an equal really isn’t a great idea. They shouldn’t dilute their corporate culture in favor of growth at any cost. However, that doesn’t mean you can’t pick up a deal here and there. Frontier was a perfect example of an airline that would have been a good buy for any one of those airlines. In hindsight, there should have been a bit more of a bidding war for Frontier.
There aren’t a whole lot of smaller airlines in this country. Frankly, I think Virgin America is more of a candidate to be taken over than to consume someone else. Sun Country Airlines still looks good to me, particularly for someone who wants an good entry into the Minneapolis / St. Paul Market. There was a time when it would be very unwise for most airlines to attempt to compete with Northwest Airlines in that market. Now that they are Delta, have 48 hubs and are headquartered in Atlanta, I suspect an airline could get an edge into that market.
But there are other growth opportunities out there. DFW has space to be a focus city for an airline. So does Houston. Las Vegas is no longer to be a hub for US Airways. St. Louis is an old city but it is still a city of industry with an airport that has nothing but crickets chirping in it. There are plenty of regions lacking in good competition still.
I don’t think a merger of legacy airlines will do anyone any good. Oh, it would take come capacity out of the system which would probably raise prices on *some* routes. I’m not sure if that is “good” for the consumer. It might create further dominance of a region or hub and I don’t see the benefit in that. The Delta/Northwest merger was one that worked because it labor issues were settled, there wasn’t a whole lot of overlap between the two companies routes and each company was accepting of the idea. Those circumstances don’t occur very often.
Several airline journalists and bloggers have posted their reactions to Air New Zealand’s new coach seating that has the possiblity of becoming a kind of 2 or 2.5 person “couch”.
I have to say that unlike all the other reactions I’ve read (very positive), I’m wholly unimpressed. Granted, I wasn’t there to “experience” it but from the photos the seat cushions themselves look awfully thin for true comfort. Despite the models looking like they’re luxuriating in comfort, that does not look like a comfortable way to relax even on an airplane.
Yea! Premium seating got even better for customers of New Zealand. (I’m being sarcastic) Economy customers got introduced to 10 across seating on their 777s. Bleagh. Economy purchasers can now spend even more money to lounge on something that, frankly, isn’t lie flat and doesn’t really look comfortable at least for taller, bigger or older people. I’d rather have more seat pitch and, yes, the real economy seating on the 777s will have 33 inches seat pitch (and let’s not get carried away celebrating) but I just don’t see the real advantage to the couch seating. I wish I did but I don’t.
What this airline world needs is a better seat for domestic 1 to 4 hour travel with a bit more than 31″ of pitch. Let’s celebrate and dance when we see that from a mainline carrier in the United States. Heck, Airtran has a comfortable en0ugh seat that with just 2 more inches of seat pitch, I’d be dancing in celebration of them. Same for Southwest.
I want to see some seating innovations for the typical customer actually get implemented.
According to the Wall Street Journal Middle Seat blog, American Airlines has decided to match the bag fees recently implemented by Delta and Continental. You can read more HERE.
So, at present, Delta (including Northwest), American Airlines, Continental, United and US Airways are now all charging $25 for the first bag and $35 for the second bag with some of the airlines offering “discounts” if you perform your “bag fee purchase” online. That would imply that they each see this price for checked bags being a bit more elastic than one would have thought. Or, at the least, they see it as elastic as long as they all go for the same increases much as the case is with air fare increases.
So far, no low cost carrier has adopted this pricing model or even raised their checked bag fees. I suspect they won’t either as it gives them an opportunity to show themselves as the good guy while gaining some incremental revenue.
If this rise in fees sticks for the next 1 or 2 quarters, I do think it will put tremendous pressure on Southwest Airlines to institute their own version of bag fees, at least by institutional investors and analysts. So far, Southwest and its CEO Gary Kelly have resisted these calls to add checked bag fees and, so far, they believe it is resulting in incremental revenue from passengers switching to Southwest to avoid fees. Since CEO Kelly (and Southwest as a whole) is not one to shade the truth, I’ll continue to believe these claims.
However, with other LCC carriers such as Airtran and Virgin America and even jetBlue (on the 2nd bag) have added fees and do report significantly improved revenues from that, I would imagine that the call for Southwest to add these fees will be defeaning particularly when Southwest could implement a jetBlue or Airtran style program and see improvements to their quarterly results which haven’t been too impressive in the last year.
It is sad but I don’t believe we’ve seen the last of these increases. I do think that some airline will probe the upper limits of these fees just a bit more yet. I do think that Southwest will resist the call to add these fees for at least another 6 months but if there hasn’t been some kind of collapse in the price of these fees by then, I would not be surprised to learn that Southwest has begun to make changes to their infrastucture to implement them. I think the first sign will be the withdrawal of their “no fees for checked bags” advertising.
I follow this city pair pretty closely because Milwaukee is my birthplace and I continue to have a lot family there and because I’ve never really understood why this route has so often been the ugly step-child given the demand between the two cities.
I took a look at what service airlines were offering (non-stop) between the two cities and thought I would give a summary since its so reflective of what is going on in Milwaukee in general. Just to keep things interesting, I looked at flights in mid-April.
American Airlines will have 5 flights spanning each day starting early in the morning and ending each evening. Every one of those flights is an Embraer ERJ-140/145 aircraft flown by American Eagle. American is competitive on price and even currently the low fare leader this far out but only by quite literally a few dollars.
Airtran has its flights for April now. They have 2 flights a day with one morning and one evening departure and both are very convenient to both business and leisure travelers. These flights will be on CRJ-200 equipment flown by Skywest Airlines. I still expect that these will quickly transition to Boeing 717 aircraft if Airtran finds this a popular route segment. Oddly enough, Airtran’s offerings are just over $100 more than what AA is offering.
Midwest Airlines has 4 flights spread over the day and all at convenient times ranging from early in the morning to the evenings. These flights are competitive with AA and are currently flown on Republic Airways E-170/190 aircraft, certainly the best equipment on that route presently.
Frontier Airlines now has codeshares on every Midwest Airlines flights and at the same prices. So, if you want to fly Frontier, uh, I guess you can. At the end of the day, it is neither Frontier nor Midwest Airlines (although the aircraft are painted in Midwest colors), it’s really Republic Airways.
That makes 11 physical flights and 15 flight offerings on 4 airlines between the cities for non-stop flights.
Now, here is the interesting development. Southwest Airlines will be offering direct flights (one stop, no plane change) between Milwaukee and Dallas come April. So far, I cannot discern where that aircraft stops along the way but it has to be on the way. Perhaps Kansas City or St. Louis because the duration of those direct flights is only 3.5 hours which is nominally one hour longer than the non-stop offerings but if you allow 40 minutes to land, disembark passengers, embark passengers and take off again, it cannot be a long or bothersome stop.
An hour longer seems like a lot, maybe, but you get to fly it on a mainline aircraft (Boeing 737) and on airline that does *not* charge luggage fees. You also fly into Love Field airport instead of DFW which means (for many) a much more convenient airport to fly to and from.
Best of all, Southwest is highly competitive on price. AA remains slightly cheaper but advance purchase fares mean that Southwest is nominally a few dollars more, potentially as quick (doorway to doorway) and on a more comfortable airline with friendlier service and no baggage fees. This may be the best deal offered if their flight times work for you.
Delta Airlines chose to announce they are increasing their checked baggage fees. If you pay online, your fee goes from $15 for the first bag to $23 for the first bag. The second bag checked rises from $25 to $32 (paid online). Continental matched those fees almost immediately. While it seems exorbitant to me, I wonder if anyone will really notice right now.
I suspect Delta did this simply because they have pricing power at most of their hubs (ATL, MSP, DTW, SLC, CVG, MEM) and because they don’t think it is going to affect the consumer’s decision about which airline to fly in most cases. Delta doesn’t get a lot of LCC competition at its hubs except for ATL and there seems to be a unspoken agreement with Airtran not to get too ugly there. Besides, Airtran has checked baggage fees too.
The thing is, most online sites that offer booking for airlines in the US do not mention baggage fees when displaying prices for routes. Delta will continue to appear to be very competitive on routes while likely adding additional incremental revenue through the “gotcha” approach. Quite honestly, I suspect they’ll get away with it. At least until there is a healthy recovery in the airline industry and that is likely 18 to 24 months away still. Maybe more.
Will others match it? I suspect that American Airlines might. There is no precise harmony among airlines on these fees, not yet anyway. Continental already had pretty high fees at $18 and $27 for online checked fees (with a $2 and $3 surcharge at the airport). AA is at $20 and $30 respectively whether you check online or at the airport. US Airways is at $20 / $30 for online (with a $5 surcharge for checking at the airport.) United is $15 and $25 for online checking.
By contrast, Southwest Airlines has no fees up to the 3rd bag, jetBlue offers the first bag free and $30 fee for the second while Airtran charges $15 for the first and $25 for the second. In other words, these fees are all over the place. The truth is, as competitive as airfares are on many routes, these fees can change the equation pretty dramatically in some cases since those fees are for each way on a round trip flight.
These fees have added dramatic amounts of revenue to airlines’ bottom line and I don’t see them going away at all. I don’t think the fees among legacy airlines will harmonize much at all until and if online travel sites begin showing an “all in” pricing when comparing fares. Even with such comparisons, I don’t think the fees go away so much as they just begin to merge together among the airlines.
Will anyone else raise their fees? Well, maybe. I’m sure it will be tempting to do so among all the legacy airlines. One or two may even try to raise the ante some. I kind of think both United and American Airlines will try some kind of new mix in the future. I don’t see the LCC carriers playing around with their fees much if at all. They have the revenue and now this may be their chance to follow Southwest’s strategy in a modified form by advertising lower checked baggage fees.
I don’t think Southwest will change its attitude on these fees based on this new development. Their strategy appears to be working for them and they don’t have a history of following the pack when something works. That said, I’m sure it is something they’ll re-examine from time to time and it doesn’t mean they won’t add fees at some point in the future. Right now, they appear to be capturing customers with their ‘no fees” approach and their aggressive advertising seems to have caught some attention.
As much as I hate these fees for the 1st bag checked, I hate that airlines and travel websites have done really little to truly show the “all in” price for these trips. It makes things just that much more murky for the consumer and that is a bad thing. However, the best thing you can do is learn the fees for the airlines you may be shopping for a trip and do the math yourself. You’ll be frustrated by it and no doubt resent it but there isn’t a ready made solution at this time.
Frankly, these developments are just one more reason why I wonder about Southwest re-joining the travel agency world. The world has changed since they left it and, quite honestly, I think they could re-structure their IT infrastructure and re-join those agencies with little incremental costs involved. At that point, they become the no brainer for many consumers from my view. Even as aware as I am of airline options and even being located in the DFW area, even I tend to forget about Southwest as an option sometimes.
One strategy for learning these fees is to visit LuggageLimits.Com (also linked in my sidebar).
Today, part 2 in my views on whether or not we’ll see a real “Ryanair” style airline here in the United States.
Watch what you fly here. The most recent LCC entrants here have bought Airbus. No real surprise as Airbus likes to make a heck of a deal on an aircraft for new airlines in the hopes they’ll have the “in” for future orders if that airline succeeds.
Boeing isn’t too interested in that. They want to see a solid business plan and a real possibility of success. What’s more, big orders aren’t the enticement they once were for Boeing. Boeing got burned on a few of those deals with Ryanair being the most notable since it allowed Ryanair to buy aircraft, fly them for a couple of years and sell them at a profit. Boeing isn’t going to let that happen again any time soon.
Is Airbus the right aircraft? Yes. No. Maybe. I kind of think not. I think it is well suited to the jetBlue and Virgin America airlines of this country because they can support that upgraded service product nicely. That said, those airlines would have done just as well with Boeing aircraft. In fact, jetBlue went with Airbus because Boeing refused to offer a decent price for a decent order.
But Airbus doesn’t strike me as quite the right choice for an LCC. They’re a bit higher off the ground, have a little worse operational dispatch rate and don’t always have the best range vs weight ration for certain routes. Yes, they’re a family of aircraft that offers a range of size that captain can fly across the type range.
Boeing seems better. Supported here in the United States, you have better access to mechanics, parts and plenty of maintenance contractors to keep you going. They’re a little bit closer to the ground, a little easier to turn around and have a little bit better dispatch rate. In addition, their range of capacities is a little bit better for routes and virtually every model has trans-continental capability now without being weight restricted.
The model I would look long and hard at isn’t either of those. I think a new LCC carrier trying to emulate Ryanair ought to take a serious look at the Embraer 170/190 aircraft. They’re cheaper to operate and can carry a full load of passengers and baggage although little cargo (which isn’t an LCC’s concern anyway.) They offer a family of sizes, have a good dispatch rate, offer quick turn arounds, great range, good comfort and great potential for routes requiring frequency and low costs. It is no wonder that David Neeleman chose them for his new airline, Azul, in Brazil.
But you can go used in the US and do pretty well too. Allegiant Airlines buys used MD-82/83/87 aircraft, for instance. They MD-80’s are overbuilt, cheap to buy and still pretty cheap to operate. They have range, good dispatch rates, ease of maintenance and they’re abundant on the used market. The same is true of older Boeing 737 models (pre Next Generation models) and those are becoming to cheap to purchase as well.
In the end, an LCC needs an aircraft type that is relatively easy to expand into a fleet, keep one class of pilots flying it and which has a ready source of aircraft to augment and/or replace the fleet with.
One type, many sizes should be the rule. Ryanair uses one size, the Boeing 737-800 and Southwest basically uses one size, the Boeing 737-700 but they can afford to do so. A new LCC needs operational flexibility and being prepared to use the three basic sizes of either type would be a good thing.
But you can split your types too. Airtran did this successfully by entering the world with DC-9s, transitioning to Boeing 717s and then growing in capacity by bringing on the Boeing 737. That worked because while they needed two different pilot groups, the pilot groups could be kept “rational” with the same pay rates. jetBlue split their types between the Airbus and the Embraer(190) and split their pilot groups pay rates too. There was risk involved in that but jetBlue avoided that by offering pay rates on the Embraer that were as generous as that being offered other pilots flying mainline aircraft at other airlines.
Find airports that welcome you and that have demand to locations you can serve. Sounds easy but it isn’t. In the US, airports tend to be wedded to airlines that have served them for decades. When DFW opened, it was served by a number of major airlines and each terminal served one or more airline. Now, DFW has been taken over by American Airlines (nearly 4 of 5 terminals) and does little to serve the needs of airlines who aren’t AA.
Airports need to figure out that putting all their eggs in one basket with a major, hubbed airline isn’t a good strategy in the long run. Once those airlines have that dominance, they use it to beat airports down on fees and coerce airports into paying for infrastructure the airlines then get to own. It doesn’t benefit the local economy to have one dominant airline as prices rise and service falls. This isn’t just true for DFW either. When airports begin to aggressively pursue new entrants, everyone will win.
New and existing LCC entrants need to make a better argument too. All too often, LCC’s tend to fear competing in those markets dominated by a major legacy carrier and that’s a mistake. Airtran wasn’t afraid to go up against Delta and it paid off. jetBlue wasn’t afraid to compete in one the most competitive markets in the world (NYC) and against some of the biggest airlines. In the past, there weren’t good examples of what an LCC can do for both an airport and a metropolitan area. Now there is and new LCCs in particular need to use that to their advantage.
Treat your staff well. Airlines sell a service product and while you may get customers on price, you’ll keep them with service. Offering strategies to your crews that permit you high productivity and your crew a living wage along with a good working conditions can only lead to your success. Treat them like commodities and you’ll fail. Southwest, Ryanair, jetBlue and Airtran get this. Skybus and Mesa Airlines don’t. Look at who is making money.
Quality of life is just as important to airline crew and staff as wages. Airlines that offer good quality life tend to have happy crew flying their flights and treating their customers right. At the end of the day, it is a lot cheaper to keep a customer than it is to find new ones every week.
Will we ever see a close replica of Ryanair’s model here on a national basis? Yes, I think so. Right now, no. The market is too crowded but that will change again and new airlines will be started again. US attitudes towards fees and advertising are changing, although slowly.
First we need to see a major airline liquidate or merge with another to reduce capacity some more. Then we need to see an uptick in the economy that induces people to spend some money on travel again (both leisure and business travel.) There needs to be a glut of aircraft useable for such a venture (and that’s happening already) and airports need to figure out that it is in their best interest to find space for these new entrants. That really hasn’t started to happen yet but it may yet still happen.
Ryanair is certainly the darling of LCC carriers and, to a certain degree, they even kind of outshine Southwest Airlines. Lots of people look at the US market and wonder about having a Ryanair-style carrier here. Skybus Airlines (read more about them HERE) was supposed to be the one but tanked miserably and by every appearance, the only people who didn’t expect them to fail miserably was their executive staff.
Could such a carrier exist here? Sure they could. In fact, I think it already does in the form of Allegiant Airlines (find out more about them HERE.) Allegiant is all about flying routes point to point using secondary or even tertiary airports and providing extreme low cost prices which are augmented by fees galore. And they make a considerable profit doing so.
What does it really take to be a Low Cost Carrier in the United States? First, let’s really define what that is. Interestingly enough, US Airways uses LCC as its trading identifier on the stock markets. Is it a LCC carrier? Not by any definition. jetBlue and Virgin America both style themselves as LCC carriers but, let’s face it, while they offer great value, neither are a Ryanair style LCC.
Southwest Airlines and Airtran Airlines are probably both the best examples of true low cost carriers operating nationally here in the United States. Allegiant certainly is but they’re still focused much more on the leisure markets and many of the routes they serve compete with quite literally no one.
Skybus failed for a few reasons. First, they picked a hub that defied rational thought in Columbus, Ohio. As you can imagine, there isn’t a whole lot of traffic trying to leave or get there. Hubs don’t work well for LCC carriers. Focus cities do but not hubs. If you want to make money as any kind of airline, you had best be offering flights between two places people want to go.
Second, you have to pick between offering frequency and relative value or absolute lowest cost and infrequent service. You can’t be all things to all people. Skybus kind of offered high frequency and absolute lowest cost and hoped it would stimulate new traffic. The problem is, there is only so many people who want to fly between Columbus, Ohio and Greensboro, NC. You really can’t do that route once or twice a day every day of the week. Not at any price. Not with large, mainline aircraft anyway.
Third, just because you can fly to a secondary or tertiary airport doesn’t mean people will go to that airport to use your airline at any price. Case in point, Bellingham, WA and Skybus again. Bellingham, Washington is a long way away from most anyone in the Seattle-Tacoma area. It’s 90 miles from downtown Seattle, 122 miles from Tacoma and it is a tortuous drive in traffic for anyone in that metro area. Bellingham is convenient to, say, Vancouver, British Columbia but that means crossing a border. In the case of the SEA-TAC area, you need to be flying from their main airport. And the lesson is that you have to look long and hard at each area you’re serving.
LCC carriers have succeeded in flying from secondary, smaller airports such as Love Field (Dallas) and Midway Airport (Chicago) and even Long Beach (LA area) because those airports remain highly accessible to a large number of people. And as both Southwest and Airtran will tell you, sometimes if you want to enter a market, you have to bite the bullet and fly where people want to go. I take note that since Airtran has decided to defend itself against Allegiant, even Allegiant figured out it needed to change airports in the Orlando area to remain competitive.
Choose your fees and advertising carefully. The United States is a different place than Europe. Advertising that is racy or in bad taste doesn’t go well here under the best of circumstances. It doesn’t matter if you think it should or not. It just happens to be that way and a new airline is going to change the moral outlook of this country. Oh, yes, Spirit Airlines has gotten away with it now and then but they remain a minor player and it has possibly turned off as many people as its turned on.
An a la carte fee system (a la Ryanair) is something that this country is completely unfamiliar with when it comes to airlines. Now, that is changing and it will likely change more but it is an evolutionary thing, not revolutionary and some fees are going to make customers feel burned no matter what. Skybus’ Ryanair-like approach to charging a fee for even looking in their direction was offensive to customers here in the US particularly when, at that time, no one else had even really dabbled in it.
While I do think more a la carte offerings will and should be instituted among airlines, it will be done differently here. Luggage fees have generated a massive amount of resentment with customers and while they have generated significant additional revenue for major airlines, it has also caused many customers to more carefully consider their options. Southwest has bucked that luggage fee trend and the results are showing.
There is place for an airline that charges for checked luggage, beverages, meals, blankets and airport check-in. But the amounts of those fees still have to have some value. Particularly when legacy airlines already have those fees as well. Charge more for checked baggage than American Airlines and you run the real risk of turning people off. We’re really not a true a la carte culture here.
Be careful of your publicity. Ryanair’s CEO, Michael O’Leary, gets away with outrageous statements and even expressing a certain outright hostility to his own customers. That works in Europe and, in particular, within the UK and Ireland. Those are cultures who know how to take such statements with a bit more of a wink and a smile. Here in the United States, it’s a flat turn off. Our culture is based more on politeness and friendliness. Bark at your customers or even insult them and they will walk elsewhere.
Airtran has decided to make Milwaukee an important crew base and is now using the term “hub” when talking about its Milwaukee operations. You can read more details about this HERE.
Initially, 50 pilots (B737) and 50 cabin crew (737/717) will be based in Milwaukee but expect those numbers to grow over time. Why? Because not only is Milwaukee a good place to connect flights to other destinations, the market between Milwaukee and many cities is one of good yield. There is a reason why airlines are starting to fight it out there.
It also offers a relatively inexpensive place for crew to live in, an airport that endures weather very well and customer base that has long been neglected by most airlines. There are a number of experienced flight crews in the MKE area that should be available for hire including pilots who know how to fly a 717.
This latest development is just one more reason why I believe Airtran’s route between Milwaukee and DFW to be flown by SkyWest will quickly move over to a mainline aircraft such as the Boeing 717. It’s also worth noting that air fares between MKE and DFW have already dropped with Airtran “buying” the business even before direct flights have been initiated. With service not expected to start before April 2010, it’s clear that Airtran intends to dominate that route and, unlike other airlines, Airtran isn’t afraid of going head to head with a major airline such as American Airlines.
According to the story . . .
In Milwaukee, AirTran now operates a line maintenance station, regional human resources, sales and community relations staff, and an airport station consisting of more than 200 customer service agents and other personnel. With the additional crew members added with the establishment of the new bases, the airline’s total Milwaukee payroll is estimated to be more than $11.5 million per year.
That’s a big commitment to the Milwaukee area and I do wonder how Republic will or will not respond with Midwest Airlines in that city. Midwest is hardly even a brand anymore since it flies none of its own aircraft. Republic Airways owned Frontier Airlines is flying 5 Airbus A319 aircraft (configured with Frontier seating) and Republic is directly supply another 20 E-170/190 aircraft for other routes.
Republic has moved about 200 maintenance and 100 customer service jobs from Frontier’s Denver but if Airtran continues to enlarge its operations and compete strongly with Republic in that city, one wonders how long it will last.
Unlike this time last year, probably not much. There was some momentum for change last year that really doesn’t exist this year. Airlines will continue to fight to hold their own in the marketplace and with the reduction in capacities, even the worst of the lot will likely cling to life this year.
North America:
Major airlines of North America have made all the changes they can and all are managing their businesses and cash very closely right now. I don’t expect much, if any, change to develop in the next 12 months but let’s take a look anyway.
American Airlines has some labor issues to address but with the current economic climate, they have been getting away with their efforts to defer those issues. Labor unions would like to push a few issues with American but they’re smart enough to realize that now isn’t the time. Most likely they’ll continue their face saving efforts at making a point with their members but I don’t expect any real labor action at this airline this year. Perhaps, if things get better, we’ll see some movement in the 4th quarter.
United Airlines, my least favorite legacy airline, has similar issues that American has with labor but, again, those labor issues aren’t likely to see much movement either. I suspect that United will continue to move more of their flights over to regional airline partners because its worked (for now) and their customers will find themselves on more and more regional jets. Since price is the prime driver for customers right now, they’ll accept that move and hate the flights as much as they always have.
Delta/Northwest should see more of its operatioins combined and, possibly, a unified single operating certificate by the end of the year. That doesn’t mean much for their customers since Northwest aircraft are being painted into Delta colors at a furious rate. The service product is already being harmonized to a fair degree and it’s a good one already.
I don’t see any major aircraft purchases and I remain interested in whether or not they’ll keep their 787 orders. There has been rumour and innuendo that they won’t but I kind of think they will keep them. Their 767 fleet is old (except for the 767-400) and I can’t think of a reason why you wouldn’t want to have the 787 begin filling the role of those aircraft. I’ve wondered if their hints aren’t just an opportunity to get Boeing to get interested in offering a better deal for more aircraft.
US Airways needs two things in this next year. First, they need their pilots to get together and start operating as a single group. As dangerous as it is to try to interfere with a union group, I wonder if US Airways won’t wade into the problem in an attempt to have a final resolution. Certainly they could argue that they’ve been patient enough.
They also need to manage their cash very, very closely. Cash is blood to an airline and US Airways has a bit of risk in this department. Should cash holdings be depleted more, they’ll have to start seeking that merger partner again and no one appears interested in marrying with them. This is another reason it needs resolution for its labor problems. That said, I don’t see US Airways disappearing or filing for bankruptcy again.
Continental Airlines has felt the hurt this past year and its unlikely to feel much better this year. Their business model depended a bit more on business class travel and the economy hurt that demand the most. That said, I can’t imagine a better group of managers for keeping that airline on track through the rest of the downturn. Things will hurt and belts will be tightened a bit more but I don’t see the service product changing. When the economic downturn does really turn the corner, Continental will be better placed to succeed than many.
Despite their recent move to the Star Alliance, I do *not* see Continental getting any closer to United Airlines whatsoever.
Low Cost Carriers / Regionals:
Southwest Airlines continues to manage itself to the tune of its own drummer and the results of their long(er) term thinking are showing left and right. They’ve managed to make solid overtures to business clientele in areas that, I suspect, count more day in and day out.
I don’t see a merger partner in the future for them except, possibly, for Sun Country Airlines. For some reason, I see this as a real winner for Southwest in that it gives them space and routes in Minneapolis / St. Paul, a labor group that is accustomed to delivering Southwest style service and which can be harmonized into the Southwest labor groups relatively easy. There is no rumour of this purchase but Sun Country has its own problems and it’s a match that fits the Southwest acquisition model.
I think Southwest will remain persistent in its Denver expansion and will work hard to create a network in the upper midwest states of Wisconsin, Minnesota, Illinois and Missouri. The wild card, in my mind, is the Washington D.C. area and the NYC/Boston areas. Shuttle type service is what Southwest knows very well and I wonder if they won’t try very hard to organically grow their flights in these areas. If so, Southwest needs to find an “in” at Washington Reagan airport. To do this, they would need to buy a shuttle operation from US Airways and/or Delta. Perhaps US Airways will be interested in such a sale if their cash holdings erode more.
Frontier/Midwest/Republic: I don’t know what happens here. Midwest really isn’t an airline anymore. It really isn’t even a brand anymore. It’s a name for selling tickets. Frontier remains an airline and a brand and Republic seems to want to continue caring for both. Since Republic is managed by very smart people, I kind of think that they may look for a way to wind down the Midwest name over the next 12 to 18 months and make Frontier the primary airline. A tasty cookie isn’t a good reason to keep the Midwest name around.
Airtran deserves some applause. This airline has managed to grow itself some, find new markets and earn some money during one of the worst downturns in the airline industry.
Their move into Milwaukee has succeeded and promises to continue to succeed. Milwaukee is a loyal city, to be sure, but it is a city that appreciates value even more. Airtran has managed to offer great value, good service and appeal to a city that just a couple of years ago was kind of anti-Airtran. The one obstacle in their way is the arrival of Southwest, another airline very good at offering value and appealing to the Milwaukee kind of customer. I think Airtran has the upper hand but they are by no means the sure winner in this market. Southwest may be able to beat them with frequency.
Virgin America keeps showing up and usually right after I become convinced they’ll disappear. I still don’t know what this airline does best and I still don’t see them as being a scrappy enough operation to fight their way into the cities it needs to be in. Virgin continues to dance around Chicago (claiming they can’t get space but if they wanted it bad enough, they could). Their product would servce cities such as Dalllas, Denver, Houston, Chicago, Atlanta, Baltimore, Philadelphia, and, perhaps, Cleveland/Cincinatti very well.
Instead, they added flights from the west coast to Fort Lauderdale and talk about adding service to a Texas city such as Austin. This is too timid. The CEO, David Cush, seems afraid to compete against his old employer (AA) and that is a shame since they have a very competitive and attractive trans-continental product. I would speculate on VA being bought by another airline but . . . why? They just don’t have much there and seem to have little interest in exploiting real advantages that they do have. Maybe they’ll just run out of money and get shut down.
Alaska Airlines has felt the heat from Virgin America but they continue to do pretty well with their little airline and they continue to do it without being aligned with a major. I don’t see much changing for Alaska Airlines. They’ll continue to be a scrappy airline with good service to a limited number of destinations. And, somehow, that seems OK when it comes to Alaska.
Before anything else, I’d like to announce that this is my 200th post to this blog. Quite the milestone all in all.
USA Today’s Today in the Sky Blog is reporting that several airlines have removed their advance purchase requirement for bargain fares this holiday season. Their source, Tom Parsons (CEO of BestFares.com), says that airlines such as American Airlines, Delta, United, Northwest, US Airways, Frontier, Airtran and Midwest have all removed the advance purchase requirement through January 4th. Continental still has a 3-day advance purchase requirement. This would seem to imply that holiday travel is extremely soft this season so far.
