There has been a new agreement found between British Airways and cabin crew union Unite to settle the long running fight between the two.  This stops strikes set to begin again at least until after the union itself votes to accept the deal.  Union leaders are recommending agreement.

The breakthrough essentially comes as a result of British Airways agreeing to restoring full seniority perks it withdrew during the conflict.  New BA CEO, Keith Williams and former Unite negotiator and now leader, Len McCluskey are receiving credit for the new agreement.

I’ve got three thoughts on this:  First, Willie Walsh (now CEO of International Airlines Group, holding company of BA) should have made this deal last year.  It cost nothing and it was fairly punitive.  Second, if you think that Keith Williams did this without OK from Willie Walsh, you’re just kidding yourself and that makes the fact that this has gone on as long as it has somewhat silly.  Finally, this isn’t over until it’s over.  The union has a history of militant behaviour in this conflict and despite the leadership recommending acceptance, I wouldn’t count this as done until it does win an approval vote.  Furthermore, even if it does win approval, I’ll wager that it will be by slim margins at best. 

Once done, the airline and the union need to restore not just peace but harmony and take a long look at how this is avoided in the future.  That’s a tall task but necessary in this economic climate that airlines operate in.

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The name International Airlines Group, holding company for both British Airways and Iberia and managed by BA’s Willie Walsh, couldn’t have a more appropriate name.  Or more bland.  But that is the stated purpose since IAG is about managing brands across the world rather than conquering the world with one brand.

That kind of makes other airlines and industry watchers wonder who the next target is.   Many considered QANTAS a target but that almost seems illogical to me despite the close ties between QANTAS and BA.  It doesn’t get them much more in QANTAS’ part of the world.  But it is true that it is a strong brand.

Instead, I think IAG is looking for strong brands in parts of the world that they want more access to.   I think that means Asia and I think that means North America.  Those are the two centers of commerce that Europe does business with and adding a brand in each of those areas only helps grow the business. 

The challenge is adding a brand from another country because most countries still have laws governing ownership of their airlines.  So that, to me, means targeting brands in countries with liberal, commerce centered laws and/or in British Commonwealth nations. 

It’s the Cathay Pacifics, Air Canadas and Air New Zealands that would, to me, appear to be more attractive on a global basis.  Strong brands with strong customer loyalty. 

It won’t be about access to facilities or fleets.  It’ll be about identify brand strength with a service product that harmonizes reasonably well with IAGs current brands.  It will be about getting strong executives who’ve crafted strong business plans for their regions.  It won’t be about getting a firesale price on airline because, frankly, those airlines have nothing to offer but a few assets and assets are easy to buy.

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Evidently, there are rumours that British Airways may be giving the 747-8i a second (third?) look suddenly.   The airline made orders for the A-380 and 777-300ERs instead a few years ago but now there is strong speculation that they are revisiting their fleet plans for the future.

At the time, the A-380 made sense and even today it still does to some degree.  It’s a strong airliner and a proven earner now that we’ve seen several in a variety of fleets.  But British Airways circumstances have changed and I think that might be what is driving these rumours.

British Airways has now “merged” with Iberia and they also have their trans-Atlantic partnership going on with American Airlines and other Oneworld partners as well as a strengthening partnership in Oneworld to the Far East and Australia.  So why does the 747-8i make more sense?

Seats.  The A-380 has an advantage *if* you can fill its seats.  That’s a tougher prospect today.   Even more difficult is the fact that the A-380 doesn’t offer a lot of flexibility on routes it can be deployed on.  In fact, with the new Oneworld frequencies between JFK and London Heathrow, it doesn’t make sense. 

At the same time, nor does the 777-300ER quite fill all the needs either.  It is perfectly adequate for filling the role of older 747 routes but it isn’t quite up to the challenge of providing enough seats (in BA’s configuration anyway) one some of those routes where BA/IB/AA are partnering.  The 747-8i offers enough seats and the promise of a high load factor that makes it potentially more cost efficient to fly.

It’s also a bit more flexibile on what airports it can fly to than the A-380 as well as the fact that it is just plain cheaper to buy and potentially cheaper to maintain.  In the modern airline world, that’s real money to be saved.

Will they re-visit the idea of buying the 747-8i?  I suspect they will at least take another long look at it internally and now is the right time.  The 747-8i is quickly compiling hard data for airlines to look at and the airline will have some hard route data of its own in the near future.   How seriously it will be considered is anyone’s guess. 

Right now, BA is looking at operating the 787 soon, it has the 777-200ER, 777-300ER, 747-400 and orders for the A-380.  That’s a lot of widebodies of varying types and styles.  To add the 747-8i to the mix really, in my mind, requires thinning out that mix by one type. 

So, yes, I wouldn’t be surprised if they took a long, hard look at it internally.  I would, however, be surprised if there was an order in the next 12 to 18 months.  Downright shocked, actually.

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American Airlines and Japan Air Lines can now start cooperating over the Pacific and that can’t come too soon.  JAL is emerging from bankruptcy and while it has new financing, it still has a lot of work to do.  Combine the exit from bankruptcy with the recent earthquake/tsunami disaster and you’ve got an airline that has a lot of struggles ahead of it. 

American Airlines also is suffering.  Projected by some to have as much as $1billion in losses for 2011, AA needs to get some things right.  It’s now starting to benefit from its trans-Atlantic cooperation with British Airways, Iberia and other smaller Oneworld partners but only time will tell if that is truly successful.

Oneworld partner, International Consolidated Airlines Group (British Airways / Iberia Airlines) has also just expressed an interest in taking a stake in JAL when it is re-listed for stock exchanges.  This is Oneworld bringing the network closer together among partners.

AA and JAL can now cooperate similarly and both would be wise to consolidate some service between the US and Japan for the near future.  Rather than see a splashy introduction, I think we’ll see both of these airlines act as quickly and as seriously as they can to preserve their revenues on flights between the two countries.  This partnership is defensive rather than offensive in the manner of the trans-Atlantic pact.

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Virgin Atlantic engaged an investment bank (Deutsch Bank) to advise on its possibilities going forward as an airline after British Airways merged with Iberia and finally consummated its close partnership deal with American Airlines.  The objective was to find a path going forward for the airline and determine if a sale was in order.

Since then, a number of airlines have paid attention to the possibilities.  It’s reported that Etihad is interested and that both Star Alliance and Sky Team may make overtures to the airline.  Delta was reportedly expressing an interest early on as well.

The latest rumour is that Air France and Delta want to explore a purchase of some kind.  Both airlines are industry dominant and both lack something that many other airlines (and airline alliances) have:  Great access to London.

In Europe, this access is pretty important going forward and in the United States, Delta could do with a bit more London Heathrow access as well.  Will they succeed?  That depends largely on just how interested Richard Branson is when it comes to a sale.  Make no mistake:  this will not be a partnership.  Neither airline can afford to spend time working with a niche airline without greater control over its destiny.

And Singapore Airlines also owns a 49% stake in the airline as well.  While they are rumoured to be interested in being rid of their investment, I suspect Singapore Airlines is more interested in yielding a profit from their investment and protecting their own position in Europe as well that of their alliance (Star Alliance.)  Such a sale to SkyTeam members could be very detrimental to Star Alliance in the long run.

Finally, this raises the question of what becomes of the other Virgin airlines?  Does the mother of the brand go away leaving these other players orphans?  Or is their a consolidated move to bring the brands along in some fashion?  If I were sitting at Virgin Blue or Virgin America, I would be concerned for the future of my brand.

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Sounds like a really dull airline, no?

That’s British Airways and Iberia Airlines under their merged company name.  British Airways and Iberia will continue to operate under separate brands while enjoying the synergies of a merged company in the background.

Willie Walsh becomes CEO of the combined company while Antonio Vázquez Romero sits as non-executive Chairman of the group.  Why isn’t Willie the top guy?  Because in this case, the CEO is who gets to run things.  Chairman just gets to run the board of directors.

The new company hit the stock exchanges yesterday with a new fleet of just in excess of 400 aircraft and anticipated annual revenues exceeding $19 Billion.  They’ll sit as the 3rd largest airline in Europe but let’s put things in perspective:  American Airlines has 620+ aircraft and $22 Billion.  However, IAG should earn a profit and AA has yet to show a profit despite most airlines of its size already doing so for 2010.

Look for the new company to start targeting other purchases.  Willie Walsh has already stated their intent to go on a shopping spree for other airlines.  Who is anybody’s guess but an international airline purchase is always difficult given ownership rules that generally exist from one country to another.

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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.

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Next up:  World Alliances

There is never that much revolutionary change in alliances.  Last year, there was a fight over JAL between Oneworld and SkyTeam and Oneworld won but they really were destined to.  It made sense for JAL.  The alliances worked a bit to get better access to areas they were deficient in and to a large degree, they were successful.  I don’t expect much change, if any at all, this year.

The Middle East:

Emirates did what Emirates does:  it ordered more aircraft.  I did what I do:  failed to see how they’ll use all those A380s and 777s.  The financial scene in the Middle East and, in particular, the UAE continues to be weakish and while I suspect it will recover somewhat this year, I think the area no longer carries that gleam it once did.  I don’t see any failures in the near future but I don’t see any airlines really blooming either.  Success there is, as is true for most businesses there, fairly dependent upon oil prices.

India:

Nothing astonishing happened there but it was already pretty mucked up.  It remains mucked up and will likely stay mucked up this year.

The Far East:

China did kind of force their airlines into agreeing to buy Chinese aircraft as I predicted.  In fact, Chinese aviation is suddenly acting very Chinese in that it is being required to toe a more obedient line.  Face is everything there and I don’t like it when airline businesses are operating on the basis of “face” rather than good decisions.  It’s notable that in the launch orders for the COMAC C919 aircraft, each airline took up just 5 aircraft orders each.  They don’t want that airliner any more than anyone else.

JAL has done OK for the year.  They’ve made progress with their finances and they did make some hard choices.   They did have to file for bankruptcy protection and no one should have been surprised about that.  The new CEO, Kazuo Inamori, and President, Masaru Onishi, are succeeding and making hard choices.  Frankly, more so than is characteristic of a Japanese company and they deserve credit and support.  This airline isn’t fixed yet but it is on its way.

Oceania:

QANTAS got hit pretty bad by the Rolls Royce failure on its A380.  United Airlines is still on the US-Australia routes but badly needs to upgrade its product and it doesn’t appear positioned very well to do so.  Perhaps Jeff Smisek & Company will address that better this year.  Delta and V Australia didn’t get to form an alliance and they’re trying again.  Someone has to give in this area and it will be either in the form of a codeshare alliance between Delta and V Australia or in the form of an airline withdrawing from the market (United or V Australia).

South America:

LAN, in fact, did continue to succeed in South America.  So much so, they bought TAM to create LATAM and then bought AIRES (a Colombian airline)covering both the east and west coasts of South America.  LAN is, in my opinion, now a SuperLegacy of South America and that’s a bit dangerous for them.  South American governments are more protective of their countries airlines that is the custom in other parts of the world.  

Curiously, LATAM is now operating airlines in two different alliances:  Oneworld and Star Alliance.  While there is speculation that they’ll continue this with LAN brands in Oneworld and TAM brands in Star, I think they’ll have to pick one and this may well mean a big battle among all three alliances.   This is an area where SkyTeam could do well for itself by gearing up for battle now.

Aerolineas Argentinas:  Well, what can I say?   Well, I’ll say exactly the same I did last year. 

This disaster is much like the country itself.  It won’t go away but it won’t perform either.  No outside airline will consider taking it over after what happened with Grupo Marsans’ ownership.   They lack an appropriate fleet for their flying, a strategic plan for stabilizing their revenues and no clear plan for future growth.  But the Argentinian government also won’t let them go away.  It is a matter of national pride.

LAN Argentina is growing in Argentina but somehow I remain skeptical that it will be allowed to succeed too well.  Why?  For one reason, the government of Argentina owns Aerolineas Argentinas and it has a vested interest in that airline earning money.  For another reason, LAN Argentina is owned by the LAN Group of Chile.  Look up how Chileans and Argentinians feel about each other.

Colombia / Central America: 

Avianca TACA is doing fine and I look forward to seeing how they’ll compete against LAN. 

Venezuela:  Bah!

Europe:

British Airways accomplished a few things.  They got into a royal battle with their flight crew that remains unresolved today in part by being petty.  Their flight crew union, Unite, furthered that argument by being petty.  BA did get their merger with Iberia accomplished and after many, many years they have their anti-trust agreement for trans-Atlantic flights between its European Oneworld partners.

Look for the BA/IB union to do OK in its first year and they may even start looking for another partner as soon as possible.  The anti-trust agreement between Oneworld partners should also add to the bottom line.  However, it’s time to settle this fight with Unite and it’s time for Unite to get real.

Lufthansa is moving along and did do something with their BMI purchase.  I don’t think it did them any good when its CEO, Wolfgang Mayrhuber, started complaining about its ability to compete with the likes of Emirates.  Whether or not he had a real point (and he probably did), it also did signal just how hard a job they’re having with the task of competing with the Middle Eastern airlines.

They also still have their A340s and their plans to add the 747-8i.  They got their first A380 and all I see is fat, fuel consuming airplanes.  This is going to be a problem for them if oil prices rise much more and when you consider that much of their competition is flying fuel efficient A330s and 777s, it makes you wonder about their long term strategy.

KLM/Air France:  More of the same.  I think this airline will need to make an order for new widebody aircraft soon.  Because it remains, essentially, a French airline, I see a large order for A350s and a small order for 777s.  I do not see the 787 in Air France’s future.

Airlines will earn profits and even earn great profits throughout the world.  Many will be “record breaking” but as much from inflation as a recovery.  Those profits will soon start to burn a hole in someone pocket and that is when I think we see capacity growth.  I think that capacity growth will start with the Middle East airlines pursuing more revenue lucrative traffic from Europe and North America.  But we’ll see it happen in the United States, too. 

I would dearly like to see the 787 enter into service with someone and I think we will see it do so.  But Boeing has got to get a rein on itself.  The failures in the 787 program are as much about poor management as they are about stretching technology.  There is too much accountancy going on there and not enough visionary leading.  It’s time for them to start winning and they could do so by winning the KC-X tanker program once and for all.  But it is also time to start talking about what’s next. 

The demands of the 787 program *will* decrease as will the demands from the 747-8 program.  Will it be talk of a 737 replacement or an improvement to the 777?  I think the airlines would like to talk about the 737 replacement and that seems sensible.  Rather than play cautiously, reach again, I say.  Push engine manufacturers to come up with something to raise the game and push technologies again.   It’s also time to talk about the 787-10 and I think there are more than a few airlines who would like to be a part of those discussions.

Airbus is going to muddle along denying any real problems with the A350 until the end of this year.  Then we’ll hear about something delaying the entry into service date by a considerable amount.  John Leahy will insult Boeing and claim the A350 will put the 787 to death but it won’t.   Airbus might well buy the KC-X tanker program but I question the wisdom of this in light of their ongoing A380/A400/A350 problems as well as their announcement development of a new engine option for the A320 series.  When do they earn money the proper business way?

It would be nice to see Embraer make a move into the 130 seat market and I think those guys could do it very well.  Bombardier gets bashed by everyone but I still think they have something with their CS series and I think it will be taken up by another airline soon.

I think we’re going to see another round of fees.  Just as soon as airlines can identify what other parts of their service they can de-couple from the basic flight.  I think we’re going to see airlines put a price on early boarding and we’ll probably see fuel surcharges amounting to tens of dollars.

But let’s hope we see an interesting and prosperous year in the airline industry.

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It’s always fun to come up with contractions of names for airlines that merge.  My newest is Britberia Airlines, British Airways and Iberia Airlines.  Good news for those two:  they now have shareholder approval of their merger and expect to conclude the deal in January.  The new entity will be called International Airlines Group and it will manage both the British Airways and Iberia brands.  I wonder if someone at AA didn’t help with the new name as that is about as bland as one can get.

Willie Walsh, who will serve as over-arching chairman of this new group, says it’s been a good year for British Airways with this merger and their recent anti-trust approval to work with American Airlines.   While it may not have been their worst year, I don’t think it’s a “good” year.  They’ve still got a fight going on with their cabin crew union that really needs to get solved.

The new group still falls behind Lufthansa and AirFrance/KLM but it does make BA/IB a better player against those two but with a weakness or two as well:  They’re still dependent on a growth constrained hub at Heathrow airport and their ability to expand will lay with the Iberia hub in Madrid.  The other two SuperAirlines have got hubs in better places for more of Europe’s traffic.  Hubs in places like Paris, Amsterdam, Frankfurt, Berlin and Zurich.  They’re just more centrally located.

Walsh says future growth will be focused in Madrid but I don’t see how that helps BA in its home territory of the UK.  How is it more attractive to take a flight from Manchester to Madrid to go overseas to many places?  I think this union needs a northern European partner and I think they’ll seek one out once this merger is fully ironed out.  If not a European partner, then a different Ireland/UK hub is probably needed. 

Madrid and Spain seem logical for connections to Africa, South America and perhaps the middle East or even India.  The UK is a logical connection point for destinations within the UK, northern Europe and North America.  But growth is needed in the UK and Heathrow can’t continue to be the hub for all things BA.

Perhaps the Irish government will sell Aer Lingus to the group.  Dublin could be a nice gateway city for trans-atlantic flights and connections to airports throughout Ireland and the UK.

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British Airways cabin crew union, Unite, has decided that it cannot recommend the latest deal  and put it to a vote among its membership.  Now it wants more talks with British Airways.

And I would like to offer this:  That’s bargaining in bad faith.

When you are the leadership of a union and engage in talks that result in a proposed agreement and you agree to put it to a vote, you damn well put it to a vote.  You don’t change your mind and then ask for more talks on threat of another strike.  Being weak and changing your mind just damages the process for both sides.  If your membership doesn’t like it, they won’t vote for it.  The outcome is the same but it’s an outcome that results from an appropriate course of action rather then a cowardly one.

I didn’t like BA’s punitive moves against the cabin crew and I did think that gave Unite the upper hand somewhat.  Now I think they’re both behaving atrociously and contrary to the spirit of what it means to negotiate a resolution.  One thing I can’t criticize British Airways for is being cowardly and indecisive.  Unite loses the upper hand here and goes back to wallowing in deep mud.

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British Airways has been working to resolve its labor trouble with the flight cabin crew union, Unite, for several months now.  It appears that both BA and United have finally come to enough of an agreement that a deal is on the table and it will be voted on.

The problem is, both parties here went a bit too far in these labor actions.  Unite went too far in trying to protect jobs by insisting on unproductive staff levels in the cabins.  BA went too far by punishing those who went out on strike.

Labor conflicts shouldn’t be treated as “personal” and when Willie Walsh & Co decided to punish those strikers by removing their travel benefits, that was over the line.  The strike was legal and you shouldn’t punish people for doing what was within their legal rights. 

In addition, remaining stubborn about restoring those benefits was just childish.  It’s insisting you were right when there is an opportunity to get what you originally wanted by just stopping your own foolishness. 

I’m actually somewhat skeptical that this vote on the deal will be approved.  BA has agreed to restore “90%” of the travel benefits and seniority would only be restored on the basis of “good behaviour” over 3 years.  That’s punitive and unnecessary.

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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?

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Captain Peter Burkill commanded British Airways flight 38 from Beijing which crashed at London Heathrow airport about 3 years ago.  By all informed accounts, his quick action (and that of others on the flight deck) are credited with landing that aircraft with no power and no fatalities.  However, in the immediately following months, Burkill came under pressure at British Airways and though he kept quiet as he was supposed to, he ultimately resigned and searched for another position as captain at another airline.

Unfortunately, because of his high profile association with the crash and, frankly, some rather irresponsible mud throwing in the media (particularly in the UK), he was unable to find another pilot position.  Now there are credible reports that he is being hired back by British Airways.  British Airways, to date, has only said that Burkill is an admired colleague and that he would be welcome back at the airline. 

I always thought it shameful just how much of his dirty laundry and that of other flight crew members was aired in the media over there.  It was prying and irrelevant to his skillful work as a captain that day.

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British Airways Business Class subsidiary, OpenSkies, is introducing a money back guarantee to encourage new people to try their services between Newark/Washington D.C. and Paris.  Since their internal customer satisfaction surveys indicated that more than 96% of respondents would recommend OpenSkies, this seems like a rather safe bet to be making.

Offering such a thing is a relatively unheard of act in the airline business and it is a hint at the fact that airlines still need to attract customers, particularly business customers, in a rather innovative way.  It’s a rather satisfying guarantee because by its very nature, it’s unusual.  I suspect it will get some people to notice them and, perhaps, pay attention to them.  Especially if current Oneworld members are permitted to earn frequent flier miles on these flights.  I presume this will be possible since OpenSkies participates in BA’s Executive Club program.

But at the end of the day, OpenSkies is a tiny airline serving just two routes and this money back guarantee is unlikely to spread among larger airlines.  If they were serving more routes, it is possible that other airlines would match it on some limited basis. 

What would be nicer to see among airlines is a money back guarantee on the so called “services” that are now requiring extra fees such as the baggage fees or priority seat fees, etc.  Sadly, there is no sign of that developing at any airline.

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British Airways CEO and soon to be chairman of the International Airlines Group, the holding company for the merged BA and Iberia airlines, says he and his company have a large list of acquisition and merger targets as part of a strategy to become the world’s largest airline.

It’s a strategy that would have the potential for really shaking up the airline world because it would be the first real multi-national airline (Air France/KLM and the soon to be BA/Iberia consolidations don’t count given that they are in the European Union.)  Yes, there are already cross-border airline but they’re typically between two countries within an economic union or with strong business ties between each other. 

A real multi-national airline would be much more like something between British Airways and American Airlines or Delta and Cathay Pacific. 

Obviously strong ownership restrictions in many countries would inhibit such a strategy and frankly I’m a bit skeptical of Walsh’s optimism that they can be overcome.  Furthermore, I think that such a grouping is an ill-fit for the current world we live in.  It potentially denies countries strategic capabilities that they both want and need.

Frankly, I think Walsh and the new International Airlines Group would be far better off just making their new airline work profitably for now.  They already have strong cultural problems to solve, I suspect, as well as the need to compete in the present markets they occupy.

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Since I started writing this blog, I’ve come to one thought many times:  Airlines, at least most of them, work very hard these days at trying to be all things to all people.  The reason for this is that the airline business, particularly in the United States, is all about market share. 

In other words, to be viable as an airline, particularly a larger airline, you have to have a pretty significant chunk of market share for a set of routes.  Without that share, you won’t average a load factor that earns you a profit.  In fact, it isn’t just about market share of a particular segment.  If you dominate solely in leisure travel, you’ll struggle to survive much less make a profit.  Even Southwest Airlines has learned the value of the business traveler. 

But is that the right direction going forward?  Some variation of that is probably going to remain the truth for some time.  However, I do wonder if airlines aren’t harming themselves by trying too hard to be all things to all people. 

When it comes to domestic service, I do think it would be wise for more airlines to emulate United’s 3 class domestic service of First / Economy Plus / Economy.  Offering more value for more money is a strategy that plainly works although I also understand the perceived risk involved with that.  You can’t easily change the configuration of an aircraft to meet changing seasonal demand for a particular product.  This is an area where aircraft manufacturers could do some work.

However, at the international level, I think many US legacy airlines are trying too hard to be all things to all people.  I’ve always admired Continental’s approach with their BusinessFirst and Economy products.  BusinessFirst is business class and, let’s face it, that’s what is going to sell at the front of the aircraft day in and day out when compared to first class. I think the new ContiUnited (I must come up with a new moniker for that) would be wise to adopt the Continental model BusinessFirst and the United Economy Plus/Economy model.  It’s 3 classes of seating but really 2 classes of service.

Airlines seem to be overstressing themselves in other places as well when it comes to trying to appeal to everyone.  When you’re trying to market to the leisure crowd, the business crowd and the uber-rich crowd, your message gets muddy.  Can you identify who does what best for which crowd in objective or subjective terms? 

You have far less of a problem with that in other parts of the world.  If you want best price in Britain, you’re likely going to fly Ryanair or EasyJet.  If you want a more business oriented service, you’re likely going to pick British Airways.  It’s notable that BMI has more of an American approach and they don’t do so well.   Ryanair specializes in delivering the best price possible and has focused on that goal relentlessly.  British Airways specializes in service and image and focuses on that goal pretty well despite current problems and criticisms. 

We could stand to see a bit more focus out of our airlines.  Isn’t it interesting that when airlines set up “specialty” brands in-house, they usually did pretty well and only went away when the competition in that specialty went away?  I think there is a lesson there.  Does every flight need to meet every need?

I think the key to becoming more adept at specializing in customer needs, we need aircraft that are more easily configurable for particular demands.  It’s interesting to me that business class in Europe is often coach seating with the middle seat “blocked” from use.  Sometimes that same middle seat can be folded down into a “service” area for the aisle and window seats.  What if an airline or seat manufacturer came up with a product that allowed configuration of seat pitch in a manner of minutes with the addition of a row or two of seats in less than half an hour? 

There is nothing wrong with segmenting service for various needs and charging for it.  No objects to those pricing models.  The issue with “fees” is charging for something that had no charge until recently and acting like you are doing someone a favor.   Airlines could create a great deal more value in their product with more specialization towards particular customer needs and wants. 

After 40 years, I think coming up with seating that is configurable “on the fly” shouldn’t necessarily be quite the challenge it’s made out to be.  The industry should be able to meet this challenge and I think when they do, they may find a way to more reliable profitability.

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It’s been a bit over a week since American Airlines, British Airways and Iberia (along with Finnair and Royal Jordanian) received anti-trust immunity approvals from both the EU and the DoT.  What it means is that each of those airlines will be able to cooperate closely with each other on a variety flights between the United States and Europe. 

What closely cooperate means is that these airlines will start marketing their respective flights between cities under the various brands but each airline will be responsible for certain flights.  For example, British Airways may begin operating more of the capacity between DFW and London while American Airlines retasks the aircraft they were using for some of those flights to other flights.  Iberia Airlines may begin operating the flight(s) between Miami and Spain.  BA, AA and IB will be selling seats on all of those flights as their own just as you already see done as codeshares.

The difference is that now these airlines will also begin cooperating on scheduling.  In other words, American Airlines might start scheduling its “feed” for a British Airways flight from DFW to London.  American Airlines might do the same for an Iberia flight from Miami to Spain.  On the other side of the ocean, British Airways might schedule its “feed” for London to Chicago to mate up with an AA flight.   These airlines will start acting almost as if they are one company so to speak.

Is that good or bad?  If you ask the airlines, the customer will get to see more choices to more destinations on Oneworld flights and that choice is good.  In most cases, it is good and air fares are likely to be unaffected on many routes because of competition from other alliances such as SkyTeam and Star Alliance. 

However, in some cases, I think this is bad.  For instance, American Airlines already effectively “owned” the DFW to London market and really the DFW to Europe market.  So much so that previously they weren’t allowed to code share with British Airways on such routes at all.  There is very little competition in the DFW market to Europe.  Some exists, yes, in the form of flights by KLM and Lufthansa to Amsterdam and Frankford respectively.  One flight each a day.  Now, with even closer cooperation allowed, I do fear that KLM and Lufthansa may find such flights simply uneconomical.  There is no real Star Alliance and/or SkyTeam presence at DFW anymore. 

In the short term, I do think there are markets that are going to see much higher air fares for non-stop flights to Europe.  As with all things, those higher air fares may one day drawn in more competition, though.  It is conceivable that if the fares rise considerably, another alliance may target such a market for competition.  For instance, the Star Alliance may decide that Dallas needs some competition and suddenly we may find ContiUnited or US Airways providing some feed to that destination in order for a European carrier such as Lufthansa to justify a route between Dallas and Germany. 

I think such developments are a good 5 years away at least.  Fundamentally, I think these alliances are bad for consumers and bad for the industry but they were instituted a long time ago and that genie is out of the bottle now.  Since it would be nearly impossible to break up those alliances, it is fair that Oneworld be permited to establish their own now.  SkyTeam pioneered such things and Star Alliance is also far ahead of the curve. 

Regrettably, now we have to manage competition between alliances rather than companies.  I think that is bad because those alliances potentially let airlines that would otherwise go out of business remain in the game longer.  We need to see this industry periodically purge itself of the weaker players.  If you think that didn’t happen under regulation, you’re wrong.  It did.  Airlines did file bankruptcy and if they didn’t, they were forced into mergers of convenience by the CAB.  In any case, the weaker players still went away.  All too often, we don’t allow that to happen anymore and that hurts us more than helps.

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Air Berlin will be joining Oneworld sponsored by British Airways it has been announced.  I would like to announce something myself:

Huh?  Air Berlin?

Air Berlin is European continent based LCC carrier and while they get generally good marks as an LCC carrier, I’ve a hard time figuring out how their service product harmonizes with the rest of Oneworld.  Particularly with British Airways, American Airlines, QANTAS, Finnair and Cathay Pacific.  Is Oneworld just that eager to have more feed on the European continent?

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That’s a less than thrilling announcement.  To be fair, American Airlines has lost a great deal less money for Q2 this year than the previous year’s Q2.  This year’s Q2 loss is a bit over $10 million while last year’s was $390 million. 

The problem is that while this is an improvement, it also highlights just how far behind the curve AA is compared to its brother legacy airlines in the United States.  With Delta and United reporting huge profits for Q2 and Continental sure to follow with impressive numbers, American Airlines’ disadvantage is only highlighted. 

American blamed much of its Q2 losses on higher fuel prices.  The problem with that is that the fuel price to AA is essentially the same price it is to every airline in the United States.  The only mitigation for that is hedging and AA does engage in hedging.   So, higher fuel prices over this time last year isn’t really a very satisfying answer for what remains a result that is staggeringly far behind other US legacy airlines.

AA has attempted to mitigate that stark contrast by saying that, over time, other airlines’ costs will begin to approach AA’s again and the gap will narrow considerably.  Well, that sounds good but . . . that’s going to take years and years for that to happen.  What about investors today?  In addition, whether or not that gap narrows is contingent upon how each airline manages itself.  Is the airline doing mortal combat with its labor groups or is it finding common ground and securing productive contracts?   In other words, AA has good PR for that gap but it doesn’t have a substantive answer.

Or does it?  AA also just got DoT and EU anti-trust immunity to form closer partnerships with its Oneworld brothers, British Airways and Iberia Airlines.  In addition, it is on track to receive the same in a partnership with Japan Air Lines across the Pacific Ocean.  AA says that these partnerships could as much as $500 million in revenue by 2012.   That sounds like a lot until you realize that that is a 2+% revenue gain.  And that’s revenue, not profit. 

At the end of the day, we hear a lot about strategies AA has involving new partnerships and re-focusing on core cities.  We hear a lot of mitigation of cost gaps between AA and the rest of our legacy airlines.  We sometimes hear analysts praise AA for avoiding bankruptcy . . . usually right before the analyst highlights just how much that put AA at a disadvantage today. 

What we don’t hear about is substantive and real progress made towards reducing costs.  We hear noise and we see somewhat halfhearted attempts to paint a picture that something is being done but we haven’t heard about the real progress made towards not just containing costs but reducing them. 

At what point do analysts and investors require AA’s executive team to show them the money?

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United Airlines announced a second quarter profit of $273 million and that’s an impressive result.  If Continental’s come in as impressive as that, the heat will be on American Airlines in ways we can only imagine. 

Speaking of United and Continental . . . their respective pilot groups have come to an agreement on transition.  There is a transition agreement now in place for them but don’t think this means that the groups are near a final merge agreement.  The transition agreement just governs how the two airlines will operate with the pilots during the merger transition.  I suspect that obtaining a final agreement is still going to be a bit bloody.

BA cabin crew have rejected the latest British Airways offer for settlement.  After voting was completed, the latest offer was rejected by about 2/3’s of the labor group.   While that isn’t wholesale rejection, it’s significant enough to be a real problem.  The hold up is the restoration of flight benefits.  BA did finally agree to restore flight benefits to crew that had originally had them taken away for participating in the first round of strikes earlier this year.  However, they were restored with loss of seniority and that means they were restored as if these crew were entry level again.  This is an area that I’m afraid I side with the union on.  Those flight benefits shouldn’t have been taken away as a punitive measure and its the one big misstep by Willie Walsh.  The smart move would be to cave in, get another vote going and come to a final settlement. 

At the Farnborough International Airshow, single aisle aircraft orders are happening at a rapid clip.  Both lessors (GECAS, Air Lease Corp, etc) and airlines themselves (LAN, Flybe, etc) are ordering large amounts of aircraft for delivery over the next several years.  LAN has an agreement for up to 50 Airbus A320 class aircraft and Flybe has ordered 35 of the Embraer E-175 jets.  GECAS, GE’s leasing arm, has ordered 40 737-800 aircraft.  Still, I think this reflect the rather dismal orders placed last year more than it does resounding growth for the next few years.  In other words, I think a lot of these are replacement equipment rather than aircraft purchased for growth.

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