Virgin America seems to be led by a young, vibrant and, most importantly, industry outsider team, right?

Question:  What do Virgin America and American Airlines have in common?

The answer after the fold: (more…)

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Virgin America started flights between DFW and LOS/SFO all the way back in December and experienced a fair bit of success while American Airlines simply matched fares and maintained their status quo.  Over the past several months, VA has learned that if they can get people to try their flights out, they can win the all important business customer.  With that in mind, VA launched a new initiative in the Dallas / Fort Worth area offering 2 for 1 purchases and inviting people to give up their old airline.

It’s a fairly agressive campaign and one that promises to really dent AA’s traffic.  So, in response, AA is offering $99 fares to LA and San Francisco (although not matching the 2 for 1 deal) and fighting back with communications to their customers with email blasts. 

It’s been a while since we’ve seen things heat up like this.  The problem for American Airlines is that at the prices being offered, it becomes kind of a no-brainer to try Virgin America.  And once you try Virgin America, you realize that, no, not all flights have to be staffed with mean people and not all flights have to be endured on crowded 737-800s.  The newest AA aircraft are no match for the experience Virgin America offers.

Who wins?  Everyone in the Dallas Fort Worth area, for sure.

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Airlines are now starting to look seriously at using their onboard WiFi setups to also stream on demand video in a variety of situations.  The general idea is that the WiFi equipment onboard is vastly underutilized for internet access and by adding onboard storage, one could stream video throughout the airplane easily enough.  It will also offer more revenue streams and that isn’t a bad thing.

This newer approach also innovates inflight entertainment.  Virgin America, for instance, is going to adopt a new IFE system that will, once again, raise the bar for their already superior IFE but also reduce the infrastructure and weight necessary to serve such a system.  Simply put, it reduces how much wire has to be installed and that reduces weight and maintenance.

I like this approach because it allows people to use personal devices whether they be laptops, tablets or smartphones which are all devices those same people are familiar with.  In addition, it reduces weight and offers the opportunity to present IFE with a small footprint.   Small enough that even Southwest Airlines is going to do this.

It does reveal an evergrowing need on aircraft today and that is power connections.  Some airlines have them, some don’t.  Some airlines present it at a limited number of seats and some offer it at every seat.  I would argue that on flights greater than 2 hours, you need it at every seat and possibly in two forms.  You need a standard 110v AC plug capability and (optionally) a USB power connection.  That will add weight. 

However, the additional revenue streams that airlines could enjoy from this infrastructure probably offsets the additional associated costs with weight.  Furthermore, it allows airlines to stay competitive with each other when it comes to offering wireless internet connections and IFE. 

I like the approach and I like the opportunities it gives airlines.  One would expect that a multitude of airlines will adopt this fairly quickly.  Hear me Delta?

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Richard Branson and Virgin Atlantic continue to examine their options when it comes to the sparky British airline that could.   Deutsch Bank was hired to find Virgin some opportunities and there has been a great deal of speculation as to what will happen.

Some see Branson’s 51% shareholding a problem for potential partners.  Others see Singapore Airlines’ 49% share a problem.   I agree that there is a problem.

However, I don’t think the problem is with Branson.  Singapore Airlines made an investment and they clearly want to find a return on this investment before considering letting it go.  Despite rumours that Singapore wants out, I’ll point out that Singapore’s shareholding has allowed it to control what the Virgin airlines have done in its corner of the world. 

Control that has had the Virgin airlines dancing to find a way around the constraints.  Singapore is only going to let its investment go if it receives a healthy return on its investment and it doesn’t see another airline gaining the upper hand against it.

Virgin Atlantic needs some partnerships.  There is no question of that.  It’s unlikely that any one large airline will engage in such a partnership because it may well go against the interests of another partner airline.

A better strategy would be for Virgin to start exploring partnerships with relatively non-aligned airlines that fit strategically into Virgin’s network(s).   What’s more, Virgin needs to align itself more with the daughter airlines that exist around the world (Virgin Australia and Virgin America, for instance.)

The brand is strong and Branson is a good leader for that brand.  Moreover, he is not naive to the airline world.  You don’t own a major airline for 20+ years and succeed by being stupid.  Other airlines need to look past Branson’s theatrics and embrace the experienced aviation leader behind them.

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Virgin America has announced a deal with CFM to supply the CFM Leap56 engine for its Airbus A320NEO orders.  This is a nice launch for CFM and stands in contrast with order A320NEO orders that have listed Pratt PW1100G as their choice of engine.

What’s the Leap56 advantage?  It’s hard to say.  It’s possible that the Pratt & Whitney engine may have more future potential but right now it also has a lot of risk associated with it.  It’s a geared turbo fan that Pratt has really been working on for more than two decades in one form another.  It’s a design that many see risky given its complexity.  If it does turn out to be a robust engine with good lifecycle costs, it may well be the leader going forward.

But right now the CFM Leap56 offers the same performance with great reliability and reduced risk for the owner.  There have been a number of predictions that the Leap56 will be the sale leader in A320NEO sales over the long term.  Right now, we’re a long way away from seeing a sales leader in that aircraft category.

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Virgin America is doing what I have wished an LCC carrier would do to American Airlines for 10 years:  compete with them.  In December, they took up the challenge to compete against AA on the DFW-LAX/SFO markets and they’ve done pretty well.  Virgin America knew going in that it was an long term investment and that they would see a strong reaction from AA.  Of course, that’s no surprise since VA CEO David Cush is a former senior AA executive.

Now Virgin America is set to start competing with American Airlines and United Airlines on routes between Chicago and LAX/SFO.  The response from American Airlines tells a story.  According to the Dallas Morning News Aviation Blog, American Airlines is giving away a “special gift” that includes:

“. . . a $100 discount for future travel that is booked on AA.com, a $150 voucher for bookings on AAVacations.com, 5,000 AAdvantage miles and an Admirals Club pass and $50 discount on a one-year membership.”

If Virgin America was looking for any confirmation of the threat it presents to AA, there it is.  That’s a pretty special gift to try to keep business customers away from VA.  As incentives go, that’s a pretty surprisingly high price to pay.

And it doesn’t surprise me in the least.  The VA product should compete exceptionally well against the AA offerings.  The difference in the physical service product alone is the difference between night and day. 

I’ve now heard a number of first hand stories from people flying VA out of the Dallas area and, anecdotally, I’d say that AA is in real trouble.  The responses I’ve heard have uniformly been expressed as shockingly impressed with the aircraft, service product and staffing.   This is from corporate travelers, not the occasional vacation flyers. 

I think VA has identified that it can compete and it can erode American Airlines’ strengths on routes and I think we’ll see VA look to do it on more and more American Airlines “core” routes while they also nibble on United Airlines as well.  Right now, I would say that Delta is somewhat safe from VA but they also have Southwest to worry about so they aren’t exempt from pressures.

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Watch the videos of the Virgin Galactic WhiteKnight Two and SpaceShip Two lining up with a Virgin America flight to land at SFO.  Sometimes, things are just that cool.

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In a previous post, I made mention of Virgin being courted by a few airlines as a result of their decision to investigate sale and merger possibilities.  I wondered what would happen to the other Virgin branded airlines: Virgin Blue and Virgin America most especially.

It’s been announced that V Australia / Virgin Blue , the hybrid named airline has done a deal with Etihad Airways which will see both airlines offering seemless codeshare between their airlines.  Etihad customers will have the opportunity to fly Virgin Blue to their final destination in Australia, New Zealand and the Pacific islands.  V Australia / Virgin Blue customers will be able to access Etihad flights from Australia to global destinations offered by Etihad.

Just writing that awkward V Australia / Virgin Blue moniker makes me wonder what happends to the Virgin brand in Australia in the future.  Is it really worth having two different brands of which one is restricted by agreements with airlines such as Singapore?  In the long run, I think not.

If Virgin Atlantic is merged or purchased by someone, I suspect we’ll be seeing the other brands seeking their own identities.  Virgin Blue has great identity in Australia but virtually no where else and it isn’t exactly easy to connect it to V Australia (which is a name that I find weird at the least).  

As for Virgin America?  Who knows.  It’s a brand that is starting to gain some cachet in the US and perhaps it will stick around.  The potential for growing Virgin America as a brand in the US domestic market is huge.  Virgin America can fly to Canada and Mexico under that brand and I see no reason why they’ll want to be starting trans-Atlantic or trans-Pacific routes in the next 2 decades.  They may well keep it but I think they’ll also start looking for international partnerships after they’ve got a robust enough network.

I do think we may be witnessing the beginning of the end of the Virgin brand as a global name if Virgin agrees to be purchased or finds a merger partner.  I doubt that we’ll see Virgin Atlantic purchase a partner and, frankly, I’m not sure there are any left in Europe that would be any kind of fit.  BMI was their last, best opportunity to stand alone.

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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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Virgin America is starting service to Chicago O’Hare airport starting in May of this year.  Once again, these flights will connect Chicago to Los Angeles and San Francisco. 

And may I say that I like how VA introduced this service.  Like their general approach to new routes, new introductory fares were announced but they added a dash of spice by offering a Groupon buy of $77 worth of airfare for just $7 for flights originating in Chicago.  Nice move. as it created a nice buzz about the airline in an unconventional but very media worthy manner.

I like this Chicago move as much as I like the DFW move.  I do, however, hope that VA isn’t intending to just introduce new routes from Los Angels and San Francisco to new destinations.  It would be very nice to see some of the dots on this growing map of service connected.  Dallas and Chicago can connect, for instance.  Dallas and New York City could stand some nice competition as well.  Let’s hope that as VA adds more fleet, it grows its system more as a network than as destinations for California.

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American Airlines and Sabre have decided to enjoy a truce while negotiating a new contract until this summer.  Is this war between AA and the GDS systems over?  No, not yet. 

I think AA needed some of the heat to die down in the public given their most recent financial results and this was a way of moving one of 3 major problems off to the back burner and getting their revenue stream back online with the largest GDS system.   They can continue to play chicken with Expedia and Orbitz in the meantime and see if they can get any traction at all. 

But it begs the question as to why AA is choosing to fight this right now when it so obviously has a large pile of other problems to solve first.   They are the only legacy/SuperLegacy airline to lose money for 2010 and while they have some promising developments in their favor, they continue to fall further behind other airlines when it comes to earning a profit. 

If you compare the problem of fees with respect to GDS systems vs the problem of labor unrest and productivity, I know which one I would want to get solved first.  I wonder when AA’s board of directors and shareholders begin to be unsatisfied with AA’s financial performance relative to the rest of the industry.

In another development, Virgin America has inked a deal with Sabre to provide reservations systems and to continue its GDS relationship going forward in a multi-year contract.  Several airlines have reaffirmed the GDS model (US Airways as well) and American continues to stand alone in this conflict although I do think Delta is paying close attention. 

One good thing that may come from this is the GDS providers doing a better job of accomodating the a la carte fee structures and upselling.  That would not be a bad thing.  In addition, it may well spur the GDS systems to invest in new technology that not only will accomodate future needs as well as lower fees.  That, too, would not be a bad thing. 

Right now, I would say the GDS systems have a slight upper hand in this fight.

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Virgin America has had a great experience with its new flights between DFW and Los Angeles as well as San Francisco.  So much so, they’re adding one new frequency on each route by terminating its LAX – Toronto flights. 

This is what I mean by it being time to compete with American Airlines.  That big bully that everyone sees in the DFW area is a lot more vulnerable than it may look at first glance.  AA has fought back some on those routes but with VA’s load factors running in the 80 percents and their advance bookings running about 70 percent, it’s clear that a new, service oriented entrant can compete with AA.  Especially on routes that have been traditionally dominated by AA over the past 10+ years. 

Once VA gets these flights settled and tweaked and finds itself satisfied, look for new flights out of DFW.  I see opportunities for them on DFW to New York city, Boston and Seattle.  All three routes are the non-stop domain of AA and all three have relatively high fares.  Just like the DFW-LAX and DFW-SFO routes had.  Virgin has a presence in each of those cities which would make it easier to integrate routes from DFW to those destinations as well.

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Virgin America has announced its intentions to order 60 new Airbus A320 aircraft with 30 being the A320NEO (New Engine Option) with deliveries taking place until 2019.  That means Virgin America will triple the size of its fleet (or more) over the next 8 years. 

While VA already signaled that they planned to buy 40 new aircraft, an additional 20 reflects a certain confidence that it is going to be earning solid profits going forward.  I’m sure that some of the new aircraft (probably the last ones) will replace some original aircraft in this scheme but it reflects a plan for heavy growth between now and the end of the decade.

Let’s put that growth in perspective.  jetBlue has about 160 aircraft presently serving 63 destinations after being in business for about 11 years.  In that fleet, there are about 115 A320 aircraft (with no orders on the books) and 45 Embraer E-190 aircraft (with an additional 60 aircraft).  I use jetBlue as an example because they are somewhat similar airlines with similar service products. 

So, Virgin America thinks it can grow its mainline fleet to about the same size as jetBlue over about the same period of time.   However, jetBlue got to its size in part by using the E-190s to “feed” traffic into their system from smaller destinations.  This would seem to imply that VA will have to think about a similar strategy. 

I suspect VA will start looking at how to build its network around its focus regions.  There is some opportunity on the West Coast but I think they’ll have to look to feed their system in other places as well.  Places such as DFW, Chicago and on the East Coast into New York City and Washington D.C.

Why order now?  Well, Virgin America is solidly in the Airbus camp and now they know what Airbus will be doing with its product line for the next 10 to 15 years.  With that knowledge in hand, it was an opportune time to make that order since Airbus will be very interested in getting airlines onboard with their decision to re-engine the A320 series.  In other words, they probably got a good deal. 

Why the A320NEO?  That goes to efficiency.  Again, VA knows what Airbus’ strategy will be for the next decade and a half and that means they know what kind of efficiency will be offered.  It only makes sense to get the most fuel efficient aircraft possible when competing here in the United States.  Even those that aren’t NEO aircraft will give VA an advantage in that they’ll be new engines with the latest upgrades available and that translates into money saved against the competition.

And they get one more advantage:  They’re at the head of the line when it comes to other potential buyers in the United States such as Delta or United airlines.   Virgin will be receiving the best, most efficient aircraft available as soon as or even sooner than most of its competition.  American Airlines has no new plans for aircraft other than to keep taking on 737-800s at present.  So on VA’s transcontinental flights, it will likely have the most fuel efficient aircraft available and having that advantage in that competitive marketplace means a greater chance of profitability and competitive advantage when it comes to fares.

Virgin has 2 or 3 years to go when it comes to considering how to feed its network with smaller aircraft.  I wouldn’t look for an order in that area for some time to come.  However, when they do start looking, I suspect the Bombardier CS series will be strong contenders for that airline if VA selects the new Pratt & Whitney GTF engines since Bombardier is offering a similiar engine on that aircraft product line.

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

North America:

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

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

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

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

LCC(s) and Regionals:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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I was a somewhat early adopter of Airtran starting with some flights in the late 1990’s and for a variety of reasons, the airline just worked for me.  No one would describe Airtran as having a luxurious service product but, somehow, it was a service product that found a fan base.

Now there are many Airtran Fans who are lamenting the merger between Airtran and Southwest Airlines and what it means for Business Class.  Right now, it means it’ll be going away. 

I think that’s a mistake.  The way Airtran operated their business class was somewhat unique and was a great upsell for many passengers including me.  I have often arrived for a flight and paid the upgrade fees at the spur of the moment although I have to say that buying that upgrade at the last minute has gotten to be pretty difficult.

Airtran’s business class is a bit special.  It’s really more a decent seat, a few free drinks and a ride at the front of the bus.  It isn’t a luxurious “total experience” that a SuperLegacy might offer but it does embody the 3 best parts of riding in a business class product. 

And at the price it was offered at, it not only made money for Airtran, it also didn’t tax Airtran’s LCC service model either.  Airtran didn’t have to dedicate one of the cabin crew to that section to rub the toes of those passengers and it didn’t have to carry meals either.  They did their drink service and when in the front of the bus, they didn’t charge for the first couple of alcoholic drinks. 

What I’m really saying is that Airtran’s business class actually *does* embody the Southwest service model.  It is the Southwest service model translated by Airtran into a business class product. 

In fact, I think you could retain it and toss assigned seating to the wind and few, if any, would even pause over that. 

But here is the thing:  it’s time to get over the idea that Southwest is the champion of the little people and it’s time to get over the idea that Southwest is completely egalitarian. 

They are neither and, in some respects, they never were.  Southwest was successful in Texas because it offered fast travel between city centers for the new breed of businessmen:  entrepreneurs.  It is true that Southwest did stimulate first time travel in people as it grew across the country but those days are over too.   The 1980’s were a period when air travel became accessible and it was solidified in the 1990’s but the idea that there are a great number of people in various markets who have never considered air travel until Southwest (or other LCCs) showed up is disingenuous at best.

More to the point, an Airtran business class product is well suited to the Southwest frequency model that is still employed today.  Imagine the revenue opportunities that exist in their newest markets from New York City to destinations like Chicago, Baltimore, Washington DC and Houston. 

Southwest has matured in many ways and all for the better.  Retaining a business class product like Airtran’s offers far more opportunity than it does risks and for SWA to dismiss it out of hand is a flawed move.  Keep it, play with it and look for advantages.  Use it to start eroding the appeal that newer LCC models like jetBlue and Virgin America have built up.  If you think it’s the in-flight entertainment those airlines offer that is driving their business, you’re kidding yourself.  It’s the better seat at the better price where they compete against legacy and SuperLegacy airlines.

Southwest’s quick move to announce it would go away struck me as inflexible and particularly so given their agility in most things.  Yes, they are slow adopters, experimenters and generally an airline that waits for scale to develop before they make a move.  The scale is there, Airtran is a ready experimentation and they’ve already adopted a number of features to better accommodate business travelers. 

For all you Airtran Business Class Fans, I’m with you.  It’s worth keeping not just because you like it but because it has all the appearances of being a solid business choice.

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Over the past few months, we’ve seen a few airlines announce their intention to carefully stick their foot into the DFW market.  First it was Virgin America with flights from both San Francisco and Los Angeles to DFW.  Next up, Spirit Airlines decided to try things out a la Allegiant style to Las Vegas and Fort Lauderdale.

I think Virgin America has every chance of making a go at this and, frankly, may be just a bit late in their timing.  This is the perfect time to go against American Airlines with a superior service product and Virgin has it.  The trick will be in enticing business customers in the DFW area and with the right kind of local advertising, they’ve got a shot.

Spirit Airlines has visited DFW, briefly, once before.  This time they’re offering flights to Fort Lauderdale where passengers can connect to their Caribbean flights.   Then they have their Las Vegas run which should potentially do OK given the current fares to Las Vegas from American Airlines.  I suspect that with any challenge from AA at all, they’ll drop that route like a man pulling weeds who finds his hand full of rattlesnake.

The real question is will Dallas embrace an Ultra Low Cost Carrier?  Maybe.  This is a fickle city that has firm ideas on what airline service is.  Southwest has spoiled us and I don’t know if Spirit’s “Ryanair-like” attitude will go down well here.  I’m personally intrigued by Spirits offerings because if they schedule things right, I might be interested in trying them out all the way from DFW to Colombia.

I’m glad to see some new airlines show up but let’s not get carried away.  These airlines are simply sticking a toe into market to see the temperature is right.

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About 24 hours after the Southwest Airlines / Airtran announcement, rampant speculation on who American Airlines should partner with started up.  The truth is, while I can make an argument for them to merge/acquire US Airways, I think they’ll shy away from a merger.  If they do go shopping for an acquisition, I don’t think it will be oriented towards a real “merger” a la Delta/Northwest or ContiUnited. 

There are a couple of targets left.  Alaska Airlines strikes me as one that should interest Southwest, American Airlines and Delta.  I think it’s pretty hard to get a deal done with Delta because of regulatory issues particularly in the Seattle area.  I think it’s pretty hard to for AA to get a deal done with Alaska because both parties have high labor costs and AA just won’t know what to do with the rather unusual operations Alaska performs in Alaska. 

I don’t think anyone is going to buy jetBlue at present and jetBlue’s CEO says they’re going to grow organically.  I would be happy to see jetBlue just get outside of its NY/Florida comfort zone and stop treating the midwest like it has the plague.

Frontier could be an interesting proposition for jetBlue, I think.  Sadly, I also think that Republic Airways is going to hold on to Frontier for dear life given what’s going on in the regional airline world.  Nevertheless, I do think that jetBlue could harmonize Frontier’s service and routes to the jetBlue way and make something of that airline. 

US Airways?  Well, they are the somewhat pretty girl who never gets asked out anywhere except to make some other guy jealous.  Until they get their labor house in order, I think it’s going to stay that way.  Their executive corps, however, ought to be attractive to someone.  Despite all of US Airways weakenesses and their “East/West” style of ops, those guys make money.  There is a lot to be said for that. 

I think they are more attractive for bringing into a new alliance.  Currently, US Airways belongs to Star Alliance but ContiUnited kind of makes them look superfluous.  SkyTeam just doesn’t need them either.  Oneworld aka American Airlines/British Airways,  on the other hand, could perhaps take advantage of them.  The deal would have to be a bit sweet because US Airways, if nothing else, is enjoying a nice “under the radar” ride on Star Alliance right now. 

I can’t think of anyone who could find a use for Virgin America at this point except, well, the Virgin Group.  Even the Virgin Group seems to have a hard time seeing a real value for working with Virgin America.  If they had any money, I would point them to Frontier but I think Republic Airways would just laugh out loud.

The truth is, I think there is suddenly some opportunity out there to start a new airline.  I would look for weak airlines who have major hubs and very little competition.  Some place where business customers and leisure travelers alike are dissatisfied with their current offerings and restrictions.  Some place that has a history of embracing the airline industry and where you can hire experienced people to kick that venture off.  That would be a great place to start something new.  I wonder where such a place might be?

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In an interview with TheStreet.Com, jetBlue CEO Dave Barger says that jetBlue has earned the right to grow.  His justification for that comes from jetBlue having positive cash flow, steady earnings and it’s contrarian nature that has lead to success at difficult airports.

Personally, I think all airlines have a “right” to grow.  I just think they have to make a busines case for it and as far as I’m concerned, have at it. 

I think this signals something else.  Here is an LCC announcing its attention to grow in almost insolent manner.  In particular, Barger declares their intentions at Washington Reagan National and fails to mention that his opportunity for growth there comes from a partnership with American Airlines that included a slot swap.

But this is somewhat classical behaviour on the part of LCC’s.  They see revenue opportunities on routes that legacy airlines are only, at best, barely managing to cling to and the LCC’s want to earn that money.  Their costs are lower and they can handle going in at a lower fare and capturing the business.  The only tool a legacy has to use to fight off that competition when that happens is adding frequency and matching prices for a sustained period.  It does work sometimes.  From time to time, a legacy airline can fight off an LCC intrusion but it’s hard and it does eat up cash and resources until it’s over.

That was easier to do when there were few LCC’s and they were focusing on peripheral airports and lesser routes.  Now we have quite a few LCC carriers and they want in on the big action.  That’s why we have Virgin American flying trans-continental routes, jetBlue flying from JFK and Southwest Airlines introducing itself at both La Guardia and now Newark airports. 

Can legacy airlines fight these attacts on many more fronts as the airline business recovers in the US?  Maybe.  At least to some degree.  But I suspect they’re going to have to be a bit more choosy on their fights and I think w’re going to see some markets where even SuperLegacy airlines concede, eventually, to LCC intrusion. 

Dave Barger and jetBlue are the first to declare their intentions but they won’t be the last.  It’s notable that all of the US LCC’s are earning good profits and increasing their revenue base (with the exception of Virgin America who has yet to earn a profit).  That makes for a warchest and with their sizes approaching a critical mass, they can afford to take on more and more legacy airlines.

Airtran did it in Atlanta.  jetBlue did it at JFK airport, Southwest did it in Denver and now it’s happening at Washington Reagan National.   It’s going to happen at more and more airports too. 

One alternative defense might be for more and more legacy airlines to strike deals with LCC carriers and offer them some success but access they can control as opposed to an all out fight that results in legacy airlines bleeding red with losses. 

Look for more airlines to declare their intentions and justify those intentions with their current earnings and revenue growth.

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The Virgins of Sir Richard Branson are now growing a little closer together. 

Now a member of one frequent flier program can earn their miles/points on other Virgin branded flights and will soon be able to redeem miles for flights on various Virgin brands too.  The only question is why did it take this long?

Virgin Atlantic appears to be set to be the “leader” of this consortium and well it should be.  With the various Virgin brands in place around the world, one would think this kind of linkup would have been fully integrated a long time ago.   Yes, Virgin America has been leery of being too closely associated with Virgin Atlantic but I think we can be done with that silliness now.

There are some synergies going on that, I think, could not only be expanded upon but which could lead to more growth for all.  Codeshares are one thing, I say start the Virgin Alliance and get cracking on linking up to the rest of the world.  Can’t you just see the marketing?  “Do you want to be a Virgin?”

The fact that Delta is courting Virgin Blue for codeshares in Australia is proof enough that that the Virgin products are good enough but they aren’t being tied together very well.  This latest announce is a good step towards fixing that.

Sir Richard Branson has pointed out the challenges in competing on a route like DFW-London against British Airways and American Airlines, the two airlines who own that route and have done so for a long time.  He’s right.  Even when they were supposedly not cooperating, that route was “owned” by BA and AA alone.  Not only does that remain so but now the two airlines can cooperate on the route. 

But now Virgin America is going to fly to DFW.  Imagine what happens if Virgin America is able to add a few more flights to DFW from other destinations.  Suddenly, there might be enough feed for a Virgin Atlantic flight.  Especially one utilizing an A330 or 787. 

The Virgins need to cooperate and work with each other.  They’ve got a great brand to work with, especially in English speaking countries, and it’s the best choice in fighting back against the alliances.  The latest mergers and new alliance anti-trust agreements now should make it possible for the Virgins to argue on their behalf for close cooperation, something they’ve been somewhat reluctant to do for fear of anti-trust issues. 

Virgin Atlantic needs to grow, as well.  It’s time for them to push past their traditional routes and that’s going to require some different aircraft.  Sir Richard Branson’s Airbus strategy hasn’t worked well for that airline and the 747 fleet is starting to get a touch old.  4 Engines 4 Long Haul sounded great but wasn’t the way to go.  It’s time for Virgin Atlantic to start purchasing a 787/777 or A330/A350 fleet not just for economy but for flexibility. 

Flexibility in that fleet should open up some opportunities for Virgin Atlantic worldwide.

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