It’s always fun to make predictions about the coming year, right?  Of course, I may well review my predictions in December of 2009 and decide against doing it again.

Boeing 787:

This aircraft will finally experience its first flight and I believe it will occur on or about its new scheduled time (early April).  For Boeing, credibility is now at stake and they really do have to begin meeting deadlines.  Financial analysts are becoming too skeptical of the company for comfort and airlines want their airliners.  Boeing does have a reputation for being able to pull itself together and get something done in a crisis and that should serve them here. 

I also believe we’ll see both static airframes begin their tests and new build airframes begin to flow from Boeing in about 6 months.  My prediction?  The 787 will prove to be a very capable aircraft and will meet or exceed its performance promises.

Airbus A380:

Airbus met its revised schedule of delivering 12 A380 airliners in 2008 . . . barely.  Originally it was scheduled to deliver 13 in 2008 and 25 in 2009.  Now Airbus says it will deliver 21 in 2009.  However, it is becoming clear that Airbus is now quickly learning how to build these aircraft and turn them out.  I predict they’ll exceed their 21 goal in 2009 by at least one aircraft.

Boeing and Airbus:

Both aircraft makers will begin to speak about the future of short to medium haul aircraft again.  With milestones for the 787 and A380 being met, I suspect they’ll become more comfortable in speaking of the future of their aircraft lines.  Look for discussions on both the 737 and A320 aircraft families and what interim technologies might be employed to improve their performance.  I suspect we’ll hear about both weight saving materials being adopted as well as the potential of new incremental improvements on existing engines.  Particularly the CFM-56 engines used by both makers. 

US Airlines:

First, let’s take a look at my deathwatch candidates.  The sudden and precipitous drop of oil prices allowed each of them to take a breather.  Midwest Airlines, however, continues to speak little, fly only a little and its investors have got to be running out of patience.  I still believe that they’ll ultimately go away.  How they do it is the question.  Rather than bankruptcy, I believe it will either be a sale or as a subsidiary airline of Delta/Northwest with the latter being most unlikely.  Who will they be sold to?  Good question.   Perhaps Airtran will get what they wished for and develop indigestion.

Frontier continues to muddle along but faces rather intense labor strife still.  I think their situation improved not only because oil prices dropped but because United continues to offer some of the worst product in the industry and because Southwest slowed its growth and took a breather.  While I firmly believe United will do nothing to improve its product, I do think Southwest will return to its goal of killing Frontier as a Denver competitor some time in the late spring.   I suspect Frontier will emerge from bankruptcy this year but I also firmly expect them to be out of business or acquired by December of 2009.  Who buys them?  I’ll bet on Jet Blue.  The aircraft fleets are compatible and Jet Blue has to start building a hub somewhere else in order to continue to experience strong growth.  Frontier gives them that chance.  The long shot?  American Airlines.  Why?  Because Frontier is working with AMR’s Sabre Reservations system now. 

United Airlines, my favorite airline to hate.  The Cranky Flier loves to rag on Alitalia and I love to rag on United.  United has lost a tremendous amount of value over the last year and continues to have some of the highest hourly costs of any US airline.   They’ve done nothing to improve labor relations, their service product or their fleet efficiency.  Glenn Tilton is hated by airline pilots but I predict he is goint to be hated by investors before the end of summer.   What happens?  I’m really not sure.  The best thing that could happen is for them to liquidate.  However, I think some airline will see some value there and attempt to buy United and make use of its assets.  Who?  The logical choice is Continental but I believe they’ll hold on to their independent streak.  So my next guess is a US Air / United V 2.0 merger will come about.  Could it work?  I doubt it but Doug Parker (CEO of US Air) wants another merger and United offers hubs he doesn’t have and some aircraft fleet compatibility.   I’ll go “all in” and bet that we see a US Air / United Airlines merger announcement by December of 2009.

Moving on from the death watch, let’s look at other US Airlines for a few minutes.

American Airlines will maintain its status quo but will begin to feel pressure to conclude some union contract negotiations this year as financial analysts begin to view their lack of progress less and less favorably.  CEO Gerard Arpey will begin to feel the heat but barring a large mistake on his part, will retain his position as CEO.  One possibility, however, will be bringing on a potential successor as President of the airline.

Southwest Airlines will also mostly maintain its status quo but I will predict that by late summer its new CEO Gary Kelly will be under fire from both employees and investors for his shotgun approach to growth.  It is beginning to look like it is unplanned and what people most value in Southwest is its ability to form and execute a coherent plan.   There will be no mergers, no real growth and a sinking stock price by December but I think Mr. Kelly will hold onto his position until 2010 barring a major unforeseen development. 

Continental, the best kept secret.  Continental will maintain its status quo with, perhaps, very moderate growth in the international sector while it waits to see what happens domestically.  They’ll enter the Star Alliance (exiting from SkyTeam) but discover it offers little value to them as well.   I don’t think they’ll seek to merge with anyone in the next year but if they did, I’d pick them for going after someone like Alaska Airlines rather than United or US Air. 

Stay tuned for Part II.

Filed under: Airline Fleets, Airline Service, Airports, Death Watch by ajax
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I went to DFW Airport this afternoon to see a family member off on their flight home.  Since I was there, I decided to visit the Founder’s Plaza viewing center and take some photos with my new (to me) Olympus SP-550UZ camera.  It has a 18X optical zoom (equivalent to 28mm to 504mm 35mm lens) and a great reputation for its dual image stabilization.

Before anything else, let me comment on these photos.  First, this was my first practice run and there are some not so good ones.  Second, there are some worth pointing out as well. 

• It still excites me to catch a photo of tire smoke as an airplane lands.
• American Airline’s Susan G. Komen EMB-145 is one that I caught but, sadly, slightly out of frame.  When I shot it, I didn’t notice the pink ribbon or I would have shot another photo. 
• United Airlines has some of the dirtiest aircraft out there now and it is likely it isn’t noticed too much because they have that truly awful paint scheme to distract you from it.
• I got an AA B777 accidentally.  I literally just pointed and shot the photos without knowing what it was at first.
• The Alaska Airlines B737-900 is my family member departing.
• ATR-72 aircraft are very frequent visitors into DFW now.
• That Anubis Statue is still a very strange thing to have at Founder’s Plaza particularly since it was placed there to advertise the Dallas Museum of Art’s King Tut exhibit and it would do a far better job placed at the north or south entrance of the airport.
• DFW is still one of the more boring locations for airplane spotting simply because of the ubiquitous AA MD-80s.

So, without further ado, here are the PHOTOS.

Filed under: Airplane Spotting, Airports by ajax
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The Onion, a humour and satire website and newspaper, is reporting on American Airlines and new charges this morning.  Enjoy.

Filed under: Airline News, Trivia by ajax
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The current economic climate doesn’t speak well for airlines who depend upon business travelers to meet their expenses on a flight.  For the past several years, airlines have been introducing airline seating that specifically caters to the business traveler and, quite frankly, a product that meets or exceeds anything that represented First Class even in the 1990’s. 

The airlines are always faced with a difficult set of priorities to balance.  On the one hand, catering to the business traveler is essential because they do pay for a good portion of each flight and they must compete for those travelers very aggressively.  On the other hand, filling those last 100+ economy seats is also essential because that is the difference between profit and loss.   Typically, an airline will woo the business traveler with comfort and the economy flyer with price.  In order to compete on price, that means reducing your costs per seat to the lowest possible and offering a ticket price that bests anyone else on a route.

Or does it?  In the late 1990’s, American Airlines began a program of more space in coach.  MD-80 aircraft were reconfigured to offer as much as 34″ of seat pitch and as someone who was flying a great deal at that time, I can confirm that it made a huge amount of difference.   Unfortunately, the post September 11th terrorist disaster forced American to reconsider its configuration and the aircraft were reconfigured back to a 31/32″ pitch.   But how many seats did that gain them?  Only about 9 seats.

The one thing airlines never seem to try to differentiate themselves on is seating.  While some airlines have tried an economy plus seating (offering about 34″ to 36″ of seat pitch), no one really advertises the advantage of more seat room.  It is never heavily marketed like many other airline qualities.   That is a lost opportunity.   I do not believe people would necessarily choose a flight on an airline on the basis of only price if they were fully aware of a more comfortable option at a minor extra cost.   Airlines such as United Airlines often only take the opportunity to tell a customer of these seats after they’ve already made a purchase and only as an upgrade. 

Offering an increased seat pitch and explaining its comfort and, possibly, better position in the aircraft would, I think, be an attractive offer. 

The question is how much extra do you have to price that seat per leg?   I suspect about $20 per flight segment would work.   Possibly as much as $30.  But why not offer it by the hour?  Would you pay $10 / hour for a better seat?  Chances are you would.  However, that upgrade must be presented BEFORE the purchase to be attractive on price and that upgrade must be described in what it offers the customer.  More leg room, a better position in the cabin which makes for easier entry and exit from the aircraft. 

More room does not necessarily have to mean fewer seats either.  I’ve written before about Delta’s adoption of the Thompson Cozy Suite seats on their 767 aircraft.  There are other options as well.  Airtran offers a Recaro aircraft seat on the Boeing 737 aircraft that is unparalleled currently as an economy seat.  Its design offers just a tiny bit more leg room and yet configures easily to the same 31/32″ seat pitch airlines want to use.  It provides a more conventionally thick seat cushion on the bottom and upper half while offering a better contoured lumbar area that while thinner, is much more comfortable and yet offers the passenger behind you that little bit of extra room.

Sicma Aero is concentrating its efforts on a more ergonomic seat but I question that direction because how do you create an ergonomic seat that feels comfortable to both the 5′ tall 100lbs woman and the 6′ 2″ tall, 270lbs man?  It requires adjustability and that quite likely is going to cause trouble both with maintenance and the customer who doesn’t understand how to adjust the seat.

Avio Interiors has taken an approach more like Recaro by offering a seat that is properly cushioned in the right points but sculpted to again offer that small but important extra space for legs. 

 Thompson Solutions offers both the Cozy Suite as well as a more conventional but ergonomic economy seat.  The key to their offering is a staggered or herringbone style layout that allows airlines a 15″ gain in capacity or greater width and seat pitch.  Since aircraft are generally limited by either their load or the maximum seating they are certificated for, Thompson’s solutions (no pun intended) allow an airline to offer a new seat that is competitively priced, less maintenance intensive and vastly more comfortable than a conventional seat.  The key obstacle here is that airlines are afraid of making the investment and facing customer rejection of a design that is admittedly fairly radical in appearance.  With Delta introducing this on their 767 aircraft, I suspect the airline’s fears will be reduced and there will be a push to find similar solutions for new fleets.

Weber Aircraft, based in the United States, is offering a much more conventional product that, unfortunately, seems pointed towards high density seating without any emphasis of comfort.  Make of that what you will.

While airlines will no doubt seek to maximize their loads on aircraft and match pricing from their competitors, it becomes increasingly obvious that market capture can be based on these new seating options provided that the airlines themselves will actually market their product.  People still want comfort and the success of a la carte pricing indicates that people will still pay for what they want. 

The challenge is in airlines changing their marketing model both on their own websites as well as through popular travel sites.  When a customer can make their choices from an a la carte menu and choices include better, more comfortable seating that is well described, airlines will both differentiate and sell their product better.  Airlines even have the chance to sell such a product as a business offering to companies that do understand the value of taking care of their employees but who have to now measure that against the often 4 times greater cost of a business class seat.

Filed under: Airline Seating by ajax
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The Dallas Morning News Aviation Blog is reporting that American Airlines plans to test passenger check in via cellphones and PDAs.  Similar to Continental’s Cellphone / PDA  boarding pass program currently available in several Continental cities now, AA will first test their program in Chicago and then at John Wayne International and Los Angeles International airports next. 

Passengers will be able to receive a 2D barcode that will permit passengers to clear through TSA security and board the aircraft.  The limited availability of this does suggest, however, that passengers will still be printing and carrying paper boarding passes until these systems dominate airports.

Filed under: Airline News by ajax
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Southwest Airlines has just announced a new codeshare with Mexican airline Volaris (partially owned by billionaire Carlos Slim.)  Like Southwest’s codeshare agreement with WestJet, this allows Southwest to gain access to international markets.  With these agreements with WestJet and Volaris, Southwest gets access to all of North America and gets to work with two airlines that have similar (not the same) operating environments. 

I’m quite certain that these new codeshare routes will, in fact, boost Southwest’s revenues (as well as the revenues of these other participants) and I’m sure both relationships will prove to be rewarding in many ways other than just money.  If one airline could operate throughout North America, it really would look very similar to this codeshare arrangement.  

These two new arrangements for Southwest found me pondering how it could be done better than just a simple codeshare.  One way to further integrate without attempting a merger (something all three airline’s governments are very unlikely to allow) would be operating an interchange. 

An interchange was a fairly common tool in previous decades within the United States.  The idea is that two (or more) airlines operate the same equipment on a route that is shared.  One of the most famous interchanges was when Braniff operated the Concorde from Dallas to Washington D.C. where an Air France or British Airways crew would take over and fly the aircraft across the Atlantic to either London or Paris.  At the time, each time the Concorde arrived in Washington, the aircraft would be “sold” to Braniff who would then hang new ownership papers in the cabin and change the registration temporarily for operation in the United States.  Obviously that kind of inconvenience would not be tolerated today between airlines but there really isn’t a reason for it either.

Wouldn’t it be interesting to see Southwest operate such an interchange with each of their partners.  A Southwest aircraft could be used to fly an international interchange between Canada, Mexico and the United States with only crews changing between focus cities for each airline.   For instance, imagine a B737 flown from Toronto to Chicago by a WestJet crew where a Southwest Airlines crew would take over and fly it from Chicago to Houston.  In Houston, a Volaris crew could take over and fly that same aircraft to Mexico City (Toluca) and then turn it around for a return trip.  

The advantage is that customers never have to leave the aircraft and it would therefore permit a more seemless network for transitioning from one country to another.  The only problem with that scenario is that Volaris has an Airbus A320/A319 fleet and while WestJet flies the 737, they are partial to the 737-800 type instead of the 737-700 aircraft preferred by Southwest.   Nonetheless, it does cause one to think about the possibilities that might exist between the three airlines. 

It also points to other opportunities for other airlines.  Codeshares are good and convenient for airlines but they still require a passenger to travel from one hub to another hub and when it comes to international connections, it does force the passenger to often de-plane, clear customs and transition to another part of an airport to continue on to a destination.  Sometimes that isn’t all that painful but more frequently it is a great inconvenience to the passenger and a barrier that many avoid.

With airline alliances relatively stable now, many could choose to adopt similar (if not the same) types of aircraft and offer trans-global interchanges for both companies and their passengers.  It also would allow them to further standardize their service and even possibly take advantage of fleet flexibility between partners.  For instance, what if QANTAS and American Airlines shared a portion of their 787 fleet and allowed it to “flex” between North America and Australia according to seasonal demands?

I suspect there are many more opportunities to be had from both codeshares and, possibly, a new version of interchanges between airlines. 

Filed under: Airline Fleets, Airline News, Airline Service by ajax
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I receive a weekly (usually) listing of American Airline’s Net SAAver Fares to various domestic destinations.  Since my family lives all across the country, I tend to watch for fares to a lot of places in the dim hope I might spot a chance to go visit someone.  (I haven’t for several years.  Yes, years.)

Suddenly, the fares have dropped like a rock.  When I say “rock” I mean like a large boulder heaved off the side of a cliff.  One fare listing offered me the chance to do a round trip (with restrictions) weekend trip to Raleigh, North Carolina (where I could have BBQ with two very good friends) for just $135. 

Yeah, $135.  That trip was more than double that just a month or so ago. 

I could also fly from DAL (Love Field) to ORD (Chicago) for a paltry $120 and I’ve got family in Milwaukee.

If American Airlines is suddenly working this hard to attract customers for weekend flights, something has to have gone wrong with bookings very suddenly.    And if it happened to them, who else is suddenly gulping in fear?

Filed under: Airline News by ajax
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The US Justice Department approved the merger between Delta Airlines and Northwest Airlines today.   The two companies will now begin to work on executing the combination as quickly as possible and it should culminate with a combined operating certificate in 1 to 2 years. 

In the meantime, Delta and Northwest have already made a great deal of progress towards completing the merger.  The executive team has been selected, agreements with pilots have been obtained and each company has been working pretty hard towards merging the culture of each airline together.  While no doubt there are bumps in the road still to be encountered, this particular merger shows great signs of being accomplished with relatively little strife. 

Flight Attendants are targeted for being a trouble area.  Delta’s flight attendants are non-union and while there have been a few votes over the years to unionize, all have failed pretty soundly.  Northwest’s flight attendants are unionized and have been characterized as even miitant.  Delta’s CEO, Richard Anderson, has urged that everyone work together and while his stated preference is for no further unionization (and he has backed that up by being very willing to negotiate differences), he also has said that he and the rest of the executive team will abide by whatever vote there is.  It is likely that the flight attendants will have a vote after the merger is officially executed and it is likely that it will be in favor of unionization since a combination of Northwest’s flight attendants with the minority of Delta flight attendants in favor of a union would win any vote.

While both CEOs of each airline have professed that such a diverse fleet of aircraft will permit them to “right size” aircraft to a particular route, it is highly likely that the fleet will be pared down over time.   Northwest’s youngest aircraft are manufactured by Airbus and Delta’s fleet is comprised entirely of Boeing products.   Certainly both major aircraft manufacturers will see an opportunity with this merger and both will be pitching their mainstay aircraft lines, the Airbus A320 series and the Boeing 737 series.  With an gentleman’s agreement in place between Delta and Boeing that gives Delta preferential delivery slots, this is Boeing’s opportunity to lose.

A good guess is that, initially, the Douglas DC-9 fleet will continue to be eliminated and bases for the Airbus A320 and Boeing 737 fleets will be established at selected hubs.   It is possible that the Airbus A330 fleet will be phased out in favor of more Boeing products such as the new 787 of which Northwest already has a significant order on.  The 747 fleet will most likely be phased out over time in favor of the 777-300 and which Delta already owns in the 200ER/LR version. 

The combination of these two airlines will form the world’s largest airline both by revenue and traffic.  This will even dwarf American Airlines by a significant degree.  However, because of industry contraction and the obvious economies and advantages to be gained by constraining capacity in markets that the new Delta will be dominant in, it is likely that the airline will actually contract both its fleet and, to some degree, its employees.  However, major layoffs of any significant numbers are very unlikely and most contraction is likely to be done through natural attrition.

Filed under: Airline News by ajax
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American Airlines has just announced its intention to drop minimum mileage accruals for non-elite AAdvantage members.  Here is the emailed announcement:

Dear ,

Effective January 1, 2009, we are discontinuing the minimum mileage guarantee for non-elite status members for flights on American Airlines, American Eagle^®, AmericanConnection^®, oneworld^® member airlines, AAdvantage^® participating airlines as well as rail service and codeshare service booked under an AA flight number.

With this change, customers will earn AAdvantage miles equal to the actual distance flown or the applicable percentage* of the miles flown, and any associated bonuses will be calculated accordingly. Similarly, elite status qualifying miles and points earned for travel on eligible flights will also be based on the actual miles earned. AAdvantage Executive Platinum^®, AAdvantage Platinum^® and AAdvantage Gold^® members are exempt from this change.

The new policy will apply to non-elite status members traveling on or after January 1, 2009, regardless of when the ticket was booked or purchased. Flights flown on or before December 31, 2008, will continue to accrue AAdvantage miles under the current policy. For more information, visit AA.com/AAdvantage.

Thank you for your business. We look forward to seeing you onboard soon.

Sincerely,

Rob Friedman
President
AAdvantage Marketing Programs

What does it mean?  Not a whole lot for most people.  Most flights are more than 500 miles and therefore accrue actual mileage.  For Texas based fliers to regional cities, it means you accrue actual mileage instead of a minimum.  However, most people who might be annoyed by this are actually Elite AAdvantage members and therefore *will* accrue the minimum. 

 

All in all, it’s just another mild erosion of another frequent flier program.  Some airlines have already implemented this program (US Airways for instance) and some have done so in a modified form. 

Filed under: Airline News, Airline Service by ajax
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The Fort Worth Star Telegram Sky Talk Blog has written about the APA pilots union representing American Eagle Pilots now has a new contract and there are a few things of interest to me.  First, this contract got negotiated in almost absolute silence.  There was no real posturing in public and neither side managed to say inflammatory things to the press. 

Second, the instructions to the APA (Allied Pilots Association) negotiating team was to obtain real life improvements to the pilots quality of life and work.   Increased flexiblity (for pilots) and other tangible but not necessarily measurable changes were obtained but no salary concessions were given.  American Eagle got a contract amendment that apparently satisfied both sides needs.

Now, American Eagle pilots are not overpaid to begin with but they are well paid and they do have a pathway to upgrade into American Airlines’ mainline system which is a bit unusual for a regional airline.  American probably did not need to obtain wage concessions but I suspect that they wouldn’t ever mind paying less too. 

The really striking thing about this development is that American Eagle pilots apparently realized that there were no wage gains to be made but they *could* obtain a better quality of work life.  Such concessions from American Eagle may have cost them little or nothing to give.  Both sides won.

This is in direct contrast to the Allied Pilots Association representing American Airline mainline pilots.  These guys have decided that there need to be “givebacks” and that their world is severely impacted by executives who won bonuses.  Personally, I do agree that awarding bonuses to executives when the company has *not* financially performed nor rewarded its lower level employees is wrong.  Very wrong. 

However, if AA pilots think that there is room to give back $3 Billion (yes, that Billion with a “B”) in wages, they are kidding themselves.  If they think there is room give back $1 Billion, they are kidding themselves.  I suspect they could gain quite a bit of work life improvements themselves if they were willing to offer some concessions on productivity. 

And they face yet another problem.  In This Blog Entry, I describe the history of how pilot compensatioin began and why it is a problem today.  American Airline pilots realized that with the announcement that AA is buying new Boeing 787 aircraft, the old model might not fit for compensation.  You see, the 787 is considerably lighter (as a function of its high carbon fibre reinforced plastic construction) than it would ordinarily be.  Much lighter.  A very dim light has come on over their heads and they have begun to realize that, perhaps, pilot pay should be based on criteria having to do with something other than weight and distance. 

You see, the new 787-9 aircraft are capable of carrying almost as many people just as far as a 777-200 but with a lot less weight.  The pilots will want compensation equal to or at least close to a 777 pilot and they’ll begin to look for justifications for that.  Those justifications will inevitably lead to a discussion on all pilot pay because future aircraft such as the 737-RS will also likely be constructed in such a way as to offer the same capacity at less weight as current generation 737 models.  

For once there will need to be a rational agreement on how to pay pilots that involve new measurements instead of the ones in use for 80 years.  This is an opportunity for AA to obtain some sort of deregulation on the cost side of the equation and set new negotiating precedents for other union relationships in the future.

Filed under: Airline Fleets, Airline News, Deregulation by ajax
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I would love to speak to a group of pilots from a legacy carrier.  Particularly from American Airlines.  I want to ask them just exactly what *their* vision is for their airline.  What aircraft would it fly, how would *all* the employees would be compensated and what work rules would they want if it was the pilots running the show.

Filed under: Airline Service by ajax
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Airlines have made many changes to their pricing models in the past year or two that have been annoyances or worse to passengers.   The Cranky Flier makes note of American Airlines moving to an a la carte pricing model such as what Air Canada uses in the near future and notes the benefit of choosing what you want up front and paying for it when you purchase a ticket instead of being nickel and dimed at each phase of traveling.

There has been a lot of discussion among many airline blogs and websites over these charges and quite frankly I’ve changed my mind in some respects.  I think the key is to identify what is an appropriate “extra” charge and what isn’t.   After some thought and reconsideration, I do not believe that food and soft drinks necessarily belong in the “must have” category.  To the contrary, it is difficult to find another mode of transportation where food and drink is complimentary.   So, go ahead and charge for it, I say.  As long as you have a convenient method for accepting payment, I’m sure it will work and, more importantly, be accepted in the long run.

Do pillows and blankets require an extra charge?  Frankly, I would do away with them on domestic trips all together.  Put them on international flights of 6 hours or more and, sure, go ahead and make them complimentary but get rid of those comforts on domestic trips.  If you haven’t dressed appropriately for traveling on an airplane, why should an airline provide you with a blanket?  For those of you traveling in halter tops or wearing sandals, let me suggest that that is a foolish way to dress for air travel anyway. 

Luggage is a tricky area.  I personally believe that at least one bag should be checked free.  At least for domestic travel.  Maybe 2 bags free for international travel.  I do think there is an implied agreement to tansport your baggage when you buy an airline ticket.  However, I do NOT think there is an implied agreement to transport your entire wardrobe.  Sorry but if you need to take a lot of things, then buy a full sized piece of luggage and pack it until it holds 49.99 lbs and then stop.  Or pay that fee. 

Since we’re talking about luggage, let’s talk about carry on pieces.  I typically travel with a briefcase and a medium sized roll-on piece of luggage.  I do not carry on the medium sized piece because it is slightly too large for the overhead bins so I do check it.   Frequently when I’ve arrived at an airport, I discover that I’m getting into a car/taxi/bus with people who carried their stuff aboard.  Why?  Because baggage does get delivered in a timely manner to most carousels and baggage rarely goes missing *if* you have packed and identified it appropriately.  Oh, be sure to tip that sky cap who checked your bag too. 

But you do not need to bring an overstuffed carry on into the airplane and then smack it into place with both hands as you crush my suit jacket that was laid carefully above.  Time for business travelers to get real.  Everyone *thinks* they are the world’s best packers and always insist that they “always” bring that on board.  I don’t think so.  If it didn’t fit into that MD-80 overhead today, it didn’t fit in there yesterday.   Who are you trying to kid?

So, if you are forced to gate check a bag that didn’t fit into the overhead compartment (again), then let the airlines charge you $25 for that one too.   After all, they have figured out how to run a credit card on board an airplane. 

What else?  Oh, yeah.  Seating.  Let’s have a variety of seat pitches and price those accordingly.  But instead of telling me about upon check in, pitch them to me on the travel websites as an upgrade.  Airlines should insist these travel websites should include upgrade pricing to an economy plus seating.  Why not charge $10 / hour / seat for 34″ or 36″ of seat pitch?  Would I pay such a fee?  Sure.  I’d probaby pay it if it was $15 / hour / seat.  Or I might pay it for the flight segment that I most wanted to relax in at the least. 

How about offering early or improved seat assignments for a fee?  Would I pay $10 to get a window or aisle seat 30 days in advance.  Without a doubt.  Would I pay $20 for such a chance?  In several instances, yes, I would. 

And, yes, let’s go ahead and get these charges taken care of before I arrive for check in.  Tally my choices online and present me with a total charge to pay when I pay for my ticket.  Let me pay, in advance, for a beverage or two on that flight from DFW to PDX and just note it on my boarding pass with a tear off area for the flight attendant to “collect” my fee.  Or just give them an advance manifest of customer names who have paid, in advance, their drink or food fees.

But don’t tell me that I have to pay $30 or $50 more to transport my suitcase.  That’s a joke.  A second one, sure.  Go ahead.  I’d probably pay it gladly anyway.  But not that first checked bag. 

Filed under: Airline Seating, Airline Service by ajax
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These days there is much ado about various First Class and Business Class services on a variety of airlines.  The introduction of the A380 brought a new level of first class service from Emirates, Singapore and QANTAS.  Even their business class on those aircraft are more in line with First Class on any other. 

A week ago, I visited the Fort Worth air show at Alliance Airport.  While that show (and most others) tends to be oriented around military aircraft, I did get to tour the new Pink Ribbon American Airlines 777.  Like all 777’s tend to be, it was an impressive 3-class aircraft.  At least for First Class and Business Class.   Indeed, I actually thought that the Business Class arrangement on that aircraft was as good as First Class with respect to how I would value it on space and comfort.   AA’s First Class separates you more from fellow passengers but I don’t think its seat or entertainment is necessarily any better.

In any case, what I wonder about is Economy Class.  In this airline world, Economy Class remains largely what it was 30 years ago.  If anything, instead of rising in service or comfort, it has, perhaps, fallen just a bit.  Seat pitch is reduced.  The seating itself tends to be older and less comfortable on most airlines.  There is rarely entertainment and only on international flights.  

In my world, I put a premium first on seat pitch, then seat width and then on seat location (the opportunities to get either a window or aisle seat.)  In almost every case, entertainment means nothing to me.  While I acknowledge that it *does* excite some people, I would wager that if you gave a person a choice between a 34″ pitch seat with no entertainment and a 32″ pitch seat with entertainment, you would sell more of the former.  At least on most domestic flights. 

There appears to be no game changer for Economy Class.  There is no incentive to improve economy class service for almost any airline.  American’s 3-class 777 offers 2-5-2 seating (imagine sitting in one of those 3 middle seats) that is not one iota more comfortable in any way.  The one amenity, that I could observe, was a personal entertainment screen.  That was it.  I sat in the economy seat and it did not seem, to me, to be any different in pitch, width or general comfort than a AA MD-80 seat. 

There really isn’t any incentive for most airlines to improve this experience either.  By operating fortress hubs, the airline knows that most economy class passengers are a captive market.  There really isn’t much choice when choosing an airline for most destinations.  The only incentive for an airline to change seating comes from either being able to fit more seats onto an aircraft or to provide a seat that lasts longer.  

Delta is going to introduce such a seat using Thompson Cozy Suites.  You can see more about it HERE.  It is more comfortable and it does allow Delta to add some seats to their aircraft but they also have contract to use it exclusively (at least for a while).   jet Blue and United do offer some economy plus seating but they market it poorly.  Most passengers are unaware of it as an option to search for and only learn about it at check-in as an upgrade option. 

Wouldn’t it be nice to see a game changer for economy class for once?  A seat that offers some comfort and space even if it costs just a bit more to purchase.   Keep the free soda and coffee.  Keep the entertainment because I can carry a tiny MP3 player for music and I really prefer a book to a TV show anyway.   Keep the food and the pillows and the blanket because I can dress appropriately and probably sleep better with just a touch more room.  Find us a seat that we can sit comfortably in for 3 hours and I’ll buy your ticket every time.

Filed under: Airline Fleets, Airline Seating, Airline Service by ajax
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The Fort Worth Star-Telegram is hosting a video produced by American Airlines to show their idea of the 787 flying in AA colors.  You can watch it HERE.

Apparently someone in the media department of AA doesn’t know about the inability to have a “polished” fuselage yet.

Filed under: Airline Fleets, Airline News by ajax
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American Airlines just announced that it intends to purchase up to 100 Boeing 787 aircraft between 2012 and 2020 reports the Dallas Morning News Aviation Blog.

What I’m most curious about is this:  What color will they paint them?  American has had the tradition of not painting their aircraft although they have painted American Eagle aircraft white (they had to since most of the regional jet aircraft *must* be painted due to the alloy used for their skin) and they did paint their A300 aircraft grey (for the same reason as the regional jet aircraft). 

The 787 is made primarily of carbon fibre reinforced plastics and will not be able to be polished.  So, what color will they paint them?  Grey?  Doubtful just because grey doesn’t really represent their image well.  White?  Possibly but then they begin to blend in with several other airlines.   Could this force the introduction of a modified or new identity for American Airlines?

Filed under: Airline Fleets, Airline News by ajax
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1)  Robert Forman Six, legendary CEO of Continental Airlines, once had a Wild West Fast Draw team called “The Six Guns”.  Made up entirely of Continental management, these men were genuine “fast draw” artists with western revolvers.  Bob Six was a “fanner” and unlike most fanners, he was particularly accurate.  One other team member was the future President and CEO of Braniff International:  Harding Lawrence.

2)  American Airlines was once owned and controlled by E. L. Cord who owned the Cord, Auburn and Dusenberg automobile brands.  It was E. L. Cord who elevated a young accountant in his late 20’s to the presidency of American Airlines.   That man was Cyrus Rowlett Smith, known universally as C.R. Smith and who lead American Airlines from 1934 to 1968 and then again from 1973 to 1974.  Mr. Smith is buried in the Arlington National Cemetery because he served in the US Army during World War II and reached the rank of Major General before leaving the service to return to American Airlines.

3) Most people, even aviation enthusiasts, believe that the second commercial jetliner to be built was the Boeing 707.  In truth, it was the Avro C102 Jetliner built in Canada.  The C102 was introduced just two weeks after the DeHaviland Comet in 1949 and years before the Boeing Model 367-80 prototype jetliner.   Resembling the DeHaviland Comet with 2 jet engines contained within each wing, it actually flew faster than the Comet and carrying about 50 passengers, it was ideally suited to short and intermediate routes in the U.S.   The plane was never built because the Canadian government ordered Avro to concentrate all their resources on the military jet interceptor, the CF-100.  No examples were ever preserved although the nose section of the prototype was saved and given to the Canada Aviation Museum in Ottawa.

Filed under: Trivia by ajax
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A fair fare would probably be identified by most people as an air fare that accounts for the true costs of flying from point A to point B non-stop using the right aircraft to supply the capacity.  As a matter of fact, that was what the Civil Aeronautics Board tried to adjudicate when setting fares. 

Now, such a model might sound familiar.  It sounds like what LCC carriers such as Southwest Airlines and Airtran do.  In many sense, yes it is.   Legacy carriers, focused on hubs, hurt themselves with those hubs every time they carry a connecting passenger.   The hub and spoke system demands that they carry more passengers a farther distance using more resources and economies of scale no longer allow them to make a profit doing so. 

Let’s use as an example travel from Midland / Odessa to Albuquerque.   You have 3 basic choices for travel in this scenario.  You can fly Southwest Airlines non-stop for about $260 round trip or you can choose another carrier for a non-direct, connecting route that starts at about $550 round trip.   Another carrier might be American Airlines, Continental Airlines or Delta Airlines. 

If you choose American Airlines, you’ll fly EAST to DFW and then WEST again to ABQ and it will take  . . . wait for it . . . from 4.5 to 6.5 hours to complete your travel.  Since you are connecting via DFW, you’ll be making two take-offs and two landings and one of those landings (remember, part of an airline’s cost is a landing fee) will be at a major hub airport.  Take offs are expensive too.  They are the part of the flight that consumes the most fuel so two take-offs is bad.

If you fly Continental Airlines, you’ll connect through IAH (Houston) and the economics are the same but the distance flown is even greater.   If you fly Delta, you’ll first fly to Houston and then to Dallas and then to ABQ and your price will be in excess of $1000 round trip.  By the way, your total travel time using Delta will be over 10 hours.

Now, if American Airlines or Continental Airlines (let’s just leave Delta out of this because such a scenario is absurd) want to compete for the passengers traveling from Odessa to Albuquerque, they have to offer a fare that is somewhat competitive.  If they do, they’ll come at least close to matching Southwest’s fare of about $300 and that means that their costs are higher and they make less profit or no profit.   Since Southwest has the lowest costs, they get to set the price. 

Now, some people such as Robert Crandall advocate re-regulation of fares in some form.  In a speech to the Wings Club in June 2008, Mr. Crandall offered that this might take the form of mandating a “minimum fare” that is the sum of “locals”.   What he suggests is that a fare between two cities that connects via a hub should be the sum of the fare(s) between Point A to Point B (a hub) and Point B (a hub still) to Point C (the final destination.  In the alternative, he suggests that flights that connect via a hub be required to have a “connection” charge.  His goal is to remove any incentives airlines might have at present for operating a hub.  It becomes officially un-economic to fly that route via a hub.

Quite honestly, I find that a poor solution since he proposes to disrupt the systems of the very airlines that his solution purports to help in the long term.  It disrupts a 30 year institution among legacy carriers and assumes the staff and leadership who have operated in such a manner to be able to adjust to a new model that they have no experience with.  It is, at best, a very awkward solution to the problem and only addresses revenues (once again) instead of the whole equation.  Even more important, it is hard to imagine the political will required for such a change.

No doubt the adjustments have to be made and I would suggest that might need to take the form of actually allowing a large legacy carrier to go out of business (which then removes some barriers to entry for other, more efficient carriers) or you have to find a way to reasonably deregulate costs so that airlines no longer must use hubs to fight for their very existence.  Those costs are principally labor.  The latter solution is better (both in the short and long terms) because it doesn’t necessarily involve massive unemployment or relocation for employees. 

An airline needs to be able to efficiently locate staff at various “base” cities in a way in which costs are not concentrated in one particular city because it is merely a popular place to live.  You don’t want all of your high cost employees (i.e. the senior staff) to locate themselves in Miami where much of your traffic might be low yield leisure travel.   Second, an airline needs to be able to competitively bid for staff on an open market.   A seniority system as used by airline unions ties staff to one airline and forces the airline to “wait out” their term of employment (as much as 40 years) until they can hire new, lower cost staff to fill a particular position.  Further, it denies them access to qualified personnel for expansion because staff won’t leave another airline for a new job because they don’t want to start out at the bottom of the seniority list.

If we deregulated (by legislation) the seniority system in airlines as a first start, airlines could suddenly re-allocate labor and gain more productivity and reduce their costs on routes where necessary.   For a first round, you could even leave in a seniority system for earning pay and determining furloughs but just remove the seniority system as it pertains to bidding for line routes and it would allow the airline to locate their labor (by cost) where they most needed it and gain more productivity.  That change alone might well serve to offer legacy carriers a legitimate opportunity to earn a profit regularly (with all other things being operated effectively).  It would at least be a good first step in trying to solve the problem.

Filed under: Deregulation, Trivia by ajax
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Almost all airlines in the United States operate from hubs.  Going from West to East, they are (in no specific order), Phoenix, Salt Lake City, Denver, Dallas / Fort Worth, Houston, Minneapolis / St. Paul, Chicago, Detroit, Cincinatti, Memphis, Atlanta, Cleveland, Philadelphia, and NYC.  There are a few other cities that some might argue are hubs but which I think are more “focus” cities than the above cities.

One way airlines have reorganized themselves to meet the cost pressures of non-deregulation on the costs side of the airline industry is to simply start “connection” and/or “feeder” airlines or to contract with those airlines.  Some examples are American Eagle, Mesa Airlines, Comair, Compass and Express Jet.  There are others too.  These airlines fly regional aircraft (regional jets and turbo-prop aircraft) on behalf of the mainline airlines.   Unions permitted these airlines by getting “scope” clauses in the contracts that limit the size of the aircraft to be operated. 

Often those scope clauses originally limited airlines to flying regional aircraft that had 50-odd seats or less.  What they didn’t do was limit the kind of flying such aircraft might be asked to do.   As things evolved post-1978 deregulation, airlines began to establish large hubs with multiple banks of flights each day.  They did so in order to “concentrate” their operations and take advantage of economies of scale.   Over time, mainline aircraft departing from a hub either went to other hubs or to larger 1st and 2nd tier cities.  Mainline aircraft stopped serving the smaller third tier cities (for example Des Moines or Jackson, MS.)  It never occured to unions to limit both scope and distance in those contracts because originally it was assumed that regional aircraft couldn’t serve route sectors of much more than 200 to 300 nm. 

Instead, mainline airlines used their feeder airlines to pick up traffic in those cities and carry it to a hub where the passenger then transferred to a mainline aircraft or another regional flight to get to their final destination.  For instance,  a passenger might fly American Eagle from Des Moines to Chicago, transfer to an American Airlines flight using mainline aircraft and continue on to a final destination such as Los Angeles.  

Prior to 1978 deregulation, American Airlines might have flown a route from Chicago to Los Angeles with intermediate stops in Des Moines and, say, Salt Lake City.  Remember this is a hypothetical example.  While hubs were beginning to develop or had developed, those entities really resembled what we call focus cities today.  It was a concentration of traffic and opportunity to rotate aircraft through maintenance facilities but it wasn’t a fortress hub that we see in places such as DFW or MSP today.

Over time, new aircraft such as regional jets that had greater capacity and speed than original “feeder” aircraft such as the EMB Brasilias or SAAB 340 aircraft were introduced.  These regional jets were capable of mainline aircraft speeds and altitudes and were capable of flying route segments in excess of 400 nautical miles.  Since the cost structure for such aircraft was an order of magnitude less than that for mainline service, airlines began to realize that they could use these aircraft to serve routes that contained a lot of O&D traffic for more point to point flying. 

Suddenly, American Eagle wasn’t just serving cities from DFW that were in Texas and surrounding states.  With regional jets, it began serving medium haul, thin traffic routes from DFW.  One example is the one I gave yesterday:  DFW to MKE.   That route has a lot of O&D traffic (Origin and Destination) but very little connecting traffic.  What that means is that people flying from MKE to DFW were terminating their trip at DFW instead of necessarily continuing on to another destination and vice versa.  If a MKE passenger wanted to get to Denver, they would fly either to Chicago or MSP to connect or possibly direct on a United Airlines “connection airline”. 

The feeder/connection airlines evolved into the “point to point” service provider for small to medium markets.  The reason is that airlines can only afford the flight crew labor costs for routes where the yield (profit from revenue) justified those costs.  The only way to find that yield is to concentrate flights through hubs.  One example, again, is DFW.  American Airlines “feeds” traffic from all over its network (including American Eagle’s network) into DFW where they “concentrate” that traffic and redistribute it to other routes.  This means that those routes load factors remain very high for each flight. 

On the surface, that sounds efficient.  However, there are some underlying factors that reveal it to be inefficient to operate such hubs.  First, it means that you have to schedule your traffic in banks of flights.  You want your flights to arrive at about the same time and then take off again at about the same time.  In order to manage that, your departure times at outlying stations may have to be excessively inconvenient to passengers.   Your airport service staff tends to work in concentrations with excessive idle time in between banks of flights.  You still have to pay them and they remain there because you service large banks of flights at one time.  An airline must have that staff in place over the full duty period to accomodate those peak periods.

Such hubs also tend demand fleets that are largely homogenized.  American Airlines, for instance, standardized on the MD-80 for these flights (and now is doing so on the B737-800) and therefore has to find routes that fit the aircraft instead of aircraft that fit the routes.  Because they must fill so many seats on mainline routes to make a profit, it drives them to feed more and more traffic into the hubs.

Hubs also can cause system wide service disruptions.  A bad weather day in Chicago can wreck two major legacy carriers systems (United and American Airlines) for multiple days because any disruption ripples outward through the whole system.  Since all flights go to or depart from the hub, there is no flexibility to “route around” the problem city.  

All of those issues inhibit a legacy carrier from earning long term profits and they haven’t earned reliably for over 20 years now. 

The best example of how best to operate in today’s airline market is, no surprise, Southwest Airlines.  While they do have several cities that look and feel like hubs, they really aren’t when compared to other airlines.  They are focus cities.  Those focus cities permit some concentration but they really exist to provide some operational flexibility and maintenance. 

Southwest Airlines focuses on flying point to point routes and high frequency commuter flights.  If you try to get from one city to another on Southwest’s system, you are very likely to fly there direct and in many cases non-stop.   The percentage of traffic on flights from focus cities that is “connecting” is relatively small compared to legacy airlines. 

When a flight from Southwest Airlines departs DAL (Dallas Love Field) for ABQ (Albuquerque), it isn’t coming back that day most likely.  Instead, it will continue on to, perhaps, Phoenix and then to Portland where it will turn and head to Los Angeles and then, maybe, to Denver.  The plane  goes through 3 focus cities but at all times it is carrying O&D traffic primarily. 

That point to point system with focus cities permits them to offer highly convenient flights that fly direct (in other words, a passenger doesn’t have to get off the plane and board another one) and they get a higher utilization rate out of both the aircraft and crew because they aren’t sitting at hub for 1 to 2 hours waiting for their flight to depart again.  Instead, Southwest crews do fast turnarounds at focus cities (20 to 40 minutes) and depart for still another city.  Southwest not only gets high utilization from their aircraft but they also get high utilization from their flight crews. 

Southwest Airlines’ crews are paid competively and even generously but the airline also gets far more productivity from them in a given duty period.   Ironically, Southwest crews also fly less fatiguing schedules overall and spend more nights at home than most other aircrews.   Southwest captains earn as much or more than any other Boeing 737 captain but because they negotiate not just raises but flexibility in their contracts, their standard of living is quite a bit higher than it would be at most legacy carriers.   They offer more productivity in return for working an easier duty period at a competitive salary. 

They also don’t fly small commuter aircraft and they don’t avoid flying to 3rd tier markets.  Southwest flies B737 equipment to cities such as Indianapolis, Odessa, Corpus Christi and Brimingham.  Every other airline serves those markets with primarily regional jets and Southwest manages to earn more profit flying to those same cities using mainline aircraft that is more than 100% larger.   Not because their crews are “cheaper” but because their crews (and their unions) bargain for more than just money.  It’s a competitive negotiation with real give and take and, as a result, Southwest gets high productivity without working their crews longer hours, bad morale or high turnover. 

Next we’ll look at why seemingly “fair” fares can’t earn real profits for most US carriers. 

Filed under: Deregulation, Trivia by ajax
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Deregulation in 1978 was never full deregulation.  It was, instead, deregulation of the revenue side of the equation.  Airlines were suddenly free to fly routes and set fares as they wanted.  The barriers to entry on a route were no longer regulatory but, rather, business cost.  My father phrased the start of a route as “starting a new business” and I must say that that is true.  Airlines have to invest in infrastructure, new employees and market their services when entering a new city or route.  The airline is essentially starting a new business.

What never got deregulated was the labor cost side of the equation.  Flight crews were fully unionized (with the notable exception of Delta’s Flight Attendants) and the union approach to wages and work rules was and always has been to negotiate for more each contract.  When the game changed with regulation, the airlines were still inhibited from negotiating freely for their labor on an open market because the unions had 30 years of precedent and enormous political power.  God help the airline who had pilots striking against it because it denied *any* revenue to the company and airlines are cash intensive businesses.  They go out of business very quickly if that cash stream is interrupted. 

Using pilots as example, take a look at their negotiating power in 1978.  First, the barriers to entry in a career as a pilot were (and to some degree remain so) very high.  A typical pilot spent 7 to 9 years in the military flying multi-engined aircraft and when they exited, they got their ATP license and went hunting a type certificate to fly for an airline.  Once in an airline, they entered a seniority system that made it very difficult to leave because every airline had the same system.  If you started at one airline, made captain on an aircraft type and then wanted to leave, you had to start over again.  The union(s) set a contract and work rules in place that essentially made each airline a fiefdom.

The airline union is the lord and the pilots are the serfs.  Well paid serfs in their later years but serfs nonetheless.  Not only is there no incentive to seek work elsewhere, there were strong incentives to stay and play the game no matter what.   Even when an airline is by all measures about to fail.

This situation remains true for most airline unions to some degree or another.  What the government never did was deregulate labor so that airlines could compete for qualified people to fill their staffing needs.  One interesting by-product of this is that airline pilots work terrible schedules today.  They do so because it is enormously expensive to have a pilot sitting on the ground doing nothing.  Airlines fly pilots on different schedules than their flight attendants (at least at most airlines) and they do so because they want to extract all possible value from them because the cost is so high.  Ironically, a more ratioinally paid airline pilot would work an *easier* and more rational schedule that impacted their lives (both personally and professionally) far less if their pay were more in line with a free market competition.   Mind you, they wouldn’t be underpaid, just paid more in line with the demands of their job.

My father thinks that a free market salary for a pilot would be about $70,000 / year and there would be far less range between entry level and an experienced level.  I personally believe that number would be higher.  About $100K to $120K.  I think so because the costs to become a qualified airline pilot and the skill required still make for a rather rare person today.   The pilot still has to become qualified under FAA rules by getting time first on single engine aircraft, then multi-engine aircraft and turbine engined aircraft.   Flying also takes  talent.  Being an commercial pilot also means having a great understanding of engineering (many pilots gets undergraduate degrees in engineering for just this reason.) 

What the airlines needed was an opportunity to negotiate for new labor under new rules.  It would have been impractical and politically difficult to “break” the existing unions.  It would have been better to set new rules for airline unions and airline flight crew going forward.  For instance, eliminating the seniority system but making one’s qualifications and types fully transportable between airlines for the same pay would have made it more fair to both sides.  A pilot who was “captain” qualified on a Boeing 737 would be able to take those qualifications and fly at any airline for market pay.  

Suddenly a pilot would not be married to just one airline and have to deal with fear of furloughs and bankruptcy multiple times in their career that could reset them back to “zero” in their career.  Instead, they would be able to seek positions at other airlines for a commensurate career salary.  The same could be true for any flight crew.   It would even have the benefit of further “harmonizing” best practices among various airlines. 

Over the years, some airlines have made some attempts to re-negotiate this situation.  American Airlines introduced the A/B pay scales in the 1980s.  That worked very well for many years but the advantage was lost because the “B” scale employees still worked for the original union and the “A” scale employees had a vested interest in raising all salaries for everyone.   

There is nothing wrong with unions existing in the workplace.  However, when a union’s sole focus is on raising salaries to everyone else’s detriment, it begins to lose value.  Unions can and should enforce good work rules, good working conditions and even qualification standards and salaries.  They should not, however, distort their own labor market or their airline goes down.

Another way airlines have gotten around this is by starting commuter feeder airlines.  American Airlines has American Eagle for instance.  These “new” airlines have employees who are hired at “market” rates and who remain employed by unions.  Now the airlines use these airlines to fly mainline routes at higher frequencies because it is more cost effective than flying the route with less frequency but greater capacity using mainline equipment.

A great example of this is American Airlines and how they served the DFW – MKE (Milwaukee) route a couple of years ago.  They used 50 seat ERJ-145 aircraft in their American Eagle subsidiary and flew as many as 5 cycles a day.  What’s worse, they frequently turned away people or re-routed them through Chicago because their aircraft were either capacity limited or load limited.  The aircraft had average load factors far in excess of 85%.   The better solution would have been to fly either mainline MD-80 or Boeing 737 aircraft 2 to 3 times a day.   That would have offered better service (more reliable and not load limited), more comfortable seating and slightly shorter flights.  But they couldn’t because AA MD-80/B737 pilots for such routes would cost 4 times more than American Eagle pilots. 

The demand was there.  The fares actually offered great revenue opportunities (when compared to average DFW – ORD fares) but the expenses were still too great on the labor side.   So people were offered a cramped ERJ with all coach service that, by the way, eventually lost passenger traffic to Midwest Express (who flies more comfortable MD-80s and B717 aircraft) and to other mainline airlines who would service Dallas via Chicago or Minneapolis-St. Paul. 

Regional Jets were never built for serving such markets and they do so very inefficiently.  Regional aircraft should never be serving route sectors greater than 400 nautical miles and certainly should never be serving mainline city pairs such as MKE-DFW.    They should fly from Odessa to Dallas or Cedar Rapids to Milwaukee. 

Could labor be less regulated in the airline world today?  I don’t know.  It would require great political will and I frankly don’t see that on the horizon.   It would require the airline industry to be both realistic and cooperative with each other and it would require unions to recognize that not every contract means “more” but maybe it means different and more accomodating instead.  It should also offer some job security and certainty too. 

In the next part, we’ll take a look at how the lack of full deregulation has distored air travel in the United States and caused inefficiencies.

Filed under: Deregulation, Trivia by ajax
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The Dallas Morning News Aviation Blog just had this post.  United Airlines has just made it known that they expect some rather heavy losses in their fuel hedging program.  Fuel hedge are common practice among airlines to make fuel prices predictable (rather than necessarily always cheaper) and therefore allow airlines to financially plan for their needs.   Southwest Airlines is arguably the most successful at this strategy.

A fuel hedge is a kind of bet.  An airline purchases contracts and options to buy fuel oil (not jet fuel but fuel oil which tracks in line with jet fuel prices) at a specified price.  If an airline thinks fuel prices will go up, they will buy options and contracts for these fuels for a current market price for delivery some time in the future.  If in fact the prices go up, they sell these contracts for a profit and use the money to offset their jet fuel costs.   If the prices go down and the airline bets that they’ll go up, they suffer additional losses and the cost of their fuel goes up against their plans.

Since hedging is a risky business, a wise airline only hedges a portion of their fuel costs per quarter so they are not completely exposed to the risk of having bet wrong.  In addition, they’ll bet conservatively on prices so that the risk they expose themselves to is minimized as much as possible.  To manage all of this properly requires an army of financial analysts and hedging experts. 

The problem with hedges is you can both make and lose a lot money with them.  When you make a lot of gains, it becomes intoxicating to any airline.   The temptation is to hedge more and more and bet on directions that seem pre-ordained.  Just 1.5 months ago, everyone was betting that oil might go as high as $200 / barrel.  Just this last Monday (September 15, 2008), oil was trading at $97 / barrel.   United bet wrong and now has to report that they have had both real and unrealized losses involved with the trading.  Unrealized losses require them to hold cash in reserve to meet those potential costs.   That is “restricted” cash.

Lately you hear airlines talk about how much unrestricted cash they have on hand.  Southwest Airlines, American Airlines and others will have quite literally billions of unrestricted cash.  That is the money for which there are no real or potential obligations attached.  Going into a period of economic uncertainty, having a large amount of unrestricted cash is good because you can suffer short term losses and still operate sensibly.  If you have too little, you’ll quickly be forced to constrain your operations which quite often leads to a cycle of contraction for an airline.  Because they don’t have the cash, they become smaller and because they’ve become smaller, they have even less cash.

American Airlines continues to survive these industry contractions because they have a huge amount of unrestricted cash held in reserve.  It gives them maneuvering room and they are probably the best in the business when it comes to managing their finances.  That is one reason why they did not have to go into bankruptcy in the post September 11 industry crisis.

To return to hedges.  A hedge becomes risky when you are buying contracts that approach the forecasted market price of the fuel.  Ideally, you want to have options and contracts that are substantially lower than your current year’s price of fuel.  That way, if fuel prices drop your contracts will still realize a gain.  If you buy too close to market prices, particularly in a volatile market such as what oil is experiencing, you run a very real and damaging risk of being obligated to buy those commodoties at prices that are higher than the current market rate.

Hedges have often been described as an insurance policy against high fuel prices.  They aren’t.  They are a way of smoothing the peaks and valleys of fuel prices.  If you smooth those peaks and valleys, you can more accurately plan your financial obligations and that potentially allows you to make more money available for purchasing goods and labor.

The losses reported by United Airlines are just one more reason why I watch them carefully.  You can’t suffer those kinds of losses very often and, once again, it appears that their business plan is not accomodating the current market conditions in the airline industry. 

Filed under: Airline News, Death Watch by ajax
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