Southwest Airlines wants to build a small international terminal at Houston Hobby airport and thinks that doing so will benefit Houston with more jobs, more economic impact for the city and everyone wins. United (Continental) Airlines doesn’t want a damn thing going on at Houston Hobby and definitely does not Southwest Airlines beginning international flights from that airport. United thinks that allowing this will reduce jobs, have a negative impact on the economy and, well, HOUSTON SHOULD JUST DO WHAT UNITED WANTS BECAUSE WHAT’S GOOD FOR UNITED IS GOOD FOR HOUSTON.
It’s like watching Southwest Airlines and American Airlines fight over Love Field airport in Dallas.
Make no mistake, this fight is over competition. Southwest provides LCC competition on international flights from Houston to Mexico, Central America and the Caribbean and that is United Airlines’ major domain from that airport. In fact, those United routes are a huge profit earner for the airline. Of course United doesn’t want the competition.
Airlines, especially SuperLegacy airlines, hate competition. And they loath competition on the very routes that earn them the most money.
Here is my take: Southwest wants to introduce more flights to Houston Hobby. In the process of introducing international flights there as a kind of “hub” for SWA International operations, it will almost certainly introduce more connecting flights to more SWA focus cities such as Dallas, Atlanta, Chicago, Baltimore, Los Angeles, etc. This is a good thing. Southwest has a great product and one that isn’t going to negatively impact Houston.
United Airlines has major investment in their fortress hub at Houston Intercontinental from commitments made by Continental Airlines pre-merger. Houston Intercontinental is a fortress hub for them like DFW is a fortress hub for American Airlines. Fly into IAH and you’ll be amazed at how dominated that airport is by one airline. It is a crown jewel of hubs and the last thing United wants is an airline poaching customers from those routes. But one reason why those routes are so profitable for United is that there is virtually no competition.
Competition is good. Houston should allow Southwest to build its 5 gate international terminal. It will benefit Houston and if United isn’t quite so profitable there, so what? I don’t think there will be a massive increase in overall traffic to international destinations served by both airlines a la “Southwest Effect”. I do think that SWA will poach quite a few customers locally and I say that what benefits the businesses and private parties of Houston is far more important than whether or not United gets to have its cake and eat it too.
The airlines are actually similar in labor costs but SWA maintains higher productivity. It’s not as if United doesn’t have a fighting chance against SWA, it does. For one, it has a frequent flier program that will be stronger for Houston residents most likely and it has the ability to feed as much traffic as it wants through Houston to southern international destinations.
The one party here that I do not think gets hurt with this is the city of Houston.
QANTAS is deferring delivery of 2 Airbus A380 aircraft until the 2016 and forward time period in an effort to lower costs in order to compete more successfully with Virgin Australia.
It’s a bit of a blow to the A380 program in some ways and it adds to the pain of cancelled orders from China for the A380 as well. However, Airbus will be able to deliver the aircraft to other airlines at present. I suspect that airlines with a substantial A380 fleet are finding the aircraft quite successful on the routes it can be deployed on and I know that Lufthansa regards it as having lower seat mile costs.
However, I continue to believe that there are only so many routes it can be deployed on to earn regular profit. QANTAS would take delivery of these if there was enough demand as they are replacing aging 747-400 aircraft. Lower seat mile costs are great but only if you can fill the aircraft regularly all year round.
I’m not sure all airlines are doing a very good job with that and Lufthansa’s choice in having both the 747-8i and A380 kind of speaks to the fact that while seat mile costs are important in the equation, filling the aircraft is just as important. A full 747-8i earns more money than an A380 at 85% load factor.
The A380 will continue to sell . . . slowly. It will continue to be delivered and it will continue to get deployed on various routes but it remains a niche aircraft at best. That’s OK, so is the 747-8i. The real profit earners going forward are going to be the 777 series from Boeing and the A350 from Airbus.
The Los Angeles Times has this story about American Airlines actively prosecuting its AAirpass holders for fraud. Purchasers of the AAirpass essentially paid big sums of money for an unlimited, lifetime first class pass and many bought them in the late 1980s and early 1990s. They actually made financial sense for some and some purchasers used them in ways that American Airlines never conceived of.
Personal note: When playing the “what if” game on what one would do if one won the lottery, I always said that I would want an Airpass first above all other things.
Israeli’s President, Shimon Peres, balked at extra fees for things like carrying oxygen tanks from El Al for a state visit to Canada and decided to book his flight on Air Canada.
This is a perfect example of why El Al doesn’t work too well as a state airline of Israel.
US Airways has announced new routes from its Philadelphia hub to Austin and San Antonio as well as adding a 6th frequency to DFW airport as well. This is, without doubt, an attempt to put more pressure on AA in its merger quest and demonstrate that the airline can satisfy travelers in Texas.
Consider that US Airways is pointing out that it already competes admirably on a trunk route like DFW to PHL. This is an argument that service they provide is up to American Airlines passenger standard and exceeds them more than likely.
Putting direct flights in to San Antonio and Austin is also a statement that it intends to move into Texas and do well whether American Airlines wants to cooperate or not. Those two cities provide an exceptional amount of “feed” into DFW and US Airways is going to try to poach that feed with direct, non-stop flights.
These are bold moves and designed to get the attention of American Airlines. If AA responds with its normal “we’re not bothered” statement, I think they’ll find themselves subject to scrutiny from both creditors as well as its board of directors. You can only ignore the elephant in the room for so long.
American Airlines’ PR machine continues to beat the same drum on how they’ll succeed exiting bankruptcy as a standalone airline. The story is that they’ll fly considerably more international flights, do even more code sharing and partnering with existing Oneworld airlines and “right size” their flying with the new fleet they’ve ordered.
And everyone else keeps saying that ain’t gonna get it done.
Analysts don’t like the extremely aggressive growth being spoken in the plan because it reflects above industry average in growth when capacity restraint has shown that that is the pathway to reliable revenues. Growth may only come from one thing: Exiting bankruptcy with such superior labor costs that it can undercut other SuperLegacy airlines on price and start a fare war. That would anger just about everyone in the business.
Codeshares have been touted by AA for several years now but AA never seems to aggressively capitalize on these codeshares. It adds some incremental revenue here and there but the additions never seem that strategic and even its codeshare and interline partners seem inclined to poach on AA’s turf right now. There is, after all, a reason why both JetBlue and Delta Airlines have added flights between NYC and DFW: AA is vulnerable and, frankly, not doing a good job of keeping the interest of its business travelers.
International flying is more profitable and American Airlines has ordered the aircraft for increased international travel in the form of 777-300ERs and 787 aircraft. It has not managed to achieve a contract for those aircraft at all with the pilots union and seems to have forgotten that it couldn’t manage an acceptable agreement with the pilots to add a new route between Dallas and China a few years ago. What makes it think that pilots and other aircrew are going to agree to more flying internationally on these aircraft without some concessions? It’s a bargaining chip that the unions have and will use.
Finally, nothing in the business plan addresses what are fundamentally important issues for the airline presently. It performs much worse on the revenue side today because it has older, less pleasant airlines, a website that just angers more than serves its customers, service fees that seem hostile towards a customer and a service staff that seems intent on delivering a cynical and lackluster service product to its passengers.
Where is the plan to upgrade aircraft into a pleasant experience? Where is the plan to get employees happy again to serve their customers? Where is the website that, you know, allows you to prepay for a checked bag when checking in online? Where is the rational fee structure that makes sense and an implementation that doesn’t feel like extortion to the passenger?
You can beat the same drum hoping to get people dancing to the beat but if the beat is awkward and without rhythm, no one is going to join you on the dance floor.
Eastern Bloc countries apparently had a penchant for landing the Il-62 on short, unprepared fields to deliver aircraft for museums. Here are videos of those two landings (in German and Russian languages respectively.)
Delta Airlines bought a fuel refinery in New Jersey that has the ability to provide as much as 80% of all their fleet fuel needs and which has direct connections to both JFK and La Guardia airports by pipeline. Most airlines hedge their fuel costs by purchasing fuel oil contracts which happen to track closely in price with the cost of jet fuel (which isn’t sold with market contracts). It offsets price spikes and makes fuel costs more predictable and manageable.
Delta’s purchase of the Phillips66 refinery is an interesting move. The cost was relatively low $150million for the purchase and an additional $100million to fully convert the refinery over to jet fuel production. To an airline, that’s pocket change. To Delta, that means they can cut out a significant portion of the middle man in their fuel costs.
How do the fuel the fleet from New Jersey only? They don’t. They’ll supply their own fuel to their own aircraft in the NYC area, yes. That fuel demand in that area alone will find Delta saving big dollars. They’ll also sell that fuel to other airlines at those respective airports at a profit which will then offset Delta’s fuel costs in other parts of the country. It’s a way of hedging prices more closely to the market prices for jet fuel and gives them an assured supply in a market that has historically been a bit touchy on prices.
Here we go again. United Airlines CEO Jeff Smisek has done very, very well in creating the world’s largest airline between his merger incentives and compensation. Well enough to anger unions who represent labor forces that are touchy about executive compensation already. His executive team has also done extremely well.
But UA still isn’t consistently earning money and it has had a rockier time in integrating the operations of United and Continental airlines. Mot recently, the reservations migration provided a less than stunning experience for customers.
The standard for smooth mergers remains Delta/Northwest and one can hardly expect all of them to go that well. But it will leave people asking if, once again, airline executive teams aren’t getting compensated a bit prematurely as well as for milestones that don’t show a consistently profitable airline.
The Discovery Channel in partnership with British and German television channels has performed a controlled crash into the ground of a 727-200 in a Mexican desert. Here is the video:
After a week of allowing the fallout from the US Airways agreements with American Airlines’ unions to settle, the question of what it will take to see an actual merger between the two airlines comes to mind.
It’s not just the union agreements that gets this deal done. To the contrary, there are several issues that will have to see deals made.
Aircraft manufacturers: Boeing wants to see an independent AA because AA is fundamentally a Boeing customer not withstanding the Airbus order made last summer. Boeing is going to need reassurance that it remains viable in future aircraft orders and that existing orders won’t be cancelled. US Airways can make those assurances with confidence.
Hewlett Packard: Hewlett Packard sits on the creditors committee because of all the IT work it has done to date to bring AA into the future. A lot is left undone and some reportedly isn’t really ready for prime time. Currently, US Airways uses SHARES and American Airlines uses SABRE. However, SHARES, originally developed by EDS, is now owned by HP. Do you see where I’m going here? A deal can be made to put both airlines on the new system being developed called JETSTREAM.
AA Executive Team / Board of Directors: This is a sticky area. Who wants a team or board that allowed the status quo to exist that long? It’s possible we might see someone like Tom Horton retained as non-executive Chairman (a la Glenn Tilton) and a few of the existing AA team retained but that would be it. The board has to go and its tenure is so high in average age, it has an incentive to fight this. Solving these two problems is possible and these two stakeholders have the least power in making decisions in many respects.
The when is the next question. US Airways is clearly getting good advice and it is clearly motivated to make a deal. I would guess that their intent is to use their own cash holdings and AA’s cash holdings to make a deal that creditors can’t refuse. I think that deal will happen between now and the end of June.
This will be tough for all. There were essentially 4 competing jet airliners in the 1950’s. Can you name the sole jet airliner in successful operations from 1956 to 1958?
Bonus Question: What was the world’s first turbofan airliner?
Boeing CEO James McNerney expressed his and Boeing’s viewpoint that they support American Airlines having an opportunity to exit their bankruptcy as a stand alone company. McNerney acknowledges that US Airways hasn’t bought Boeing in a some time and sees AA as a loyal Boeing customer as well.
Is this support for AA an attempt to preserve the AA orders for Boeing 737MAX aircraft? At least a little bit, yes. In addition, Boeing has and continues to support AA’s purchases for aircraft in a variety of ways. They’re a good customer. Is that support founded on sheer love for the airline? I suspect not.
In fact, any worry about the 737MAX is kind of silly. The merged airline would, upon conclusion, have far more Boeing aircraft and far more resources to service and operate Boeing aircraft than Airbus aircraft. Furthermore, both airlines have orders for Airbus A320NEO aircraft already. Airlines of that size can no longer afford to be an exclusive customer of one manufacturer or another. Their size (and the size of several competitors) demand manufacturing positions that can’t be serviced exclusively by one manufacturer.
I suspect that if Doug Parker is able to re-assure Boeing over its existing AA orders, Boeing will go neutral or even supportive of such a merger. At the end of the day, it’s about having a customer and earning money. Furthermore, it even gives Boeing an “in” with the US Airways executive team that it has not had for some time.
There was lots of noise in the airline airwaves last week but one item that bears notice is Southwest Airlines. The short version is that despite warnings to the contrary, they earned a profit of $98 million due to fuel hedging augmenting their income. Excluding one time gains, the airline has an $18 million loss. Should we be concerned? No, we shouldn’t. The fuel hedge gains are legitimate and an area where Southwest excels. Furthermore, they will earn more profits as they consolidate the Airtran operations into their own.
Also notable is their decision to contract with Amadeus for international reservations with the expectation of being able to handle international reservations by 2014. I think this is good news. I think there are big opportunities for Southwest when it comes to international flying and especially so from the US to Canada and Mexico and it continuing the Airtran flights to the Caribbean.
But this points out the fact that, once again, a revamp of the reservations systems and, in particular, the ability to codeshare is going to be deferred again in favor of the international priority. The truth is, this whole system should be revamped by now. It’s shameful that it isn’t and it put a very real strategic partnership with WestJet into the toilet because of these complications. Furthermore, Southwest doesn’t realize much gain in its relationship with Volaris as a result.
I and many others would be a lot happier to see Southwest contracting with a real reservations system to accommodate real needs across the board. The idea that Southwest can remain “independent” in its reservations system as an airline with 702 aircraft and 97 destinations. There is a time and a place to be independent and then there is a time to have a an infrastructure that matches your operations. It’s notable that Southwest continues to grind on with their 40 year old Braniff system (originally named Cowboy) that they’ve “improved” over the last few decades. It’s notable that this is a system that my own father was involved in when he was a vice president at Braniff. My father hasn’t been with Braniff since 1981.
It’s time for Southwest to get a modern reservations system and the sooner, the better. Make the investment now as there is one thing for sure: Reservations systems aren’t going to get cheaper and they will get more difficult to build yourself.
Since Friday’s announcement that US Airways has the support of American Airlines’ three largest unions for a merger between the two airlines, quite a few people have weighed in on the prospect. Those objecting are just about every political leader in Texas. Senators, Representatives, mayors and even chambers of commerce are all voicing their preference that American Airlines exit bankruptcy and *then* engage in a merger if it is so desired. So, what’s the objection?
Like virtually everything else, money. Each of those constituent parties benefits a great deal politically and financially from American Airlines. American Airlines knows how to spread the money around to get what they want in this state and nationally. There is a reason why it took years to rid the DFW metroplex of the Wright Amendment restrictions and even when they were struck, they were done on a timeline that benefited American Airlines, not Southwest Airlines. Even then, Southwest Airlines is forever constrained to use Love Field because if it takes a gate at DFW Airport, it has to give up a gate at Love Field.
US Airways is a political unknown to Texas and the politicians know that if a merger between the two is consummated today, it’s US Airways leadership who will control the airline and whoever controls the airline, controls the dollars.
The problem is, US Airways has already laid out a fairly compelling case for the merger. It has support from labor and it has identified the key problem that market analysts have been worried about with respect to American Airlines’ cornerstone strategy that it continues to cling to. Half or more of AA’s problems are on the revenue side, not labor cost side and the strategy to improve the revenue side seems to involve flying more and charging less (as a function of draconian labor cost cuts) to get more market share. We saw how that works in the US airline industry for 30 years. We’ve also seen how capacity discipline can really work well even in a market that is heavily impacted by a bad economy.
In addition to making a compelling case, I have to wonder what anyone is afraid of here? Fewer job cuts, more synergies, more revenue, a more diverse fleet and a company that stays in Texas and maintains a massive hub at DFW airport. There is no reason to argue against that unless it potentially means you don’t get what you’ve been getting.
Furthermore, the executive leadership at AA is plugged into the community. It’s hard to advocate on behalf of a merger that fundamentally sees your friends lose their jobs.
The preference expressed by these political entities is that AA gets through bankruptcy and especially benefits from huge labor cost cuts that enables it to be the consumer rather than be consumed. How does that happen? Let’s not forget that AA sits on massive cash holdings that if it preserves them well, they suddenly have positive cash flow, profits and cash holdings to buy an airline instead of being bought.
The problem with that scenario is that there is only one constituent group that really believes that AA comes out of bankruptcy strong enough to compete against Delta and United with positive cash flow: The American Airlines executive team. The rest of us see AA coming out of bankruptcy able to maintain the status quo for several years longer because until you fix the revenue side of the business, you are fighting a holding action against Delta and United at best.
Pinnacle Airlines has announced that Sean Menke will resign as CEO effective June 1st and I think this got missed in the noise of the AA / US Airways announcements coming on Friday.
Like most announcement of this nature, this is being characterized as Sean Menke having done his job and leaving it in a position for someone to lead forward in a new marketplace.
I think something else happened. Just weeks ago, Menke’s salary (along with current COO and now soon to be permanent CEO John Spanjers) a very significant amount. A week later, Pinnacle filed for bankruptcy and now suddenly Menke is leaving in another month or so.
What is going on is pure speculation at this point. Menke is a valuable leader and I personally felt Pinnacle wasn’t the best fit for a man of his talent. Pinnacle doesn’t need his marketing acumen. One wonders if Menke is positioning himself for a new job at a new airline in the near future.
American Airlines’ response to the announcement of a merger support agreement between US Airways and AA unions is, to say the least, lackluster. If anything, I actually read a hint of bully in the announcement. It says:
“American Airlines is moving steadily through the Court supervised restructuring process and the Court has granted American the exclusive right to create its plan of reorganization at least until September 28, 2012. We are making substantial progress in our efforts to return American to industry leadership, profitability and growth and maximize its value for all of its stakeholders.”Our immediate next step is to pursue vital modifications to our collective bargaining agreements through the 1113 process that begins on Monday, April 23rd. We believe statements of non-binding support from union leaders for alternative proposals are no coincidence given the timing of the 1113 process. These statements do not in any way alter the company’s commitment to pursue our business plan or our focus on moving steadily through the court supervised restructuring process to create a profitable, growing industry leader.
“For American’s outstanding employees and loyal customers, business continues on track, as we continue to provide the safe, reliable travel experience our customers expect.”
This, I believe, is non-productive when having to deal not only with your 3 largest unions but unions who have a significant amount of input on your unsecured creditors committee. It also demonstrates that you don’t “get it” when it comes to your labor and the need to lead them through this bankruptcy.
US Airways has gained the support of the three leading unions of American Airlines for a merger between US Airways and American Airlines. The Allied Pilots Association, Association of Professional Flight Attendants and Transport Workers Union have made a joint announcement supporting US Airways in its announced pursuit of a merger with American Airlines.
That cracking sound you hear is Tom Horton & Company’s headaches which just got much worse.
It’s not a merger announcement. It is, however, US Airways going public with its pursuit and doing so in a very credible manner. The concerns for American Airlines over this are that gaining this support in such a public manner and aligning it with the desires of Wall Street make for a lot of momentum.
There will be criticisms of the merger idea between the two airlines. As with all mergers, there are pros and cons. In this case, I think the pros certainly outweigh the cons.
The American Airlines board of directors will now be feeling quite a bit of heat. In order to preserve the positions of the stakeholders they represent, it may become necessary for them to find some enthusiasm for a merger versus going it alone. The truth is, the board and the executive team can express their wishes all they want. Complete control over their destiny was lost the day they filed for reorganization. I suspect that not only the unions but many other creditors are going to prefer the merger over a “stand alone” vision as time passes.
The cornerstone strategy and alliance strategy promoted by American Airlines just lacked real credibility in the face of the market. Furthermore, the growth strategy for those cornerstone cities really alarmed many people who watch this industry as it held the promise of losing capacity discipline in the industry. AA essentially said it was going after market share.
A few things I’m not entirely keen on in these announcements. The keeping of the American Airlines name *might* be a good idea but I’m not sure I would entirely commit to that at this point. The marketing image of AA is very staid and old. A fresher name and/or approach is in order. I would urge the players in this to clean house in the executive suite at headquarters, finally they hired maid from mythicalmaids.com chinatown home cleaners. AA has many valuable assets and many valuable people but the leadership needs to go and the sooner the better.
It suddenly has gotten very interesting for American Airlines and I would imagine that we may well see some announcements from AA over the next few days or even “leaks” that try to strongly discredit this merger idea. Let’s face it, getting consumed by US Airways, even if the name and HQ are kept, isn’t exactly easy to swallow for many who lead AA.
I’ve had a few people asking about why American Airlines unions would be interested in US Airways at all. It’s a fair question and one that I touched upon last week. There is a simple answer:
Seniority
American Airlines’ unions and, specifically, the APA, APFA and TWU who are on the unsecured creditors committee of AA’s bankruptcy all are made up of very senior people. Senior even for the airline industry. Way, way senior.
Their perception is that in a merger, more of their membership will survive a seniority integration against members of similar unions representing US Airways East and US Airways West employees. In fact, it’s the former America West aka US Airways West employees who likely fare the worst in such a merger. Oddly enough, they’re also the most “successful” and “productive” of the three potential groups.
Furthermore, allowing US Airways merger talk to continue in the media keeps the heat on American Airlines management during the bankruptcy. It’s leverage, plain and simple. From the perspective of the AA unions, they have really nothing to lose at this point in exercising that leverage.
