The Indian government has committed $5.85 Billion through 2020 to Air India to keep the airline afloat. Much of the initial infusion of cash will towards settling debts with oil companies that are threatening the airline. This deal is termed a restructuring and it does see some employees being spun off into other companies but this is hardly a solution to an airline for which there is no practical answer.
Air India is a mess. It’s a political and operational mess. It’s the flag airline and therefore is subsidized in ways that few airlines see today. It is a jobs program that keeps hundreds of people employed who have no real contribution to make to the company. And this restructuring doesn’t really fix that.
Politically, no one is going to force Air India to lay-off thousands of employees. It simply won’t happen. Flights to international destinations won’t be rationalized as those flights are viewed as status symbols far more than as revenue earners.
And it won’t get done because the airline is government owned. A privately owned company would have made these changes 5 years ago and, perhaps, might be seeing daylight by today.
Until market forces are permitted to move and influence the needs of India in the airline industry, I think we’ll see failing airlines who are unable to compete with a fully subsidized state airline despite serving a country of 1 Billion people. There is absolutely no sign whatsoever that India is prepared to deal with this as well as other economic issues. The country is to politicized to make such hard decisions.
If anything, I would, at this point, predict that we’ll see waning traffic to and from India, low yields on flights that do exist and no airline alliances with any of Indian airlines in the foreseeable future.
Respected airline consultant and research engineer Bill Swelbar has recently taken a swipe at the idea of a merger between US Airways and American Airlines in a blog post. Swelbar suggests there may be more benefits to a full integration between AA and JetBlue and Alaska Airlines who just as adequately (if not more adequately) cover areas where American is weak (the West and East Coasts).
Swelbar is factual and correct about AA’s weaknesses in these areas with respect to its network and market shares. He’s also correct in that those two smaller airlines do operate in the weakest portions of American’s network.
I see significant problems for that kind of approach. First, Alaska Airlines is increasingly under the influence of Delta Airlines these days and enough so that I do not think it can afford to ignore Delta’s desires entirely and Delta would like competition to go away. Second, JetBlue already has some agreements in place with American Airlines that do bring a benefit but it also has little incentive to cooperate with American Airlines as AA doesn’t bring much to the table for JetBlue.
Both Alaska and JetBlue are working hard to be all things to all carriers in the form of interlining, codeshares and alliance agreements and that works for both airlines very, very well. Alaska works at this from a domestic perspective and JetBlue plays more on the international side of things but they’re both pursuing the same strategy and it’s a strategy that works well for both. Why give up success for the risk of fully integrating with AA and under AA’s management? If I’m a shareholder for either airline, I don’t like the idea.
Furthermore, at this point, this isn’t about what AA leadership wants. It is already rapidly becoming much more about what AA’s creditors want and what their shareholders want. And what they want is performance.
A marriage with US Airways can be disrespected over and over but there are two exceptionally important things to be mindful of. US Airways knows how to run an airline well and earn money despite labor issues. They also know American’s business pretty well and they’ve got an established track record that didn’t exist in the same form back when they made a bid for Delta. Creditors will listen to them carefully today.
US Airways also has the strengths that are complimentary to AA’s network. They aren’t the most optimal strengths but they are one hell of a lot better than American Airlines standing alone. Philadelphia, Phoenix and Charlotte are very complimentary to AA’s strengths. No, there isn’t much overlap that would result in “synergies”. I would argue that the so called “synergies” of reducing capacity via a merger are harder to obtain than generally appreciated, overvalued and largely non-existent today as a result of consolidation and capacity restraint that has gone on for the past 4 years.
New mergers will benefit from scale and operational expertise. They’ll benefit from having a more diverse fleet that permits “right size” flying on routes. They’ll benefit from international alliances.
There is a great example for that last part. US Airways is now the awkward partner in the Star Alliance with United filling that role on a far greater scale within the United States than US Airways does. US Airways could benefit a great deal more from Oneworld than it does Star at this point and a merger with American makes Oneworld very competitive in the United States again. A great reason for Oneworld partners to stand aside and look at these issues with less emotion and more reason.
There is an internal letter from within American Airlines being circulated on various news sites written by John Hale, American Airlines chief pilot. This letter casts doubt that AA pilots would support the idea of a merger between American Airlines and US Airways.
First and foremost, I don’t know how much credibility I can give the characterizations in the letter since it does, after all, come from the one pilot in American Airlines with a strong incentive to calm concerns coming from the American Airlines executive team. He is answerable to them much more than his fellow pilots in the job he holds.
Second, I don’t think pilots like any mergers really. The seniority issues are very stressing. But in this case, I don’t know that AA pilots have quite as much to fear as in many mergers. AA pilots are much more senior than US Airways pilots in general. Furthermore, US Airways pilots don’t have seniority integration and new contract. But if there were a merger, the pilots who are divided at US Airways are vastly outnumbered by AA pilots in sheer quantities. With quantity comes power.
Third, I think executives and other parties are quite afraid of Doug Parker. It’s obvious that the AA executive team would prefer to be the leads in any merger. It’s also obvious that they aren’t in a good position to make that demand. Doug Parker and his team make a very strong operational team and that alone speaks to opportunity from such a merger. They should be afraid of him: He knows how to run an airline in today’s environment.
And the AA executive team should be afraid of US Airways. They’ve learned from other mistakes, they have cash and they have a track record for running an airline that is disadvantaged compared to other legacy airlines and with a fractured labor group. US Airways makes money *despite* having two pilots groups and two flight attendant groups. They can manage new parties in that mix.
Boeing has revealed more details on its definition for the 737MAX now and one significant revelation is the decision to add 8 inches to the nose gear. This was the tough choice engineering wise.
A new pylon and strut for engines will be used in the style of the 787 and the rear tail cone will be extended and the area above the elevator thickened to improve aerodynamics. Electronic bleed air will be added to improve cabin pressurization (which is much like how the A350 will use bleed air)and better means more efficient fuel burn.
Airbus boxed Boeing into this aircraft by introducing the A320NEO. I firmly believe that Boeing was leaning towards a new aircraft but also needed time and space to get where it needed to be with that aircraft. Airbus’ introduction of the NEO made it much more imperative to deliver more efficiency now rather than a decade later.
But with the decision made, I also have to credit Boeing for appearing to have decided to go all in. They are working very, very hard to bring as much advantage as possible to the single aisle wars with Airbus.
Some perceive that Boeing has been slow to release details and I understand that perception but the truth is that American Airlines’ order last summer forced their hand into a premature announcement. Had they not had to make that announcement, these new details would seem very much on time.
Most believe that the status quo between the two manufacturers will be maintained. It is thought that Boeing will have a slight advantage that, according to many, will remain about 2% better than Airbus.
I have a feeling that Boeing might be aiming higher. I don’t think the decisions they are now announcing about this aircraft reflect a company that is struggling to maintain the status quo in the marketplace. They appear to be working very hard to make every gain possible against their competitors to bring even more to the table.
Why do I think so? Because these changes add more risk to their ability to deliver this aircraft in 2017. If there is one thing Boeing knows, it’s that they cannot afford to damage their credibility with airlines further with a late arrival of the 737MAX. This is not an all new aircraft with all new materials and airlines will expect it on time or early.
This won’t be revealed a la One Big Announcement John Leahy Style. Boeing will simply add more and more substantiation to their claims as they continue discussions with airlines. At the end of the day, most airlines prefer to see results over having a grand announcement.
When Allegiant Airlines announced their new carry-on luggage fees for those needing to use overhead storage, quite a few people said “Aha! I told you others would do this after Spirit did it!” Spirit was the first and they do share something with Allegiant. They are both ULCC airlines in the United States.
Will it happen with other legacy carriers? No, I still do not think so. Nor do I think it will happen with LCC carriers.
ULCC carriers aren’t worried about loyalty. LCC and legacy carriers are. In fact, LCC and legacy carriers are very worried about loyalty and a carry-on fee is one of those things that, I think, those carriers realize could be the straw that broke the camel’s back.
Does Allegiant’s move make any difference in the airline world? No, I think not. It isn’t even very newsworthy as it will never affect more than single digit percentage of passengers in the United States.
American Airlines complained recently that in 2014 28 of its prime routes in which its the dominant carrier will be subject to attack by Southwest Airlines once the Wright Amendment is lifted for domestic flights in the United States. Those 28 non-stop routes out of DFW account for $800 million in revenue most recently.
Mostly this is about American Airlines making an over-arching argument for why it needs relief on costs. New competition will assault them even more just as they expect to come out of bankruptcy. Laying that foundation for the courts and labor unions should be expected.
What I wonder is why no one has taken the opportunity to point out that when American Airlines exits bankruptcy, Southwest Airlines will have the highest labor costs of the legacy airlines in the United States and, yet, American still views them as the treacherous competition.
Spirit Airlines has announced new routes from DFW to San Diego, Detroit and Toluca/Mexico City to start on June 21st. I’m pleased about the competition but I still remain uninterested in flying on Spirit myself. The ULCC carrier clearly sees opportunity in the DFW marketplace and I think they are right.
Spirit isn’t going to kill American Airlines on those routes although its notable that American is the dominant carrier on all three. It’s likely to siphon off extremely low value passengers from AA and perhaps even a few from Southwest Airlines.
I like the competition showing up because I think some pressure could be applied to American Airlines on many of its routes.
I suspect we’ll see other LCC carriers such as Virgin America and JetBlue make more overtures to DFW with more routes over time. The airport has the space and let’s not forget that American will almost certainly shrink at the airport in terms of terminal space and will remain very limited in its response to this competition for the next 12+ months.
US Airways (East and West) flight attendants have turned down a contract offer made by US Airways by a margin of as much as 75%. Both unions think the airline needs to reward their sacrifices made during earlier bankruptcies more.
It’s a contentious problem and one that US Airways needs to start getting addressed. They continue to have two unions each for both the Flight Attendants and Pilots of the airline more than 5 years after the America West / US Airways merger. Addressing dual leadership on contracts is a risky move and they need to see the unions, well, unify and show consolidated leadership as well as come to an agreement on a seniority list merge.
Seniority lists that aren’t merged are going to focus the labor of each former airline on what they can get and what they’ve given up. They won’t speak with one voice and they realize that a new contract may reward some much more than others if the seniority lists aren’t merged fairly.
These unions have, if anything, demonstrated their inability to get on the same page. To a large degree, this has been to the advantage of US Airways but it’s time to get it solved. Getting it solved isn’t going to happen by standing on the sidelines and waiting for these parties to make nice with each other. The airline needs to offer some financial incentives to get the unions merged together and on one seniority list. Incentives that diminish over time and that reward fast action.
US Airways needs to show that it can manage its labor harmoniously as well as every other area of its operations. Especially so if it wants to be considered a viable merger partner for American Airlines.
Pinnacle Airlines, a regional airline providing contract services primarily to Delta but also United and US Airways, has filed for bankruptcy. We could talk about how they’ll be getting out of their Q400 flying for United in the NYC area. We could talk about how they’re walking away from some unprofitable flying for Delta on CRJ-900s. We could talk about a lot of things that Pinnacle is doing and will be doing to remain a viable regional airline.
I’d rather talk about the fact that one week before this bankruptcy filing, relatively new CEO Sean Menke and COO Spanjers both got huge raises. Menke went from a base salary of $425K to $675K and Spanjers $275K to $400K. Menke hasn’t been with Pinnacle for long at all, by the way. The argument is that Menke and Spanjers will be filling in for the departing CFO.
I call bullshit.
The board and Menke knew what was going to happen and raised the salaries prior to bankruptcy. They sure weren’t going to get approved for those kinds of massive raises after a bankruptcy filing.
It’s insulting to the staff of that airline, union or non-union, that their delivering themselves raises one week before a bankruptcy filing that will almost certainly find them going to those staff and asking for cost reductions.
Even American Airlines and Tom Horton didn’t have the guts to pull that stunt.
It’s funny, some people think Southwest showed some LUV for the Airtran 717 fleet when the merger was announced between the two companies. In fact, Gary Kelly simply said that, at that moment, the 717 was intriguing to SWA and certainly not a harmful aircraft to Southwest’s fleet plans overall.
After the merger, Gary Kelly started talking about how they don’t fit and they don’t want them.
The 717 is a good aircraft and it would fit some of Southwest’s flying quite nicely but . . . it would complicate scheduling and I think that’s what Mr. Kelly doesn’t want. If Southwest has a 737-700 go technical at an airport, it’s not a problem to drag another 737-500/700/800 up to the gate and hand it over to the pilots and flight crew to use for their needs. You can’t drag a 717 up to the gate and hand it over to the same pilots.
I think the 717 is leaving and I think it will be gone in 2 to 2 1/2 years. Holly Hegeman of Plane Business says they are going to Delta and its a done deal. I say they’re leaving and they’ll find homes somewhere. Boeing Capital if nowhere else. Delta probably could and would be interested in them as they are cheap and fit a seat count that Delta had and no longer has in its mainline fleet. (DC-9-30/40/50 aircraft are leaving the fleet)
The real shame, in my opinion, is that the 717-200 wasn’t expanded into a longer range 717-300/300ER aircraft. I think that would have breathed real life into that airframe and I think it wouldn’t have hurt the 737 line at all. But it became an orphan and, as such, it became unattractive to most airlines. That said, it will remain in the world for at least another decade if not more and it’s got some highly efficient engines that justify its purchase when combined with the used market price for a 717.
One comment from travelers that constantly defeats my imagination is the comment about an experience on an airline that was terrible and that they therefore will never travel that airline again. I inevitably ask when this experience occurred and I inevitably find out it was 10 or more years ago. In one case, a woman I met admitted she stopped flying Continental as a result of such a bad experience back in 1993. She said so in 2010.
Airlines change. In the case of the Continental Woman, had she tried Continental just 3 years later, she would have been pleasantly surprised. Furthermore, stories of bad experiences become anecdotal folklore out there and particularly so over the past 10 years. The world wide web and social media have not only spread anecdotal stories but have encouraged them to flower and provided them with staying power that would have been unimaginable in the 1990s.
You can’t judge an airline based on a single experience. In fact, I would argue that you have to try the airline at least 3 times to start making a judgement. Things happen on every airline.
You also can’t judge an airline entirely on experiences based in one hub. I find American Airlines flight attendants to be old, surly and unpleasant out of DFW but I also know that they’re much better out of New York City bases. The hub has an effect. One can expect a higher number of problems from hubs such as Atlanta, Chicago or New York City than one can from hubs in Denver, DFW or Salt Lake City.
But even if you have had a few bad experiences on an airline, if its been 10 years, you’re experiences are likely out of date and you’re hurting yourself. I myself expended a lot of effort to not fly US Airways (America West) as recently as 2008. It’s 4 years later and I would heartily recommend them to travelers at this point. In fact, I would strongly recommend them over airlines such as American Airlines and Delta. Your chances of a good experience would be higher on US Airways.
Airlines change over time and its worth looking around for current comments before ruling them out as a choice. You may not only save money but experience less impact to your schedule and arrive in a happier state of mind.
A JetBlue Captain began acting erratically on a flight from New York City to Las Vegas. When the captain left the cockpit, the co-pilot locked the door and passengers ultimately restrained the man. The captain began speaking about threats from Afghanistan, Iraq and other places. No doubt he’s suffering from a break and there is nothing funny about that.
The worst part? The aircraft diverted to Amarillo.
I’m pretty sure there were no convenient JetBlue aircraft in the area to fly out there and take over.
It’s notable that not a single analyst, commentator, blogger, newsman or businessman really is enamored of American Airlines’ plan for improving revenue. The plan, at the top level, is: Farm out more flying, try harder at our embattled hubs, rely on our Oneworld relationship.
What is continually pointed out is that working harder and doing more isn’t a plan. Relying on partner international airlines to provide feed isn’t very solid and where it has been deployed as a strategy, it hasn’t yielded the projected results. There are few new partnerships American can engage in at this point as well. They’ve done that work already.
American Airlines has a real problem in several of its hubs. JFK aka New York City is under assault by Delta and United and American is losing more and more traffic there. LAX really isn’t a hub and it too is under lots of competitive pressure. In Chicago, American is #2 against United at O’Hare airport and it is seeing its traffic decline there, too. Southwest is nipping at American from the bottom side by deploying routes out of Midway Airport that offer a real alternative to the businessman traveling to or from Chicago.
Yes, they have Dallas / Fort Worth. American is, by far, the dominant airline at DFW airport and it shows in the fares offered from DFW today. However, other airlines (Virgin America, JetBlue) smell blood and are entering the market place with a service product that is highly attractive to businessmen. Southwest Airlines will slip its leash at Love Field in about 2 years and then American really feels pressure from Southwest at two of its hubs. It’s also the hub with the most expenses. Labor is senior at that hub and recalcitrant at best. You can’t expect American Airlines to maintain its dominance there either. It will remain the major airline there but its share of the marketplace can be expected to decline rapidly over the next 2 years and then its routes will be under assault from all directions.
There is a reason why Delta put a large parcel of flights on the DFW-La Guardia route. They can compete on that route and American is limited in how it can respond. Creditors won’t be amused at American Airlines losing money on those routes to fight off competition.
American has other things against it as well. Its IT system is aging. Its service product is substandard even to LCC carriers. It’s fleet is old and while it will be renewed, much of that renewal doesn’t take place for several years yet. Its website is atrocious and can’t even let a person pre-pay a checked baggage online if a customer so desires. There is no ancillary revenue strategy (there are ancillary revenue products in place but no strategy to truly win passengers.) It’s an airline that, today, is designed to offend passengers and no one is talking about how that gets fixed.
That’s the reason everyone continues to contemplate a US Airways / American Airlines merger. The US Airways team has done all that despite being hamstrung with labor woes and inferior hubs. They know how to make it work and the competitive landscape makes American Airlines hubs in certain areas look much more attractive when someone else is running the game.
I think we’ll start to hear real talk of mergers with US Airways in about 2 months. It won’t take long for creditors to lose their patience at this point.
The relationships that American Airlines has with its unions has been pretty bad for quite some time. This really all kicked off with executive bonuses that were perceived to be out of line with airline performance both financially and operationally. What’s worse, unions weren’t rewarded when executives were and the criteria for reward was fuzzy at best.
The relationships have only gotten worse over time. In fact, I would attribute the rather militant direction of leadership for its flight attendants union, APFA, has been a direct result of American Airlines inability to establish any kind of rapport with that union in particular.
In short, there is no trust between the parties at all. It’s gone and it doesn’t appear that executive leadership wants to improve those relationships. The truth is that the executive team probably correctly realizes that that can’t be done in time to get the cost reductions it needs. So why try to make friends right now? It’s not an incorrect judgement.
These relationships are going to stink for a long, long time. The courts will impose new terms and those terms will likely be oriented more towards productivity than just a reduction in pay. American could get all it wants in the form of lower pay but the airline needs contracts that allow productivity to improve in order to be truly competitive with other national airlines in the United States. Other airlines have that (as a function of bankruptcy) and they don’t.
The exceptional shame of this all is that the unions won’t have much voice in the process. They’re not well funded (in comparison to American Airlines) and any giveback at this point means almost certain loss of office for leadership of these unions.
American needs action now so it can maintain some control over its destiny. Actually, it’s American Airlines executives who need action now to maintain some control over their destiny. Failure to get cost reductions and enumerate a plan for revenue growth will result in a merger or a change in leadership. The executive team has months, not year, to ensure their future.
The unions will fight. They will argue loudly on behalf of their membership. But there isn’t much to win here in court or out of court. There is plenty of established law and precedent that says they will see reductions pay and changes in work rules that will allow American Airlines to sit roughly on par with its main competitors.
And the relationships are so bad now, there isn’t any reason to just go to court and get it done. One way or another, there will be bad blood between management and unions and the sooner this is done, the sooner management can think about ways to repair the relationship in the future.
Customer service rankings of airlines are very interesting to me these days because it is the LCC carriers such as Southwest Airlines, JetBlue and Virgin America who are doing very well in these. There was a time when legacy airlines such as American Airlines, United Airlines, Delta Airlines, etc would be the ones to garner high rankings and largely because they were regarded as full service airlines.
Before I go further, let’s just toss out first/business class experiences. They are typically quite good no matter what airline you are on and it isn’t worth doing too much comparison. The truth is, if you’re flying in first or business class on most any airline, you’re going to be well taken care of.
Economy class is where the differentiation takes place. Legacy airlines have dumbed down their service so much over the past 4 years that few customers see real value in flying on these airlines. The typical customer flying mainline service from one of these airlines can expect a cramped seat on an older aircraft on a flight whose departure and arrival are far more dependent upon a hub system that can have immediate ripple effects when there are problems at a hub. In addition, that customer can expect to pay for checking baggage and even privileges such as a well placed seat or softdrink. Best (or worst) of all: the consumer can expect a less than friendly experience from service staff and that extends from the front door of the airport to the back of the aircraft.
That isn’t the experience on most LCC carriers. To the contrary, a passenger can generally expect to *not* pay for checking a bag, not pay for a non-alcoholic drink, not pay for a snack and even not pay for changing a ticket (Southwest). The aircraft are far newer and frequently have onboard entertainment available for purchase and WiFi for a small service fee. The service staff tend to be friendlier from front of airport to back of aircraft and the fee structures that do exist don’t generally come off as someone nickel & diming the passenger.
In short, the LCC carriers are generally offering far greater value for the price of an air fare than the legacy airlines are.
The truth is that LCC carriers aren’t really low cost anymore in terms of sheer price. In fact, it’s been noted that LCC fares are ranging far higher than once before and often they let the legacy carriers set the price in markets. Where the LCC carriers are winning is in the value delivered: few or no fees, better service, more comfortable aircraft, etc.
Ironically, this is how airlines differentiated themselves until the late 1970s. Then, airlines didn’t get to differentiate on price because fares were set by regulatory authorities. Instead, they could differentiate on schedule and service and they certainly did so. People often flew those airlines based on the kind of service they enjoyed. A TWA passenger wasn’t typically a Braniff passenger. An American Airlines passenger wasn’t typically a Pan Am passenger.
That’s happening again. A Southwest passenger tends to not be a JetBlue or Virgin America passenger and vice versa. The differentiation is on service. Southwest passengers tend to like the reliable, consistent and fast service. JetBlue passengers enjoy the amenities vs price. Virgin America passengers like the full service approach versus legacy airlines.
If you believe that your experiences on legacy carriers has been lacking, I couldn’t shout loud enough in favor of going to the LCC carriers for your needs. The service experiences are far superior (in general) and for the same or lower price. Each has their own loyalty programs that are as generous as anyone else’s as well.
This is an area where Virgin America does very well. They are entering traditional route markets and competing on service for the business traveler successfully. Their schedules are well suited to those travelers, their service product is superior and their prices are vastly more reasonable on those same routes.
And that’s the way it will continue to trend. Legacy carriers who’ve even got their act together are still competing largely on price alone and while that works to a degree, it doesn’t work well over the long term. To a degree, this is being answered with Economy Plus seating on these flights but those service options largely make it possible for the airlines to offer the frequent flier an “upgrade” that isn’t what an upgrade used to be. If it was intended as a real service upgrade of value, the pricing for that seating would be far more competitive than it is.
LCC carriers will continue in this path because they have a sustainable service model and a business model that allows the airline to earn the profits necessary to be sustainable as an airline. They haven’t lost sight of the fact that service with a smile wins customers and keeps them.
The global airlines of the Middle East such as Etihad, Emirates and Qatar have been the focus of a lot of attention for the past several years. Primarily because of their massive orders for aircraft and the size of the aircraft ordered. Anticipated double digit growth that is implied in these orders as well as the competition that legacy airlines from the US, Europe and even Asia are experiencing has brought real competitive concerns to the discussion of the global airline industry.
Bill Swelbar writes about some of these competitive issues in a blog entry of his HERE.
The Swelbar blog is a great read for me because it looks at our industry with more objectivity than one often finds among airline blogs including my own. His analysis of the evolving nature of competition and the next direction it appears to be taking particularly with respect to Etihad, Emirates and Qatar is dead on. I do, however, think that rather than accept the competitive world, many governments will seek to protect their airline industries from this competition for far longer than might be suggested by Swelbar.
The inevitability of change is almost certainly true. The pace of that change is what I question. I also question the outcomes of that change.
Governments, even the US government, get fairly protective of airline industries because they serve not just a business need but a strategic need as well. Airlines based in those countries and which must answer to those governments are viewed as necessary. Those governments do not want a foreign owned domestic airline saying “no” to them in times of strategic needs. Whether or not this is practical or even necessary anymore is another question. I would actually argue that it is somewhat necessary but it could also be accomodated with new laws or even through the use of existing laws and still permit foreign ownership of airlines.
I also think that legacy airlines may be underestimated. New airliners are going to make these airlines more competitive and allow them to offer more point to point services that remove the need for the interim hub connection to travel ultra long distances. We’re already seeing this occur with the 777, 787 and A380. Next generation 777s will strip away that need even more. And as services go to a more “point to point” model, I think we’ll see less demand for the A380 over the next 10 years rather than more. Sadly, I don’t think the 747-8i fits very well into this picture. More to the point, a 777-9x likely fills the 747 role better than even the latest model.
I also think that legacy airlines are, to a point, “getting it” when it comes to creating a business that is sustainable. The capacity restraint shown over the past 4 years alone has been remarkable in the US airline industry and all airlines show no sign of losing that discipline. This business seems to have finally understood the need for sustainability and profitability.
The one factor that, in my opinion, continues to be the wild card is the expectations of the financial markets on these airlines. Airlines have an exceptionally bad reputation as an investment and those markets look for profits every quarter. The nature of the airline business and the impact that the global markets can have on its profitability cause me to believe that airline profitability should, perhaps, be measured over a period of 3 years rather than a single financial quarter.
If in any 3 years an airline can demonstrate a profit, I would argue it is a healthy business.
I say this because I was struck by how much news it made when Southwest Airlines’ CFO predicted a loss for the 1st quarter of 2012 for that airline. Once again, pundits immediately began speculating on whether or not Southwest was a sustainable airline anymore. We’re talking about an airline that has had decades of annual profits in an industry where that is essentially unheard of. A bad quarter does not make a bad airline.
I think that airlines such as Emirates, Qatar and Etihad may be driving the markets and competitive threat but I also think they may well influence world legacy airlines to get their acts in order even more. It’s quite likely that we’ll see a few of those airlines fail. It’s even more likely that we’ll see the bulk of them re-tool, evolve and compete successfully. That’s good for the industry and that’s good for the consumer.
