American Airlines Chief Commercial Officer, Virasb Vahidi, has apparently been given the task of promoting the idea that American Airlines be allowed to farm out more flying to regional airline partners which is currently against the contract AA has with the Allied Pilots Union.
American wants the ability to send flying up to 88 seats out to regional partners using as much as 255 aircraft (50 to 70 seat flying is limited to just 47 aircraft right now) or 50% of the mainline fleet, whichever is greater.
Of course it does. Because this is what makes it competitive against airlines like Delta and United Airlines who already have the ability to access regional airlines for that kind of flying. The concept of right sizing aircraft to demand is perfectly sane and I would go so far as to say it is way overdue for many airlines. All too often, we’re seeing high frequencies of 50 seat (or less) jets to destinations that would be better served with 2 or 3 frequencies of a 70 seat jet.
But I have to ask a question: Am I the only one who sees the continued farming out flying to other entities as a stop gap measure? At the end of the day, it feels economically inefficient compared to simply being able to operate the aircraft you need to operate within a consolidated infrastructure at labor rates that make sense. When do pilots and other flight crew recognize that it really is no difference to fly an Embraer E-170 for a regional at a lower pay rate than it is to accept flying that same aircraft for a mainline airline? And, in fact, the ability to upgrade via the seniority system becomes easier, no?
Let me suggest something radical here for American Airlines and its unions: Bring it all under the AA roof and negotiate competitive pay rates for each class of aircraft based on seat count. Be smart and pay a living wage and consolidate the flying into something more rational than what exists today between other regional and mainline airlines. Be aggressive and find those savings in the forms of productivity, employee reward and using one infrastructure to win against the other SuperLegacy airlines.
Mind you, this requires unions such as the APA to concede that low pay rates are required for small, regional flying and productivity gains are necessary to beat the competition. This requires AA to recognize that it has to reward its employees for those productivity gains and for accepting those lower entry level pay rates. That’s pretty radical for both parties.
It seems to me that regional airlines all to often are killing themselves over contracts for flying using airliners that are just stupid to use in this economic climate. 40 seat Embraers are still being used simply because of scope clause contracts that leave airlines no other choice. It artifically raises the cost of tickets and leaves those same regional airlines stuck with aging equipment that has no value on the used market and which is unreliable for the flying its being asked to do today.
I’m suggesting sanity and I realize that suggesting that in the airline industry is foolhardy on many levels. But . . . airlines figured out capacity control. They figured out some revenue enhancements via a la carte pricing. Why can’t unions figure out how to grow jobs and provide more stability for its work force overall?
Consider the impacts to a regional airline pilot who is new to the business. Under the current systems, this guy may bounce around several times and each time he/she starts anew at a regional airline or mainline airline, they start at the bottom. Wouldn’t be nicer to enter into one seniority system, enjoy a relatively stable if fairly low income in a relatively stable base with an upgrade path that can span your career. Isn’t that worth giving more productivity and accepting the lower wage given the quality of life and quality of work improvements that come along with that?
I would suggest that if AA wants to really compete and by AA, I mean both management and labor, why not get radical and try something that takes competition to another level? If you do, you potentially cut down SuperLegacy airlines at the knees on the cost side and win more business which translates into potentially far greater profits. Imagine just how nervous Southwest Airlines gets with that kind of productive, rewarding system showing up in its own backyard?
First you have to show up at the negotiating table with an attitude of wanting to embrace a real change on both sides. Trust is needed and trust has to be given. This can’t be about who gets to screw who. It’s got to be about two parties coming together to save their asses against all others. That requires a bold move in these days.
It is being said more and more that rising fuel prices are forcing a rise in air fares and that message is being driven by the airlines. While there is some truth that increasing instability in oil prices is raising the cost of fuel, that isn’t the whole story.
Oil prices have been unstable for nearly 10 years considering the trend of rising oil prices since 2001. those rises have been impacting airlines over and over again. In fact, they are even somewhat predictable and that is why fuel hedging by airlines has yielded generally good results. If anything, airlines take a hit in quarterly reports when fuel prices go down because that means their hedge *costs* them money.
Airlines aren’t being greedy. A $27 Billion company such as Delta *should* be earning a profit even in tulmutuous times. In fact, airlines are doing what they should have been doing the last 30 years: controlling capacity and even working together (legally) in the market places to support sustainable air fares that yield a profit. That’s being done in two ways.
First, airlines are constraining growth of their companies and their capacity on certain routes. This may become problematic for many as there are routes that would benefit from a better sized aircraft that are now either being served with too many frequencies by 50 seat jets or not served enough with right sized jets. Airlines need a 100 to 130 seat airliner that they can operate via either regional airlines or themselves that will permit a cost structure that yields a profit. Supposedly, the CSeries does this. In practice, I do not know if we have that airliner . . . yet.
Second, airlines are “signaling” their competitors with air fare increases. Airline A raises prices (often somewhat tentatively) and Airlines B through Z either stand pat, meet the increase or even decrease their prices. It works like an auction for a good that can spoil. Right now, the US airline marketplace has no upstarts that want to pick fights with the larger airlines. The larger airlines know it is in their best interests to agree to those prices increases unless they absolutely are going to either lose marketshare or suffer unfilled aircraft.
For the past 4 years, a great deal of discipline on the part of airlines has been shown in both raising air fares as well as manaing excess capacity and it shows in the reports of profits by airlines who are still in the midst of a severe economic whirlwind.
Airlines are trying to push air fares upwards now and they’re citing rising fuel costs. Make no mistake, fuel costs are the bane of every airline’s daily existence and they must watch them and respond if they expect to earn a profit.
And fuel costs have risen. But let’s not forget that air fares rarely drop quickly when fuel costs fall. So, yes, it’s necessary to raise prices when costs go up but that isn’t the only component going on here.
The truth is, US airlines have “gotten it” in a way that they haven’t over the past 40 years. Capacity discipline on routes is the cornerstone to all of them succeeding and even their fare hikes and fare drops are negotiated in a public ballet of bids made by each airline to see if others will follow.
But it’s capacity discipline that lets them raise fares and fuel costs that require them to try.
Virgin Atlantic is expressing its dismay (formally) at the British Airways / IAG purchase of BMI from Lufthansa.
This, of course, surprised absolutely no one except, perhaps, some lonely person staffing a North Pole research station.
The truth is, Virgin Atlantic wanted BMI and Lufthansa didn’t want to sell to Virgin. The perception is price but I do wonder if there wasn’t more to it than that. The purchase by IAG is a good move as it allows British Airways to become an 1800 lbs gorilla instead of a mere 800lbs gorilla. I honestly think the EU will allow that purchase to go through with, perhaps, a requirement that a token number of slots at Heathrow be sold.
I also think that Virgin’s argument that Scotland will be hurt by this purchase is disingenuous at best. First and foremost, I’m not sure the rest of the EU including Britain cares very much about what happens to Edinburgh or Glasgow or Aberdeen. Second, this isn’t about Scotland and Virgin would do much better to make the argument that it is about slots at Heathrow. Slots that are extremely valuable and which constrain competition over and over again.
One has to wonder why if Virgin is so concerned for Scotland’s welfare, it doesn’t buy some aircraft and run the routes itself. In fact, I’ve been wondering for 2 years why Virgin doesn’t just operate a LCC carrier in Europe a la Virgin Blue but it doesn’t. It did once buy a Belgium airline and operate an LCC carrier in Europe from Brussells but that adventure wasn’t successful. Primarily because it was hubbed in Brussells and it was a purchased operation that didn’t itntegrate with Virgin Atlantic.
For some reason, Sir Richard Branson and Virgin Atlantic seem quite afraid to organically build a domestic branch inside the UK and if it is reluctant to do so, why should anyone care about them in the BMI deal?
Singapore Airlines is going to offer a final, special round trip flight between Singapore and Hong Kong to say goodbye to its passengers 747-400 fleet on April 6th. Singapore has replaced its fleet of 747-400 aircraft with 777-300ER and Airbus A380 airplanes although it will continue to operate a cargo fleet of 747-400s.
Singapore has had a long history with the 747 and despite many wondering if they’ll take on the 747-8i, I do not think they will. This airline has enough capacity and it is the one airline that continues to succeed with the A380 in every way. Furthermore, the 777-300ER is more than capable of filling the roles found underneath the A380.
The future is more direct flights and the A380 and 747-8i are airliners that serve massive trunk routes better. There are only so many of those routes so I suspect airlines will focus on one or the other aircraft despite the fact that Lufthansa isn’t going to do that. I’ll point out that Lufthansa also still operates A340 aircraft instead of 777s. It’s the exception that proves the rule, really.
This is the first real goodbye for the 747 but it won’t be the last. I strongly suspect we’ll see this happen at QANTAS some time soon as well, for instance.
Southwest is doing something interesting with Airtran. They are not only absorbing the airline, they’re using it as a proxy for getting heavily involved with international flying to the markets that should be very interesting to Southwest in the first place.
The latest announcements are for routes to Cancun from Denver and Austin on Airtran equipment. The knowledge base is there for flights to Mexico and the Caribbean from Airtran staff and Southwest has the strong bases in cities that Airtran has hardly flown to. This is a powerful combination and it should work very, very well for Southwest.
It does bring to my mind a few questions. Does this mean Southwest will adopt Airtrans’ reservations system? Or does it mean that it is finally working hard to build its infrastracture for a newer, better reservations system? Southwest needs this more than it needs an early delivery of the 737MAX.
I also wonder if Southwest won’t begin entering into Canada in the next two years. There are a lot of very expensive routes to Canadian cities that could be very ripe for Southwest to enter into. Chicago to Toronto comes to mind as just one excellent route (Currently, the best prices are WestJet codeshares on American Eagle and that tells the whole story right there.)
So far, I like how Southwest is using their acquisition for international travel and it may well end up being one of the truly great benefits to come from the merger.
Given all the airlines who have flights to Hawaii, a huge leisure destination, is Hawaii the right choice for an airline such as Southwest Airlines?
I think it is. Make no mistake, the market that Southwest would enter into after such a decision is the incredibly competitive West Coast to Hawaii market but I think Southwest could offer something that even the experienced airlines can’t.
Exceptional service and better than average comfort in economy class. Let’s leave out the idea of flying there in Business Class on your airline points. It’s irrelevant to earning revenue. Instead, let’s consider the economy class service of airlines serving Hawaii. The cheap seats that people *buy* to go on a vacation.
You can bet that Southwest can offer a better than average experience to Hawaii and I think they can do it profitably with the 737-800 and very profitably with 737-MAX8 aircraft.
Will we see it this year? No. In fact, I would argue that it’s unlikely we’ll see it in 2013 but I do think we’ll see it in 2014 and I think that, like most SWA efforts on new routes, it will be done in a way that will be both highly efficient and highly rewarding to a customer.
Consider that a flight from LAX to Honolulu isn’t any farther than some of Southwest’s trans-continental flights today and that their choice of aircraft can and will permit them to offer no bag charges for the first 2 bags. Their seating is more generous than average and their flight crews are generally happy to see you and serve you. Better yet, SWA frequent flier members can use their points for a *value* oriented flight to Hawaii that based on points values probably will seem frugal compared to many airlines.
According to media reports a TSA screener decided to help herself to $5000 in cash from someone’s jacket as it passed through security.
Let’s take a moment to think about the brazeness of such a thing.
Now, think about this: How much does it cost to corrupt an FBI agent? How much would it cost or what would have to be done to corrupt an Immigration and Customs agent? How about your local police officer? In almost all cases, it’s pretty hard to put a price on that kind of act for most people.
What we do know is that when law enforcement people are poorly trained and poorly paid, the most we can expect is justice at a price and the worst is corruption.
So, if a TSA officer thinks its quite possible to take $5000 from a passenger putting a coat through security, how much would it cost to corrupt that TSA officer into permitting a threat to security to pass through unnoticed? Probably as little as $5000 is my guess. And that’s pretty cheap to a terrorist, I suspect.
If a TSA officer is willing to steal from passengers and if a group is found to continually have such lapses in a particular airport such as JFK in New York City, how good is our security?
Damn bad in my opinion. And instead of addressing security theater, our department of Homeland Security continues to insist that the vast majority of TSA officers are good. That may even be true but it would appear that there is enough of a rotten core to certainly be a serious weakness in security.
After flying for most of my life and that equates to approximately 41 years of flying, I feel no safer today than I did at the beginning and, in some ways, I feel a lot less safe because we don’t require ethics, training and strong morale in our security. Instead, we require sexual assaults in order to be permitted to get on an airplane.
First Spanair and now Hungary’s Malev airlines have shut down suddenly leaving passengers stranded and lessors contemplating more used aircraft sitting on the market. We all know what passengers go through when such a thing happens and we even know how crippling it can be to a small country when its main airline goes “poof”.
Europe and other parts of the world aren’t immune to the economic problems going on today in the airline industry. However, we often get surprised by these shutdowns elsewhere because there is often two things at play that we don’t see much in the United States: pride and a lack of transparency.
At the end of the day, it’s still quite the thing for a nation to have it’s own indigneous airline industry. Practically speaking, it’s often silly in the world we live in today but it remains a focus for leaders in countries around the world. There is a eason why Alitalia has survived as long as it has.
Furthermore, that pride leads countries and their airlines to hide financial problems rather than address them. It’s not entirely the airlines’ fault. Political pressure is brought to bear to keep airlines doing prideful things even when they make no economic sense. Even worse, in 2012 we still have countries financing their airlines.
Nations keep making huge sums of money available to their national airlines to continue operating. Money, to an airline, is oxygen and very hard to refuse. But when here is no ultimate consequence for poor decisions, the airlines become very dependent on that kind of oxygen and never enforce self discipline in their operations.
This is two small airlines in Europe. What needs to be considered is that there are quite a few larger ones in Europe that get both direct and indirect state support that are not only not financially solvent but aren’t being forced to consider the world they actually operate in.
This is true for several parts of the world and I’ll wager that we’ll see both large and small, old and new airlines fail in the next few years. Some will fail because countries can no longer afford to inject hundreds of millions of dollars into them and some will fail because of pride. Still others will fail because, at the end of the day, they are a shell game. (Lion Air and Kingfisher come to mind with respect to the latter.)
Spirit Airlines has added an “unintended consequences” fee to their airline tickets amounting to $2 / ticket fee because regulations now require airlines to permit changes to a schedule for up to 24 hours of booking without paying a penalty.
It might highlight what Spirit doesn’t like about regulations but it is just punishing customers blatantly again and passing the blame off on politics. The problem with that is that the public is more sophisticated than that and I question if Spirit isn’t just throwing a big temper tantrum in 2012.
AMR / American Airlines CEO, Tom Horton, has outlined “the plan” for American Airlines to restructure and succeed in today’s airlines markets. That plan is really a set of goals and rather than dissect every one immediately, let’s take a look at some key points I think are weak.
1) Increase revenues by $1 Billion through network and fleet optimizations and product improvements.
This is vague. And combined with the intended path to stick with the cornerstone markets strategy, I fail to see how these improvements come about since AA is under attack in most of those cornerstone markets and will be under attack by several airlines for the next few years. I think they may well lose more revenue than gain if they adhere to the idea that their longstanding mainstay hubs are what brings it all home.
2) Costs savings of $2 Billion a year through restructuring labor agreements, debt, leases and through improving agreements with third party vendors.
Maybe but I think everyone at the table is smart enough to know that the vast majority of that will be expected to be realized from labor. That’s a tough uphill battle with the unions. They can get there but can it be done without thoroughly trashing the morale of the company which leads to a worse service product, not better? I doubt it if we’re talking about the current management team.
There really isn’t much to the plan in terms of concrete pathways to success. There are goals and promises but those plus $3.98 buys you a Starbucks cappucino. Clearly American plans to make real gains by getting rid of bad and expensive leases, old aircraft, etc. And that will help considerably. But what gets ignored is just how much hide has to be taken out of a fairly angry labor pool. Furthermore, American has had an increasing problem with revenue and I think it is primarily deriving from their insistence on the cornerstone market strategy. That strategy is more or less “Let’s build even stronger hubs!”
The problem is, airlines such as Delta and United are already looking for revenue opportunities in many more different ways and some of those opportunities are coming at AA’s expense already. I refer the reader to what is going on in the New York City area as well as Los Angeles. And AA is already up against a much more competitive airline in the form of both United and Southwest Airlines in Chicago. DFW is now getting attacked by several LCC carriers as well as Delta. This doesn’t bode well.
I would maintain that evolution won’t get AA where it needs to be. Revolution will and we won’t see revolution until the board of directors has changed.
Ryanair’s CEO Michael O’Leary has decided to express his disappointment in what they’ve seen of the 737MAX so far. He mentions that what they’ve seen from the A320NEO so far, they’re impressed but what they’ve seen of the 737MAX so far does not. O’Leary, not surprisingly offers that anybody buying aircraft right now is nuts given the prices.
But the world has changed. It’s not the late 1990’s or early 2000’s and manufacturers are not struggling to sell aircraft. To the contrary, they are struggling to meet demand based on orderbooks. Ryanair got stunning prices for their original massive orders. Enough so that they could buy them, operate them for a few years and sell them at a profit. Neither Boeing nor Airbus is interested in making such deals anymore and rightfully so.
Airlines put off buying large quantities of aircraft for quite a long time and now the legacy airlines not only want them, they need them. If O’Leary and Company wish to continue to operate a successful ULCC, they’ll be lining up to buy them as well because they do offer the kind of incremental gain in efficiency that is going to make the world’s legacy airlines much more competitive with ULCC’s like Ryanair.
The truth is, I think the Airbus A320NEO does fit Ryanair’s needs a bit better these days. But that would require a fleet change that would take years to accomplish and with A320NEO delivery positions reaching “unobtanium” levels for the next decade, the 737MAX probably does offer the best option given their position. One thing is sure, the COMAC 919 isn’t going to deliver what Ryanair needs and certainly not on time. Airbus can’t build more even faster to meet the demand on the A320NEO even with some airlines orders going away. So I’m not sure why O’Leary wants to make an enemy of Boeing.
The truth is, Boeing will be happy to sell to O’Leary and take his abuse while they do it. They’re just not going to give away aircraft anymore and it appears that it will take O’Leary a while longer to realize the position he and his airline are in.
The Pension Benefit Guaranty Corp has been particularly visible since American Airlines filed for bankruptcy reorganization. Nothing scares PBGC more than an airline in bankruptcy. Why? Because that’s how airlines have dumped their pension obligations. PBGC now holds those liabilities and it really doesn’t want any more coming their way.
American Airlines’ obligations scare PBGC (who is already underfunded) and so PBGC has been shrill in its warnings to AA in the media that they should keep their obligations and work things out with employees. AA almost seems to be toying with them when it made a token payment into its pensions after bankruptcy filing. The truth is, I feel almost certain that AA will dump its obligations. I think they’ll find any argument necessary to justify this and I think PBGC sees the writing on the wall.
AA has been rather disingenuous with its own PR on the subject. For instance, their claim is that “most” employees would see no loss of benefits. That turned out not to be quite true. In fact, about 13% of the work force at AA would see a loss of benefits and the group that takes the substantial hit are the pilots. Truth be told, I’m kind of on the pilots side on this issue.
Why? Because the seniority system force them to put all their eggs in one basket when it comes to retirement. Because of that system, they have no backup plan and a significant reduction in benefits really does hurt them when compared to the investment they’ve made in making a career at the company. But its those pilots pensions that AA wants out from under the most.
As much as I do feel for labor groups who would lose if AA dropped the pensions and as much as I wish for it to not happen, I think it will. In fact, I think we’ll see that move in a very short time now.
Quite a few cities are getting surprised by who is going to retain Southwest Airlines service and who isn’t. The analysis by most is that it’s all about whether or not the city is big enough to retain service by Southwest’s standards and while that’s true on the surface, there is more to the story.
It’s about who’s running the airport and who is running the city. If the city has an airport board and director who knows how to make a business case to an airine, Southwest will listen. If those people know how to supply valid data to Southwest, the airline will listen.
It’s also about what city is willing to partner up with Southwest and even encourage local business to use Southwest for mainline service.
But even then, Southwest is smart enough to look at what it can change in the existing airline model for a city. A great example is Wichita, KS. Southwest knows that it can provide service to other Southwest cities that make far more sense for travelers from Wichita than the current Airtran service from Wichita to Atlanta.
Yes, it’s about the money but it is also about who wants to get or keep Southwest service and make the business case. A good airport board and airport business director can make all the difference.
Spirit Airlines got a bit nasty this time with their web based advertising when they put up a message to anyone visiting their website that said:
“New government regulations require us to HIDE taxes in your fares. This is not consumer friendly or in your best interest. It’s wrong and you shouldn’t stand for it.”
It’s dark, ominous and just kind of mean spirited. The truth is, consumers have made it crystal clear for years and years that they want the base, all in price for their air fare. If Spirit thinks this will win over customers to their side in a public spat, I’m pretty sure they’re wrong this time.
Spirit has had a tendency to be rather brazen with their advertising and, frankly, while I think it’s in bad taste, it’s certainly their choice and it certainly never has been publicly inappropriate. Nor is their latest message. They are free to criticize but I think they made a mistake in their calculations this time.
Spirit wants to continue advertising fares that make it seem that someone can travel a thousand miles for $9. Well, you can’t and never you could. Their own somewhat deceptive practices have been eliminated and Spirit has no way to up the ante this time.
Fly ’em if you want. I may even one day board their aircraft but don’t kid yourself into thinking they are the champion of the consumer. Just take a look at their a la carte pricing.
Earth is receiving a flash flood of charged plasma particles as the result of a solar storm that has erupted. Virtually all on earth really will remain unaffected by it but the airline industry actually has to pay attention.
Airlines will route their flights further south from the North Pole (on arctic routes) for instance. This will help reduce radiation exposure at altitude and potentially ensure that airliners remain in communication with the appropriate authorities.
The frequencies used on polar routes as well as on long trans-oceanic routes are High Frequency (HF) and these frequencies are most commonly affected by solar storms. However, that’s not the only thing that can be affected. It’s not unknown for satellites to be knocked out of communication due to such storms and even GPS positioning can be affected. It’s a known threat and one airlines know how to plan around.
Airlines will fly their aircraft at lower altitudes in some cases and even route their flights on southerly, longer routes to avoid the North Pole which is where much of the plasma particles enter the earth’s atmosphere. Are you in danger? Absolutely not. In fact, the radiation exposure concerns rest primarily on flight crews who are already exposed to more radiation as a function of their jobs at 30,000+ feet of altitude.
At this point, we hear of Delta, TPG and US Airways all doing their work on investigating an acquisition and/or merger of American Airlines. While many think Delta is credible with significant carve outs of the AA system, I do not. It isn’t just about competition on routes, it’s about size becoming so much larger that pricing power comes along with it in the markets. A realistic combination of Delta and AA would realize a company that is 1.5 times larger than the next largest airline and massively larger than virtually any other airline in the world. That kind of dominance can influence much more than just the price on a particular route and I don’t think the US government or the EU is interested in seeing that kind of pricing power.
As for TPG, I think they’ll play things very close to the vest and keep their intentions unknown until the last possible moment. I do think we’ll see them look for partners in such an acquisition. I also think that TPG might do what’s best for the company in the sense that they’ll oust management and directors who have long term tenure and who aren’t advocating for change and new leadership. American needs more revolution than evolution and I think TPG knows that.
US Airways has the best management team for American Airlines, in my opinion. That team knows how to fix things operationally and knows how to extract profits and revenue from sub-par conditions. That said, I think the prospect of merging those two companies given the labor problems on both sides is a bit daunting. Such an integration needs to be able to take full benefit from all the synergies a merger offers and having not one, not two but three pilot groups at odds with each other would not be healthy. The same would be true for flight attendants. I struggle to imagine how even the US Airways team makes that work well.
At the end of the day, I think every party will move slowly and wait to see how things develop with American Airlines. What they win in terms of concessions in bankruptcy will determine just how attractive an acquisiton they may be. Right now, I continue to think that the most likely outcome is American Airlines as a stand-alone company. Why? The cash holdings they have allow everyone to maintain the status quo at this moment. AA has no need to go to anyone hat in hand to ask for DIP financing.
Southwest Airlines has decided to change its seating on its Boeing aircraft to a thinner, lighter seat that permits an additional 6 seats on its airplanes. Now, instead of 137 seats on its 737-700, they will have 143 seats. I’m sure the “upgrade” will occur on its soon to arrive 737-800 aircraft as well.
It’s a reasonable move on the part of SWA. First, most trips on SWA are less than 2 hours in length which means even a slightly less comfortable seat is OK and probably doesn’t impact the customer much at all. And we don’t know that the seats are less comfortable. The truth is, the modern seating being offered for airliners looks uncomfortable but usually ends up retaining the same comfort levels. This new seat doesn’t require SWA to reduce its seat pitch and that’s a good thing from my perspective.
The additional 6 seats potentially offer more profit for Southwest and it could use more profit. While they continue to be the most consistently profitable airline, their costs are now in line with legacy airlines (mostly) and adding more profit to each full flight helps offset those costs. Based on my own flights with Southwest, those 6 extra seats will contribute heavily to their bottom line as it has become rare for me to see a flight less than completely full. In addition, Southwest’s load factors have soared over the past few years when they have traditionally been substantially less than legacy airlines. Again, more seats helps here.
Southwest is also making its moves to integrate the Airtran system into the SWA system. We’re now seeing Southwest announcing flights into Airtran cities on routes that are either the same or nearly the same as what Airtran had. There are no surprises so far and I do think that Southwest is moving methodically along in its plans now that it has seniority agreements in place for both pilots and flight attendants from Airtran. Southwest says it will take several years to integrate. I think that Southwest will build steam quickly and end up integrating the substantial bulk of the two airlines faster than expected. All indications point to Southwest growing quickly comfortable with the Airtran system and as they do grow more comfortable, decision making will happen more rapidly.
I also notice that Southwest is already getting aggressive on flying to Mexico using Airtan. They’ve applied to serve new routes from several cities in the US and its notable that these routes do not seem to link up with Volaris routes in Mexico so far. In other words, it appears that Southwest is keeping Volaris on board with existing services but exploring direct travel into Mexico via Airtran. This isn’t out of character for Southwest, they like to experiment when opportunities arise to do so with little risk.
I do think that Southwest needs to decide how it wants to do foreign travel. Will it be with partners or will it do it on itself? Now that it has the international expertise of Airtran in its back pocket, I think they may be more interested in doing this themselves. It is notable to me that despite the “codeshare” its doing with Volaris, Southwest hasn’t really worked too hard to expand it or promote it on a national basis. That makes me wonder if both parties are less than satisfied with the relationship so far.
Regional airlines actually operate in a more competitive environment today than legacy carriers and the differences in their labor and capital costs can be quite significant. What’s worse, many of those airlines are stuck holding on to 1st generation 50 seat airliners that don’t make economic sense against today’s cost of fuel.
Some regional airlines that were (or are) associated with legacy carriers such as American Eagle and Comair have now taken on labor rates that are closer to today’s legacy carrier labor rates with a labor force that is significantly more senior than was ever planned for. In addition, these airlines are most often flying the least cost effective aircraft today.
Other regional airlines such as Republic Airways and Pinnacle have massive debt from acquisitions that can’t be serviced very well in light of what they’re able to earn from serving legacy carriers. All of these airlines face bankruptcy or worse in the next 2 years.
The regional airline world could use some consolidation and while it’s seen some, more would help both rationalize their fleets as well as reduce competition to get those legacy airline routes.
However, the real problem these regional airlines have is the same problem others till have. Scope clauses. These scope clauses that exist today are choking off flying at legacy carriers and forcing these same legacy carriers to continue unprofitable flying through regional airlines. Regional airlines who hold on to these 50 seat jet fleets have aging equipment that can’t be replaced with more fuel efficient airliners and at the same time also have no real substantial value in the used market.
I expect we’ll see some regionals go into bankruptcy reorganization and others to aggressively consolidate their businesses. Regional airlines will need to capture some negotiating power with legacy airlines in order to restore some assured profitability to their business. Frankly, I expect we’ll see some move to show a more disciplined approach to soliciting and maintaining business with legacy airlines and it will be similar to the capacity discipline that we’re currently seeing from legacy airlines.
I’ve often wondered if tomorrow’s legacy airline might look like an airline serving many masters on the same route. In other words, imagine a regional airline servicing two (or more) legacy airlines on the same route with the same aircraft but with each “owning” a portion of the seats available on the airline. It would end the brand consistency that legacy airlines enjoy on regional routes, yes, but I’m not sure there was much consistency in the first place. Why wouldn’t it be better and more efficient for that regional airline to fly one Embraer 175 into a city and fill it with passengers for a number of airlines rather than just one? In a sense, Alaska Airlines already serves this purpose in its agreements with a number of legacy airlines and it works well.
