Airlines now have to fully disclose the “all in” price of fares when advertising them (although a la carte items such as baggage fees don’t have to be disclosed. As you can imagine, airlines hate this. They fear the consumer will perceive the prices now advertised as a massive increase in air fares.
It’s possible that the leisure traveler might but I think airlines aren’t giving consumers enough credit for intelligence. Shopping for air fares has been convuluted at best and consumers know this already. Making the full cost including taxes and fees a requirement for advertising lets the consumer know the true cost of their trip and given the cost of flying these days, making such a purchase is no trivial decision.
When I see airlines saying things like Mcdonald’s doesn’t have to reveal the full cost of a Big Mac, I get frustrated. It isn’t the same thing and air fares shouldn’t be compared to the price of a Big Mac. In many cases, a family traveling can be spending the equivalent of a new sofa on their air fares and that’s a big purchase for most.
Southwest Airlines has managed to earn better than expected profits in the quarterly earnings announcement but that comes primarily from fuel hedging contracts. Profits from actual airline revenues are a bit down from last year and this is largely due to rising fuel costs from increased oil prices.
That said, last year was Southwest’s 39th consecutive profitable year and that, my friends, is really unheard of in the airline industry.
Southwest is going to push hard to manage their capacity and remain rational players in the marketplace with respect to their competitors. By manage capacity, I mean that they’ll hold it steady for this year and probably next year with some growth, perhaps, in 2014. Obviously that plan will change if demand significantly changes.
There are a few things that Southwest will be doing to remain competitive against other major US airlines. First, they’ll work hard to remain the most productive work force in the business. Given that their workforce takes pride in this, that really shouldn’t be tough for them to maintain. Second, they’ll work on taking advantage of fuel economy both in their flight planning as well as by buying more new aircraft. I suspect that Southwest will not hold on to aircraft quite so long as they have in the past but, rather, cycle newer aircraft with upgrade engines and performance packages into their fleet.
Finally, I look for SWA to start looking for some low hanging fruit on revenues out there. I believe that they will be looking at opportunities in smaller communities and I believe they’ll take a long, hard look at operating a single fleet type aircraft to service what I like to call 3rd tier cities and towns. These are the Wichitas, Lubbocks and Knoxville’s of the country. Whether its done with smaller jets a la Embraers or Bombardiers or with turboprops such as the Q400 or ATR, I do believe they’ll do a trade study to determine if they can be players on that level with the same great Southwest service and reliability.
Virgin America has decided it will fly from both Los Angeles and San Francisco to Philadelphia as its next routes. Philadelphia isn’t the coveted route into Newark that Virgin America wants so much but these routes do fit into its value proposition quite nicely.
Virgin America’s value comes into play the most when the flights are longer. Why? Because passengers value the inflight entertainment, inflight internet and on-demand food service on a flight where the duration is longer rather than a shorter hop.
Philadelphia makes for a good fit and I do think we’ll continue to see routes added that are of this nature over time. In my mind, Virgin America’s service works better on flights of a duration that is greater than 2.5 hours. I also expect we’ll see more mid-continent routes over time as well. However, many of those mid-continent routes stretch to the East Coast and that means acquiring slots at many airports that are very, very hard to come by.
It’s possible that airlines will have some opportunity to acquire those slots as a function of American Airlines’ bankruptcy. The problem is that those slots are extremely expensive to acquire. We certainly saw that on the recent sale of slots (ex-Delta/US Airways) from both the NYC area and Washington D.C. National airports. Airlines such as JetBlue were willing to bid exorbitant prices to get them.
Airlines need those slots and most particularly Southwest Airlines and Virgin America. The question is, will they be willing to invest the money to win them? Southwest has the cash but likes a value purchase. Virgin America doesn’t have large cash reserves and has to focus on earning a profit some time soon.
WestJet Airlines of Canada is considering the startup of a turboprop regional airline to run as a sister company to serve destinations that WestJet cannot serve today with its single fleet of 737 aircraft. WestJet pretty much serves all the destinations it can with its current fleet and future growth in Canada will require a different, smaller aircraft.
Currently, many small towns and cities in Canada that can’t be economically served by a 737 are served by Air Canada and its regional airline, Chorus, with turboprops. Fares on those routes are high and WestJet thinks it can lower prices and capture market share.
The likely airliner to be chosen would be the Bombardier Q400 if only because of Canadian ties but I also think it would be a smart choice and it would mirror the kind of success that Horizon is having with the same airliner.
This would be an approach that I’ve long favored for Southwest Airlines. The Q400 has the perfect economics for serving those small communities and the speed necessary to be useful on stage lengths under 500nm. Most flights to such small cities are far less.
It’s true that I’m an ardent fan of using the turboprop for this service and I think legacy airlines are ignoring the economics at their own peril. An LCC carrier that operates a single fleet of Q400 aircraft for serving the smallest of cities and larger towns is quite likely to be able to earn large profits even in competition with major legacy airlines. This same strategy would work perfectly for Southwest Airlines on flights to cities in the Texas regional area such as Lubbock, Amarillo, Corpus Christi and the like. Frequency could go up and costs would go down.
The question is, will labor at such airlines tolerate the startup of such an airline? Part of me says yes, part of me says no. If there is a clear growth path for pilots to enter the business in the turboprop world and upgrade to the 737 at such companies such as WestJet and SWA, I think they might be willing to accept lower salaries for such flying. If it keeps flying “in the family”, I think they may accept it. But it has to be sold right and done with some good guarantees on its implications for existing flights using mainline aircraft.
There have been two airlines hamstrung by scope clauses in particular over the past 10 years. First, American Airlines which has been restrained significantly by its pilots with respect to what kind of flying its subisidiary American Eagle can do. Second, Continental Airlines pilots held a death grip on the company by keeping a 50 seat maximum scope clause in place as well.
Now, with American Airlines bankruptcy filing and the combination of United Airlines and Continental Airlines, scope clauses are going to be massively changed. The United-Continental merger was, in many respects, an opportunity to redefine that scope and there is no doubt in my mind that the parts of United being retained are in part to bolster the case for supporting the loose scope clause that United enjoys over the tight scope clause that Continental suffered under.
Seniority integration between UA and CO is a hot button and CO pilots don’t want to give up the scope clause. UA pilots kind of like the way that scope clause looks and so are working with CO pilots to stir up trouble. Ultimately, a single contract will likely continue to enjoy a loose scope clause if it isn’t even looser as a result of the merger. In other words, expect a whole lot of flying for United to be done by regional airlines that isn’t very “regional” in nature. That’s good news for regional airlines . . . perhaps.
At American Airlines, you can bet that they’ll work very hard to eliminate scope clauses limiting flying and they’ll work even harder to lower pay rates for smaller aircraft due to enter the fleet such as the A319. Pilots won’t have much choice but to accept those changes or they’ll face an airline unable to survive or so massively cut down in size, layoffs will be plenty. They’ll want to preserve jobs at the expense of controlling scope, is my guess.
With these changes in scope clauses, the competitive landscape for regional airlines will change. American Eagle will likely go from being not much threat to being quite a bit of threat. Pinnacle may well file for bankruptcy and, if it does, it will lower its costs and shed unproductive fleet quite a bit. I think there will be plenty of flying available for them to bid for but I think it will be at costs significantly lower than what they’ve been enjoying.
That begs the question of whether or not regional airline flying can survive much. I don’t think regional airlines will go away but I do think we might see more consolidation before things are over. One thing that has prevented a fair bit of consolidation is the patchwork roadmap of scope clauses that have choked airlines so much over the past 10 years. With those gone, reasons for maintaining so many regional airlines kind of evaporate. Some will die, some will be bought and some will grow.
Whether or not it regional airlines can fly profitably is yet to be seen. Legacy and SuperLegacy airlines still need the regional airlines and they’ll need them more going forward if they’re to find the network feed necessary for their hubs. But given the restructuring they’ve all gone through, will they need to farm it out or might it be more attractive to keep it “in the family” going forward. If I were a CEO for a regional airline, I would be predicting a very stressful 3 years ahead of me.
It has been announced by the Wichita, Kansas chamber of commerce that Southwest Airlines has indicated to them that Wichita, KS would retain service. Currently, Wichita has flights connecting it to Atlanta via Airtran and it will likely retain those flights through most, if not all, of 2012. The flights will be converted to Southwest service by 2013.
There was quite a bit of speculation that Southwest would remove Wichita from the schedule like it has several other smaller cities. I wasn’t convinced as Wichita fit kind of well into the existing Southwest system which has significant flights to Kansas City, Denver, Oklahomta City and Dallas which are all at least somewhat economically tied to Wichita. Certainly more so than Atlanta is.
In addition, flying to Atlanta didn’t necessarily provide connection opportunities to those cities that are economically tied to Wichita. Southwest can provide those connections and that has real value for Wichita and Southwest. For instance, let’s say Southwest does provide service and starts flying from Wichita to Kansas City instead of Atlanta. From that gateway city, people of Wichita can access the entire Southwest system (including Atlanta and Florida) without feeling like they’re criss-crossing the country to do so.
I expect that Southwest will connect Wichita to either Kansas City, Denver or Oklahoma City. Kansas City and Oklahoma City are very short stage lengths and Denver is right in the sweet spot for Southwest typical route length.
Aspire Aviation has revealed that Boeing has issued an RFP to GE and Rolls-Royce (with speculation that Pratt & Whitney got included) for a next generation engine for the 777-8X/9X development. The target appears to be about 100,000lbs of thrust (and I’m sure Boeing would like to hear about a growth path to that as well.)
With the combination of new technologies for the fuselage, composite wings that are likely a bit larger and a lower fuel consumption, these new aircraft would definitely be A350 beaters in every category. The current 777 lineup performs well against the performance definitions for the A350-900 and based on comments from A350-1000 customers, the 777-300ER probably isn’t equaled on long haul routes.
A revised 777 that upgrades the -200LR with more seats and as much range, capacity and cargo capacity would clearly be of interest to many airlines. A -300ER that also increases its capacity with equal or better range would also be of great interest to many. Boeing has rightly identified that its the -300ER that is likely the sweet spot in size (or a little larger) for most airlines requiring a high capacity/long range airliners for routes.
The A380 will be around for a long time. It won’t be a big seller over the next decade and will only ever be a success if there is enough growth on long haul trunk routes to require that aircraft. The 747-8i remains an interim solution from Boeing and it still hasn’t garnered much interest from airines. In fact, many airlines have downsized from the 747-400 in favor of the 777-300ER.
Trunk routes will remain but there will be fewer of real importance and requiring a VLA. The 787, A350 and 777 all permit airlines to fly more point to point routes and earn profits. Ultra long haul flights are likely to remain more in the style of “long and thin” than “long and fat”. After all, just how many people are likely to fly from Houston to Auckland, New Zealand even with network feed? Answer: Not enough to require a 777 or 747 for quite some time.
I do think Boeing has the right idea in offering a revised 777 instead of an all new design in this category. The 777 still incorporates some fairly cutting edge technology and with a revised composite wing alone could probably continue as a category winner.
The Texas Pacific Group, now known as TPG Capital, was formed by David Bonderman and other partners in the early 1990s. One of its first investments was in Continental Airlines which became very profitable for the group.
Question: What airline did David Bonderman invest in early 1990’s and remains its chairman today?
There are rumours that Delta Airlines and Texas Pacific Group (who has extensive airline experience) are working on offers to purchase AMR, holding company of American Airlines. Rumours that are reported in the Wall Street Journal.
It’s possible that Delta is preparing an offer but I remain fairly skeptical that they are serious about this since such a purchase would form a SuperSuper Legacy airline that would far exceed any other airline in size. Furthermore, I’m not sure I see how Delta benefits as much from AA’s network given its already extensive network within the United States.
Internationally, Delta already flies to more diverse international destinations and doesn’t need anything AA has to offer in terms of access. It certainly doesn’t need or want access to the Oneworld partnership either.
Regardless, I’ll concede that it is possible that Delta is doing work to see if it thinks it can buy AMR. I also believe that anti-trust attorneys will point out that the likelihood of such a purchase is only made possible if Delta were prepared to give up substantial market presence in some key cities. Cities such as New York City, for instance. Giving away that piece of the pie would greatly reduce the value that AA offers an airline such as Delta. Furthermore, it doesn’t enhance competition or the consumer experience one iota. I don’t see it happening for Delta.
TPG, however, does feel a bit more viable. It was formed by David Bonderman who had great success with its Continental Airlines buyout although it also didn’t do too well with its passive investment in Midwest Airlines. It’s one of the few investment companies that sees potential in airlines and who has made significant attempts to enter back into that business.
Why would TPG want an American Airlines? Because it can do what the present AMR board of directors cannot: change the leadership, change the business model and potentially earn a good return on investment. The AMR board would have to admit it was wrong about a lot of things in order to reverse course and make such changes. That’s unlikely.
If that is TPG’s analysis, they’re likely not wrong. The scale of operations that American Airlines has is opportunity alone. The new fleet coming on board for the next 10 years is also similarly good. AA also has a good network that could earn significantly better revenue that it does now. What it takes to do that is bright and shiny new executive leadership. TPG can lure such leadership.
The main issue for TPG, I think, is can it swing the purchase alone or does it need a partner? I suspect it needs a partner and partners dilute the vision quite often. If TPG is able to find partner(s) and it’s able to be the managing partner, I would say such a purchase has some fair opportunity of being a successful investment.
I also expect that the present AMR executive leadership and board of directors will resist such a purchase adamantly.
When airlines began to use 757 aircraft for flights between the US Northeast and Europe, it was innovative to say the least. Using the aircraft’s 4000nm range, it became possible to serve those long, thin routes with non-stop flights that haven’t been possible with a single aisle airliner since the 707 and DC-8.
757s are aging aircraft now and even with winglets, some airlines are seeing the time come for them to retire these planes. Many speculate that Airbus or Boeing will develop some derivative of the 737 or A320 to replace the 757 on those routes and while it is something that I think airlines would have some interest in, it’s highly unlikely to happen. Despite how much new life the 757 found on those routes, it’s still a very small subset of 757 flights.
Even today, most 757 flights are in the domestic United States and even the trans-continental flights are a subset of all 757 flights. In point of fact, most 757 flights are not trans-Atlantic or trans-continental in nature. The trick with those long flights is to have an aircraft with enough power to carry not just passengers but a good load of cargo and a more ideal aircraft would have closer to 5000nm of range as well.
Once you find the engines (which need to be in the 40Klbs of thrust range), you still have to build an aircraft that can economically carry 180 to 200 passengers and a full load of cargo 4500nm to 5000nm. In point of fact, that starts to sound an awful lot like the 767. And it’s notable that the 767 is still being produced.
I would argue that the airliner that airlines might buy is a 767-200LR that is lightened and which has more efficient engines. Engines that, say, would look something like a downrated GEnX engine. Perhaps an engine derivative of those now being used on the 747.
I don’t think we’ll ever see an airliner like the 757 again. It was always a bit of a misfit in the airline world in that it was designed in the 1970s and had to succeed in the 1980s and 1990s. Its sweet spot was just a bit too high performance for most routes that airlines needed it for. It succeeded as a design and in production but it was not nearly as successful as the 727 or 767.
But I do wonder what a lightened 767 with modern, efficient engines would do for airlines on those trans-Atlantic routes. Or on routes from North America to South America. Or on US mainland to Hawaii routes. There might be just enough use for Boeing to do one more derivative of that airframe and get something out of it. It wouldn’t be impossible to see such an airliner becoming a KC-46B tanker model as well.
US Airways and its pilots have come to an agreement to drop the lawsuit that US Airways filed against its union for a work slowdown. A permanent injunction will be entered into the record, US Airways will be the “winner” and both sides pay their own legal costs.
Color me wholly unsurprised. This was a bad move on the part of the pilots union as there was already precedent in courts going against them and it wasn’t a good way to get the company’s attention.
Instead, the union should be working to unify its membership and get them on an integrated seniority list and then a new agreement with the airline. These pilots have been working off two different seniority lists and without a new negotiated agreement since 2005. That’s 6 years of bickering that admittedly, has benefitted US Airways in that it has kept pilots wages relatively lower than its competitors.
The dysfunction shown by US Airways pilots has stunned me at times. Particularly that of the “East” pilots (aka former US Airways pilots and not America West pilots). First rejecting an ALPA negotiated integration and then forming a new union that could be under the control of the “East” pilots, no one has benefited from this behaviour.
Furthermore, it’s hurt the company as well. Until its labor problems are smoothed, US Airways doesn’t look like a good merger partner to anyone else. After all, who wants to have three different pilots agreements and a labor group that has to be operated like three different airlines?
This is a great video shot at Dusseldorf Airport during a stormy day. The landings are impressive and, at the same time, show just how touchy such a landing can be. What is more surprising is just how quickly the airliners have to “crab into” the wind after takeoff (seen towards the end of the video.)
The Dallas Morning News Airline Biz Blog has THIS entry about a reader question regarding American Airlines’ management and its board of directors. Journalist Terry Maxon explains that AA’s board of directors is full of people with a long tenure and who are reluctant to “fire” the management as it would reflect upon them.
I don’t disagree with his analysis whatsoever. To the contrary, it is the conundrum that many companies face in AA’s situation. However, let’s refer to the definition of insanity for a moment: Doing the same thing over and over again and expecting different results.
No one representing the shareholders (aka the board) is challenging the management (aka the CEO) to do better and to do things differently. Yet, that’s exactly what American Airlines is in need of. A better plan than a focus on its existing hubs that are under attack by leaner and meaner Super Legacy airlines. It’s also in need of a management team that has a better chance of earning the trust of the employees.
The truth is, Tom Horton may or may not be the right guy. We really don’t know that yet. What we do know is that Tom Horton and the rest of the team are a part of a team that has existed at American Airlines in one form or another since the late 1990s. That would be the team that has not succeeded in any real and measurable way but which has managed to simply maintain the status quo far longer than anyone imagined.
There are a number of talented CEOs out there and available to run an airline such as American Airlines. I’ve already more than once expressed my thoughts that the executive team at US Airways could, in my opinion, do wonders for American Airlines. But there are others who understand that the game has changed and that the game requires an entirely different thinking to succeed in what is by any standard a very anemic economy.
American has got one chance with this bankruptcy reorganization. It’s not just about lowering costs (although that is a significant part of things). It’s also about improving revenues and improving the profits as a result of those revenues and that’s something that hasn’t been going on at American Airlines for some time.
Improving revenues is going to be done with more innovation in things like cabin service, routes and partnerships. It may even improve with more de-bundling of services and different seating. To get that innovation in place and earning money as American exits bankruptcy is going to require someone working on that now.
Instead, the perception is that American Airlines is actually focusing on who it is going to pay for aircraft and who it is going to leave with empty hands as a function of removing aircraft from its fleet.
In addition, to succeed, the employees will require more motivation and leadership than they’ve seen in the last 15 years. It won’t be easy for the airline to succeed existing bankruptcy without employees who are motivated to see it succeed. Leadership and management aren’t the same thing. The executive team is actually very, very good at financial management. But it is very, very poor at leadership.
Boeing has announced that it is closing its facility in Wichita, KS in 2013 due to waning projects for that facility. Work will be transferred to its San Antonio and SEATAC area facilities primarily. The closure means a loss of more than 2000 jobs and it will hurt many in the Wichita area.
It’s become clear that Boeing realizes that it needs to locate its work in areas that can provide a cost structure that makes them competitive in the world. Sadly, that means some facilities with militant unions and/or old infrastructure are going to lose to newer sites in “right to work states”.
What it doesn’t mean is that Boeing believes it can do without the aerospace knowledge it has in Washington State. Boeing wisely recognizes that it must rely heavily upon workers there for its continued existence. At least for the next 1 to 2 decades. That said, I also think that we’ll see Boeing diversify its operations more and more across the United States as well as into other countries. Local and regional impacts to its production can’t be tolerated nearly as much in the future if Boeing is to remain a viable choice for airlines.
2011 wasn’t the worst year for airlines and 2012 won’t be either. Instead, I think we’ll see more of the same in most respects.
Airlines will continue to constrain their capacity and that will show more discipine than I thought they had 3 years ago. They’ve proven me wrong and I think the results are too good for them to not to continue over the next 12 months.
Fuel costs will continue to be a difficult thing for airlines to manage. There will continue to be volatility but I don’t think we’ll see anything like 2008/2009. The financial crisis in Europe will reduce some demand on oil but I see no real economic growth in any part of the world that will drive demand either. The truth is that the emerging economies are largely dependent upon demand from both Europe and North America and neither of those economies will see high growth in 2012.
Airlines will continue to make large orders for more fuel efficient narrow body aircraft. This only makes sense as the gains are more than enough to justify the purchases and now is the time to gain an advantage in bargaining with both Boeing and Airbus. Furthermore, airlines need to hedge against their labor costs which will only grow over time.
Aircraft manufacturers have a much more sure path for the next 10 years now. Boeing will be biding its time on improvements to the 777 until it sees more definition of the A350-1000 and it will throw its resources into ramping up 787 production, 787-9 development and 737MAX development. It’s possible that we’ll see a real 787-10 announcement in 2012 but, if so, probably not until the latter part of the year.
Airbus has to get its act together on the A350 and try very, very hard to prevent too much schedule slip. Despite its efforts, I think we’ll see more schedule slip and it won’t reveal the entire picture as that unfolds. While I don’t expect quite the same delay as the 787 saw, it will be a significant delay and it will impact Airbus. They’ll also try to flog the A380 as much as possible and may even succeed with small orders in parts of the world it hasn’t penetrated much to date. I do not see any US based orders for the A380. Furthermore, Airbus made some big promises for the A320NEO and it’s got to work hard to deliver on those. They’ve made it out like the A320NEO is a no-brainer for development and while it is an incremental improvement, the engineering to deliver is non-trivial.
Bombardier will work its tail off to sell more of the CSeries and I think it may even succeed. The sweet spot its lineup offers will become more attractive to airlines once they see Bombardier actually perform in the development and test of this aircraft. The CS100 isn’t the attractive aircraft but its the one that will fly and deliver first. Once the performance of that aircraft is established, I think we’ll see orders from US and European airlines come in large numbers.
Embraer has got a nice grip on the regional airliner business but it also has a problem in that, right now, there is no growth path into a larger plane for purchasers. It has plans to work on re-engining the E-Series but I think they’ll concede the need to develop a larger airliner as well. The Bombardier CSeries presents just a touch too much threat in the future.
I don’t think we’ll see much from the other regional airliners being developed. The Mitsubishi MRJ doesn’t feel quite right for airlines to me and doesn’t offer a growth path into a larger airliner. The orders its racked up so far are fairly paltry and at risk, in my opinion.
The Sukhoi SuperJet, on the other hand, has a real chance, I think. It’s Westernized, it’s flying and it does feel like its the right size. The real challenge in this aircraft is ensuring support and with Boeing as a consultant, it may well have some help in that arena. If it does succeed, that success will begin in Europe as well as for airlines of lesser developed areas such as the Middle East, India and the Far East. If any orders come from the US, it will be years in the making.
If anything stirs in the US airline industry, I think it will be in the LCC arena and I think it will be small(ish) if anything. I do not think we’ll see any legacy consolidation despite wishful thinkers for a US Airways / AA merger. Something like that becomes much more likely in 2013.
I think American Airlines will plod through its bankruptcy in 2012 with a bit of scandal here and there. I think its labor force is about to take a beating on wages and benefits and I think the resulting bitterness will last for years. I also think that United and Delta will be growing a bit more concerned about AA late in 2012 once they have a picture of what AA’s cost structures are likely to be.
2011 was largely a “rebuilding” year for the airline industry. 2012 will be largely so as well. Until the world economies recover, the best the industry can hope to do is manage its problems and earn a bit of money. That’s eminently possible for them to do.
I’m not sure we’ll see much in this territory for SkyTeam or Star Alliance. They’ll continue to succeed and be smart in their attempts to gain more dominance in more parts of the world. I think Oneworld is going to be smarting through this next year as a function of health problems at founding members American Airlines and QANTAS. I also think that gaining the LATAM membership is not nearly as “sure” as they think it is.
The Middle East
After ordering an insane amount of widebodies in 2011, Emirates will order another insane amount of widebody aircraft and beat up on Boeing about its 747-8i. This has begun to feel like an addiction problem.
India
The airline industry in India has imploded and we’re just watching the mushroom cloud of debris settle. For 2012, more explosions and more governmental heads will push even deeper into the sand. Air India has already become the new Alitalia.
The Far East
Chinese airlines will order more aircraft and I expect we’ll see orders from them for 777s and A380s and possibly some A350s. Not unlike 2011. I don’t think we’ll hear about any stunning orders from that part of the world, however.
China will tout its COMAC C919 even harder and most of us will try desperately to keep from laughing even harder. Ryanair will back away from this aircraft quietly, I think.
Japan will find ANA deploying more and more 787s on more and more routes with more and more success with that aircraft. JAL will take delivery of its 787s and find that they not only work well for JALs needs but actually exceed expectations. I think we’ll see an order for some more Boeing aircraft from JAL this year and I think it will be the 737MAX and 777-300ER. No huge numbers but large enough to make a splash.
South America
LATAM got its approval from Brazilian and Chilean authorities (barely) and LATAM will begin consolidating its operations to make more money. I think we’ll see a largish order from LATAM and it will be for an airliner to replace aircraft on both the Brazilian and Chilean side of the airline. The aircraft of choice will be, I think, the Airbus A320NEO and I think they’ll bump up orders for the 787 and 777 as well. TAM has 27 A350-900s ordered and I think that order *might* be at risk. The strategy of using Airbus for narrow bodies and Boeing for wide bodies seems to be a smart one for airlines in that region.
I don’t think we’ll see more consolidation in South America but I do see South America becoming a bit of a battle ground between airline alliances. Most see LATAM going with Oneworld and while I can’t disagree with the arguments, I think that SkyTeam and/or Star Alliance might just swoop in with one hell of a package that may be too hard to resist. If this happens, Oneworld and American Airlines gets kicked in the groin in South America.
Aerolineas Argentinas? The Alitalia of South America in 2011 and the same in 2012. Enough said.
Europe:
British Airways managed to get through 2011 without any huge problems and saw Willie Walsh move up to the CEO position of International Airlines Group which means Willie’s still in charge. Iberia, British Airways’ sister airline, saw Willie stirring things up with plans for a LCC subsidiary. Iberia pilots decided to strike because shooting onself in the foot can’t be just an Indian thing. IAG also managed to get a tentative deal to buy BMI from Lufthansa and become the Emperor of slots at London Heathrow . . . maybe.
Virgin Atlantic didn’t die, didn’t find new partners and didn’t extricate itself from the chokehold that Singapore Airlines has on it. Richard Branson actually didn’t make the news very often except to shout, stamp his feet and act insulted that Virgin Atlantic wasn’t able to do a deal to win BMI. Expect Virgin Atlantic aircraft to start carrying some message against the IAG deal for BMI. I actually think that Virgin Atlantic will have to find an airline alliance to join and if I’m right, I would lay very heavy odds on it being the Star Alliance.
Lufthansa did itself a favor and got rid of BMI and I expect they’ll continue their very conservative mangement of the airline and the subsidiary airlines. I do wonder how much longer Lufthansa can rely upon its A340 aircraft and somewhat expect Lufthansa to bite the bullet and buy the 777.
KLM/Air France: I see nothing here at all. Not in 2012. I don’t expect a large widebody order nor a narrowbody order.
I do expect Ryanair to make an order and I do think it will be the 737MAX. In fact, I think it may well end up being the 737MAX-9 instead of the 737MAX-8. Instead of repudiating the C919, Michael O’Leary will just quit talking about it. Instead, he’ll suggest stripper poles could be installed on Ryanair aircraft.
All in all, I think it will be a tough year for European airlines. The financial crisis on that continent will make it very hard to earn an honest profit and Middle Eastern airlines will continue to erode the long haul traffic that European airlines have enjoyed for decades.
Tomorrow, a summary of what I see for 2012 and the world airline industry.
Over the past 12 months, FlyingColors has doubled its readership and has seen nearly 1000 blog entries reached with enough words written to equal a book with over 1700 pages. But enough about me, let’s look at the last year in the airline world.
North America:
Southwest Airlines did its deal with Airtran and bought itself an Atlanta base of operations and some very valuable landing slots at Northeastern airports. As if that wasn’t enough, it made a firm deal on a bunch of 737MAX aircraft and agreed to take on even more 737-800 aircraft for its routes. However, the airline wasn’t without some trouble: Airtran pilots tried real hard to step on their on feet in a seniority deal with Southwest Airline pilots.
American Airlines struggled (more) and lost more than a Billion dollars (again). Instead of making any real progress with its labor force, it decided to file bankruptcy but not before having made a historic order for aircraft from both Airbus and Boeing for the A320 and 737 series aircraft (with both A320, A320NEO, 737 and 737MAX in the mix). 2011 also saw long term CEO Gerard Arpey depart the company (to work with former Continental CEO Larry Kellner) and AA President Tom Horton took over.
Virgin America has horned in on American’s routes, Frontier has struggled more and more under Republic Airways leadership and US Airways still doesn’t have pilots or flight attendants integrated onto one seniority list. JetBlue decided to fly more to the Caribbean, entrench itself even more at JFK airport and blew it during an October snowstorm (again). United and Delta made money. Quite a bit actually.
I think we’ll see Frontier either spun off rapidly in 2012 or the rapid decline of the airline necessitating bankruptcy of Republic Airways. I don’t see a real strong suitor for Frontier except, perhaps, JetBlue but since Frontier isn’t based at JFK airport, I do wonder at JetBlue interest in an airline like Frontier.
I think we’ll see Alaska Airlines find even more odd partners for its success and still manage to cozy up close to Delta while doing it. Southwest will start painting Airtran aircraft in its colors and operating even more great deals to more places from Atlanta but I also think that if any slots at JFK, LGA, EWR, IAD or DCA come available for purchase, Southwest will bid the cost of a Boeing and lose again.
I think it’s possible that Virgin America will make money in 2012 and I think it is really possible that we’ll all be pleasantly surprised by that. The determining factor? Cost of fuel.
United will order a nice chunk of aircraft and I’ll bet that it will be an order similar in mix to the American Airlines order from both Airbus and Boeing. However, I do not think it will be similar in size. I think it will be a partial fleet replacement with lots of options for incremental change in the fleet.
I think Delta will continue to make a big pile of money with very little controversy surrounding it except that I think Delta will look for and execute a plan to encroach on more Legacy and SuperLegacy airline routes as it has announced its intention to do so from La Guardia Airport. I also think that Delta will decide its not afraid of Southwest and it will decide to give Southwest a taste of bullying it hasn’t experienced before. Particularly in Atlanta. It’s not just an opportunity for Southwest to succeed in Atlanta but it is also an opportunity for Delta to capture lost customers.
I think we’ll see capacity restraint for another year and higher air fares than seen in a long, long time. I do not expect to see another new airline show up and I think we may well see one true LCC depart the picture if things get particularly rough with respect to fuel prices or competition. Milwaukee will become the regional airport it was intended to be instead of a bloody battleground between LCC airlines.
I am somewhat stunned at the lack of nominations for choices of Airline of the Year. That said, I did manage to spend quite a bit of time thinking about the subject.
Domestic airline of the year isn’t hard and withour further ado, I name:
American Airlines
Believe it or not, it was a touch call. I did consider Southwest Airlines as well for the obvious reasons of its own moves throughout 2011. However, I think that American Airlines was more consistently in the news for both good and bad reasons. The airline spent 2011 managing its problems, announcing poor financial results, trying to come to agreements with its labor groups (and sometimes failing), buying a new fleet from both Boeing and Airbus and, finally, announcing its bankruptcy. Southwest Airlines was in the news quite a bit as well but more inconsistently overall.
For International Airline of the Year, it was harder. A number of airlines made heavy news at one point or another. Most recently, QANTAS had quite a thundercloud around it with its shutout of labor. Lion Air made noise with its Boeing 737MAX purchase committment as well. LAN and TAM airlines were prominent as a function of their tortured merger needing approval in 2 different South American countries.
But there is one airline who did make more noise as a function of its creation and how its managed its brands. For International Airline of the Year, I name:
International Airlines Group (IAG), operator of the British Airways and Iberia .
IAG is perceived as an airline holding company but it really isn’t operating like that and for proof look no further to Willie Walsh and his prominence in answering Iberia’s labor problems late in the year. They are two brands that will operate and are already operating quite closely together. They’ll harmonize more over time but IAG is “the airline”.
In addition to operating as an airline in 2011, Willie Walsh’s prominence on issues regarding both brands and aircraft purchases, IAG also managed to snatch the purchase of BMI right out from under Virgin Atlantic (though the deal still has to be approved in the European Union.)
Over the next many days, I’ll be doing my traditional year in review for 2011 on what has happened and what will happen with airlines in 2012.
It’s been revealed that American Airlines had been engaged in preparations for bankruptcy weeks in advance having engaged Rothchild’s as a financial advisor in the process. AA is now asking its bankruptcy judge to retroactively approve Rothchild’s services for the course of its reorganization.
Some may think this shows a darker side to what led up to the bankruptcy but it really comes as no surprise to me. The mere fact that American did file for bankruptcy was proof they were preparing for it as it is no trivial process and requires answering a lot of “what ifs” if you plan to do it right.
American Airlines would likely need financial advice during the process and having a heavyweight like Rothchild’s on its side makes for a smoother discussion with a variety of creditors. The judge will approve Rothchild’s and Rothchild’s will earn its money over the course of reorganization.
However, the success of the reorganization remains in the hands of the executive team at American Airlines and that’s as it should be.
Southwest Airlines and Airtran flight attendants have come to an agreement on merging their seniority lists now and it smells like a similar deal to what the pilots enjoyed.
SWA flight attendants, 10,000 strong, receive enhanced job security and seniority while Airtran flight attendants get an Atlanta base and better wages. I would not be surprised if Atlanta is “fenced off” as a flight attendant base for former Airtran flight attendants for a period of time.
Both unions have to vote to ratify the agreement but expect that to be done quickly as there is no incentive to try to wait things out if the pilots’ negotiations are anything to go by.
