The Dallas Morning News Airline Biz Blog has This Story today.  I’m certain there are a number of reasons why airline traffic will be down for labor day but I’m equally certain that airlines are starting to feel the effects of far higher prices when it comes to travel demands. 

If this is true, LCC carriers such as Southwest and Airtran are probably grearing up to add even more capacity in existing and new markets.  These carriers can offer low prices on a sustained basis in addition to a basic service level that doesn’t quite show contempt for the consumer.  Legacy airlines such as American Airlines, United and DeltaNorthwest has cut service, introduced a number of new fees and raised fares considerably so far this year.  There isn’t nearly as compelling a case for travel on a legacy carrier as there once was. 

In fact, I’m  not sure what the argument is for traveling on a legacy carrier unless you seek a business class accomodation (available on Airtran, however) or a highly convenient direct flight.  Even the basic frequent flier no longer enjoys many of the privileges accorded to him or her in the past.  Fees for redeeming frequent flier miles are now designed to “buy” the ticket and the seats available for frequent flier redeemers is more reduced than ever before. 

At this point, a traveler has about the same or better experience on one of the low cost carriers, sometimes enjoys *better* amenities (Hello Jet Blue, Airtran and Frontier) on newer airplanes all for a fare that is, at the least, competitive with any legacy carrier. 

Many airlines have already begun their capacity reductions and they probably total about 5% in their markets.  So, we have a 5% reduction in travel demand matching a 5% reduction capacity which means there is about the same amount of people (per seat) chasing a low fare as before.   That means that air fares won’t go up anymore and some airlines will likely begin to look at attracting customers by reducing or eliminating these new fees going into the fall/winter season.  My prediction is that one or more legacy carriers will eliminate or reduce the first checked bag fee for travel sometime in November and December.

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The Milwaukee Journal Sentinel has this story today.

Northwest Airlines has disclosed that it has written off its $213 million investment in the partnership with TPG Capital (Texas Pacific Group) that owns Midwest Airlines. Not only does it reflect Northwest’s view on the survival of Midwest Airlines, such a move also likely influences other investors views of both Midwest and the airline industry.

Texas Pacific Group is not in the habit of investing in companies and letting them fail but without new leadership and a new strategy for attracting traffic, Midwest has a very poor outlook. TPG does have leadership that is famliar with the airline industry such as David Bonderman (founder) who acquired Continental Airlines in 1993 and who was instrumental in bringing Gordon Bethune into the company from Boeing (trivia: Gordon Bethune worked for Braniff as VP of Maintenance at the same time my father was EVP of Marketing.)

However, at this point TPG would have to look seriously at acquiring another airline and merging it with Midwest. That would difficult given Midwest’s fleet (Boeing 717 and now grounded MD-80), its hubs (Milwaukee and Kansas City) and its expensive labor force (as much as 40% more expensive than industry average.)

Midwest has been unable to define itself as either a premium service or low cost airline and its struggle to be all things to all people is bleeding it of cash and opportunity. It would have been much better off merging with Airtran when that airline began making offers in December of 2006. Airtran already operates a large fleet of Boeing 717s and Boeing 737 aircraft and could have brought more long haul routes to Milwaukee and increased traffic at Kansas City as well. Even Midwests strategy of Signature and Saver service (effectively a 4 abreast business class and 5 abreast coach service) mates very naturally to AirTran’s own service product.  In fact, it continues to defeat me why Midwest so ardently defended against the merger in favor of TPG and Northwest except that, perhaps, the senior executive staff saw a chance to remain in power.

At present, there are no other airlines that make for an attractive partner with Midwest except AirTran and AirTran is now expanding its presence at Milwaukee with both short and long haul flights on its own.  In short, AirTran doesn’t need Midwest anymore and the only business case for acquiring them is to shrink capacity on Milwaukee routes its either operating or plans to operate.  Indeed, AirTran operates on a business model that fits nicely inside the MKE Airports strategy of being Chicago’s 3rd Airport by offering high value, low cost service to a wide variety of destinations.

Fans of Midwest Airlines celebrate its cookies and high quality service.  Unfortunately, what Milwaukee really requires is a low cost airline that connects to a variety of destinations important to Milwaukee businesses. 

AirTran has the fuel efficient equipment to operate the soon to be discontinued Midwest routes of MKE-SFO, MKE-SEA, MKE-LAX and MKE-Florida.  In fact, it already operates flights into all of those areas and has the ability to feed far more traffic into those routes than Midwest was able to do with its relatively small network.

Look for Midwest to continue to be squeezed by both AirTran and Northwest in the next few months with little space to maneuver.

Filed under: Airline Fleets, Airline News, Death Watch by ajax
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The latest on-time statistics are out on US airlines and the Dallas Morning News has them here.

I’m struck by  more than one item. First, how strange is it that 2 commuter airlines that fly for legacy airlines have better on-time numbers than any 48 state legacy airline? These airlines fly aircraft that is subject to more technical delays and cancellations. It boggles my mind that SkyWest and Pinnacle Airlines are at the top.

Skywest flies for United, Delta and Midwest as their feeder “connection” airline using CRJ200/700ER/900 aircraft (and a few Embraer EMB-120 turbo-props).  Ordinarily, the Bombardier aircraft is not universally known for its dispatch reliability but the new(er) CRJ700/900 must be doing much better than its older cousin the CRJ200. 

Pinnacle Airlines flies the CRJ200/440/900 aircraft, all similar or the same as Skywest, for Northwest Airlines and Delta.  Right now, you could drop me with a feather.  In addition to the aircraft, these airlines fly out of major hubs that are often disastrously affected by summertime weather. 

What is a bit more surprising (if you can believe it) is that US Airways is the top on-time non-LCC legacy carrier.  There are reports that they’ve made drastic improvements at their Philadelphia hub.  Right now, they are neck and neck with Southwest Airlines and, frankly, I’d say you are doing pretty good to be playing ball in Southwest’s neighborhood.

What I have to ask is this:  Is it an anomaly (unlikely as US Airways has been climbing steadily) or is because they’re able to depart on-time more often since instituting charges for checking bags?  If this climb in reliability is due to changes in customer baggage habits, look out. 

Three LCC carriers, Southwest, Frontier and Airtran, are virtually neck and neck in these ratings and, again, I wonder if this might be due to people traveling with more carry-on luggage than in the past. 

American Airlines is dead last (even beat by American Eagle) in the ratings and that, to me, indicates graver trouble at that airline.  There have been some reports of pilots becoming slightly inflexible with respect to work rules.  I believe it is more a symptom of an airline that has become sick in morale and flexibility.  Gerard Arpey won’t fix this with more mattressmakers.com analysis, better financing or capacity constraints.  It gets fixed with leadership.  Something that American Airlines really hasn’t been blessed with since Robert Crandall retired. 

Finally, if you offered me a bet that Mesa would have better on-time ratings than American Eagle, I’d have taken the bet with glee.  When you are worse than Mesa, you’ve got real problems.

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I got asked today what airline(s) I thought might be in real trouble.  Thinking about it for a few hours, I’ve come up with a sort of “death watch” list.

First on my list is Midwest.  They just announced they’re grounding their MD-80 aircraft and, as a result, cutting several important routes while expanding their codeshare with Northwest Airlines (who now owns a “passive” 47% stake in Midwest.)

Giving up routes such as Milwaukee – Los Angeles does not bode well.  With only Boeing 717 aircraft, they have limited themselves to routes that are “heartland” oriented.  For instance, the 717 can’t make it from MKE to LAX.  It can fly from Kansas City to Los Angeles (that route stays for now) but who wants to fly from MKE to LAX via MCI (MCI stands for Mid Continent International by the way)?  The airline business is, first and foremost, a network game and Midwest just cut 40% of its network putting itself below the critical mass in my opinion.

The proposed merger with Airtran would have saved them but they made a deal with the devil (Northwest) and Northwest has no interest in Midwest surviving really. 

Next up is Frontier.  Their hub is Denver and they have already cut back their focus cities.  While their fleet is new and fuel efficient, part of their business model counted on being the only LCC (Low Cost Carrier) game in town.  Not so true anymore. 

They have United Airlines above them as a legacy carrier operating a substantial hub in Denver and offering a nicely segmented set of seat choices and a global frequent flier program.  Below them is Southwest Airlines.  Southwest has entered that market with a vengeance and contrary to denials on te part of Southwest, it is crystal clear they intend to put Frontier out of business.  Much of Southwest’s growth has been focused on Denver and their CEO has already stated their intention to put more capacity into that city.  Denver can support two airlines, not one.  Since Frontier is already in bankruptcy, they’re my pick for going away. 

The only saviour is an airline that fits into their network and I can’t identify one that really meshes well with both their route network and their fleet. 

My third pick is Virgin America.  This is an airline that doesn’t quite know what it wants to be.  On the one hand, they want to be a trans-continental, high value, high service airline.  On the other hand, they want to be perceived as the west coast version of Jet Blue.   Trans-continental flights can’t make money using the equipment they have (Airbus A319/320) and their base, SFO (San Francisco) can’t support a real hub operation with good traffic given the competition they have from both legacy carriers and established LCC’s.

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Not first class.  Not really.  To misquote the movie Jerry McGuire, today’s first class is really a whole different lifestyle, not just a more comfortable seat.

It’s a whole different show in coach, however.  Just for kicks, I looked up the seat pitch on a Braniff 727 for coach in the 70’s.  Today’s seat pitch on a legacy carrier is about 32″ with an inch variance.  For a 6’2″, 260lbs man, like myself, that means a pretty uncomfortable ride.  Braniff’s seat pitch was 38″.  (in the future, I’ll provide some cites for such information but I looked that up 3 or 4 months ago and I can’t remember where I found it now.) That missing 6″ drives me crazy. 

The truth is, a 32″ seat pitch makes sense economically.  The average flight sector here in the US is less than 2 hours (Why do I always seem to be on 3+ hour flights?) and 32″ is plenty tolerable for 99% of us for the price and time spent in the seat.  There are even some airlines who are adopting better seats for once.  Not harder, thinner, flatter seats.  Seats that are a bit more ergonomic, better contoured and, best of all, designed in a way that a 32″ seat pitch offers just a touch more space.  Airtran’s Recaro seats on their Boeing 737-700 fleet are a great example of this. 

For a time, American Airlines *increased* their seat pitch from 1 to 2 inches in the late 90’s / early 00’s.  (Later reduced again post September 11, 2001 to provide a greater potential load density) I’d rate that current Airtran seat the equivalent and that means a lot coming from me.  I should also mention that Airtran offers affordable upgrades to their Business Class product priced about $40 to $80 per segment and I’ve found them quite easy to get even at the gate.

Delta is about to install a new seating product from Thompson that is a kind of herringone pattern that offers greater legroom, an armrest for both arms and even greater privacy.  Still more surprising is that this new seating configuration actually allows them to *increase* the seat count on an airplane.  Look for this in their international 767 airplanes first although I suspect favorable customer acceptance will cause it to show up on other airplanes in the future too.

I think that one day we’ll see  a greater number of choices for seating on many airlines.  It’s already starting now to some degree.  Airlines such as United Airlines and Jet Blue and US Airways have started selling seat locations that have greater seat pitch and/or favorable location(s) for slightly more premium prices.  United Airlines offers Economy Plus with greater seat pitch as a sub-section of their coach cabin and having tried it I’d say it was worth the extra $30 / segment I paid.  US Airways is selling location on existing configurations such as exit aisle seats, bulkhead seats and aisle seats all for a slight increase in price.   Jet Blue has been reconfiguring their aircraft to offer a choice in seat pitch at varying prices. 

Jet Blue’s model is where I expect the majority of legacy airlines will go.  Over time, new seating products such as Delta’s (described above) combined with varying seat pitches will allow the airlines to price discriminate among their customer and generally *increase* their revenue without necessarily a loss in total passenger capacity. 

30 years ago, the model was to price discriminate on the basis of flight convenience.  A passenger who bought far in advance paid less than an impulse buyer.  Then airlines such as American Airlines realized that an unfilled seat was lost revenue and began offering unfilled seats at prices that includes restrictions on flight times and days (convenience). 

Next we’ll see far greater choice in our prices based upon seat pitch, location, service, advanced purchase, travel dates and times and even based upon how much luggage you want to carry (already happening.)  My prediction is that seat choice will be the prime discriminator.  Today’s passenger most wants a decent seat and a flight that takes off and arrives on time.  The airline that provides that wins.

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