I am officially sick of American Airlines bankruptcy and happy to talk about another airline:  Delta Airlines.

Delta Airlines pilots have ratified a new contract that should put Delta in an excellent position to be the dominant SuperLegacy carrier in the United States.  The new contract allows Delta to shift its flying from loss-making 50 seat regional jets to larger, profit-making regional jets over the next few years.

Part of this contract is what allows Delta to take on the Boeing 717 jets from Southwest Airlines.  Those jets will be flown by Delta pilots and now doubt represent how Delta intends to provide more jobs for its union pilots.

Interesting to me is that 62% of the pilots said yes to the contract.  I suspect this is representative of the former Northwest pilots at the company who are more strident and wish to see more of the flying being done by Delta done by Delta pilots.

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The Fort Worth Star Telegram’s Mitchell Schnurman has THIS POST on SkyTalk about companies keeping morale high to maintain profitability.  It’s timely since it coincides with my own blog post about the labor cost that American Airlines is incurring with its battle over costs with the unions.

Profitability is about quite a few things in a major company such as an airline.  It’s about keeping a strict eye on costs, certainly.  It’s also about keeping a close eye on cash flow and cash holdings.  One little storm can cost an airline tens of millions of dollars.  It’s about maintaining strong metrics in ontime departures and arrivals and it’s about being smart enough to buy a fleet to do the job you have without overextending oneself.

Some airlines have been profitable with poor labor relations.  Generally that has occurred at a “peak” in the airline industry curve and almost always when contracts are in place and not up for re-negotiation.

How an airline survives the downturn in the airline industry has a lot to do with employee morale.  Employees with a strong, loyal morale tend to fight for their company.  They realize that their jobs and their success are tied to their airline succeeding more often with more customers more of the time in those bad times.

Employee morale isn’t about high salaries.  It really isn’t.  Study after study has shown that employee morale can’t be maintained at a high level with just a high salary.

It’s about making employees a part of the business.  Giving ownership of problem solving to employees who experience the problems.  Providing a share in the profitability and providing benefits that allow them to feel secure with their families while they work.   It’s also about employees perceiving “shared pain” on the part of their management team when things are bad.  There is nothing worse than an executive earning a bonus while other employees are “sharing the pain”.

A workplace where treatment is both fair and just is also important.  Valuing the inputs of a baggage handler should be just as important as valuing the financial analyst who monitors and sets pricing.

It isn’t just about your union employees delivering great service to customers either.  It’s about being able to get agreements to cover your needs now and the future.  A company that is doing right by its employees is better able to negotiate union contracts to cover new flying, new aircraft and new partnerships.  The faster you can negotiate those contracts, the more competitive advantage an airline has.

It’s notable that Southwest and Delta airlines are working very hard with their union employees to put new contracts into place to cover opportunities for new business very quickly.  It’s also notable that airlines such as American Airlines and United Airlines aren’t doing too well with their employees and aren’t executing new strategies to compete and, most importantly, earn sustaining profits.

Employee morale isn’t the only key factor to success.  But it is one of the top 2 or 3 key factors and one that several airline CEOs seem to be ignoring more and more as time passes by.  Historically, the airlines who have done well both in regulated and deregulated environments with respect to profitability are those that had genuine leaders as CEOs.  Shareholders would be wise to pay more attention to leadership at the helm and a little less attention to quarterly profitability.

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Southwest Airlines’ Boeing 717s are going to be subleased to Delta with deliveries of about 3 per month starting in 2013.  Southwest thinks this is good for them as it gets their basic aircraft type back to one (the 737) and Delta thinks this is good as it is getting a cheap fleet type that can meet needs in the 100 seat category for longer “regional” flights.

Delta is a fan of the McDonnell Douglas aircraft and the 717 is just that.  They are typically robust, long lasting aircraft and the cost to purchase these is often so low, they make sense even when their fuel efficiency isn’t the best.

One aspect of this deal seems a bit odd.  I’m rather surprised that Southwest, Boeing and Delta didn’t work a deal to take them fully off Southwest’s books and transfer ownership either to Delta or create new leases for Delta.  Both airlines are big Boeing customers and I would think that Boeing would want to facilitate a win/win deal between the two airlines.

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Delta Airlines bought a fuel refinery in New Jersey that has the ability to provide as much as 80% of all their fleet fuel needs and which has direct connections to both JFK and La Guardia airports by pipeline.   Most airlines hedge their fuel costs by purchasing fuel oil contracts which happen to track closely in price with the cost of jet fuel (which isn’t sold with market contracts).  It offsets price spikes and makes fuel costs more predictable and manageable.

Delta’s purchase of the Phillips66 refinery is an interesting move.  The cost was relatively low $150million for the purchase and an additional $100million to fully convert the refinery over to jet fuel production.  To an airline, that’s pocket change.  To Delta, that means they can cut out a significant portion of the middle man in their fuel costs.

How do the fuel the fleet from New Jersey only?  They don’t.  They’ll supply their own fuel to their own aircraft in the NYC area, yes.  That fuel demand in that area alone will find Delta saving big dollars.  They’ll also sell that fuel to other airlines at those respective airports at a profit which will then offset Delta’s fuel costs in other parts of the country.  It’s a way of hedging prices more closely to the market prices for jet fuel and gives them an assured supply in a market that has historically been a bit touchy on prices.

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Here we go again.  United Airlines CEO Jeff Smisek has done very, very well in creating the world’s largest airline between his merger incentives and compensation.  Well enough to anger unions who represent labor forces that are touchy about executive compensation already.  His executive team has also done extremely well.

But UA still isn’t consistently earning money and it has had a rockier time in integrating the operations of United and Continental airlines.  Mot recently, the reservations migration provided a less than stunning experience for customers.

The standard for smooth mergers remains Delta/Northwest and one can hardly expect all of them to go that well.  But it will leave people asking if, once again, airline executive teams aren’t getting compensated a bit prematurely as well as for milestones that don’t show a consistently profitable airline.

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One comment from travelers that constantly defeats my imagination is the comment about an experience on an airline that was terrible and that they therefore will never travel that airline again.  I inevitably ask when this experience occurred and I inevitably find out it was 10 or more years ago.  In one case, a woman I met admitted she stopped flying Continental as a result of such a bad experience back in 1993.  She said so in 2010.

Airlines change.  In the case of the Continental Woman, had she tried Continental just 3 years later, she would have been pleasantly surprised.  Furthermore, stories of bad experiences become anecdotal folklore out there and particularly so over the past 10 years.  The world wide web and social media have not only spread anecdotal stories but have encouraged them to flower and provided them with staying power that would have been unimaginable in the 1990s.

You can’t judge an airline based on a single experience.  In fact, I would argue that you have to try the airline at least 3 times to start making a judgement.  Things happen on every airline.

You also can’t judge an airline entirely on experiences based in one hub.  I find American Airlines flight attendants to be old, surly and unpleasant out of DFW but I also know that they’re much better out of New York City bases.  The hub has an effect.  One can expect a higher number of problems from hubs such as Atlanta, Chicago or New York City than one can from hubs in Denver, DFW or Salt Lake City.

But even if you have had a few bad experiences on an airline, if its been 10 years, you’re experiences are likely out of date and you’re hurting yourself.  I myself expended a lot of effort to not fly US Airways (America West) as recently as 2008.  It’s 4 years later and I would heartily recommend them to travelers at this point.  In fact, I would strongly recommend them over airlines such as American Airlines and Delta.  Your chances of a good experience would be higher on US Airways.

Airlines change over time and its worth looking around for current comments before ruling them out as a choice.  You may not only save money but experience less impact to your schedule and arrive in a happier state of mind.

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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.

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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.

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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.

Tomorrow:  The rest of the world

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Delta Airlines, not unexpectedly, made a big announcement last Friday about its plans for New York City upon consummation of its slot swap deal with US Airways.  That announcement included a number of bold statements including Richard Anderson offering that Delta intended to build a hub.  So far, no surprises.

Where it gets interesting is Delta announced plans to introduce multiple daily round trip flights to other airline’s hubs.  American Airlines gets to defend against them on routes from New York La Guardia to Dallas / Fort Worth and Miami.  These are major cornerstone routes for American and its cornerstone strategy for its existing hubs.

United Airlines sees encroachment on routes to Houston and Denver.  Both cities are fortress hubs for United and both will be defended strongly.  US Airways gets to fight off Delta on routes to and from Charlotte although generally only with smaller Bombardier 70+ seat jets. 

From a personal point of view, I’m glad to see Delta enter the DFW-NYC market.  I’m glad to see American Airlines get the competition it should have on those routes because the prices on those routes are exorbitant.  Frankly, I had hoped that we would see Virgin America or JetBlue run the route but I’ll take Delta.   The timing is good for adding those routes because it will be 2 more years before Southwest can run that route non-stop and American Airlines now has to pay attention to reorganization under bankruptcy for the next 18 to 24 months.  Delta has a rare window of opportunity to exploit those vulnerabilities.

It’s also notable that Delta isn’t just investing in La Guardia but intends to transform its JFK operations into a focus on trans-continental and international long haul flights.  This, too, is an attack at the heart of American Airlines’ operations.

The greater picture is more interesting.  I’ve long felt that the SuperLegacy airlines would eventually arrive at the conclusion that to grow, they would have to start exploiting each other’s weaknesses at other hubs.  To me, it seemed inevitable but I also thought that the airline that would really get picked on would be American Airlines because of its higher cost structure.  It the lowest hanging fruit from that perspective.

I wasn’t wrong.  In a way, American Airlines isn’t just getting picked on with respect to two routes.  Those two routes represent a war cry of sorts.  However, the major expansion that Delta is about to engage in at La Guardia.  Delta makes it clear that it intends to own that market and owning a good portion of New York City is a profitable thing.

The problem for American Airlines is that, right now, it has higher labor costs, less efficient aircraft and little maneuvering room to fight off competition.  They’ll be fixing that and they are likely to come out with similar labor costs to Delta and United.  However, they are still a long way away from having the benefits of a relatively efficient fleet.

Another problem is that Delta (and other airlines) now have probably at least 18 months to attack American Airlines on its home turf secure in the knowledge that they can do so without too many consequences. 

It’s also interesting to me that Delta felt it was possible to encroach on two airlines’ (US Airways and United) mainstay routes with success.  That’s where the hub mentality comes into play.  To be a hub, one must have those mainstay routes.  Typically, New York City generally doesn’t serve as a hub in the form that we see in Atlanta, Chicago and DFW.  Delta wants to make it more like that and it’s clearly willing to invest heavily to make it happen.  It’s notable that Delta is *able* to invest heavily to do that.  It’s the only airline that can right now.

I’m pretty sure we’re seeing the dawn of a new form of competition among US airlines and I’m pretty sure it gets pretty bloody in, perhaps, 5 years or so.  I think the smaller airlines and the low cost carriers are going to be shocked at the vicious nature of the competition that is about to take place.  The cost structures are far more similar than ever before in the US airline market and the advantages are slim.  But the war chests to fight will be big among the largest airlines.

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The NMB (National Mediation Board) has reviewed the 2010 union election at Delta for flight attendants and determined that Delta did not interfere illegally in the election.  Flight attendants there rejected the AFA (Association of Flight Attendants) as a representing union by a large enough margin and under the new rules requiring that only cast votes be counted.

What’s that mean?  Well, for one thing, former Northwest Airlines flight attendants get a raise and better work rules in the non-union shop.  Ironic, no?

Will there be another election?  I suspect we’ll see another attempt in 12 to 18 months because the AFA is able to get enough traction to force these votes. 

Will it ever succeed?  Only if Delta takes it eyes off the ball and stops treating its employees in some of the best ways the industry has experienced.  In other words, it isn’t likely to.  In fact, the flight attendants from Northwest are generally older and more senior and more likely to fade in numbers over the next decade.

Unions can be good and powerful forces for employees but how relevant are they when the company simply continues to do the right thing?

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One result of the consolidation that has gone on in the US airline market is that we have 3 SuperLegacy airlines with each roughly the equivalent of each other in size and revenues.  Each of those SuperLegacy airlines has both fortress hubs as well as hubs in extremely competitive markets.  I speculated that the result of these mergers would actually be more competition rather than less in major markets because that’s where the money is.

American Airlines has a plan that involves channeling 98 to 99 percent of its traffic through one or more of five “cornerstone” markets:  Dallas, Miami, Los Angeles, Chicago and New York.  There are just two fortress hubs in that mix today:  Dallas and Miami.  Los Angeles and New York are highly competitive markets for all airlines and Chicago is a major hub for both AA and United as well as being a strong focus city for Southwest Airlines. 

Delta Airlines retains its strength in Minneapolis (fortress hub), Detroit (fortress hub), Atlanta (fortress hub + LCC carrier encroachment), Salt Lake City (fortress hub) and competes aggressively in New York and Los Angeles.

United Airlines has its focus on Houston (fortress hub), Chicago (major hub with AA and Southwest), Washington DC Dulles (fortress hub), Denver (fortress hub + LCC),  San Francisco (hub) and competes strongly in the New York City and Los Angeles markets.

It’s not hard to see who the loser is here.  American Airlines has the highest costs and suffers more competition in more of its focus cities.  Even in Dallas, a fortress hub if there ever was one, American Airlines gets to face increasing competition from LCC carriers at DFW who’ve identified exceptionally high fares on cities they can serve and they face increasing competition from Southwest Airlines at Love Field particularly in 2014 when the Wright Amendment essentially goes away.  Miami is strong revenue wise but will never serve as a convenient hub for the rest of the United States.

The only way these airlines continue to grow is to make inroads in these competitive major markets.  Their established dominance leaves little low hanging fruit to explore.  If one were feeling predatory, an airline such as Delta would begin to focus on cities such as New York City, Los Angeles and Dallas.   So far, Delta has engaged with the competition in the first two cities.  Why do this?  Because American Airlines can no longer afford to fight sustained battles on its home turf on price and its service product is at least a generation behind the other two SuperLegacy airlines. 

In fact, I would maintain that engaging American Airlines in the DFW area could yield great success over 2 or 3 years.   American cannot fight that kind of engagement off on price alone.  It doesn’t have the service product it once had and its regional airline is one of the worst in the country at this point.  There is a reason why Virgin America and Spirit Airlines have shown up there.  There is a reason why Lufthansa is doing well with flights to Germany there and there is a reason why Emirates smells an opportunity there too. 

The weak animal in the forest is American Airlines.   If Delta and/or United can work up a sufficient warchest, competing for AA customers in its cornerstone markets can provide growth.  But they aren’t immune to encroachment themselves.

Both airlines suffer competition from LCC carriers and, in particular, Southwest Airlines.  Look at where SWA is now a viable and cost effective alternative to the SuperLegacy airlines.  Los Angeles, San Francisco, Phoenix, Denver, Dallas, Houston, Chicago, Washington D.C., Atlanta and New York City (3 airports currently).  Southwest can provide price competitive fares, an equal or better economy service product, an equal or better ontime record and flights that are just as convenient if not more convenient at the end of the day. 

Southwest achieves that while also serving what I would describe as 2nd and 3rd tier cities.  Cities such as Kansas City, St. Louis, Nashville, Salt Lake City, Las Vegas, Lubbock, Little Rock, Indianapolis, Pittsburgh. Albany, Buffalo, Norfolk, Seattle. . . you get the idea.  And they serve these cities with a better offering than most SuperLegacy airlines.  In fact, Southwest tends to not just get the most frugal passengers but also the most value oriented passengers.

What’s different between those two?  Frugal flies the cheapest flights . . . period.  Value oriented passengers pay for the most bang for the buck.  A value oriented passenger pays a premium price for a fare that lets them travel efficiently, comfortably and without fees.   He or she doesn’t buy the cheapest fare.  They buy the SWA business class fare because it is hundreds of dollars less than SuperLegacy fares, doesn’t nickel and dime them and provides convenience they can no longer get from other airlines. 

They do well with those passengers in their focus cities but they do really well with those passengers in those 2nd and 3rd tier cities.  Do the math:  Fly on AA from Little Rock on an MD-80 or regional jet in cramped quarters to a hub or fly on Southwest on a more comfortable, newer 737 and direct to your destination. 

Those cornerstone strategies used by SuperLegacy airlines are heavy weights hung around their necks.  First they’ll survive at each other’s expense and then they’ll all suffer at the hands of the more convenient LCC carriers.

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With the heat up on American Airlines’ financial situation as well as the strict scrutiny its share price has gone through, the old dog called merger has started to pop up again. 

The truth is, financial analysts and investors want to see something more happening at American Airlines.  Something that goes beyond “we’ll stay the course with our fixed strategy and hope other airline’s costs rise to ours before our money runs out.”   That really is what has been communicated thus far. 

There is a new culture at some airlines.  It’s a culture of fiscal responsibility that is fostered by airlines leaders such as Richard Anderson (CEO of Delta) and Jeff Smisek (CEO of United).  It’s the idea that a stready return on investment is necessary for airlines going forward.  It is refreshing and it does seem to help as a basis for decision making at airlines.  Enough so that they’re starting to convince me that capacity discipline really will continue in the United States.

On the surface, it would appear that American has the right executive leadership to execute that strategy.  It’s an airline that has a strong reputation for financial management and one would expect that they would lead on this subject.

However, as much as I do think the strategy has value, it ignores the human element of airlines.  We all too often talk about the capital requirements for airlines and the huge amount of cash flow necessary to keep operating and even the huge labor component.  What we don’t talk about is the people.

At the end of the day, airlines are made up of people.  It is a labor intensive business and it requires many different kinds of people and it continues to be an industry that generally grabs you and holds onto you once you work for an airline. 

To drive those tens of thousands of people into the same direction and achieve success requires a bit more than being a good numbers man.  It requires a certain vision, a certain charisma and the ability to get people to follow you. 

American Airlines hasn’t got that.  It’s got a clinical, almost detached view on its labor and leadership that continues to ignore the human component to their success.  

What investors and analysts want to see is some revolution, not evolution.  Steady is the course has simply seen debt rise, cash holdings drop and angrier employees.  Those who know airlines, know that that is the precursor to a long, ever quickening drop into failure. 

You can manage those pennies all you want but if you can’t get your people to turn an aircraft quicker or your pilots to work more productively or get your staff to treat customers better, you’ll still fail.  Even analysts know that. 

American won’t engage in a merger with its current leadership.  However, CEO Gerard Arpey won’t stave off a coup with his present course either.  There will come a time when the board will decide new leadership is necessary.  It will happen rapidly and it will be a result of a sudden consensus view by the board that they’ll be held responsible for further failure.  I would argue that that set of circumstances may be closer than Arpey & Co thinks.

While I don’t think a merger is on the horizon, I do continue to wonder what the executive team at US Airways could do with American Airlines.  They’ve worked wonders with enormous challenges and a disadvantage to virtually every other legacy airline.  They’re reponsible to providing a return on investment and they seem to have figured out how to please customers better every place improvement was called for.

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In about 2 weeks, the temporary funding for the FAA authorized in early August expires.  Already there is another political fight brewing over this funding and the issue, oddly enough, is centered on the National Mediation Board which governs labor with respect to airlines. 

Delta and Republicans are upset over a NMB rule issued that appears to make it easier to unionize airlines.  Originally, in a unionization vote a person who did not vote was counted as a “no”.  This resulted in unionization votes that saw votes for and against such but which lost because some portion of the labor pool simply did not vote.  The NMB’s new rules says you only count votes that are actually cast.   Failure to vote is not counted as anything.

Delta Airlines flipped out over this and it did appear that it was designed to make unionization easier at airlines.  At least  at first glance.  Now we’ve seen a number of votes take place and, oddly enough, that hasn’t happened.  The only difference is that even more people vote.   This rule change has not yet resulted in a change of outcome for unionization at any airlines. 

So, is it an issue?  I don’t think so.  Frankly, I thought it was a non-issue when it came about.  If airlines such as Delta thought that people who were skipping the votes were going to continue to do so, I find that laughable.  Of course people were going to go vote.  It’s the kind of thing that can materially change your career forever.  So far, Delta hasn’t been unionized in any way. 

As an aside, its time for unions to give it up at Delta.  There has been vote after vote there always resulting in the status quo being maintained.  People are happy and they’ve got a good workplace *without* paying union dues.  No one is mistreated at Delta and certainly no one is treated any worse or better than at any other airline.  It has permitted Delta to work more closely with its employees and be a more agile company.  There is a reason why Delta is financially succeeding in the toughest times an airline can experience.

Furthermore, the NMB is *not* governed by the FAA.  It’s in appropriate to tie the services performed by the FAA and the fortunes of its staff to a political fight over something that they have no control over.  It is inappropriate to try to extort a Presidency in this manner as well.  I’m happy to let politics be politics and I get that sometimes we have to go the long way to get someplace in politcs.  But this is one of those things that is over the line. 

A clean vote is the right way to do things on these subjects and the FAA deserves to experience more certainty in its future.  You can’t complain about the FAA getting things done when you fund them temporarily for weeks at a time for more than  a year.  In fact, you impact the services provided in a great way because no effective planning can be done. 

And to Congresscritters on both sides of the aisle:  play this fair or expect another steaming load of disgust coming your way from the citizens.  No one has time or patience for these shennanigans.

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I have long liked how Delta (and Northwest originally) has focused on its aircraft according to both operational and capital costs.  The result of their ongoing analysis has found them keeping DC-9s (now due to leave definitively) far longer than other airlines as well as buying up MD-90s because not only do they suit their routes, their extremely cost effective to acquire and operate. 

I like the approach because they continue to analyze their costs with all available context and for both near and long term needs and adjust their approach with more granular control that most airlines ever consider exercising.  When it makes sense, they make a move.  In the case of the 757s that the recent 737-900ER order will replace, you can have confidence that that kind of analysis was done before ever issuing an RFP.

Not only does this make Delta a “smart” airline, it also signals to shareholders that a fiduciary responsibility is being kept in mind that is both healthy for the airline and healthy for the investor.  It’s an extremely rare attitude of “let’s run an airline that earn a consistent profit.”  After all, why be in business if you can’t do that?

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Delta Airlines has decided to order 100 Boeing 737-900ER aircraft to replace aging 757 aircraft and I’m underwhelmed.  Supposedly the order was won on price and delivery positions and I buy that. 

What does surprise me is that this aircraft doesn’t quite have the transcontinental range one would want unless you buy them with 2 auxiliary tanks and then you’re talking about reduced cargo capacity.  I don’t think these are being purchased to replace *all* 757s and I don’t think this means that Airbus is out of the game for single aisle aircraft. 

I think these purchases are for high density, low fare routes that are being served by 757s.  I also think that Delta will manage its 757 fleet (one of the largest in the world) so that it maintains that kind of lift for some years to come.  That said, some of those aircraft are getting old and its time for them to go. 

In addition, I don’t think this order signals one thing when it comes to fleet planning for Delta.  I do not think it means that Boeing is still the preferred provider.  I do not think it means that Delta is going to harmonize its fleet more.  I think it simply means that Delta needed 100 aircraft with seating for about 180 passengers and that’s it. 

Any guesses are just that:  guesses.  I suspect that Delta remains in negotiations for replacement aircraft for other parts of the fleet and I think that that does not include negotiations with Bombardier for its CSeries aircraft.  Whatever second part of this single aisle order is, I firmly believe it will belong to Airbus or Boeing.

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Delta Airlines merged with Northwest Airlines in 2008 (hard to believe it’s been nearly 3 years, isn’t it?) to form what was, at that time, the World Largest Airline.  That merger had some oddities to it in that the architect of the merger was Richard Anderson who, although was CEO of Delta at that time, had led Northwest in the past.  Coincidentally enough, both Delta and Northwest purchased iconic airlines based west of the Mississippi in 1986. 

Question:  Can you name the airlines that Delta and Northwest purchased in 1986?

The answer after the fold: (more…)

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Delta has decided to stick with its plans to order up to 200 aircraft in 2011 says CEO Richard Anderson.  This despite the sudden economic turbulence and it’s the right move.

Delta has some right old aircraft on its hands.  It’s fleet average age is 12 years which isn’t as bad as American Airlines but it doesn’t tell quite the story either.  Much of its mainstay narrow body aircraft is *old*.  And they’ll only get older while Delta waits for deliveries to start. 

What comes in this order?  My guess is that we won’t see any game changer orders for any 2nd tier manufacturer such as Bombardier or Embraer.  This will be about replacing older A320s, 757s and MD-88/90 aircraft.  Those are the aircraft with older, less modern and less powerful engines that are costing big dollars in fuel bills. 

I do not see this being about 767s or regional jet aircraft.  Nor do I see Boeing 737 replacements coming on line either.  It’s unlikely that we see 747s retired in favor of others in this round.

So who are the players?  Airbus and Boeing, of course.  I’m not sure I see this as either company’s advantage either.  Airbus will be pitching the A320/A321 NEOs and Boeing will be pitching the 737s (new and old) and it will be tough to call this one.  I think who comes out on top in this order will be determined by who has slots for earlier deliveries of the more re-engined aircraft.   If Airbus has slots, it will get orders.  We know that Boeing has slots but order delivery dates are somewhat murky, in my opinion. 

I do not look for Bombardier CSeries or Embraer E190/195 aircraft to be ordered in this.  They’re smaller and Delta has that seat range covered right now. 

My best guess?  I tilt towards this being Boeing’s order.  I think it might be won on price and an opportunity to get re-engined aircraft just a tad earlier than Airbus.  However, I do not think that means that Airbus is out of the game on future orders whatsoever.  I just think that it may come in the form of a follow on order in the next year and may well include Airbus medium to long range twin aisle aircraft as well.

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It is standard for airlines to have inflight magazines  and many are actually quite good.  Can you name the airlines associated with these magazine names:

Domestic:

1. Spirit
2. Sky
3. American Way
4. Hemispheres

Foreign:

1. High Life
2. Discovery
3. Morning Calm
4. Holland Herald
5. enRoute

The answers after the fold: (more…)

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Delta and US Airways will get to consummate their revised slot swap deal between each other which grants Delta dominance at La Guardia Airport / NYC and US Airways dominance at Reagan National Airport / Washington, D.C.

The airlines will have to sell off a small set of slots to airlines that have little or not competition at either airport in order to satisfy the DoT. 

Is this good for the consumer?  Depends on who the consumer is.  Arguably, more sensible connections from regional airports into those airports will be good.  However, I do not know why we, as a country, participate in allowing airlines to form fortress hubs in this day and age.  Fortress hubs are neither efficient nor good for the consumer in the long run. 

Selling off a paltry number of slots to small airlines with no presence at those airports does not foster competition.  It fosters a tenuous toe hold that could take years and millions of dollars of investment to ever grow into something else. 

This is why if an airport is slot controlled, I firmly believe those airports should be required to “auction off” those slots on a regular basis.  Allowing airlines to “own” slots and preserve them as an asset has just fostered anticompetitive behaviour such as airlines “sitting” on the slots by operating unprofitable (but not very expensive) regional jet flights into the airports until they want to use the slot for something bigger.   Imagine what would happen if lower cost airlines could buy into those airports through auctions and offer lower prices.

Competition doesn’t come in the form of an airline getting to operate 2 or 3 daily flights into an airport dominated by an airline that has hundreds operating into that same airport.

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