Let’s talk alliances before anything else.

 

There is a huge battle taking place over who gets to have Japan Air Lines (JAL) business.  The financially struggling airline has suddenly become a hot property and American Airlines (OneWorld) and Delta Airlines (SkyTeam) are fighting over JAL like it’s a supermodel.   Both airlines are offering hugely attractive financial packages to JAL and I suspect the poor airline has no idea of who to nod their head towards. 

 

Ultimately, I think JAL will stay in Oneworld.  There is more at stake here than what is offered as a financial rescue package.  Japan is still a very nationalistic country and keeping the identify of what is, for most purposes, its flag carrier will be important.  It has a solid relationship with Oneworld and American Airlines and compared to the risk of joining with SkyTeam and the possibility of being a second tier player in that relationship, JAL has a safer bet with Oneworld. 

 

In addition, I don’t think JAL can afford to wait for anti-trust immunity to act with airline partners and it won’t have to by staying with Oneworld. 

 

The Middle East:

 

I continue to think that the major international airlines (Emirates, Qatar, Etihad) of the Middle East are more at risk than they claim.  Yes, they’ve experienced phenomal growth and, yes, they continue to purchase aircraft like a 5 year old buys candy but what’s next for them and their route systems? 

 

The Middle East doesn’t offer a good connecting point for North or South America.   Airlines in North America can reach their markets non-stop with existing aircraft and why would a passenger choose to connect via an airport in the UAE (United Arab Emirates) when they can fly non-stop at a competitive price.  Better service product won’t attract these customers.  

 

There is very little business between South America and Africa, India, The Middle East or Southeast Asia and, so, South America isn’t a place that could serve as a growth area for those airlines. 

 

Emirates, Qatar and Etihad have succeeded by offering a hub between Europe and the Middle East, India, Southeast Asia and (to some extent) Australia/New Zealand.  However, even European airlines are adding longer range aircraft and are able to reach each of those destinations non-stop  more and more with the exception of Australia and New Zealand. 

 

In addition, each of those airlines is bankrolled to some extent with oil profits and the uncertainty of those profits and the uncertainty of other investments in the Middle East has to raise the risk for that continued bankrolling.   I don’t see any of these airlines failing in the next year but I do see them perhaps deferring orders and re-organising their fleets. 

 

India: 

 

What a catastrophe!  No airline in India will do well for now and there has to be some consolidation in this market in the near future.   Kingfisher and Jet Airways are both excellent candidates for takeovers and, perhaps, they are excellent candidates for each other.  Kingfisher bet on Airbus by ordering A330 and A340 aircraft first.  Their A330 fleet doesn’t quite have the range it really needs to expand outside of its current markets and the A340 was a terrible choice for long range flights.  So much so, it got rid of the aircraft on order. 

 

Now, Kingfisher has a few A350 and a few A380 aircraft on order for deliveries starting in 2014.  While it could desperately stand to have the A350 now, I don’t see how it can wait until 2014 for the aircraft.  I also seriously doubt it will ever take up the A380 both because of cost and an inability to fill the aircraft enough for regular flights. 

 

Jet Airways also has a great service product but bought too big of an aircraft for the routes it needed to compete on.  Jet Airways purchased the 777-300ER when it really needed the 777-200ER/LR for the international routes it proposed to serve.  Now 4 of the aircraft are leased to Turkish Airlines and 3 are going to Royal Brunei leaving just 3 for Jet Airways. 

 

Both Kingfisher and Jet Airways have a great service product and good networks across India and neighboring countries.  They would be better served by merging and using one brand for their national service and another for their international services.  Kingfisher for India and Jet Airways for international service. 

 

The Far East:

 

China has a lot of problems coming to roost with the inevitable decline in their economy which is heavily dependent on North America and Europe.    Look for some consolidation in this market.  I do think that Chinese airlines face potential issues from government mandates to purchase indignenous aircraft being developed now.  There is little chance that the aircraft being built will be competitive internally or externally.  At least for this first round of development.

 

While JAL is suffering and ANA (All Nippon Airlines) isn’t performing that great at present, I see no major changes in the Japanese markets.  This is an area that will bounce back but only after a long fight.    The same is true for Korea. 

 

Oceania: 

 

Australia will be interesting to watch.  I’m tempted to guess that the status quo will remain in most cases.  The competition between the US and Australia only continues to grow more fierce and something has to give.  I still think that United Airlines may well be the airline to withdraw from this market and only because of the rather unique market relationship formed between Delta and V Australia (and Virgin Blue). 

 

 QANTAS will continue to own a large piece of all air travel from its home nation and they could be helped along with some deliveries of the 787.  At some point, QANTAS must grow and growth means a lot of long and thin routes to be added. 

 

South America: 

 

I don’t think there will be any major news from this continent over the next year.  LAN will continue to succeed by operating smart and honest.   Brazilian airlines will continue to fight things out but there is enough international business for each of them and their real threat comes from Azul on a domestic basis. 

 

Look for Azul to consider adding a larger aircraft to its fleet and don’t count Boeing out on that deal.   It would be easier for David Neeleman to add the Boeing 737 to his fleet in Brazil because he could outsource maintenance more easily. 

 

Aerolineas Argentinas:  Well, what can I say?   This disaster is much like the country itself.  It won’t go away but it won’t perform either.  No outside airline will consider taking it over after what happened with Grupo Marsans’ ownership.   They lack an appropriate fleet for their flying, a strategic plan for stabilizing their revenues and no clear plan for future growth.  But the Argentinian government also won’t let them go away.  It is a matter of national pride.

 

LAN Argentina is growing in Argentina but somehow I remain skeptical that it will be allowed to succeed too well.  Why?  For one reason, the government of Argentina owns Aerolineas Argentinas and it has a vested interest in that airline earning money.  For another reason, LAN Argentina is owned by the LAN Group of Chile.  Look up how Chileans and Argentinians feel about each other.

 

Colombia and Venezuela: 

 

Avianca Airlines has joined hands with Grupo Taca and I suspect that will be a good thing for both airlines.  Avianca could benefit by the exellent managment of Grupo Taca and Grupo Taca could benefit from greater access to South American markets.   Its almost certain that the two will harmonize their fleets and service products for greater economies while maintaing the two identies for greater acceptance throughout Central and South America.

 

Venezuela:  All airlines erode further due to the increasing interference of the Venezuelan government and, more specifically, Hugo Chavez.  I lost hope for Venezuela’s airline industry when they forced Conviasa (in partnerhsip with Iran Air and originally using an Iran Air 747-SP) into a route between Caracas and Tehran with an intermediate stop in Damascus.  This is the ultimate in “this route makes no sense.”  If the government can do that, then they’ll do other things to damage the industry.

 

Europe:

 

The European continent’s airlines are hunkered down just as much as the US based airlines.   There isn’t much to be expected in Europe for the next 12 months but let’s look at it anyway.

 

British Airways is kind of the American Airlines of the UK.  They’ll always somehow manage to survive and generally pretty well.  They have their own labour troubles but, again, they seem to be capable winning these for now.  British Airways needs to cut costs a bit more so I wouldn’t be surprised at some order deferrals and/or hastening the exit of the 747-400. 

 

The one airline I continue to wonder about in Europe is Lufthansa.  While they have a good service product and an excellent reputation, they also seem to have some weaknesses.  Lufthansa continues to purchase weaker sisters in Europe such as SWISS, Brussels Airlines, Austrian Airlines, Lauda Air and, now, BMI.  

 

20 years ago, this would seem reasonable in that European countries were pretty nationalistic.  Now, not so much.  Yes, there are some pockets of nationalism that exist but I wonder at maintaining so many different brands, fleets and networks now.  It would seem that the brands could be pared down to 2 or 3 mainline airlines and 3 to 5 regional airlines.   BMI wasn’t an airline that was succeeding in any great way and what does Lufthansa get for their purchase?  I see little of value.   I don’t know that BMI gets Lufthansa an entry into the UK that is of any more value than the Lufthansa brand itself.

 

I also wonder about their fleet.  They have a large fleet of A340 aircraft serving medium to long haul routes and that cannot be very efficient or profit enhancing.  Yet, Lufthansa has made no real move to correct this problem.   Their one major aircraft order in the past several years was for the four engined 747-8i.  They have no orders for the 787 (although Boeing would no doubt happily accomodate them with early delivery positions) nor the A350 (and I’m certain Airbus ould love to add them to the order book as well.) 

 

This puts Lufthansa into competition with British Airways who has moved towards operating more twin engine, long haul aircraft (777 and 787) as well as KLM/Air France (777).   Yes, they do own some A330 aircraft but their true long haul equipment is the A340 and 747.

 

KLM / Air France:  Not much here.  I don’t see an order for aircraft coming from them unless Airbus magically announces a GE engine for the A350-1000.  Otherwise, I seem them holding their cards close to their vest and waiting to see what happens in Europe.

 

The BA/Iberia merger:  I never saw the attraction myself.  It’s a low rent copy of the KLM/Air France union and I suspect there are many issues to resolve before the two really combine.   Personally, I think the odds of this merger actually taking place is, at best, 50/50. 

 

 Their alliance with AA over the Atlantic will continue to be a strong issue for the US Justice Department.   The BA/AA strength on the US/UK routes and the the IB/AA strenght on the US/Spain routes is really a bit too much.   I think the DoT/FAA is willing to let this alliance go forward but I think the DoJ is going to speak loudly and force a request for concessions.   Concessions that I think, this time, BA and AA may meet with some negotiation.

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At the first of the year, I wrote 3 blog posts shown HERE, HERE and HERE.  It was really just my random speculation on what to expect over the next 12 months.  Well, now it’s December of 2009.  Let’s see how I did.

 

Boeing 787:  I guessed at an April 2009 first flight.  It still hasn’t flown although speculation has it flying this month either by December 14th or December 22nd. 

 

Airbus A380:  I guessed they would make their goal of producing 21 aircraft this year.  As of November 30th, 2009, Airbus says they have delivered 7 A380 aircraft this year.  Ouch.  This is a program that is in financial trouble.  No, I don’t think it will be cancelled.  Not yet but please don’t try to tell me this program will make a profit. 

 

My deathwatch had Midwest Airlines going away most likely by a sale.  That did happen and while the airline has essentially evaporated (from its original form), it does remain as a brand being run by Republic Airways.  

 

I speculated that Frontier Airlines would be bought out of bankruptcy but I guessed that jetBlue would be the buyer.  In fact, Southwest Airlines and Republic Airways were the suitors and Republic won.

 

I thought that United Airlines and US Airways would announce a new merger with Continental a dark horse candidate for buying United.  In fact, Continental became a member of the Star Alliance and firmed its relationship up with United but wisely kept its distance otherwise. 

 

I said that Southwest Airlines would maintain its status quo but that Gary Kelly would be under fire from both employees and outsiders and he was.  However, that view is already being reversed again by Southwest’s resurgent strength in the business.

 

I thought that the Middle Eastern airlines such as Emirates, Etihad and Qatar wouldn’t see a bankruptcy or merger but would slow their growth and aircraft deliveries.  That, in fact, has happened and now we see Emirates working hard to distance itself from Dubai World’s financial woes.

 

China:  I said deferred orders.  Pretty much what happened.

 

The Far East:  I said airlines from that region would maintain their status quo, probably would not defer orders and might make new orders to replace existing equipment for greater effiency.  Again, pretty much what happened.

 

Australia:  I saw QANTAS slowing growth, deferring some orders and fighting hard against new entrants.  Again, that’s pretty much what happened.  I also saw two weak competitors on the US-Australia routes:  United and V Australia.  That is pretty much what is happening although V Australia has been pretty smart in working into a relationship with Delta where it appears the two airlines will cooperate with codeshares.  United remains alone and with weakening demand.

 

South America:  I said the Argentine government would take Aerolineas Argentinas back from Grupo Marsans and the airline itself would muddle along or contract rather severely in some areas.  Bingo.  Exactly what happened.  I also predicted Azul would become the jetBlue of Brazil and its not hard to guess that that airline is pummeling its competitors.  A future prediction was for the airline to fly internationally in 2014 with Airbus equipment.  We’ll see.

 

Africa:  I saw Delta continuing to pursue flights to major African cities (true) and SAA (South African Airways) issuing a small RFP for 777 aircraft to replace its rather inefficient A340 aircraft (didn’t happen.)

 

India:  I thought Jet Airways and Kingfisher might merge with the name Jet Airways being retained.  In fact, both airlines continue to exist but both are suffering severe financial problems, deferring aircraft deliveries and generally flailing about trying to find a way to continue.   One of these airlines will still ultimately have to exit the market and I continue to think it will be Kingfisher.  They have the wrong aircraft and the wrong aircraft on order.  However, Jet Airways is suffering badly from labor actions among its employees. 

 

United States:  I picked United to fail.  It hasn’t happened and while they continue to live, their cash holdings are being reduced, they still have severe labor issues, their service product continues to suffer and I still think they should be the ones to disappear.  I also thought Glenn Tilton would be ousted and, possibly, replaced by Doug Steenland.  That didn’t happen but John Tague has been groomed as Tilton’s replacement.  I still think Tilton should go if United can’t fail.

 

Europe:  I thought we would hear of a surprise from Lufthansa.  I didn’t like their purchase of SWISS and I didn’t like their flying the A340 in competition against the 777 being flown by many of their direct competitors.  They’re still here, still making money and they bought BMI.  I still think we’ll here of misfortune from them but apparently it will take a while longer. 

 

Random Speculations:

• I thought Southwest might add another aircraft type.  It didn’t happen but I think their interest got perked up when they looked at buying Frontier and saw the economics on the Q400.
• I thought Delta might order more Airbus A330 aircraft.  Instead, Delta is parking them in the desert for the winter season.
• I speculated that both China and Japan would defer or drop their regional jet programs.  That didn’t happen but the Chinese jet program appears to be a bad aircraft and unlikely to be used by anyone except Chinese airlines forced to buy it.
• I thought Bombardier would see a major order (20+) for their Q400 series aircraft from a US customer.  Horizon Airlines did up their orders  for 10 more but there were no other significant orders. 
• Airtran to form a small midwestern hub.  Yup, that happened.  In Milwaukee where they’ve taken over from Midwest Airlines and now face Midwest (brand owned by Republic) and Southwest Airlines entry into the market.  I think Airtran will hold on here and continue to develop business.
• Last, I hoped that jetBlue or Virgin America would enter the DFW market.  Virgin’s CEO, David Cush (formerly of American Airlines) did recently speculate about adding flights to either DFW or Austin.   I suspect they’ll choose Austin and DFW will remain a fortress for AA.

 

That’ s it for my 2009 predictions.  I’ll make more at the start of 2010.  On the whole, I probably did as well as anyone in making predictions in this business.

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The Cranky Flier had a post today discussing Continental’s new moves in LAX which include new flights to Hawaii.   Continental will have an all 737 base in the Los Angeles area with two 737’s serving new flights from Orange County to Hawaii.  It made me think.

 

Back in the pre-regulatory days, flights from the mainland US to Hawaii were served by large aircraft such as the 707, DC-8 and, later, the 747, DC-10, L-1011 and even the 767.  The routes allowed airlines to serve huge numbers of customers with large aircraft and make money.  Braniff International had the franchise for Dallas to Honolulu in the 1970’s and served it with a 747 and an amazing 16 hours per day utilization.  

 

Then deregulation came and airlines slowly began to develop new routes.  It was no longer necessary to fly to a “gateway” city to catch a flight to Hawaii.  More and more cities found themselves being served with those routes to Hawaii.  Again, Braniff International, at one time, had a 747 flight from Portland, OR to Hawaii.  (It carried little traffic, however.)

 

There was some consolidation after airlines learned that not everyone in a particular city was dying to fly to Hawaii.  But the big change for Hawaii has been ETOPS or twin engine flights overseas.   This allowed airlines to serve smaller markets with aircraft both capable of the loads as well as the distance.  The truth is, when the airlines don’t have to feed 150 passengers a day to a gateway city but can fly them directly, they make more money.    20 years ago, I would have chuckled if someone told me that 737-700 aircraft would fly to Hawaii from the mainland. 

 

Boeing and Airbus have different views for the roles of widebody, large capacity aircraft.  10 years ago, Boeing forecast that the market would continue to fracture with more and more direct routes being employed as opposed to large capacity hub to hub flying.   Airbus, however, believed that the crowded skies would force more large capacity hub to hub flying onto the airlines.   It turns out that Boeing was more right. 

 

The markets drive these changes and when an airlines can make more pure profit using right sized aircraft flying direct, they will.  Yes, the legacy airlines of the US (and other parts of the world) continue to follow a hub and spoke model primarily but they’re all learning that more direct flying where the loads fully justify it is a good and profitable thing.

 

Accordingly, this is where I think Boeing continues to have a winning strategy with its 787/777 product line.  Yes, there are a few airlines capable of filling an A-380 and those airlines will make money from using that aircraft.  But as more and more nations open up their skies to more competition, that is going to change.   Having the right aircraft for the right route will be key to a manufacturer’s success and Boeing seems to have a better feel for the world market whereas Airbus seems more plugged into the Euro/Middle East markets they already do so well in. 

 

I’m no longer sure there is a real place for the new 747-8 aircraft.  Boeing’s 777-300 is just as capable in almost every case and carries a massive number of passengers without being so big that it adds risk during seasonal low periods.  The same is true for the 777-200. 

 

And what happens when aircraft such as the 787 family begin flying?  This family is roughly 767-sized in capacity but its range is far greater and that means even more markets can be accessed via long haul direct flying.   An international airline can probably make more money (through passengers *and* cargo) using the 787 and 777 families for more direct flying with aircraft that are “right sized” for the markets than they can using much of the Airbus family.

 

Airbus has one aircraft model suitable for this right now.  The A-330.  the A-340 is essentially dead since it under performs against the 777 in virtually any mission.  The A-330 is right sized for a number of the current markets and many more of the future markets.   The A-380 is suitable for only a few markets and those are already dwindling for some airlines.  For instance, QANTAS has introduced the A-380 on their routes to the US.  However, with a new Open Skies treaty between the two countries, there are also new entrants to the market like V Australia and Delta who are vying for customers with United and QANTAS very competively.  Those airlines understand that it will take a while to develop their routes and build relationships with airlines in both countries to feed traffic but it will happen.  As that traffic shifts from what was originally two airlines (QANTAS and United) to four airlines (QANTAS, United plus V Australia and Delta), what happens to each airlines’ loads? 

 

It’s notable that QANTAS flies the 747 and A380 to the US and United flies the 747 exclusively.  The new entrants are using the 777-300 and 777-200 for their flights.    The 787 and it’s longer range capabilities will quite possibly fracture that market even more by making it possible to fly from the interior of the US to Australia instead of having to use a west coast gateway city.  At that point, I don’t know that QANTAS has a use for very many A380s or 747s and, additionally, they don’t have any right sized aircraft for the route(s) until they start receiving their 787s which are late and somewhat deferred. 

 

The Airbus A350 is capable of competing on many 777 routes and while it does have slightly lower trip costs vs the 777, it also has less revenue capabilty because it can’t haul as much cargo on the same missions. 

 

The world’s airline routes are going to continue to expand internationally and at a far greater rate than traffic grows between any two nations.  Having the right equipment for the right moment is going to be key for any international airlines survival.  Those who don’t plan for it now and have it arriving in the next 5 to 10 years are going to wither to a slow death.

Filed under: Airline Fleets, Airline Service, Airports, Deregulation by ajax
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USA Today’s Today in the Sky Blog is reporting that Richard Branson, billionaire backer of V Australia (Virgin Blue) as well as Virgina Atlantic, Virgin America and Virgin Nigera has pronounced that one of the new or future competitors on the US – Australia routes will have to drop out.  I myself predicted someone would have to fall out in this post HERE.  The difference is that I predicted it would be United or V Australia. 

 

I agree that United Airlines is probably the most vulnerable on this route system but even United has something that V Australia doesn’t and that’s a network feed.  United can route its considerable network to flights departing for final destinations in Australia and that’s tapping a country (the United States) with a population of over 300 million. 

 

V Australia, on the other hand, does have the network feed from Virgin Blue but it pales in comparison to QANTAS and it has no firm partners in the United States at present.  (I don’t count a very weak agreement to sell seats on Alaska Airlines from Los Angeles to Seattle.)  Even if V Australia entered into an agreement with its US cousin, Virgin America, it still isn’t tapping into a major network.  Virgin America can feed some traffic from major cities and that’s good but those major cities (New York, Bostin, San Francisco) are exactly where their competitor may be strongest.  United has the San Francisco market, QANTAS and Delta has both NYC and Boston covered. 

 

QANTAS also has the powerful OneWorld alliance to help as well.  Airlines such as American Airlines help feed it traffic from their networks to destinations in Australia.  V Australia has no such alliance or even a single dominant partner.  Delta, on the other hand, has never flown to Australia but has a huge network in the United States, modern equipment to fly to Australia and a will to do so. 

 

After 2 to 5 years, I would expect QANTAS and Delta to be the dominant airlines on these routes and potentially the only airlines.  I agree that United may well be the first to go but I don’t think V Australia has that much greater a chance of sticking out to success. 

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In keeping with the theme set with yesterday’s post, let’s continue on with some predictions.

 

The MIddle East

 

Emirates, Qatar and Etihad:  All airlines that have aggressive growth plans (both in fleet size and the capacity of their aircraft) that don’t seem to be based in reality.  While each of those airlines has successfully developed themselves into eastern hemisphere global airlines, what’s next?  There are few opportunities to grow to the United States or the Far East (both range and regional prejudices apply there) and that leaves Europe (somewhat saturated already) and Africa (not a real place to grow due to low demand).   But they have to fill an amazing number of widebody aircraft they’ve ordered.  We won’t see a merger or a bankruptcy here but I do believe we’ll see these airlines start to reconsider the orders they have on the books and they will slow their growth by deferring these orders.

 

China

 

China’s airlines have been on a buying binge as well but, again, with a weakening domestic economy as well as a weakening international economy, they have no place to go.  Like the Middle East contenders, they are likely going to start deferring orders as well. 

 

The Far East

 

Airlines based in Taiwan, Korea, Japan, Thailand, Indonesia and Singapore will all maintain their status quo more or less.  There is some possibility that some orders may be deferred but I will bet that some airlines will actually make new orders for new aircraft although not for growth but for greater operating efficiency.

 

Australia

 

QANTAS and its affiliate Jetstar have made major investments in new aircraft and major plans in new market development.  However, development of new routes in the Far East and Southeast Asia will slow or even contract as reduced demand continues.  What’s worse is the new competition they’ll experience on their routes to both Europe and the United States.  I expect some order deferrals (probably for the 787) and growth plans will be slowed or deferred altogether as they retrench in the face of competition.

 

Virgin Blue / V Australia will be challenged in several ways.   They’ll likely continue to do well in the Australian domestic market but now they face competition in the Australia / United States market not only from QANTAS, Air New Zealand and United Airlines but also from Delta.  There will be too many airlines chasing too few seats in this market and the two most vulnerable airlines, in my opinion, are United and V Australia.  United because its service product pales in comparison to any of the other airlines and V Australia because their business model is based more on economy travel than business and first class.

 

South America

 

We’ll not see any real growth (with one exception) and we’ll likely not see any real failures here either.  The governments of South American countries tend to jump in and save their national airlines when doom is near. 

 

Aerolineas Argentinas should be Argentina’s Alitalia but I suspect a takeover of this airline from Grupo Marsans (a Spanish conglomerate) by the Argentine government will happen sometime this year.   Aerlineas Argentinas will continue to muddle through with a incoherent fleet of Airbus aircraft funded by the government and Argentina will see no growth and possibly some severe contraction in their markets because of a failed air traffic system and a very weak economy.

 

Brazil will continue to be stable more or less but existing Brazilian airlines will have to now contend with David Neeleman’s new airline, Azul.  Neeleman (who holds dual citizenship in Brazil and the United States) understands Brazil and will be offering a highly competitive, high service airline founded with Embraer E-190 aircraft that are very well suited to the Brazilian market.  It will be jetBlue all over again in Brazil for the next 5 years.  However, I expect this new Neeleman airline will one day become an international airline flying both in South America as well as to Europe and the United States.  I’ll go ahead and predict this development for 2014 and they will use Airbus equipment.

 

Africa

 

Not much to say here.  African airlines come and go with stunning frequency and usually without much notice.  Delta will continue to develop routes to Africa but this will be aimed towards the very few, relatively stable, major cities Africa has.  South African Airways will find someway to continue to exist but I expect a switch from Airbus aircraft in their long haul services (A340 aircraft currently) to a Boeing fleet using the 777-200LR and 777-300ER and GE engines.  This switch alone could make them profitable.   My prediction is that we’ll hear about a Request For Information (RFI) or a Request For Proposal (RFP) by the end of the year but more likely at this year’s summer airshow in Paris.  It will be a small order, at first, and quite possibly contingent upon Boeing finding new owners for the A340 aircraft they already own.

 

India

 

With their new, highly competitive market, India has become a rather intense version of the US market.   With a weakening economy here as well, I look for consolidation and liquidation as the answer.  Look for Kingfisher to merge with someone else such as Jet Airways with Jet Airways being the name retained by the end of 2009.  Another possibility will be forced mergers and/or liquidations by the Indian government particularly if the current party loses power.  The rather laissez faire experiment in airline deregulation in India has left a bad taste in many people’s mouths, most particularly in the opposition parties not currently in power.  India’s current Prime Minister Singh holds degrees in economics and is widely credited with economic reforms in India but the fractured and unsuccessful airline industry is something for the opposition to make a point of.

 

Stay Tuned for Part III

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USA Today’s Today in the Sky Blog is reporting that Australian news outlets are now writing about an imminent announcement that Delta will begin flying from Los Angeles to destinations in Australia.  Such destinations likely begin with Sydney and add Melbourne and/or Brisbane. 

 

If true, this will mean that Delta will be the first airline to fly regular scheduled routes to all 6 inhabited continents in the world since Pan American Airlines.  More important, it means competition for QANTAS, V Australia and United Airlines.  

 

Currently, QANTAS is by far the main leader in that market flying Boeing 747-400 and Airbus A-380 aircraft.  It has been said that about 1/5 of their net profit comes from such routes.  V Australia, an international arm of Australia’s Virgin Blue, was originally scheduled to begin flying Boeing 777-300ER’s in December but had to slip the start to February 2009 due to Boeing’s labor strike this past fall.  United Airlines flies the same routes regularly with 747-400 aircraft that by many accounts are worn and tired and certainly not offering the service options the other two do.

 

It seems that Delta, if it does fly the route, is planning to use 777-200LR aircraft that are very capable of flying the distances as well as carrying a full load of cargo while doing it.  Ironically, the 777 was originally designed with QANTAS in mind although they never ordered any of the aircraft.  Indeed, with optional fuel tanks and a light cargo load, it is said that the 777-200LR might be capable of flying from Atlanta to Sydney regularly although it is highly unlikely that this will happen.  A more likely choice might be a late build 787-800 which Delta will be receiving as a function of purchasing Northwest Airlines.

 

This kind of competition is not want any legacy carriers on this route want.  Delta is operating with relatively low labor costs, new aircraft that are the most efficient available for long haul routes and they have a new network (from their merger with Northwest Airlines) that will feed the aircraft to capacity loads.    If Delta does launch this service, look for United Airlines to withdraw from the market.  They are the airline that lacks both the service product and fresh aircraft to compete.  

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Southwest Airlines has just announced a new codeshare with Mexican airline Volaris (partially owned by billionaire Carlos Slim.)  Like Southwest’s codeshare agreement with WestJet, this allows Southwest to gain access to international markets.  With these agreements with WestJet and Volaris, Southwest gets access to all of North America and gets to work with two airlines that have similar (not the same) operating environments. 

 

I’m quite certain that these new codeshare routes will, in fact, boost Southwest’s revenues (as well as the revenues of these other participants) and I’m sure both relationships will prove to be rewarding in many ways other than just money.  If one airline could operate throughout North America, it really would look very similar to this codeshare arrangement.  

 

These two new arrangements for Southwest found me pondering how it could be done better than just a simple codeshare.  One way to further integrate without attempting a merger (something all three airline’s governments are very unlikely to allow) would be operating an interchange. 

 

An interchange was a fairly common tool in previous decades within the United States.  The idea is that two (or more) airlines operate the same equipment on a route that is shared.  One of the most famous interchanges was when Braniff operated the Concorde from Dallas to Washington D.C. where an Air France or British Airways crew would take over and fly the aircraft across the Atlantic to either London or Paris.  At the time, each time the Concorde arrived in Washington, the aircraft would be “sold” to Braniff who would then hang new ownership papers in the cabin and change the registration temporarily for operation in the United States.  Obviously that kind of inconvenience would not be tolerated today between airlines but there really isn’t a reason for it either.

 

Wouldn’t it be interesting to see Southwest operate such an interchange with each of their partners.  A Southwest aircraft could be used to fly an international interchange between Canada, Mexico and the United States with only crews changing between focus cities for each airline.   For instance, imagine a B737 flown from Toronto to Chicago by a WestJet crew where a Southwest Airlines crew would take over and fly it from Chicago to Houston.  In Houston, a Volaris crew could take over and fly that same aircraft to Mexico City (Toluca) and then turn it around for a return trip.  

 

The advantage is that customers never have to leave the aircraft and it would therefore permit a more seemless network for transitioning from one country to another.  The only problem with that scenario is that Volaris has an Airbus A320/A319 fleet and while WestJet flies the 737, they are partial to the 737-800 type instead of the 737-700 aircraft preferred by Southwest.   Nonetheless, it does cause one to think about the possibilities that might exist between the three airlines. 

 

It also points to other opportunities for other airlines.  Codeshares are good and convenient for airlines but they still require a passenger to travel from one hub to another hub and when it comes to international connections, it does force the passenger to often de-plane, clear customs and transition to another part of an airport to continue on to a destination.  Sometimes that isn’t all that painful but more frequently it is a great inconvenience to the passenger and a barrier that many avoid.

 

With airline alliances relatively stable now, many could choose to adopt similar (if not the same) types of aircraft and offer trans-global interchanges for both companies and their passengers.  It also would allow them to further standardize their service and even possibly take advantage of fleet flexibility between partners.  For instance, what if QANTAS and American Airlines shared a portion of their 787 fleet and allowed it to “flex” between North America and Australia according to seasonal demands?

 

I suspect there are many more opportunities to be had from both codeshares and, possibly, a new version of interchanges between airlines. 

Filed under: Airline Fleets, Airline News, Airline Service by ajax
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These days there is much ado about various First Class and Business Class services on a variety of airlines.  The introduction of the A380 brought a new level of first class service from Emirates, Singapore and QANTAS.  Even their business class on those aircraft are more in line with First Class on any other. 

 

A week ago, I visited the Fort Worth air show at Alliance Airport.  While that show (and most others) tends to be oriented around military aircraft, I did get to tour the new Pink Ribbon American Airlines 777.  Like all 777’s tend to be, it was an impressive 3-class aircraft.  At least for First Class and Business Class.   Indeed, I actually thought that the Business Class arrangement on that aircraft was as good as First Class with respect to how I would value it on space and comfort.   AA’s First Class separates you more from fellow passengers but I don’t think its seat or entertainment is necessarily any better.

 

In any case, what I wonder about is Economy Class.  In this airline world, Economy Class remains largely what it was 30 years ago.  If anything, instead of rising in service or comfort, it has, perhaps, fallen just a bit.  Seat pitch is reduced.  The seating itself tends to be older and less comfortable on most airlines.  There is rarely entertainment and only on international flights.  

 

In my world, I put a premium first on seat pitch, then seat width and then on seat location (the opportunities to get either a window or aisle seat.)  In almost every case, entertainment means nothing to me.  While I acknowledge that it *does* excite some people, I would wager that if you gave a person a choice between a 34″ pitch seat with no entertainment and a 32″ pitch seat with entertainment, you would sell more of the former.  At least on most domestic flights. 

 

There appears to be no game changer for Economy Class.  There is no incentive to improve economy class service for almost any airline.  American’s 3-class 777 offers 2-5-2 seating (imagine sitting in one of those 3 middle seats) that is not one iota more comfortable in any way.  The one amenity, that I could observe, was a personal entertainment screen.  That was it.  I sat in the economy seat and it did not seem, to me, to be any different in pitch, width or general comfort than a AA MD-80 seat. 

 

There really isn’t any incentive for most airlines to improve this experience either.  By operating fortress hubs, the airline knows that most economy class passengers are a captive market.  There really isn’t much choice when choosing an airline for most destinations.  The only incentive for an airline to change seating comes from either being able to fit more seats onto an aircraft or to provide a seat that lasts longer.  

 

Delta is going to introduce such a seat using Thompson Cozy Suites.  You can see more about it HERE.  It is more comfortable and it does allow Delta to add some seats to their aircraft but they also have contract to use it exclusively (at least for a while).   jet Blue and United do offer some economy plus seating but they market it poorly.  Most passengers are unaware of it as an option to search for and only learn about it at check-in as an upgrade option. 

 

Wouldn’t it be nice to see a game changer for economy class for once?  A seat that offers some comfort and space even if it costs just a bit more to purchase.   Keep the free soda and coffee.  Keep the entertainment because I can carry a tiny MP3 player for music and I really prefer a book to a TV show anyway.   Keep the food and the pillows and the blanket because I can dress appropriately and probably sleep better with just a touch more room.  Find us a seat that we can sit comfortably in for 3 hours and I’ll buy your ticket every time.

Filed under: Airline Fleets, Airline Seating, Airline Service by ajax
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V Australia, a new subsidiary international airline of Virgin Blue is due to start new routes from Sydney to Los Angeles in December of 2008. They will be using new build Boeing 777-300ER aircraft configured in an economy, premium economy and business class setup. Many question the viability of successfully flying that route against the likes of QANTAS, Air New Zealand and United Airlines but I have a feeling these guys are approaching this route with more right sized equipment.

 

QANTAS and United Airlines both use 747-400 aircraft that typically have 343 and 374 seats respectively. V Australia’s 777-300 aircraft will have about 300 seats in their mix. However, V Australia will fly the most fuel efficient aircraft in its class and offer a brand new cabin whereas the QANTAS and United aircraft are older, less fuel efficient. In addition, with the coming fracturing of the US-Australia market, the 777 and 787 will fly those routes with lower seat costs and higher load factors than the 747 can offer.

 

QANTAS will be placing the A380 on that same route in the near future and while its seat costs will match the 777, the real question is whether or not they can fill the aircraft. The QANTAS A380 has 450 seats to fill every flight. The V Australia only has to fill 300. Allowing for similar departures and seat demands, the 777 makes money a lot earlier in the game.

 

Convetional wisdom is against V Australia and the 777. I remember that the only airline to participate in the design of the 777 and not buy it was QANTAS. There is a reason why the 777-300ER and 777-200ER have the range and efficiency that they have today. It was designed for those US-Australia routes. If V Australia keeps a good schedule and are able to manage their fuel costs well, they’ll likely succeed. Those routes could use a more economy minded competitor.

 

Here is the new V Australia 777 on the Microvolt / Paine Field website.

Filed under: Airline Fleets by ajax
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John Travolta owns a Boeing 707-138B.  It’s a gorgeous airplane painted in QANTAS colors, the airline that ordered and operated the very airplane he owns. 

 

What’s more interesting, to me, is that this airplane also was owned by Braniff International.  Braniff bought it and used it to operate US Armed Forces MAC flights to Southeast Asia.    The Boeing 707-138 was one of the many semi-custom airplanes Boeing built for special needs customers.  In QANTAS’ case, they needed range above anything else and Boeing shortened the fuselage of their standard 707 by 10 feet thereby reducing the weight and increasing the range.

 

Braniff also was a Boeing “special needs” customer.  They were the only airline to operate the Boeing 707-227 which basically combined the more powerful engines of a the 707-320 “Intercontinental” with the fuselage and wing of the 707-120.   Braniff operated flights to several high altitude airports in South America and used these “custom” jets to start jet service there.  They were the fastest of all the 707 jets and only 5 were ever built with only 4 being delivered (the first one crashed while on an acceptance flight.) 

 

 

Filed under: Trivia by ajax
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