Lufthansa has announced its intention to use the A380 on flights to Houston next year in August.   The airline currently uses the 747-400 for a once daily service between Houston and Frankfurt.  That’s an increase of capacity of at least seats.

It’s difficult to guess whether or not that is justified but I suspect that this might be more about retiring 747-400 aircraft and an A380 can provide the lift for the same costs. 

Lufthansa is also a 747-8i customer and I think we’ll see that aircraft used on routes like that as it is introduced into the fleet.  However, it is possible that United and Lufthansa will engage in a strong codeshare and funnel more traffic onto the Lufthansa flight.  United (Continental) currently flies a 767-400 on the route and it is quite possible they’ll reduce that flight to a 767-300 or even a 787.

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Airbus COO John Leahy is opining that United Airlines will ultimately add the A380 to its fleet because, in his opinion, it is the only way to be competitive in the Asia Pacific markets United serves.

I would suppose that anything is possible but I would also offer that I think this is highly unlikely for the near term.  By that, I mean you shouldn’t go looking for a United announcement about this over the next 5 years. 

United already struggles to figure out what to do with its 747 aircraft (as do most US based airlines) and that’s based on the fact that people here in the United States are looking for direct, non-stop flights rather than trips that require a flight to a “hub” city first.

The A380 might ultimately fit into the Asia Pacific strategies for both United and Delta but I don’t see it right now.  Other than the ability to “concentrate” more passengers onto a single flight, the A380 doesn’t offer these airlines anything more than what they already have in their current and planned fleets.  The idea that people *want* an A380 because it is an A380 is a bit foolish at best. 

What people want is market competitive inflight service and the best available travel time.  That can be accomplished profitably with the 777 and 787 fleets that these airlines will have.

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Now we see some rumour developing that United Airlines is in talks to make a 200 aircraft single aisle purchase.  This has credence due to the fact that United has about 200 aircraft that are some of the oldest around (these are 757s and 737s mostly from the original United Airlines) and those aircraft are likely having a real impact on the bottom line as a result of fuel costs and maintenance.

I think we’ll see an order and I suspect that order may well go all to Boeing.  It may be named United but it is run by Continental executives now and those executives have found ways to effectively use the 737 on their routes.  Furthermore, I think Boeing may be able to offer earlier delivery positions than Airbus can.

What might we see?  I would look for a sizeable portion to be 737-900ER aircraft with some 737-800s.  In addition, I think we may well see a follow on order for the 737MAX aircraft again in the -800/-900 configurations. 

The current fleet of Airbus A319s are “good enough” and while some of the A320 aircraft are getting older now, they aren’t quite old enought to start planning retirement of until those older 737-500 and 757-200 aircraft are replaced.   About 1/3 of the A320s were delivered in the mid 1990s with the balance showing up from around 2000 and on.  Almost all of the A319s arrived in the early 2000s.  There is maneuvering room left with those fleets.

Airbus will want to keep United but I think they’ll struggle to offering the delivery positions that United will need.  Those positions are needed now and over the next 7 to 10 years.  Airbus has sold most of those positions.  The only way to offer early positions is to increase production even more.

And both Boeing and Airbus are struggling to figure out how to increase their production beyond their plans for production rates that will already be historic for commercial airliners.  It would require another production line and even more suppliers for airliners that are now fairly obsolete in light of the A320NEO and 737MAX.

Look for an order announcement in the next 1 to 3 months and my bet is on a 200 to 250 aircraft order of 737s with about 100 of those coming from the 737MAX line.

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In honor of mentioning Bruce Dickinson, Iron Maiden and Astraeus earlier this week, we have a rock band question.

Led Zeppelin and many superstar rock bands of the 1970’s finally made the switch from old propeller aircraft to a genuine jet airliner.  In many cases, it was a famous airliner named The Starship which could be leased for band tours and customized to the band’s desires. 

Question:  What kind of airliner was the Starship and who was the original owner?

The answer after the fold: (more…)

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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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United’s ALPA union has elected a new leader to replace current chairman Wendy Morse.  His name is Jay Heppner and his statements upon winning (Morse didn’t run for re-election) don’t lead me to believe that things will be better in getting the United and Continental pilots to agree to something. 

Heppner sees this as being about a new contract and it is no secret that United’s ALPA see the new contract and integration being about getting big, fat raises.  That’s a non-starter with United and, in particular, it is a bit insulting to the Continental pilots who upon integration, really do lose a bit of power as there are far more United pilots and many are far more senior than Continental pilots.   Continental pilots have largely been smart and pragmatic about the new world order in the airline industry and really don’t deserve to be impacted by recalitrance.

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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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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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A United Airlines flight from Washington, D.C. to Cancun had to divert to Havana, Cuba yesterday after pilots smelled a strong electrical odor in the cockpit. 

How often does that happen?  No one is sure it ever has with a US airliner.  US and Cuba don’t have formal diplomatic relations but the air agencies of each do cooperate as a matter of course.  (Cubana flights overfly the United States, for instance.) 

United Airlines sent another aircraft to accomodate the passengers since you can’t exactly book people on the next Cubana flight out to Mexico.  What’s happened with the first airliner hasn’t exactly been revealed but I would guess that mechanics were sent and the aircraft ferried to the nearest base possible. 

Was it legal?  Sure.  Captains have the discretion to make such decisions and I’m sure this one wasn’t taken lightly.

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Two airlines founded by the same man somewhat recently decided to get married.  Can you name the two airlines and the man who founded both?  The answer after the fold: (more…)

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It’s been quite a while since the Continental United merger was announced and pilots from both sides are *still* negotiating their integration.   This stands in stark contrast to the SWA / Airtran deal announced a few days ago and completed in far less time than the ContiUnited merger has been going on.  It’s been over a year now since the ContiUnited merger was announced.

This is about pay, seniority and job security.  Both sides of the table have given up significant pay over the past 10 years or so and both want a raise that shares in the wealth.  United has more senior pilots and that’s a threat to Continental pilots.  Continental pilots have enjoyed quite a bit of job security as a result of scope clauses that have limited Continental to using regional airlines for 50 seat missions or less. 

Mostly, neither side wants to budge.  I think the Continental pilots have viewed this merger as more threatening than any anticipated.  Despite the appearance of this being Continental with the United name to the public, more and more of the United model has been retained.  Any attempts to “outsource” Continental flying to United has been stopped in courtroom skirmishes by Continental pilots who don’t want to see regional jets flying *their* routes. 

So what breaks the impasse?  It’s hard to say.  There isn’t much One Love going on here despite the fact that both are represented by ALPA.  United pilots are very militant and Continental pilots are very concerned.  Failure to reach an agreement on much of anything here has caused these talks to look stagnant. 

ContiUnited can’t start benefiting from this merger until it has a merged single certificate as an airline and until it can flow flight crews between both airlines.  That day isn’t in sight as of today. 

Furthermore, management can’t afford to agree to an unsustainable raise for both sides given the current economic climate.  So there are few incentives that management can offer to stimulate an agreement among the pilots. 

Is this going to be another US Airways / America West problem?  Right now, I don’t think so.  It already doesn’t represent the smooth transition that Delta and Northwest enjoyed but it can be wrung out.   The problem here is that there is no momentum.  Continental pilots felt Continental was doing just fine on its own and that they were doing better than most pilots out there.  United pilots are out “to get theirs” at almost any cost.  Someone, somewhere, has to find something for both parties to agree upon and get some momentum going for an agreement.

Continuing these talks for years or coming to an agreement that falls apart hurts the pilots the most.  Senior Continental pilots are going to need to have some assurances with respect to seniority that go beyond “date of hire” integration.  Pay is the easy part here.  Job security and seniority are the hard parts.  Seniority in particular because a Continental pilot that is, say, bumped from his job as a Captain on a 777 stands to lose quite a bit of pay. 

I suspect we’ll see these jobs “fenced” at the airlines with a date sometime in the near future (3 to 5 years) of breaking down those fences so that pilots can bid for jobs they want on each other’s equipment. 

How does all of this happen?  It should happen with Jeff Smisek, CEO of ContiUnited.  It’s always dangerous for  a company leader to get directly involved but he needs to find a way of assuring both sides and an incentive for them to agree upon something.  That incentive is going to cost but the sooner he finds it, the sooner United starts making consistent profits.

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In what I will declare to be the most greedy of moves for 2011, most US airlines have decided to raise fares to offset the FAA taxes that have (temporarily) disappeared as a result of Congress’ inaction on a new bill for the FAA.

By most US airlines, I mean airlines such as American, United, Continental, Delta, US Airways, Southwest, AirTran and JetBlue.  By raising fares, I mean they’ve raised them about 7.5% to offset the taxes that disappeared.   A few airlines such as Virgin America, Frontier Airlines and Alaska Airlines have so far not raised fares to grab that cash.

I am immensely disappointed in this development and particularly disappointed that I find both SWA and Airtran in that group.  Airlines don’t deserve this money and it is shameful behaviour to run and grab it.

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A reader wrote me yesterday about some pricing he saw between Kansas City and New York City (Newark Liberty International Airport aka EWR)  recently.  In the past, he’s always flown Continental on a regional jet non stop for a competitive price.  Most recently, he saw the same flights for far higher prices than in the past with other airlines offering one stop pricing that reflected what he was used to.  He asked if this was one effect of the recent Continental / United merger and I said that I didn’t think so.

I think the pricing were seeing from airlines today, particularly on non-stop exclusive routes, is reflective of just how hard it is to make money in this business today.   In United’s case, they probably enjoy more competition into and out of Newark than they used to.  However, they also need to earn more money and show promised profits.  On exclusive non-stop routes, they’re going to price seats for the most they can get. 

Business travelers do differentiate between non-stop and multi-stop flights.  They may be closed off from traveling in business class these days but most aren’t being required to take the least expensive coach seat.  In the reader’s particular market, they probably fill those regional jets with mostly business travelers and business travelers remain a big piece of profit for airlines.

I pointed out to the reader that he could probably enjoy almost as quick a flight on more comfortable equipment if he shopped Southwest Airlines but that points up another issue.  With the conflicts going on with Global Distribution Systems and American Airlines as well as the fact that LCC carriers in many cases are using GDS companies and/or online travel agencies to advertise their fares.  Absence of those fares being shown makes it possible for network carriers to raise prices on those GDS systems and earn more.

And this is why I would like to see LCC air fares start showing up on these travel websites.  I think there is quite a bit of low hanging fruit for the LCCs to reach on these sites and I think the travel websites have the potential to continue on in the travel world if they find a way to embrace and entice LCC carriers.  In addition, it narrows the fare gap we see between network carriers and LCCs.

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In a deal tentatively agreed upon and subject to Frontier Pilots Association ratifying it, Frontier pilots will get an equity stake in Frontier Airlines. 

Parent company, Republic, led by CEO Bryan Bedford, has so far struggled to make Frontier truly work under its business plan.  Why?  In Frontier’s case, it was based upon lower oil prices (aka lower fuel prices) than exist today.

While Republic’s regional airline business is continuing to do well financially, Frontier’s isn’t.  It doesn’t help that it is hubbed in Denver and surrounded by two 800lbs gorillas:  United Airlines and Southwest Airlines.

Both United Airlines and Southwest have made it clear that they are there to stay in Denver while Frontier has flailed about attempting to survive.  One has to wonder if the Southwest purchase of Frontier wouldn’t have been a better deal both for employees of Frontier as well as investors.

In hindsight, Southwest’s “loss” in the bid for Frontier now looks like a far better choice and its admirable they walked away.  Now they’ve filled spots in their route map that were “must haves” and get to integrate a fleet and flight crew that more closely matches their own.

It’s notable that Frontier is struggling in its two focus cities of Milwaukee and Denver.  Frontier is bracketed with Southwest and United in Denver and bracketed with Southwest and Airtran in Milwaukee.  

In addition, Frontier lost the man largely reseponsible for producing profits at Frontier:  Sean Menke.  Menke has just agreed to go to work for Pinnacle Airlines, a competitor of Republic.

Is Frontier over?  No.  Can it survive in the long term?  Only if it breaks out of being in entrenched battles for its cities.  So far, Frontier has mainly concentrated on building new routes to lesser cities that connect back to its Denver hub and Kansas City focus city.  It needs more coverage across the United States and there are few cities that are ripe targets for Frontier’s entrance at this point.

In addition, starting new routes is mostly only possible with Republic’s E170/190 jets as it has no more A319 jets on order and only one more A320 jet due this year.  Additional A320s are to be delivered starting in 2015.

Republic Airways does have Bombardier’s CS300 on order (40 orders and 40 options) but those aircraft aren’t due until 2014 officially and they are likely to be as much as 2 years late.

One has to question whether or not a stake in Frontier has that much value over the next several years.  In the past, airlines could survive for years and still bleed money.  Today, airlines have to manage their cash very closely and Frontier isn’t generating enough positive cash flow to have a very optimistic future.  It’s possible that Republic could keep the company afloat but only with further concessions from labor and I think that is unlikely.

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Delta Airlines and Virgin Australia have gotten their approvals for an anti-trust immunity agreement to cooperate across the Pacific between the United States and Australia.  They did so, in part, by promising to keep up frequencies between the two countries.

This doesn’t mean that routes won’t be rationalized.  The frequencies will stay the same, the routes won’t.   These two airlines will deploy their 777 aircraft on routes that are complimentary rather than competitive.  Expect V Australia 777s to start arriving in San Francisco to replace QANTAS’ recently withdrawn flights.

Delta’s 777-200LR aircraft can potentially make the flight between Atlanta and Sydney (although with a touch of payload restriction) and provide competition to QANTAS’ new 747-400ER flights to Dallas/Fort Worth.

And for the first time, there is real competition for the QANTAS/British Airway/American Airlines Oneworld consortium.  Virgin Australia can provide domestic connections to Delta in Australia and Delta can provide domestic connections to Virgin Australia in the United States.

John Borghetti, CEO of Virgin Australia (and formerly an executive with QANTAS) has made it clear that he intends that Virgin Australia be a strong competitor with QANTAS rather than an constant underdog and he has experience with building networks as a result of working for QANTAS for many years.

Look for quite a bit of new competition on routes between the United States and Australia and I think United is going to be the airline to take the hit.  United has pretty old aircraft with a pretty old service product and no partners in Australia to assist with feed.  They also have no new large widebody aircraft to carry passengers with either although they will have the 787-8 with which they can start direct flights to New Zealand and Australia from cities in the United States that have never traditionally seen direct flights.

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As the new United airlines has worked towards integration between United and Continental, two flight numbers got reinstated:  Flights 93 and 175, the United flight numbers of planes involved in the September 11, 2001 attacks.  Typically after a disaster, an airline “retires” flight numbers to simply avoid the controversy that might erupt around them.  And United had avoided these but in “harmonizing” schedules, these two appeared available to sync with Continental flights that do use the numbers.

United’s flight crew unions immediately slammed the airline for this and have expressed their outrage over such a mistake.

“How could these flight numbers have been ‘inadvertently reinstated’ as the company indicates?” asks Capt. Wendy Morse of the United branch of ALPA. “The pilots of United Airlines expect accountability of how these flight numbers were considered in the first place.”

I’d like to suggest that everyone take a breath.  First, this was a mistake and an understandable although regrettable one.  Second, it was corrected immediately upon discovery.  Third, United’s corporate response to this was nothing but brief and deferential. 

You have to wonder at unions who want to make such a thing political when it comes to those flight numbers.  It’s militancy at its worst and more distasteful since United’s was a mistake the union’s moves are intentional.

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United Airlines has about 1800 flight attendants returning from voluntary furloughs soon and Continental Airlines is due to be short about 800 flight attendants in the coming year. The holding company wants the flight attendant unions to help out by agreeing to shift employees between the two separately operating airlines.

The two airlines are merged but they are still operating from two operating certificates which are some time away from being combined into one. The unions are due to hold elections and then begin negotiating seniority lists thereafter. United says it can’t wait that long, however.

My prediction? You won’t see any cooperation from old United flight attendants on this issue. In fact, I’ll wager that they’ll use this as a bargaining chip against United management. If Jeff Smisek, CEO of United (and former CEO of Continental), thought that things would operate much as they did at Continental when it comes to employee cooperation, he’s in for a rude shock.

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Southwest Airlines is now the number 2 carrier at Denver with Frontier Airlines (as well as Republic Airways flying) dropping to number 3 now.  The good news:  this is more at the expense of United Airlines than Frontier.  the bad news:  dominance is dominance. 

I’m not entirely surprised at SWA’s success at Denver but I do think that, like others, it is a bit surprising that this took as long as it did.  United, Frontier and Southwest have been in a pitched battle for that market for years now.  This was never a battle about SWA beating Frontier.  This battle was about SWA owning market share and pushing out more expensive incumbents.  That would be United.

Frontier never was and still is not big enough to be a real threat to Southwest.  Based on Frontier’s route decisions, they aren’t going to be a real threat to SWA either.  Frontier is looking for low hanging fruit that has little or no competition.  Southwest is connecting focus cities to focus cities region by region and sees Denver as a good place to establish itself on several of those mainline routes. 

If anyone should fear Southwest, it’s United.  You can’t sustain attacks from two low cost carriers forever and stick around.  As the ContiUnited merger plays out in integration, I expect Denver to look less and less important to that airline as a hub.

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Despite the exceptional record of profitability and growth for Southwest airlines, I’ve often felt that the financial markets do not treat Southwest quite as the airline it is.  In fact, I can’t identify another airline in the United States that has such a record but, despite that, its stock price often is low and my perception is that analysts don’t trust the success.

The Dallas Morning News Aviation Blog has an entry about Standard & Poor keeping a close eye on SWA now that it is about to close on its merger.  There is a belief that this merger will weaken SWA’s financial profile and that SWA will incur greater financial risk going forward.  There is no doubt that this exists as a possibility but it seems to ignore that Southwest’s strengths going into this merger. Strengths that other airlines didn’t have during other recent mergers.

I think Southwest will find it difficult to integrate parts of Airtran.  I think they will incur significant costs doing so and I think they’ll find it more difficult than they are portraying.  All of that said, I also think that SWA is better positioned to consummate this merger than virtually any other airline around.  I think that we’ll see more harmony in the labor integration than we’ve seen in other mergers (even Delta who did it relatively well has been facing union election after union election every since it merged with Northwest.)

The fleet integration has far less risk than what we’ve seen in other mergers.  The pathway forward in rationalizing routes is far more clear than in other mergers and the Justice Department hasn’t identified any conflicts of real concern in this marriage either. 

So why do others get a pass?  Take a look at the share prices of United Airlines since the ContiUnited merger.  Both airlines had significant financial risks and significant labor risks in that merger and, yet, the share price is exceptionally high with a far more cloudy future than Southwest has.

I think Southwest tends to be thought of as a regional player despite its national stature.  And I think it remains difficult for even educated analysts to trust the year after year success that Southwest has enjoyed.  I believe that they feel it is still too good to be true and they continue to wait for the other shoe to drop.  After more than 25 years of financial success, I think it’s time to get over that and value this airline for what it is:  Possibly the most long term successful airline in existence.

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United Airlines flight attendants (comprised of about 15,000 United employees and 9,000 Continental employees) will be voting on which union will represent them in the merged companies I like to call ContiUnited. 

United (old) flight attendants have been severely unhappy with United since they lost their pension in bankruptcy in 2002.  The blame has often aimed at United Chairman Glenn Tilton and employee groups at United (old) have made it clear they intend to get what is theirs with this merger including the Flight Attendants.

It’s been my observation that Continental crews haven’t viewed their merger with United with great enthusiasm either.  Continental crews have had pretty good working conditions, good industry salaries and have been rewarded with the company’s success.  That experience has been seen to be at risk since United (old) employees typically outnumber Continental employees in the same jobs.

This vote will be won by the United (old) flight attendants and expect Continental flight crews to be displeased by this.  Jeff Smisek, CEO of United and formerly CEO of Continental, has been exceptionally quiet during this merger and hasn’t put much of a “one team” spin on this merger in the public in my opinion.  As times passes, this merger appears, from the employee perspective, to be less and less a merger of equals and more and more one of Continental executives taking over United operations.

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