I was thinking about the lack of empowerment and common sense in airlines (with one or two exceptions) these days and remembered something from this WIKI entry about Robert Six and Continental. I’ve also read it in Robert Serling’s book about Continental. The quote is:
According to Six biographer Robert Serling, quality was the watchword in every detail of Continental’s operations in the 1960s and 1970s.In one anecdotal indication of Six’s passion for premium customer service, every page of the airline’s Customer Service Manual was inscribed with these words: “Nothing in this manual supersedes common sense.”
Imagine that being in an airline manual today. Kind of hard isn’t it?
The Dallas Morning News Airline Biz Blog has THIS entry. Continental wants any exemptions granted by the DOT for the 3-Hour Rule to be extended to the entire NYC airspace area (JFK, EWR and LGA airports essentially) claiming they are to interconnected and interdependent and one problem at one airport potentially causes problems at another airport. There is some truth to that. What is spoken is that airlines haven’t decided to be a part of the solution to those problems.
What this really is about is just undermining the rule with exemptions. Get one foot in the door on that issue and you’ll likely undermine the entire rule with more and more exemptions. The New York City area is just the best place to start as it has the best conditions for claiming a need right now. Take note that airlines want government off their backs (to semi-quote Jeff Smisek of Continental) but have not implemented restraint on their parts nor have they sought an industry solution to the overly congested NYC area other than to ask for a “NextGen” ATC system. The NYC area has been congested since the 1960’s. I’ll point out that airlines didn’t want the government off their backs post September 11th.
This bothers me for 2 reasons. One, undermining the rule is just bad policy right now until you’ve had an opportunity to operate under it. You make a much better case for these exemptions if you can show both the operational and economic impact of them. Two, it’s a distraction for the airlines. It bothers me that airlines have allowed themselves to become distracted by fighting this rule instead of planning for its impact and getting on with their business. There are other, very important problems for many of these same airlines to solve such as labor contracts, equipment purchases and even fuel hedging.
Let’s face it, most all of these airlines asking for exemptions are airlines that could stand to be focusing more on solving other problems that shareholders are impacted by to a far larger degree. Shareholders haven’t really been given much by legacy airlines in terms of real value for their investments.
You can fight this PR battle in the news like this and lose and Ithink the airlines will lose this one. Now, they’re not in the habit of losing much anymore as they’ve have asked for and received a great deal of consideration from the government over the past 10 years. Unfortunately, there really isn’t much good will left out there for airlines and we now have a very different government in place.
It’s interesting to me that a group of airlines such as ours can spend so much time, effort and energy fighting something like this but won’t come together and make a concerted industry effort to lobby for a real implementation of better ATC control.
I might be wrong but I really don’t think there is much tolerance left for an industry that has received as much consideration as the airlines have who hasn’t tried to be a part of the solution. And despite all promises to the contrary, airlines really haven’t solved the kind of problems that the 3-Hour Rule has been put into place to solve. For almost ten years the industry has said that this is a problem that is better solved internally. If it had been solved internally, we wouldn’t be focused on solving this problem still (or not nearly to the degree it currently plays a part in public debate.)
A healthy airline would, at this point, be making contingency plans and figuring out how to operate profitably within this constraints rather than hoping to win a PR battle. Watch who decides they have a dog in this fight and then look at their financial performance and labor relations. It should be an interesting story.
There have been some interesting comments in the news today made by Continental’s new CEO, Jeff Smisek. First, he seems the switch in alliances as a very good thing for Continental but it is way too early for us to see that as anything other than justification for the switch. It was notable that he referred to being in the SkyTeam partnership as problematic since they felt Delta was trying to kill them. I’m not sure Delta was trying to kill them but I don’t think Delta saw them as adding value probably.
Another comment is one I’ve been waiting for from an airline. Mr. Smisek says Continental will cancel flights before risking fines under the new rules for 3 hour delays. I’ve been waiting for an airline to make that statement publicly because the rule is about to go into effect but also because the winter weather this year has been atrocious for northeastern airline operations. No airline likes new rules. No airline ever embraced a rule that punished its violators with fines. Even the most progressive of airlines hate change. But airlines have been relatively quiet for the past 2 months of winter and that made me wonder if I was ever going to hear threats of cancellations.
Well, to my surprise, it was Continental that finally stepped up to the plate. The thing is, if one looks at what winter did to airline operations so far this eyar, any flights that got cancelled would have had to be cancelled anyway. There might have been a handful that could have gotten off if given 4 hours instead of 3 but it would have literally been a handful. What has been notable is just how quickly and quietly the airlines recovered their operations after each event. No outraged passengers were found on the news complaining either.
The airlines were all negatively impacted by the storms and all lost a significant amount of revenue because of that. It was unavoidable and it wasn’t because of the 3 hour rule looming in front of them. That’s how the airline business rolls sometimes.
The final notable comment is comes from Continental reiterating that it may be open to a merger in the future. They don’t see the Delta/Northwest merger as being in the books as a success yet and I agree. They do, however, believe that if that merger does prove successful, it points to what Continental needs to consider in the future. I don’t see this happening any time soon at all. The truth is, Delta got the best partner available in the US. The next 2 candidates come with a lot of baggage that isn’t easily solved by even in the best managers in the industry: United and US Airways.
I think we’ll see Continental exploit its membership in the Star Alliance and grow itself organically rather than by merger. There is one company that, if I were Continental, I would be interested in buying. Alaska Airlines. The problem is, if they make a move on Alaska, it will become a bidding war between AA, Delta and Continental. Maybe United even enter into that fight. Continental doesn’t have the war chest to win that fight. Not right now. If they do recover and re-start their growth and if Delta’s merger doesn’t prove as successful as it hopes, they would have a chance. Even at that, I think AA would fight very, very hard to win that battle just to keep Continental off the west coast.
There has been quite a lot of talk in the media about mergers recently. Financial analysts are high on the idea and two airlines in particular have batted their eyes at potential suitors again.
The CFOs of both United Airlines and US Airways have made recently comments stating they see more consolidation needed in the US airline industry and both said their airlines remain open to the idea of merging with someone. No big surprise because both of those airlines are arguably the poorest performing legacy airlines in the US. It’s also no big surprise that financial analysts now want to see another merger because they’ve seen the financial response to the Delta/Northwest merger.
I don’t see it happening myself. Neither US Airways nor United Airlines happen to be particularly attractive properties for another airline for one. Neither American nor Continental really have anything to gain by mating up with those two for example. Well, Continental could benefit from UA’s Chicago hub and its international business. American already has a nicely balanced business and, more importantly, it needs to focus on its labor problems and get those solved first.
Continental has done better by managing itself and its employees carefully and really isn’t inclined to pick up one of the two airlines with some of the worst labor relations around. They’re kind of smart over at Continental. Now that they’re in the Star Alliance, they have the best of both worlds going for them.
So why don’t UA and US join together? Well, their hubs would fit together kind of nice and there would be some nice synergies to be realized in consoldating operations. Even their fleets kind of work together. However, UA is headed by Glenn Tilton who isn’t interested in giving up his position to someone else unless they, too, are an airline titan. He’d benefit from a merger personally but his ego doesn’t seem to want to let him have UA be the “consumed” airline. He wants to buy and consume someone else.
US Airways is being managed by Doug Parker who has plenty on his hands already with a pilot group that is so dysfunctional that it would make wife-beating appear respectable and his airline is short cash anyway. He’s got no money to buy anything with and his somewhat anemic route structure isn’t all that attractive to any other airline. No one wants his labor problems at all.
Besides, I”m not sure consolidation is what this industry needs. A liquidation could actually be the better answer. More on that tomorrow.
Alaska Airlines and its sister company, Horizon Airlines have announced a pilot program to introduce electronic boarding passes into their system.
Electronic boarding passes are displayed on a PDA with a bar code that can be scanned at the airport. Continental began pioneering this technology but Delta and American Airlines have been testing it out at various airports over the past several months as well. All of the anecdotal reports that I’ve read so far seem to indicate that it has worked well and fairly smoothly with the only comments being that some TSA officers were surprised by seeing one but not unfamiliar with it.
What do you do if you cannot get your PDA to display the boarding pass? You can always get a paper copy by checking in at the airport as well. Passengers choosing this option aren’t at risk just because of a problem with their PDA.
Alaska / Horizon also introduced their new mobile website at:
Over the past few days, there have been a number of news stories about the trial that is to begin outside Paris, France against Continental, 2 former Continental employees and 3 French nationals ( an official with France’s civil aviation authoritythe DGAC and 2 former employees of Aerospatiale.) Any airline enthusiast knows the story of the Concorde crash July 25th, 2000 and the resulting aftermath of modifications, return to flight and then the permanent retirement of the Concorde in 2003.
What is tragic is that the five men and Continental (the corporation) are being tried for involuntary manslaughter and this entire trial bothers me quite a bit. First, the three Frenchmen being tried strike me as scapegoats put up for trial and the benefit of seeming to be “fair”. Second, to blame Continental or its employees for this tragedy just seems, well, so very French in attitude.
The two former Aerospatiale employees, Henri Perrier and Jacques Herubel, are both very old men and accused of failing to carry out modifications on Concorde after a series of tire blowouts in the 1970’s revealed design flaws that allowed debris from tires to penetrate the Concorde wings. There is the story of the Air France Concorde that suffered a blowout on take-off from Dulles airport in the late 1970’s that saw its wing tanks penetrated and it managed to leak tons of jet fuel before returning to land.
It is true enough that such flaws were known for a long time. It was a two part problem. Because Concorde took off at such higher speeds (as fast as 250mph), it was difficult to build a tire for it that would not catastrophically fail in the event of a blow-out. Mind you, blow outs just happened more often back then too.
The second problem was the wing. It was possible for a tire blow out to throw pieces of the tire up against and into the wing of the aircraft where fuel tanks existed. As you can imagine, it isn’t a good idea to penetrate fuel tanks ever and certainly not next to 2 afterburning engines on take-off.
Over time, the tires got better (but not fixed per se) and Concorde managed to fly successfully for 2 more decades before the tragic crash in France. A little historical context is necessary to understand everything at play here.
First, Aerospatiale is now a part of EADS/Airbus. And guess who owns a large chunk of EADS? Yup, the government of France. I should also mention that Aerospatiale was formed from the merger of several government owned aerospace companies in 1970 and continued to be owned by the government of France. Notice that they are not a part of this trial.
Second, guess who owned Air France in the 1970’s. . . yes, the government of France. Air France was a government owned entity in a variety of forms until privatization occured in 1999. However, the French government still owned a majority holding of shares as recently as 2002. Further, Air France has always been recognized as a national flag carrier in France and even despite privatization, it holds that kind of status throughout the nation even today. Notice that Air France is not on trial either.
If someone should be on trial for this tragedy, it should be Aerospatiale/EADS, Air France and, possibly, the DGAC (French civilian aviation authority). At least from the French perspective. However, it is much easier to lay blame at three elderly men who are old enough to not have any “patrons” in the government still and therefore leave them unprotected from what by all appearances is a failure on the part of the French government rather than these men.
I’ll also take note that France has studiously avoided dragging BAe Systems (formerly BAC and the co-builder of Concorde) as they are, wait for it . . . still a first tier vendor to EADS/Airbus although no longer a partner. No finger was pointed at the UK government for permitting design flaws to continue on for 2 decades and the UK was just as aware as the French. However, the French have to work with the UK and and business is business.
Frankly, I predict that the French court will likely lay the blame firmly at Continental’s feet and assign some to those 3 elder Frenchmen on trial.
But the real tragedy will be France failing to shine sunlight upon their own behaviour and complicency in this crash and that makes France a less safe place for all concerned.
Sadly, French arrogance when it comes to this kind of issue still rules today. When an Air France A-330 was lost over the Atlantic Ocean near the coast of Brazil, the offer of US investigatory assistance was nearly ignored entirely. That is criminal in itself since the US has the best investigative force for airline crashes in the world. There is no one who comes close and that is why the US is asked to assist with investigations around the world. However, the US has the nasty habit of, more often than not, calling a spade a spade. Something that the French will not tolerate when it comes to their aerospace and aviation industries.
The Continental Airlines employees on trial will not be present. They will be represented and therefore they run almost no risk of imprisonment no matter what the outcome. However, I think that makes it just easier to blame them as a face saving gesture. I suspect that no matter how vigorously Continental Airlines defends itself they will be the ones to pay ultimately.
The three Frenchmen on trial may suffer some blame, again as a face saving gesture, but I wonder if they’ll take it. They have no reason to. An 80 year old man has little to lose in speaking out at what was going on in the 1960’s, 70’s and 80’s.
If this post seems xenophobic, I can see why that might be the interpretation. However, I stand by my characterizations of both the French government and the French aerospace industry. I doubt seriously that anyone who has observed the aerospace industry would disagree with me either. My characterizations are based on their deeds and those deeds have been many over the past 50 years.
First, read this newstory HERE and this newstory HERE about a Continental Airlines flight to Bogota, Colombia that was diverted to Jacksonville, FL when someone apparently identified a person the passenger manifest as being on the “no fly” list.
First, how did someone manage to board the aircraft if their name was on the “no fly” list? That would seem to imply a breakdown either at Continental or the TSA itself. Just because the TSA seems intent on blowing it at every chance, I’ll speculate it was a problem on the TSA’s end.
Second, note this paragraph:
The situation was quite scary for the 75 passengers aboard Continental flight 881 in light of the Christmas day attempted bombing of a Detroit flight by Umar Farouk Abdulmutallab.
Really? They were all sitting there terrified? I think the journalist is engaging in a bit of fantasy here. I guarantee you that those passengers were kept in the dark about this and the reason given for a diversion wasn’t not “Ladies and Gentlemen, we might have a terrorist on board so please keep your seat belts fastened while we divert the aircraft so this person can be met by the FBI.”
More than likely, unspecified but routine reasons were given and there was no activity on board other than the loud sighs of passengers being inconvenienced again.
Shame on the journalists for writing such garbage.
These three alliances have been forming, growing and shifting for some time now and it is almost fair to say that they’ve reached a certain maturity that lets us take a look at what the future might hold.
There will always be shifts between alliances as time goes by but the major structures are now in place and let’s be honest in that airlines are not equal partners in these alliances. There are bedrock airlines and there are airlines who are really more associate partners.
In the Star Alliance, US Airways has definitely been more of an associate member than, say, United, Lufthansa or Singapore Airlines and with the recent addition of Continental and the close partnership its formed with United, US Airways is even more the redheaded step-child in this organization.
SkyTeam really has the strongest core though. Formed, in part, from the original Northwest / KLM alliance that began in the 90’s, it now has an extremely strong network that spans both the Pacific and Atlantic oceans. If it has a weakness, it is in South America among South American carriers and I’m not sure if that is really a weakness right now.
The Star Alliance and SkyTeam have both managed to work among themselves in pretty close partnership and develop strong networks playing on each others’ strengths. Schedules between those partnership airlines are pretty rational and they do tend to treat affiliate partners as having value in the organizations.
Then there is Oneworld. Oneworld isn’t so much a partnership alliance as it is a looser affiliation of airlines. To be sure, at one time Oneworld’s members represented a very strong core of airlines who were profitable and very strong on a global level. To a degree, they still are but this has definitely become the weak alliance over time and with the fight over JAL taking place, its now fighting for its life.
Oneworld doesn’t know how to work well with each other. Partners American Airlines and British Airways have dominated that relationship and because of their obstinance over trans-Atlantic routes and slots at Heathrow, they haven’t been able to work closely together over time and develop those relationships that have been grown in other alliances. Because of their dominance, other potential strengths in their network, QANTAS, JAL and Cathay Pacific for instance, haven’t really been exploited fully either.
Oneworld is, for most intents and purposes, an old style Anglo-American relationship with AA, BA, QANTAS and Cathay Pacific dominating that alliance. (If you don’t think Cathay Pacific is Anglo, look up its history and its executive team.)
If Oneworld loses JAL, I’m not sure this alliance survives in the long run. It cannot afford to be an alliance with two dominant partners (AA and BA) and it cannot afford to lose even one trans-Pacific partner. If JAL moves over to SkyTeam, then I suspect over the next few years we’ll see one or more “majors” in that relationship find homes elsewhere.
No matter what Oneworld does, they lose a major network in Japan if JAL leaves the alliance and they have no hope of luring ANA over to their alliance either. The best they can hope to do is build their routes systems into Japan with more direct flights from outside Japan. That isn’t very satisfactory.
They already lack a major partner in China itself (Cathay Pacific isn’t quite that kind of partner) and lack a major partner centered in Korea and Southeast Asia/India.
I suspect we’ll see one or more core partners in Oneworld slip away to one of the other alliances. It wouldn’t be too hard to attract LAN away from Oneworld, for instance. Nor would it be difficult to perhaps walk Cathay Pacific away from Oneworld. That would leave three basic Anglo American core partners who have no harmonized strategy and not much to offer smaller affiliate partners either.
What’s more, JAL doesn’t need their money now that they’ve gone into bankruptcy. The Japanese government is financing them and will provide all the capital they need at this point since they have little choice to do anything else. That means JAL is free to consider a long term strategy and if it can get some real signal that anti-trust immunity would be granted to a partnership between Delta and JAL and the rest of SkyTeam, that’s their best deal.
It has occurred to me that the reason there hasn’t been more worry about the dominance such an anti-trust immunity would grant is that, maybe, Delta has signaled its willingness to draw down its legacy network to and inside of Japan that it gained in its Northwest Airlines purchase. Northwest Airlines not only had a strong system to Japan, it also had a strong network system of flights originating from Japan to regional Asian destinations.
If Delta is willing to let JAL fly that system on its behalf, that may well satisfy regulators in the United States.
According to the Wall Street Journal Middle Seat blog, American Airlines has decided to match the bag fees recently implemented by Delta and Continental. You can read more HERE.
So, at present, Delta (including Northwest), American Airlines, Continental, United and US Airways are now all charging $25 for the first bag and $35 for the second bag with some of the airlines offering “discounts” if you perform your “bag fee purchase” online. That would imply that they each see this price for checked bags being a bit more elastic than one would have thought. Or, at the least, they see it as elastic as long as they all go for the same increases much as the case is with air fare increases.
So far, no low cost carrier has adopted this pricing model or even raised their checked bag fees. I suspect they won’t either as it gives them an opportunity to show themselves as the good guy while gaining some incremental revenue.
If this rise in fees sticks for the next 1 or 2 quarters, I do think it will put tremendous pressure on Southwest Airlines to institute their own version of bag fees, at least by institutional investors and analysts. So far, Southwest and its CEO Gary Kelly have resisted these calls to add checked bag fees and, so far, they believe it is resulting in incremental revenue from passengers switching to Southwest to avoid fees. Since CEO Kelly (and Southwest as a whole) is not one to shade the truth, I’ll continue to believe these claims.
However, with other LCC carriers such as Airtran and Virgin America and even jetBlue (on the 2nd bag) have added fees and do report significantly improved revenues from that, I would imagine that the call for Southwest to add these fees will be defeaning particularly when Southwest could implement a jetBlue or Airtran style program and see improvements to their quarterly results which haven’t been too impressive in the last year.
It is sad but I don’t believe we’ve seen the last of these increases. I do think that some airline will probe the upper limits of these fees just a bit more yet. I do think that Southwest will resist the call to add these fees for at least another 6 months but if there hasn’t been some kind of collapse in the price of these fees by then, I would not be surprised to learn that Southwest has begun to make changes to their infrastucture to implement them. I think the first sign will be the withdrawal of their “no fees for checked bags” advertising.
Delta Airlines chose to announce they are increasing their checked baggage fees. If you pay online, your fee goes from $15 for the first bag to $23 for the first bag. The second bag checked rises from $25 to $32 (paid online). Continental matched those fees almost immediately. While it seems exorbitant to me, I wonder if anyone will really notice right now.
I suspect Delta did this simply because they have pricing power at most of their hubs (ATL, MSP, DTW, SLC, CVG, MEM) and because they don’t think it is going to affect the consumer’s decision about which airline to fly in most cases. Delta doesn’t get a lot of LCC competition at its hubs except for ATL and there seems to be a unspoken agreement with Airtran not to get too ugly there. Besides, Airtran has checked baggage fees too.
The thing is, most online sites that offer booking for airlines in the US do not mention baggage fees when displaying prices for routes. Delta will continue to appear to be very competitive on routes while likely adding additional incremental revenue through the “gotcha” approach. Quite honestly, I suspect they’ll get away with it. At least until there is a healthy recovery in the airline industry and that is likely 18 to 24 months away still. Maybe more.
Will others match it? I suspect that American Airlines might. There is no precise harmony among airlines on these fees, not yet anyway. Continental already had pretty high fees at $18 and $27 for online checked fees (with a $2 and $3 surcharge at the airport). AA is at $20 and $30 respectively whether you check online or at the airport. US Airways is at $20 / $30 for online (with a $5 surcharge for checking at the airport.) United is $15 and $25 for online checking.
By contrast, Southwest Airlines has no fees up to the 3rd bag, jetBlue offers the first bag free and $30 fee for the second while Airtran charges $15 for the first and $25 for the second. In other words, these fees are all over the place. The truth is, as competitive as airfares are on many routes, these fees can change the equation pretty dramatically in some cases since those fees are for each way on a round trip flight.
These fees have added dramatic amounts of revenue to airlines’ bottom line and I don’t see them going away at all. I don’t think the fees among legacy airlines will harmonize much at all until and if online travel sites begin showing an “all in” pricing when comparing fares. Even with such comparisons, I don’t think the fees go away so much as they just begin to merge together among the airlines.
Will anyone else raise their fees? Well, maybe. I’m sure it will be tempting to do so among all the legacy airlines. One or two may even try to raise the ante some. I kind of think both United and American Airlines will try some kind of new mix in the future. I don’t see the LCC carriers playing around with their fees much if at all. They have the revenue and now this may be their chance to follow Southwest’s strategy in a modified form by advertising lower checked baggage fees.
I don’t think Southwest will change its attitude on these fees based on this new development. Their strategy appears to be working for them and they don’t have a history of following the pack when something works. That said, I’m sure it is something they’ll re-examine from time to time and it doesn’t mean they won’t add fees at some point in the future. Right now, they appear to be capturing customers with their ‘no fees” approach and their aggressive advertising seems to have caught some attention.
As much as I hate these fees for the 1st bag checked, I hate that airlines and travel websites have done really little to truly show the “all in” price for these trips. It makes things just that much more murky for the consumer and that is a bad thing. However, the best thing you can do is learn the fees for the airlines you may be shopping for a trip and do the math yourself. You’ll be frustrated by it and no doubt resent it but there isn’t a ready made solution at this time.
Frankly, these developments are just one more reason why I wonder about Southwest re-joining the travel agency world. The world has changed since they left it and, quite honestly, I think they could re-structure their IT infrastructure and re-join those agencies with little incremental costs involved. At that point, they become the no brainer for many consumers from my view. Even as aware as I am of airline options and even being located in the DFW area, even I tend to forget about Southwest as an option sometimes.
One strategy for learning these fees is to visit LuggageLimits.Com (also linked in my sidebar).
I tend to ignore Virgin America often even when they do make the news. I’ve had a lot of trouble figuring out what this airline is supposed to be and even more figuring out whether or not they are really going to succeed.
VA has made some news in the past couple of months, though, and I figured it was time to talk about them.
Virgin America began as a concept annunced by the irrepresible Richard Brandon (founder of Virgin Atlantic and the Virgin Group) and it went through quite a few iterations before it launched. It changed its announced name from Virgin USA to Virgin America, for instance. Ownership structure was fiddled with several times to meet US restrictions on foreign ownership of airlines. Business leaders changed and their original CEO, Fred Reid, was eventually removed to satisfy the DOT and gain permission to launch.
Their approach to finding a home was weird to me and kind of reflected a European viewpoint that led me to believe they weren’t necessarily looking at the US market properly. After leading a kind of competition to find a home, Virgin America settled on San Francisco as its “operations” home and New York City as its “corporate” home. Neither location struct me as particularly wise because NYC and California are expensive places to operate and they’re no more representative of the United States than a lot of other locations.
While they went through the start up process, Virgin America faced a lot of criticism from other airlines. Flatteringly, it was quite a bit more than many startups have received over the years. On the surface, the objection was always to the perceived foreign ownership of Virgin America. My own sense was that other US major airlines saw another potential jetBlue starting up and given jetBlue’s success, yeah, it would worry a few airlines.
Strangely, at the end, some of the loudest objections came from Continental Airlines who, from my point of view, had the fewest reasons to fear Virgin America’s competition. Continental had a strong 2 class operation that was highly favored by businessmen for both its service, comfort and frequent flier program. From my perspective, American Airlines and United Airlines had the most to fear from this upstart’s trans-continental plans. Even jetBlue had some reason to be worried since VA’s product most closely competed with jetBlue’s and had the biggest chance of nibbling away at jetBlue’s customers.
I think the biggest concern from existing airlines was that, once again, a well financed 2 class airline was entering the market that had low labor costs and brand new efficient aircraft. Startups always have low costs because the airline industry is based on seniority. A new airline with all new employees quite naturally has some of the lowest labor costs but that does change over time and it really depends on the airline on whether or not those costs rise dramatically or not.
jetBlue has been able to keep its labor costs relatively low by being pretty good at taking care of their employees, for instance. By having such low costs, airlines like jetBlue and VA, are able to compete very hard on those trans-continental routes that are many airlines bread and butter.
When VA agreed to remove CEO Fred Reid from the operation after no more than 9 months of operation after the certification was awarded, they had to go find a new CEO. Now, Fred Reid never had the kind of reputation that I would expect an operation like VA to need or want. Formerly of Delta, Fred Reid performance at Delta was mixed and he certainly wasn’t a charismatic leader which I thought would help VA quite a lot in the US. Richard Branson’s kind of bravado has never played nearly as well in the United States as it has elsewhere in the world.
My thought was that VA would seek a more personable, charismatic leader who would not only have a strong airline background but who would also be a good public figure for this venture. VA, apparently, felt otherwise and found their next CEO at American Airlines in the form of David Cush.
Mr. Cush certainly fit the bill when it came to having a strong airline background. He had 20 years of airline experience in a wide variety of positions and a great education too. The thing is, Cush did it all at the most conservative of airlines, American Airlines. Huh? Yes, Cush had youth going for him and he does present himself rather well but it still didn’t mesh in my mind.
I suspect VA’s investors, most particularly its US investors, wanted someone who had a very strong financial background and who understood just how important it was to preserve cash and operate with strong controls in place. They had, after all, funded VA with more money than had ever been put together for an airline startup in the US when VA began. He did most recently work as Vice President of Alliances and Chief of Sales for American and this hints at Mr. Cush’s ability to access corporate clients. With VA’s transcon strategy, this kind of made sense.
Virgin was so delayed in getting permission to start up, it leased several of its delivered Airbus A320 aircraft to the late Skybus Airlines. When they did begin to operate, they were hindered in fully starting up operations because some of those aircraft were occupied until Skybus failed miserably.
But . . . operate they did. Finally in August of 2007 and fully 2 years delayed, they began flights between San Francisco and NYC and Los Angeles and NYC. This wasn’t a bad start in that they were connecting major business centers with lots of traffic but it didn’t allow them to really get high utilization of their aircraft and pricing on those routes has always had lots of competitive pressure so they lost lots of money operationally.
Every airline loses lots of money in its first months and years. Airlines really operates lots of small businesses. Each route is really its own business and it takes time to grow those routes into profitable operations and it takes varying time to do it for each route. It is an investment that takes time to go profitable and much more time to provide a good ROI (return on investment.)
VA was off and running and I was still scratching my head. There were still many parts to this airline that defied rational thought in my opinion. Tomorrow, more on VA and its service and routes and where it is today.
The Dallas Morning News Airline Biz Blog has THIS story on Continentals’ new CEO, Jeff Smisek, deciding to give up his salary (and other bonus compensation) until Continental earns a full year profit. Smisek is not asking anyone else to give up their salary but is doing this as a good faith investment turning Continental around and setting an example for its employees.
While some are already calling this window dressing since Continental is set to earn some kind of profit in 2010, I think that is a very cynical viewpoint. Smisek is setting an excellent example for Continental employees and continuing a kind of tradition in that area that dates back to Gordon Bethune’s tenure as CEO. In addition, he *is* going to give up that compensation, at the least, for probably 12 months and that is probably compensation worth in excess of $1 million. No one does that as just a stunt. Particularly when other airline CEOs are likely going to be earning well in excess of that for the next year.
Unlike this time last year, probably not much. There was some momentum for change last year that really doesn’t exist this year. Airlines will continue to fight to hold their own in the marketplace and with the reduction in capacities, even the worst of the lot will likely cling to life this year.
North America:
Major airlines of North America have made all the changes they can and all are managing their businesses and cash very closely right now. I don’t expect much, if any, change to develop in the next 12 months but let’s take a look anyway.
American Airlines has some labor issues to address but with the current economic climate, they have been getting away with their efforts to defer those issues. Labor unions would like to push a few issues with American but they’re smart enough to realize that now isn’t the time. Most likely they’ll continue their face saving efforts at making a point with their members but I don’t expect any real labor action at this airline this year. Perhaps, if things get better, we’ll see some movement in the 4th quarter.
United Airlines, my least favorite legacy airline, has similar issues that American has with labor but, again, those labor issues aren’t likely to see much movement either. I suspect that United will continue to move more of their flights over to regional airline partners because its worked (for now) and their customers will find themselves on more and more regional jets. Since price is the prime driver for customers right now, they’ll accept that move and hate the flights as much as they always have.
Delta/Northwest should see more of its operatioins combined and, possibly, a unified single operating certificate by the end of the year. That doesn’t mean much for their customers since Northwest aircraft are being painted into Delta colors at a furious rate. The service product is already being harmonized to a fair degree and it’s a good one already.
I don’t see any major aircraft purchases and I remain interested in whether or not they’ll keep their 787 orders. There has been rumour and innuendo that they won’t but I kind of think they will keep them. Their 767 fleet is old (except for the 767-400) and I can’t think of a reason why you wouldn’t want to have the 787 begin filling the role of those aircraft. I’ve wondered if their hints aren’t just an opportunity to get Boeing to get interested in offering a better deal for more aircraft.
US Airways needs two things in this next year. First, they need their pilots to get together and start operating as a single group. As dangerous as it is to try to interfere with a union group, I wonder if US Airways won’t wade into the problem in an attempt to have a final resolution. Certainly they could argue that they’ve been patient enough.
They also need to manage their cash very, very closely. Cash is blood to an airline and US Airways has a bit of risk in this department. Should cash holdings be depleted more, they’ll have to start seeking that merger partner again and no one appears interested in marrying with them. This is another reason it needs resolution for its labor problems. That said, I don’t see US Airways disappearing or filing for bankruptcy again.
Continental Airlines has felt the hurt this past year and its unlikely to feel much better this year. Their business model depended a bit more on business class travel and the economy hurt that demand the most. That said, I can’t imagine a better group of managers for keeping that airline on track through the rest of the downturn. Things will hurt and belts will be tightened a bit more but I don’t see the service product changing. When the economic downturn does really turn the corner, Continental will be better placed to succeed than many.
Despite their recent move to the Star Alliance, I do *not* see Continental getting any closer to United Airlines whatsoever.
Low Cost Carriers / Regionals:
Southwest Airlines continues to manage itself to the tune of its own drummer and the results of their long(er) term thinking are showing left and right. They’ve managed to make solid overtures to business clientele in areas that, I suspect, count more day in and day out.
I don’t see a merger partner in the future for them except, possibly, for Sun Country Airlines. For some reason, I see this as a real winner for Southwest in that it gives them space and routes in Minneapolis / St. Paul, a labor group that is accustomed to delivering Southwest style service and which can be harmonized into the Southwest labor groups relatively easy. There is no rumour of this purchase but Sun Country has its own problems and it’s a match that fits the Southwest acquisition model.
I think Southwest will remain persistent in its Denver expansion and will work hard to create a network in the upper midwest states of Wisconsin, Minnesota, Illinois and Missouri. The wild card, in my mind, is the Washington D.C. area and the NYC/Boston areas. Shuttle type service is what Southwest knows very well and I wonder if they won’t try very hard to organically grow their flights in these areas. If so, Southwest needs to find an “in” at Washington Reagan airport. To do this, they would need to buy a shuttle operation from US Airways and/or Delta. Perhaps US Airways will be interested in such a sale if their cash holdings erode more.
Frontier/Midwest/Republic: I don’t know what happens here. Midwest really isn’t an airline anymore. It really isn’t even a brand anymore. It’s a name for selling tickets. Frontier remains an airline and a brand and Republic seems to want to continue caring for both. Since Republic is managed by very smart people, I kind of think that they may look for a way to wind down the Midwest name over the next 12 to 18 months and make Frontier the primary airline. A tasty cookie isn’t a good reason to keep the Midwest name around.
Airtran deserves some applause. This airline has managed to grow itself some, find new markets and earn some money during one of the worst downturns in the airline industry.
Their move into Milwaukee has succeeded and promises to continue to succeed. Milwaukee is a loyal city, to be sure, but it is a city that appreciates value even more. Airtran has managed to offer great value, good service and appeal to a city that just a couple of years ago was kind of anti-Airtran. The one obstacle in their way is the arrival of Southwest, another airline very good at offering value and appealing to the Milwaukee kind of customer. I think Airtran has the upper hand but they are by no means the sure winner in this market. Southwest may be able to beat them with frequency.
Virgin America keeps showing up and usually right after I become convinced they’ll disappear. I still don’t know what this airline does best and I still don’t see them as being a scrappy enough operation to fight their way into the cities it needs to be in. Virgin continues to dance around Chicago (claiming they can’t get space but if they wanted it bad enough, they could). Their product would servce cities such as Dalllas, Denver, Houston, Chicago, Atlanta, Baltimore, Philadelphia, and, perhaps, Cleveland/Cincinatti very well.
Instead, they added flights from the west coast to Fort Lauderdale and talk about adding service to a Texas city such as Austin. This is too timid. The CEO, David Cush, seems afraid to compete against his old employer (AA) and that is a shame since they have a very competitive and attractive trans-continental product. I would speculate on VA being bought by another airline but . . . why? They just don’t have much there and seem to have little interest in exploiting real advantages that they do have. Maybe they’ll just run out of money and get shut down.
Alaska Airlines has felt the heat from Virgin America but they continue to do pretty well with their little airline and they continue to do it without being aligned with a major. I don’t see much changing for Alaska Airlines. They’ll continue to be a scrappy airline with good service to a limited number of destinations. And, somehow, that seems OK when it comes to Alaska.
If you followed the blizzard that clobbered the Northeastern United States, you may have noticed that airlines began suggesting that you could change your flight and leave *early* to avoid the disruptions and without penalty. While I believe this has been done before, airlines clearly got the message out much better and in a much more timely fashion than in the past.
The new DOT rule limiting tarmac delays to 3 hours or less (with exceptions for safety or in the event a return to gate would massively disrupt airport operations) was announced Monday and takes effect 120 days after being published in the Federal Register.
The movements against the airlines for these lengthy delays on tarmac have gained considerable momentum and airline have taken a real hit publicity-wise over these disruptions. Combine that with the message that the DOT sent by fining Continental, ExpressJet and Mesaba over the lengthy delay in Rochester, MN earlier this year, and you’ve got a lot of pressure on the airlines to do the right thing in advance of problems.
Take advantage of it and be creative. If you see the potential to be delayed or stuck in an unfamiliar city trying to travel somewhere, call the airline and re-book your travel through cities likely to be unaffected by the weather. If you were in Virginia and scheduled to fly to Europe via a northeastern gateway city such as Philadelphia, Washington, D.C., New York City or Boston, you could have re-booked to travel via Atlanta, Miami, Chicago, Dallas or Houston. Now, that seems like going out of your way but is it? Not really. Travel to any one of those other gateway cities would take about as long as it would to go to your original gateway city. Travel to Europe from one of those other gateway cities isn’t substantively longer than traveling from the northeast. Yes, you’ll spend, perhaps, another hour or two in the air in total time but you’ll get to your destination and you won’t lose the use of that valuable vacation time.
Flexibility is the number one solution to problems that arise from weather. With the airlines’ willingness to accomodate you that much earlier with a change in flight plans, you can beat the odds and still make your trip.
Before anything else, I’d like to announce that this is my 200th post to this blog. Quite the milestone all in all.
USA Today’s Today in the Sky Blog is reporting that several airlines have removed their advance purchase requirement for bargain fares this holiday season. Their source, Tom Parsons (CEO of BestFares.com), says that airlines such as American Airlines, Delta, United, Northwest, US Airways, Frontier, Airtran and Midwest have all removed the advance purchase requirement through January 4th. Continental still has a 3-day advance purchase requirement. This would seem to imply that holiday travel is extremely soft this season so far.
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.
That isn’t a big surprise to most readers of this blog and one very good reason why I’ve said little about the event. Despite the long program delays and disappointing news of certain developments about this aircraft, I remain extremely excited about this aircraft. Perhaps for different reasons than most, though.
Mainstream press continues to speak about the 787’s increased comfort potential for the passenger and sometimes mentions the efficiency the aircraft will offer airlines. All that is true but it excites me for different and more specific reasons.
First and foremost, it is the first truly new aircraft to come from Boeing since the 777 made it’s first flight in 1994. Since then, there have been improved variants of the 737, 767 and 777 introduced but this is the first “from scratch” aircraft to show up in 15 years from Boeing. That is exciting to me.
One of the most disappointing results from the Boeing / McDonnell Douglas merger is that, in many respects, Boeing was taken over by McDonnell Douglas managers rather than the other way around despite the fact that, for all intents and purposes, it was really a Boeing takeover of McDonnell Douglas. Since that merger, Boeing has been much more intently focused on developing its defense businesses almost at the expense of investing in Boeing Commercial Aircraft. That has been disappointing and a bit perplexing to me given Boeing’s ability to build fantastic aircraft for the commercial world.
So I hope that this aircraft, the 787, represents a return to innovation and development for Boeing Commercial Aircraft. I hope that a new, younger group of managers is being born from this program that will lead Boeing’s development of new aircraft such as a 737 replacement, a 757/767 replacement and, yes, a new 777/747 replacement too. But I remain concerned if for no other reason than Boeing seems to be ignoring new competition from Bombardier and EMBRAER who are now challenging the 100 to 130 seat domestic segment in the US and elsewhere. If Bombardier can build its new C-Series aircraft with union labor in Canada, Boeing should be more than capable of developing a new family of aircraft to compete against those two companies.
While the first flight is truly on track to happen in the next two weeks, the burning anticipation of that first flight has, if anything, died down in many respects. Those who have followed it tortuous path to first flight recognize that it isn’t the first flight that means anything now. The aircraft is so mature in its development that we know it will not only fly but fly very successfully. We know that the major teething problems are almost certainly over now. There isn’t any need to speculate on its performance on a first flight and really nothing to wonder about for its testing over the next 12 months.
The real anticipation comes from seeing it perform with an airline. We want to see it enter an airline’s fleet and see how it performs during real world use. We want to see if airline CEOs proclaim it the game changer we all ferverently hope it is. We even just want to see what the airlines’ liveries will really look like on it. The real next “moment of truth” for the 787 is when it enters a fleet in its new livery. The launch customer is All Nippon Airways (ANA) and we should see ANA put the 787 into service sometime in late 2010.
The 787 should see service with a US airline in late 2010 or early 2011 and it will be Delta Airlines who has the honor by virtue of inheriting Northwest Airlines’ orders. I suspect we’ll see Delta order more shortly after the 787 begins operating in its fleet. Continental Airlines will put the 787 into service a short while later.
This is the most anticipated large volume aircraft to be designed and built since the 1960’s. That’s exciting.
What’s also exciting is what this aircraft means to Boeing and its future development projects. Will these same technologies be used on a 737/757 replacement? Is it conceivable that they’ll be used for a Very Large Aircraft to replace the 777? Both are possibilities. Detractors say there isn’t as much “gain” to be had in using carbon fibre based fuselages for a 737 replacement with respect to efficiency and that is probably true.
However, these new techologies may mean that Boeing can produce the 737 replacement even faster. The composite carbon fibre fuselages may mean less maintenance and longer maintenance intervals for airlines like Southwest and Ryanair. The new engines coming into development will demand some changes too. Larger by-pass ratio engines or, if developed, open rotor engines means more clearance will be needed between the wing and the ground. The next aircraft will have to stand taller and that might mean a little more time spent on ground handling.
The next generation engines and Boeing decision to produce an “electric” airliner may see those approaches used in the 737 replacement. Have we reached a point in reliability that we can expect these new systems to survive the punishing schedules of a domestic airline? I think so but the 787 is the aircraft that must support that supposition.
The 787 won’t be exciting because of what it potentially offers the customer in comforts. Yes, no matter what we’ll have larger windows and a little bit more fresh air and pressurization in the cabin but if you think you’ll be getting more spacious seat pitch, you’ll be disappointed. This new aircraft will be as packed as any in service now. Overhead bins will still be crowded.
My birthday is December 12th. There is speculation that the 787 may fly as early as December 14th. That’s close enough that I find myself kind of hoping that Boeing might pull a fast one and send it up into the sky 2 days early. It would be exciting to have an airliner born on my birthdate.
It seems to me that our government and Congress in particular has far bigger pressing problems to deal with than attempting to swat at airlines over frequent flier miles.
Levying fines on Continental, ExpressJet and Mesaba for the Rochester, Minnesota incident is surprising everyone because it lays blame on everyone we, ourselves, would blame.
Voting Midwest as a best airline (Zagat) is just strange given that it really isn’t an airline so much as a brand now.
Nothing sells an aircraft like the head of state for the manufacturer.
Several airlines are implementing surcharges for peak travel days such as American Airlines and Continental Airlines but others too.
This strikes me a bit like the fees for checking the first bag. In this case, airlines are advertising fares but charging surcharges for those peak days most attractive to the traveler. It makes me wonder a bit on whether or not taxes are being collected on the surcharges and it makes me wonder if the surcharges aren’t a bit deceptive when it comes to advertising.
If those surcharges are needed, why not just raise the fare $10 (or whatever the surcharge fee is) for those particular days. Because then they would have higher fares when being shopped against airlines without surcharges.
