A local friend made a comment to me about Delta Airlines and their mish-mash of a fleet vs Southwest Airlines and their one aircraft type fleet.  His comment was aimed at the success difference between the two.

Well, not so fast.  When you consider airlines 30 years ago and airlines of today, there is one thing that stands out.  Fleet size.  Today’s airlines such as Airtran and JetBlue would be behemoths in the market place in 1980 with 138 and 163 aircraft respectively. 

Let’s take a look at what truly large airlines have in fleet size.  Southwest Airlines, the 800lbs gorilla of LCC carriers, has 547 aircraft of which all are 737s, yes, but which is actually comprised of the 122 passenger -500 and the 137 passenger -300/-700. 

United Airlines and Delta Airlines both have over 700 aircraft and American Airlines presently has about 620 aircraft.  Each of those three carriers have a broad range of aircraft types, seating capacities and range capabilities.

A one type fleet works well for the smaller airlines because, yes, it does allow them to save money on maintenance and it keeps things simple when negotiating with unions about how much one is paid to fly what type for what distance.

But as you grow larger, it really is better to have some flexibility.  Even Southwest acknowledges that the Boeing 717 aircraft they’ll gain from Airtran (number over 80) should help quite a bit in matching the right aircraft to the right route.  They’ve gone farther than that, though, by ordering the 737-800, a larger aircraft than they’ve ever operated before. 

If Southwest expects to continue to grow, they’ll have to move into both larger and smaller markets than they have customarily entered in the first 40 years of their life.  The fleet types aren’t what will make their lives complex when it comes to the cost(s) of maintaining them.  What they will have to contend with is the idea that a pilot of a smaller aircraft should earn less than the pilot of a larger aircraft.  They’ll have to deal with scheduling flight attendant crews of two different sizes and that’s something they’ve never had to do before.  Fortunately, the range in size between the 717 and the 737-800 is not so great that they can’t argue that all their pilots should be paid the same (and I would agree.)  The truth is, while their fleet may be different, the missions aren’t that different in terms of distance, turnaround, etc. 

Delta is succeeding with a broad range of aircraft in ways not seen before.  Yes, they have added complexity but an airline big enough to operate more than 700 aircraft should be complex.  Could they simplify?  Certainly.  Should they?  I’m not so sure.  There can be disadvantages to dealing with one aircraft manufacturer instead of two in terms of the bulk of a fleet. 

Neither Boeing nor Airbus can really supply enough aircraft to Delta on a timeline that would make sense to replace, for instance, Delta’s 563 single aisle aircraft.   It would take 40 aircraft a year to replace that fleet over nearly 15 years.  Those manufacturers have to supply a number of other airlines as well. 

Boeing and Airbus can deliver about 32 to 38 aircraft a year in their 737/A320 families.  A Delta replacement order would conceivably consume more than one month’s production capacity in a calendar year and there are a whole lot more airlines out there of size than just Delta. 

By using both manufacturers, Delta would get more flexibility in deliveries and more reliability as well.  This is true for any airline of size.  In addition, by making each manufacturer compete for those orders, the airline is liable to receive a better price on each aircraft and when you are talking about 500+ aircraft, that could well mean savings reaching into the hundreds of millions of dollars.

The days of ordering “just Boeing” or “just Airbus” may well be over for any airline of significant size.  This may be true even for Southwest in the distant future.  Boeing and Airbus are unlikely to remain in the 100 to 130 seat category and will probably cede that to the next generation manufacturers such as Embraer and Bombardier.  That doesn’t mean an airline, even an LCC doesn’t need those aircraft, it does. 

It’s notable that JetBlue already has a two fleet strategy as well as Airtran and Frontier.  Southwest effectively has a two fleet strategy and probably needs 3 different sizes to work with going forward. 

Flexibility is the key.  Routes change over time.  Some routes yield more and more passengers while others are best demoted to smaller aircraft over time.   Southwest wouldn’t be flying 737s to places like Lubbock, Texas if it didn’t need a one-stop location to continue that flight to a larger city from the Dallas area.  Southwest flights to Lubbock and El Paso on 737s continue on to other cities such as Las Vegas, Phoenix and Los Angeles. 

But when the Wright Amendment goes away, the need to fly those one-stop flights goes away.  I actually look for Southwest to start evaluating aircraft such as the Embraer E170/190 series or Bombardier C900/1000 or CS Series in the next 5 to 8 years. 

You’ll find that the one fleet strategy is effective today only for airlines requiring a fleet to fly between mainline destinations.  Once they enter into smaller markets and larger markets, two or more types are not only required but justified.

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Continental’s flight attendants have voted on a new 20 month agreement on pay and no furloughs as they prepare to merge into United Airlines.   The agreement gives the flight attendants the highest pay among legacy airline flight attendants.

When this merger began, United flight attendants attempted to co-op Continental flight attendants into their dissatisfaction with United and the Continental crews resisted expressing a desire to have a voice in their destiny.  This new agreement displays, once more, Continental management’s ability to work with their staff.

But can they work with United staff?  This is a bigger challenge than meets the eye.  United unions have no reason to trust Continental management as they have no real experience with them.  They do, however, have a long history with being shoved around by former and current United management.  These conflicts don’t evaporate because a few good guys take over.  It takes time to win that trust.

I think the crew integration going on with United has several more painful chapters ahead before things settle down and all parties do better.  Continental pilots are liable to continue to resist relaxing their current scope agreement (no more than 50 seat jets) and add in the fact that United pilots are generally a more “senior” bunch, I suspect they’ll be playing the spoiler for some time to come.

This merger isn’t as easy or as logical as the Delta/Northwest merger and doesn’t have the benefit of forward thinking union leaders like Lee Moak to help set a tone that lets things get worked out.

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The New United aka ContiUnited has decided that Economy Plus seating will not only stay but it will be added to Continental aircraft.  And the only way that happened was through a heavy analysis so I suspect it’s been making the Old United a fair bit of coin over its life.

This is pure speculation on my part but I suspect that United will also adopt the BusinessFirst approach to the front of the cabin as well.  First class seating on an airliner is super expensive but also takes up an enormous amount of real estate.  Business class, as it is today with lie flat seats and other features, so closely approaches anyone’s idea of first class that it is not a let down to 99.9% of all passengers.  Continental has been very successful with that strategy and you can be sure that if Continental hasn’t found the need to have a fully first class section even on its international trips, then it would’t be missed by the New United.

I like Economy Plus seating both personally and from a business perspective.  As a tall person, it affords enough room to go from being uncomfortable for a 2+ hour trip to being quite manageable.  From a business perspective, it offers an upgrade path from economy both for the occasional traveler as well as for the frequent flier.  Don’t go looking for the new United to have lots of upgrade opportunity for those frequent fliers, however.  Fitting economy plus type seating to the Continental fleet will require removal of seats and the most likely section to give up that required space is in BusinessFirst. 

One thing that I do believe hurts economy plus is the model for purchasing flights online but not through the airline.  Purchasing an economy seat and then wanting to upgrade requires a person to visit an online site such as Expedia, buy the travel and then visit United in some form to buy that upgrade.  Wouldn’t it be nice to view your options completely before purchase and get it done?

That will require better flexibility from GDS systems and online travel agencies as well as the airlines and that argument is, in part, what is going on between AA and GDS/OTA companies.  AA wants more flexibility offered via its DirectConnect system.  The resistence isn’t to the flexibility so much as it is directed towards AA wanting to target customers directly through these systems and its wants that targeting done customer by customer.   For instance, a frequent flier who usually buys business class might not see his/her other options in the AA model but he/she might see a better than usual price in business class.  It’s about wanting more opportunity to manage the revenue by customer preference.

I vote for complete flexibilty and transparency to the purchase process and I want to see it in all one place.  And that’s a big reason why I want to see a third party putting together this content without necessarily being “managed” by the airline.

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I wonder if I am the only one grossly underwhelmed by airline performance in the 4th quarter.  American’s performance is, at this point, embarrasing to the company’s leadership in my opinion and they hold on, in my opinion, only because of an ever thinning smokescreen.   Delta only managed to eke out $19 million and for an airline that had charged through most of 2010 with impressive profits, you have to ask “why” it was so dismal.  Even if you allow for weather disruptions, it still kind of stinks.

ContiUnited (I’ll stop using that moniker one day soon) managed to beat expectations but still posted a significant loss and let’s not forget that both of these airlines were performing exceptionally well prior to the consummation of their merger.   Even Southwest remained guarded abouts its prospects going forward despite a reasonably decent fourth quarter result.

Are rising fuel costs a problem?  Certainly but they aren’t a problem anyone was unaware of.   The same is true of labor productivity.  These are pretty well known variables and if you don’t know how to manage those effectively at this point, it is time to leave the business.

When US Airways manages to stand out among our airlines given the inherent weakenesses they have in the US marketplace, you have to ask who isn’t doing their job, no?  Alaska Airlines even shined and that is an airline who has all the costs one would associate with any of the legacy US airlines. 

It certainly points out that mergers aren’t the solution to everything and capacity management doesn’t necessarily ensure profits.  In fact, I wonder if this excess of restraint isn’t effecting demand in general and driving customers to other options secondarily.   There is a reason why Southwest keeps running up its revenue score. 

At some point, you have to go out there on the playing field and compete.  Competing isn’t just offering the best price, it’s earning that customer for more than one particular flight.  With all that the airlines have implemented to enhance their revenues, are we finally seeing the results of that behaviour towards consumers?  I certainly think its a important part of the equation.

It’s time to put on the pads and get out on the field ready to play rough and compete.

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Next up:  World Alliances

There is never that much revolutionary change in alliances.  Last year, there was a fight over JAL between Oneworld and SkyTeam and Oneworld won but they really were destined to.  It made sense for JAL.  The alliances worked a bit to get better access to areas they were deficient in and to a large degree, they were successful.  I don’t expect much change, if any at all, this year.

The Middle East:

Emirates did what Emirates does:  it ordered more aircraft.  I did what I do:  failed to see how they’ll use all those A380s and 777s.  The financial scene in the Middle East and, in particular, the UAE continues to be weakish and while I suspect it will recover somewhat this year, I think the area no longer carries that gleam it once did.  I don’t see any failures in the near future but I don’t see any airlines really blooming either.  Success there is, as is true for most businesses there, fairly dependent upon oil prices.

India:

Nothing astonishing happened there but it was already pretty mucked up.  It remains mucked up and will likely stay mucked up this year.

The Far East:

China did kind of force their airlines into agreeing to buy Chinese aircraft as I predicted.  In fact, Chinese aviation is suddenly acting very Chinese in that it is being required to toe a more obedient line.  Face is everything there and I don’t like it when airline businesses are operating on the basis of “face” rather than good decisions.  It’s notable that in the launch orders for the COMAC C919 aircraft, each airline took up just 5 aircraft orders each.  They don’t want that airliner any more than anyone else.

JAL has done OK for the year.  They’ve made progress with their finances and they did make some hard choices.   They did have to file for bankruptcy protection and no one should have been surprised about that.  The new CEO, Kazuo Inamori, and President, Masaru Onishi, are succeeding and making hard choices.  Frankly, more so than is characteristic of a Japanese company and they deserve credit and support.  This airline isn’t fixed yet but it is on its way.

Oceania:

QANTAS got hit pretty bad by the Rolls Royce failure on its A380.  United Airlines is still on the US-Australia routes but badly needs to upgrade its product and it doesn’t appear positioned very well to do so.  Perhaps Jeff Smisek & Company will address that better this year.  Delta and V Australia didn’t get to form an alliance and they’re trying again.  Someone has to give in this area and it will be either in the form of a codeshare alliance between Delta and V Australia or in the form of an airline withdrawing from the market (United or V Australia).

South America:

LAN, in fact, did continue to succeed in South America.  So much so, they bought TAM to create LATAM and then bought AIRES (a Colombian airline)covering both the east and west coasts of South America.  LAN is, in my opinion, now a SuperLegacy of South America and that’s a bit dangerous for them.  South American governments are more protective of their countries airlines that is the custom in other parts of the world.  

Curiously, LATAM is now operating airlines in two different alliances:  Oneworld and Star Alliance.  While there is speculation that they’ll continue this with LAN brands in Oneworld and TAM brands in Star, I think they’ll have to pick one and this may well mean a big battle among all three alliances.   This is an area where SkyTeam could do well for itself by gearing up for battle now.

Aerolineas Argentinas:  Well, what can I say?   Well, I’ll say exactly the same I did last year. 

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

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

Colombia / Central America: 

Avianca TACA is doing fine and I look forward to seeing how they’ll compete against LAN. 

Venezuela:  Bah!

Europe:

British Airways accomplished a few things.  They got into a royal battle with their flight crew that remains unresolved today in part by being petty.  Their flight crew union, Unite, furthered that argument by being petty.  BA did get their merger with Iberia accomplished and after many, many years they have their anti-trust agreement for trans-Atlantic flights between its European Oneworld partners.

Look for the BA/IB union to do OK in its first year and they may even start looking for another partner as soon as possible.  The anti-trust agreement between Oneworld partners should also add to the bottom line.  However, it’s time to settle this fight with Unite and it’s time for Unite to get real.

Lufthansa is moving along and did do something with their BMI purchase.  I don’t think it did them any good when its CEO, Wolfgang Mayrhuber, started complaining about its ability to compete with the likes of Emirates.  Whether or not he had a real point (and he probably did), it also did signal just how hard a job they’re having with the task of competing with the Middle Eastern airlines.

They also still have their A340s and their plans to add the 747-8i.  They got their first A380 and all I see is fat, fuel consuming airplanes.  This is going to be a problem for them if oil prices rise much more and when you consider that much of their competition is flying fuel efficient A330s and 777s, it makes you wonder about their long term strategy.

KLM/Air France:  More of the same.  I think this airline will need to make an order for new widebody aircraft soon.  Because it remains, essentially, a French airline, I see a large order for A350s and a small order for 777s.  I do not see the 787 in Air France’s future.

Airlines will earn profits and even earn great profits throughout the world.  Many will be “record breaking” but as much from inflation as a recovery.  Those profits will soon start to burn a hole in someone pocket and that is when I think we see capacity growth.  I think that capacity growth will start with the Middle East airlines pursuing more revenue lucrative traffic from Europe and North America.  But we’ll see it happen in the United States, too. 

I would dearly like to see the 787 enter into service with someone and I think we will see it do so.  But Boeing has got to get a rein on itself.  The failures in the 787 program are as much about poor management as they are about stretching technology.  There is too much accountancy going on there and not enough visionary leading.  It’s time for them to start winning and they could do so by winning the KC-X tanker program once and for all.  But it is also time to start talking about what’s next. 

The demands of the 787 program *will* decrease as will the demands from the 747-8 program.  Will it be talk of a 737 replacement or an improvement to the 777?  I think the airlines would like to talk about the 737 replacement and that seems sensible.  Rather than play cautiously, reach again, I say.  Push engine manufacturers to come up with something to raise the game and push technologies again.   It’s also time to talk about the 787-10 and I think there are more than a few airlines who would like to be a part of those discussions.

Airbus is going to muddle along denying any real problems with the A350 until the end of this year.  Then we’ll hear about something delaying the entry into service date by a considerable amount.  John Leahy will insult Boeing and claim the A350 will put the 787 to death but it won’t.   Airbus might well buy the KC-X tanker program but I question the wisdom of this in light of their ongoing A380/A400/A350 problems as well as their announcement development of a new engine option for the A320 series.  When do they earn money the proper business way?

It would be nice to see Embraer make a move into the 130 seat market and I think those guys could do it very well.  Bombardier gets bashed by everyone but I still think they have something with their CS series and I think it will be taken up by another airline soon.

I think we’re going to see another round of fees.  Just as soon as airlines can identify what other parts of their service they can de-couple from the basic flight.  I think we’re going to see airlines put a price on early boarding and we’ll probably see fuel surcharges amounting to tens of dollars.

But let’s hope we see an interesting and prosperous year in the airline industry.

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At the beginning of each new year, I like to review what I thought would happen over the previous year and where I think things might go in the next year.  Let’s take a look.

North America:

I thought that not much would happen with AA labor in the past year and that pretty much was the case.  We’ve now seen several years of virtually no movement on solving these issues and I suspect that 2012 is the year that we see some kind of movement.  Look for the flight attendants to be the aggressive parties but the pilots to be the leaders.  All they need is a management group that wants to get something done.  This might end up being a make or break year for AA CEO Gerard Arpey and it could well be based on coming to an agreement with their labor groups.

United Airlines (and Continental) really didn’t go where I thought which was the status quo.  Instead, they merged and got going on getting somewhere and I like that.  I didn’t think they would merge and said so at the beginning of last year.  They proved me wrong.  However, I think CEO Jeff Smisek hasn’t considered carefully what he needs to get agreement on to move forward with each phase of the merger.  Look for this year to be good for United financially but bad on getting labor groups to agree on something.  I don’t think they are headed in the same direction as US Airways . . . yet.

This is a year for Delta Airlines to continue rationalizing its routes and aircraft.  They spent much of last year doing so and saw great financial results.  However, their goal of a sustained 10%+ profit margin makes me think we’re going to see some weird stuff out of them somewhere around the beginning of spring.  Probably in the form of new and innovative fees.

US Airways pretty much performed as predicted and I like how they are earning a profit but I hate how they still have no agreement with their flight crews that will permit them to quit operating two airlines in one.  If Doug Parker were to have a New Year’s Resolution, it should be to hire someone who’ll get that taken care of this year.

LCC(s) and Regionals:

I didn’t see a merger partner for Southwest except, perhaps, Sun Country.  Southwest proved me very wrong on that but I like the results.  One concern I have is the somewhat “plodding” progress towards consummating this merger into one company.  Does it indicate a plodding approach to actually consolidating operations?  One good thing is this brings the potential for greater international flights and, hey, Southwest, consider just keeping that Airtran reservations system and then spending some real time to pick or develop a new one that will last another 30 years.  You could do a lot worse.

Frontier/Republic is holding its own and I thought they would hold their own.  I think they’ll hold their own this year but I don’t see them merging with anyone and I don’t see them growing subtantially either.  Brian Bedford could prove me wrong and I hope he does.

Airtran made the Milwaukee market.  They deserve the credit for the huge growth that city has seen in air travel.  Southwest needs to commit to doing the same when they lead the game.

I slammed Virgin America a few times last year for appearing to be afraid to compete.  In particular, with American Airlines.  Finally, Virgin America made the plunge and came to DFW with flights from both San Francisco and Los Angeles.  I liked the move and I think there is room for them to grow here.  Time will tell.  One thing I’ve noticed so far:  AA doesn’t seem to be attacking them quite as badly as one would have expected from AA just 5 years ago.   Mr. Cush, let me suggest that you could really do well with some flights from DFW to the NYC area.  In particular, to Newark. 

Alaska Airlines has moved closer to Delta in the past year and that worries me a bit for Alaska.  They’ve generally been an airline willing to do a deal with anyone that made sense.  Now, they appear to be more and more the Delta lackey and that could harm them in the long run.  Another thing:  Alaska doesn’t have any more logicical merger partners that make sense.  American Airlines may have missed an opportunity here by not getting closer to Alaska instead of withdrawing more and more. 

I don’t think we’re going to see any big mergers in the US this year.  We might see one minor merger and that’s OK with us.  I think this year we’ll see legacy and SuperLegacy airlines attempt to earn as much money as they can to retire as much debt as they can and to bank as much war chest as they’re able.  However, I see competition heating up this summer and I think the LCC and new entrant carriers are going to put pressure on the legacy and SuperLegacy airlines in the form of adding capacity *and* routes.  The question is, will the industry discipline we’ve seen hold strong or will someone crack?

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Expedia has made another move against American Airlines in removing them from their system altogether now.  That means that American is no longer listed on 2 of the 3 biggest online travel agencies:  Orbitz and Expedia.   As I write this, they remain on Travelocity.

American says that they aren’t experiencing any decline in business and that may remain the truth for now as they’ve been in the media enough to remind people to go directly to their website for booking passage to a destination.  But that doesn’t mean this works for AA in the long run.  It’s notable that neither Delta nor United nor any other airline has decided to remove their listings from the big 3 agencies and that might just be because they are enjoying even better bookings all of the sudden.

American says this is about offering a better experience for the consumer by offering their direction connection that will tailor flights to the person shopping.  Online travel agencies says that that methodology means that American controls what the shopper sees instead of giving the shopper the chance to see the lowest fares. 

The truth is, the online travel agencies are more “right” in this fight than AA is.  This is about raising revenues by only letting the customer see what AA wants them to see based on their history. 

Airlines such as Southwest and jetBlue have made their business rely upon their own websites for booking historically and they have done fine with that approach.  Now both airlines are seeing value in being listed alongside others on some of these sites and that is as much based on accessing a larger audience as it is the fact that they have competitive fares.

I suspect we may see a different set of results from either party in another 2 to 4 weeks.  Both sides have to determine the real impact to their business models and then decide if the lost revenue (and believe me when I say both sides are losing money over this spat) is worth it in the short term.

Filed under: Airline Fees, Airline News by ajax
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ContiUnited just lost a ruling in arbritration that will forbid it from marketing flights on United Express aircraft with greater than 50 seats as Continental flights.  Continental had planned to have United Express fly routes out of Continental hubs in Houston, Newark and Cleveland in the new year. 

Arbitrator Richard Bloch ruled that that can’t be done as it would be a violation of the collective bargaining agreement in place with Continental pilots.  While Continetal and United are a merged company named United now, the pilots and flight crew are still flying as two different companies and will be for at least another year.

This is a pretty big blow to Jeff Smisek, CEO of United, and it was, perhaps, a bit bold of him to try to make this move without buy-in from the Continental pilots.  Continental has been constrained for years with their contract with their pilots on regional jet flying and it needed those rules relaxed in order to compete with other airlines.

United needs to get their labor ducks in order before attempting to press on with other controversial things such as this.

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Whenever a merger is announced between two airlines, one of the first things to be answered in the announcement is that no city is going to be hurt by this.  Obviously that is a politically driven statement because CongressCritters have a lot of power to make it difficult for airlines in a merger. 

The one thing about mergers is that absolutely flights will be combined wherever it makes sense.  Fuller aircraft make for vastly better profits.  But just because flights are reduced doesn’t mean that that is bad for a particular town or city.  A rationalized set of flights might reduce frequency a bit but result in a better, more comfortable aircraft serving the route. 

Hubs are different thing.  There is always the promise that hubs won’t be reduced but that’s a hard promise to keep sometimes.  You only need so many hubs serving so many regions.  In the case of ContiUnited, it seemed difficult to imagine that Cleveland would continue to exist as a hub in light of the fact that it was bounded by three better hubs:  Chicago, Newark and Washington D.C.

But, again, in this day and age that doesn’t necessarily mean that the city will suffer.  Now, other airlines often see opportunity in cities that are seeing their airport downsized as a hub.  A Southwest Airlines, for instance, may see high fares because of hub dominance and go in was another airline retreats and offer better fares and better flights to appropriate cities.

The Delta/Northwest merger has seen both Memphis and Cincinatti hubs being downsized and rationalized and that’s OK.  The good news is that there are number of strong(er) airlines who may be interested in offering smart services.

The ContiUnited merger had less overlap with just Cleveland appearing to be the ugly stepchild.  The smart thing for Cleveland to do is not fight to keep ContiUnited but fight for new airines to come into their markets.  Competition will lower their fares and a diversit of airlines will ensure a healthier business climate for its native businesses and industries. 

It seems safer to try to keep what you already have but it often smarter to fight to have change and experience better rewards with other airlines.

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Continental Airlines recently introduced a new feature for its fares called “Fare Lock” which will allow a customer to “lock in” a fare for 72 hours or 7 days (depending on fee and your needs) so you can think about your purchase.  In this age of airline business, I never thought I would see a fee I liked but I like this one.

The fee is reasonable at $5 to $9 and win-win for both parties, in my opinion.  There is value added for the consumer and the airline gets just a little bit more information to be used for its revenue forecasting and analysis.  Now, you are buying insurance with the very company that can manipulate fares but if you think Continental is going to manipulate those fares just for you, you’re kidding yourself.  This is a convenience fee when it comes to fares and it allows you to lock in the fare while you consider both your travel requirements as well as other fares. 

It’s a fee that I would and will use myself. 

One thing I find curious, however, is that this is a Continental fee and not a ContiUnited fee.  I would have expected the announcement to come from both sides of the house and it didn’t.  This leads me to believe that United’s system might not be able to accomodate such a fee or that this is experimental and Continental was deemed to have the best customer base for trying it out.

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United Airlines CEO Jeff Smisek says that there are too many seats chasing passengers on routes between the United States and Australia presently.  United has had a presence for over 25 years on those routes and its staying power comes from its corporate contracts and loyalty program but it is being challenged presently by lower fares from new entrants on those routes (Delta and V Australia) as well by the fact that its 747 aircraft have a less attractive IFE solution than others.

One of the great ironies for long haul routes such as these is that they have, for the last 40 years, been largely dominated by large widebody aircraft.  Most commonly, the 747.  Filling those aircraft day in and day out is a challenge and one reason why really only two airlines have traditionally succeeded on those routes.  New entrants or weak players usually leave the market because there really are too many seats chasing too few passengers, particularly in hard times.

Right now, QANTAS and United have 747s and A380s on that route.  Delta is using a 777-200LR and V Australia has 777-300s working the route.  Delta is probably right sized but they’ll have to remain committed to the market as a long term investment in order to succeed.  I understand why they want to cooperate with V Australia and I’m not sure that’s a bad thing for either airline but it appears that is going to take some time to work out.

United and QANTAS both are the dominant players but I wonder if they’ll remain so over the long term if Delta and V Australia hold their ground.  It’s anybody’s guess.  It does occur to me that we are about to see aircraft that would allow new entrants to make money on that route and, at the same time, be right sized for the route.  That would be the 787 and A350 aircraft. 

If those two aircraft permit the same profit margins that the larger aircraft offer, not only will those new entrants stick around but we might see more.  Delta isn’t going to have the 787 for 10 years or more.  United will have some and QANTAS should receive some too. 

Right now, the most practical approach is for airlines to depart the west coast of the United States using large widebody long haul aircraft.  What if United was able to start flying from the interior of the United States using 787s (which they are due to receive relatively soon)?  It’s doable and it might be practical. 

This is another great example of why larger and bigger isn’t always better.  The 787 and A350 are going to offer possibilities for long, thinner routes that will ultimately fracture those large capacity trunk routes flown by the 747 and A380 right now.

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Imagine you are a company who specializes in painting aircraft.  Imagine just how exciting mergers like the Delta/Northwest and Continental/United mergers must be for your business outlook.

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United Airlines (ContiUnited aka Continental and United Airlines merged) has a problem.   Continental pilots have enjoyed one of the most restrictive scope clauses in the industry so far and United pilots have seen quite a bit of mainline flying move from their group to being outsourced to regional airlines flying the CRJ-700/900.   Both parties are unhappy with outsourcing the flying and both see the merger and need for a new contract as the perfect opportunity to gain ground on this issue.

At the same time, United needs to keep its costs in line with rivals Delta and American Airlines and, if possible, lower.  To do that under the present day model, that means outsourcing even more flying to regional airlines.

As usual, I would suggest that both parties need to meet in the middle a bit.  Pilots (and other flight crew) could stand to permit lower wagese for this “regional” flying to keep it “in house”.  United needs to recognize that this is about job security and these pilots want some assurance that their seniority means something in bad times.  Neither party is going to get what they want or even a majority of what they want. 

And if this conflict blooms into a multi-year negotiation, things won’t be good for either side.  Pilots will lose out on salary increase opportunities and United will lose out on the synergies that this merger is supposed to provide. 

One solution could be to retain the 50 seat Continental scope clause but pilots permit a lower entry level wage for 51+ seat aircraft or even perhaps a “B” wage scale until a pilot moves into generally accepted mainline aircraft (say 125+ seats.)  The pilots could be permitted to use their seniority to retain a job in the lower pay scale in the event of a downturn and bad times displacing only the newest pilots and at the same time the airline could benefit from being able to use regional airlines for truly regional flying. 

CEO Jeff Smisek would be wise to get creative rather than tough here.  This is a real obstacle to realizing the benefits of his merger.

Filed under: Airline Fleets, Airline News by ajax
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We’ve heard all about the soaring profits at airlines this past week but I wonder if many have noticed the other element in the news:  new flights being added at various legacy and SuperLegacy hubs. 

So far, these new flights have all the appearance of being targeted towards building core strengths at various hubs and focus cities.  American Airlines is building LAX (although mostly through American Eagle flights) for instance and United and American are starting long haul flights from LAX to Shanghai, too.

While we’ve seen very modest capacity growths in the first 2 quarters indicating that airlines were just (barely) keeping pace with demand, this most recent quarter finds announcements that indicate that everyone is trying to nudge themselves towards a bit more growth than before. 

Let me point out that even Southwest’s intentions on buying the 737-800 is a form of capacity growth.  They’ll use that aircraft on routes where there ability to fly frequency is constrained. 

The signs are there but it’s the 4th quarter results and announcements that should signal a trend.  We won’t really know where things are headed until announcements on intentions for next summer are made.

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Just  a couple of weeks ago, American Airlines applied to fly the Los Angeles – Shanghai route with the Department of Transportation.  The DoT responded with a resounding “Yes!” in just one week.  United Airlines asked for the same route on Tuesday and got a “Yes!” in just one day.  Both airlines plan to fly this route with 777 aircraft.

I’m somewhat surprised that United wanted LA to Shanghai instead of a route from something resembling a hub for them such as San Francisco.  Now we have the spector of two SuperLegacy airlines flying in competition with each other on the same route with the same equipment and a need to win that is pretty high.

Ultimately, I give advantage to American Airlines on this one simply because of better feed into Los Angeles.  I believed that the SuperLegacy airlines would ultimately start to poach on each other’s territory but I also believed that it would take a while for these airlines to digest their situations before making a move like that.  This may be a special case but it does make me wonder if competition is heating up.  Especially on international routes and in light of the great success that Delta has had in expanding their international route system.

Filed under: Airline News by ajax
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 USA Today had a story on how Delta is about to see several union votes in the coming months. Historically, Delta has been the one non-union legacy airline in the United States with just the pilots unionized.  Accordingly, Delta’s labor groups have enjoyed great flexibility and have avoided some of the rather harsh and (in my opinion) unfair treatment that many other groups at other airlines experience. 

Flight attendants at Delta don’t spend a decade unable to hold a line, for instance.  All employees have shared in the wealth of the airline in good times through both raises and stock plans.   As legacy airlines go, Delta is a pretty great place to work all in all.  No company is without its warts and no company avoids the odd period of poor management and Delta has both. 

Changes in labor union law for airlines have now made it a bit more advantageous to try to unionize groups one more time.  In the past, failure to vote (for any reason) was interpreted as a “no” vote.  Now, simple majority of those who did vote are all that is required to win a vote.  In the past, Delta flight attendants have rejected attempts to unionize both by explicitely voting no as well as just not voting.  Labor leaders think that this time, they can win.

And perhaps they can.  Delta now has Northwest Airlines’ 7000+ flight attendants under the same roof now and that is a very militant group.  It’s possible that combined with the rather stark minority of Delta flight attendants they could win this if anti-union flight attendants don’t explicitely vote “no” to this latest attempt.  Frankly, I don’t think this is as sure a thing as labor leaders seem to think.  Flight attendants may be many things but one thing they aren’t is stupid.  I think that instead of just not voting to say “no”, they’ll simply vote “no”.  They appear to remain in the majority right now and there is one thing that perhaps is being overlooked.

A lot of those Northwest FAs have now experienced the Delta Way.  They may be battle hardened and militant but I wonder how some may feel after spending some time in the Delta system and discovering a kinder, gentler company that rewards performance.  There may actually be some erosion in those ranks.

Make no mistake:  The risk for Delta is mighty here.  If there labor force becomes all union all the time, costs will go up considerably and for the world’s largest airline, that could reverse current profits pretty fast.  Those costs won’t go up just because of renegotiated labor contracts raising salaries either.  I’m certain the unions will introduce work rules that limit the flexibility that Delta current enjoys.  Limits equal higher costs. 

So far, Delta’s management is doing the right thing.  They’re making the argument that employees are treated exceptionally well at Delta and that changing something that has been very good for both parties can almost certainly result in something that is ultimately bad for both parties.  In fact, their arguments seem both articulate and intelligent and don’t appear to insult the intelligence of Delta employees nor do they appear to threaten either. 

Time will tell in this arena.  You can bet that both ContiUnited and American Airlines will be watching closely and even celebrating with glee if the worst happens.

Filed under: Airline News by ajax
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Aviation Week has a great photo of the first ContiUnited aircraft to be painted in the new combined livery of United Airlines (merged).  You can see the Boeing 737-900ER HERE. 

Many find the “United” part of this livery boring.  From a design point of view, I think everything looks much better than when this all started.  Continental’s livery has always been a bit Euro-White-Boring.  But it’s a clean and modern look and I don’t think the name “United” detracts at all.

Nice touch making the first aircraft a Continental aircraft.

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About 24 hours after the Southwest Airlines / Airtran announcement, rampant speculation on who American Airlines should partner with started up.  The truth is, while I can make an argument for them to merge/acquire US Airways, I think they’ll shy away from a merger.  If they do go shopping for an acquisition, I don’t think it will be oriented towards a real “merger” a la Delta/Northwest or ContiUnited. 

There are a couple of targets left.  Alaska Airlines strikes me as one that should interest Southwest, American Airlines and Delta.  I think it’s pretty hard to get a deal done with Delta because of regulatory issues particularly in the Seattle area.  I think it’s pretty hard to for AA to get a deal done with Alaska because both parties have high labor costs and AA just won’t know what to do with the rather unusual operations Alaska performs in Alaska. 

I don’t think anyone is going to buy jetBlue at present and jetBlue’s CEO says they’re going to grow organically.  I would be happy to see jetBlue just get outside of its NY/Florida comfort zone and stop treating the midwest like it has the plague.

Frontier could be an interesting proposition for jetBlue, I think.  Sadly, I also think that Republic Airways is going to hold on to Frontier for dear life given what’s going on in the regional airline world.  Nevertheless, I do think that jetBlue could harmonize Frontier’s service and routes to the jetBlue way and make something of that airline. 

US Airways?  Well, they are the somewhat pretty girl who never gets asked out anywhere except to make some other guy jealous.  Until they get their labor house in order, I think it’s going to stay that way.  Their executive corps, however, ought to be attractive to someone.  Despite all of US Airways weakenesses and their “East/West” style of ops, those guys make money.  There is a lot to be said for that. 

I think they are more attractive for bringing into a new alliance.  Currently, US Airways belongs to Star Alliance but ContiUnited kind of makes them look superfluous.  SkyTeam just doesn’t need them either.  Oneworld aka American Airlines/British Airways,  on the other hand, could perhaps take advantage of them.  The deal would have to be a bit sweet because US Airways, if nothing else, is enjoying a nice “under the radar” ride on Star Alliance right now. 

I can’t think of anyone who could find a use for Virgin America at this point except, well, the Virgin Group.  Even the Virgin Group seems to have a hard time seeing a real value for working with Virgin America.  If they had any money, I would point them to Frontier but I think Republic Airways would just laugh out loud.

The truth is, I think there is suddenly some opportunity out there to start a new airline.  I would look for weak airlines who have major hubs and very little competition.  Some place where business customers and leisure travelers alike are dissatisfied with their current offerings and restrictions.  Some place that has a history of embracing the airline industry and where you can hire experienced people to kick that venture off.  That would be a great place to start something new.  I wonder where such a place might be?

Filed under: Airline News, Airlines Alliances by ajax
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and gets fined for it.

The Chicago Tribune has a story about United Airlines self-reported 3+ hour tarmac delay violations in May.  In short, United diverted some aircraft due to weather problems.  These aircraft were on the “tarmac” for varying times but all in excess of 3 hours.  United ensured these passengers had water, snacks and were offered the opportunity to de-plane.  Then they self-reported this as a 3 Hour Rule violation and later determined that, no, in fact, they had complied.

The Department of Transportation hit them with a $12,000 fine for wasting their time.  $6000 paid now and $6000 to be paid if there are future violations of this nature. 

“United’s misreporting of this data wasted valuable Department resources,” said the Department of Transportation

I would offer that someone needs to smack the DoT on the back of the head for raising a storm about something that can and will happen when a new rule is introduced.  I don’t think it’s a perfect world and I realize that bureacracies can act oddly when presented with rules but anyone at the DoT with good sense should have floated the idea that this just be allowed to fade away.  The amount of the fine is trivial for both sides.  However, it was an arbitrary and petty way to behave towards someone trying to comply with a new rule.  It is also a great way to earn the enmity of the public in this kind of rule making.

Filed under: Airline News by ajax
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The pilots of Continental and United Airlines have decided to throw a whopper on the table and see if the stink gets them anywhere in their negotiations for a unified pilots’ contract for the proposed ContiUnited merger.  They want an end to all outsourcing of flights.  In other words, they want ContiUnited pilots to fly all the flights.

Never. Gonna. Happen.

Pilots want job security and I can’t blame them.  The investment in both time and money towards their career makes them much more tied to an airline to earn a living than most people experience in their lives.  The seniority system just compounds that issue for them even more. 

But airlines aren’t going to agree to eliminating regional airline partners for their flying.  They can’t.  It isn’t economically viable at the labor rates insisted upon by unions of these legacy airlines.

Each part could give a little on this.  Regional airlines don’t offer just cheap pilots.  They offer flexibility and less expensive flight attendants and even less expensive maintenance.   Both parties need to find a way to offer employees better job security in exchange for more competitive costs.

Given that this is most important for pilots, it seems to me that the SuperLegacy airlines might be better served by “leasing” not only their aircraft but their employees to these regional airlines in down times.  In other words, craft an agreement that allows the SuperLegacy pilots to displace the regional partner pilots when their laid off.  Lease those pilots at the regional partner rate and, at the least, preserve some job security. 

It’s one way to work within the seniority system.  A system that, frankly, pilot unions are using to make their membership become indentured to airines.  It’s a system that I disagree with but if you must preserve it, at least find some flexibility within it.

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