Boeing has received a tremendous amount of criticism for how it managed outsourcing construction of the 787. Hindsight is 20/20 but that doesn’t change the fact that it would appear that Boeing hadn’t fully considered the implications behind their decisions in this area.
This was about lowering risk and saving money in the development of the aircraft. After everything is said and done, Boeing will have likely spent as much or more than if it had done this work itself. In the early 2000’s, Boeing was ( and to some degree still is) under control of former McDonnel Douglas executives rather than Boeing management and McDonnel Douglas had spent the previous 20 years outsourcing work to save money. How these executives came to be in control of Boeing still defies my imagination given the business track record McDonnel Douglas had enjoyed prior to being swallowed up by Boeing.
There is nothing wrong with outsourcing. However, given the complexity of the job involved with designing and building an airliner such as the 787, there was a key ingredient left out of the mix: close and frequent cooperation. To be fair, Boeing had never done this kind of thing on a global scale and its primary outsourcing (prior to 787 kickoff) was with Japanese firms. Firms that, today, are still doing their job with precision and care.
A better approach would have been to insist that these various firms co-locate with Boeing in the Washington area and to insist that these partners work cooperatively with Boeing workers both on the design and initial production phases. Other companies more closely associated with global production such as Ford and Volkswagen have already learned that it is important to keep partners close by in the manufacturing process. Ford’s newest assembly plant in Brazil sees a variety of partners actually co-located in the manufacturing facility working literally right alongside Ford employees.
Outsourcing doesn’t mean inviting your partners to do what they want when they want.
If anything, outsourcing requires these partners not only to be in close communication with Boeing but also with each other. Each major sub-assembly that is shipped to Boeing is being made by another partner and in all cases they need to fit together and work together with the same levels of quality. When you work with global partners, they aren’t just far from you. They are potentially even farther from the other partners producing items that must fit and work properly with each other’s work.
Did outsourcing go too far? In terms of execution, yes. In terms of risk sharing, perhaps not. The original Boeing 707 prototype, the Dash 80, cost about $16 million to develop and was an exceptional risk for Boeing to take on. Today, some are projecting the total costs to Boeing for the 787 nearing $16 billion (with a “B”) and collecting together that kind of cash on one’s own is difficult to do no matter what company you are.
Going forward, outsourcing for Boeing will have to be done a different model. Not just to reduce execution risk for Boeing but to also ameliorate the effects that one partner’s tardiness or poor quality might have on another partner. While a few partners have performed poorly, that effect isn’t just on Boeing. Every partner with Boeing that is performing well is being affected by the slow development and certification process. They planned to be selling their parts in high quantities by now and instead they are enjoying the high costs of slow and even sporadic production while they wait for Boeing to get the aircraft going.
Those companies are being severely impacted today and they’ll want better performance on the next Boeing project to realize the fruits of their success earlier.
Virgin Atlantic engaged an investment bank (Deutsch Bank) to advise on its possibilities going forward as an airline after British Airways merged with Iberia and finally consummated its close partnership deal with American Airlines. The objective was to find a path going forward for the airline and determine if a sale was in order.
Since then, a number of airlines have paid attention to the possibilities. It’s reported that Etihad is interested and that both Star Alliance and Sky Team may make overtures to the airline. Delta was reportedly expressing an interest early on as well.
The latest rumour is that Air France and Delta want to explore a purchase of some kind. Both airlines are industry dominant and both lack something that many other airlines (and airline alliances) have: Great access to London.
In Europe, this access is pretty important going forward and in the United States, Delta could do with a bit more London Heathrow access as well. Will they succeed? That depends largely on just how interested Richard Branson is when it comes to a sale. Make no mistake: this will not be a partnership. Neither airline can afford to spend time working with a niche airline without greater control over its destiny.
And Singapore Airlines also owns a 49% stake in the airline as well. While they are rumoured to be interested in being rid of their investment, I suspect Singapore Airlines is more interested in yielding a profit from their investment and protecting their own position in Europe as well that of their alliance (Star Alliance.) Such a sale to SkyTeam members could be very detrimental to Star Alliance in the long run.
Finally, this raises the question of what becomes of the other Virgin airlines? Does the mother of the brand go away leaving these other players orphans? Or is their a consolidated move to bring the brands along in some fashion? If I were sitting at Virgin Blue or Virgin America, I would be concerned for the future of my brand.
I was amused last week by a comment originating from Airbus that they believed that Boeing would actually re-engine the 737 rather than proceed with the new build replacement so frequently talked about lately at Boeing. Amused because while I do think the Airbus decision was right (in that it did offer good gains and it was what they could do between now and the middle of the next decade) but also because the 737 is reaching a level of maturity in efficiency that the Airbus A320 hasn’t come close to yet.
I always kind of marvel out how just a 1 or 2 percent increase in efficiency can yield such huge savings for airlines. Not because I don’t understand but because it takes such determination to find these savings. Engineers at Boeing have been doing this for a long time on the 737. It wasn’t just adding winglets but lots of tiny things adding up to small percentages of efficiency gains that net big dollars in costs savings. The driver for this initially was to compete better with the A320 but the truth is that a good aircraft manufacturer always pursues these incremental gains over the product lifespan.
But as time goes by, there are diminishing returns for the effort (read: work) that has to go into finding these gains. The latest generation of Boeing aircraft have seen those pursuits for nearly 15 years and they (Boeing) have been relentless in their pusuit. Finding those gains going forward for the next 10 years is going to cost a lot more for a lot less gain.
There are always outside new developments. Just last week we learned that easyJet is painting their aircraft (Airbus A320) with a new paint technology that is much thinner than previous paint techniques. Provided the paint proves to be durable over an appropriate lifespan, easyJet expects to see efficiency gains of 1 to 2 percent due to less weight an and an aerodyamically smoother surface across the aircraft. Provided the process isn’t terribly more expensive and it is as durable, this could save countless airlines a great deal of money over the ownership of an airplane.
No matter what each manufacturer does in its product line of significant note such as re-engining or designing new aircraft, the relentless pursuit of small incremental gains in efficiency will always go on and never more so than for the kind of airliners that the A320 and B737 represent.
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.
Virgin America is starting service to Chicago O’Hare airport starting in May of this year. Once again, these flights will connect Chicago to Los Angeles and San Francisco.
And may I say that I like how VA introduced this service. Like their general approach to new routes, new introductory fares were announced but they added a dash of spice by offering a Groupon buy of $77 worth of airfare for just $7 for flights originating in Chicago. Nice move. as it created a nice buzz about the airline in an unconventional but very media worthy manner.
I like this Chicago move as much as I like the DFW move. I do, however, hope that VA isn’t intending to just introduce new routes from Los Angels and San Francisco to new destinations. It would be very nice to see some of the dots on this growing map of service connected. Dallas and Chicago can connect, for instance. Dallas and New York City could stand some nice competition as well. Let’s hope that as VA adds more fleet, it grows its system more as a network than as destinations for California.
Two TSA officers from JFK airport were arrested for stealing $40,000 from someone’s suitcase. The suitcase apparently contained $170,000 and was destined for Argentina (which is where the owner is now.)
The officers spotted the money during an x-ray of the bag and helped themselves. The money was recovered (all but $20) after a third TSA officer reported the deed (and may I say kudos to whoever that was.) Law enforcement are suspicious that the $170,000 was drug related and want to talk to the owner who, as was previously noted, is now in Argentina and firmly outside the reach of the long arm of the law.
Regardless of the origin of money, this points up what I and many think is a continuing problemwith the TSA. They steal.
They examine contents of bags and steal. I’ve heard far too many instances from readers of this very blog for this to be characterized as isolated incidents. Truth be known, your possessions may be far safer locked in a car in downtown Detroit than going through the TSA security system. And the TSA’s customary response to this kind of theft extraordinarily disappointing because the common response is “Gee. Sorry. But we do care”. Obviously I’m paraphrasing.
More importantly, when thieving is taking place among the corps of people who are tasked with guarding the population against threats in the air system, how do you trust them to do their basic job? After all, would you trust a guy who stole your prized wrist watch to guard your house against someone who wants to throw a brick through the window?
Delta has made what I think is a pretty significant change in its SkyMiles program: They’ll no longer expire after 24 months with no account activity.
This, and other changes coming, is about improving its SkyMiles program and one focus is on communicating with its customers better. Ultimately, as an airline, you do want those miles used for something because it enhances value.
You just don’t want them used when it is inconvenient for the airline.
Over the years, I’ve never really seen much good said about Delta’s frequent flier program. The mile chasers don’t value their program very much at all and my own cursory analysis is that their program appears to be about par for the course on first glance but the award availability is something south of atrocious.
Of course, you could wise up and start buying tickets based on best price, service and convenience instead of being a vassal to a mileage program but that’s another post.
I become more and more impressed with US Airways as time goes by. This is an airline that has worked hard to change its performance in quite a few areas. There was a time not too long ago when US Airways (and America West) really resembled the Continental Airlines of the early 1990’s. You felt abused at every turn. Not anymore.
They are doing spectacularly well in baggage handling and that’s after being atrocious and particularly so in Philadelphia. But it’s not just baggage that shows great performance. This airline has managed itself very well through weather events as well. They are, by the very nature of their hubs, avoiding more problems than many airlines as well.
It’s the customer service that just kind of stuns me. Particularly with reservations agents on the phone. Over the past 12 months, I’ve had several occasions to call (instead of just making a booking online) for reasons that, in my opinion, confound most US airlines call center staff at this point.
Instead of being on the phone a long time and then fighting to make my desires understood, I keep getting agents who “get it”, get it done and manage to be polite and friendly throughout the experience.
No one is going to have a 100% positive experience with an airline. Fly one long enough and you’ll have a problem that annoys. US Airways is no different. You can count a lot of things as important when selecting an airline but I think the ability to fly more or less on time, receive your baggage at your destination and the opportunity to deal with service staff that acts alive and interested is tops. Power on board, wifi onboard and even fees (and US Airways is the king of fees) come second.
If you buy on price, reliability and service, you can do fantastically worse than US Airways and I think they’re even giving even LCC airlines a real run for their money.
Delta Airlines is going to introduce its own version of “premium economy” seating on its international flights. In this case, it’s called Economy Comfort. Users will get the same seat economy has but more leg room and some extra amenities such as no charge for drinks.
Often when I consider what to write for this blog, I find myself wanting to be an advocate for the passenger as much as the airline geek as well. The truth is, airline geeks can be a vicious bunch when it comes to understanding or embracing what the common passenger is experiencing.
I think the common passenger experience on legacy and SuperLegacy airlines is appalling. Sadly, so much of the improvements that would improve that passenger experience could come at little or no additional cost. At the worst, they could come from legitimate fees designed to offer a better value proposition.
Seating is one of those value propositions that I think is horrific on most US airlines. Seat pitch is terrible and we all know that it often is only reduced more and more. We’ve even seen airlines introduce new “thinner” seats to to cram more seats onto an aircraft. One consideration few ever gave to that proposition is that “thinner” really does equate to less comfortable as well.
When I consider how far we have come with respect to first and business class vs economy, I’m gravely disappointed. It astonishes me that airlines will spend a fantastic amount of resources (and it really is fantastic) on what can amount to maybe 10 seats on a large widebody aircraft but will completely ignore challenging their seat supplier to supply a better seat for those in the economy section.
Make no mistake, while those in the front of the bus might represent real profit, it’s those in the back of the bus that make or break the airline when it comes to meeting its expenses. Without those economy passengers, the airline would sink quickly. Notice that all business class airlines have never thrived?
There have been tiny little improvements and changes over the years. I actually like and enjoy the Airtran Recaro seats on their 737s, for instance. But isn’t kind of shameful that Southwest Airlines offers what is arguably some of the best economy seating in the world? Great leather seats with good seat pitch that, in many cases, exceeds legacy airlines pitch now and those same seats are not “thinner” or “harder”. They’re comfortable. Genuinely comfortable.
But here’s the thing, it’s not that Southwest improved so much. It’s that everyone actually got so much worse, really.
I”m not going to argue for more seat pitch. If you’ve got 32″ of pitch, you win in my book. If you’ve got 30″ of pitch or less, I consider you a chinchy airline with zero class. In between, you’re lackluster and have no argument for purchase of a ticket except, possibly, price. But I won’t even argue for more than 32″ of pitch.
But don’t tell me that we can’t challenge seat designers to come up with a better seat that is cost effective to install, practical to maintain and which offers a better seating experience. We can, we should and the airline who does will have a real and tangible value proposition to offer consumers. Build it, advertise it and they will come.
In the meantime, I’ve no problem with charging for more seat pitch and a free drink (which I’ll point out wasn’t free but simply included in the increased price as in the days of old.) I’ll often pay for such an amenity myself.
However, let’s not get carried away lauding airlines for seat designs that, for the most part, reside solidly in 1970’s thinking.
This winter season we’ve seen record cancellations due to major weather events and by all appearances, this isn’t over yet. These cancellations will cost airlines their 1st quarter profitability in many cases and exacerbate the losses of other airlines as well.
One trend I’ve noticed is a number of flight crew blaming the 3 Hour Rule for creating these cancellations citing their opinion that their company won’t risk a 3 Hour Rule violation. No doubt that at least some of these cancellations were in fact influenced by the rule.
However, I’m not sure you can point to the 3 Hour Rule as the cause for losses. Not yet anyway. The weather events that have caused these massive cancellations would have no doubt caused them regardless of the rule. It’s difficult to send an airplane out on a flight if the airport is closed due to blizzard conditions. In other cases, while there may not have been a blizzard, there have been several airports dealing with unusual conditions (for their area) that have caused airport closing and/or reduced operations. DFW and Dallas Love Field are two excellent examples.
I expect that sometime later this year, we’ll see airlines push for either a straight out repeal 0f the 3 Hour Rule (unlikely) or some modification for weather events (much more likely.) I remain unsure if that would be justified because despite these huge cancellation numbers, I’m just not seeing any giant outcry over it either. If anything, I suspect that the 3 Hour Rule is causing airlines to think earlier and be more proactive in their cancellation strategy and that is resulting in people being able to plan better and plan around these weather events.
In addition, one winter’s weather does not make a trend. It’s been a bad one so far and I continue to believe that we need 2 or more full year’s data to really determine the potential negative effects of the 3 Hour Rule. And the real critical area is determining when and for what reason airlines are cancelling flights when the weather events are not so clear cut. For instance, who is cancelling when strong winds impact runway choices at NYC airports and thereby reducing the hourly rate at which flights can land and take-off?
However the rest of this winter plays out, I expect to see the industry renew its efforts to modify the rule some time after the 1st Quarter financial results are in for our major airlines. I do think there should be a debate on this subject and it should balance cancellations, the rule and what the passengers may be asked to put up with. It’s quite possible that relaxing these rules to 4 hours may satisfy most parties in this fight.
The Port Authority of New York and New Jersey is now trying to position the vacant TWA terminal at JFK Airport as a potential boutique hotel to developers. They believe the property can be developed into a small, high end hotel serving the airport given the attractiveness of the Eero Saarinen designed building.
Anyone with any airline romance in their heart would hate to see that terminal continue to go unused or, worse, torn down. It presently stands in front of the new jetBlue terminal and it’s great that it has been retained, so far, for its presence and attractiveness.
However, one has to wonder at the reality 0f developing such a property into a hotel and at JFK no less. JFK airport is not anywhere close to Manhattan (or other desired parts of New York City) and how pleasant can a hotel that is nearly airside at that airport be? I’m not saying all hotels at airports are a bad idea. This one, however, seems like a non-starter to me. Too small to attract convention traffic, too far away from other features of NYC and, potentially, too difficult to access during weather events.
The romanticist in me wants them to preserve and use that highly attractive building. The pragmatist in me says a small, high end hotel isn’t the way to do it.
WestJet and Delta announced a signed interline agreement between the two airlines last Monday. WestJet already has a number of interline agreements with other airlines and it appears to be behaving in the Alaska Airlines model more than anything else. In other words, it will do a deal with whoever makes sense.
This is a great deal for Delta as it gives me them some access to the Canadian market that its alliance, Sky Team, lacks so far. Only Star Alliance has some penetration in Canada via Air Canada. I expect all both Sky Team and Oneworld to pursue WestJet as a candidate for their alliances in the attempt to lock out their competition from what is the only real “national” airline in Canada other than Air Canada.
This announcement also has to sting Southwest Airlines. Southwest was set to enter into a similar agreement with WestJet but that crumbled apart when WestJet pulled out after waiting 2 years for that partnership to be enacted. It was an ideal connection for Southwest and a big loss as well. There won’t be another opportunity like that in Canada for a very long, long time.
While Southwest Airlines hasn’t signaled any moves towards Canada yet, I actually expect them to do so but only after they are firmly capable of international flying in their IT systems. They have a lot of their plate presently so I wouldn’t expect this in the next 2 years but I do expect it. I also hope that Southwest learns from that experience and realizes that being a bit more agile when partnering with people is a good thing and waiting years to make it happen may well result in changing circumstances that put them out of the game.
Delta President Ed Bastian says that air fares have to go higher to counter fuel costs even as it plans to add capacity in the next quarter. And it isn’t just Delta that is adding capacity.
Air fares might need to go up to counter fuel costs but making that argument while you lose your capacity discipline and start chasing market share is just a different verse of the same song we’ve seen played out in the airline industry for the past 30 years.
Think the airlines learned their lesson? I don’t and I think this is more evidence of that fact. Load factors are very high and airlines think that means they can poach traffic from their competitors. In fact, they can.
The FAA is hoping to give its NextGen air traffic system a boost by paying jetBlue over $4million to equip 35 jetBlue aircraft with new navigation systems. It’s hoped that by giving this push, the rest of the industry will embrace adopting these systems quicker and in greater quantity.
So far, many airlines have argued that the FAA should pay them to install these systems. I think the airline industry has had enough government support for the last decade and its time to get going on investing in their business. (Not for nothing, this is what happens when you continually save airlines from liquidation via government loans and liberal bankruptcy laws.)
The FAA’s NextGen GPS based system will have a system of ground stations covering the country by 2013 and all airlines will be required to use the system by 2020. But the FAA also recognizes that if it can get airlines to buy into the improvements sooner than later, it can pull its schedule forward and realize some real gains now rather than later.
Here’s the best reason to adopt these new systems: they pay for themselves. Southwest is already making use of this kind of system to better orchestrate its own operations and now expects annual savings of up to $60 million / year. You can equip a lot of aircraft for $60 million in found money.
Airbus is reaping big orders and a renewed interest in its A330 since Boeing has been unable to deliver the 787 even remotely on time and that is going to hurt Boeing in a few ways.
Delayed by 3 years now and with only some hope of commencing deliveries later this year, Boeing is paying penalty payments for its poor performance and those payments are being walked across the street to Airbus, not Boeing.
Boeing is being hurt since it hasn’t been able to offer a substitute aircraft to the airlines that the airlines want. It’s cheaper to build an airplane at cost than it is to pay big dollars in penalty payments that go to the competition.
What’s worse, Airbus is attracting a long look from traditional Boeing customers who now have little hope of obtaining a 787 any time in the next 5 or 6 years. That’s great for Airbus but it is a warning to Boeing as well. A stubborn resistence to the idea that bringing even more control of the 787 supplier network under Boeing’s wings is creating problems that some customers will have to question if they’ll ever be resolved.
Sen. James Inhofe of Oklahoma is about to introduce an amendment exempting certain nonscheduled air carriers from new FAA pilot fatigue rules. This amendment would permit carriers to require pilots to fly longer hours, stay at the controls longer and return to work after a shorter rest period.
These nonsecheduled air carriers would be certain passenger charters and freight operators. Specifically, it would benefit carriers such as Evergreen, Atlas Air and World Airways. It’s no coincidence that carriers such as these carry more than 90% of military passenger traffic and much of their air cargo as well.
Exempting these carriers reduce the costs to the government and this seems to be a case of government making a better deal for itself. This time, at the cost of pilots. Pilot fatigue is a real worry and concern and shouldn’t be treated this way in order to get a better deal.
Two thumbs down to the US Senate for making this move.
Evidently Ryanair thinks it should be shutting down at least 10% of all routes it opens or it isn’t doing its job. Its argument is that many of those routes have never been flown before and it is impossible to predict success for all of them.
This makes considerable sense but it is also worth pointing out that Ryanair’s outsourcing model for ground support also allows them to contract away from unsuccessful routes without feeling pinned in by the costs to withdraw from a market. In addition, its decisions on these routes are uninfluenced by other considerations such as regional flights feeding into these routes.
Other airlines could stand to be a bit more brutal over their routes as well. All too often one set of routes is operated unprofitably to support the money it feeds into more successful routes. The Ryanair model (and other LCC airlines as well) of insisting that route support itself is the better, more sustainble pathway to success.
The merger between Chile’s LAN airlines and Brazil’s TAM airlines (to be called LATAM) is on hold while regulator examine what, to them, appears to be the formation of a continental monopoly. Oddly enough, the objections come from Chile’s regulators right now with Brazil’s remaining reasonably quiet so far.
The western half of South America doesn’t have much competition going on and success by LAN has been the result of operating an airline like a grown up rather than as a shiny bauble for governments to admire. However, at the end of the day, it was still Chile’s airline and by extension, it was still western South America’s airline too.
Brazil is the one marketplace that does have a tremendous amount of competition in the airline industry and it has done nothing but help fuel the economic growth that country has experienced. To the outside observer, LAN was the strong airline in this union. However, to those in South America, LAN almost appears to leaping off a cliff and becoming swallowed up by TAM (and by extension, Brazil.)
There is, in many senses, an inferiority complex when it comes to how other nations in South America view Brazil. It is viewed with jealousy and suspicion. Jealousy because of their economic growth and success over the past 2 decades and suspicion because Brazil never had the same history as the rest of that continent including not sharing a common language (Spanish). As such, this merger is viewed there as a potential loss of LAN and that worries many, particularly in LAN strongholds like Chile, Ecuador, Peru and now Colombia and Argentina. Not one of those countries lacks jealousy and fear of Brazil and its power.
Is the merger needed? No, not necessarily. But allowing a SuperLegacy in South America to develop would be good for the whole continent, not just Brazil. In fact, I would offer that Brazil wouldn’t see much impact but the remaining countries would only benefit. It would put LATAM on par with other major world airlines and offer them negotiating power and financial strength to expand their route system in a way that wouldn’t necessarily require alliances.
Will it get approved? Ultimately, I think so. Politically, I think this has some hurdles before it happens. Brazil will have some objections as well, I think, and I would expect this to take as much as 2 years to accomplish and several more before a harmonious brand is decided upon.
