Coming out of the latest financial reports from Delta, several news outlets noticed that Delta has plans to continue to acquire used MD-90’s for their fleet.  Unlike almost any other airline, Delta has found a use for these aircraft that beats the economics of the 737-800. 

Surely the low acquisition costs and high reliability of these aircraft make a good case for their purchase.  The MD-90 is a half generation newer than the MD-80 aircraft flying out there and since most were produced in the mid to late 1990’s, they have plenty of life left in them to be used for an economical period of time.   It’s clear that Delta prefers to bridge the gap between the current offerings of Boeing and Airbus and what future aircraft that may come along late in the next decade.

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United Airlines announced a second quarter profit of $273 million and that’s an impressive result.  If Continental’s come in as impressive as that, the heat will be on American Airlines in ways we can only imagine. 

Speaking of United and Continental . . . their respective pilot groups have come to an agreement on transition.  There is a transition agreement now in place for them but don’t think this means that the groups are near a final merge agreement.  The transition agreement just governs how the two airlines will operate with the pilots during the merger transition.  I suspect that obtaining a final agreement is still going to be a bit bloody.

BA cabin crew have rejected the latest British Airways offer for settlement.  After voting was completed, the latest offer was rejected by about 2/3’s of the labor group.   While that isn’t wholesale rejection, it’s significant enough to be a real problem.  The hold up is the restoration of flight benefits.  BA did finally agree to restore flight benefits to crew that had originally had them taken away for participating in the first round of strikes earlier this year.  However, they were restored with loss of seniority and that means they were restored as if these crew were entry level again.  This is an area that I’m afraid I side with the union on.  Those flight benefits shouldn’t have been taken away as a punitive measure and its the one big misstep by Willie Walsh.  The smart move would be to cave in, get another vote going and come to a final settlement. 

At the Farnborough International Airshow, single aisle aircraft orders are happening at a rapid clip.  Both lessors (GECAS, Air Lease Corp, etc) and airlines themselves (LAN, Flybe, etc) are ordering large amounts of aircraft for delivery over the next several years.  LAN has an agreement for up to 50 Airbus A320 class aircraft and Flybe has ordered 35 of the Embraer E-175 jets.  GECAS, GE’s leasing arm, has ordered 40 737-800 aircraft.  Still, I think this reflect the rather dismal orders placed last year more than it does resounding growth for the next few years.  In other words, I think a lot of these are replacement equipment rather than aircraft purchased for growth.

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And, no, jetBlue isn’t buying the 737.  I’ve found three interesting items to comment on involving the 737 and jetBlue and New York city separately.

First, Southwest Airlines COO and Exec VP Mike Van de Ven has made a statement that re-engined aircraft whether they are a 737 or A320 won’t offer enough improved performance to be attractive to Southwest.   And I think there is a message here, particularly to Boeing, about what SWA wants and may be willing to buy.  Southwest is a huge customer  for Boeing on the 737 and Southwest is just the kind of customer Boeing wants to kick-off with.  

I think Southwest wants a new 737 replacement from Boeing and I think they’re signaling that they would be willing to become the launch customer for the right aircraft.  COO Van de Ven said: 

“I believe that a new narrowbody aircraft will produce one of the single most significant steps toward meeting our economic challenges.”

If nothing else, it’s a message to Boeing saying “please don’t re-warm the 737 again, we need you to work on a new replacement and deliver that as soon as possible.”

The Fort Worth Star Telegram Sky Talk blog has THIS story about the DFW Airport Board and its recent retreat.  It’s notable that they mention that they’re trying to use incentives to get jetBlue to start service between DFW and Boston.  Currently, American Airlines is the only non-stop airline on that route and, no, the fares are not cheap.  Frankly, I don’t think jetBlue will cooperate given their recently announced interline agreement and slot swap with AA.

However, this points up my chief rant about my home town area.  We do not have enough competition at DFW airport and I believe that AA is challengeable on both  fares and service.   Delta has begun challenging American on the Chicago – NYC (La Guardia) route and American is responding, currently, with triple air miles awards to retain its customers. 

More significant is that Delta has decided to go head to head with American on a route that American has *owned* for decades.  The big worry is about mergers and reduced competition they might create in the US market.  To the contrary, I think the latest round of mergers is going to lead to 4 legacy carriers who are going to start looking at each other’s dominance at various airports and, in particular, who isn’t making money and cannot afford to indefinitely “buy” routes with low fares.

That would be American Airlines.  US Airways is a bit weak in its route system but they earn profits.  AA doesn’t and hasn’t in a long time.  Delta’s incursion on the NYC-Chicago route is novel and it may or may not work but Delta has enough financial staying power to sit on that effort for a long time in hopes of building the business.   What happens when someone like ContiUnited comes along decides that AA shouldn’t own DFW-LAX?  I think we’re going to see plenty of competition in the airline world.

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The Dallas Morning News Aviation Blog has this post HERE about analysts beginning to like the idea of a merger between American  Airlines and US Airways.   This marriage occurred to me back in April and you can read my post HERE.  Eric Torbensen at the Dallas Morning News thinks it is a terrible idea and I disagree.

The real reason to perhaps not do a merger between these two airlines is that American Airlines is terrible at mergers.  Their employees don’t embrace them and their executive corps approaches them like predators.  As a result, mergers at AA tend to be plain “consumption” rather than growth or partnership.

Now, if they could embrace a merger, I believe one such as this could be good for them.  First, a merger like this wouldn’t definitely not be sexy.  The sexy merger partners are now fully occupied and, frankly, there was perhaps just one that really would have qualified as sexy and doable for AA and that was Northwest Airlines.  They’re gone. But just because an AA / US Airways marriage isn’t the sexiest thing on the planet and just because it doesn’t necessarily bring the gains that another partner would have provided doesn’t mean that it doesn’t make financial sense. 

This one could.  Look at the route maps first.  US Airways offers a hub presence in two areas of the United States where AA is actually a bit weak.  Phoenix is a nice hub in the web and while it isn’t the strongest hub in the country, it does pretty well.  Yes, Southwest is there but guess what?  AA knows how to compete with Southwest. 

Charlotte is a nice Southeastern US hub that pvovides coverage in area that AA hasn’t gotten much traction.  AA tried having a hub in Raleigh (didn’t work) and has, from time to time, tried to expand Nashville.  It has Miami but that really is more of an international gateway city than it is a domestic hub.   So AA has presence in some weak(ish) focus cities for the SE that the Charlotte hub could change for them. 

So, in terms of a domestic network, it works.  It really is quite complementary to AA’s existing system.

There is some compatibility between the executive leadership of the two companies.  Doug Parker is a former AA manager, for example (and his wife still is an AA flight attendant) and some of the other executive staff has roots in AA as well.  Some that don’t are from Northwest and the cultures between Northwest and American Airlines aren’t dissimilar either. 

But let’s talk about the romantic international part of this.  No, US Airways doesn’t offer much to AA that it doesn’t already have.  It’s US Airways weakest area.  But it isn’t a money loser and there are some hidden benefits.  American can probably either A) redirect feed for those flights to one of their existing gateway cities or B) bolster the US Airways international product and make the US Airways international flights a bit more of a competitor.    The smart team would do both.

There is another benefit:  A more diversified fleet.  There is some overlap between the two companies (737, 757 and 767 equipment but the US Airways mainstay aircraft are Airbus aircraft now.  The A320 series aircraft could be useful to redeploy onto AA routes currently being served by the MD-80 fleet.  The Airbus A330 equipment could be redeployed to AA routes requiring a little more capacity than a 767 but which aren’t in need of a 777’s size or range.

Finally, such a merger would offer Oneworld domestic coverage in areas of the US where it is definitely weak.  The Oneworld alliance leans on AA only in the US and the other two alliances were bolstered by at least 2 airlines domestically.  This is a great opportunity to improve the Oneworld alliance. 

There is value in such a marriage.  The problem is, the people who know how to do this kind of marriage and make it work are at US Airways, not AA.  Doug Parker and Company understand the value of a union like this and know that you embrace the partners strength and use it.  Gerard Arpey and Company come from a school that is more about being a predator and consuming your competition without really embracing them as partners.  Since AA is so much larger than US Airways, it’s Arpey who would lead such a merger and I don’t think he’s the right one. 

Actually, I think Doug Parker could do fantastic things for AA.  If he can succeed with US Airway’s assets and weaknesses, he very likely could do wonders for an airline like AA with its resources.  But the AA board would have to want him and despite the recent flare ups against Arpey from analysts, Gerard Arpey still holds the full confidence of AA’s board of directos.  He isn’t going anywhere anytime soon.

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It’s being reported by Aviation Week that a Morgan Stanley financial analyst is now predicting that Boeing will soon announce a 737 replacement development program.  See that article HERE.  Her reasoning is somewhat sound but is also tinged with a financial analysts viewpoint. 

Financial analysts see a re-engine program adding little if anything to Boeing’s financial performance.  A new aircraft would potentially garner hundreds if not thousands of orders during the development period and that backlog of orders would offer confidence to the financial world.   Fortunately, engineers run Boeing.  Creating an aircraft for the sake of a balance sheet is an unwise move unless many other criteria are met as well.  Most of those criteria are engineering related such as engine development maturity, new materials (CFRP for instance) maturity, etc.

This analyst also speculates that a re-engined B737 vs a re-engined A320 could still be 8 to 10% less efficient than the Airbus product.  Now her engineering prowess is really showing.  The two aircraft are neck and neck now.  Both would need substantial engineering changes to accomodate a new engine.  The new Pratt & Whitney GTF engine still is not showing the performance that has been promised.  In fact, in a Boeing vs Airbus matchup between like models, the Boeing generally has the lowest trip costs so far.  It’s an almost insignificant advantage but it exists and it shows this analyst hasn’t done too much homework.

Finally, there is more talk of this new aircraft being a twin-aisle development for faster boarding.  This one I doubt.  A twin-aisle wouldn’t just require a larger fuselage but it would potentially be heavier if kept as a circular cross section.  A new fuselage shape might lend itself to such a development but I really doubt it.  The 737 market is from about 130 to 180 seats.  A twin aisle means a shorter length and that means things like a taller tail.  It would imply more “structure” being necessary and more structure generally means more weight.  More weight means higher costs.  Perhaps a new fuselage shape might work but that means lots of new engineering and materials potentially.  I wouldn’t rule it out completely but I would give it an extremely low probability. 

That said, I would be less surprised to learn of a “twin” development of two sub-families somewhat similar to the 757/767 developments.  An aircraft family capable of serving from 120 to 160 passengers and, perhaps, another serving 160 to 200 passengers with a great deal of commonality might be the answer everyone is looking for.  That would allow Boeing to optimize their aircraft structures for missions in those categories and, at the same time, potentially offer commonality in engines, aircraft systems and pilot ratings. 

I continue to believe Boeing will announce a new program in the next 18 to 24 months.  I do believe it will be for a single aisle airliner(s) and I do believe that it may have an entry into service late in the decade.  Everything else is just a guess.  For earlier comments on this, you can read THIS blog entry. 

The argument that current 737 owners are afraid that a re-engine or new development program will hurt their aircraft values is barely valid.  It may hurt their values but if Boeing can engineer a new aircraft meeting offering a great gain in efficiency, then it is time to start developing it.  If they cannot, then they’ll wait.  There is no value to either Boeing or the airlines in waiting longer than necessary.  When the risks reach an appropriate level, they will launch this.  The question is, have those risks gotten to a point that they are acceptable?

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There is some new speculation and reports that Boeing is now leaning towards a new development aircraft to replace the 737 instead of a re-engine project.  See the Seattle Post Intelligencer blog post HERE.  The best of business cases for a re-engine project are usually fraught with risk and I’m sure that is no different in the case of this aircraft.   Although the 737 dates back to the late 1960’s, current versions date only from the 1990’s and continue to sell very well.

 

There are a few variables at play here.  First, Boeing doesn’t want to hurt its backlog of 737 orders and that’s understandable given the high profitability they provide.  Airbus is in the same position and neither company prefers to blink first.  On the other hand, if Boeing moves forward with a new design, it’s fairly certain that Airbus would blink rather quickly.

 

Airlines want new, more efficient aircraft and they would prefer a leap in efficiency equivalent to what was seen in the mid 1980’s with new models.  Newly developed aircraft at that time were  offering a 35 to 40% improvement in efficiency (cost per passenger seat mile) over the first generation of aircraft still flying.  They would like to see that leap again and, unfortunately, that’s unlikely. 

 

 The curve on engine and airframe technology advancements has reached a point where it is smoother and less steep.   Our knowledge of aerodynamics, engineering on airframes, new materials and, yes, engines, has become more stable.  There is less of a learning curve than there was with our first two generations of aircraft.  That means gains of 15 to 25% are probably what is achievable in the next round and that’s still very, very good.

 

Engine manufacturers are much more confident of their ability to deliver on their end than they were just 2 years ago.  Circumstances have changed and that leads to a company like Boeing examining the future and seeing less risk.  That’s a good thing.  At some point, the risk becomes appropriate and I think they’re approaching that point and realize it. 

 

Boeing has a great deal of new knowledge on using new materials and I suspect that their one challenge in using, say, CFRP for a B737 style aircraft is in figuring out how to scale it down.  Now that the 787 program is in production and testing, they likely see that it is a problem they can solve. 

 

Finally, making a move to build a new aircraft is timely for two reasons.  First, they’re development work on both the 787 and 747 is winding down.  New variants of the 787 will require a fraction of the development staff that the original design required.  They have resources that are freeing up and who could be put to use on new programs.   

 

Second, it would potentially put Airbus in a very constrained position.  Airbus is constrained on resources and money at present.  The A380 program is not earning them money and, if anything, is badly hurting their cash flow.  That program refuses to scale up into planned production and, what’s worse, airlines continue to defer their orders without ordering any additional aircraft. 

 

Airbus also is in the middle of developing the A350 and faces a number of technological challenges there, too.  They’re as new to the CFRP fuselage as Boeing is and it’s taking time to figure out how to build that aircraft right.  While production delays haven’t been announced, there isn’t an analyst out there who believes that this aircraft will show up on time and on budget.  It will most likely have as many challenges facing it as the 787 did and that means another program sucking up resources and money.

 

Finally, Airbus has problems with its military A400M aircraft development and a number of countries are very upset with Airbus performance there as well.  To add more fuel to the fire, Airbus/EADS will be attempting to win the KC-X tanker program at all costs and that requires still more resources that are in scarce supply. 

 

If Boeing announces a new build in the next year, it puts the fire to the feet of Airbus to come up with something in response and makes Airbus react to Boeing instead of the other way around.   Will they announce a new build?  Yes, I think in the next 12 to 18 months we’ll hear of the launch of a 737 replacement program probably taking something on the order of 5 years to complete.

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Southwest Airlines has announced HERE that beginning in the 1st Quarter of 2011, they will begin flying all of US Airways domestic routes.  US Airways, unable to get its pilots to agree among themselves much less on a contract with the airline, has decided it would be more profitable to turn over their domestic network to Southwest Airlines and form a joint partnership that has Southwest feeding traffic into US Airways robust international system of flights. 

 

The aircraft Southwest will use for these new routes will feature Southwest colors with the US Airways logo on the tail.  In return, US Airways will keep its own colors on its international aircraft but add the name “Southwest” along the upper portion of the aircraft fuselages. 

 

No US Airways flight crew will be moved over to the Southwest system nor will existing aircraft fleets be exchanged.  In a related announcement, Southwest has accelerated its existing orders with Boeing and announced a new 225 aircraft order for 737-800 and 737-900ER aircraft to be used to serve the former US Airways system.

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Now that the 787 has entered into flight testing and has shown itself to be what was predicted and, possibly, even better, eyes are turning towards what happens next.   With entries into the market by Bombardier and Embraer with aircraft that isn’t quite a regional jet and almost a mainliner of today, new pressure is on Boeing and Airbus to start defining the future. 

 

New Boeing 737 and Airbus A320 replacements were expected to be announced by now originally and airlines were disappointed when both manufacturers stated in 2008/2009 that such aircraft won’t arrive before 2020 or beyond.  Airlines have asked that the next generation of aircraft have 20 to 30% better efficiency than the current aircraft or even more.  In the past, those kinds of gains were actually possible. 

 

Since both airlines feel that that date is so far in the distance, there has been new talk of re-engining both aircraft lines with new, more modern engines from Pratt & Whitney (GTF) or CFM (Leap-56).  Unlike many conversations, this isn’t about offering these engines on existing aircraft but about offering these engines on new build aircraft for the future. 

 

Everyone anticipated a CFRP Boeing being announced just 2 years ago.  Another blogger and journalist, Flightblogger, wrote this entry HERE about comments made by Boeing’s new Commercial Aircraft CEO, Jim Albaugh, about the difficulties in “scaling down” CFRP for smaller aircraft.  CFRP current requirements make it ideal for medium to large aircraft but present difficulties in making a smaller aircraft because you cannot “thin” the material as much. 

 

Both Boeing and Airbus are studying re-engine concepts at present and the Airbus A320 line is actually a better candidate for this since it stands a bit taller off the ground and is able to accommodate a new engine without necessarily re-designing landing gear, etc to fit a larger engine underneath the wing. 

 

I actually think we will hear about a new 737 replacement sooner than what Boeing has indicated.  It’s clear they’ve become more comfortable with the emerging engine technologies or they wouldn’t be talking about a re-engine effort.  They’ve also come a long way in using CFRP and learning about its properties and challenges than they were just 2 years ago as well. 

 

The truth is, there won’t be a 40 to 50% gain in efficiency in the next models.  Those kinds of gains were attained at a time when jet engine technology, wing technology and aerodynamics were still in their infancy relatively speaking.  With the passing of nearly 30 years since that phase, we’ve seen great gains in efficiency but nothing approaching what we saw prior to 1980 or so. 

 

I suspect that Boeing will identify what is straightforward engineering and what needs to be developed to bring an aircraft online sooner than later and may well make the investment.  Timing is everything on these efforts and the company is poised to complete two long, challenging projects in the near future (747-8 and 787).  What remains are derivative developments of the 787 (definitely a -9 and probably a -10) which will be reasonably easy jobs compared to the last 6 years.  Now there is room to work on the next big thing. 

 

Many have speculated that the next big thing is another widebody.  But with Boeing poised to continue to reap benefits from the 777 as it appears it will continue to outperform the A350 in many missions, a 737 replacement suddenly looks more logical.  More to the point, it’s a response that Airbus cannot afford to make at present given its heavy commitments to the A380 (can’t scale production up adequately), A350 (barely defined as the -900 and with almost no real definition for the -1000) and A400 (way over budget and potentially diminishing orders as they enter into flight test) development projects. 

 

I don’t think we’ll see this announcement this year or next.  I do think 2012 might be the year we begin to hear Boeing make noise about a new aircraft vs the Airbus A320.

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Since I wrote this post HERE in mid January, I’ve kept an eye on airfares between these two cities.  A check made yesterday revealed that advanced purchase (and not too advanced as in less than 30 day) fares are now at $158.00 on American Airlines and Airtran.  They are a few dollars higher on Midwest and a few more dollars higher on the Frontier flight that is actually the Midwest flight. 

 

Airtran hasn’t started these flights yet and when they do, they’re planning to use SkyWest CRJ-200 aircraft for those trips.  Not the most comfortable airliner for 2+ hours of flight.  It’s interesting to note that since I last visited this subject, AA has upgraded its equipment to CRJ-700 aircraft on most of the flights with just one ERJ-145 remaining.  Midwest/Frontier continues to use Embraer E-170 equipment and both those aircraft are quite tolerable for the trip. 

 

Even more interesting, Southwest Airlines is now offering not one but two “direct” flights with no plane change between the two cities and their cheapest available fares match Airtran’s offerings.   The flight times are 3 hours, 10 minutes which is just shy of an hour more than the others nominally.  In other words, they’ve shortened up the transit time by 20 minutes and when you consider where you live in Dallas, flying through Love Field just might make that a wash at this point.  You also get to fly a mainline Boeing 737 instead of a regional jet.  The real kicker is no bag fees on Southwest which, in many cases, makes Southwest the cheaper flight and potentially no longer than the others “door to door” for many in the Dallas area. 

 

I would say that if Airtran does expect to keep this route, the CRJ-200 isn’t going to be adequate for that route.  They’ll need to offer the kind of service they have on their B717 aircraft to siphon away traffic from both AA and Midwest.

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FlightGlobal has THIS story about Boeing considering a wing extension to improve the aerodynamic efficiency of the Boeing 777 and improve load and range.  How the 777 will sell against the Airbus A350 in development is a question everyone is asking these days even though the A350’s specifications and real performance definitions are, at best, still a bit murky. 

 

Although the A350 is definitely a competitor to the 777, engine thrust is really what reveals may be happening here.   So far, Airbus has been unable to grow its engine range into thrust ranges that approach what the 777 has with the GE90 engines.  Airbus remains at about 93Klbs of thrust from Rolls Royce and its two larger aircraft versions, the -900 and -1000 are, for the moment, have Rolls Royce as a sole source for engines.

 

Already airlines who are operating the 777 and who have ordered the A350 have said that the 777 will still have a significant payload advantage over the A350.  Payload advantages can translate into carrying more passengers, more cargo or more range.   In other words, the 777, on first glance, remains a very viable aircraft and with performance improvements, looks to remain so.

 

But what happens if Airbus is able to convince an engine maker to grow its thrust range into the 105K to 115K thrust range of the GE90?  That would probably mean a commitment to some kind of new engine from Rolls-Royce or a stunning reversal of position from GE on supply a version of the GE90 to Airbus.   Nonetheless, it’s a hard to ignore how such a development would change the viability of the 777 overnight. 

 

Incremental performance improvements are common on airliners and Boeing knows it can grow the distance between the two aircraft with these improvements but only if Airbus is denied a 100K+ thrust engine.  Since Rolls Royce has had quite some time to recoup investment on its large Trent engines and time to spend on research and development, I would not discount the possibility that they’ll commit to such an engine in the future but probably only if they retain some sort of exclusivity. 

 

I think the extended wing, engine performance improvements and other tweaks will keep the 777 in the sales game for the next 4 to 6 years but if Boeing wants to retain supremacy, it’s time to start asking what the follow on successor to the 777 might look like. 

 

Boeing has the 787 back on the right track and while they’ve got some work to do in getting the 787-9 and the speculated 787-10 into production, that has become straightforward engineering now.   The 747-8 has come into its own test program and since that is an incremental re-development of the 747, there isn’t much there that isn’t straightforward engineering as well. 

 

The 737 successor is by all accounts something to be deferred for development until late in this decade.  Instead, it will receive a new engine almost certainly which will require some changes to the existing design but nothing that would warrant calling it a new aircraft.  Instead, such an aircraft will be much like a 747-8 development. 

 

That means there is potentially a 5 to 6 year gap there in which a new development program can take place before the 737 development must start in earnest.  I rather think that’s the moment of opportunity for Boeing to go forward with that new large wide body replacement aircraft.  It will push the company, certainly, but that development, particularly with what they’ve learned in developing the 787, would almost certainly dominate the markets for 20 or more years if they were to make the commitment.

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Sun Country Airlines has announced plans to fly weekly service from Minneapolis / St. Paul to London (Stansted) this summer from mid-June to mid-August.  You can read their press release HERE.  This service will include both first class and coach seating on a 737-800 aircraft.  Yes, that’s right.  A 737-800 aircraft is being used. 

 

No, it isn’t a Boeing Business Jet in disguise.  Sun Country is  planning to have an intermediate stop in Gander, New Foundland in each direction.  That’s right, we’re back to offering service comparable to 1959.  Actually, that’s wrong.  The original 707s used on such services were considerably faster than the 737-800. 

 

Believe it or not, this service is being sold for $798 not including taxes and fees.  Taxes and fees could add well over $200 to $300 more to the price.   No real bargain there.  Did someone at Sun Country have a dream that Delta wasn’t offering enough service to London and a Beefeater comes along and suggests London Stansted as an ideal airport to use?   London Stansted is 45 miles to the city center of London and lacks a tourist friendly connection between the airport and city center as well.  Believe it or not, the CEO of Sun Country justifies this choice by mentioning potential connection opportunities with Ryanair. 

 

Come to think of it, is this Sun Country’s way of announcing they are for sale?

 

This is going to be painful to watch.

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Both Boeing and Airbus have a great selection of single aisle aircraft for domestic/trans-continental service in their B737 and A320 series families.  Both have excellent widebody families for medium to long haul service too.  The single aisle families can carry anywhere from about 130 to 190 passengers and that’s a pretty nice cross-section.  The current widebody families (and I’m excluding the 767 from this characterization but you’ll see why in a few minutes) accomodate a broad range of passengers ranging from about 270 to 400+ passengers.  Each even has new widebody family aircraft being introduced now and over the next 5 to 7 years that promise fantastic efficiency at incredible ranges.

 

Where is the aircraft to serve the 200 to 250 passenger count on a trans-continental/trans-Atlantic system?  Yes, the A330 and B767 are there but they’re really not quite the aircraft for that anymore.  The A330 is best as a -300 series aircraft and that encroaches into the 270+ territory.  The 767 is still being built but it is, for all intent and purposes, a discontinued aircraft. 

 

Previously we had the 757 and 767 capable of carrying that 190 to 250 passenger range on routes ranging from 2800 to 5500 miles and that market remains very active.  But no one is building a new aircraft for that segment.  The 787 misses it by a touch too many passengers and the A350 misses it by much more.  Neither the 737-900ER nor the A321 is capable of traversing the Atlantic ocean from the east coast of the US to points inside the middle of Europe.   They can barely make it across the continental United States.

 

Everyone is interested in aircraft for long haul routes that are intercontinental / trans-Pacific routes that yield quite a bit of revenue but for which there remains a fairly limited market.   Who is going to build the aircraft capable of flying from Northeastern United States to Berlin or Rome or Athens or even Helsinki without being too much aircraft?  Yes, the 787-8 can handle that route and probably handle it pretty well but it offers only a small marginal improvement on efficiency for those routes. 

 

It would appear that the world market could stand to see another A300/767 sized aircraft that offers the kind of efficiency we see being promised in the 787/A350 aircraft being built today.  And that really shouldn’t be difficult at all for either manufacturer.  The fuselage sizes and engines necessary are known quantities.  The technologies to raise the efficiency needed for those routes are all available today.  There is no challenge to building this kind of aircraft but it doesn’t even appear to be on the drawing boards (or, rather, CAD screens) of either company. 

 

There are a lot of 757/767/A300/A330-200 aircraft still out there but they’re aging fast and have a limited lifecycle left at virtually any airline.  I do wonder why airlines aren’t pushing more for a 200 to 250 passenger, 5500nm aircraft particularly since we’re talking about routes that are medium haul, bread and butter routes for much of the global airline system.  It is a sweet spot being ignored and I think that the manufacturer that identifies it and addresses it sooner, rather than later, is the manufacturer who enjoys a healthy order book for the next 2 to 3 decades.

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Republic Airways Holdings, Inc., the parent company of Frontier and Midwest as well as 4 other regional airlines, has ordered 40 new Bombardier CSeries CS300 jets with options for another 40 as well. 

 

The CS300 will seat about 120 people in a mixed class layout and has enough range to fit current Frontier/Midwest needs especially if they select the CS300ER (about 2900 nautical miles range).  It’s an aircraft that really begins to infringe upon B737/A320 territory (especially the A318) and which promises very good efficiency, particularly for the kinds of missions Republic flies. 

 

These are most certainly for the branded Frontier/Midwest network.  They fit the missions that both of those brands are flying now and compliment the existing A319/A320 Frontier fleet as well as the EJets currently flying for both Frontier and Midwest.  The CSeries 2×3 Economy configuration has the potential offer a better product than many airlines offer with their larger aircraft since a passenger has just a 20% of getting a middle seat versus 33% chance on a 737/A320 aircraft. 

 

These aircraft will not fly for the regional airlines serving legacy airlines such as Delta, US Airways or United.  The unions for those airlines will never allow that kind of semi-mainliner aircraft fly on behalf of the legacies.  No doubt Republic look to re-allocate some of their EJets such as the E170 back over to such flying and this purchase gives them more flexibility in the future. 

 

This is  a big order for Republic Airways.  Nominally worth about $3Billion, Republic no doubt got significant discount for being the launch customer of this version (Lufthansa has already ordered the CS100) but it does make me wonder if they can afford the order right now since Republic has spent much of its cash holdings and it remains to be seen if legacy airlines are going to be happy about continuing contracts for regional service with an airline that is now competing with them on a mainline level.  Time will tell since these jets aren’t due to enter service until 2013 and there will likely be some delay added to that rough date.

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Yesterday on my post about flights between Dallas / Fort Worth and Milwaukee, the surprise of that investigation was that Southwest Airlines was most probably the best choice based on cost (price + baggage fees + convenience from doorway to doorway) and service (mainline aircraft and service product). 

 

Well, that got me to wondering about other routes out of the DFW area that I’m generally interested in.  So, I checked on flights between Dallas and Portland, Oregon, another city I have an interest in.   Southwest offers a number of two stop connections between the two destinations at competitive prices but your travel duration on those would be excruciating. 

 

However, Southwest *does* offer a couple of flights each day that are one stop – no plane change flights.  And guess what?  They’re pretty reasonable in flight duration.  Again, I cannot tell where that one stop is but it must be mostly right along the flight path.  Best of all, their price is about as good as I’ve seen in a long time at an advance purchase fare of $129 each way.  Again, considering that Southwest doesn’t charge for baggage and is more convenient in the Dallas area, this is the best deal all in all. 

 

American Airlines offers 5 non-stop flights a day (all 4 hour long flights using MD-82 aircraft) for the same nominal price and charges for baggage. 

 

And I have to tell you, I think I’d rather fly Southwest even with one stop.  AA’s MD-80 aircraft are woefully worn out, uncomfortable  and their crews are surly at best.  Southwest offers me a more comfortable seat, most likely a newer aircraft and certainly a better maintained cabin and a service staff that was happy to get out of bed that day and go to work. 

 

So, what does this mean?  Well, it’s hard for me to research every route that SW and AA might compete on but it looks as if Southwest might be getting aggressive with American on a lot of routes that AA has been dominating with almost zero competition for a long time.   Southwest is doing it by offering direct, one stop, no plane change flights and they look pretty good to me. 

 

If you live in an area served by Southwest, it may very well pay dividends to take the extra moment to see what they’re offering on your chosen route.  Just remember that you won’t pay baggage (or non-alcohoic beverage) fees and you will fly on mainline aircraft with friendly service staff.  That has a value in and of itself.

 

In way, it is a shame that Southwest continues to refuse to list itself with online travel agencies like Expedia and Travelocity as I think they would compare so favorably against legacy airlines that it might well be worth it.

 

Now I’ll stop acting like a Southwest commercial.

Filed under: Airline Service, Travel Hints by ajax
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I follow this city pair pretty closely because Milwaukee is my birthplace and I continue to have a lot family there and because I’ve never really understood why this route has so often been the ugly step-child given the demand between the two cities. 

 

I took a look at what service airlines were offering (non-stop) between the two cities and thought I would give a summary since its so reflective of what is going on in Milwaukee in general.  Just to keep things interesting, I looked at flights in mid-April.

 

American Airlines will have 5 flights spanning each day starting early in the morning and ending each evening.   Every one of those flights is an Embraer ERJ-140/145 aircraft flown by American Eagle.  American is competitive on price and even currently the low fare leader this far out but only by quite literally a few dollars. 

 

Airtran has its flights for April now.  They have 2 flights a day with one morning and one evening departure and both are very convenient to both business and leisure travelers.  These flights will be on CRJ-200 equipment flown by Skywest Airlines.  I still expect that these will quickly transition to Boeing 717 aircraft if Airtran finds this a popular route segment.   Oddly enough, Airtran’s offerings are just over $100 more than what AA is offering. 

 

Midwest Airlines has 4 flights spread over the day and all at convenient times ranging from early in the morning to the evenings.   These flights are competitive with AA and are currently flown on Republic Airways E-170/190 aircraft, certainly the best equipment on that route presently. 

 

Frontier Airlines now has codeshares on every Midwest Airlines flights and at the same prices.  So, if you want to fly Frontier, uh, I guess you can.  At the end of the day, it is neither Frontier nor Midwest Airlines (although the aircraft are painted in Midwest colors), it’s really Republic Airways. 

 

That makes 11 physical flights and 15 flight offerings on 4 airlines between the cities for non-stop flights. 

 

Now, here is the interesting development.  Southwest Airlines will be offering direct flights (one stop, no plane change) between Milwaukee and Dallas come April.  So far, I cannot discern where that aircraft stops along the way but it has to be on the way.  Perhaps Kansas City or St. Louis because the duration of those direct flights is only 3.5 hours which is nominally one hour longer than the non-stop offerings but if you allow 40 minutes to land, disembark passengers, embark passengers and take off again, it cannot be a long or bothersome stop. 

 

An hour longer seems like a lot, maybe, but you get to fly it on a mainline aircraft (Boeing 737) and on airline that does *not* charge luggage fees.  You also fly into Love Field airport instead of DFW which means (for many) a much more convenient airport to fly to and from. 

 

Best of all, Southwest is highly competitive on price.  AA remains slightly cheaper but advance purchase fares mean that Southwest is nominally a few dollars more, potentially as quick (doorway to doorway) and on a more comfortable airline with friendlier service and no baggage fees.   This may be the best deal offered if their flight times work for you.

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Today, part 2 in my views on whether or not we’ll see a real “Ryanair” style airline here in the United States.

 

Watch what you fly here.  The most recent LCC entrants here have bought Airbus.  No real surprise as Airbus likes to make a heck of a deal on an aircraft for new airlines in the hopes they’ll have the “in” for future orders if that airline succeeds.  

 

Boeing isn’t too interested in that.  They want to see a solid business plan and a real possibility of success.  What’s more, big orders aren’t the enticement they once were for Boeing.  Boeing got burned on a few of those deals with Ryanair being the most notable since it allowed Ryanair to buy aircraft, fly them for a couple of years and sell them at a profit.  Boeing isn’t going to let that happen again any time soon.

 

Is Airbus the right aircraft?  Yes.  No.  Maybe.  I kind of think not.  I think it is well suited to the jetBlue and Virgin America airlines of this country because they can support that upgraded service product nicely.   That said, those airlines would have done just as well with Boeing aircraft.  In fact, jetBlue went with Airbus because Boeing refused to offer a decent price for a decent order.  

 

But Airbus doesn’t strike me as quite the right choice for an LCC.  They’re a bit higher off the ground, have a little worse operational dispatch rate and don’t always have the best range vs weight ration for certain routes.   Yes, they’re a family of aircraft that offers a range of size that captain can fly across the type range. 

 

Boeing seems better.  Supported here in the United States, you have better access to mechanics, parts and plenty of maintenance contractors to keep you going.  They’re a little bit closer to the ground, a little easier to turn around and have a little bit better dispatch rate.  In addition, their range of capacities is a little bit better for routes and virtually every model has trans-continental capability now without being weight restricted. 

 

The model I would look long and hard at isn’t either of those.  I think a new LCC carrier trying to emulate Ryanair ought to take a serious look at the Embraer 170/190 aircraft.  They’re cheaper to operate and can carry a full load of passengers and baggage although little cargo (which isn’t an LCC’s concern anyway.)  They offer a family of sizes, have a good dispatch rate, offer quick turn arounds, great range, good comfort and great potential for routes requiring frequency and low costs.  It is no wonder that David Neeleman chose them for his new airline, Azul, in Brazil.

 

But you can go used in the US and do pretty well too.  Allegiant Airlines buys used MD-82/83/87 aircraft, for instance.  They MD-80’s are overbuilt, cheap to buy and still pretty cheap to operate.  They have range, good dispatch rates, ease of maintenance and they’re abundant on the used market.   The same is true of older Boeing 737 models (pre Next Generation models) and those are becoming to cheap to purchase as well. 

 

In the end, an LCC needs an aircraft type that is relatively easy to expand into a fleet, keep one class of pilots flying it and which has a ready source of aircraft to augment and/or replace the fleet with. 

 

One type, many sizes should be the rule.   Ryanair uses one size, the Boeing 737-800 and Southwest basically uses one size, the Boeing 737-700 but they can afford to do so.  A new LCC needs operational flexibility and being prepared to use the three basic sizes of either type would be a good thing. 

 

But you can split your types too.  Airtran did this successfully by entering the world with DC-9s, transitioning to Boeing 717s and then growing in capacity by bringing on the Boeing 737.   That worked because while they needed two different pilot groups, the pilot groups could be kept “rational” with the same pay rates.   jetBlue split their types between the Airbus and the Embraer(190) and split their pilot groups pay rates too.  There was risk involved in that but jetBlue avoided that by offering pay rates on the Embraer that were as generous as that being offered other pilots flying mainline aircraft at other airlines. 

 

Find airports that welcome you and that have demand to locations you can serve.  Sounds easy but it isn’t.  In the US, airports tend to be wedded to airlines that have served them for decades.   When DFW opened, it was served by a number of major airlines and each terminal served one or more airline.  Now, DFW has been taken over by American Airlines (nearly 4 of 5 terminals) and does little to serve the needs of airlines who aren’t AA. 

 

Airports need to figure out that putting all their eggs in one basket with a major, hubbed airline isn’t a good strategy in the long run.  Once those airlines have that dominance, they use it to beat airports down on fees and coerce airports into paying for infrastructure the airlines then get to own.  It doesn’t benefit the local economy to have one dominant airline as prices rise and service falls.  This isn’t just true for DFW either.  When airports begin to aggressively pursue new entrants, everyone will win.

 

New and existing LCC entrants need to make a better argument too.  All too often, LCC’s tend to fear competing in those markets dominated by a major legacy carrier and that’s a mistake.  Airtran wasn’t afraid to go up against Delta and it paid off.  jetBlue wasn’t afraid to compete in one the most competitive markets in the world (NYC) and against some of the biggest airlines.  In the past, there weren’t good examples of what an LCC can do for both an airport and a metropolitan area.  Now there is and new LCCs in particular need to use that to their advantage. 

 

Treat your staff well.   Airlines sell a service product and while you may get customers on price, you’ll keep them with service.   Offering strategies to your crews that permit you high productivity and your crew a living wage along with a good working conditions can only lead to your success.   Treat them like commodities and you’ll fail.  Southwest, Ryanair, jetBlue and Airtran get this.  Skybus and Mesa Airlines don’t.  Look at who is making money. 

 

Quality of life is just as important to airline crew and staff as wages.  Airlines that offer good quality life tend to have happy crew flying their flights and treating their customers right.  At the end of the day, it is a lot cheaper to keep a customer than it is to find new ones every week. 

 

Will we ever see a close replica of Ryanair’s model here on a national basis?  Yes, I think so.  Right now, no.  The market is too crowded but that will change again and new airlines will be started again.   US attitudes towards fees and advertising are changing, although slowly.  

 

First we need to see a major airline liquidate or merge with another to reduce capacity some more.  Then we need to see an uptick in the economy that induces people to spend some money on travel again (both leisure and business travel.)   There needs to be a glut of aircraft useable for such a venture (and that’s happening already) and airports need to figure out that it is in their best interest to find space for these new entrants.  That really hasn’t started to happen yet but it may yet still happen.

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Ryanair is certainly the darling of LCC carriers and, to a certain degree, they even kind of outshine Southwest Airlines.  Lots of people look at the US market and wonder about having a Ryanair-style carrier here.  Skybus Airlines (read more about them HERE) was supposed to be the one but tanked miserably and by every appearance, the only people who didn’t expect them to fail miserably was their executive staff.

 

Could such a carrier exist here?  Sure they could.  In fact, I think it already does in the form of Allegiant Airlines (find out more about them HERE.)  Allegiant is all about flying routes point to point using secondary or even tertiary airports and providing extreme low cost prices which are augmented by fees galore.  And they make a considerable profit doing so.

 

What does it really take to be a Low Cost Carrier in the United States?  First, let’s really define what that is.  Interestingly enough, US Airways uses LCC as its trading identifier on the stock markets.  Is it a LCC carrier?  Not by any definition.  jetBlue and Virgin America both style themselves as LCC carriers but, let’s face it, while they offer great value, neither are a Ryanair style LCC.

 

Southwest Airlines and Airtran Airlines are probably both the best examples of true low cost carriers operating nationally here in the United States.  Allegiant certainly is but they’re still focused much more on the leisure markets and many of the routes they serve compete with quite literally no one. 

 

Skybus failed for a few reasons.  First, they picked a hub that defied rational thought in Columbus, Ohio.  As you can imagine, there isn’t a whole lot of traffic trying to leave or get there.  Hubs don’t work well for LCC carriers.   Focus cities do but not hubs.   If you want to make money as any kind of airline, you had best be offering flights between two places people want to go. 

 

Second, you have to pick between offering frequency and relative value or absolute lowest cost and infrequent service.  You can’t be all things to all people.   Skybus kind of offered high frequency and absolute lowest cost and hoped it would stimulate new traffic.  The problem is, there is only so many people who want to fly between Columbus, Ohio and Greensboro, NC.   You really can’t do that route once or twice a day every day of the week.  Not at any price.  Not with large, mainline aircraft anyway. 

 

Third, just because you can fly to a secondary or tertiary airport doesn’t mean people will go to that airport to use your airline at any price.  Case in point, Bellingham, WA and Skybus again.   Bellingham, Washington is a long way away from most anyone in the Seattle-Tacoma area.   It’s 90 miles from downtown Seattle, 122 miles from Tacoma and it is a tortuous drive in traffic for anyone in that metro area.  Bellingham is convenient to, say, Vancouver, British Columbia but that means crossing a border.   In the case of the SEA-TAC area, you need to be flying from their main airport.   And the lesson is that you have to look long and hard at each area you’re serving. 

 

LCC carriers have succeeded in flying from secondary, smaller airports such as Love Field (Dallas) and Midway Airport (Chicago) and even Long Beach (LA area) because those airports remain highly accessible to a large number of people.  And as both Southwest and Airtran will tell you, sometimes if you want to enter a market, you have to bite the bullet and fly where people want to go.   I take note that since Airtran has decided to defend itself against Allegiant, even Allegiant figured out it needed to change airports in the Orlando area to remain competitive. 

 

Choose your fees and advertising carefully.  The United States is a different place than Europe.  Advertising that is racy or in bad taste doesn’t go well here under the best of circumstances.  It doesn’t matter if you think it should or not.  It just happens to be that way and a new airline is going to change the moral outlook of this country.   Oh, yes, Spirit Airlines has gotten away with it now and then but they remain a minor player and it has possibly turned off as many people as its turned on. 

 

An a la carte fee system (a la Ryanair) is something that this country is completely unfamiliar with when it comes to airlines.  Now, that is changing and it will likely change more but it is an evolutionary thing, not revolutionary and some fees are going to make customers feel burned no matter what.   Skybus’ Ryanair-like approach to charging a fee for even looking in their direction was offensive to customers here in the US particularly when, at that time, no one else had even really dabbled in it.

 

While I do think more a la carte offerings will and should be instituted among airlines, it will be done differently here.  Luggage fees have generated a massive amount of resentment with customers and while they have generated significant additional revenue for major airlines, it has also caused many customers to more carefully consider their options.  Southwest has bucked that luggage fee trend and the results are showing. 

 

There is place for an airline that charges for checked luggage, beverages, meals, blankets and airport check-in.  But the amounts of those fees still have to have some value.  Particularly when legacy airlines already have those fees as well.  Charge more for checked baggage than American Airlines and you run the real risk of turning people off.   We’re really not a true a la carte culture here.

 

Be careful of your publicity.  Ryanair’s CEO, Michael O’Leary, gets away with outrageous statements and even expressing a certain outright hostility to his own customers.   That works in Europe and, in particular, within the UK and Ireland.  Those are cultures who know how to take such statements with a bit more of a wink and a smile.  Here in the United States, it’s a flat turn off.  Our culture is based more on politeness and friendliness.  Bark at your customers or even insult them and they will walk elsewhere. 

 

Tomorrow, Part 2 of this post.

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Airtran has decided to make Milwaukee an important crew base and is now using the term “hub” when talking about its Milwaukee operations.   You can read more details about this HERE.

 

Initially, 50 pilots (B737) and 50 cabin crew (737/717) will be based in Milwaukee but expect those numbers to grow over time.  Why?  Because not only is Milwaukee a good place to connect flights to other destinations, the market between Milwaukee and many cities is one of good yield.   There is a reason why airlines are starting to fight it out there. 

 

It also offers a relatively inexpensive place for crew to live in, an airport that endures weather very well and customer base that has long been neglected by most airlines.  There are a number of experienced flight crews in the MKE area that should be available for hire including pilots who know how to fly a 717.  

 

This latest development is just one more reason why I believe Airtran’s route between Milwaukee and DFW to be flown by SkyWest will quickly move over to a mainline aircraft such as the Boeing 717.   It’s also worth noting that air fares between MKE and DFW have already dropped with Airtran “buying” the business even before direct flights have been initiated.  With service not expected to start before April 2010,  it’s clear that Airtran intends to dominate that route and, unlike other airlines, Airtran isn’t afraid of going head to head with a major airline such as American Airlines.

 

According to the story . . .

 

In Milwaukee, AirTran now operates a line maintenance station, regional human resources, sales and community relations staff, and an airport station consisting of more than 200 customer service agents and other personnel. With the additional crew members added with the establishment of the new bases, the airline’s total Milwaukee payroll is estimated to be more than $11.5 million per year.

 

That’s a big commitment to the Milwaukee area and I do wonder how Republic will or will not respond with Midwest Airlines in that city.   Midwest is hardly even a brand anymore since it flies none of its own aircraft.  Republic Airways owned Frontier Airlines is flying 5 Airbus A319 aircraft (configured with Frontier seating) and Republic is directly supply another 20 E-170/190 aircraft for other routes. 

 

Republic has moved about 200 maintenance and 100 customer service jobs from Frontier’s Denver but if Airtran continues to enlarge its operations and compete strongly with Republic in that city, one wonders how long it will last.

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Let’s talk alliances before anything else.

 

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

 

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

 

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

 

The Middle East:

 

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

 

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

 

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

 

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

 

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

 

India: 

 

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

 

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

 

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

 

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

 

The Far East:

 

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

 

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

 

Oceania: 

 

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

 

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

 

South America: 

 

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

 

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

 

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

 

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

 

Colombia and Venezuela: 

 

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

 

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

 

Europe:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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I don’t spend a lot of time on two aircraft manufacturers who really are the first real potential competitors to Boeing and Airbus in the future.  Embraer and Bombardier. 

 

Let’s take a look at Embraer today.  Embraer, a Brazilian aerospace company, got its start in the 1960’s and entered the commercial aviation world with its EMB 110 Bandeirante (1968) and EMB 120 Brasilia (1983) serving the small commuter turbo-prop market. 

 

These tough aircraft from Brazil managed to serve a need in many US markets and I remember them flying for American Airlines in the 1980’s and 1990’s.  American Airlines used them to fly multi-stop routes from their DFW hub and others such as Delta and United used them similarly from their hubs.

 

It was the ERJ-145 that Embraer brought to market in 1995 that took this company to a new level.   This line of regional jets were the first to combine small size (as few as 30 seats and as many as 50 seats) with modern turbine jet engines to provide a (near) mainline aircraft experience to the small feeder routes of major airlines.   Unfortunately, these aircraft were only economical to operate when jet fuel was inordinately cheap through the 1990’s and early 2000’s. 

 

Embraer knew this and began development on a larger, more capable family of airliners that aren’t quite regional jets and aren’t quite mainliner jets.  These new jets, now referred to as “E-Jets”, are the ERJ-170/190 family and this is where Embraer signaled its willingness to encroach on the territory of Boeing and Airbus. 

 

The E-Jets, introduced in 2002, have a seat capacity ranging from 80 to 120 people in an all coach configuration and, at first glance, that doesn’t seem to quite reach into the 737/A320 territory but its worth another look.  The E-Jets, at least the larger E-190/195, offer similar size and range to the early 737-100/200 and the first DC-9 series aircraft.   This was confirmed when David Neeleman (founder of Morris Air and jetBlue) chose them to start his new airline in Brazil, Azul.   US Airways is now deploying this aircraft on its East Coast shuttle routes. 

 

These aircraft offer something that neither the 737, A320 or DC-9 never offered:  no middle seats.   Designed for a 2×2 configuration, these aircraft offer a coach experience that really is no different than the current offerings from Boeing and Airbus and, in some cases, really better.   These aircraft are now serving the routes originally serviced by first generation 737’s and DC-9’s. 

 

And what’s next?  Embraer has shown it has the technical expertise to offer a mainline aircraft and if it expects to grow as a company, the next step will find it offering a 737/A320 competitor.  If timing is anything to go by, I would be unsurprised by a new airliner being offered in 5 years or so and quite likely offering the new Pratt & Whitney GTF engine.  

 

With both Boeing and Airbus deferring development on the 737 and A320 series of aircraft for as much as 10 more years, there is an opportunity there for makers such as Embraer and Bombardier since even major US airlines are eager to re-develop their fleets with more fuel efficient aircraft.

 

At some point, both Boeing and Airbus will have to make a few choices.  They can choose to cede the 100 to 140 seat market which is tough to imagine given that this where aircraft are truly mass produced. 

 

They can choose to form a partnership with Embraer and/or Bombardier and co-market a new aircraft under one or the other’s brand names.  Airbus has some ties to Embraer and Bombardier has had contact with Boeing over the years but neither has anything approaching what would be called a close tie.  I think there is some likelihood of this happening and, frankly, I expect that whoever forms ties with Embraer is likely to succeed.  Embraer has a bit more financial strength and a much cheaper labor base to manufacture from than Bombardier (located in union-heavy Canada).

 

The final choice is to go head to head with Embraer and Bombardier.  From a personal viewpoint, I hope that both Boeing and Airbus take this route.  It can mean only better aircraft in the future for everyone.  However, both Boeing and Airbus are currently manufactured in areas with strong union ties (Boeing is reducing this risk with the establishment of an assembly line in South Carolina and Airbus is “experimenting” with an assembly line in China for low production volumes) and with a relatively expensive supplier base. 

 

There is no doubt that Embraer offers a great product and certainly possesses the ability to take it to yet another level.  They are poised to take advantage of another family of aircraft that could be made in a way that type ratings between the E-Jets and a new, larger family could be shared.  This would be very attractive to a wide variety of airlines.  

 

Whatever their choice, Embraer is one to watch.

Filed under: Aircraft Development by ajax
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