It has been reported loudly that Delta is poised to issue an RFP (request for proposal) for as many as 200 jets and this is an order no manufacturer wants to lose.   The rumour comes just days after a record breaking Airbus order from IndiGo of India.

At this point, it’s still rumour but this one strikes me as pretty much dead on.   Delta has a huge fleet (720 aircraft with about 40 orders in place which include the deferred NWA order for the 787) and quite a few of those aircraft need to be replaced now or in the immediate future. 

Delta has the Northwest fleet comprised of the very old DC-9-5o, MD-88, MD-90, 757, 747 and some older Airbus equipment.  The Boeing fleet from Delta’s legacy side isn’t quite as old but there are some 757s and 767s in need of replacement as well.  Considering the widely varying fleet, it would come as no surprise that an replacement order is due.

Oil prices and future fuel prices will also drive the need for this order sooner than later if Delta’s goal of a consistent operating profit is to be realized. 

Pundits think this is Boeing’s to lose and I disagree.  Richard Anderson, CEO of Delta, has much more history with Northwest and he is no Airbus hater.  This will be an extremely heated competition and I will say that if Boeing were to lose this order or a significant portion of it, that will sting Boeing and its product line for years to come.

The prime driver for selection is going to be based on a number of items.  First and foremost, trip costs for aircraft to serve a particular grouping of routes.  We’ll see orders for single aisle aircraft to serve what I would call non-transcontinental routes.  In today’s world, that would be the Airbus A319 and Boeing 737-700.   Having trans-continental capability in the aircraft would be a plus but these aircraft are going to serve the focus cities of the airline with routes stretching out from the cities but not across the country.   The mission that the MD-88s, MD-90s, Airbus A319s and Boeing 737-700/800s are serving today.

The A319s are brand new and so are the Boeing 737-700s/800s.  This is going to be about replacing the McDonnell Douglas fleet.

Then there is a need for the larger trans-continental capable aircraft that remain single aisle serving longer trunk routes that won’t justify a widebody.  Currently, the Airbus A320 and Boeing 757 are serving those routes.  The A320’s arrived in early 1990’s and the 757s date from the early 1980s to the late 1980s.  The options for replacement here are the Airbus A320/321 and the Boeing 737-800 and 737-900ER.    Neither aircraft actually “replaces” a 757 which has great range and great payload.  I don’t think the A320s are going anywhere yet so this will probably involve a 757 replacement and they (Delta) may or may not want it to harmonize with their existing A320s.

Then there are the 767s.  Some are getting old and some are quite new still.  Delta needs an aircraft stretching between what a 757-300 offers and an A330-300 offers.  The 787 fits this and the fact that Delta has deferred its legacy NWA order for these makes me think that these aircraft won’t be candidates for replacement.

The 747s are pretty old and frankly I don’t think these we very well cared for either.  They need to be replaced and I do think we’ll see orders to do this on these aircraft.  None really serve routes that demand 4 engines so I think we’ll see a replacement oriented around 2 engines.

I think it’s anyone’s guess on the single aisle orders.  Airbus will fight like crazy to win this order with their A320NEO options and Boeing may well have to announce a 737 replacement at a great price to win it back.   Boeing should actually have great incentive to get going on the 737 replacement if Delta is truly interested.  With Delta, Southwest and, potentially, Ryanair all wanting a better 737, there is an exceptionally strong business case to get going on this.

If Boeing doesn’t offer a better 737 in this, I think the order goes to Airbus.

As for the 757/767 replacements . . . well, I’d give the edge to Boeing.  I think the 787 *is* a good answer for these aircraft.  They offer the right amount of extra capacity for growth, long haul capability, extremely high efficiency and flexibility.  I do think it possible that an order might be mixed between the A330 and 787 unless Boeing gets off its duff and gets that 787-9 into production.  The 787-9 is the A330 killer.

Since I don’t think the A330s are going anywhere, I don’t see much opp0rtunity for Airbus’ A350 in this mix.  It’s deliveries are too far off and the A330s just don’t need to be replaced for a long time.

I think Delta’s large widebody strategy is likely going to be a mix of 777-200s and the 777-300ER to replace the 747s.  They already have a fleet of 777-200LR with GE engines so I think they’ll order 777-300ERs with GE engines to replace those 747s.  It will do everything the 747 will do only more efficiently.  I do *not* think the 747-8i will enter into this order.  Delta doesn’t need the capacity and the 777-300ER will serve all the routes the 747 is currently serving with no problem.  The A350-1000 is far too far off and its ability to perform is simply way too unknown for this to be serious contender at Delta.

I do not think that Bombardier or Embraer will enter into this order at all.  They just don’t have a product that meets the needs of an airline like Delta very well at all.

Don’t expect an order announcement for about a year.  Delta will let the manufacturers fight it out with best and final offers for quite some time and it will take time itself to do a detailed analysis.   But I can’t wait to hear their decision.

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Next up:  World Alliances

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

The Middle East:

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

India:

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

The Far East:

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

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

Oceania:

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

South America:

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

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

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

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

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

Colombia / Central America: 

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

Venezuela:  Bah!

Europe:

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

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

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

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

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

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

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

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

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

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

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

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

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

North America:

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

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

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

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

LCC(s) and Regionals:

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

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

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

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

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

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

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

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

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

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

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

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

Filed under: Airline Fees, Airline News by ajax
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ContiUnited Airlines has decided to add a “peak travel” surcharge adding $10 to each segment of a ticket and American Airlines raised the ante by raising fares about $22 which Delta Airlines matched.

Higher oil prices which lead to higher fuel prices is leading to this drive to earn more most likely.  However, it’s notable who is leading this rise in air fares.  It’s the SuperLegacy airlines and this points out just how much pricing power these folks potentially have. 

It’s unlikely that the LCC carriers will exploit these air fare increases immediately.  Everyone in this business needs to recover and rebuild their war chest.  Some have quite a bit on their plates already (Hello Southwest) and some are just battered from a few bad years (Hello jetBlue). 

I still think we’ll see serious fuel charges in the future and especially on international flights.  But all this potential for profit is going to do something else:  attract new entrants to the business.  And there are plenty of opportunities to compete against high fare SuperLegacy and Legacy airlines.  If these profits (via air fare increases) hang around for the next 6 to 12 months, I do think we’ll see someone announce the start of a new airline. 

In the meantime, the smart traveler will book early and book off-peak flights.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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The Wall Street Journal is reporting that Delta is considering new moves when it comes to pricing in order to bolster their profits even more in the coming years.   Instead of another fee, this time it’ll be a surcharge.

A fuel surcharge, to be exact.  Delta wants to explore having fuel surcharges for both international and domestic trips.   It’s notable that Delta’s CEO Richard Anderson has plans to achieve a 10% profit margin for his company in the coming years which would be nearly unheard of. 

Fuel surcharges are in use in many other parts of the world today and they are used commonly in Europe.  It’s no surprise that many European airlines also earn a decent profit and did so even when the chips were down in their economies just a year ago.

But does that make it right?

Well, first of all, I think a 10% profit margin is actually unhealthy for the airline economy, at least in the United States.  It sounds rather reasonable but in most competitive marketplaces, a 10% profit margin for that kind of service isn’t really common. 

Second, companies tend to get addicted to fuel surcharges.  They are the airlines way of grabbing more money in lieu of getting more productive as times passes by.  A surcharge also levels the playing field among airlines and why should an airline who properly manages it fuel hedges not benefit more than airline who chooses to simply pass the penalty on to the passengers?

I think airlines would love to introduce fuel charges and I think if they could get away with it with respect to the FAA, they would all introduce surcharges instantly.  It would resemble the Great Baggage Fee rush we saw 2 years ago.  The problem is, this is just one more pricing complexity to be introduced for the consumer when it comes to choosing an airline flight. 

The typical consumer will have to find a price for a flight, weigh the option on baggage fees and then determine if the fuel surcharge raises the cost of that flight above an alternative flight.  Since an airline flight involves traveling from one place to another, I’ve got a better idea.

How about we start recognizing that some baggage is part of the bargain and how about we recognize that fuel prices (and their fluctuations) are also a part of running an airline business and get back to offering a *real* price for a trip instead of surprising consumers (and annoying them) on every trip?

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Unions attempting to organize Delta employees have been rejected over and over again and to the surprise of many.  While some elections have been somewhat close, the results were pretty clear in every case.  Despite new rules favoring organizers, unions have had no real traction at this airline.

Unions can claim intimidation all they want but that doesn’t really fly in the airline world, pun intended.  Airline employees are well accustomed to unions, even those at Delta, and I’m very skeptical that even Delta can intimidate employees away from asking for a union if they really want it. 

Furthermore, I think the idea that Delta offering criticism of these unions isn’t intimidation.  If the unions can call Delta management dirty names and criticize their performance, it’s only fair that Delta management be allowed to throw a little mud themselves.  It’s notable that one union thought it effective to liken Delta CEO Richard Anderson to Adolt Hitler and that just goes a bit too far.  Among US airline CEOs, Anderson is one of the best and certainly well respected. 

The truth is, the employee environment at Delta is working for both the employees and management for whatever reasons may exist.  A union is only going to add value when those employees feel they aren’t getting fair treatment at the table.  Obviously that condition doesn’t exist today.  Why pay union fees when you’re interests are being accounted for?

Union organizers would be better off waiting a few years rather than continuing to rabidly fight this battle.  In fact, unions carrying on with this are likely to put off employees rather than win them over at this point.  Witness the fact that Delta flight attendants are asking the AFA to leave them alone.  These people are annoyed now, not enchanted.

That isn’t to say that Delta management has a free hand now either.  It means they’ve won, for now but they’ve got to remain on their own best behaviour to keep these conditions.   Attempts to be arbitary in their treatment of these labor groups will result in a change of heart.  Right now, I think Delta management gets that and they’ll keep their eye on the ball.  Should that management corps turn over, it may become a different situation.

These unions would be better off attempting to organize some regional airlines that are non-union.  These are employee groups that may well see value in them and it’s a better place to start at this time.

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

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Ground workers at Delta (and who were unionized at Northwest airlines) have rejected unionization at the combined airline by a similar vote (52% against) as the flight attendants making it a “win” for Delta. 

Everyone likes that Delta has so far maintained the status quo here although I’m sure the former Northwest employees continue to feel uneasy about this.  I think it’s good for both parties so far but let’s realize that one reason the elections have gone the way they have is the numerical superiority that original Delta employees have.  To be fair, they vote non-union because their experiences at Delta have been largely positive and fair although it would also be right to point out that most of them have never known a different environment. 

The key here is that Delta still needs to work on winning over these Northwest employees.  They still need to reassure these people and, if anything, work even harder at ensuring their needs are met and that they are being treated fairly in the grand scheme of the new airline.  That doesn’t mean they have to bow down to them.  It simply means that people can tell when they are and aren’t being treated fairly. 

Part of treating Northwest airline people fairly means listening to their concerns and accounting for why those concerns exist:  they don’t have a similar history of treatment from airline management at Northwest.   Actions speak louder than words and Delta management would be wise to use that as their mission statement going forward with all their labor groups.

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And I’ll admit that I’m mildly surprised by this development.

It turns out that unionization of Delta flight attendants was rejected by a vote of 53% against the idea.  I speculated in a post found HERE that this might actually happen but I did wonder about the results since those former Northwest Airlines flight attendants are a battle hardened crew.

This is good news.  It’s good news for Delta flight attendants and it is great news for Delta management.  The best thing management could do is to make sure they continue to treat their cabin crew with respect.  Keep them compensated well and ensure those needs are getting met.   Most of all, don’t gloat and don’t threaten.  Management got what it wanted and it is best to be magnanimous about it.

I don’t blame the NWA cabin crew for wanting a union.  They needed one when doing combat with NWA management.  I think that the movement to put a union in place will actually slow some as long as management stays the course. 

In some ways, the people who get dinged the most from this development is American Airlines.  Why?  Because Delta will continue to get better productivity and enjoy more harmonious labor relations than AA and AA has been counting on the new SuperLegacies getting hit over the head.

In addition, to those who believed the new labor organization would be easier at airlines as result of the rules changes, I think you’re wrong.  This most recent vote showed that flight attendants, even ones who weren’t that emotional about the decision, do know how to vote when it counts.

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Delta Airlines has come to an agreement with Boeing on deferring its order for (18) 787 aircraft until the year 2020 or about 10 years from now.  Delta inherited the order when it merged with Northwest Airlines and there has been talk of this happening for over a year now.   It has also arranged to sell (4) 737-800 to third parties upon delivery from Boeing. 

Delta has new(ish) aircraft and it has really old aircraft.  What it doesn’t have is worn out aircraft that require replacement.  Not in the 787 category anyways. 

What’s going on?  Well, operating airliners is a funny thing.  You can buy new, operate new and sell relatively new.  Your costs to do that are generally worth it because you’re also getting a lot of efficiency and since the aircraft is new, maintenance is far cheaper.  Ryanair does this.  You can also hold on to old aircraft, refurbish them from time to time and while they aren’t very efficient with fuel, the capital costs to operate the aircraft are dirt cheap.   Northwest was in the habit of doing this with 40 year old DC-9 aircraft. 

Delta has been buying up used aircraft that fit its model such as the MD-90 and it is going to hold on to other aircraft that have lots of life in it.  Their 767 fleet will hold up for quite some time yet and there is some evidence that the 767 may be no more costly to operate on routes of about 5000nm or less than the 787 is.   In addition, they have a pretty young A330 fleet that was inherited from Northwest and it definitely won’t require replacement anytime soon either. 

Delta is clearly going to preserve its capital and work towards distributing profits from its revenue streams.  This hasn’t worked for airlines very well in the past but it is the stated intention of Delta CEO Richard Anderson.   Even it becomes necessary to change courses, they can.  Delta is a huge airline now and if it decides it wants to move up deliveries on aircraft or even just order more aircraft for timely delivery, Boeing and/or Airbus will happily accomodate them.  They have some flexibility here.

Is this the right move for every airline?  No, it isn’t.  Delta’s 767 fleet is pretty young with a considerable number of its 767 fleet having been delivered in the late 1990s and very early 2000s.  The A330 aircraft have all been delivered to the airline starting in 2003.  They don’t need to elbow their way to the front of the line to get their hands on aircraft. 

Is this the move for every airline?  No, it isn’t.  Other airlines have the bulk of their fleets being delivered in the 1980’s and early 1990’s and that means they are wearing out and do require replacement.   Each airline has to manage its money and its fleet and it can be a delicate dance.  In today’s airline world, flexibility is the key.

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American Airlines and WestJet Airlines have announced an interline agreement yesterday and, once again, I didn’t see this coming.  If anything, I would have expected this to develop between WestJet and Delta, not American Airlines. 

The agreement will allow customers to connect seemlessly (with one ticket) to 25 new Canadian destinations with American Airlines (and American Eagle) feeding that traffic to six gateway cities in Canada.  Presumably it will work both ways (Canada to the US) and it is notable that the press announcement mentions a “phase 2” which will feed traffic back and forth to WestJet flights from the US to Canada as well. 

This is a pretty good win for American.  It gives Oneworld (via AA) an entrance into Canada where they’ll compete against the Star Alliance and Air Canada.  It leaves Delta sitting out in the cold with no other airline in Canada for them to connect with.  That, alone, is a bold move.

It also kind of swats at Southwest and its original intentions on Canada via an earlier codeshare agreement it had with WestJet but which was terminated earlier this year after a disagreement with WestJet. 

That sound is the door slamming shut. 

This will sting other carriers in the US and it’ll force them to access Canada through a much more expensive pathway:  flying there themselves. 

With both this agreement and the earlier one AA did with jetBlue, it’s clear that there is some innovative thinking going on at American suddenly and now I wonder what comes next.  I’ve been pretty hard on AA this year but I have to say that I like this move and I think it will benefit them and WestJet a great deal.

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In the world of airline union labor leaders, there is one guy who has stood out among all the others.  Lee Moak of Delta Airlines.

Captain Moak, leader of the Delta Airlines’ pilots union when Delta merger with Northwest Airlines, has consistently shown that he understands the changing business model of the airline industry.  He has embraced the idea that mergers don’t have to be anti-union and was critical in the peaceful integration of pilot’s seniority lists during the Delta/Northwest merger.   An almost unheard of accomplishment.

Moak approaches his leadership as an obligation to engage with parties as opposed to the far more common tactic of confrontation.   He allows his actions to speak for him rather than rhetoric and that has allowed him to succeed where many others have simply maintained a status quo that hasnt been working for years.

Now he’ll head the national leadership of ALPA and this is good for a lot of airlines.  He’ll have the opportunity to set a different tone and, perhaps, mentor others into his engagement approach. 

When I say it’s good for airlines, I mean that it is good for both labor and management.  All too often, there is little engagement between those two parties and way too much conflict.  Talking is good and moving off rhetoric and talking points towards real compromise and finding solutions to new problems will be good for everyone. 

It should be very satisfying to see him lead ALPA and he’s a critical person to watch in this industry.

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Examiner.Com has a story about Delta wanting to hire an additional 1000 flight attendants starting in June 2011.  There are quite a few things that I think people ought to be ware in this story.  For instance, Delta has already received over 85,000 applications for these jobs.  For every one opening, 85 people are available to fill it. It’s a highly competitive field for jobs even in the best of times.

Flight attendant with 12 years of seniority at Delta who flies about 75 flight hours* a month earns roughly $41,000 a year.  In other words, a college graduate who wins this job can expect to earn that after 12 years of rather hard work.  These days, we don’t treat teachers that rough.

Want the better advantage in winning this job?  Then speaking Japanese, Mandarin Chinese, Dutch or Spanish will help a lot.   With the exception of Spanish, those aren’t language skills that are common or easy to acquire. 

In addition to that, only the candidates who are exceptionally personable, conscientious, and physically able are going to even get past a first group interview. 

While it’s more possible to hold some kind of line at Delta with junior seniority, there are some airlines where flight attendants fly reserve** for a decade or more before being able to hold a line***.   That means a decade of working the unknown every month. 

And that $41,000 per year is income that has to go towards paying for the expenses involved with working a job that requires one to be away overnight regularly and a job which does not supply even a meal despite being captured in the air sometimes for more than 12 hours per day.  So you get to earn that $41,000 / year after 12 years while your hungry and without snapping at pushy customers.

In the base salary, at most airlines anyway, you get to pay union dues.  Those dues pay for someone to represent you with the company in contract negotiations that involve your compensation for the future.  Contract negotiations that can go on for as much as 4 years but which average at least 2 years before a resolution is reached and voted on. 

Yes, people actually want these jobs.  Lots of people want them.  Yes, you get flight benefits but those flight benefits are traveling for free on space available basis.  Let me point out that load factors on aircraft are at historically high numbers.  In other words, the chances of getting to use that flight benefit are less than ever before.  It’s a benefit that has marginal value at best these days.

Yes, any job you choose should be done right and done cheerfully.  It is the job.  But before we cast stones, let’s remember just what comes with this job and be a bit more tolerant of those servicing us when we fly.

*  Flight hours aren’t how many hours flight crew work.  Flight hours are the hours you work (and get paid for) essentially from the time the door closes on an aircraft to the time it opens again.  A crew member who works 8 flight hours in a day may end up working a “real” 12+ hours in a day. 

** Flying reserve means that you are to make yourself available to fly a flight to replace another crew member with little notice.  Some forms of reserve require you to sit at the airport wait to be told where you are going with as little as 30 minutes notice.  Other forms require you to be at home, near a phone to take a flight with as little as 2 hours notice.

*** Holding a line means that a flight attendant gets to bid for a certain group of flights and have some knowledge of what they’ll be working for a month.  This changes from month to month and the best “groups” of flights are held by the most senior flight attendants.  It can take 25 or more years to be able to fly the best “groups” of flights. 

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

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

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

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After the merger announcement between Southwest Airlines and Airtran last week, there was quite a bit of speculation on who would be relieved by the announcement and who would be on edge over it.  Conventional wisdom (which includes me) saw this move as relieving Southwest of some burdensome competition in some markets such as in the NorthEast and in Milwaukee.  Airtran competed effectively to drive down pricing with their flights. 

Some have said Delta has nothing to worry about and Frontier has been foolish enough to see this as an improvement for them.  I think Delta needs to worry a lot and Frontier is made weaker from this merger.

In Atlanta, Delta won’t see much change in Atlanta, I agree.  It’s possible that in the regional area near Atlanta, Delta may even do better in the short run.  However, Southwest has something Airtran didn’t:  frequency.  I think that Delta will discover that when Southwest’s capacity for frequency is deployed on traditional Delta / Airtran routes, competition is going to get a bit stiffer.  The truth is, Airtran had many destinations but not always that much frequency.  It’s one reason they were tolerated by many legacy airlines.

However, legacy airlines have generally always defended routes from other carries including LCC carriers by the ability to add frequency.  That’s never worked well against Southwest .  Southwest doesn’t go into a market with the idea of being a small player.  They enter routes where they can deploy reasonable frequency right off the bat and they know how to schedule flights just as well or better than most legacies.  Southwest’s size is already formidable weapon and it got a lot more formidable when the Airtran merger got announced.

Frontier and other LCC carriers (Hi jetBlue!) shouldn’t feel relief either.  It’s that same frequency with an additional weapon that can spell hard days ahead for them, too.  Southwest can compete with anybody’s frequency and I can think of just one LCC in just one area that has the frequency and capability to match what Southwest can ultimately deploy.  jetBlue has that in the New York City area.  But that’s it and Southwest is clearly building momemtum to be a bigger player in the NYC area. 

That additional weapon?  Network.  Yes, Southwest isn’t a traditional hub and spoke carrier but they do know how to make their network work for the consumer.   People aren’t adverse to connections if the price is right and the risk is relatively low.  Southwest has lots of focus cities / hubs to provide network access to destinations that the other LCC carriers just don’t have. 

Frontier has Denver and Milwaukee and is spread thinly in many cases.  While they compete against Southwest in Denver, that’s changing slowly.  They’ll never compete against Southwest in Milwaukee because Southwest is already capable of offering a network of destinations that Frontier can’t begin to approach. 

Southwest has also done something that other LCC carriers have foolishly ignored.  They covered the midwest.  It isn’t sexy territory but it’s territory with lots of industry and commerce and need to get from point a to point b.  It’s an area that appreciates a frugal approach to life and it’s an area with lots of family connections between cities.  It’s also an area that has a strong attraction to the leisure areas that Southwest is strong in such as Florida and Arizona and California. 

And now Southwest will have international capability to those same kinds of attractive leisure destinations in the Caribbean and Mexico.  Frankly, I think Frontier should be very scared of what Southwest can bring to the table because it potentially spells their demise.  I think jetBlue needs to start thinking about how they can grow their network and quite adding flights to the Florida and the Caribbean from the NorthEast. 

jetBlue is also weak in another respect.  They’re building focus operations in cities that are notoriously difficult to operate from in weather.  Their operations can be significantly impacted in New York City, Boston and Baltimore-Washington by the very same storm system.  All three of those are focus cities for them.  Southwest doesn’t have those same weaknesses.  They fly in the same areas and they’ll no doubt grow in those same areas but they continue to manage their risk by operating flights from those areas to other focus cities that are far less likely to be impacted by the same storm system. 

And Atlanta will just add to that capability.  I’m not saying Southwest’s system is perfectly isolated from risk but it is far more insulated from risk than other carriers like jetBlue and even the SuperLegacies. 

Southwest is scarier because it has lots of resources and can operate in a very agile manner.  The LCC’s can’t and the SuperLegacies can only do so much within the limitations of their hub style operations.

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Last week, Delta’s CEO Richard Anderson and Alaska Airlines’ CEO Bill Ayer were in Portland, Oregon and offered some insight on just where the close relationship between Alaska and Delta might be going.

Delta now operates non-stop flights from Portland to Amsterdam and Tokyo that were originally subsidized by Portland’s airport but which are now declared “permanent” by Delta.  They see Paris as a potential next stop.

Apparently those flights to Amsterdam and Tokyo are running pretty full now and it appears that Alaska Airlines is the one to thank for feeding traffic to those flights.  Portland is often discounted as a small city but it’s a small city with some major industry that wants both trans-Atlantic and trans-Pacific flights.  Since Alaska Airlines is the only airline in the Pacific Northwest that has a network to feed such flights, their partnership with Delta is becoming closer and closer.

I think Delta wouldn’t mind purchasing Alaska Airlines but I also think the timing isn’t right for such a purchase.  It just feels like one step over the line in terms of how regulators might envision such a merger. 

In the next few years, look for all three of the SuperLegacy airlines to start eyeing Alaska Airlines.  Delta has the best partnership with them but Alaska is no stranger to Continental (United) and American Airlines either.  They’ll do a deal with whoever makes sense. 

That’s also why I think Southwest ought to give Alaska Airlines a long, hard look as well. 

In the meantime, let’s cross our fingers on behalf of Portland and hope they get that Paris flight.

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

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

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

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

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

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

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

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

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