The FAA has denied exemptions for their 3-Hour Rule at NYC area airports. They replied:
“Passengers on flights delayed on the tarmac have a right to know they will not be held aboard a plane indefinitely,” U.S. Transportation Secretary Ray LaHood said in the department’s announcement. “This is an important consumer protection, and we believe it should take effect as planned.”
” In denying the requests, the Department concluded that airlines could minimize tarmac delays by rerouting or rescheduling flights at JFK to allow the airport’s other three runways to absorb the extra traffic.”
“The Department also noted that it has the ability to take into account the impact of the runway closure and the harm to consumers when deciding whether to pursue enforcement action for failure to comply with the rule and the amount of a fine, if any, to seek as a result of non-compliance.” *
And that is really what I both expected and hoped for as a reply. I am certain the war of words is not over, however.
* These quotes are from the Dallas Morning News Aviation Blog entry which can be read HERE.
The Dallas Morning News Aviation Blog has THIS story about Delta possibly deferring or cancelling its (inherited from Northwest) 787 orders for 18 aircraft (and 50 additional options.) And this kind of makes sense to me.
Northwest probably did need those 787 aircraft for its trans-pacific routes. Its 747 fleet was adequate for some routes but others just couldn’t stand a 747 and Northwest doesn’t have any 777 aircraft. The combined fleet of Delta and Northwest is a different matter, however.
If anything, I think Delta might have one long haul aircraft type too many. That said, they have 767 (Delta) and A330 (Northwest) aircraft for medium haul routes and configured so that each is nearly ideal for passenger density. They have the 777 (Delta) and the 747 (Northwest) for long haul, high density routes as well. Frankly, I think Delta might be better off adding the 777-300 to its fleet and retiring the 747 but that isn’t their plan. They are refurbishing the 747 aircraft and extending leases on them. Clearly Delta sees a profitable use for them at this time.
The 787 isn’t going to be a trans-Atlantic aircraft. Certainly not on the first routes for any airline. A new(ish) build 767-300 or A330-300 can do those routes just as economically. The 787 is better suited to routes like NYC to Tokyo or LA to Sydney or Atlanta to Rio de Janeiro or even the US to India. Delta has the right sized aircraft for those routes.
Delta can probably sell those orders profitably at this point. There are a number of airlines who don’t have new(ish) 767s or A330s and there are several more who need to downsize from a 747 or 777 on long haul routes. Airlines such as Continental and AA come to mind.
Mind you, the enthusiast in me wishes all US airlines flew the latest and great aircraft. The practical side of me says we’ll probably only see Continental take up its orders on schedule and even AA will likely take its time adding the 787.
Senator Charles Schumer has obtained “commitments” to not charge fees for carry-on luggage from several major legacy airlines. Read HERE for the entire story.
There are a couple of things I notice. First and foremost is that each airline making the commitment (American Airlines, jetBlue, Delta Airlines, United Airlines and US Airways) each have significant operations at La Guardia or JFK Airports (or both.) Airports in the state of New York and both of which are within Senator Schumer’s power base.
Also notable is that Continental has been quiet. Continental’s operations for NYC are concentrated at Newark Airport located in New Jersey. Well, I also suspect that new Continental CEO Jeff Smisek is sensible enough to ignore the Senator.
Of course they made the commitment. It doesn’t fit within their business model and is impractical for them to try. It costs them nothing to make the commitment and get their name in the news much as Spirit has had theirs in the news since making the announcement that they would charge carry-on fees.
The only people benefitting from Senator Schumer’s diatribes is Spirit Airlines. I leave Senator Schumer out of that equation because the more he speaks, the more it becomes clear that he doesn’t know what he is talking about and that this is more about his name in the press that advocating something for his constituents.
Imagine the good that could be done if he shouted as loudly for redefining NYC’s air traffic area and getting better air traffic control systems in place.
Instead he leads the charge against an airline who has no New York bases and who flies just 14 flights from NYC (La Guardia) to destinations such as Detroit (2 flights), Fort Lauderdale (7 flights), Myrtle Beach (4 flights) and Atlanta (1 flight).
Hard to view them as a threat to NYC area consumers particularly since they offer flights on the NYC – FLL route as low as $60 each way with a checked bag fee of $19 and who *still* allows personal items free on board if they fit under the seat in front of them.
Let me point out that several airlines who he received commitments from charge *more* for checked baggage.
Southwest Airlines issued THIS press statement on April 1st in response to WestJet’s comments on forming a codeshare agreement with Delta. The part that really catches my eye is this:
“A codeshare between WestJet and Delta, as indicated in media reports, could be inconsistent with the agreement presently in place between Southwest and WestJet.”
It’s not good when one party is responding to the other in the press. One would presume that someone at SWA attempted to find out what is going on at WestJet and was either ignored or given no substantive information. Ordinarily, SWA doesn’t really play things out like this in the press. Clearly a message needed to be sent.
And the message does clear up some things with respect to SWA. Apparently there has been communication and agreement going on between the airlines in this partnership and apparently SWA is on schedule (at least internally) to start this codeshare. Well, that’s good news.
A little context on WestJet’s part. Their CEO, Saretsky, is brand new in the job and made his comments before officially becoming CEO on April 1st. Their former CEO, Sean Durfy, is relatively young and relatively new in the CEO position (about 2.5 years). I’m beginning to wonder if there is some dissatisfaction with the leadership of this airline on the part of the chairman (and founder), Clive Beddoe. I’m also wondering if Saretsky wasn’t speaking a bit out of turn when indicating a preference towards Delta rather than Southwest.
I also question whether WestJet can really be bought off by the world’s largest airline with an offer of a few New York City slot pairs and the promise of some feed into the Canadian network of WestJet. The more I think about this, the more it occurs to me that Delta quite likely is already flying to most destinations it requires in Canada via connections in Salt Lake City, Minneapolis/St.Paul, Detroit and New York City. In other words, is Delta playing WestJet in order to make Southwest uncompetitive in New York City and is WestJet really that naive?
Southwest’s announcement also seems to indicate that they’re willing to press on to Canada and why shouldn’t they? With the IT upgrades done, there really isn’t a reason why they can’t start flying to quite a few destinations in Canada and no reason why they can’t do it as economically as they would any US destination. I’m sure we’ll hear more about this relationship in the coming weeks.
Two days ago, the new CEO of WestJet stated that WestJet would be pursuing a code share agreement with Delta with the potential to implement this either before or in place of their existing agreement with Southwest Airlines. Several reports tie this in with the proposal to give WestJet some slots at (5 pair) at La Guardia Airport in the Delta/US Airways slot swap deal currently being discussed.
First, I continue to be skeptical that there will be an agreement between Delta and US Airways for this major slot swap between La Guardia and Washington National airports given both the FAA’s and Department of Justice’s attitude towards this deal. Other than Delta and US Airways, no one is thrilled about the idea of Delta and US Airways getting to “pick” their competition by granting these slot swaps to airlines who aren’t poised (and never really will be) to compete with these two legacy airlines. If a deal does go through, I expect it will look different than the current proposals and it will involve a transparent auction of these slots to a high bidder.
Nonetheless, this is a bad announcement for Southwest airlines for a few reasons. First and foremost, the thundering silence that continues from Southwest since this announcement was made sort of indicates they were as caught off guard by this as anyone. It isn’t good for such a large airline to appear as unprepared for this development as they seem to be.
Second, the original deal between Southwest and WestJet is part of a 3 nation alliance between Southwest, WestJet and Volaris, all airlines operating in the tradition of being LCC carriers and all with a model similar to Southwest’s own. Southwest was clearly the leader in this alliance and it appears that it’s delays in getting themselves positioned to start this alliance have hurt this agreement. Acting like the 800lbs gorilla and then not getting the job done in time doesn’t make you appear to be an agile player in the airline community.
Southwest has said the delays came from making other changes a priority within their IT system. Whilethere are some changes such as new business class options, none of those changes to date are the kinds of things that should have delayed such an alliance for a year or more. No other airline would have taken nearly as long to integrate into that kind of alliance and that points out problems with Southwest’s IT system. Southwest is accustomed to going it alone on their systems (they do not, for instance, participate in a global reservations system) andhave done so for nearly 20 years. Now, that departure from industry norms is starting to hurt them apparently in being unable to make these kind of changes and integrations in a quick and agile fashion.
Third, Southwest’s image of leadership among LCC carriers is further hurt by this. Many founders of LCC carriers have pointed to Southwest as their inspiration for how to run a modern airline. No doubt that this is true but it also points out that these 2nd and 3rd generation LCC carriers have become more responsive to both their customers and the potential for new business than Southwest has managed. Losing that image of leadership is a bad thing for Southwest both externally and internally.
Making substantial partners wait to engage in a strategic alliance that, by all accounts, should be very beneficial as well as ground breaking is neither smart nor a good show of leadership. Canada really only has 2 airlines capable of entering into an agreement like this and the last thing you want is to annoy the 2nd largest airline of Canada into exploring options with a heavy hitting airline such as Delta and its associated alliance, SkyTeam. Volaris may prove to be more patient but you have to wonder if they aren’t asking themselves if there is another partner in the US who might be interested in them. A partner such as jetBlue or Virgin America or even the Republic Airways two-headed beast, Frontier/Midwest.
This doesn’t mean that a wholesale change in leadership is called for at Southwest but it may well indicate that it is time to find ways to become a leaner, more agile competitor. The days of simply having to show up and winning customers are over. Witness the competition that SWA is seeing in new markets such as Denver and Milwaukee. In this industry, winners attack and grow rather than ponder and play it cautious.
Anyone who follows this industry is well aware of labor problems at many US and European airlines. There have been at least three major strikes I can think of in the last month in Europe (BA, Lufthansa and Olympic). American Airlines seems to have had almost its entire operations labor force at the negotiating table for the past 4 years and not a one of them seem to be acting like a deal is soon to be had with several threatening to ask for release from negotiations to begin a 30 day cooling period and one (the TWU) who has asked for such a release.
Even Southwest Airlines has had a couple of snags in the past year with its pilots union and their TWU local. Delta’s flight attendants are making noise about trying to unionize again and this time they may have the votes for it when you consider that Northwest’s flight attendants were rabidly unionized. Frontier employees haven’t rebelled yet but I kind of wonder if that isn’t closer to happening than many realize given Republic Airways’ direction.
US Airways has problems with its pilots’ unions not being able to get along well enough to come to a consensus on whether or not the sun rose in the east. I do wonder how long it will be before we see the unions at United Airlines begin to overheat much like American Airlines’ already are.
Sure, there are some airlines who are managing to get along with their operations employees pretty well. That includes Southwest Airlines, Continental and even Frontier (for the moment.) However, a pretty vast number of airline employees seem to be simmering just before the boil over point and I’ve begun to wonder if there doesn’t need to be a better industry solution to collective bargaining than what they’ve got now. With the way things seem to be headed, particularly at legacy airlines but certainly not limited to them, there could be a truly momumental perfect storm of labor actions in the US.
I won’t argue who is paid well, paid poorly or over-paid. I certainly won’t argue who is or isn’t over worked either. Frankly, if you think being an airline employee in operations is a cush job, you really don’t have visibility into just what those jobs entail and just how many hours a day they consume. But if there is this much job dis-satisfaction among these ranks, clearly change is called for and I really don’t think this is all about money.
I think this is about job satisfaction. Yes, the union leadership (such as it is and that ain’t much) expresses the grievances in monetary terms but I really don’t think it’s all about the paycheck. I think it’s about feeling job satisfaction and feeling some meaningful reward from the job which, yes, includes salary levels. For airlines, I think this about a need to have greater flexibilty and ways to improve productivity that aren’t constrained by decades old rules.
Who is going to find a better way in this system which is largely based on 1930’s law and habits? I really wonder if there is any industry leadership who has the ability to find a better way.
Both Delta and jetBlue have requested exemptions to the 3-hour rule about to be implemented in April for their operations at JFK airport citing the runway closure for re-construction that will be in place until July. At first glance, this seems a reasonable request and I’m sure most would say such a condition is justified.
To be honest, I thought so at first as well. However, the more I thought about it, the more I didn’t like the idea. This will set a precedent for other “exceptional” conditions in the future and what I don’t like about this is that this is not an unplanned or unforeseen event. We know the runway will be closed. There has been plenty of time to plan operations to accomodate this closure. Both the airlines and the FAA have had plenty of time to come up with a contingency plan to deal with potential problems. When I consider that, I really don’t think the 3 hour rule should be exempted.
If this runway closure was sudden due to unforeseen circumstances, I could certainly get behind the idea of an exemption. That isn’t the case. Granting exemptions for planned events is unwise, precedent setting and undermines the rule itself for future events.
It makes no sense to have rules and advocacy for customers if those rules can be undermined by a planned event. If we do grant these exceptions, then I have to ask what is the sense in having a rule in the first place?
Airlines might be tempted to state that they did plan for this event but the rule caught them out since much of their planning was done before the announcement. My response would be that that planning clearly was inadequate if there is a genuine fear of running into 3 hour delays.
If the FAA feels it must make some kind of accomodation, I would suggest they grant the exception only on days with weather events that impact airport operations or some similar conditions. Set a boundary range of conditions and if the airport meets those conditions, no exception is allowed.
I realize that these thoughts likely rankle many airline employees and airline fans even. I’ve never believed the 3 hour rule is a perfect rule. I do, however, think it is a good rule to start with and the nice part about rules is that they can be changed if they don’t work. With the massive and constant changes that go on with carriers’ carriage contracts that are simply designed to protect the interests of the carriers only, it’s time to have some rules that protect consumers.
I recently read one article that pointed out that while a consumer can be charged an egregious amount for needing to change their travel date on a non-refundable ticket, an airline can change that flight at any time without penalty to the consumer. This is a great example of the imbalance that exists between consumers and airline service providers. We have finally begun to address some of those imbalances and I think that is a good thing. I also think that by addressing some of these imbalances with rules that define a more just and fair relationship between the consumers and airlines, airfares may well go up in price a bit. That, in and of itself, is not necessarily a bad thing either.
The relationship between consumer and airline today is, frankly, one of the more dysfunctional in existence. It resembles two spouses who hate each other and yet refuse to get a divorce or seek other options in life. That relationship is only going to change if we actually do something and doing something shouldn’t take several years of hearings either.
I would love to see a commission that addresses these issues in a timely manner similar to BRAC (Base Realignment and Closure) Commission that addresses how this nation closes and realigns military bases on an annual basis. It’s isn’t perfect but it is bipartisan and something that we all generally can abide by.
Imagine a airline industry rule making commission made up of 3 former airline executives and 3 former FAA and/or DoT administrators and one former Federal judge that address these needs and issue guidance upon reaching a simple majority consensus on a fair rule. No consensus, no rule. Have them meet and issuance guidance twice a year and let the rules be implemented. It’s bipartisan, reasonable just and fair and may well have the ability to help both the airline industry as well as consumers.
There have been some interesting comments in the news today made by Continental’s new CEO, Jeff Smisek. First, he seems the switch in alliances as a very good thing for Continental but it is way too early for us to see that as anything other than justification for the switch. It was notable that he referred to being in the SkyTeam partnership as problematic since they felt Delta was trying to kill them. I’m not sure Delta was trying to kill them but I don’t think Delta saw them as adding value probably.
Another comment is one I’ve been waiting for from an airline. Mr. Smisek says Continental will cancel flights before risking fines under the new rules for 3 hour delays. I’ve been waiting for an airline to make that statement publicly because the rule is about to go into effect but also because the winter weather this year has been atrocious for northeastern airline operations. No airline likes new rules. No airline ever embraced a rule that punished its violators with fines. Even the most progressive of airlines hate change. But airlines have been relatively quiet for the past 2 months of winter and that made me wonder if I was ever going to hear threats of cancellations.
Well, to my surprise, it was Continental that finally stepped up to the plate. The thing is, if one looks at what winter did to airline operations so far this eyar, any flights that got cancelled would have had to be cancelled anyway. There might have been a handful that could have gotten off if given 4 hours instead of 3 but it would have literally been a handful. What has been notable is just how quickly and quietly the airlines recovered their operations after each event. No outraged passengers were found on the news complaining either.
The airlines were all negatively impacted by the storms and all lost a significant amount of revenue because of that. It was unavoidable and it wasn’t because of the 3 hour rule looming in front of them. That’s how the airline business rolls sometimes.
The final notable comment is comes from Continental reiterating that it may be open to a merger in the future. They don’t see the Delta/Northwest merger as being in the books as a success yet and I agree. They do, however, believe that if that merger does prove successful, it points to what Continental needs to consider in the future. I don’t see this happening any time soon at all. The truth is, Delta got the best partner available in the US. The next 2 candidates come with a lot of baggage that isn’t easily solved by even in the best managers in the industry: United and US Airways.
I think we’ll see Continental exploit its membership in the Star Alliance and grow itself organically rather than by merger. There is one company that, if I were Continental, I would be interested in buying. Alaska Airlines. The problem is, if they make a move on Alaska, it will become a bidding war between AA, Delta and Continental. Maybe United even enter into that fight. Continental doesn’t have the war chest to win that fight. Not right now. If they do recover and re-start their growth and if Delta’s merger doesn’t prove as successful as it hopes, they would have a chance. Even at that, I think AA would fight very, very hard to win that battle just to keep Continental off the west coast.
I found THIS little nugget today announcing that Airtran will hold its annual shareholder meeting in Milwaukee on May 18th this year. At first glance, I might accuse Airtran of just pandering to the Milwaukee market. On further reflection, this is a bit more than just pandering. It’s too much effort for just pandering. It strikes me more as respect quite honestly.
I’m sure most see this as a shot aimed at Midwest Airlines since Midwest is considered Milwaukee’s home town airline. But I’m not sure it is aimed at Midwest so much as it might be aimed at both Southwest Airlines, American Airlines, Delta and United. There just isn’t any brand for Midwest even in Milwaukee anymore and to think it might still exist is to not give enough credit to those who live in Milwaukee. They aren’t fools, they can read newspapers and they’re just as smart as any other market.
But Milwaukee is a loyal city and I think Airtran is making the right moves in Milwaukee. Rather than just showing to offer a good fare, they’re investing in the city and I suspect that Milwaukee will respond to that. That’s why I think this move is aimed much more at Southwest, American and, yes, even United and Delta. AA, Delta and United all serve Milwaukee primarily through their nearby hubs and have never shown much respect for Milwaukee as a market. At least not until Airtran and Southwest showed up.
Southwest is the newest airline to arrive but Milwaukee has courted them for years without success. Southwest didn’t pay too close attention to Milwaukee until Airtran did. Only Airtran showed up, grew their presence in the market and now is respecting the city by making it a focus city, an employee domicile and now their shareholder meeting site. This all is very smart on the part of Airtran and it will get noticed.
Alaska Airlines and its sister company, Horizon Airlines have announced a pilot program to introduce electronic boarding passes into their system.
Electronic boarding passes are displayed on a PDA with a bar code that can be scanned at the airport. Continental began pioneering this technology but Delta and American Airlines have been testing it out at various airports over the past several months as well. All of the anecdotal reports that I’ve read so far seem to indicate that it has worked well and fairly smoothly with the only comments being that some TSA officers were surprised by seeing one but not unfamiliar with it.
What do you do if you cannot get your PDA to display the boarding pass? You can always get a paper copy by checking in at the airport as well. Passengers choosing this option aren’t at risk just because of a problem with their PDA.
Alaska / Horizon also introduced their new mobile website at:
Some time ago, US Airways and Delta Airlines came to an agreement to “swap” slots between New York’s La Guardia Airport and Washington DC’s Reagan National Airport. Delta would get a large number of slots in New York and US Airways would get a smaller but more important number of slots in DC. Each airline would get to consolidate their power in the city they’ve chosen to be a power player in.
This required regulator approval from the Department of Transportation and the DOT finally issued their ruling on this. They were OK with it only if each party sold a number of those slots in the respective markets. And they preferred that the slots go to “slot needy” airlines (i.e. airlines who have no slots at those airports or who have an extremely limited number of slots.) In other words, the DOT wasn’t completely comfortable with just how consolidated each airline would become in each market.
Both airlines expressed dismay and offered that they wouldn’t necessarily go through with the deal if those were the conditions. Both felt that the consumer was losing out on improved benefits in those markets. Oh, and of course this is the fault of the Obama administration according to some pundits.
Now, the airlines don’t want to give up those slots to the slot needy because it potentially allows a toehold into two markets that have been very difficult for LCC carriers to find access to. Southwest Airlines, for instance, only managed entry into the La Guardia market by buying the assets of defunct ATA. jetBlue would love access to Washington National but there has been no real opportunity there either. Frankly, both Delta’s and US Airways shuttles between NYC and DC would be pretty threatened by a jetBlue operation running between those two cities and Boston.
Frankly, I’m glad the DOT put those conditions on this swap. First of all, no consumer ever benefited from an airline consolidating its position in a market. The benefits airlines speak of are things like connections to other destinations, through ticketing to other destinations, etc. The benefits are *not* better prices. Ask people how American Airlines is doing in Dallas ever since Delta withdrew from the market.
I don’t mind airlines merging and growing bigger but I do mind airlines carving out domains in certain markets with regulatory approval. Those markets aren’t monopolies to be granted. And in those two particular markets, there isn’t exactly a limited number of customers available.
In fact, in those two markets, LCC carriers have been shut out largely by large, legacy carriers who have “sat” on their slots rather than give them up or sell them. It is quite literally to their benefit to operate a slot pair with a 40 seat RJ rather than to give the slot up because the introduction of competitive fares from LCC airlines who might get a toehold will literally decimate their yields in those markets.
But keeping competition away and even allowing airlines such as Delta and/or US Airways to consolidate their strength in such markets is tantamout to providing artificial support to airlines who have cost structures that are no longer viable in most of the United States. I do wonder what the anti-Obama administration pundits have to say about this kind of government support for legacy airlines?
The truth is, we need to distribute *more* of the wealth in those slot controlled markets, not consolidate it. We need other airlines encouraged to enter those kinds of markets and provide solid competition on routes that are held in a stranglehold grip by legacy airlines. That is what will benefit the consumer.
It’s official, JAL is staying inside Oneworld and the folks at American Airlines can relax on that front.
The only thing that surprises me about this announcement is that it was done this quickly. I thought it would take a month or more for the airline to come around. That said, it was a smart move for two reasons.
First, the last thing JAL needs to be doing right now is agonizing over an alliance. Their problems were not going to be solved by being in the right alliance. They were going to get solved when the executive leadership started focusing on cutting jobs, slashing costs and rationalizing the routes. The new JAL Chairman and new president apparently decided to move that issue of their plates and get on with the real work.
Second, it’s a smart move because there were big anti-trust issues involved with a lashup with SkyTeam and Delta. The US government signaled as much a couple of weeks ago when it told Japanese negotiators for the new open skies treaty that approval for anti-trust agreements already applied for was not a “done deal”. By staying with Oneworld, JAL gets to preserve its alliance infrastructure, benefits from revenue guarantees for the next few years and has the time to focus on restructuring itself rather than wasting their time on fighting an anti-trust battle in the US.
One thing that has become clear from this fight. American Airlines has emerged as the leader of Oneworld. The other major partners, Cathay, QANTAS and British Airways, didn’t really step up in the way you would expect of such a partnership. Yes, this was a fight based in the US but those 3 airlines stood to benefit but didn’t really work terribly hard to win the fight on behalf of AA. Look for AA to become the Oneworld leader and the airline that starts setting the direction for Oneworld for the future.
That could be good or bad. Good because Oneworld really hasn’t had much leadership from any airline to date. However, American Airlines has to set a direction that other airlines want to follow and one that benefits everyone in the alliance. If they don’t take up the leadership reigns, look for Oneworld to melt away in 5 years or less.
So, the Dallas Morning News Aviation Blog has THIS entry about the United States telling Japan to slow down on their assumptions that all alliances applying for antitrust immunity in anticipation of a new Open Skies treaty between our two fine country will receive approval. Apparently the Japanese government has been presuming that any and all applications are a done deal and approval is just pro forma. So the United States went to Japan and essentially said “Yeah. Not so fast. Not only do we not choose the alliance for our companies, but we actually don’t just rubber stamp things either.”
With all the talk over the past two weeks about how it was all but announced that JAL would switch to an alliance with Delta and SkyTeam, I could not understand how everyone could regard that as a done deal. Such an alliance meant that 50% or more of the trans-Pacific traffic between the US and Japan would be owned by a cooperating alliance. In the airline world, that’s market power.
To put my puzzlement in perspective, the trans-Pacific BA/AA/Iberia alliance wouldn’t come to close to controlling that much of the UK/US traffic and, yet, the DoJ and DoT have *not* given blanket approval to that application. The DoJ asked for modifications and the DoT (which actually gives the approval and which is more friendly in general to airlines) is waiting for more comments.
So, as I’ve already written a couple of times, I didn’t see an anti-trust immunity agreement between JAL and Delta as necessarily anything genuinely possible. Frankly, I don’t know why Delta thinks it so doable either but from their perspective, there is no harm in trying to form the alliance.
This is the cultural difference that exists between Japan and the United States. In Japan, government still very much has a hand in the direction of businesses and, in particular, the airline industry. Japan, despite its size, remains essentially a two airline country where one of those airline (JAL) has been a government arm for its entire existence. From Japan’s point of view, if the US wants an Open Skies agreement and knows that granting immunity is essential to that agreement, then surely the US will make that happen regardless. Obviously, our government doesn’t work that way.
I suspect that was a rather stunning reveal for the Japanese government and the executives at JAL. I also suspect that the CEO of American Airlines, Gerard Arpey, smiled yesterday despite everything else slamming into AA this week. Now that I understand what was going on on this subject, I reaffirm my belief that, ultimately, JAL will stay with Oneworld if only because of anti-trust issues and the extreme difficulties and logistics of getting such an agreement to pass in Washington, DC.
And that isn’t exactly breaking news, is it? Everyone knew it was coming and now it has happened. Japan Air Lines must now face the music, reorganize and find a way to survive.
It isn’t as if they were a shining example of profitability over the years. Indeed, it was yet another airline formed as a national flag carrier that was ultimately privatized and which ultimately went into deeper and deeper debt. Its cousins are airlines like Alitalia and Olympic, not British Airways and American Airlines.
The blame lies in the company culture and by that I mean it went too long in a regulated and semi-regulated environment and then got set free into the competitive winds of the world with a crew of executives that never knew any real competition. Its one positive attribute was its service level which by most accounts was impeccable.
There has been a lot of criticism for the CEO, Haruka Nishimatsu, over the past few weeks. Particularly when it was announced that he was ultimately going to be replaced by Kazuo Inamori, founder of the Kyocera Group. I wrote about that announcement HERE. Tonight I remembered a video that was passed around among many airline enthusiasts as a kind of great example of what an airline CEO should be. Mr. Nishimatsu is shown riding a bus, eating in the general cafeteria of the company and generally being one of the people. I remember many people posting on other blogs about him earning just $90,000 in salary after cutting all his perks when he had to slash budgets and staff at JAL. (See below)
Let’s remember that this guy at least tried to do the right thing which is quite unlike many in this business at times.
So, what’s next? Well, JAL has to layoff thousands of employees, reduce costs at every level, probably purchase some new aircraft and find a way to claw itself back into profitability. That’s a tough thing to do even in good times.
I’ve some doubt about their choice of CEO to do it with. This is a man who plans to work for no salary and put in “3 or 4 days” a week as well as choose a second-in-command from the current airline ranks. Huh? Really?
What JAL needs is a seasoned airline executive who has extensive experience in competitive environments and who understands what it means to run both a national and international airline. There are plenty of those around in this world but, yes, it does potentially mean hiring someone who isn’t Japanese to run the airline. Or at least to lead the airline out of its current problems.
There is some precedent for this. Nissan’s CEO is Carlos Ghosn, a Lebanese-Brazilian man who came to Nissan from, of all places, Renault. He made enemies until he surprised everyone by bringing Nissan back to profitability. If they can’t stand to hire outside of Japan, then they would do well to find someone at ANA to take over.
If the Japanese government and JAL’s board want to be serious about recovery, they need someone who is the best, not someone who is politically safe.
JAL will likely rid itself of its 747 fleet in favor of a 777 / 787 fleet for its international operations. It is time for those Airbus A300 aircraft to go too. It will have to eliminate stupid routes like flying from New York City to Rio de Janeiro. Their focus on First Class and Business Class will have to be realigned. (An amazing portion of some of their international aircraft is dedicated to these two classes leaving only a small portion for Economy Class.)
But I have to say that I think this is going to turn much uglier before it gets better. I think JAL will flounder and I think the Japanese government will continue to pump money into it (and, in a way, they kind of have to since they provide the only competition to speak of for ANA.)
“We believe it is important to secure customer convenience by the injection of public funding. However, we are also highly concerned that the fair and competitive environment would not be secured under the financial support and injection of public funding.”
That kind of criticism is rare in Japan but ANA has had to fight for its success since its inception. They have a point but strangely even I find such a statement a bit tacky on this day.
Everyone says it is Delta and SkyTeam who will lure JAL away from the Oneworld alliance. I must say, given all the talk, I’m beginning to be swayed. However, I remain skeptical that they can enter into the SkyTeam alliance, particularly with Delta, without their being some anti-trust issues on the part of both governments. If they are leaning that way, I believe it is because someone in the Japanese government is leading them to believe there will be no issues. I do not think that that will be the case in the United States, however. One look at the criticisms of the AA/BA/Iberia anti-trust case and you’ll see what I mean.
According to the Wall Street Journal Middle Seat blog, American Airlines has decided to match the bag fees recently implemented by Delta and Continental. You can read more HERE.
So, at present, Delta (including Northwest), American Airlines, Continental, United and US Airways are now all charging $25 for the first bag and $35 for the second bag with some of the airlines offering “discounts” if you perform your “bag fee purchase” online. That would imply that they each see this price for checked bags being a bit more elastic than one would have thought. Or, at the least, they see it as elastic as long as they all go for the same increases much as the case is with air fare increases.
So far, no low cost carrier has adopted this pricing model or even raised their checked bag fees. I suspect they won’t either as it gives them an opportunity to show themselves as the good guy while gaining some incremental revenue.
If this rise in fees sticks for the next 1 or 2 quarters, I do think it will put tremendous pressure on Southwest Airlines to institute their own version of bag fees, at least by institutional investors and analysts. So far, Southwest and its CEO Gary Kelly have resisted these calls to add checked bag fees and, so far, they believe it is resulting in incremental revenue from passengers switching to Southwest to avoid fees. Since CEO Kelly (and Southwest as a whole) is not one to shade the truth, I’ll continue to believe these claims.
However, with other LCC carriers such as Airtran and Virgin America and even jetBlue (on the 2nd bag) have added fees and do report significantly improved revenues from that, I would imagine that the call for Southwest to add these fees will be defeaning particularly when Southwest could implement a jetBlue or Airtran style program and see improvements to their quarterly results which haven’t been too impressive in the last year.
It is sad but I don’t believe we’ve seen the last of these increases. I do think that some airline will probe the upper limits of these fees just a bit more yet. I do think that Southwest will resist the call to add these fees for at least another 6 months but if there hasn’t been some kind of collapse in the price of these fees by then, I would not be surprised to learn that Southwest has begun to make changes to their infrastucture to implement them. I think the first sign will be the withdrawal of their “no fees for checked bags” advertising.
Delta Airlines chose to announce they are increasing their checked baggage fees. If you pay online, your fee goes from $15 for the first bag to $23 for the first bag. The second bag checked rises from $25 to $32 (paid online). Continental matched those fees almost immediately. While it seems exorbitant to me, I wonder if anyone will really notice right now.
I suspect Delta did this simply because they have pricing power at most of their hubs (ATL, MSP, DTW, SLC, CVG, MEM) and because they don’t think it is going to affect the consumer’s decision about which airline to fly in most cases. Delta doesn’t get a lot of LCC competition at its hubs except for ATL and there seems to be a unspoken agreement with Airtran not to get too ugly there. Besides, Airtran has checked baggage fees too.
The thing is, most online sites that offer booking for airlines in the US do not mention baggage fees when displaying prices for routes. Delta will continue to appear to be very competitive on routes while likely adding additional incremental revenue through the “gotcha” approach. Quite honestly, I suspect they’ll get away with it. At least until there is a healthy recovery in the airline industry and that is likely 18 to 24 months away still. Maybe more.
Will others match it? I suspect that American Airlines might. There is no precise harmony among airlines on these fees, not yet anyway. Continental already had pretty high fees at $18 and $27 for online checked fees (with a $2 and $3 surcharge at the airport). AA is at $20 and $30 respectively whether you check online or at the airport. US Airways is at $20 / $30 for online (with a $5 surcharge for checking at the airport.) United is $15 and $25 for online checking.
By contrast, Southwest Airlines has no fees up to the 3rd bag, jetBlue offers the first bag free and $30 fee for the second while Airtran charges $15 for the first and $25 for the second. In other words, these fees are all over the place. The truth is, as competitive as airfares are on many routes, these fees can change the equation pretty dramatically in some cases since those fees are for each way on a round trip flight.
These fees have added dramatic amounts of revenue to airlines’ bottom line and I don’t see them going away at all. I don’t think the fees among legacy airlines will harmonize much at all until and if online travel sites begin showing an “all in” pricing when comparing fares. Even with such comparisons, I don’t think the fees go away so much as they just begin to merge together among the airlines.
Will anyone else raise their fees? Well, maybe. I’m sure it will be tempting to do so among all the legacy airlines. One or two may even try to raise the ante some. I kind of think both United and American Airlines will try some kind of new mix in the future. I don’t see the LCC carriers playing around with their fees much if at all. They have the revenue and now this may be their chance to follow Southwest’s strategy in a modified form by advertising lower checked baggage fees.
I don’t think Southwest will change its attitude on these fees based on this new development. Their strategy appears to be working for them and they don’t have a history of following the pack when something works. That said, I’m sure it is something they’ll re-examine from time to time and it doesn’t mean they won’t add fees at some point in the future. Right now, they appear to be capturing customers with their ‘no fees” approach and their aggressive advertising seems to have caught some attention.
As much as I hate these fees for the 1st bag checked, I hate that airlines and travel websites have done really little to truly show the “all in” price for these trips. It makes things just that much more murky for the consumer and that is a bad thing. However, the best thing you can do is learn the fees for the airlines you may be shopping for a trip and do the math yourself. You’ll be frustrated by it and no doubt resent it but there isn’t a ready made solution at this time.
Frankly, these developments are just one more reason why I wonder about Southwest re-joining the travel agency world. The world has changed since they left it and, quite honestly, I think they could re-structure their IT infrastructure and re-join those agencies with little incremental costs involved. At that point, they become the no brainer for many consumers from my view. Even as aware as I am of airline options and even being located in the DFW area, even I tend to forget about Southwest as an option sometimes.
One strategy for learning these fees is to visit LuggageLimits.Com (also linked in my sidebar).
I tend to ignore Virgin America often even when they do make the news. I’ve had a lot of trouble figuring out what this airline is supposed to be and even more figuring out whether or not they are really going to succeed.
VA has made some news in the past couple of months, though, and I figured it was time to talk about them.
Virgin America began as a concept annunced by the irrepresible Richard Brandon (founder of Virgin Atlantic and the Virgin Group) and it went through quite a few iterations before it launched. It changed its announced name from Virgin USA to Virgin America, for instance. Ownership structure was fiddled with several times to meet US restrictions on foreign ownership of airlines. Business leaders changed and their original CEO, Fred Reid, was eventually removed to satisfy the DOT and gain permission to launch.
Their approach to finding a home was weird to me and kind of reflected a European viewpoint that led me to believe they weren’t necessarily looking at the US market properly. After leading a kind of competition to find a home, Virgin America settled on San Francisco as its “operations” home and New York City as its “corporate” home. Neither location struct me as particularly wise because NYC and California are expensive places to operate and they’re no more representative of the United States than a lot of other locations.
While they went through the start up process, Virgin America faced a lot of criticism from other airlines. Flatteringly, it was quite a bit more than many startups have received over the years. On the surface, the objection was always to the perceived foreign ownership of Virgin America. My own sense was that other US major airlines saw another potential jetBlue starting up and given jetBlue’s success, yeah, it would worry a few airlines.
Strangely, at the end, some of the loudest objections came from Continental Airlines who, from my point of view, had the fewest reasons to fear Virgin America’s competition. Continental had a strong 2 class operation that was highly favored by businessmen for both its service, comfort and frequent flier program. From my perspective, American Airlines and United Airlines had the most to fear from this upstart’s trans-continental plans. Even jetBlue had some reason to be worried since VA’s product most closely competed with jetBlue’s and had the biggest chance of nibbling away at jetBlue’s customers.
I think the biggest concern from existing airlines was that, once again, a well financed 2 class airline was entering the market that had low labor costs and brand new efficient aircraft. Startups always have low costs because the airline industry is based on seniority. A new airline with all new employees quite naturally has some of the lowest labor costs but that does change over time and it really depends on the airline on whether or not those costs rise dramatically or not.
jetBlue has been able to keep its labor costs relatively low by being pretty good at taking care of their employees, for instance. By having such low costs, airlines like jetBlue and VA, are able to compete very hard on those trans-continental routes that are many airlines bread and butter.
When VA agreed to remove CEO Fred Reid from the operation after no more than 9 months of operation after the certification was awarded, they had to go find a new CEO. Now, Fred Reid never had the kind of reputation that I would expect an operation like VA to need or want. Formerly of Delta, Fred Reid performance at Delta was mixed and he certainly wasn’t a charismatic leader which I thought would help VA quite a lot in the US. Richard Branson’s kind of bravado has never played nearly as well in the United States as it has elsewhere in the world.
My thought was that VA would seek a more personable, charismatic leader who would not only have a strong airline background but who would also be a good public figure for this venture. VA, apparently, felt otherwise and found their next CEO at American Airlines in the form of David Cush.
Mr. Cush certainly fit the bill when it came to having a strong airline background. He had 20 years of airline experience in a wide variety of positions and a great education too. The thing is, Cush did it all at the most conservative of airlines, American Airlines. Huh? Yes, Cush had youth going for him and he does present himself rather well but it still didn’t mesh in my mind.
I suspect VA’s investors, most particularly its US investors, wanted someone who had a very strong financial background and who understood just how important it was to preserve cash and operate with strong controls in place. They had, after all, funded VA with more money than had ever been put together for an airline startup in the US when VA began. He did most recently work as Vice President of Alliances and Chief of Sales for American and this hints at Mr. Cush’s ability to access corporate clients. With VA’s transcon strategy, this kind of made sense.
Virgin was so delayed in getting permission to start up, it leased several of its delivered Airbus A320 aircraft to the late Skybus Airlines. When they did begin to operate, they were hindered in fully starting up operations because some of those aircraft were occupied until Skybus failed miserably.
But . . . operate they did. Finally in August of 2007 and fully 2 years delayed, they began flights between San Francisco and NYC and Los Angeles and NYC. This wasn’t a bad start in that they were connecting major business centers with lots of traffic but it didn’t allow them to really get high utilization of their aircraft and pricing on those routes has always had lots of competitive pressure so they lost lots of money operationally.
Every airline loses lots of money in its first months and years. Airlines really operates lots of small businesses. Each route is really its own business and it takes time to grow those routes into profitable operations and it takes varying time to do it for each route. It is an investment that takes time to go profitable and much more time to provide a good ROI (return on investment.)
VA was off and running and I was still scratching my head. There were still many parts to this airline that defied rational thought in my opinion. Tomorrow, more on VA and its service and routes and where it is today.
USA Today’s Today in the Sky blog is reporting that Mesa Airlines has filed (voluntarily) for bankruptcy reorganization today. Read the story HERE.
I can’t say that I find this surprising in any big way. Their financial situation has been somewhat dire for a while and their stock prices positively abysmal. In many respects, Mesa is the perfect example of a company that is rough on its employees, rough on its customers and abrasive in its own PR. That really isn’t a recipe for success in *any* industry.
Mesa operates flights for Delta, United, US Airways and under their own grand in Hawaii as go! airlines in partnership with Mokulele. They fly the CRJ100/200 (47 aircraft), the CRJ700/900 (58 aircraft) and the Dash 8-200 (12 aircraft). With a desire to shed aircraft from their fleet, my guess is that they’re wanting to rid themselves primarily of the CRJ100/200 aircraft primarily and mostly by breaking leases.
It’s also notable that both United and Delta have worked to end their relationship(s) with Mesa and Mesa is currently in litigation with Delta over the attempt to break the Delta contract. The Delta contract was operated by Mesa subsidiary using ERJ-145 aircraft (numbering 34) and Delta sought to terminate the contract on the basis of poor performance by Mesa. Mesa contends the real motivation behind breaking the contract was to cut capacity rather than performance.
With this new development, I do wonder if Mesa hasn’t just become a candidate for being purchased by another airline.
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.
