According to the Dallas Morning News, Southwest CEO Gary Kelly says that as a result of the Airtran ALPA MEC decision to not have their membership vote on the proposed integration agreement, tens of millions of dollars in financial incentives are now off the table.

One thing about Southwest and its employees, even its unions, they all understand that to experience reward, the deal has to get done.

Apparently Airtran-ALPA didn’t take that into consideration.  What will be amusing is if Airtran-ALPA thinks that those incentives will go back on the table.  My guess?  They won’t.  Those incentives were for a quick deal and a smooth integration.  Southwest doesn’t pay for mediocre. 

No, really, they don’t.  And SWA employees know that.  I do wonder just how hard SWAPA tried to sell the deal to Airtran-ALPA.  I also wonder if there will be a backlash against Airtran-ALPA leadership at this point.  If I were an Airtran pilot and I had the opportunity to A) go to work for SWA and B) earn not just more money but a lot more money and C) I just lost my one shot at real financial reward for doing the deal, I would be pretty unhappy. 

Next up is mediation between the two parties and if that doesn’t work, then we see binding arbitration.  The longer this takes, the less Airtran pilots will see in reward.  Will there be a better seniority deal on the table?  I don’t know.  I’ve never been able to find out the details but I suspect that the deal only gets worse from here on out.  SWAPA approaches negotiations with a sense of honor and I doubt seriously they find Airtran-ALPA’s behaviour funny or very forgiveable.

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We’ve learned that ALPA-Airtran has decided not to submit the pilot agreement decided upon between them and Southwest Airlines APA union weeks ago.  ALPA delayed their vote for several weeks and now it’s coming out that there will be no vote.

SWAPA (Southwest Airlines Allied Pilots Association) will be the controlling union when this merger is over.  ALPA has no chance of becoming the controlling union and ALPA has kind of allowed things to spin out of control more than once over the past several years (think US Airways pilot integration and what that resulted in.) 

SWAPA membership appeared to get slightly feisty upon learning the details of the agreement but quickly settled down and started voting.  ALPA-Airtran almost made me think of that husband who is afraid to go home and tell his wife he just gave some guy their life savings to start a restaurant.  It’s as if ALPA-Airtran leadership felt very timid about promoting this deal and really gave no indication as to why they would feel that way.

My thinking?  Well, I have wondered if national ALPA leadership isn’t feeling frustrated these days.  The US Airways thing didn’t go so well and the two chapters involved in the United/Continental merger don’t appear to be able to agree on what kind of coffee to have at their negotiations.  And let’s not forget their second failure to organize jetBlue as well. 

Furthermore, they got spurned and insulted by rogue elements in American Airlines’ APA and by all appearances independent unions or non-traditional pilots unions appear to be gaining strength at ALPA’s expense. 

So, did ALPA-Airtran get slapped at by the national union?  I would like to think that didn’t happen in light of the fact that its president is the very reasonable Lee Moak but Lee Moak is just one man in a forest of much more traditional union types. 

Let’s not forget that ALPA at both the national level and within Airtran have got little to lose by being obstinate.  The union leadership will not control the Southwest pilots and that is certain.  But there may be the hope that if they play extra hard in the SWA/Airtran deal, they’ll be perceived as doing their job by membership at other airlines. 

But there is a price to be paid for that behaviour.  That price, however, is exacted upon the rank and file Airtran pilots who arguably have quite a bit to gain from this merger in terms of benefits and salaries.  In addition to those gains, they have a lot to gain by going to work for an airline that has an excellent record of working with union leadership that is arguably very strong (SWAPA). 

So, I ask you:  Should the national ALPA leadership have a dog in this fight?  I think they have a duty to represent their pilots in this merger but I don’t know if they should have overriding influence on the negotiations either.  I suspect that had the agreement been put to a vote among Airtran pilots, it would have passed and the merger would have gotten on with getting done.  But that would have essentially put an end to ALPA’s ability to influence the merger or stay in the spotlight.

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It’s been quite a while since the Continental United merger was announced and pilots from both sides are *still* negotiating their integration.   This stands in stark contrast to the SWA / Airtran deal announced a few days ago and completed in far less time than the ContiUnited merger has been going on.  It’s been over a year now since the ContiUnited merger was announced.

This is about pay, seniority and job security.  Both sides of the table have given up significant pay over the past 10 years or so and both want a raise that shares in the wealth.  United has more senior pilots and that’s a threat to Continental pilots.  Continental pilots have enjoyed quite a bit of job security as a result of scope clauses that have limited Continental to using regional airlines for 50 seat missions or less. 

Mostly, neither side wants to budge.  I think the Continental pilots have viewed this merger as more threatening than any anticipated.  Despite the appearance of this being Continental with the United name to the public, more and more of the United model has been retained.  Any attempts to “outsource” Continental flying to United has been stopped in courtroom skirmishes by Continental pilots who don’t want to see regional jets flying *their* routes. 

So what breaks the impasse?  It’s hard to say.  There isn’t much One Love going on here despite the fact that both are represented by ALPA.  United pilots are very militant and Continental pilots are very concerned.  Failure to reach an agreement on much of anything here has caused these talks to look stagnant. 

ContiUnited can’t start benefiting from this merger until it has a merged single certificate as an airline and until it can flow flight crews between both airlines.  That day isn’t in sight as of today. 

Furthermore, management can’t afford to agree to an unsustainable raise for both sides given the current economic climate.  So there are few incentives that management can offer to stimulate an agreement among the pilots. 

Is this going to be another US Airways / America West problem?  Right now, I don’t think so.  It already doesn’t represent the smooth transition that Delta and Northwest enjoyed but it can be wrung out.   The problem here is that there is no momentum.  Continental pilots felt Continental was doing just fine on its own and that they were doing better than most pilots out there.  United pilots are out “to get theirs” at almost any cost.  Someone, somewhere, has to find something for both parties to agree upon and get some momentum going for an agreement.

Continuing these talks for years or coming to an agreement that falls apart hurts the pilots the most.  Senior Continental pilots are going to need to have some assurances with respect to seniority that go beyond “date of hire” integration.  Pay is the easy part here.  Job security and seniority are the hard parts.  Seniority in particular because a Continental pilot that is, say, bumped from his job as a Captain on a 777 stands to lose quite a bit of pay. 

I suspect we’ll see these jobs “fenced” at the airlines with a date sometime in the near future (3 to 5 years) of breaking down those fences so that pilots can bid for jobs they want on each other’s equipment. 

How does all of this happen?  It should happen with Jeff Smisek, CEO of ContiUnited.  It’s always dangerous for  a company leader to get directly involved but he needs to find a way of assuring both sides and an incentive for them to agree upon something.  That incentive is going to cost but the sooner he finds it, the sooner United starts making consistent profits.

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Suddenly, there are small signs everywhere about the Southwest Airlines / Airtran Airways integration.  It Kansas City, Airtran is moving over to Southwest’s terminal and occupying SWA gates marked for their use.  A good move, in my opinion, because it starts associating Southwest with Airtran sooner rather than later.

Southwest has also kicked off a One LUV tour that recently stopped in Atlanta.  SWA employees visited Airtran crew areas at the airport to answer questions and generally welcome Airtran to the family.  Also a good move because it’s those face to face contacts that begin the formation of relationships that will be needed as the two airlines combine together more and more.

Wichita, Kansas has approved a move to continue subsidizing Airtran flights into and out of Wichita.  Wichita has wanted Southwest flights for a long, long time and this move seems oriented towards at least getting Southwest to try out Wichita for a brief while.   Currently, Airtran serves Wichita with flights to Atlanta only but perhaps Southwest will try out flights to other destinations that make more sense for Wichita such as Denver, Chicago or Dallas. 

I’m sure we’ll see more signs of integration over the next few months as well.  For instance, it would be relatively easy to move operations within the Southwest fold in Minneapolis, Chicago, Milwaukee, Baltimore, Denver and, well, you get the idea.  Except where space is an issue, I think we’ll see Airtran flights start moving into and out of Southwest gates instead.  There is a lot of overlap in this area and the only places where it might be tough are in those focus cities where Southwest is already constrained with gate space.

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Southwest and Airtran pilots have reached a tentative agreement on integrating seniority lists and a transition plan for doing so.  The sigh you just heard was Gary Kelly and team relaxing just a hair because this was the test for smoothness in this merger.   Conventional wisdom has it that a merger integration goes smoothly if the pilots manage to agree without too much rancor.

Southwest needed this.  It’s not just an indicator but a leader and most other labor unions will likely fall into agreement fairly rapidly if they see the first one worked out fairly and relatively quickly.  This was pretty quick for any airline merger. 

The details aren’t known yet and that is the real test.  Pilots’ unions are funny groups and have, by far, the most to lose in these deals.  They’re quick to disagree with their boards if they think they’re not getting handled fairly and splinter groups have been known to torpedo agreements. 

On the surface, it would appear to be a no brainer since Airtran pilots would start earning the exceptionally generous SWA salaries.  But seniority is *everything* in these deals and a generous salary doesn’t mean as much if an Airtran captain has to go back to being a first officer and has no chance for upgrade for years.  On the other hand, no SWA pilot is going to be happy if he sees his upgrade to captain opportunities suddenly diminish significantly because a whole bunch of another companies’ pilots just got put in front of him.

My guess?  Captains will stay captains and first officers will remain first officer and the blend will be based on some formula that takes into consideration just how long that pilot has been in his current seat.  The company probably made some guarantees on no outsourced flying and some growth (contingent upon the airline industry health).  To a pilot, growth means opportunity and job security.

It didn’t hurt that SWA made it clear over the past several days that there would be no layoffs as a result of the merger and given their record on layoffs, there was a lot of credibility behind that statement.

I felt that this would probably go pretty well if SWA pilots managed to not appear to be too grabby and I didn’t expect them to.  However, the real trouble area I think may exist is among flight attendants.   SWA flight attendants earn well and have a great deal of flexibility.  In addition, they have a very senior core that is, by definition, far senior to the typical Airtran flight attendant.  An equitable agreement based on seniority is going to put a lot of Airtran FA’s down at the bottom. 

Given that flight attendants earn less than, say, pilots, their basing opportunities are very important to them as its defines lifestyle.  What happens if a great deal of SWA flight attendants can displace Airtran FA’s in Atlanta?

While I doubt that pilots are “fencing off” bases (although its possible), I wouldn’t be surprised to see the FA’s fence off certain bases (at least in Airtran focus cities) for Airtran FA’s only. 

This is good news for everyone and it will be very interesting to see the flight attendant agreement get done.

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A reader wrote me yesterday about some pricing he saw between Kansas City and New York City (Newark Liberty International Airport aka EWR)  recently.  In the past, he’s always flown Continental on a regional jet non stop for a competitive price.  Most recently, he saw the same flights for far higher prices than in the past with other airlines offering one stop pricing that reflected what he was used to.  He asked if this was one effect of the recent Continental / United merger and I said that I didn’t think so.

I think the pricing were seeing from airlines today, particularly on non-stop exclusive routes, is reflective of just how hard it is to make money in this business today.   In United’s case, they probably enjoy more competition into and out of Newark than they used to.  However, they also need to earn more money and show promised profits.  On exclusive non-stop routes, they’re going to price seats for the most they can get. 

Business travelers do differentiate between non-stop and multi-stop flights.  They may be closed off from traveling in business class these days but most aren’t being required to take the least expensive coach seat.  In the reader’s particular market, they probably fill those regional jets with mostly business travelers and business travelers remain a big piece of profit for airlines.

I pointed out to the reader that he could probably enjoy almost as quick a flight on more comfortable equipment if he shopped Southwest Airlines but that points up another issue.  With the conflicts going on with Global Distribution Systems and American Airlines as well as the fact that LCC carriers in many cases are using GDS companies and/or online travel agencies to advertise their fares.  Absence of those fares being shown makes it possible for network carriers to raise prices on those GDS systems and earn more.

And this is why I would like to see LCC air fares start showing up on these travel websites.  I think there is quite a bit of low hanging fruit for the LCCs to reach on these sites and I think the travel websites have the potential to continue on in the travel world if they find a way to embrace and entice LCC carriers.  In addition, it narrows the fare gap we see between network carriers and LCCs.

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It’s somewhat difficult to believe that the America West / US Airways merger was closed in 2005.  It’s 2011 and the US Airways pilots still don’t have a unified contract to work from.  There is no doubt that a good deal of primary fault lies with the pilots themselves who:

• Couldn’t agree on how to merge a seniority list between the two unions.
• Couldn’t agree that ALPA was their representative.
• Elected a new union in place of ALPA in order for the US East pilots to take over the union.
• Sued each other multiple times.

Now they’re suing US Airways under the supposition that US Airways has been materially altering the contract under which they’ve been working by unilaterally imposing changes.  US Airways says they think the suit has no merit.  I think the suit has merit but before it can progress, I think the pilots need to get their house in order first.  Without that done, who has standing to bring such a suit?

The pilots, both East and West, need to agree on union representation and seniority merging and then get to the business of negotiating a contract.  Sadly, the business of negotiating a contract can take from 2 to 4 years and that means this may not be done before 2015 or 10 years after the merger.  You can’t blame US Airways for taking advantage of that situation either.  Who wouldn’t?  It keeps costs low and they’ve clearly found a way to operate their airline on two different contracts.

The biggest enemy to US Airways pilots is the pilots themselves.

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Southwest and Airtran are now one airline legally although both will continue to operate separately in varying degrees during their transition to one operation.  Once change that will come sooner than later and one that will disappoint me at that is Airtran leaving DFW airport.  Southwest isn’t permitted to fly from both airlines because of a clause in the law(s) governing operations from Love Field Airport. 

It disappoints me because Airtran was my “Southwest Alternative” when it came to flying to destinations on the East Coast.  It  was faster and easier to fly Airtran via Atlanta to many of those destinations and it was just as inexpensive.  Now, those flights will have to be on Southwest which is hamstrung with the Wright Amendment law(s). 

I’ll also be disappointed to see Airtran’s business class go away.  It was a great value to upgrade to and offered what was most important (to me) which was better seating.   It’s not about the food or being addressed by my name or a mint, it’s about being more comfortable for what was a great price.

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Despite the exceptional record of profitability and growth for Southwest airlines, I’ve often felt that the financial markets do not treat Southwest quite as the airline it is.  In fact, I can’t identify another airline in the United States that has such a record but, despite that, its stock price often is low and my perception is that analysts don’t trust the success.

The Dallas Morning News Aviation Blog has an entry about Standard & Poor keeping a close eye on SWA now that it is about to close on its merger.  There is a belief that this merger will weaken SWA’s financial profile and that SWA will incur greater financial risk going forward.  There is no doubt that this exists as a possibility but it seems to ignore that Southwest’s strengths going into this merger. Strengths that other airlines didn’t have during other recent mergers.

I think Southwest will find it difficult to integrate parts of Airtran.  I think they will incur significant costs doing so and I think they’ll find it more difficult than they are portraying.  All of that said, I also think that SWA is better positioned to consummate this merger than virtually any other airline around.  I think that we’ll see more harmony in the labor integration than we’ve seen in other mergers (even Delta who did it relatively well has been facing union election after union election every since it merged with Northwest.)

The fleet integration has far less risk than what we’ve seen in other mergers.  The pathway forward in rationalizing routes is far more clear than in other mergers and the Justice Department hasn’t identified any conflicts of real concern in this marriage either. 

So why do others get a pass?  Take a look at the share prices of United Airlines since the ContiUnited merger.  Both airlines had significant financial risks and significant labor risks in that merger and, yet, the share price is exceptionally high with a far more cloudy future than Southwest has.

I think Southwest tends to be thought of as a regional player despite its national stature.  And I think it remains difficult for even educated analysts to trust the year after year success that Southwest has enjoyed.  I believe that they feel it is still too good to be true and they continue to wait for the other shoe to drop.  After more than 25 years of financial success, I think it’s time to get over that and value this airline for what it is:  Possibly the most long term successful airline in existence.

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Southwest Airlines’ and Airtran Airlines’ pilots unions have agreed to agree on the process for integrating their seniority lists. This isn’t an agreement on merging the lists but simply an agreement on how they’ll go about doing so.

They’ll first negotiate and then if they don’t get an agreement, they’ll have mediated talks and if those don’t work, they’ll have arbitration with a binding agreement. Standard stuff between unions but what I like is the fact that they’ve set deadlines for all these processes and those deadlines all fall within 2011. Good on both of them.

This process is governed by the McCaskill-Bond Act which was passed by Congress after the AA-TWA merger and the flight attendants union simply stapling on employees to the bottom of their list.

A curious question comes to my mind on US Airways as a result of this. I believe such a process was followed by US Airways and America West pilots unions. The result was an arbitrated result that the US Airways pilots didn’t like. The process was hijacked by US Airways pilots who initiated a vote amongst *all* pilots for new union representation. Since US Airways pilots outnumbered America West pilots, they got their way at the end of the day. At least until America West pilots sued. It would seem to me that federal law may well have been violated in this. If any readers here know the status of this, please comment.

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Airline CEO Doug Parker says that there is one more big merger deal to be done in the United States and that is with his airline, US Airways.    Parker’s comment was made during US Airways recent media day.

The question is, who?  I’ve said before that US Airways and AA could actually do a nice deal when it comes to the complementary nature of the two airlines but I have also noted that you would be combining two airlines with very bad union relations right now.    Furthermore, neither has the cash to do the deal and a stock swap is just swapping one so-so share for another. 

The truth is, I think US Airways has something AA needs.  The executive team.  The US Airways executive team manages to deliver profits despite being an airline with not a lot of international traffic and an airline with no hub that anyone views as particularly strategic.   I would like to see that team manage American Airlines’ resources.  I think we would all be pleasantly surprised financially.

I actually don’t see a partner for US Airways.  Not right now.  It isn’t an low cost carrier (ironically enough, US Airways stock symbol is LCC) as the models are two widely apart.  It isn’t an airline that shares a similar fleet as US Airways flies Boeing and Airbus and within the Airbus fleet, it flies two somewhat dissimilar fleets of A320 series aircraft. 

I cannot identify an airline that has a strategic position that would complement US Airways routes without being a clash in every other way.  JetBlue owns JFK and an Airbus fleet but the clash in cultures and everything else makes me shudder.  The same is true for Frontier Airlines.

Southwest has no interest in them.  They simply identify where US Airways is strong and then move in to compete with them.  Southwest wins and US Airways moves along to another place.

SuperLegacies?  They don’t need US Airways.  There is no real route rationalization to be had in many cases and the few places where one SuperLegacy might want more dominance are places where anti-trust regulation is unlikely to grant it.

Right now, US Airways is on its own and that’s OK.  This is a profitable airline and, in many cases, more profitable than SuperLegacies.  5 years from now may prove differently but I don’t see it in the next 2 years or even 3.

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United Airlines flight attendants (comprised of about 15,000 United employees and 9,000 Continental employees) will be voting on which union will represent them in the merged companies I like to call ContiUnited. 

United (old) flight attendants have been severely unhappy with United since they lost their pension in bankruptcy in 2002.  The blame has often aimed at United Chairman Glenn Tilton and employee groups at United (old) have made it clear they intend to get what is theirs with this merger including the Flight Attendants.

It’s been my observation that Continental crews haven’t viewed their merger with United with great enthusiasm either.  Continental crews have had pretty good working conditions, good industry salaries and have been rewarded with the company’s success.  That experience has been seen to be at risk since United (old) employees typically outnumber Continental employees in the same jobs.

This vote will be won by the United (old) flight attendants and expect Continental flight crews to be displeased by this.  Jeff Smisek, CEO of United and formerly CEO of Continental, has been exceptionally quiet during this merger and hasn’t put much of a “one team” spin on this merger in the public in my opinion.  As times passes, this merger appears, from the employee perspective, to be less and less a merger of equals and more and more one of Continental executives taking over United operations.

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In a previous post, I made mention of Virgin being courted by a few airlines as a result of their decision to investigate sale and merger possibilities.  I wondered what would happen to the other Virgin branded airlines: Virgin Blue and Virgin America most especially.

It’s been announced that V Australia / Virgin Blue , the hybrid named airline has done a deal with Etihad Airways which will see both airlines offering seemless codeshare between their airlines.  Etihad customers will have the opportunity to fly Virgin Blue to their final destination in Australia, New Zealand and the Pacific islands.  V Australia / Virgin Blue customers will be able to access Etihad flights from Australia to global destinations offered by Etihad.

Just writing that awkward V Australia / Virgin Blue moniker makes me wonder what happends to the Virgin brand in Australia in the future.  Is it really worth having two different brands of which one is restricted by agreements with airlines such as Singapore?  In the long run, I think not.

If Virgin Atlantic is merged or purchased by someone, I suspect we’ll be seeing the other brands seeking their own identities.  Virgin Blue has great identity in Australia but virtually no where else and it isn’t exactly easy to connect it to V Australia (which is a name that I find weird at the least).  

As for Virgin America?  Who knows.  It’s a brand that is starting to gain some cachet in the US and perhaps it will stick around.  The potential for growing Virgin America as a brand in the US domestic market is huge.  Virgin America can fly to Canada and Mexico under that brand and I see no reason why they’ll want to be starting trans-Atlantic or trans-Pacific routes in the next 2 decades.  They may well keep it but I think they’ll also start looking for international partnerships after they’ve got a robust enough network.

I do think we may be witnessing the beginning of the end of the Virgin brand as a global name if Virgin agrees to be purchased or finds a merger partner.  I doubt that we’ll see Virgin Atlantic purchase a partner and, frankly, I’m not sure there are any left in Europe that would be any kind of fit.  BMI was their last, best opportunity to stand alone.

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

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

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

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

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

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Southwest has gotten a transition plan for its absorbtion of Airtran approved the FAA it would appear they are on track to close their merger later this spring.  The transition plan calls for both Southwest and Airtran to be operating on one certificate early in 2012. 

In addition, Southwest has gotten a transition agreement into place with its pilots’ union which establishes the procedural framework for integrating Airtran pilots into Southwest’s structure.  This does not mean that we yet know how Airtran pilots will be actually integrated into the Southwest seniority list.  The silence on that issue is probably an indicator that progress is being made.  Unions don’t usually start firing public shots at each other unless they feel like progress is being blocked. 

I expect we’ll see more announcements on the merger in the next few weeks and certainly after Airtran holds its vote on March 23.

On another front, Southwest’s Gary Kelly has said that Southwest plans to grow further in Milwaukee.  Like Airtran and Frontier, Southwest sees Milwaukee as a real opportunity and by taking over Airtran, it should have plenty of space and opportunity to continue its growth.  I expect that we’ll see Southwest continue its battle against Frontier in this city as well Denver where both have grown  but more at the expense of United than each other.  Southwest is now carrying more passengers out of Denver than Frontier. 

Finally, Southwest should start flying from the NYC area’s Newark Liberty International Airport.  Southwest gained important slots from ContiUnited as a function of their merger and they’ve now got approval from the airport to begin flying from 3 gates to 2 destinations (Midway and St. Louis). 

With toeholds in both La Guardia and Newark Airport as well as Long Island’s Islip airport, I expect that we’ll see Southwest look for other opportunities to grow each new airport’s flights.  La Guardia, I expect, will be the slower growth airport as slots are extremely valuable there and several airlines are vying to be New York City’s airline of choice.  

One wonders if service to Islip will continue in the face of this NYC area growth and I expect the answer is that the flights will stay as long as they remain profitable and there are no other better profit opportunities elsewhere.  In the near term, I expect they’ll stay.  Islip is nowhere close to NYC and Southwest has been serving primarily East Coast destinations from Islip with Chicago Midway being the one exception to that.  Chicago may perhaps be dropped but I expect that if Southwest has found it valuable to serve the airport today, it will find it to be profitable to do so in the future.  Currently, Southwest’s competition is US Airways at Islip.

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The merger between Chile’s LAN airlines and Brazil’s TAM airlines (to be called LATAM) is on hold while regulator examine what, to them, appears to be the formation of a continental monopoly.  Oddly enough, the objections come from Chile’s regulators right now with Brazil’s remaining reasonably quiet so far. 

The western half of South America doesn’t have much competition going on and success by LAN has been the result of operating an airline like a grown up rather than as a shiny bauble for governments to admire.  However, at the end of the day, it was still Chile’s airline and by extension, it was still western South America’s airline too. 

Brazil is the one marketplace that does have a tremendous amount of competition in the airline industry and it has done nothing but help fuel the economic growth that country has experienced.  To the outside observer, LAN was the strong airline in this union.  However, to those in South America, LAN almost appears to leaping off a cliff and becoming swallowed up by TAM (and by extension, Brazil.) 

There is, in many senses, an inferiority complex when it comes to how other nations in South America view Brazil.  It is viewed with jealousy and suspicion.  Jealousy because of their economic growth and success over the past 2 decades and suspicion because Brazil never had the same history as the rest of that continent including not sharing a common language (Spanish).  As such, this merger is viewed there as a potential loss of LAN and that worries many, particularly in LAN strongholds like Chile, Ecuador, Peru and now Colombia and Argentina.  Not one of those countries lacks jealousy and fear of Brazil and its power.

Is the merger needed?  No, not necessarily.  But allowing a SuperLegacy in South America to develop would be good for the whole continent, not just Brazil.  In fact, I would offer that Brazil wouldn’t see much impact but the remaining countries would only benefit.  It would put LATAM on par with other major world airlines and offer them negotiating power and financial strength to expand their route system in a way that wouldn’t necessarily require alliances.

Will it get approved?  Ultimately, I think so.  Politically, I think this has some hurdles before it happens.  Brazil will have some objections as well, I think, and I would expect this to take as much as 2 years to accomplish and several more before a harmonious brand is decided upon.

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Sounds like a really dull airline, no?

That’s British Airways and Iberia Airlines under their merged company name.  British Airways and Iberia will continue to operate under separate brands while enjoying the synergies of a merged company in the background.

Willie Walsh becomes CEO of the combined company while Antonio Vázquez Romero sits as non-executive Chairman of the group.  Why isn’t Willie the top guy?  Because in this case, the CEO is who gets to run things.  Chairman just gets to run the board of directors.

The new company hit the stock exchanges yesterday with a new fleet of just in excess of 400 aircraft and anticipated annual revenues exceeding $19 Billion.  They’ll sit as the 3rd largest airline in Europe but let’s put things in perspective:  American Airlines has 620+ aircraft and $22 Billion.  However, IAG should earn a profit and AA has yet to show a profit despite most airlines of its size already doing so for 2010.

Look for the new company to start targeting other purchases.  Willie Walsh has already stated their intent to go on a shopping spree for other airlines.  Who is anybody’s guess but an international airline purchase is always difficult given ownership rules that generally exist from one country to another.

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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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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.

Filed under: Airline Service, Airports by ajax
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It’s always fun to come up with contractions of names for airlines that merge.  My newest is Britberia Airlines, British Airways and Iberia Airlines.  Good news for those two:  they now have shareholder approval of their merger and expect to conclude the deal in January.  The new entity will be called International Airlines Group and it will manage both the British Airways and Iberia brands.  I wonder if someone at AA didn’t help with the new name as that is about as bland as one can get.

Willie Walsh, who will serve as over-arching chairman of this new group, says it’s been a good year for British Airways with this merger and their recent anti-trust approval to work with American Airlines.   While it may not have been their worst year, I don’t think it’s a “good” year.  They’ve still got a fight going on with their cabin crew union that really needs to get solved.

The new group still falls behind Lufthansa and AirFrance/KLM but it does make BA/IB a better player against those two but with a weakness or two as well:  They’re still dependent on a growth constrained hub at Heathrow airport and their ability to expand will lay with the Iberia hub in Madrid.  The other two SuperAirlines have got hubs in better places for more of Europe’s traffic.  Hubs in places like Paris, Amsterdam, Frankfurt, Berlin and Zurich.  They’re just more centrally located.

Walsh says future growth will be focused in Madrid but I don’t see how that helps BA in its home territory of the UK.  How is it more attractive to take a flight from Manchester to Madrid to go overseas to many places?  I think this union needs a northern European partner and I think they’ll seek one out once this merger is fully ironed out.  If not a European partner, then a different Ireland/UK hub is probably needed. 

Madrid and Spain seem logical for connections to Africa, South America and perhaps the middle East or even India.  The UK is a logical connection point for destinations within the UK, northern Europe and North America.  But growth is needed in the UK and Heathrow can’t continue to be the hub for all things BA.

Perhaps the Irish government will sell Aer Lingus to the group.  Dublin could be a nice gateway city for trans-atlantic flights and connections to airports throughout Ireland and the UK.

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