What is an airline selling these days?  Food?  Baggage transportation? In flight entertainment?  Mood lighting?  Opportunities to upgrade to business class?

It’s kind of hard to tell these days what an airline is selling with the dilution that has occured as a result of de-bundling services.  The truth is, airlines are more frequently in the news for some subsidiary service they’ve de-bundled than they are for their primary service product.

The primary service product is transporting passengers reliably between point A and point B and if you don’t do that, no manner of any fees is going to make you profitable.  It won’t matter how many channels of TV you have if the customer can’t get where he/she is going on time frequently enough to build trust, you aren’t going to make a profit.

Think I’m wrong?  Ask yourself why Southwest succeeds with a very basic service product even compared to many other LCC airlines. 

It’s about the customer getting where they want to go when they wanted to get there, stupid.

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Jon Ostrower has written about a conversation he had with Southwest Airlines VP Operations Coordination Jeff Martin.   Mr. Martin says they need an efficient replacement aircraft for their 200+ 737 Classic aircraft and they need it sooner than 2019/2020 and, no, a re-engined 737 Next Gen does not meet the criteria they have for such a replacement.

Actually, Southwest has two subfleets to think about.  The 737-300/500 fleet and the 717 fleet.  The former because it is just aging and aging quickly and the latter because it isn’t sustainable as a fleet over time since it isn’t being made anymore and obtaining additional aircraft would be difficult at best.

Would Southwest consider another aircraft maker?  Absolutely.  This idea that Southwest wants one fleet type is somewhat silly.  This is an airline with over 500 aircraft and one aircraft type doesn’t fit all situations as well as 2 or 3 fleet types.

I’ll also point out that since Gary Kelly has taken over as CEO, Southwest has embraced a lot of change and they’ve succeeded despite predictions to the contrary.

In addition, I recall Southwest getting a bit lathered up over what they saw regarding the Frontier Q400 fleet when doing their due diligence almost two years ago.  If there is one thing Southwest likes to do, it’s save money.

I think Bombardier products will get a strong look.  I think the CSeries and the Q400 might get looked at quite closely.  Dispatch reliability is going to be a key point, however.  But there are at least 2 cities that SWA operates from in which a fleet of Q400 aircraft could make very profitable bases:  Chicago and Dallas. 

In addition, I think Embraer will have a shot at pitching their aircraft (current and future) and I think Airbus will get its feet in the door as well over the A320NEO.  Thing is, the very fact that it is the A320NEO that Airbus has to offer is what, in my opinion, makes them an unlikely player at SWA.  Southwest doesn’t want a warmed over design to tide them over.  They want revolution over evolution when it comes to efficiency.

Revolution is potentially the CSeries with both enough capacity and range to fill almost all of Southwest’s requirements.  They also have enough seating range to make it an effective aircraft in both the 110 and 130 seat range.  That is going to be a sweet spot for Southwest for some time to come.  Yes, they need an aircraft that will seat 145 to 170 as well (and that aircraft will also need continental range as well) but they’ve got that in a fairly new fleet of 737-700/800 aircraft.   The nice advantage to the CSeries / Boeing approach is being able to have a range of sub-types across a two type fleet.  You get effective 4 needs met with two basic types and doesn’t that approach sound frugal?

Boeing needs to wake up just a bit and get a little more aggressive.  To believe that SWA is a Boeing customer now and for the future ignores a great deal of change when it comes to SWA and its needs.

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Richard Anderson, CEO of Delta Airlines, has pointedly and consistently talked about managing an airline for a profit and while that seems like a no brainer, I’m not sure everyone does that. 

Delta has recently announced cuts in capacity and while that, too, seems like a no brainer, I think people miss Delta’s point.  If a route isn’t earning a profit it needs to go.  Few airlines use this as their criteria.   The larger point from Delta is that it isn’t about market share and I agree. 

In addition to capacity cuts, Delta has also announced a program targeted towards early retirements to trim their labor force as well.   This is to match capacity cuts and rightfully so.  Oh, mind you, I think this is also about getting the work force to average a younger age in seniority as well but that is something airlines have to do on a regular basis as their work force tend to stay with not nearly as much “churn” as other large companies experience.

Southwest has always managed for a profit and it has proven it can be done.  It’s kept its workforce levels consistent with its business and, more importantly, it doesn’t fly routes that cannot regularly produce profit.  Not for nothing, this is one reason why several cities are worried that SWA will cut Airtran routes currently serving them with subsidies.  SWA doesn’t see subsidies as a sustainable profit model.

There is something that I often remember my father telling me about the airline business (he’s a former EVP from an airline no longer in business and from 30 years ago.  You have to look at ever route between two cities as a small, entreprenurial business.  You have to invest in the business and you have to get a return on that investment in a timely manner.  Failing that, you have to drop it and move on to other opportunities.

This is what Delta is doing.  Instead of managing for surival, they’re managing for profit.  Instead of managing for sheer size, they’re managing for profit.   Instead of managing on the basis of what another guy is doing, they’re managing for profit.   In Delta’s most recent earnings call, Richard Anderson made the comment:  “This isn’t a hobby.” and I think that underscores the proper attitude about being results oriented.

This is not what we seeing American Airlines doing.  It wasn’t my sense that United Airlines was doing this pre-merger with Continental and it isn’t necessarily my sense that even some LCC carriers such as JetBlue are making this their goal.  Notably, I do think that US Airways is doing this and the results show.

So when does someone ask when AA’s management team plans to manage for profit?  I haven’t seen AA manage their route system for profitability.  I haven’t seen them manage their labor force for profits.  I haven’t seen them manage their fleet for profitability.  I’ve seen them managing for the status quo in the hopes that other airlines will return to AA’s fate when it comes to costs. 

The question is, why should you expect that when there has been a fundamental change in your competitors attitudes towards managing their business for profit?

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Mayor of Fort Worth, Mike Moncrief, with the agreement of Dallas’ Mayor Dwaine Carraway, says that Southwest needs to pull Airtran out of DFW much faster than what has been so far indicated.  There is a belief that Southwest might not have Airtran exit DFW until December.

Southwest, under the agreement over Love Field, is supposed to lose one gate for every gate it operates at DFW.  Everyone with an opinion agrees that it was not practical to expect SWA to stop Airtran flights to DFW upon the day they consummated the merger.  Gary Kelly has said from the beginning that there is an urgent intent to transition away from DFW as quickly as possible but has never stated what the date is for that.

Now quite a few parties in Dallas want to see Southwest commit to an expeditious transition and one that doesn’t see December as a target date. 

You wouldn’t think that an entire community would be so hostile towards an airline that by anyone’s measure has done so much for the community.   This is the other, uglier side to Southwest’s history in Dallas and I’ve always found it entirely distasteful.   It’s in poor taste to engage in this hostility towards an $11billion company that has remained loyal to the Metroplex and which has certainly behaved as a far better corporate citizen than another Metroplex based airline that happens to sit within Fort Worth city limits.

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Advertising Age had a brief interview with Herb Kelleher of Southwest Airlines recently and one thing about it struck me quickly.  It’s a lesson many businesses could stand to learn.

When things got tough for Southwest, they spent more, not less, on advertising and marketing. 

It’s a lesson I learned myself more than 10 years ago when I was partners in a construction firm and new construction jobs dried up.  You don’t fold up, you go hunt the business even harder. 

It seems like an obvious thing but it really isn’t.  Just take a look around you and at what has happened with a great many businesses over the past 3 years.  The first reaction to bad times is to stop spending money . . . period.  People retrench and hunch down to try to withstand the storm about to hit. 

And a few others go and innovate.  With Southwest, it’s advertising but it is much more as well.  They innovate.  They look for smart savings.  They embrace change and they empower people to use good judgement in executing that change.  In the 1990’s, when fuel prices spiked as a result of the first Gulf War, Southwest pilots suddenly started requesting higher altitudes on their flights to the surprise of other airlines and air controllers.  In fact, they got downright aggressive about getting optimal altitudes for their flights.  Why?  Because it saved money. 

Now, among US airlines, Southwest is virtually the only one embracing the need to invest in GPS technology to be prepared for NextGen air traffic control.  Other airlines are making statements to the press about its expense and how the US government should pay for it.  Southwest has it, is implementing it and benefitting from it.  It saves them money now and it will save them more money in the future. 

When Boeing was designing the cockpit for the Next Generation 737 aircraft, Southwest (Boeing’s biggest customer for the 737) asked that the new flat panel cockpits be designed to emulate the “steam” gauges being used in their 737-200/300 fleet so that there would be no transition between the aircraft for its pilots.  Why?  Well, training was one reason but there was a better one underlying that:  Pilots would be able to seemely switch from aircraft to aircraft during their flight day without having to slow down and re-think what they were doing each time they took over a new aircraft.  That made turning flights quickly still doable.

What do you do when it gets tough?  Innovate and advertise.  That’s what Southwest does.

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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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Southwest Airlines is now the number 2 carrier at Denver with Frontier Airlines (as well as Republic Airways flying) dropping to number 3 now.  The good news:  this is more at the expense of United Airlines than Frontier.  the bad news:  dominance is dominance. 

I’m not entirely surprised at SWA’s success at Denver but I do think that, like others, it is a bit surprising that this took as long as it did.  United, Frontier and Southwest have been in a pitched battle for that market for years now.  This was never a battle about SWA beating Frontier.  This battle was about SWA owning market share and pushing out more expensive incumbents.  That would be United.

Frontier never was and still is not big enough to be a real threat to Southwest.  Based on Frontier’s route decisions, they aren’t going to be a real threat to SWA either.  Frontier is looking for low hanging fruit that has little or no competition.  Southwest is connecting focus cities to focus cities region by region and sees Denver as a good place to establish itself on several of those mainline routes. 

If anyone should fear Southwest, it’s United.  You can’t sustain attacks from two low cost carriers forever and stick around.  As the ContiUnited merger plays out in integration, I expect Denver to look less and less important to that airline as a hub.

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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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It comes as no surprise that air fares are rising again.  They rise every time oil rises in price.  They generally rise out of proportion to the cost of oil and there is a reason for that, too.  

One reason air fares are rising a bit more rapidly this time compared to 3 years ago despite oil prices being somewhat less still is that refiners are actually charging more for the refined fuel than they did a few years ago.  Believe it or not, airlines don’t have quite the pricing power people think they have when it comes to the pump price of their fuel.  It’s my observation that the only one who makes money when oil prices are volatile are the oil companies who sell refined products such as fuel. 

Airlines actually did a pretty good job of spotting their dilemma and bidding the air fares upwards rapidly.  As someone formally educated in economics, it fascinates me to watch air fare volatility due to sudden rises in costs.  Unlike many other “free market” areas in the world, the air fare world operates with more “freedom” and more “anti-competitive” moves than you get to see in most industries. 

It works like an auction.  One airline generally “bids up” airfares with an increase and waits to see if other airlines match them.  Airlines can’t cooperate on prices but they can signal each other.  A fare increase is a question that reads like “Can we all raise prices and get along?”  The response is whether or not other airlines raise prices as well.  Another airlines or a few airlines may well raise their prices, too and generally after a few days, usually not more than a week, we know if they’ll stay there.  Sometimes several airlines raise prices but the price increase fails because one airline doesn’t agree. 

Generally speaking, it’s the major and nationwide airlines that get to set prices that way.  It’s the smaller, low cost airlines that can defeat those prices on specific routes but it is rare for those smaller, low cost airlines to set a price increase nationally. 

Southwest Airlines has often been the spoiler in fare increases.  SWA is a lot more “national” than most realize and it manages its costs a bit better than most, too.  In addition, that airline is willing to work from slimmer margins than most.  But in this most recent season of rising air fares, SWA hasn’t played the spoiler very often.  It has a few times but SWA has actually become a leading indicator as to air fares by agreeing to those rising prices far more often than it historically has.

Over the past 3 months, airlines have agreed to these increases far more than is usual.  Why?  Consolidation.  There are three SuperLegacy airlines left and one “national” LCC carrier and one legacy remain as well.  There are no upstarts remaining that can push air fares down and those who are setting prices all have costs that are closer to each other than has been the case in a long time. 

Good for the airline industry?  No, not really.  There is less competition and the competition that remains actually has a reduced incentive find savings elsewhere.  Good for the consumer?  No, not really.  Higher air fares lead to people reducing their travel which has other implications for the travel industry.

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They did it again.  AMR, parent company of American Airlines, has lost money for the 1st quarter of this year totaling $436 million.  Ironically, AA executives will likely earn bonus compensation this year because of the way their compensation deal is structured to offer shares in the event that the 10 major shrink to a lesser number.  They have.

1st Quarter Earnings reports will probably show just a few airlinese earning a profit:  Southwest, JetBlue and Alaska Airlines.  Losses will be blamed on higher fuel prices (they are) and airlines earning a profit will have that attributed to being a low cost carrier with lower costs.

That isn’t so true.  Southwest’s costs are less than, say, American Airlines but they are no longer the lowest in the business.  Alaska Airlines is certainly not a low cost carrier as they operate like a legacy airline and they are a legacy airline.  They have, however, been smart in renewing their fleet with very fuel efficient aircraft in contrast to the other legacy airlines who haven’t. 

There are a few lessons here:  Fuel is and will probably be the most volatile component in airline operations going forward.   Labor may not be the key driver in airline costs anymore.  Fuel efficiency is probably going to win over “cost of ownership” when it comes to the decision of buying new aircraft.  Delta’s model of retaining old aircraft may end up being a very poor strategy with volatile fuel prices.  Finally, good labor relations leads to good productivity and good productivity leads to profits.  All three of those airlines work hard to maintain good employee relations.

Back to AMR:  It’s unsurprising that the flight attendants are ranting at American Airlines for its poor performance.  Their methods are incendiary but their point should be taken:  This isn’t a leadership team that has performed.  Mitigating losses to a lower level isn’t performance.  Particularly when taken into account over the past 10 years. 

Arguing that the compensation paid to the executive team is necessary to attract competence is probably a valid point.  AA has often argued that it has to pay the salaries it pays in order to attract talent and keep it.  The question that, I think, has gone unasked is:  Is this really a top talent team? 

Can you really argue at this point that the executive team is full of top performers when the total losses over the past 10 years adds up to over $11 billion?  Pay the compensation, absolutely.  But perhaps it’s time to pay it to airline talent that have a better track record.

Remember that this is the team whose corner stone strategy includes waiting for other airlines to have the same labor costs as they do.

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At first glance, integrating Airtran’s fleet into Southwest’s operations would appear to be easy and straight forward.  In fact, it isn’t.  Airtran operates a different floor plan and a two class cabin.  All of this affects things like weight and balance of the aircraft as well as using the floor plan on Southwest flights.

So Southwest will begin slowly converting Airtran fleet over to the Southwest model one by one.  Southwest will add these aircraft and, over time, take over Airtran routes.  Airtran will slowly reduce in size by fleet and route at the same time until both are on the same single operating certificate and the aircraft are homogenized into the fleet. 

Expect this to take longer than a year.  Even converting the 737-700s is fairly straight forward but now Southwest has to decide upon how it will configure the Airtran 717 aircraft for all coach seating before it begins that integration.  Since Southwest generally executes these kind of changes when aircraft already require service and maintenance, the two airline operations could co-exist for a longer than usual period of time until this work is complete.

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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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Southwest Airlines CEO Gary Kelly has said recently that he believes Southwest will want to keep Airtran destinations such as Wichita, KS in all likelihood.  He also added the caveat that until they can see the viability of these smaller destinations for themselves, a solid committment can’t be made.  That evaluation won’t take place until Southwest officially merges with Airtran.

I think Southwest got a peak at what their world could look like when they did their due diligence on purchasing Frontier Airlines.   I think they saw the viability of operating smaller aircraft with reduced frequencies to some of these destinations and I think Southwest wants in on that action.  It wasn’t just Atlanta that Southwest wanted when they looked at Airtran. 

Airtran has made it kind of specialty of theirs to develop routes to what I would term third tier destinations.  Those destinations are places such as Wichita, Branson and Des Moines.  Airtran serves quite a few small destinations with regularity but not frequency.  Some with subsidies and some without. 

Take a look at these cities and you’ll see opportunity that fits neatly within the Southwest system. 

1. Key West, FL
2. Bloomington, IL
3. Moline, IL
4. Des Moines, IA
5. Wichita, KS
6. Lexington, KY
7. Portland, ME
8. Flint, MI
9. Grand Rapids, MI
10. Branson, MO
11. Omaha, NE
12. Atlantic City, NJ
13. Rochester, NY
14. White Plains, NY
15. Asheville, NC
16. Akron-Canton, OH
17. Allentown, PA
18. Harrisburg, PA
19. Knoxville, TN
20. Newport News/Williamsburg, VA
21. Charleston, WV

Airtran has built up quite the business at these airports and all of them can be served by Southwest focus cities.  This is why Southwest keeps saying that the 717 has a place in the fleet for some time to come.  It’s an aircraft that can efficiently serve such cities (as well as their 737-500s) to feed traffic to major cities such as Chicago, Baltimore, Indianapolis, Atlanta, Dallas, Orlando, Washington, D.C., Tampa, Oklahoma City, Nashville and Milwaukee.

And serving such cities isn’t out of SWA’s experience.  Take a look at the third tier cities they serve:

1. Birmingham, AL
2. Little Rock, AR
3. Hartford, CT
4. Boise, ID
5. Louisville, KY
6. Jackson, MS
7. Omaha, NE
8. Manchester, NH
9. Albuquerque, NM
10. Albany, NY
11. Long Island, NY
12. Oklahoma City, OK
13. Tulsa, OK
14. Providence, RI
15. Greenville / Spartanburg, SC
16. Amarillo, TX
17. Corpus Christi, TX
18. El Paso, TX
19. Harlingen, TX
20. Lubbock, TX
21. Midland/Odessa, TX
22. Norfolk, VA

As much as SWA is concentrating on growth to larger, mainline cities, SWA still has a vested interest in serving those smaller third tier cities and towns.  Even more so today as they can feed that traffic to one of many focus cities and carry people onwards at a far better value than being offered by a legacy airline.

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Since the Southwest decompression incident last Friday, there have been a number of parties suddenly using the event to promote an agenda.  The DoT and FAA have both acted more politically than anyone would necessarily like to see.  In fact, I believe a number of people have failed to see what went right in this incident such as a successful emergency descent and safe landing.  A recovery that was so smooth, all but one passenger continued on their flight when a replacement aircraft was sent.

Now the TWU (Transport Workers Union) is calling for the FAA to clamp down on maintenance being down out of the United States.  What they would really like is for it to be forbidden altogether.  Sadly, this is much more about jobs than it is about safety.  The reality is that if maintenance done outside the United States was the hazard that the TWU would have you believe, we would have catastrophes happening left and right.  The fact is that air travel in the United States over the past 10 years is vastly more safe (by inicidents and type of incidents) than it has ever been before. 

We don’t have lax safety procedures.  We really don’t.  An unpredicted and unpredictable event happened and the good news is that everything that was supposed to happen if the unforeseen happened did actually happen.  the hole in the fuselage was contained, the aircraft performed an emergency descent with no further issues and the aircraft was landed safetly with no substantive injuries.  And for every event remotely similar to this over the past 10 years, the outcome was the same.

Making political hay out of this or any other event is irresponsible and unsafe.  When you begin to allow political motiviations control the ultimate outcome of these situations, you lose the transparency that actually makes this industry safe.  Who wants to self report unsafe events and incidents if they know they’ll be crucified for it politically?

This is my criticism of how France approaches such things.  By opening criminal investigations into air disasters, they encourage people to not cooperate, not self report and, worst of all, not engage in self examination with a goal of avoiding or eliminating the problem in the future.

The most responsible thing that could be done in this event would be to let the NTSB do its job, make its recommendations and then follow those recommendations.   Allowing anyone to “score” politically as a result of this incidents puts us all more at risk.

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In the last few days, there have been a lot of airliner incidents reported in the media.  Southwest Airlines had one 737 experience decompression after a hole developed in a fuselage of a 737-300.  Another Southwest Airlines 737 diverted due to flight crew smelling smoke in the cabin.  To make matters worse, during inspections of 737-300s, Southwest discovered two more aircraft with sub-surface cracking in their fuselsages.  An American Airlines flight diverted after a few passengers and flight crew became dizzy and another AA aircraft, a 767, had to return to the airport after taking off because of a suspected tail strike on take-off.  A regional jet flew into a flock of birds and suffered major damage to its nose cone and body. 

It seems like there have been several other incidents over the past few weeks as well but are things suddenly unsafe?  No, not really.  I just named 4 flights out of several thousands that have taken place over the past few days.  Statistically speaking, they are insignificant.   One thing that drives reporting of these events is whether or not it is a slow news day.  Over the past few days, we’ve had little news to block out less significant reports related to airliners.   Japan and its disaster is settling down in the news and Libya news has settled a fair bit as well.  When things are quiet, airliner incidents get reported and the more prominent the airline is, the more its incidents get reported as well.

It’s safe, go fly.

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The latest stats on airline complaints have Delta at the top with 2 complaints per 100,000 passengers and Southwest at the bottom with just .27 complaints per 100,000 passengers.  The legacy airlines (and many of their regional airlines) occupy the worst positions with LCCs and smaller airlines doing the best.  Does that mean that bigger is worse?

No, not really.  Southwest Airlines carries a tremendous number of passengers but it carries them on shorter flights and most flights are “point to point” rather than hub flying.  In fact, the better airlines tend to be more “point to point” flyers and the worst airlines are those with exceptionally heavy hub flying.    Does that mean hub flying is bad?

No, not really.  It’s notable that Airtran which definitely uses hubs occupied a low complaint position despite being heavily hubbed out of Atlanta, home of Delta Airlines. 

If anything, I would argue that it indicates just how much an airline values a customer and their repeat business.  Those airlines holding bad positions sacrifice service to maintain revenue and in many instances that works out OK for them.  However, those airlines who pretty much always show profits in good times and bad are the ones that are occupying the best positions. 

There is a lesson there for airlines:  Value your passengers total experience and they’ll value the services you offer.

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Southwest Airlines has had another 737 develop a hole in its fuselage while in flight.  The aircraft suffered a rapid decompression, performed an emergency descent from 36,0000 to 11,000 feet and then landed at Yuma’s airport. 

According to one passenger account in the media, the hole was about 3 feet long but I would cautiou that these accounts often are wrong.  Passengers were met with another aircraft and the flight continued onwards to Sacremento.  One passenger hitched a ride with a family relative in a Cessna 182.

Southwest has announced that it is grounding its 737-300 fleet for emergency inspections.  This particular aircraft was delivered in 1996 which is neither particularly old nor particularly young for such an aircraft. 

A little less than 2 years ago, another Southwest flight from Nashville to Baltimore also developed a hole in its upper fuselage and had to divert to an airport in West Virginia.  That hole was slightly larger than 1 square foot and was later determined to be caused by metal fatigue.

Is Southwest or this aircraft type unsafe?  No, not really.  I do suspect that we’ll see some recommendations come out of this event with respect to inspecting for metal fatigue more frequently.  Southwest’s aircraft isn’t really old at all by any standards but Southwest does tend to perform many cycles (a landing and takeoff together is a “cycle”) each day with its aircraft compared to many airlines.  The numbers of cycles an aircraft takes on is far more important than its actual age or how many miles it has flown.

Expect some delays if you’re flying Southwest as they have 81 of this aircraft type in its fleet and until inspections can be performed, Southwest is liable to have a shortage of aircraft for its flights since 81 aircraft represents not quite 15% of its overall fleet.

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Southwest Airlines CEO, Gary Kelly, continues to speak loudly at his doubts about Boeing providing a replacement that is 10 or more years down the line in lieu of a re-engine.  At the J.P. Morgan Aviation, Transportation and Defense Conference, Kelly spoke of this dilemma for Southwest and just how unsatisfying it is. 

Southwest wants more fuel effiency sooner than what Boeing is publicly talking about.   Kelly believes that Southwest needs to advance its talks with Boeing on this subject.   Kelly also believes they can manage more than one type of aircraft in their fleet and believes the Boeing 717 will offer many possibilities for Southwest going forward.  Finally, he also believes they can source their next mainline aircraft from several manufacturers, not just Boeing and he includes Airbus and Bombardier (CS Series) in that statement.

There isn’t anything new being said here.  However, its the fact that Kelly has taken to saying it in virtually every public forum that is significant.  Southwest wants Boeing to pay attention and the fact that Kelly continues to speak indicates that Boeing isn’t doing a very good job of listening so far.  Is it hubris, dysfunctionality or a short wait before they hope to wow Southwest?

I actually lean towards hubris in this case.  I believe Boeing thinks that Southwest will wait.  I believe that Southwest is not the same Southwest Airlines that existed in the mid 1990’s and if Boeing expects to keep them as a mainline customer, it’s time for some transparent talks on what these airlines need.

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A local friend made a comment to me about Delta Airlines and their mish-mash of a fleet vs Southwest Airlines and their one aircraft type fleet.  His comment was aimed at the success difference between the two.

Well, not so fast.  When you consider airlines 30 years ago and airlines of today, there is one thing that stands out.  Fleet size.  Today’s airlines such as Airtran and JetBlue would be behemoths in the market place in 1980 with 138 and 163 aircraft respectively. 

Let’s take a look at what truly large airlines have in fleet size.  Southwest Airlines, the 800lbs gorilla of LCC carriers, has 547 aircraft of which all are 737s, yes, but which is actually comprised of the 122 passenger -500 and the 137 passenger -300/-700. 

United Airlines and Delta Airlines both have over 700 aircraft and American Airlines presently has about 620 aircraft.  Each of those three carriers have a broad range of aircraft types, seating capacities and range capabilities.

A one type fleet works well for the smaller airlines because, yes, it does allow them to save money on maintenance and it keeps things simple when negotiating with unions about how much one is paid to fly what type for what distance.

But as you grow larger, it really is better to have some flexibility.  Even Southwest acknowledges that the Boeing 717 aircraft they’ll gain from Airtran (number over 80) should help quite a bit in matching the right aircraft to the right route.  They’ve gone farther than that, though, by ordering the 737-800, a larger aircraft than they’ve ever operated before. 

If Southwest expects to continue to grow, they’ll have to move into both larger and smaller markets than they have customarily entered in the first 40 years of their life.  The fleet types aren’t what will make their lives complex when it comes to the cost(s) of maintaining them.  What they will have to contend with is the idea that a pilot of a smaller aircraft should earn less than the pilot of a larger aircraft.  They’ll have to deal with scheduling flight attendant crews of two different sizes and that’s something they’ve never had to do before.  Fortunately, the range in size between the 717 and the 737-800 is not so great that they can’t argue that all their pilots should be paid the same (and I would agree.)  The truth is, while their fleet may be different, the missions aren’t that different in terms of distance, turnaround, etc. 

Delta is succeeding with a broad range of aircraft in ways not seen before.  Yes, they have added complexity but an airline big enough to operate more than 700 aircraft should be complex.  Could they simplify?  Certainly.  Should they?  I’m not so sure.  There can be disadvantages to dealing with one aircraft manufacturer instead of two in terms of the bulk of a fleet. 

Neither Boeing nor Airbus can really supply enough aircraft to Delta on a timeline that would make sense to replace, for instance, Delta’s 563 single aisle aircraft.   It would take 40 aircraft a year to replace that fleet over nearly 15 years.  Those manufacturers have to supply a number of other airlines as well. 

Boeing and Airbus can deliver about 32 to 38 aircraft a year in their 737/A320 families.  A Delta replacement order would conceivably consume more than one month’s production capacity in a calendar year and there are a whole lot more airlines out there of size than just Delta. 

By using both manufacturers, Delta would get more flexibility in deliveries and more reliability as well.  This is true for any airline of size.  In addition, by making each manufacturer compete for those orders, the airline is liable to receive a better price on each aircraft and when you are talking about 500+ aircraft, that could well mean savings reaching into the hundreds of millions of dollars.

The days of ordering “just Boeing” or “just Airbus” may well be over for any airline of significant size.  This may be true even for Southwest in the distant future.  Boeing and Airbus are unlikely to remain in the 100 to 130 seat category and will probably cede that to the next generation manufacturers such as Embraer and Bombardier.  That doesn’t mean an airline, even an LCC doesn’t need those aircraft, it does. 

It’s notable that JetBlue already has a two fleet strategy as well as Airtran and Frontier.  Southwest effectively has a two fleet strategy and probably needs 3 different sizes to work with going forward. 

Flexibility is the key.  Routes change over time.  Some routes yield more and more passengers while others are best demoted to smaller aircraft over time.   Southwest wouldn’t be flying 737s to places like Lubbock, Texas if it didn’t need a one-stop location to continue that flight to a larger city from the Dallas area.  Southwest flights to Lubbock and El Paso on 737s continue on to other cities such as Las Vegas, Phoenix and Los Angeles. 

But when the Wright Amendment goes away, the need to fly those one-stop flights goes away.  I actually look for Southwest to start evaluating aircraft such as the Embraer E170/190 series or Bombardier C900/1000 or CS Series in the next 5 to 8 years. 

You’ll find that the one fleet strategy is effective today only for airlines requiring a fleet to fly between mainline destinations.  Once they enter into smaller markets and larger markets, two or more types are not only required but justified.

Filed under: Airline Fleets by ajax
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With the various mergers and consolidation that we’ve seen over the past 3 years, there is quite a bit of speculation as to who is next in the merger game in the United States.   The truth is, with the exception of some very small players, I see no opportunities.

Sun Country is actively looking for a purchaser and I think it will find one but it won’t be for Sun Country’s business nearly as much for Sun Country’s Minneapolis / St. Paul gate space and, perhaps, a few routes.  Two candidates as buyers come to mind in this area:  Southwest and Frontier.  Both should find the opportunities in MSP attractive and Southwest is liable to also be attracted to the staff and equipment Sun Country is flying.  Sun Country flies the 737-700 and -800 and getting their hands on the -800 of which there are 10 available could help SWA get a jump start on an aircraft it needs.

Frontier has a little bit less incentive for MSP.  The aircraft fleet doesn’t match and they already have hubs and/or focus cities bracketing MSP in Denver, Kansas City and Milwaukee.  But getting to compete against Delta in MSP where it is by far the dominant airline could be attractive to Frontier. 

As far as other airlines go, I just don’t see it for now.  Airtran will be going away this year.  JetBlue is doing OK and while I think it could stand to grow, nothing is available and an attractive fit in areas where it could grow.  There is the ever so slight chance that JetBlue could make a bid for Frontier but Frontier’s new management hasn’t had very long to make a go of it with that brand and it doesn’t seem like they would want to be consumed.

Alaska Airlines is very profitable and doing very well with its multiple relationships with various legacy and international airlines.  They could be attractive to purchase but I think they would seriously resist overtures unless the economics just made their shareholders rich. 

American Airlines has too many labor problems and is busy coordinating with its OneWorld partners at this time.  This is an airline whose house is not in order and whose leadership is not really interested in acquisitions and who is not very visionary to begin with.   Without new and radically different leadership, I presently see AA maintaining the status quo.

US Airways is pretty profitable and has their act together in many ways operationally speaking.  They, too, have labor problems but somehow management manages to sit back and let labor fight among themselves while earning profits.  This is another airline that could stand to grow and the most attractive place to grow would be internationally.  The bad news is that they don’t have any long haul aircraft on order except the A350 and that isn’t due for quite some time.  What’s worse, there is no internationally strong airline for them to target for another purchase.   Obtaining long haul aircraft isn’t financially easy to do presently due to constrained credit markets and the popularity of their choice in long haul equipment (the A330.) 

In addition, in light of the uncertainty that fuel prices and the economy present, I think that any growth that airlines choose to do will be slow, methodical and very cautious.  It will be organic and through upsizing aircraft rather than many new routes. 

The merger game of this decade is still undecided.  Certainly Delta appears to have done well although their profits still seem very dependent on fuel prices.  But United is far from complete and they’re already experiencing more problems than Delta ever did.  Southwest and Airtran are working hard to consummate their relationship but Southwest has stumbled as much as they have succeeded in the past 2 years.  There is nothing to say that SWA will execute their merger with Airtran smoothly so far.   We hope they will but we don’t know they will.

Look for it to be quiet in the merger and acquisition game for the next 12 to 24 months absent the possibility of a few small acquisitions.  I expect well see the alliances spark up a bit more in the near future, however.

Filed under: Airline News, Airlines Alliances by ajax
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