The Fort Worth Star Telegram has run a story about how airlines will be required to report ground delays more accurately and robustly for the public.  As you can imagine, many airlines welcome this development much like they welcome $200 / barrel oil. 

The truth is, if I were an airline CEO, I would welcome this development even if I knew I was about to look pretty bad.  It’s this kind of feedback and scrutiny that can drive a company to do some soul searching and really seek solutions to their problems.  It is unpleasant and solving those problems can be difficult but they are a key ingredient for success. 

I would even be tempted to use it in labor negotiations.  I would ask for performance pegged to improving those statistics and maintaining them as well.  In return, I would peg compensation (including substantial incentive pay) for labor to those same statistics. 

And, hey, by the way, here is a novel idea:  Let’s measure your management team by those very same statistics.  They may be imperfect statistics but they are relatively honest.  More important, why shouldn’t a management team be measured against the very same stats as the labor team?  That would seem to align their interests far more than anything else attempted. 

The statistics we see on airlines are imperfect and no airline is thrilled about making them available because they can also reveal competitive data to, well, the competitors.   However, a successful business worries more about improving itself and a lot less about what their competitors are doing.   First and foremost, the airline industry is a service industry and success in that industry does seem to be closely tied to service performance.  Doing what you say you are going to do seems to be the basic metric by which most customers judge you.

Those who deliver what they promise in a consistent and fair manner tend to be the most profitable airlines.  They also tend to be the airlines who have improved their morale, empowered their employees and, yes, compensated those same employees fairly. 

I hope the airlines embrace the sunshine and enjoy the disinfectant. 

Filed under: Airline News, Airline Service by ajax
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The Dallas Morning News Aviation Blog reported that Sun Country Airlines has filed chapter 11 bankruptcy citing recent financial trouble caused, in part, by its parent company, Petters Group Worldwide and the just resigned CEO of that firm (who is also being investigated for criminal fraud.)

 I wonder if anyone truly believes this company is going to survive in the present aviation climate as a leisure airline flying from a Minneapolis / St. Paul hub?   They would appear to be an unattractive acquisition for anyone who might have the financial muscle and now they get to face the start of competition with Southwest Airlines next March.    Obviously I would feel a great deal of sympathy for workers who are displaced by Sun Country folding but I also have to wonder if Chapter 11 is in the best interests of the shareholder(s) or the creditors.   It might be time for this one to throw in the towel.

Filed under: Airline News, Death Watch by ajax
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I just discovered a new blog called Dispatcher’s Diaries.  An airline dispatcher is the unseen force in making an airline run well and ontime.  It’s brand new but I recommend reading its first posts.  It already gives a rare glimpse into another side of the airline world. 

Filed under: Airline Service by ajax
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A fair fare would probably be identified by most people as an air fare that accounts for the true costs of flying from point A to point B non-stop using the right aircraft to supply the capacity.  As a matter of fact, that was what the Civil Aeronautics Board tried to adjudicate when setting fares. 

Now, such a model might sound familiar.  It sounds like what LCC carriers such as Southwest Airlines and Airtran do.  In many sense, yes it is.   Legacy carriers, focused on hubs, hurt themselves with those hubs every time they carry a connecting passenger.   The hub and spoke system demands that they carry more passengers a farther distance using more resources and economies of scale no longer allow them to make a profit doing so. 

Let’s use as an example travel from Midland / Odessa to Albuquerque.   You have 3 basic choices for travel in this scenario.  You can fly Southwest Airlines non-stop for about $260 round trip or you can choose another carrier for a non-direct, connecting route that starts at about $550 round trip.   Another carrier might be American Airlines, Continental Airlines or Delta Airlines. 

If you choose American Airlines, you’ll fly EAST to DFW and then WEST again to ABQ and it will take  . . . wait for it . . . from 4.5 to 6.5 hours to complete your travel.  Since you are connecting via DFW, you’ll be making two take-offs and two landings and one of those landings (remember, part of an airline’s cost is a landing fee) will be at a major hub airport.  Take offs are expensive too.  They are the part of the flight that consumes the most fuel so two take-offs is bad.

If you fly Continental Airlines, you’ll connect through IAH (Houston) and the economics are the same but the distance flown is even greater.   If you fly Delta, you’ll first fly to Houston and then to Dallas and then to ABQ and your price will be in excess of $1000 round trip.  By the way, your total travel time using Delta will be over 10 hours.

Now, if American Airlines or Continental Airlines (let’s just leave Delta out of this because such a scenario is absurd) want to compete for the passengers traveling from Odessa to Albuquerque, they have to offer a fare that is somewhat competitive.  If they do, they’ll come at least close to matching Southwest’s fare of about $300 and that means that their costs are higher and they make less profit or no profit.   Since Southwest has the lowest costs, they get to set the price. 

Now, some people such as Robert Crandall advocate re-regulation of fares in some form.  In a speech to the Wings Club in June 2008, Mr. Crandall offered that this might take the form of mandating a “minimum fare” that is the sum of “locals”.   What he suggests is that a fare between two cities that connects via a hub should be the sum of the fare(s) between Point A to Point B (a hub) and Point B (a hub still) to Point C (the final destination.  In the alternative, he suggests that flights that connect via a hub be required to have a “connection” charge.  His goal is to remove any incentives airlines might have at present for operating a hub.  It becomes officially un-economic to fly that route via a hub.

Quite honestly, I find that a poor solution since he proposes to disrupt the systems of the very airlines that his solution purports to help in the long term.  It disrupts a 30 year institution among legacy carriers and assumes the staff and leadership who have operated in such a manner to be able to adjust to a new model that they have no experience with.  It is, at best, a very awkward solution to the problem and only addresses revenues (once again) instead of the whole equation.  Even more important, it is hard to imagine the political will required for such a change.

No doubt the adjustments have to be made and I would suggest that might need to take the form of actually allowing a large legacy carrier to go out of business (which then removes some barriers to entry for other, more efficient carriers) or you have to find a way to reasonably deregulate costs so that airlines no longer must use hubs to fight for their very existence.  Those costs are principally labor.  The latter solution is better (both in the short and long terms) because it doesn’t necessarily involve massive unemployment or relocation for employees. 

An airline needs to be able to efficiently locate staff at various “base” cities in a way in which costs are not concentrated in one particular city because it is merely a popular place to live.  You don’t want all of your high cost employees (i.e. the senior staff) to locate themselves in Miami where much of your traffic might be low yield leisure travel.   Second, an airline needs to be able to competitively bid for staff on an open market.   A seniority system as used by airline unions ties staff to one airline and forces the airline to “wait out” their term of employment (as much as 40 years) until they can hire new, lower cost staff to fill a particular position.  Further, it denies them access to qualified personnel for expansion because staff won’t leave another airline for a new job because they don’t want to start out at the bottom of the seniority list.

If we deregulated (by legislation) the seniority system in airlines as a first start, airlines could suddenly re-allocate labor and gain more productivity and reduce their costs on routes where necessary.   For a first round, you could even leave in a seniority system for earning pay and determining furloughs but just remove the seniority system as it pertains to bidding for line routes and it would allow the airline to locate their labor (by cost) where they most needed it and gain more productivity.  That change alone might well serve to offer legacy carriers a legitimate opportunity to earn a profit regularly (with all other things being operated effectively).  It would at least be a good first step in trying to solve the problem.

Filed under: Deregulation, Trivia by ajax
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The Dallas Morning News Aviation Blog is reporting that Southwest Airlines just announced that they will begin flights out of Minneapolis / St. Paul next March.  The first flight will be to Chicago Midway which is no surprise. 

For some time, pundits have claimed that Southwest couldn’t enter this fortress hub and now they are.   To me, this is exciting news because I think that Milwaukee might not be very far behind as a station.  There is a lot of originating traffic between Milwaukee, Minneapolis / St. Paul, Chicago, St. Louis, Denver, Detroit and Kansas City.  If you look at the type of flying one would do between those city pairs, it looks exactly like a Southwest Airlines strategy.   What’s more, Southwest is already very strong in all of those cities except MSP and MKE.  The cost to start those routes and market them are relatively low since the airline only has to introduce itself in two of those cities. 

I feel certain that Southwest will grow MSP and then turn its attention to Milwaukee either in late 2009 or early 2010.   Sooner if they can so that they can compete against Airtran there.   This is good news for Minneapolis / St. Paul and probably bad news for Sun Country Airlines, an airline that has been faltering in the MSP market for a few years now.   I would be tempted to mark Sun Country Airlines as a possible purchase by Southwest because their facilities  and base in MSP has some value for Southwest.  Even their fleet, Boeing 737-800s, comes close to matching Southwest’s (B737-300/500/700) but I suspect they know that all they have to do is wait and much of it will be theirs anyway.

Filed under: Airline News, Airline Service by ajax
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USA Today’s Today in the Sky blog brought attention to Porter Airlines announcement that they’ll be entering the Chicago (MDW) to Toronto (City Centre) market.  Porter Airlines flies sub-500nm routes using Bombardier’s Q400 aircraft, a turbo-prop commuter airplane.

The Q400 offers 4 abreast seating (no middle seats), near jet speeds and a 34″ pitch economy seat for up to 70 passengers while using as much as 40% less fuel (per seat) than mainline or regional jet aircraft.  Makes you wonder why more airlines don’t use this aircraft, doesn’t it?  Me too.

Porter Airlines is flying this aircraft on exactly the right routes.  They experience similar block times as mainline jets (the time used from departing the gate and arriving at the next gate) with a better than average on time record in part because this aircraft can use shorter, less crowded runways and also because it flies in less congested airspace (from 15,000 to 25,000 ft). 

I would love to see an airline like this operate in the Midwest area or Texas as I firmly believe it is a winning model.  Porter Airlines will have to prove this out in Canada and perhaps one day someone in the US will take notice. 

Filed under: Airline Fleets, Airline News, Airline Seating, Airline Service by ajax
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Almost all airlines in the United States operate from hubs.  Going from West to East, they are (in no specific order), Phoenix, Salt Lake City, Denver, Dallas / Fort Worth, Houston, Minneapolis / St. Paul, Chicago, Detroit, Cincinatti, Memphis, Atlanta, Cleveland, Philadelphia, and NYC.  There are a few other cities that some might argue are hubs but which I think are more “focus” cities than the above cities.

One way airlines have reorganized themselves to meet the cost pressures of non-deregulation on the costs side of the airline industry is to simply start “connection” and/or “feeder” airlines or to contract with those airlines.  Some examples are American Eagle, Mesa Airlines, Comair, Compass and Express Jet.  There are others too.  These airlines fly regional aircraft (regional jets and turbo-prop aircraft) on behalf of the mainline airlines.   Unions permitted these airlines by getting “scope” clauses in the contracts that limit the size of the aircraft to be operated. 

Often those scope clauses originally limited airlines to flying regional aircraft that had 50-odd seats or less.  What they didn’t do was limit the kind of flying such aircraft might be asked to do.   As things evolved post-1978 deregulation, airlines began to establish large hubs with multiple banks of flights each day.  They did so in order to “concentrate” their operations and take advantage of economies of scale.   Over time, mainline aircraft departing from a hub either went to other hubs or to larger 1st and 2nd tier cities.  Mainline aircraft stopped serving the smaller third tier cities (for example Des Moines or Jackson, MS.)  It never occured to unions to limit both scope and distance in those contracts because originally it was assumed that regional aircraft couldn’t serve route sectors of much more than 200 to 300 nm. 

Instead, mainline airlines used their feeder airlines to pick up traffic in those cities and carry it to a hub where the passenger then transferred to a mainline aircraft or another regional flight to get to their final destination.  For instance,  a passenger might fly American Eagle from Des Moines to Chicago, transfer to an American Airlines flight using mainline aircraft and continue on to a final destination such as Los Angeles.  

Prior to 1978 deregulation, American Airlines might have flown a route from Chicago to Los Angeles with intermediate stops in Des Moines and, say, Salt Lake City.  Remember this is a hypothetical example.  While hubs were beginning to develop or had developed, those entities really resembled what we call focus cities today.  It was a concentration of traffic and opportunity to rotate aircraft through maintenance facilities but it wasn’t a fortress hub that we see in places such as DFW or MSP today.

Over time, new aircraft such as regional jets that had greater capacity and speed than original “feeder” aircraft such as the EMB Brasilias or SAAB 340 aircraft were introduced.  These regional jets were capable of mainline aircraft speeds and altitudes and were capable of flying route segments in excess of 400 nautical miles.  Since the cost structure for such aircraft was an order of magnitude less than that for mainline service, airlines began to realize that they could use these aircraft to serve routes that contained a lot of O&D traffic for more point to point flying. 

Suddenly, American Eagle wasn’t just serving cities from DFW that were in Texas and surrounding states.  With regional jets, it began serving medium haul, thin traffic routes from DFW.  One example is the one I gave yesterday:  DFW to MKE.   That route has a lot of O&D traffic (Origin and Destination) but very little connecting traffic.  What that means is that people flying from MKE to DFW were terminating their trip at DFW instead of necessarily continuing on to another destination and vice versa.  If a MKE passenger wanted to get to Denver, they would fly either to Chicago or MSP to connect or possibly direct on a United Airlines “connection airline”. 

The feeder/connection airlines evolved into the “point to point” service provider for small to medium markets.  The reason is that airlines can only afford the flight crew labor costs for routes where the yield (profit from revenue) justified those costs.  The only way to find that yield is to concentrate flights through hubs.  One example, again, is DFW.  American Airlines “feeds” traffic from all over its network (including American Eagle’s network) into DFW where they “concentrate” that traffic and redistribute it to other routes.  This means that those routes load factors remain very high for each flight. 

On the surface, that sounds efficient.  However, there are some underlying factors that reveal it to be inefficient to operate such hubs.  First, it means that you have to schedule your traffic in banks of flights.  You want your flights to arrive at about the same time and then take off again at about the same time.  In order to manage that, your departure times at outlying stations may have to be excessively inconvenient to passengers.   Your airport service staff tends to work in concentrations with excessive idle time in between banks of flights.  You still have to pay them and they remain there because you service large banks of flights at one time.  An airline must have that staff in place over the full duty period to accomodate those peak periods.

Such hubs also tend demand fleets that are largely homogenized.  American Airlines, for instance, standardized on the MD-80 for these flights (and now is doing so on the B737-800) and therefore has to find routes that fit the aircraft instead of aircraft that fit the routes.  Because they must fill so many seats on mainline routes to make a profit, it drives them to feed more and more traffic into the hubs.

Hubs also can cause system wide service disruptions.  A bad weather day in Chicago can wreck two major legacy carriers systems (United and American Airlines) for multiple days because any disruption ripples outward through the whole system.  Since all flights go to or depart from the hub, there is no flexibility to “route around” the problem city.  

All of those issues inhibit a legacy carrier from earning long term profits and they haven’t earned reliably for over 20 years now. 

The best example of how best to operate in today’s airline market is, no surprise, Southwest Airlines.  While they do have several cities that look and feel like hubs, they really aren’t when compared to other airlines.  They are focus cities.  Those focus cities permit some concentration but they really exist to provide some operational flexibility and maintenance. 

Southwest Airlines focuses on flying point to point routes and high frequency commuter flights.  If you try to get from one city to another on Southwest’s system, you are very likely to fly there direct and in many cases non-stop.   The percentage of traffic on flights from focus cities that is “connecting” is relatively small compared to legacy airlines. 

When a flight from Southwest Airlines departs DAL (Dallas Love Field) for ABQ (Albuquerque), it isn’t coming back that day most likely.  Instead, it will continue on to, perhaps, Phoenix and then to Portland where it will turn and head to Los Angeles and then, maybe, to Denver.  The plane  goes through 3 focus cities but at all times it is carrying O&D traffic primarily. 

That point to point system with focus cities permits them to offer highly convenient flights that fly direct (in other words, a passenger doesn’t have to get off the plane and board another one) and they get a higher utilization rate out of both the aircraft and crew because they aren’t sitting at hub for 1 to 2 hours waiting for their flight to depart again.  Instead, Southwest crews do fast turnarounds at focus cities (20 to 40 minutes) and depart for still another city.  Southwest not only gets high utilization from their aircraft but they also get high utilization from their flight crews. 

Southwest Airlines’ crews are paid competively and even generously but the airline also gets far more productivity from them in a given duty period.   Ironically, Southwest crews also fly less fatiguing schedules overall and spend more nights at home than most other aircrews.   Southwest captains earn as much or more than any other Boeing 737 captain but because they negotiate not just raises but flexibility in their contracts, their standard of living is quite a bit higher than it would be at most legacy carriers.   They offer more productivity in return for working an easier duty period at a competitive salary. 

They also don’t fly small commuter aircraft and they don’t avoid flying to 3rd tier markets.  Southwest flies B737 equipment to cities such as Indianapolis, Odessa, Corpus Christi and Brimingham.  Every other airline serves those markets with primarily regional jets and Southwest manages to earn more profit flying to those same cities using mainline aircraft that is more than 100% larger.   Not because their crews are “cheaper” but because their crews (and their unions) bargain for more than just money.  It’s a competitive negotiation with real give and take and, as a result, Southwest gets high productivity without working their crews longer hours, bad morale or high turnover. 

Next we’ll look at why seemingly “fair” fares can’t earn real profits for most US carriers. 

Filed under: Deregulation, Trivia by ajax
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I’ve never met or talked to a person who advocated people being able to use a cellular phone on an airplane.  When the subject comes up, you always read or hear how awful it would be to have someone conducting a call next to you in a seat and how intolerable that would be.

Personally, I think most people would use them and most would even accept them on airplanes.  Just as they already do with people at Starbucks, restaurants and buses.  The relatively non-controversial acceptance of them onboard in Europe is simply some confirmation of my suspicions. 

I don’t want them on the airplane myself.  But, then, I’m also somebody who can refrain from using one at a restaurant table too.  It seems to me that the best reason to continue to ban them from US airliners is simply to reduce opportunities for conflict onboard flights.  I invite your comments.

Filed under: Airline Service by ajax
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Deregulation in 1978 was never full deregulation.  It was, instead, deregulation of the revenue side of the equation.  Airlines were suddenly free to fly routes and set fares as they wanted.  The barriers to entry on a route were no longer regulatory but, rather, business cost.  My father phrased the start of a route as “starting a new business” and I must say that that is true.  Airlines have to invest in infrastructure, new employees and market their services when entering a new city or route.  The airline is essentially starting a new business.

What never got deregulated was the labor cost side of the equation.  Flight crews were fully unionized (with the notable exception of Delta’s Flight Attendants) and the union approach to wages and work rules was and always has been to negotiate for more each contract.  When the game changed with regulation, the airlines were still inhibited from negotiating freely for their labor on an open market because the unions had 30 years of precedent and enormous political power.  God help the airline who had pilots striking against it because it denied *any* revenue to the company and airlines are cash intensive businesses.  They go out of business very quickly if that cash stream is interrupted. 

Using pilots as example, take a look at their negotiating power in 1978.  First, the barriers to entry in a career as a pilot were (and to some degree remain so) very high.  A typical pilot spent 7 to 9 years in the military flying multi-engined aircraft and when they exited, they got their ATP license and went hunting a type certificate to fly for an airline.  Once in an airline, they entered a seniority system that made it very difficult to leave because every airline had the same system.  If you started at one airline, made captain on an aircraft type and then wanted to leave, you had to start over again.  The union(s) set a contract and work rules in place that essentially made each airline a fiefdom.

The airline union is the lord and the pilots are the serfs.  Well paid serfs in their later years but serfs nonetheless.  Not only is there no incentive to seek work elsewhere, there were strong incentives to stay and play the game no matter what.   Even when an airline is by all measures about to fail.

This situation remains true for most airline unions to some degree or another.  What the government never did was deregulate labor so that airlines could compete for qualified people to fill their staffing needs.  One interesting by-product of this is that airline pilots work terrible schedules today.  They do so because it is enormously expensive to have a pilot sitting on the ground doing nothing.  Airlines fly pilots on different schedules than their flight attendants (at least at most airlines) and they do so because they want to extract all possible value from them because the cost is so high.  Ironically, a more ratioinally paid airline pilot would work an *easier* and more rational schedule that impacted their lives (both personally and professionally) far less if their pay were more in line with a free market competition.   Mind you, they wouldn’t be underpaid, just paid more in line with the demands of their job.

My father thinks that a free market salary for a pilot would be about $70,000 / year and there would be far less range between entry level and an experienced level.  I personally believe that number would be higher.  About $100K to $120K.  I think so because the costs to become a qualified airline pilot and the skill required still make for a rather rare person today.   The pilot still has to become qualified under FAA rules by getting time first on single engine aircraft, then multi-engine aircraft and turbine engined aircraft.   Flying also takes  talent.  Being an commercial pilot also means having a great understanding of engineering (many pilots gets undergraduate degrees in engineering for just this reason.) 

What the airlines needed was an opportunity to negotiate for new labor under new rules.  It would have been impractical and politically difficult to “break” the existing unions.  It would have been better to set new rules for airline unions and airline flight crew going forward.  For instance, eliminating the seniority system but making one’s qualifications and types fully transportable between airlines for the same pay would have made it more fair to both sides.  A pilot who was “captain” qualified on a Boeing 737 would be able to take those qualifications and fly at any airline for market pay.  

Suddenly a pilot would not be married to just one airline and have to deal with fear of furloughs and bankruptcy multiple times in their career that could reset them back to “zero” in their career.  Instead, they would be able to seek positions at other airlines for a commensurate career salary.  The same could be true for any flight crew.   It would even have the benefit of further “harmonizing” best practices among various airlines. 

Over the years, some airlines have made some attempts to re-negotiate this situation.  American Airlines introduced the A/B pay scales in the 1980s.  That worked very well for many years but the advantage was lost because the “B” scale employees still worked for the original union and the “A” scale employees had a vested interest in raising all salaries for everyone.   

There is nothing wrong with unions existing in the workplace.  However, when a union’s sole focus is on raising salaries to everyone else’s detriment, it begins to lose value.  Unions can and should enforce good work rules, good working conditions and even qualification standards and salaries.  They should not, however, distort their own labor market or their airline goes down.

Another way airlines have gotten around this is by starting commuter feeder airlines.  American Airlines has American Eagle for instance.  These “new” airlines have employees who are hired at “market” rates and who remain employed by unions.  Now the airlines use these airlines to fly mainline routes at higher frequencies because it is more cost effective than flying the route with less frequency but greater capacity using mainline equipment.

A great example of this is American Airlines and how they served the DFW – MKE (Milwaukee) route a couple of years ago.  They used 50 seat ERJ-145 aircraft in their American Eagle subsidiary and flew as many as 5 cycles a day.  What’s worse, they frequently turned away people or re-routed them through Chicago because their aircraft were either capacity limited or load limited.  The aircraft had average load factors far in excess of 85%.   The better solution would have been to fly either mainline MD-80 or Boeing 737 aircraft 2 to 3 times a day.   That would have offered better service (more reliable and not load limited), more comfortable seating and slightly shorter flights.  But they couldn’t because AA MD-80/B737 pilots for such routes would cost 4 times more than American Eagle pilots. 

The demand was there.  The fares actually offered great revenue opportunities (when compared to average DFW – ORD fares) but the expenses were still too great on the labor side.   So people were offered a cramped ERJ with all coach service that, by the way, eventually lost passenger traffic to Midwest Express (who flies more comfortable MD-80s and B717 aircraft) and to other mainline airlines who would service Dallas via Chicago or Minneapolis-St. Paul. 

Regional Jets were never built for serving such markets and they do so very inefficiently.  Regional aircraft should never be serving route sectors greater than 400 nautical miles and certainly should never be serving mainline city pairs such as MKE-DFW.    They should fly from Odessa to Dallas or Cedar Rapids to Milwaukee. 

Could labor be less regulated in the airline world today?  I don’t know.  It would require great political will and I frankly don’t see that on the horizon.   It would require the airline industry to be both realistic and cooperative with each other and it would require unions to recognize that not every contract means “more” but maybe it means different and more accomodating instead.  It should also offer some job security and certainty too. 

In the next part, we’ll take a look at how the lack of full deregulation has distored air travel in the United States and caused inefficiencies.

Filed under: Deregulation, Trivia by ajax
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This weekend I had a series of long and very interesting conversations about airline economics and deregulation in the airline industry with my father, a former executive vice president of Braniff.  I have been following the airline industry since the mid 1990’s and very closely since the early 2000’s and after this weekend I can only say there is still more I don’t know. 

The insight I gained on the industry this weekend isn’t easy to get anymore.  Much of what takes place today in the airline world overshadows the history of the industry.  But I thought I would share my new insight in a series of stories this week on airline economics and deregulation.  Information presented as fact comes from my father.  The opinions are mine unless otherwise attributed to someone else.

The first of these stories is quite naturally about the history and background of the airline industry.  What almost any fan knows is that the airline world as primarily fostered by air mail contracts originally.  It wasn’t until the DC-3 (and similar aircraft) that an airline could really earn profits from passengers and even then air mail was an essential part of earning a profit as an airline.   In other words, passengers reduced the importance of air mail but it was a long time before it diminished the importance of air mail revenue to a point at which it could be considered relatively unimportant.

Prior to air mail, the fastest way to move mail around was by train.  Trains had reliable schedules and a robust network of lines that made it easy, for the first time in history, to move mail in a timely manner.  Since many infant industries are heavily influenced by more mature industries, it comes as no surprise that many of the “best practices” used by railroads were “inherited” by airlines as they began to operate. 

One good example of this is how engineers on trains were (and still are) paid.  It was based on time, distance and weight.  An engineer who operated a long, heavy train on a transcontinental route quite obviously was going to A) Be away from home. B) Need skills and experience to operate that train over different terrain. C) Be able to know how to stop such a leviathan in an emergency without completely destroying the train itself. 

The engineers were paid a scale of wages that took into account their skill and experience as well as punishing time away from home and long duty hours required to push that train to its destinations.  In other words, an engineer who had to stay on duty for 12 hours a day driving a 1/2 mile long train over a mountainous area would be paid much more than an engineer who drove a feeder line over a short distance delivering boxcars to factories in an industrial area.  Quiet naturally, this kind of thinking was quickly adopted by airlines and airline pilots. 

Very early in the game, airline pilots were paid according to the size of their aircraft (a DC-3 pilot earned much more than a pilot of a Ford Tri-Motor) and the distance they traveled.  They are paid in the same manner today.  A pilot who flies a Boeing 737 on 4 or 5 flight segments for 10 hours is paid less per hour than a pilot who flies a Boeing 777 for one flight segment that takes the same time.  The argument is and always has been that the B777 pilot is responsible for a larger aircraft, more souls on board and therefore works harder for those same hours. 

The reality is really quite different.  Most of the work a pilot incurs is on takeoffs and landings, not during cruise flight.  It requires no great difference of knowledge to fly a B777 or a B737 and, in fact, it may be easier to fly the B777 with its more sophisticated flight management computers.  The number of souls on board sounds like a good argument but, as my father pointed out, is it?  After all, in almost any aircraft crash, the pilot(s) are the most certain to be casualties.  So, isn’t it in their best interest to fly that aircraft as best they can no matter how many others are on board?  Of course it is.  Practically speaking, we regard it as a tragedy if 20 or 200 people are killed or injured in a crash.

So, who should be paid more?  If it is about how hard the work is, then many regional feeder pillots should be paid far more than the B757 pilot who might only fly 3 or 4 segments in a day.  That same feeder pilot might work twice as hard for the same duty time because he or she is making 5 or 6 or even 7 landings and take-offs per day.  Both pilots have to know a complicated set of systems.  Both planes have just 2 engines.  Both airplanes have to navigate the same kind of airspace and altitudes.  Who is working harder?  The regional jet pilot is.

But he or she is also the least paid.  Regional jet pilots just starting out make as little as just $20,000 to $25,000 per year.  A B757 pilot is likely making 5 to 8 times that much money for the same or less duty hours. 

All because airlines adopted the same pay models that railroads used.  It suddenly becomes more clear why airline managers often resent pilots the most.  In the mid 1970’s, a Braniff 727 captain made as much as 50% more than a senior Braniff executive.  Did the captain work more hours?  No.  In fact, if he worked 80 duty hours a month and if you allowed a 20% bump in hours for time worked but not paid, he or she still only worked 96 hours in a month.  That same airline executive was paid for 160 hours per month and probably worked about 200 hours per month.   The airline can’t run profitably or reliably without either person so who was overpaid?  The pilots, of course.

In the next part, we’ll take a look at how pilots (and other aircrew) distorted the the 1978 deregulation of the industry.

Filed under: Deregulation, Trivia by ajax
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In the early 1950’s, Juan Terry Trippe of Pan American noticed that many executives of major corporations had begun to travel by private airplanes (just as he did in a converted B-23 bomber).  He reasoned that these men (and it really was almost singularly men in that age) would not be flying on his aircraft and inside his route system.

The Business Jets Division of Pan American was formed and they wrote specifications for a new jet and contacted Dassault, a French Aviation Company, about building such a jet.  This new jet would be comfortably furnished, have dual wheel landing gear (to ensure that larger margin of safety) and be powered by new turbo-fan jets instead of turbo jets.  It was originally called the Mystere 20 and later renamed the Dassault Falcon.

Pan American marketed this new service as an alternative to flying their commercial aircraft and routes when it was inconvenient.  If you couldn’t fly their schedules, you could still fly their jets and use their airport facilities.

Variations of this aircraft exist today and, coincidentally enough, are a mainstay of today’s business jet companies such as NetJets.  The Dassault Falcon 50, 900 and 2000 are sold and operated today but all derive their heritage from that original airplane conceived of by Juan Trippe and Pan American Airways.

Filed under: Trivia by ajax
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Northwest Airlines shareholders approved their merger deal with Delta Airlines this morning.  Delta shareholders meet to approve the merger this afternoon. 

While this is for most purposes a pro forma part of the process, it is another step forward in this merger.

What I continue to wonder about is the new corporate identity.  Will Northwest’s heritage and history survive in some small way?  I’ve seen some concepts done by people that turn the Delta “widget” into point on a compass.  PlaneBuzz has some images that show it looking something like THIS.

And I must say I like the concepts.  I do think the circle on the fuselage is a bit busy but it works on the tail just fine.   I suspect, however, that the Delta identity will remain the same and Northwest’s identity will fade away as airplanes and uniforms are changed over.

Filed under: Airline Fleets, Airline News by ajax
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USA Today’s Today In The Sky is reporting that Frontier Airlines has gone to their bankruptcy judge and asked him to break the Teamster’s contract in order to allow some heavy maintenance to be done off shore (Central America most likely.)

 I’ll confess that I have so far been surprised at Frontier’s relatively smooth, up to this date, reorganization.  This latest development seems to indicate that all is not as it seems and they may only just now be working on the hard stuff.  The hard stuff is, quite honestly, renegotiating labor contracts and getting commitments from all the stakeholders to play nice in the emergence from bankruptcy. 

They remain on my death watch simply because they continue to be squeezed on both sides by Southwest Airlines and United Airlines in Denver.  In addition, they no longer have any fuel hedges (they had to be given up on going into bankruptcy) and while oil prices are lower than their peak just a couple of months ago, they remain volatile. 

Even with renegotiated labor contracts and concessions from lenders, they still have to compete with their system based in Denver and that’s a tough market.  Denver really isn’t large enough to support 3 major airlines battling it out in the long run.  A quick look at what happened in Hawaii between go! Airlines (A Mesa Airlines subsidiary), Hawaiian Airlines and Aloha Airlines (who went into liquidation) is all you need to read the tea leaves.  Whoever has staying power wins and, right now, that would be Southwest and United.

Filed under: Airline News, Death Watch by ajax
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I received some photos of a United 737 taxiing through high water at Chicago’s O’Hare Airport when it was inundated with rain from the remnants of Hurricane Ike.

This is the photo:

I can only imagine how those engines were babied as they moved through the water.  And I can only imagine just how miserable it must have been to be working as ground crew too.

I’m back from a brief vacation trip and I’ll be posting regularly again.

Filed under: Airline News by ajax
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The Dallas Morning News Aviation Blog just had this post.  United Airlines has just made it known that they expect some rather heavy losses in their fuel hedging program.  Fuel hedge are common practice among airlines to make fuel prices predictable (rather than necessarily always cheaper) and therefore allow airlines to financially plan for their needs.   Southwest Airlines is arguably the most successful at this strategy.

A fuel hedge is a kind of bet.  An airline purchases contracts and options to buy fuel oil (not jet fuel but fuel oil which tracks in line with jet fuel prices) at a specified price.  If an airline thinks fuel prices will go up, they will buy options and contracts for these fuels for a current market price for delivery some time in the future.  If in fact the prices go up, they sell these contracts for a profit and use the money to offset their jet fuel costs.   If the prices go down and the airline bets that they’ll go up, they suffer additional losses and the cost of their fuel goes up against their plans.

Since hedging is a risky business, a wise airline only hedges a portion of their fuel costs per quarter so they are not completely exposed to the risk of having bet wrong.  In addition, they’ll bet conservatively on prices so that the risk they expose themselves to is minimized as much as possible.  To manage all of this properly requires an army of financial analysts and hedging experts. 

The problem with hedges is you can both make and lose a lot money with them.  When you make a lot of gains, it becomes intoxicating to any airline.   The temptation is to hedge more and more and bet on directions that seem pre-ordained.  Just 1.5 months ago, everyone was betting that oil might go as high as $200 / barrel.  Just this last Monday (September 15, 2008), oil was trading at $97 / barrel.   United bet wrong and now has to report that they have had both real and unrealized losses involved with the trading.  Unrealized losses require them to hold cash in reserve to meet those potential costs.   That is “restricted” cash.

Lately you hear airlines talk about how much unrestricted cash they have on hand.  Southwest Airlines, American Airlines and others will have quite literally billions of unrestricted cash.  That is the money for which there are no real or potential obligations attached.  Going into a period of economic uncertainty, having a large amount of unrestricted cash is good because you can suffer short term losses and still operate sensibly.  If you have too little, you’ll quickly be forced to constrain your operations which quite often leads to a cycle of contraction for an airline.  Because they don’t have the cash, they become smaller and because they’ve become smaller, they have even less cash.

American Airlines continues to survive these industry contractions because they have a huge amount of unrestricted cash held in reserve.  It gives them maneuvering room and they are probably the best in the business when it comes to managing their finances.  That is one reason why they did not have to go into bankruptcy in the post September 11 industry crisis.

To return to hedges.  A hedge becomes risky when you are buying contracts that approach the forecasted market price of the fuel.  Ideally, you want to have options and contracts that are substantially lower than your current year’s price of fuel.  That way, if fuel prices drop your contracts will still realize a gain.  If you buy too close to market prices, particularly in a volatile market such as what oil is experiencing, you run a very real and damaging risk of being obligated to buy those commodoties at prices that are higher than the current market rate.

Hedges have often been described as an insurance policy against high fuel prices.  They aren’t.  They are a way of smoothing the peaks and valleys of fuel prices.  If you smooth those peaks and valleys, you can more accurately plan your financial obligations and that potentially allows you to make more money available for purchasing goods and labor.

The losses reported by United Airlines are just one more reason why I watch them carefully.  You can’t suffer those kinds of losses very often and, once again, it appears that their business plan is not accomodating the current market conditions in the airline industry. 

Filed under: Airline News, Death Watch by ajax
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The Fort Worth Star Telegram Sky Talk blog reports today that American Airlines has, in fact, won a reprieve from starting their Chicago-Beijing flights until 2010.  While this approval wasn’t unexpected, it is disappointing.  I wrote about this in a previous entry  and detailed my own objections to granting these delays.  Citing economic conditions for a delay is not, in my opinion, a satisfactory justification.  These airlines made rosy promises and commitments to serve these routes and to simply throw up your hands and ask for the status quo to be maintained is both unjustified and unfair to other airlines.

There are plenty of airlines who wanted these authorities and, quite frankly, got shoved aside in favor of airlines already serving China.  I could certainly understand and approve of a short delay if planned equipment remained unavailable due to delivery problems from an aircraft manufacturer but that isn’t the case here. 

US Air has also asked for delays on their Philadelphia – China route (and cited economic conditions as well but I suspect that the fact that they have been unable to source aircraft for that route also plays a part in things.  The aircraft that makes the most sense for them, an A340, is an expensive and fuel inefficient aircraft (when compared to A330 and B777 aircraft.  They don’t want to add yet another aircraft type to their fleet and they don’t want to lose the route so they have approached the current economic climate in the airline industry as a blessing on this route.

When the Department of Transportation grants these requests for the stated reasons, they maintain the status quo and that means that airlines are not forced to either re-tune their operations and they are not required to truly compete with each other.  Neither consumers nor the nation have anything to lose by forcing the airlines to adopt business models that are realistic for themselves.  If they cannot serve the routes, someone else who is willing to try should be given a chance.

Filed under: Airline News, Airline Service by ajax
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Today in the Sky, a USA Today Blog, has posted THIS story about United Airlines doubling their 2nd checked bag fee from $25 to $50.   Citing volatile oil prices and the fact that oil remains almost double what it was a year ago, United Airlines is raising this fee for a 2nd checked bag with the usual disclaimers (elite frequent flier members, business class passengers, etc don’t pay the fee.)

While the checked bag fees may be working for some airlines, it still strikes me as dishonest.  What United is saying essentially is that it costs them $50 to carry that second bag in addition to all the other fees you are now charged for flying their airline.  Not really true.  What they want is more revenue to fly profitably and I’ve no objection to them asking for that.  But to couch this as necessary for checking bags is just silly and fosters resentment from passengers. 

This fee affects a relatively small portion of travelers and will likely have the effect of simply reducing the number of 2nd bags checked.  Travelers will instead stuff more into a carry on and 1st bag. 

Please note that Southwest Airlines continues to charge no fees until the 3rd bag is checked.  All of these additional fees just leave a foul taste in one’s mouth over legacy airlines in general.  How long before they suggest tipping flight attendants in order to reduce their salaries?

Filed under: Airline News, Airline Service by ajax
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My brother brought this site to my attention yesterday.  It is Continental Airlines’ PDA website and it has some handy features in a simplified format that make checking reservations and flight status, for instance, very easy.

http://pda.continental.com

Every airline should make it this easy.

Filed under: Travel Hints by ajax
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Given the semi-success of the all business class airlines that formed around flying from NYC to London, I’ve wondered if there wouldn’t be a demand for such service between Los Angeles and NYC.  Frankly, I wonder if an all First Class service between those two cities wouldn’t be in demand. 

I could see an airline such as American Airlines or Delta Airlines or United Airlines fitting out a 737-800 or A320 with their international business class or first class product and offer a customized service from the curb to the airplane as well.  If one flew from LAX to EWR, it would be as convenient as convenient gets and serve industries such as the entertainment business with near private jet service. 

The airlines would simply need 2 or 3 dedicated aircraft refitted and could draw upon senior staff for such flights.  With lie flat seating, the airline could offer both morning and evening departures from each city and by flying into EWR, put their customers close to Manhattan.  They likely could charge a small premium (10 to 20%) over their existing product just to allow people to avoid flying with the masses and the associated delays that come with more people on one airplane. 

That is the one city pair that could support such service.  I do believe it could have potential for profitability but I also believe it would raise the profile of the airline as well.  

Filed under: Airline Service by ajax
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In 1959, an almost new Braniff L-188 Electra II aircraft, Lockheed’s first jet powered turbo-prop airplane, was flying from Houston to New York via Dallas.  After its brief stop in Dallas, the Electra II approached a line of thunderstorms near Buffalo, Texas.   At about 11pm in the evening, the aircraft suddenly disintegrated in the sky. 

A Northwest Airlines L-188 crashed a few months later over Indiana and there were peculiar similarities between the two crashes.  Both airplanes were essentially brand new and both lost their wings and disintegrated in the sky and rained parts of the aircraft over a large area.  People began to speculate that the L-188 was a death ship and some even made jokes that tickets weren’t sold on Electra flights, just chances.

These events and others made people afraid to fly the aircraft and there was a movement to ground the airplanes until the cause was found.  Instead, speed limits were imposed and a crash program initiated to find the problem or problems with this aircraft.  Nonetheless, Lockheed saw its good fortunes change to bad and the L-188 never saw the kind of commercial success that was Lockheed’s custom.

It was eventually discovered that the airplane had a problem with “whirl mode” flutter.  Because of the way the engine was mounted, certain gyroscopic movements of the engine weren’t adequately damped by the engine mounts and wing structure.  When these movements “coupled” with other harmonics of the airplane, the engine tore the wing apart in just seconds.  Ironically, the problem was solved primarily by placing weights on strategic parts of the mounts which then both dampened and changed the harmonic vibrations.

Despite that, a version of this airliner flies today as the P-3 Orion maritime patrol aircraft.  What is more remarkable is that NOAA flies two of these aircraft as “hurricane hunter” airplanes.  These planes have the mission of flying directly into and out of hurricanes at a variety of altitudes and speeds.  When a hurricane such as the one approaching the Florida Keys right now (Hurricane Ike / 2008) come along, these aircraft fly this mission into violent winds and rapidly changing conditions several times a day and they are not specially reinforced to withstand any greater loads except on their deck and only to hold the heavier loads of their instruments.

Ultimately the Electra II survives to still fly more than 50 years after its first flight and more than 45 years after its fatal flaws were discovered. 

Filed under: Trivia by ajax
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