I’ll be preparing several blog posts on the decision by the Department of Justice to block the US Airways / American Airlines merger.

My first reaction is that this is potentially the most disruptive thing to happen to the airline industry since September 11, 2001.

Filed under: Mergers and Bankruptcy by ajax
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There are times when I feel as if I’m the only guy watching this industry and shouting about the need to improve both revenues and profits and not by cutting yet more costs.

Cost cutting is good.  Cost cutting in the airline business is great.  But no amount of cost cutting ever fixed a business or an industry.  Have you ever heard of a company that became great or restored its greatness by simply cutting its costs?

It simply doesn’t happen.  Companies lifespans are extended by cutting costs.  They can be a way to get the markets to temporarily bump up the stock price.  It certainly can be a process that will improve merger prospects or even simply improve the money in the pocket of the top managers.

But it doesn’t make a business great.

I’m struck by the similarities going on between IBM and American Airlines today.  Each business has a long institutional history and a tradition of being successful without being glamorous.  Each has been in transition for a long time and each has struggled to be successful in the landscape in which it sits today.

For more background on IBM, take a look at this I,Cringely blog post about IBM.

Sounds awfully familiar, no?  The process of extracting life from the company and not paying attention to the revenue side of the business stands out in stark contrast to the competitors each company faces.

American Airlines has been headed down that same path for years.  Markets even rewarded their cost cutting for years as well while never really taking a long, hard look at how management was preparing for the need to improve revenue.

When I was self-employed in a business in the late 1990’s, we suffered an exceptional and abrupt downturn in our business.  After my partners and myself literally paid ourselves a couple of hundred dollars a week for a month, we realized that we couldn’t just cut costs.  Despite things being rather dire in our business, we embarked on a campaign to win more business with the only promise being made that we wouldn’t be too proud to go to anyone with hat in hand to ask for business.  Our mantra was that we would grow ourselves out of trouble.

We took on jobs we would have never done before and some that were actually a bit distasteful.  But at the end of 7 months, our business was not only thriving, we made record revenue *and* profits the very next year while maintaining a lean operation.  I paid more income tax that next year than I ever have in my life prior to that year.

American Airlines cut costs and didn’t invest in new equipment for years.  It ignored the death by a thousand cuts being handed to it by other airlines across the country.  And when those cuts began to be noticeable, American’s solution was to crouch in defense and concentrate more eggs in fewer baskets by focusing on its corner strategy.

Has anyone noticed that no one talks about the corner strategy anymore?  Not even Tom Horton who used it to great effect early in the AA bankruptcy process.

There is a very real, tangible reason why the US Airways executives had to take leadership in so many areas among the planned merger of US Airways and American Airlines.  US Airways management knows how to grow a business.  American Airlines management knows how to crouch in defense.  It’s an institutional mindset that doesn’t get changed easily and does most often get changed by  transfusions.

The crisis of the two companies has been averted but there is a lesson there for all companies in the industry and, most especially, for someone such as Southwest Airlines.  When you start stagnating and crouching in defense, it’s a very bad sign.  You can manage to keep your head above water for years but you can’t manage to get traction and win in the business.

Filed under: Mergers and Bankruptcy by ajax
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That is not a mis-spelling.  Someone has started a parody Twitter account entitled “@UnitedAirlanes” and that account has been drawing the ire of customers for United Airlines.

One such example is:

Customer:  OK, I need to be somewhere fast. What is the charge for teleportation? I have one bag, a dog & need a bereavement fare too.

@UnitedAirlanes:  Thanks to customer complaints/the law, we’re no longer able to offer teleportation. Not without the password.

It’s funny and funny enough that I do wonder just how United Airlines will try to shut it down.

And I do find this one particularly funny:

@UnitedAirlanes:  Today only, get 80% off on Earhart-class tickets – cheap, direct international flights consumed by the infinite ocean and never seen again.

For now, enjoy it here:

https://twitter.com/unitedairlanes

Filed under: Airline Social Media, Trivia by ajax
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Southwest Airlines is becoming bracketed by two very different parts of the US airline industry.  On one side, they have the SuperLegacy airlines who have all gone through bankruptcy (at least once) and each of these SuperLegacy airlines not only have workrules that approximate more closely to what Southwest has, so do the overall salaries.

Even employees of these SuperLegacy airlines seem to be seeing their morale improve slowly and steadily and more closely approximate that of Southwest.

Very soon, we’ll have The Big 4 in the airline industry.  Delta Airlines, American Airlines, United Airlines and Southwest Airlines.

In the middle, we have 2 airlines who are doing very lackluster business in jetBlue and Virgin America airlines.

Down at the bottom, Southwest is again bracketed by Ultra Low Cost Carriers.  These are, today, Spirit Airlines and Allegiant Air with Frontier Airlines coming online presently.  These carriers are the scavengers of the industry but have some tendencies to bring a Southwest Effect with them in some markets.

They are flying most routes infrequently but . . . that’s changing.  Spirit Airlines has found the industry landscape in the Dallas / Fort Worth area very inviting fare-wise and has started more and more regular flights on “dominated” routes.

Southwest is perceived as a “Low Cost Carrier” when . . . it really isn’t.  Not anymore.  The service level of Southwest is at or above that of the other SuperLegacy economy offerings today.  But people expect a lower price from Southwest because of that perception.

And they don’t get it very often.

Southwest is the low price option in the last 3 weeks leading up to a departure quite often.  Prior to that, they are often the overwhelmingly expensive option.

They are more full service than the full service airlines in that they offer free checked baggage and modern aircraft and a smile upon boarding.

But where do they go?  If they transform themselves into Just Another Airline, the other airlines will compete against them with an advantage. They have more differentiated service levels and more usable frequent flier programs and fleets that are being renewed as we speak.

If they try to be Really Low Cost Airline, the Ultra Low Cost Carriers will outbid them for passengers who are buying on price alone.

Southwest has the recipe for success in this area but it does not seem to recognize it.  By being Southwest instead of Just Another Airline or a Really Low Cost Airline, they beat both sides handily.  But that combination of being a people business acting in the interest of serving people and their needs seems to be getting in the way of leadership at Southwest succeeding.

Or, rather, making names for themselves.

Southwest has finally become a teenager and what’s worse, it doesn’t know what it wants to be when it grows up.  I expect this airline to grow rockier with time.

Filed under: Airline Service by ajax
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US Airways and American Airlines have received approval from the European Commission for their merger contingent on the combined airline giving up slots for a Philadelphia – London Heathrow route.

I previously stated that I thought the EC might want more and color me surprised that they do not.

This leaves things pretty much in the US Department of Justice’s hands for final approval although the Bankruptcy Court does have to also approve the bankruptcy plan.  The Bankruptcy Court approval is nearly pro-forma at this point as the two airlines have their ducks in a row and overwhelming support and approval from creditors.

The DoJ is taking its sweet time and while they cannot take forever, they do seem to be dangerously dragging this approval out.  Most likely due to pressure from Congressmen who don’t want to lose routes/airlines/jobs in their constituencies.

Filed under: Airline News, Mergers and Bankruptcy by ajax
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A developer wants to build 600+ homes right next to the eastern runways of DFW airport in the Dallas suburb of Irving.  Oh, and these homes are to be valued between $350K and $500K which is a *very* nice home in that area.  Extremely nice.   Here is the area:

What?  Is Irving stupid?  This shouldn’t have made it past the City of Irving planning commission and certainly shouldn’t be under review by the City Council of Irving at all.

As you can imagine, DFW airport is unamused by this idea and they should be.  When DFW was built, it was built in a location that was evenly located between Dallas and Fort Worth and where noise and impacts to homes would not occur.

Now, over the last 4 decades, that has changed.  But you can encroach on this airport which is arguably a huge economic driver for the region with homes and expect to later force regulations on the airport.

This is absolutely silly.

Why do I think that the City of Irving will come back on DFW about noise?  Because they’ve done it several times in the past.  As have cities such as Euless and Grapevine.  Cities that were largely unoccupied tracts of ranchland when the airport was built and which grew in large part due to the airport have regularly tried to stop the airport from operation and expansion many times.

As someone who lives in this area, I am unamused at cities causing this kind of trouble because the next thing that happens is these very same cities engaging in legal actions against the airport which cost me, as a regional taxpayer, considerable money.

No thanks.  And if you live in this area, I would suggest you get very vocal with your own local city council representative.

For reference on just how noisy this is, take a look at this video made by DFW airport:

Filed under: Airports by ajax
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Delta Airlines has announced an hourly shuttle between Los Angeles and San Francisco with 14 hourly flights per day using the Embraer E-175 aircraft with 76 seats from partner Compass Airlines.

United Airlines owns that route presently and Southwest is exceptionally strong on that route as well.  Both airlines are popular with businessmen and Delta is proposing to step on the toes of both airlines with its own shuttle.

Calling it a shuttle is good marketing. It makes it sound like something that is easier, more friendly to the business traveler.

Will they succeed?  Lots have tried to do such things in that market and failed.  Delta is big enough and strong enough and settled enough to buy the business.  It’s clear that Delta does not respect its competitors in this area and that puts both United and Southwest in a tough spot.

War got declared and now both of those airlines have to respond or likely lose significant market share and, most importantly, significant revenue.   The truth is that 5 years ago, I would have predicted success at defending the market by both incumbents.  Today, I’m not sure United has the focus to go to work to defend itself and I’m not sure that Southwest has the fire in its belly to defend itself.  Southwest is getting complacent.

Only time will tell but it should be interesting to watch.

Filed under: Airline Service by ajax
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And Part 2 of yesterday’s show, The Battle for Eastern Airlines. Enjoy.

Filed under: Trivia by ajax
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Here’s a very interesting show about Eastern Airlines and the strife it experienced between management and its labor unions.  Part 2 comes tomorrow.

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Imagine the enormous sigh of relief that will come from all quarters if the new CEO of American Airlines Group Doug Parker announces the suspension of the new AA livery in favor of something better.

The problem is, American Airlines can’t really stop it.  They have Airbus aircraft coming online that *must* be painted completely as they cannot be polished metal.

So I now dub the new American Airlines’ livery “Tom’s Revenge”

Filed under: Airline Fleets by ajax
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A number of parties have filed their objections to the bankruptcy plan for American Airlines and its merger with US Airways.  Most of these objections are pro forma so that the parties don’t lose standing going forward out of bankruptcy.  It’s necessary and not an obstacle to the merger whatsoever.

Some of the objections strike me as simply vindictive (Let’s wave at USAPA, the most dysfunctional pilots union in the US and that is saying something).  A few others strike me as people fighting a battle that was lost nearly 15 years ago (Hello ex-TWA pilots).  Why spend so much money on attorneys and courts when the case law is so badly against you?

What I am most struck by is how -non-constructive several creditor parties are in bankruptcies such as this.  This is, quite literally, the best deal *anyone* is ever going to get in an airline bankruptcy.  Everyone gets their money and gets to move on with life.

The destructive acts of small groups having major temper tantrums simply amaze me at times.  At other times, they remind me of Eastern Airlines and what Charley Bryan (head of the IAM at Eastern) did to that airline.

Filed under: Mergers and Bankruptcy by ajax
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There are news reports that Republic Holdings has entered into negotiations with third party to sell Frontier Airlines.  Frontier, as it exists today, is made up of Frontier Airlines as bought by Republic as well as Midwest Airlines also purchased by Republic.

The two purchases were an attempt by Republic CEO to diversity his company.  That attempt was arguably quite unsuccessful.

I never sensed that Republic knew what to do with both Frontier and Midwest.  There seemed to be a lack of ideas on how to make these airlines rev up and win for Republic and even basic marketing seemed to defeat them.

When Frontier was for sale, Republic bested Southwest Airlines in price for the airline and that never once felt very smart to me.  In hindsight, I think Southwest likely bid appropriately and when it lost, it did the right thing in walking away and looking for other opportunities.

Who is the buyer this time?  Who knows.  I would speculate that it could be an Ultra Low Cost Carrier such as Allegiant or Spirit and that wouldn’t necessarily be a bad thing.

It could be a mainstream airline but the only one I would learn towards in jetBlue.  It certainly isn’t going to be Virgin America although I’ve long harb0red the idea that jetBlue combined with Virgin America and Frontier Airlines c0uld, at once, become an airline that spanned the United States and even might win big.  But I appear to be the only one who thinks that.

Would Southwest buy the airline?  No, I don’t think so.  Frontier doesn’t offer opportunities that it offered several years ago.  Southwest is a very different airline today with very different needs.

Could it be any of the other legacy airlines?  US Airways?  American Airlines?  No, no way.  United Airlines?  No, that airline is too busy with solving its own problems.  Delta Airlines?  I don’t know why given that Delta has Frontier bracketed in all markets already.

The truth is that I don’t even see jetBlue as a big contender.  That airline has been stuck in a rut for several years and nothing has changed in its operations to make me think they are looking for a risky purchase.

I think Frontier is going to go to Allegiant Airlines.  Spirit Airlines has too much good organic growth going on today but Allegiant is looking to adopt the A320 series aircraft and Frontier offers some opportunities that are complementary more to Allegiant than Spirit.

Time will tell but I don’t see Frontier lasting very much longer as an independent airline.  It’s be sold or liquidate at this point and the reasons to buy that airline wane more each day.

Update:  (The above post was written on Monday, 7/29/2013 and scheduled)  There is some new information that investors and directors currently associated with Spirit Airlines are the buyers for Frontier.  These directors are William A. Franke and John R. Wilson.  Franke is the current Chairman of the Board for Spirit (Ben Baldanza is President & CEO) and John Wilson is a director whose term ends in 2014.

Bill Franke is a former Chairman and CEO of America West and current managing partner of Indigo Partners (a major investor of Spirit) and John Wilson is a principle at Indigo Partners with a background in finance at several airlines including America West Airlines.

Indigo is selling its shares in Spirit Airlines asap and these two are withdrawing from the board asap.  Do the math.  I was wrong, this isn’t Allegiant buying Frontier.

But . . . while Spirit Airlines and Allegiant Air are doing great as Ultra Low Cost Carriers . . . how many ULCC airlines can the US handle?  Frontier has a management team that has been positioning it as another ULCC (not very successfully in my opinion) and continuing that direction leaves me wondering why would you bother?

ULCCs aren’t stimulating more air travel at this point.  Their robbing some low hanging fruit from other airlines on routes that have high fares.  ULCCs don’t attract the attention of the SuperLegacy airlines because they don’t put frequencies up against the SuperLegacy airlines on routes.

Only time will tell but it does look like Indigo Partners will become the new owners of Frontier.

Filed under: Airline Seating by ajax
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And here goes British Airways putting something in everyone’s eyes.

Filed under: Trivia by ajax
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British Airways is getting people excited about their new A380 aircraft with a race.  Check out who wins:

Filed under: Trivia by ajax
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Southwest Airlines posted a $224 million profit last week for their 2nd quarter and guess what?

That’s actually down from last year.  Not terribly so but it is down.

By any observation, Southwest is flying with record passenger loads and increasing their revenue regularly.

So why are profits down?

I have a sneaky feeling that Southwest is suffering operationally.  From my own anecdotal observation over the past few years, this airline seems to find it very hard to get an airplane ready to depart on time now.  The planes are flying nearly 100% full on major routes and that presents problems that Southwest, as an airline, isn’t designed to handle well.

I even wonder if Southwest’s staffing for its operations is adequate to the current job.

And I wonder more and more if Southwest is making the AirTran merger become another version of its IT problems.  In other words:  Is this a problem that Southwest isn’t solving?

Speedier integrations into one system allow everyone to start marching to the same drummer faster.  Marching to the same drummer, even if you do it sloppily at first, is better than being in a disconnect.

An airline that takes several years to solve IT problems, merger problems and even labor problems is not an airline that is behaving “agile” and it isn’t setting itself up to succeed.

Filed under: Airline News by ajax
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Here are a few newsworthy items about US Airways, American Airlines and even their merger with comments:

US Airways earns record 2Q profit

US Airways has earned a pre-tax profit of $409 million excluding net special items to rack up its most profitable 2nd quarter result ever.  People can talk about how US Airways has done this on having low costs but that completely ignores something that stands out here in bold, bright letters:  These guys know how to drive revenue with an inferior network, aircraft, service model and they do it over and over and over again.

Yes, that’s who we want in charge of American Airlines Group.

The EU is going to clear the US Airways / American Airlines merger

The European Union is set to give its approval to the merger of the two airlines contingent on the Philadelphia and London route being handed over to someone else.  I continue to believe that this may not be enough for US regulators at this time.  This is a very small “give” for this merger and control of routes into London Heathrow from the United States between American Airlines Group and British Airways will be . . . stunning.

It’s time to wrap up voting in the AA Bankrtupcy

Creditors and other stakeholders cast their final votes on 7/29 and after a count is known, it must be submitted to bankruptcy judge Sean Lane in New York City who will hold a hearing on 8/15 to give approval to the merger.

Part of me expects that we will hear from US regulators about their approval of this merger on or before that date.

Filed under: Airline News by ajax
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A Korean News Station decided to create some fake pilot names for the pilots and crew who flew the Southwest Airlines aircraft that landed with a collapsed front nose gear.

The pilots they named were:

• Captain Kent Parker Wright
• Co-Captain Wyatt Wooden Workman

And they tossed funny stuff for interviews:

• Flight instructor Heywood U. Flye-Moore
• Skeptical passenger Macy Lawyers

To see more, Click Here.

Filed under: Trivia by ajax
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US Airways and American Airlines have indicated a willingness to give up a London Heathrow – Philadelphia slot pair to a competitor to facilitate their merger approval by EU authorities.

This isn’t entirely unexpected but it also reflects on US/AA being very strategic in what they’re offering up.  Such a slot pair offers little in the way of competition for the combined airline no matter who gets the pair.  No other airline is as dominant at PHL as the combined unit.

The only US based airlines flying to Europe from Philadelphia today are US Airways and Delta.  (British Airways and Lufthansa also fly European routes).  Delta’s flight to Paris is seasonal.

I think that the EU and the US DoJ will want a London Heathrow slot pair to be given up but I think they’ll ask for it to be on a route such as New York – London.  Not only will they consider what the combined airline will have in routes to London Heathrow but they’ll consider the trans-Atlantic codeshare partners of American Airlines too.

British Airways flies to US Airways hubs from London quite a bit.

I think the deal will be made but I think that Philadelphia will be a non-starter.  I put my money on Delta taking up a route and using it in concert with Virgin Atlantic.

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Transport Worker’s Union President James Little offered this comment about Southwest Airlines’ incident at La Guardia Airport (we no longer desire to comment on air incidents as they happen but, rather, wait some time for things to settle).  Mr. Little said:

Brothers and Sisters,

The incident yesterday at LaGuardia Airport, involving Southwest Flight 345, is evidence of the lack of concern Southwest has demonstrated in regards to the safety of its passengers and our members as they continue to press forward in the name of cost savings.

Thankfully, no lives were lost due to our members, the trained flight attendants, and pilots on board. As Southwest continues to outsource flight maintenance to reduce cost, the safety risks are likely to increase. This will be known as the first of more incidents to follow if Southwest is not held accountable.

In response to this tragedy, I have met with our Health and Safety Director, Ed Watt, and our CARE team is fully mobilized and ready in New York to assist with any efforts in regards to the incident.

In solidarity,
James C. Little
International President

That didn’t sit too well with Southwest Airlines flight attendants who are represented by the TWU.  They responded politely but in the union world, this is the equivalent of a “shut up”.  TWU Local 556 responded with:

Due to the ongoing investigation, there should not be speculation made concerning the cause or nature of this unfortunate incident, and Local 556 does not endorse statements made by our International President Jim Little. We are very proud of the Flight Attendants aboard the flight and we believe our Company’s Mechanics work hard each day to keep our Passengers and Crew Members safe.

Mr. Little’s comments disappeared later.

I have a couple of observations:  Southwest is no different from any other airline and its safety record is, quite likely, the best there based on passengers flown daily.  The law of numbers says they will have incidents from time to time and that has happened.  The measure of the airline is how well the flight crews did during those incidents (so far they have always done very well) and how well they have taken care of their passengers (better than any other airline.)

Second, unions don’t need to grab every opportunity to play the PR game.  When it comes to crashes, incidents, etc, it isn’t necessary to weigh in with a political opinion.  People are materially and psychologically affected by these things and voicing an opinion to further the political goals of your union local at the moment of an incident is just bad form.

These acts hurt unions far more than most anything else because they reflect severely on the union in the public eye.

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American Airlines has taken delivery of its first A320 series aircraft and this is the start of a new era at American Airlines.

The A319 is the first of 260 aircraft ordered and is a “current” engine option A319.  The A319 aircraft will seat 128 passengers (8 in first class, 18 in economy plus and 102 in economy) and actually presents the start of a second era at American Airlines too.

It’s been a very long time since American Airlines had aircraft that seated so few passengers.  The last aircraft with a passenger count below that of the MD-82 was the Fokker 100 (88 seats and retired in 2004).

The A319 is counted as an MD-80 replacement in the AA fleet but I think differently.  I think it augments the airline’s fleet and offers opportunities for “thin” routes that AA has been neglecting for a while now.  The A319 may replace some MD-80’s but it will also change the opportunity equation considerably.

I have just one request for the airline:  Will someone please kill that horrific airline livery already?

Filed under: Airline Fleets by ajax
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