Now that it is 2010, what can we expect?

Unlike this time last year, probably not much.  There was some momentum for change last year that really doesn’t exist this year.   Airlines will continue to fight to hold their own in the marketplace and with the reduction in capacities, even the worst of the lot will likely cling to life this year.

North America:

Major airlines of North America have made all the changes they can and all are managing their businesses and cash very closely right now.  I don’t expect much, if any, change to develop in the next 12 months but let’s take a look anyway.

American Airlines has some labor issues to address but with the current economic climate, they have been getting away with their efforts to defer those issues.  Labor unions would like to push a few issues with American but they’re smart enough to realize that now isn’t the time.   Most likely they’ll continue their face saving efforts at making a point with their members but I don’t expect any real labor action at this airline this year.  Perhaps, if things get better, we’ll see some movement in the 4th quarter.

United Airlines, my least favorite legacy airline, has similar issues that American has with labor but, again, those labor issues aren’t likely to see much movement either.   I suspect that United will continue to move more of their flights over to regional airline partners because its worked (for now) and their customers will find themselves on more and more regional jets.  Since price is the prime driver for customers right now, they’ll accept that move and hate the flights as much as they always have.

Delta/Northwest should see more of its operatioins combined and, possibly, a unified single operating certificate by the end of the year.  That doesn’t mean much for their customers since Northwest aircraft are being painted into Delta colors at a furious rate.  The service product is already being harmonized to a fair degree and it’s a good one already. 

I don’t see any major aircraft purchases and I remain interested in whether or not they’ll keep their 787 orders.  There has been rumour and innuendo that they won’t but I kind of think they will keep them.  Their 767 fleet is old (except for the 767-400) and I can’t think of a reason why you wouldn’t want to have the 787 begin filling the role of those aircraft.  I’ve wondered if their hints aren’t just an opportunity to get Boeing to get interested in offering a better deal for more aircraft. 

US Airways needs two things in this next year.  First, they need their pilots to get together and start operating as a single group.  As dangerous as it is to try to interfere with a union group, I wonder if US Airways won’t wade into the problem in an attempt to have a final resolution.  Certainly they could argue that they’ve been patient enough. 

They also need to manage their cash very, very closely.  Cash is blood to an airline and US Airways has a bit of risk in this department.  Should cash holdings be depleted more, they’ll have to start seeking that merger partner again and no one appears interested in marrying with them.  This is another reason it needs resolution for its labor problems.   That said, I don’t see US Airways disappearing or filing for bankruptcy again. 

Continental Airlines has felt the hurt this past year and its unlikely to feel much better this year.  Their business model depended a bit more on business class travel and the economy hurt that demand the most.  That said, I can’t imagine a better group of managers for keeping that airline on track through the rest of the downturn.  Things will hurt and belts will be tightened a bit more but I don’t see the service product changing.   When the economic downturn does really turn the corner, Continental will be better placed to succeed than many. 

Despite their recent move to the Star Alliance, I do *not* see Continental getting any closer to United Airlines whatsoever.

Low Cost Carriers / Regionals:

Southwest Airlines continues to manage itself to the tune of its own drummer and the results of their long(er) term thinking are showing left and right.   They’ve managed to make solid overtures to business clientele in areas that, I suspect, count more day in and day out.  

I don’t see a merger partner in the future for them except,  possibly, for Sun Country Airlines.  For some reason, I see this as a real winner for Southwest in that it gives them space and routes in Minneapolis / St. Paul, a labor group that is accustomed to delivering Southwest style service and which can be harmonized into the Southwest labor groups relatively easy.  There is no rumour of this purchase but Sun Country has its own problems and it’s a match that fits the Southwest acquisition model. 

I think Southwest will remain persistent in its Denver expansion and will work hard to create a network in the upper midwest states of Wisconsin, Minnesota, Illinois and Missouri.   The wild card, in my mind, is the Washington D.C.  area and the NYC/Boston areas.   Shuttle type service is what Southwest knows very well and I wonder if they won’t try very hard to organically grow their flights in these areas.  If so, Southwest needs to find an “in” at Washington Reagan airport.  To do this, they would need to buy a shuttle operation from US Airways and/or Delta.  Perhaps US Airways will be interested in such a sale if their cash holdings erode more. 

Frontier/Midwest/Republic:   I don’t know what happens here.  Midwest really isn’t an airline anymore.  It really isn’t even a brand anymore.  It’s a name for selling tickets.  Frontier remains an airline and a brand and Republic seems to want to continue caring for both.  Since Republic is managed by very smart people, I kind of think that they may look for a way to wind down the Midwest name over the next 12 to 18 months and make Frontier the primary airline.   A tasty cookie isn’t a good reason to keep the Midwest name around.

Airtran deserves some applause.  This airline has managed to grow itself some, find new markets and earn some money during one of the worst downturns in the airline industry.  

Their move into Milwaukee has succeeded and promises to continue to succeed.  Milwaukee is a loyal city, to be sure, but it is a city that appreciates value even more.  Airtran has managed to offer great value, good service and appeal to a city that just a couple of years ago was kind of anti-Airtran.   The one obstacle in their way is the arrival of Southwest, another airline very good at offering value and appealing to the Milwaukee kind of customer.   I think Airtran has the upper hand but they are by no means the sure winner in this market.  Southwest may be able to beat them with frequency.

Virgin America keeps showing up and usually right after I become convinced they’ll disappear.  I still don’t know what this airline does best and I still don’t see them as being a scrappy enough operation to fight their way into the cities it needs to be in.   Virgin continues to dance around Chicago (claiming they can’t get space but if they wanted it bad enough, they could).  Their product would servce cities such as Dalllas, Denver, Houston, Chicago, Atlanta, Baltimore, Philadelphia, and, perhaps, Cleveland/Cincinatti very well.  

Instead, they added flights from the west coast to Fort Lauderdale and talk about adding service to a Texas city such as Austin.  This is too timid.  The CEO, David Cush, seems afraid to compete against his old employer (AA) and that is a shame since they have a very competitive and attractive trans-continental product.   I would speculate on VA being bought by another airline but . . . why?  They just don’t have much there and seem to have little interest in exploiting real advantages that they do have.   Maybe they’ll just run out of money and get shut down.

Alaska Airlines has felt the heat from Virgin America but they continue to do pretty well with their little airline and they continue to do it without being aligned with a major.  I don’t see much changing for Alaska Airlines.  They’ll continue to be a scrappy airline with good service to a limited number of destinations.  And, somehow, that seems OK when it comes to Alaska.

Next up, the world.

Filed under: Airline Service by ajax
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I don’t spend a lot of time on two aircraft manufacturers who really are the first real potential competitors to Boeing and Airbus in the future.  Embraer and Bombardier. 

Let’s take a look at Embraer today.  Embraer, a Brazilian aerospace company, got its start in the 1960’s and entered the commercial aviation world with its EMB 110 Bandeirante (1968) and EMB 120 Brasilia (1983) serving the small commuter turbo-prop market. 

These tough aircraft from Brazil managed to serve a need in many US markets and I remember them flying for American Airlines in the 1980’s and 1990’s.  American Airlines used them to fly multi-stop routes from their DFW hub and others such as Delta and United used them similarly from their hubs.

It was the ERJ-145 that Embraer brought to market in 1995 that took this company to a new level.   This line of regional jets were the first to combine small size (as few as 30 seats and as many as 50 seats) with modern turbine jet engines to provide a (near) mainline aircraft experience to the small feeder routes of major airlines.   Unfortunately, these aircraft were only economical to operate when jet fuel was inordinately cheap through the 1990’s and early 2000’s. 

Embraer knew this and began development on a larger, more capable family of airliners that aren’t quite regional jets and aren’t quite mainliner jets.  These new jets, now referred to as “E-Jets”, are the ERJ-170/190 family and this is where Embraer signaled its willingness to encroach on the territory of Boeing and Airbus. 

The E-Jets, introduced in 2002, have a seat capacity ranging from 80 to 120 people in an all coach configuration and, at first glance, that doesn’t seem to quite reach into the 737/A320 territory but its worth another look.  The E-Jets, at least the larger E-190/195, offer similar size and range to the early 737-100/200 and the first DC-9 series aircraft.   This was confirmed when David Neeleman (founder of Morris Air and jetBlue) chose them to start his new airline in Brazil, Azul.   US Airways is now deploying this aircraft on its East Coast shuttle routes. 

These aircraft offer something that neither the 737, A320 or DC-9 never offered:  no middle seats.   Designed for a 2×2 configuration, these aircraft offer a coach experience that really is no different than the current offerings from Boeing and Airbus and, in some cases, really better.   These aircraft are now serving the routes originally serviced by first generation 737’s and DC-9’s. 

And what’s next?  Embraer has shown it has the technical expertise to offer a mainline aircraft and if it expects to grow as a company, the next step will find it offering a 737/A320 competitor.  If timing is anything to go by, I would be unsurprised by a new airliner being offered in 5 years or so and quite likely offering the new Pratt & Whitney GTF engine.  

With both Boeing and Airbus deferring development on the 737 and A320 series of aircraft for as much as 10 more years, there is an opportunity there for makers such as Embraer and Bombardier since even major US airlines are eager to re-develop their fleets with more fuel efficient aircraft.

At some point, both Boeing and Airbus will have to make a few choices.  They can choose to cede the 100 to 140 seat market which is tough to imagine given that this where aircraft are truly mass produced. 

They can choose to form a partnership with Embraer and/or Bombardier and co-market a new aircraft under one or the other’s brand names.  Airbus has some ties to Embraer and Bombardier has had contact with Boeing over the years but neither has anything approaching what would be called a close tie.  I think there is some likelihood of this happening and, frankly, I expect that whoever forms ties with Embraer is likely to succeed.  Embraer has a bit more financial strength and a much cheaper labor base to manufacture from than Bombardier (located in union-heavy Canada).

The final choice is to go head to head with Embraer and Bombardier.  From a personal viewpoint, I hope that both Boeing and Airbus take this route.  It can mean only better aircraft in the future for everyone.  However, both Boeing and Airbus are currently manufactured in areas with strong union ties (Boeing is reducing this risk with the establishment of an assembly line in South Carolina and Airbus is “experimenting” with an assembly line in China for low production volumes) and with a relatively expensive supplier base. 

There is no doubt that Embraer offers a great product and certainly possesses the ability to take it to yet another level.  They are poised to take advantage of another family of aircraft that could be made in a way that type ratings between the E-Jets and a new, larger family could be shared.  This would be very attractive to a wide variety of airlines.  

Whatever their choice, Embraer is one to watch.

Filed under: Aircraft Development by ajax
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USA Today published an op-ed found HERE on the honesty of code shares that exist between major airlines and their regional partners.   Noting the safety issues that appear to exist in the regional airline industry, they call it a problem for truth in labeling.  Is it?

The truth is that the issues that the public has been focused on for the past several months with respect to regional airlines does and does not exist.  It depends entirely on the regional airline and the relationship it enjoys with its partners.

Certainly there exists an issue with fatigue and experience among airlines.  However, those problems don’t exist simply because regional airlines exist.   Even if regional airlines didn’t exist or if they were operated directly by major airlines, those problems would still exist.  The problem of fatigue exists because of the existing system of rules governing rest for pilots.  Even pilots working for major airlines are enduring more fatigue as a result of work rules.  

Experience does count but the perceived problem of experience is a greater problem because we put brand new pilots into situations that require them to fly schedules in and out of busy airline hubs as much as 5 times in a duty shift.   A new pilot is potentially flying more hours and flying in and out of busier hubs more often than an experienced pilot working for a major airline.   That will only be solved when we require more experience to become a captain. 

Unfortunately, pilots (and cabin crew) are tied to a legacy seniority system that they are unwilling to give up.  Pilots get upgraded to larger aircraft and into the position of captain on the basis of seniority rather than experience or merit.  

For more information on pilots, fatigue and the reason for regional airlines, read these posts HERE, HERE. HERE, HERE, HERE, and HERE.

Airlines use regional airlines differently and according to the agreements they have with their own unions as well as according to their needs for service in various areas.  Some airlines own their own regional airlines such as American Airlines who owns American Eagle and Delta/Northwest who owns regional airlines such as Comair, Mesaba and Compass.  Other airlines such as United or US Airways contract with independent companies more often. 

Now, I think *any* regional airline operating in the United States is operating to a fairly high degree of safety.  We have too many laws and regulations in place for any to slip too far down the ladder.  However, I do think that independent regional airlines operate with a bit more aggressiveness towards both their operations as well as their personnel.  I would point to the independents as having a bit more opportunity to fail in safety than those owned by the major airlines. 

In fact, I would regard our regional airlines as generally being more safe than the major were in the early 1980’s. 

To call code shares deceptive is a stretch in my opinion.  Airlines and travel websites do a pretty good job of revealing both the type of aircraft being used as well as the fact that regional flights are being operated by regional airlines in partnership with the major airlines.   A quick check on AA.com, Delta.com, Travelocity.com and Orbitz.com shows that to be true. 

If a problem exists, it really exists with the consumer who is either ignorant or unwilling to be an informed purchaser of the services being offered.  If the consumer is neither ignorant nor uninformed, then they may also be a bit selfish and lazy by choosing not to act in their own best interests when purchasing a flight.  

You really do invite trouble into your life when you purchase your travel based almost exclusively on price.  If you could pay $20 more to travel through a hub that is less congested or prone to trouble, wouldn’t that be a small price to pay?  If you could pay $20 more to travel on regional airline owned and operated by a major airline, wouldn’t that be a small price to pay? 

When you become a slave to one airline through frequent flier miles or the idea that a non-stop flight is always best, you put yourself at risk.   Consider whether or not it is better to fly on American Eagle from DFW to Milwaukee non-stop or if it might perhaps be better to do it via Southwest Airlines making one connection and only on a 737.   The American Eagle flight will be a cramped regional jet that is prone to being weight restricted operated by an airline that doesn’t exactly have a sterling record for caring for your baggage.  The Southwest flight will be flown by the most experienced pilots available in the US using a 737 and your baggage will be handled by people who have an excellent record and who care about their customers.  That Southwest flight might take add an extra 45 minutes to your trip and may even cost $20 more but your assurance of a positive experiences goes way up.

Sometimes taking the longer view when planning your travel is best.  Particularly when you plan your leisure travel. 

If safety is a concern, become an informed consumer.  Don’t become prejudiced on the basis of what kind of airplane you’re getting onto.  Become interested in what kind of airline is operating that aircraft.  There are fantastic regional airlines with fantastic safety records and there are major airlines who are marginal at best with merely OK safety records.   Be proactive and enjoy a better travel experience.

Filed under: Airline Service by ajax
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Before anything else, I’d like to announce that this is my 200th post to this blog.  Quite the milestone all in all.

USA Today’s Today in the Sky Blog is reporting that several airlines have removed their advance purchase requirement for bargain fares this holiday season.   Their source, Tom Parsons (CEO of BestFares.com), says that airlines such as American Airlines, Delta, United, Northwest, US Airways, Frontier, Airtran and Midwest have all removed the advance purchase requirement through January 4th.  Continental still has a 3-day advance purchase requirement.  This would seem to imply that holiday travel is extremely soft this season so far.

Filed under: Airline News by ajax
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At the first of the year, I wrote 3 blog posts shown HERE, HERE and HERE.  It was really just my random speculation on what to expect over the next 12 months.  Well, now it’s December of 2009.  Let’s see how I did.

Boeing 787:  I guessed at an April 2009 first flight.  It still hasn’t flown although speculation has it flying this month either by December 14th or December 22nd. 

Airbus A380:  I guessed they would make their goal of producing 21 aircraft this year.  As of November 30th, 2009, Airbus says they have delivered 7 A380 aircraft this year.  Ouch.  This is a program that is in financial trouble.  No, I don’t think it will be cancelled.  Not yet but please don’t try to tell me this program will make a profit. 

My deathwatch had Midwest Airlines going away most likely by a sale.  That did happen and while the airline has essentially evaporated (from its original form), it does remain as a brand being run by Republic Airways.  

I speculated that Frontier Airlines would be bought out of bankruptcy but I guessed that jetBlue would be the buyer.  In fact, Southwest Airlines and Republic Airways were the suitors and Republic won.

I thought that United Airlines and US Airways would announce a new merger with Continental a dark horse candidate for buying United.  In fact, Continental became a member of the Star Alliance and firmed its relationship up with United but wisely kept its distance otherwise. 

I said that Southwest Airlines would maintain its status quo but that Gary Kelly would be under fire from both employees and outsiders and he was.  However, that view is already being reversed again by Southwest’s resurgent strength in the business.

I thought that the Middle Eastern airlines such as Emirates, Etihad and Qatar wouldn’t see a bankruptcy or merger but would slow their growth and aircraft deliveries.  That, in fact, has happened and now we see Emirates working hard to distance itself from Dubai World’s financial woes.

China:  I said deferred orders.  Pretty much what happened.

The Far East:  I said airlines from that region would maintain their status quo, probably would not defer orders and might make new orders to replace existing equipment for greater effiency.  Again, pretty much what happened.

Australia:  I saw QANTAS slowing growth, deferring some orders and fighting hard against new entrants.  Again, that’s pretty much what happened.  I also saw two weak competitors on the US-Australia routes:  United and V Australia.  That is pretty much what is happening although V Australia has been pretty smart in working into a relationship with Delta where it appears the two airlines will cooperate with codeshares.  United remains alone and with weakening demand.

South America:  I said the Argentine government would take Aerolineas Argentinas back from Grupo Marsans and the airline itself would muddle along or contract rather severely in some areas.  Bingo.  Exactly what happened.  I also predicted Azul would become the jetBlue of Brazil and its not hard to guess that that airline is pummeling its competitors.  A future prediction was for the airline to fly internationally in 2014 with Airbus equipment.  We’ll see.

Africa:  I saw Delta continuing to pursue flights to major African cities (true) and SAA (South African Airways) issuing a small RFP for 777 aircraft to replace its rather inefficient A340 aircraft (didn’t happen.)

India:  I thought Jet Airways and Kingfisher might merge with the name Jet Airways being retained.  In fact, both airlines continue to exist but both are suffering severe financial problems, deferring aircraft deliveries and generally flailing about trying to find a way to continue.   One of these airlines will still ultimately have to exit the market and I continue to think it will be Kingfisher.  They have the wrong aircraft and the wrong aircraft on order.  However, Jet Airways is suffering badly from labor actions among its employees. 

United States:  I picked United to fail.  It hasn’t happened and while they continue to live, their cash holdings are being reduced, they still have severe labor issues, their service product continues to suffer and I still think they should be the ones to disappear.  I also thought Glenn Tilton would be ousted and, possibly, replaced by Doug Steenland.  That didn’t happen but John Tague has been groomed as Tilton’s replacement.  I still think Tilton should go if United can’t fail.

Europe:  I thought we would hear of a surprise from Lufthansa.  I didn’t like their purchase of SWISS and I didn’t like their flying the A340 in competition against the 777 being flown by many of their direct competitors.  They’re still here, still making money and they bought BMI.  I still think we’ll here of misfortune from them but apparently it will take a while longer. 

Random Speculations:

• I thought Southwest might add another aircraft type.  It didn’t happen but I think their interest got perked up when they looked at buying Frontier and saw the economics on the Q400.
• I thought Delta might order more Airbus A330 aircraft.  Instead, Delta is parking them in the desert for the winter season.
• I speculated that both China and Japan would defer or drop their regional jet programs.  That didn’t happen but the Chinese jet program appears to be a bad aircraft and unlikely to be used by anyone except Chinese airlines forced to buy it.
• I thought Bombardier would see a major order (20+) for their Q400 series aircraft from a US customer.  Horizon Airlines did up their orders  for 10 more but there were no other significant orders. 
• Airtran to form a small midwestern hub.  Yup, that happened.  In Milwaukee where they’ve taken over from Midwest Airlines and now face Midwest (brand owned by Republic) and Southwest Airlines entry into the market.  I think Airtran will hold on here and continue to develop business.
• Last, I hoped that jetBlue or Virgin America would enter the DFW market.  Virgin’s CEO, David Cush (formerly of American Airlines) did recently speculate about adding flights to either DFW or Austin.   I suspect they’ll choose Austin and DFW will remain a fortress for AA.

That’ s it for my 2009 predictions.  I’ll make more at the start of 2010.  On the whole, I probably did as well as anyone in making predictions in this business.

Filed under: Airline Fleets, Airline Service, Death Watch by ajax
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I  have a funny feeling that safety and getting those Delta/Northwest ops combined is about to become a big focus at the airline. 

Incident 1: NTSB INVESTIGATING LANDING OF COMMERCIAL JETLINER ON TAXIWAY IN ATLANTA
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The National Transportation Safety Board is investigating the landing of a Delta B-767 on an active taxiway at Atlanta Hartsfield International Airport (ATL).

According to preliminary information received from several sources, on Monday, October 19, 2009, at 6:05 a.m. EDT, a Boeing B767-332ER (N185DN) operating as Delta Air Lines flight 60 from Rio de Janeiro to Atlanta landed on taxiway M at ATL after being cleared to land on runway 27R. No injuries to any of the 182 passengers or 11 crewmembers were reported.

A check airman was on the flight deck along with the captain and first officer. During cruise flight, the check airman became ill and was relocated to the cabin for the remainder of the flight. A medical emergency was declared and the company was notified by the crew. A determination was made to land at the scheduled destination of ATL.

The flight was cleared to land on runway 27R but instead landed on taxiway M, which is situated immediately to the north and parallel to runway 27R. The runway lights for 27R were illuminated; the localizer and approach lights for 27R were not turned on. Taxiway M was active but was clear of aircraft and ground vehicles at the time the aircraft landed. The wind was calm with 10 miles visibility. Night/dark conditions prevailed; twilight conditions began at about 7:20 a.m. EDT and the official sunrise was at 7:46 a.m. EDT.

A team of four from the NTSB, led by David Helson, is investigating the incident.

The issue of runway safety has been on the NTSB’s Most Wanted List of Safety Improvements since its inception in 1990. Information on the NTSB’s work on runway safety is available at http://www.ntsb.gov/Recs/mostwanted/runways.htm
Incident 2: NTSB INVESTIGATING FLIGHT THAT OVERFLEW INTENDED MINNEAPOLIS AIRPORT
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The National Transportation Safety Board is investigating an incident where an Airbus A320 overflew the Minneapolis-St Paul International/Wold-Chamberlain Airport (MSP).

On Wednesday, October 21, 2009, at 5:56 pm mountain daylight time, an Airbus A320, N03274, operating as Northwest Airlines (NWA) flight 188, became a NORDO (no radio communications) flight at 37,000 feet. The flight was operating as a Part 121 flight from San Diego International Airport, San Diego, California (SAN) to MSP with 147 passengers and unknown number of crew.

At 7:58 pm central daylight time (CDT), the aircraft flew over the destination airport and continued northeast for approximately 150 miles. The MSP center controller reestablished communications with the crew at 8:14 pm and reportedly stated that the crew had become distracted and had overflown MSP, and requested to return to MSP.

According to the Federal Administration (FAA) the crew was interviewed by the FBI and airport police. The crew stated they were in a heated discussion over airline policy and they lost situational awareness. The Safety Board is scheduling an interview with the crew.

The cockpit voice recorder (CVR) and flight data recorder (FDR) have been secured and are being sent to the NTSB laboratory in Washington, DC.

David Lawrence, the Investigator-in-Charge, is leading the team of 3 in investigating the incident.

Parties to the investigation are the FAA and Northwest Airlines.

It would appear that pilots at the combined companies are allowing themselves to be a bit distracted these days.  I particularly hope that the CVR transcripts for that second incident become available one day.  Something tells me that policy talk wasn’t the problem.

Filed under: Airline News, Airports by ajax
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Almost everyone who follows the airline business and the airlines themselves continue to insist that people buy overwhelmingly on price and there is quite a bit of evidence to support that general feeling.    The best example is that among legacy carriers serving a particular non-stop route, when one airlines lowers their price, the other airlines can and do see a drop in their bookings for that route if they don’t match that price.

There is a lot of truth that individual routes can be seen as nearly perfect competitive environments.  Any airline executive worth his salt will tell you that when an airline opens up a city pair, they look upon it as growing another business.  Each route is a “business” to be developed and nurtured and maintained.

Legacy airlines are the masters of being all things to all people.  Low cost carriers are the masters of high frequency/low cost models.  Leisure airlines have learned how to serve market with low frequency but high value.  

But what do most people want?  That isn’t ever as clear as people want to believe.  The dynamics between two cities change over time and adjusting to those changes is essential to maintaining that “business”. 

My father, once a very senior airline executive, told a story to me long ago that I’ve never forgotten.  His airline, Braniff, served the Dallas / NYC route with a daily late afternoon flight that for years was a huge money maker because it was flown primarily by businessmen.  In the mid-1970’s, they noticed that traffic on that route began to erode ever so slightly and even a small erosion worried an airline even back then.   Then he happened to take the flight to do some financial business in NYC on behalf of the airline and he realized the problem.

Business between the two cities had begun to change.  Traditional businessmen such as bankers or leaders of large corporations had continued to fly that flight because their model was to go to NYC the night before, conduct some business until 2 or 3 in the afternoon and then fly home to be in their own homes by mid-evening.   But entrepreneurship had begun to flower and more and more businessmen/entrepreneurs saw that as a waste of time for such a trip.  They wanted to work until late afternoon and fly home as late as possible in order to maximize their time there.

So Braniff added a second flight in the early evening that allowed businessmen to work until 4:30pm, go to the airport and catch the 7:30pm flight home which put them back in Dallas late at night but which met their needs to stay as long as possible to maximize their work.   As a consequence, both flights began to do much better because even the entrepreneurs could recognize that when their work was done, it was time to go home and if it was done at 2pm, they went to the airport and caught the early flight home.  Traditional businessmen began to be expected to be more efficient and when they couldn’t leave at 2pm, they knew they had another option for later in the day.  Braniff began to own that route again.  Frequency was the answer.

I would argue that when two or more airlines “own” a route, service is often going to be the discriminator.  But what form of service will be necessary?  Is it options in seating that allow a traveler to have more legroom?  Is it more frequency?  Is it some form of a meal?  Is it WiFi or video on demand?

For 30 years airlines have worked to harmonize their fleets, reduce the different number of equipment types and flatten their service offerings to the lowest common denominator.  Particularly the legacy airlines.  But for the past 10 years, we’ve seen new airlines offering more segmented choices on each flight and those airlines are the ones who continue to earn a profit, experience growth and satisfy shareholders.

There have been some half hearted experiments with increased choice and segmentation.  Delta had Song airlines offering more entertainment and a brighter, cheerier environment.  United had Ted airlines which was economy oriented.   But I suspect that it wasn’t necessary to change the brand so much as it indicated a need to offer more choice on the aircraft.

I think in the future we’re going to see more choices in seating on airlines.   The low cost only passenger wants price above anything else.  The business traveler needs an economy choice (to satisfy their company’s desire to economize) that offers a little more room.  I think we’ll see different seat pitches offered and different service choices (a la Frontier) offered as well.  This is an area where Frontier has pioneered change and seen positive results.  Same for jetBlue.  Those airlines continue to earn an operating profit and grow.

Legacy airlines are going to have to be more flexible in fleet, fleet configuration and they’ll even have to consider offering things like meals and entertainment.  There already is a move to do this among certain airlines.  Continental is adding LiveTV to their fleet.  Delta/Northwest has recognized that having a varied fleet allows them to “tune” their service to the demands and continue to earn a profit. 

When an airline can adjust capacity on a route by season, month or time of day, it can continue to make money.  When it has just two choices of aircraft to use on a route and both have more capacity than needed, they start to lose money.  (Hello AA.)

I think that one day one legacy airline will have the guts to start advertising in markets that speaks to “real world” experience on their line versus the airline that “owns” the city.   For instance, I think Continental could come into the Dallas market and already argue that yes, you have to connect in Houston to go to NYC but if you do, more often than not you’ll get there in the same time with better service than flying American Airlines who has an untrustworthy on-time record and who treats their passengers to old aircraft and little or no service.   Someone will have the guts to start trying to change the perceived value of travel.

The truth is that there is a great difference between legacy airlines on any two city pairs.  The key is to identify that difference and communicate it to the traveler.  Right now, that really doesn’t happen.   An airline such as Continental shouldn’t attempt to compete with AA on price alone.  They should offer the real differences such as a meal on flights of 3 hours or more, LiveTV, equipment that is as much as 10 years newer or more than AA and a staff that enjoys doing its job.    They should offer incentives for changing airlines and trying them once such as a guaranteed business class seat for the price of AA’s economy seat. 

It will happen in some form.  It has to.  The newer airlines such as Frontier, Airtran, jetBlue and Virgin America have all proved that offering more choice on the aircraft works.  Even Southwest has recognized that it has to offer more choice in order to retain their very valuable business traveler.   What’s more important is that even some passengers who buy on price alone have realized that the incremental extra cost of one or two of those “extras” is worth it once again.

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The Cranky Flier had a post today discussing Continental’s new moves in LAX which include new flights to Hawaii.   Continental will have an all 737 base in the Los Angeles area with two 737’s serving new flights from Orange County to Hawaii.  It made me think.

Back in the pre-regulatory days, flights from the mainland US to Hawaii were served by large aircraft such as the 707, DC-8 and, later, the 747, DC-10, L-1011 and even the 767.  The routes allowed airlines to serve huge numbers of customers with large aircraft and make money.  Braniff International had the franchise for Dallas to Honolulu in the 1970’s and served it with a 747 and an amazing 16 hours per day utilization.  

Then deregulation came and airlines slowly began to develop new routes.  It was no longer necessary to fly to a “gateway” city to catch a flight to Hawaii.  More and more cities found themselves being served with those routes to Hawaii.  Again, Braniff International, at one time, had a 747 flight from Portland, OR to Hawaii.  (It carried little traffic, however.)

There was some consolidation after airlines learned that not everyone in a particular city was dying to fly to Hawaii.  But the big change for Hawaii has been ETOPS or twin engine flights overseas.   This allowed airlines to serve smaller markets with aircraft both capable of the loads as well as the distance.  The truth is, when the airlines don’t have to feed 150 passengers a day to a gateway city but can fly them directly, they make more money.    20 years ago, I would have chuckled if someone told me that 737-700 aircraft would fly to Hawaii from the mainland. 

Boeing and Airbus have different views for the roles of widebody, large capacity aircraft.  10 years ago, Boeing forecast that the market would continue to fracture with more and more direct routes being employed as opposed to large capacity hub to hub flying.   Airbus, however, believed that the crowded skies would force more large capacity hub to hub flying onto the airlines.   It turns out that Boeing was more right. 

The markets drive these changes and when an airlines can make more pure profit using right sized aircraft flying direct, they will.  Yes, the legacy airlines of the US (and other parts of the world) continue to follow a hub and spoke model primarily but they’re all learning that more direct flying where the loads fully justify it is a good and profitable thing.

Accordingly, this is where I think Boeing continues to have a winning strategy with its 787/777 product line.  Yes, there are a few airlines capable of filling an A-380 and those airlines will make money from using that aircraft.  But as more and more nations open up their skies to more competition, that is going to change.   Having the right aircraft for the right route will be key to a manufacturer’s success and Boeing seems to have a better feel for the world market whereas Airbus seems more plugged into the Euro/Middle East markets they already do so well in. 

I’m no longer sure there is a real place for the new 747-8 aircraft.  Boeing’s 777-300 is just as capable in almost every case and carries a massive number of passengers without being so big that it adds risk during seasonal low periods.  The same is true for the 777-200. 

And what happens when aircraft such as the 787 family begin flying?  This family is roughly 767-sized in capacity but its range is far greater and that means even more markets can be accessed via long haul direct flying.   An international airline can probably make more money (through passengers *and* cargo) using the 787 and 777 families for more direct flying with aircraft that are “right sized” for the markets than they can using much of the Airbus family.

Airbus has one aircraft model suitable for this right now.  The A-330.  the A-340 is essentially dead since it under performs against the 777 in virtually any mission.  The A-330 is right sized for a number of the current markets and many more of the future markets.   The A-380 is suitable for only a few markets and those are already dwindling for some airlines.  For instance, QANTAS has introduced the A-380 on their routes to the US.  However, with a new Open Skies treaty between the two countries, there are also new entrants to the market like V Australia and Delta who are vying for customers with United and QANTAS very competively.  Those airlines understand that it will take a while to develop their routes and build relationships with airlines in both countries to feed traffic but it will happen.  As that traffic shifts from what was originally two airlines (QANTAS and United) to four airlines (QANTAS, United plus V Australia and Delta), what happens to each airlines’ loads? 

It’s notable that QANTAS flies the 747 and A380 to the US and United flies the 747 exclusively.  The new entrants are using the 777-300 and 777-200 for their flights.    The 787 and it’s longer range capabilities will quite possibly fracture that market even more by making it possible to fly from the interior of the US to Australia instead of having to use a west coast gateway city.  At that point, I don’t know that QANTAS has a use for very many A380s or 747s and, additionally, they don’t have any right sized aircraft for the route(s) until they start receiving their 787s which are late and somewhat deferred. 

The Airbus A350 is capable of competing on many 777 routes and while it does have slightly lower trip costs vs the 777, it also has less revenue capabilty because it can’t haul as much cargo on the same missions. 

The world’s airline routes are going to continue to expand internationally and at a far greater rate than traffic grows between any two nations.  Having the right equipment for the right moment is going to be key for any international airlines survival.  Those who don’t plan for it now and have it arriving in the next 5 to 10 years are going to wither to a slow death.

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The Fort Worth Star Telegram’s aviation Blog, Sky Talk, writes about Delta beginning service from Dallas Love Field Airport to its Memphis, TN hub today.   The flights will be flown by Delta’s regional jet provider, Pinnacle Airlines, under the Delta Connection name.    They will start 3 daily flights on July 6 and use CRJ200 aircraft which are exempt under the Wrigth Amendment and Wright Agreement since they have less than 56 seats. 

It’s an interesting move for Delta and I do wonder how they identified that segment being of good potential.  Since it is a Delta hub (ex Northwest Airlines), it can provide connections to a wide variety of destinations but I’m not sure if the destinations are where the typical Dallas business traveler wants to go.

One thing is for sure.  If history is anything to go by, American Airlines may already be re-thinking its withdrawal from Love Field and trying to identify how to answer this challenge to its turf. 

I do wonder whose gates Delta is going to use.  Currently, AA and Continental hold the only usable gates in addition to Southwest’s.   Delta has not identified which gates it will use so far and American Airlines has said it has not negotiated any sub-leases either.  Continental perhaps?

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USA Today’s Today in the Sky Blog is reporting that Alaska Airlines has announced that it will begin charging a 1st bag checked fee on July 7th.  This announcement comes after reporting more losses for this past quarter. 

I remain adamantly against the 1st bag checked fees being charged but must admit that if an airline was going to do one, it should do one in the manner of Alaska Airlines.  Alaska Airlines is going to offer a guarantee that your bag will be at the carousel within 25 minutes of arrival or you receive $25 or 2500 frequent flier points. 

This allows Alaska Airlines to compete better against legacy airlines by bringing their bag fees inline with the rest of them but offer greater value in the process.  This is a guarantee that I suspect will net a real response for Alaska.   No other bag check fee offers such a guarantee at present.  To the contrary, all other airlines charging such fees continue to do so in light of rather severe delays and losses for baggage. 

This addition also finds Southwest Airlines, last of the real majors and borderline legacy airline, the lone standout for baggage fees.  Gary Kelly, CEO of SWA, was even badgered by financial analysts during a recent conference call to discuss the most recent quarterly reports to consider adding such fees.  Kelly has steadfastly refused so far claiming that Southwest sees this move as being a strong negative among its customer base.  I actually agree since their customers remain some of the most price sensitive in the market.

It also stands in contrast to Delta Airlines’ recent announcement of a $50 first bag checked fee for international flights.   A move that I predict will ultimately be rescinded due to competition from both US and foreign based international carriers.

The question is whether or not other airlines currently charging such fees will be willing to offer similar guarantees.  Since so few compete with Alaska Airlines right now, I suspect it will be resisted as competition.  However, I also believe that one or more legacy airlines in the US will now begin considering the introduction of such a guarantee in order to bolster their position against their competitors.  My pick?  Delta Airlines or Continental Airlines.

Delta has an executive team that is  well aware that the a la carte pricing model is successful but they are also the most cognizant of presenting real value for their product.  Continental Airlines could steal a lot of press and thunder by making such a guarantee and it would also align them more close to Alaska Airlines, an existing Continental code share partner.

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The Dallas Morning News Aviation Blog is has a story about Continental reporting exceptionall dramatic declines in unit revenues over the past month.  This is, I believe, the third time Continental has reported rapidly declining unit revenues in the past few months. 

At first, one might question what is going on in the industry that shows one legacy airline reporting such poor numbers and there seems to be no similar dire reports from other legacy airlines.  Indeed, most others are meeting expectations (remember that expectations as domestic industry aren’t that high to begin with right now) and yet Continental seems to be struggling.  

After thinking about this for a couple of days, I think I might have realized what is going on here.  First, every airline earns its money from different hubs.  There are very few overlapping airline hubs in the US.  Continental has hubs in Houston, Newark and Cleveland, for instance.  American has their major hubs in Dallas and Chicago.   Delta has major domestic hubs in Atlanta and Salt Lake City.  What this means is that each airline derives a good portion of its revenue in markets where they are dominant and if those markets are doing poorly, they will too.

Now, Continental has Newark and Houston to contend with and both of those areas are large banking and financial centers.  Both are suffering a little bit worse than many in this economy and I suspect that business travel has been reduced dramatically in those areas.  Business class travelers are downgrading to economy and economy fliers just aren’t getting their trips approved at all. 

So far, Chicago and Dallas have weathered this storm a little better than expected and I think both American Airlines and United Airlines are managing to maneuver just enough to continue to meet financial expectations.  Atlanta is also doing just a little bit better as is Minnesota which means Delta continues to have maneuvering room.  Delta is exposed in Detroit, however.  Their subisidiary, Northwest Airlines dominates all of Michigan and industries in that area are being heavily impacted by the economy. 

Continental has made its success story from providing excellent service to business travelers.  It was (and will be again one day) a successful strategy due to focusing on attracting full fare or near full fare passengers and they focused a lot less on chasing the lowest fare passengers.  With economizing being the watchword at every company, I suspect many of the usual passengers are either deferring travel or quite possibly moving it to LCC competitors of Continental. 

The key to Continental’s (and other airline suffering this kind of revenue problem) surviving is being able to weather the crisis while maintaining their superior service.  That becomes doubly difficult with no end in sight for this economic crisis.  However, their management team is extremely capable and very tuned in to the needs of an airline.  If there is a team that can manage this event, it is Continental’s. 

I continue to watch for signs that United is weakening more financially and, so far, there are very few public hints.  This strikes me as odd since United is a bit more exposed than most.  They have a generally less fuel efficient fleet, they are subject to more direct competition from both legacy carriers and LCC carriers at more of their hubs and they have what may well be the most acrimonious relationship with their labor of all the legacy carriers.   It makes me wonder what, if anything, they might be successfully concealing in their financial health. 

American Airlines is reporting numbers that suggest that they are struggling to maintain their cash reserves at this point.  They are, however, taking steps to reduce their costs by cutting their fleet numbers and renewing more of their fleet than originally planned.  However, they too, have bad relationships with their labor organizations.  In fact, every major union at AA is now actively lobbying for the opportunity to move closer to a strike.  There is not one word of any agreement on any contract issue and AA’s strategy appears to be delay, delay, delay.  At some point, you really do have to come to agreement with your unions and get on with other important management issues of the day.

I think Continental will recapture its regular business traveler as things improve.  They do too good a job of taking care of their customers at a competitive price.  Other airlines, however, may discover that their customers have found better options.  After all, if you are going to be abused, why not be abused for the lowest price possible?

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The Detroit Free Press reports that the Northwest Airlines logos have been disappearing throughout Detroit Metro Airport this week.  Monday, employees began wearing the Delta Airlines uniform as well. 

The change at the Detroit hub for Northwest signals that Delta is proceeding according to plan in its merger with Northwest Airlines which was consummated just 5 months ago.  There are now 33 Northwest airplanes painted in Delta colors and Delta expects to have more than 250 repainted by the end of 2010.

For the time being, Northwest Airlines remains a wholly owned subsidiary of Delta Airlines until the two airlines’ Certificates of Operations are merged.  This typically can take from 1 to 2 years to accomplish at it involves harmonizing a vast amount of policy and procedure when it comes to flight operations and maintenance.  So far, Delta has made quick progress with bringing the two operations together on a pace that is notably quicker than that of America West and US Airways.

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The CrankyFlier and the Delta blog have both alerted me to some new features coming on board with Delta.  Delta has added the ability to see status on upgrades and standby lists for flights to their main website and they intend to add these features very shortly to their mobile website for PDA Phone users.

Adding the ability to make these checks via cell phone or phone/PDA is a huge advancement for airlines and I suspect we’ll see more of these feature additions to most mainline airlines over the next year. 

For those of you interested in accessing Delta’s mobile site, you can go HERE for instructions.  I’ve already blogged about Continental Airlines’ system HERE.

Filed under: Airline News, Airline Service, Travel Hints by ajax
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Southwest Airlines started service between Minneapolis / St. Paul and Chicago today according to the Minneapolis / St. Paul StarTribune.  The newspaper reports that Southwest managed to kick off the new service with their trademark attention to customers.  Passenger Service Agents even managed to get their first customers to sing a song before boarding.

This marks Southwest’s first of several new routes for this year into new markets.  New York City (La Guardia) and Boston Logan are the next to receive Southwest routes. 

For now, Southwest will be linking MSP to Chicago only but I do foresee them adding routes to other Southwest focus cities such as Denver, St. Louis, Indianapolis or Detroit.  Typically, Northwest Airlines fights back against intruders on their mainstay routes but with the takeover by Delta, one wonders if their is enough attention being paid to the new competition versus integrating the operations.  Other airlines have entered the Chicago / MSP route and left it months later badly bruised from fare wars instituted by the dominant three legacy carriers at the two airports, Northwest Airlines, United and American Airlines.

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Delta has now made it possible to link your Delta SkyMiles account to your Northwest WorldPerks account and use your miles in a combined fashion.  What’s more, they’re offering you 500 miles to do it right now.  Their message reads:

Link Your SkyMiles and WorldPerks Accounts

When you link your Northwest WorldPerks account with your Delta
SkyMiles account you can combine your miles immediately to redeem for
mileage upgrades, Award Travel, and even shopping. Enjoy the benefits
of both programs, even before they’re fully integrated.  Plus, linking
accounts now will enable automatic consolidation of your account
history, including Elite qualification balances, when the programs
merge later this year.

Two simple steps to faster rewards:
1. Validate account numbers and PINs.
You’ll enter both your WorldPerks and your SkyMiles account numbers
and PINs for authentication.
2. Link accounts, transfer miles.
After linking your accounts, you can begin to transfer miles from one
account to the other. You may transfer as many miles as you want in
either direction–as many times as you want–as long as the miles are
there to transfer.

Or you may choose to only link your accounts and not transfer your
miles at this time. You can return at any time to transfer miles
between accounts.

Link your accounts and transfer your miles before April 15, 2009 and
earn 500 bonus miles in your SkyMiles account. Refer to the terms and
conditions for complete details.

 

One thing does occur to me:  There is probably very little overlap between the two customer bases relatively speaking.  Their networks serve different hubs in pretty different geographic locations.  No doubt there is some overlap but probably not as much as we might imagine between an AA / United linkup.

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USA Today’s Today in the Sky Blog is reporting that Richard Branson, billionaire backer of V Australia (Virgin Blue) as well as Virgina Atlantic, Virgin America and Virgin Nigera has pronounced that one of the new or future competitors on the US – Australia routes will have to drop out.  I myself predicted someone would have to fall out in this post HERE.  The difference is that I predicted it would be United or V Australia. 

I agree that United Airlines is probably the most vulnerable on this route system but even United has something that V Australia doesn’t and that’s a network feed.  United can route its considerable network to flights departing for final destinations in Australia and that’s tapping a country (the United States) with a population of over 300 million. 

V Australia, on the other hand, does have the network feed from Virgin Blue but it pales in comparison to QANTAS and it has no firm partners in the United States at present.  (I don’t count a very weak agreement to sell seats on Alaska Airlines from Los Angeles to Seattle.)  Even if V Australia entered into an agreement with its US cousin, Virgin America, it still isn’t tapping into a major network.  Virgin America can feed some traffic from major cities and that’s good but those major cities (New York, Bostin, San Francisco) are exactly where their competitor may be strongest.  United has the San Francisco market, QANTAS and Delta has both NYC and Boston covered. 

QANTAS also has the powerful OneWorld alliance to help as well.  Airlines such as American Airlines help feed it traffic from their networks to destinations in Australia.  V Australia has no such alliance or even a single dominant partner.  Delta, on the other hand, has never flown to Australia but has a huge network in the United States, modern equipment to fly to Australia and a will to do so. 

After 2 to 5 years, I would expect QANTAS and Delta to be the dominant airlines on these routes and potentially the only airlines.  I agree that United may well be the first to go but I don’t think V Australia has that much greater a chance of sticking out to success. 

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I got a new Olympus SP550-UZ camera at Christmas time. With 18x optical zoom, it was a huge improvement over my previous camera, an Olympus C2100-UZ. But after testing it out at DFW at the end of December, I realized I needed just a hair more “oomph” and bought an Olympus TCON-17 1.7x teleconverter. That did it.

Plane spotting at DFW is always a bit boring for long stretches because you get to watch American Airlines’ MD-80 and B737 aircraft land all day long with very few other airlines to break things up. On this visit, I managed to catch the AA PinkRibbon Susan G. Komen Embraer RJ once more. I captured a Sun Country Airlines 737, an Airtran 717 and a Lufthansa A340 all taking off or landing on the far runway from Founder’s Plaza. Previously, they would have been a tiny spec in my camera.

I also saw a hawk standing in the field at the foot of the runway watching both us, the spotters, and the aircraft landing. It seemed like it wondered what the big deal was. One of the DFW fire trucks came by on the service road and goosed his fire pump as he went by much to my surprise. I just happened to be taking a photo of him anyway and got the water spraying out although only close up instead of from far away.

The other catch was a China Airlines Cargo B747-400. We visit a secluded area to shoot from that requires us to drive past the air cargo area on the west side of the airport. As we drove by, we saw this huge aircraft parked and pulled over to take photos. While doing so, I noticed it was buttoned up completely and running its APU and figured it would be taking off soon. It did but took nearly an hour to do so.

We also saw three corporate jets take off one after the other. You can see them HERE, HERE and HERE. Both my wife and I had the odd feeling of almost a race the way they took off and quickly turned south by southeast. About 20 minutes later, my wife guessed it. They were the wealthy taking off for Tampa and the Superbowl. I’m sure she is right. They took off so fast that I was only able to get one good photo of each.

Take a look at this PHOTO.  The aircraft seems to either be coming straight at me or aimed just to the left of me.  In fact, the runway was to the right of me.  The crosswinds for that runway (13R-31L) must have been pretty high today.

One final observation. I’ll be sorry to see the Northwest Airlines livery fade away into Delta. Northwest has, in my opinion, one of the handsomest liveries on a US Airliner and it is a shame that Delta isn’t even retaining some small portion of the logo.

You can view all of the photos HERE.

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There isn’t any industry shaking news right now.  4th quarter / annual financial results are coming out on a variety of airlines but the news is much what you would expect.  Lots of losses, lots of hope for 2009.  So, a few things of interest that are going on but aren’t worth a post of their own.

Airtran

Airtran, interestingly enough, posted its first annual loss since 1999.  What is remarkable to me is that in 10 horrific years in the airline industry, they made a profit until the end of 2008.  That is impressive to me given where they hub from (Atlanta) and who level of competition they experience on almost all of their routes.  You can read more HERE in a USA Today / Associated Press story.

United Airlines

United Airlines posted a rather stunning loss of $1.5 billion (with a “B”) for 2008.  Those losses are a result of both declining revenue *and* being on the wrong side of a lot of fuel hedges.  To a degree, this was already expected.  However, UAL’s unrestricted cash reserves have declined to $2 billion (with a “B”) and while that seems like a lot, it really isn’t.  Yes, the airline industry is in the dumps right now but at some point sooner than later, United needs to earn some money.  Their status quo attitude isn’t helping with that goal.

Virgin Atlantic

The Telegraph newspaper in the UK is carrying THIS rather creative complaint letter from a passenger written to Sir Richard Branson himself.  It’s funny and it points out some flaws that should be addressed.  If for no other reason than humour, it is worth the time to read it.

Southwest Airlines

Southwest Airlines has announced $49 one-way fares between Chicago and its new destination, Minneapolis / St. Paul.  Between Southwest, American Airlines, United Airlines and, most of all, Delta/Northwest Airlines, this is surely going to spark a capacity and fare war between these two cities.   There is no doubt in my mind that the legacy airlines will defend their flights on that route to the utmost.  Most particularly, Delta/Northwest will likely get downright ugly about it and while Southwest does understand the need to spend time growing a new market, they won’t necessarily try to win by wearing down Delta/Northwest with fare sale after fare sale.  If customers don’t embrace Southwest in a reasonable time, that route will get dumped.

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And now we come full circle back to the United States and Europe.  Both have highly developed, highly competitive airline markets.  Each has both LCC type carriers and legacy carriers (and Europe’s legacy carriers are the former national flag carriers in many respects.) 

This won’t be a rebuilding year.  To the contrary, both markets really need one large airline to be removed from the market.  In the case of the United States, I firmly think that should be United Airlines but in Europe that is a harder guess.  If I had to pick an large airline in Europe for the surprise of the year, it would be Lufthansa.  They are, by all accounts, a great airline but I smell trouble in that group.  First, they have been buying into airlines that have been unable to survive on their own.  That lack of survival, in many cases, isn’t because of poor management but just a lack of market share being available to them. 

Lufthansa has bought SWISS, for instance.  I’m not sure why and I’m not sure if they can tell us why.  They could have just as easily taken SWISS’ business  and left them in a heap.  Further, Lufthansa has a lot of Airbus A340 aircraft.  Those airplanes just don’t compete on high capacity, long haul routes anymore.  What’s more, they also have orders in for the Boeing 747-8, another large capacity, four engine aircraft.  Their competitors, Air France/KLM and British Airways, have seen the light in buying more and more Boeing 777 aircraft for their long haul, high capacity routes.  It costs less to operate them and they make more money as a consequence.  So, going out on a limb here, I say we’ll discover that Lufthansa is nearly insolvent some time by the end of 2009. 

Both markets in Europe and the US will continue to face challenges in costs (fuel and more particularly labor) and LCC competition will continue to press air fares downwards.  The real solution for large legacy carriers won’t be found this year.  Expect more losses (with some exceptions such as SWA and jetBlue) and more merger talk in general.

Here are a few more random predictions:

• United Airlines will ask Glenn Tilton to resign and hire an experienced airline executive.  One possibility will be Doug Steenland, most recently Northwest Airlines CEO and now Vice-Chairman of Delta.
• Southwest Airlines will, for the first time, examine adding another aircraft type to their fleet.  My guess is it will be the Embraer 170/190 series.
• Airbus will land a major order for aircraft from a traditional Boeing customer in the United States.  My bet is that Delta orders more Airbus A330 aircraft.
• China and Japan will drop their regional jet programs or, at the least, defer them for up to 5 years.
• Bombardier will announce a major order (more than 20 aircraft) for the Q400 Turbo-Prop from a US Airline.
• If fuel prices remain steady, Airtran will seek to form a small mid-western hub.
• Last but not least, one LCC type carrier such as jetBlue or Virgin America will attempt to fly to DFW Airport (wishful thinking on my part.)

Happy New Year Everyone.

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In keeping with the theme set with yesterday’s post, let’s continue on with some predictions.

The MIddle East

Emirates, Qatar and Etihad:  All airlines that have aggressive growth plans (both in fleet size and the capacity of their aircraft) that don’t seem to be based in reality.  While each of those airlines has successfully developed themselves into eastern hemisphere global airlines, what’s next?  There are few opportunities to grow to the United States or the Far East (both range and regional prejudices apply there) and that leaves Europe (somewhat saturated already) and Africa (not a real place to grow due to low demand).   But they have to fill an amazing number of widebody aircraft they’ve ordered.  We won’t see a merger or a bankruptcy here but I do believe we’ll see these airlines start to reconsider the orders they have on the books and they will slow their growth by deferring these orders.

China

China’s airlines have been on a buying binge as well but, again, with a weakening domestic economy as well as a weakening international economy, they have no place to go.  Like the Middle East contenders, they are likely going to start deferring orders as well. 

The Far East

Airlines based in Taiwan, Korea, Japan, Thailand, Indonesia and Singapore will all maintain their status quo more or less.  There is some possibility that some orders may be deferred but I will bet that some airlines will actually make new orders for new aircraft although not for growth but for greater operating efficiency.

Australia

QANTAS and its affiliate Jetstar have made major investments in new aircraft and major plans in new market development.  However, development of new routes in the Far East and Southeast Asia will slow or even contract as reduced demand continues.  What’s worse is the new competition they’ll experience on their routes to both Europe and the United States.  I expect some order deferrals (probably for the 787) and growth plans will be slowed or deferred altogether as they retrench in the face of competition.

Virgin Blue / V Australia will be challenged in several ways.   They’ll likely continue to do well in the Australian domestic market but now they face competition in the Australia / United States market not only from QANTAS, Air New Zealand and United Airlines but also from Delta.  There will be too many airlines chasing too few seats in this market and the two most vulnerable airlines, in my opinion, are United and V Australia.  United because its service product pales in comparison to any of the other airlines and V Australia because their business model is based more on economy travel than business and first class.

South America

We’ll not see any real growth (with one exception) and we’ll likely not see any real failures here either.  The governments of South American countries tend to jump in and save their national airlines when doom is near. 

Aerolineas Argentinas should be Argentina’s Alitalia but I suspect a takeover of this airline from Grupo Marsans (a Spanish conglomerate) by the Argentine government will happen sometime this year.   Aerlineas Argentinas will continue to muddle through with a incoherent fleet of Airbus aircraft funded by the government and Argentina will see no growth and possibly some severe contraction in their markets because of a failed air traffic system and a very weak economy.

Brazil will continue to be stable more or less but existing Brazilian airlines will have to now contend with David Neeleman’s new airline, Azul.  Neeleman (who holds dual citizenship in Brazil and the United States) understands Brazil and will be offering a highly competitive, high service airline founded with Embraer E-190 aircraft that are very well suited to the Brazilian market.  It will be jetBlue all over again in Brazil for the next 5 years.  However, I expect this new Neeleman airline will one day become an international airline flying both in South America as well as to Europe and the United States.  I’ll go ahead and predict this development for 2014 and they will use Airbus equipment.

Africa

Not much to say here.  African airlines come and go with stunning frequency and usually without much notice.  Delta will continue to develop routes to Africa but this will be aimed towards the very few, relatively stable, major cities Africa has.  South African Airways will find someway to continue to exist but I expect a switch from Airbus aircraft in their long haul services (A340 aircraft currently) to a Boeing fleet using the 777-200LR and 777-300ER and GE engines.  This switch alone could make them profitable.   My prediction is that we’ll hear about a Request For Information (RFI) or a Request For Proposal (RFP) by the end of the year but more likely at this year’s summer airshow in Paris.  It will be a small order, at first, and quite possibly contingent upon Boeing finding new owners for the A340 aircraft they already own.

India

With their new, highly competitive market, India has become a rather intense version of the US market.   With a weakening economy here as well, I look for consolidation and liquidation as the answer.  Look for Kingfisher to merge with someone else such as Jet Airways with Jet Airways being the name retained by the end of 2009.  Another possibility will be forced mergers and/or liquidations by the Indian government particularly if the current party loses power.  The rather laissez faire experiment in airline deregulation in India has left a bad taste in many people’s mouths, most particularly in the opposition parties not currently in power.  India’s current Prime Minister Singh holds degrees in economics and is widely credited with economic reforms in India but the fractured and unsuccessful airline industry is something for the opposition to make a point of.

Stay Tuned for Part III

Filed under: Airline Fleets, Airline Service, Deregulation by ajax
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