United Airlines (ContiUnited aka Continental and United Airlines merged) has a problem.   Continental pilots have enjoyed one of the most restrictive scope clauses in the industry so far and United pilots have seen quite a bit of mainline flying move from their group to being outsourced to regional airlines flying the CRJ-700/900.   Both parties are unhappy with outsourcing the flying and both see the merger and need for a new contract as the perfect opportunity to gain ground on this issue.

At the same time, United needs to keep its costs in line with rivals Delta and American Airlines and, if possible, lower.  To do that under the present day model, that means outsourcing even more flying to regional airlines.

As usual, I would suggest that both parties need to meet in the middle a bit.  Pilots (and other flight crew) could stand to permit lower wagese for this “regional” flying to keep it “in house”.  United needs to recognize that this is about job security and these pilots want some assurance that their seniority means something in bad times.  Neither party is going to get what they want or even a majority of what they want. 

And if this conflict blooms into a multi-year negotiation, things won’t be good for either side.  Pilots will lose out on salary increase opportunities and United will lose out on the synergies that this merger is supposed to provide. 

One solution could be to retain the 50 seat Continental scope clause but pilots permit a lower entry level wage for 51+ seat aircraft or even perhaps a “B” wage scale until a pilot moves into generally accepted mainline aircraft (say 125+ seats.)  The pilots could be permitted to use their seniority to retain a job in the lower pay scale in the event of a downturn and bad times displacing only the newest pilots and at the same time the airline could benefit from being able to use regional airlines for truly regional flying. 

CEO Jeff Smisek would be wise to get creative rather than tough here.  This is a real obstacle to realizing the benefits of his merger.

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Ground workers at Delta (and who were unionized at Northwest airlines) have rejected unionization at the combined airline by a similar vote (52% against) as the flight attendants making it a “win” for Delta. 

Everyone likes that Delta has so far maintained the status quo here although I’m sure the former Northwest employees continue to feel uneasy about this.  I think it’s good for both parties so far but let’s realize that one reason the elections have gone the way they have is the numerical superiority that original Delta employees have.  To be fair, they vote non-union because their experiences at Delta have been largely positive and fair although it would also be right to point out that most of them have never known a different environment. 

The key here is that Delta still needs to work on winning over these Northwest employees.  They still need to reassure these people and, if anything, work even harder at ensuring their needs are met and that they are being treated fairly in the grand scheme of the new airline.  That doesn’t mean they have to bow down to them.  It simply means that people can tell when they are and aren’t being treated fairly. 

Part of treating Northwest airline people fairly means listening to their concerns and accounting for why those concerns exist:  they don’t have a similar history of treatment from airline management at Northwest.   Actions speak louder than words and Delta management would be wise to use that as their mission statement going forward with all their labor groups.

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And I’ll admit that I’m mildly surprised by this development.

It turns out that unionization of Delta flight attendants was rejected by a vote of 53% against the idea.  I speculated in a post found HERE that this might actually happen but I did wonder about the results since those former Northwest Airlines flight attendants are a battle hardened crew.

This is good news.  It’s good news for Delta flight attendants and it is great news for Delta management.  The best thing management could do is to make sure they continue to treat their cabin crew with respect.  Keep them compensated well and ensure those needs are getting met.   Most of all, don’t gloat and don’t threaten.  Management got what it wanted and it is best to be magnanimous about it.

I don’t blame the NWA cabin crew for wanting a union.  They needed one when doing combat with NWA management.  I think that the movement to put a union in place will actually slow some as long as management stays the course. 

In some ways, the people who get dinged the most from this development is American Airlines.  Why?  Because Delta will continue to get better productivity and enjoy more harmonious labor relations than AA and AA has been counting on the new SuperLegacies getting hit over the head.

In addition, to those who believed the new labor organization would be easier at airlines as result of the rules changes, I think you’re wrong.  This most recent vote showed that flight attendants, even ones who weren’t that emotional about the decision, do know how to vote when it counts.

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In the world of airline union labor leaders, there is one guy who has stood out among all the others.  Lee Moak of Delta Airlines.

Captain Moak, leader of the Delta Airlines’ pilots union when Delta merger with Northwest Airlines, has consistently shown that he understands the changing business model of the airline industry.  He has embraced the idea that mergers don’t have to be anti-union and was critical in the peaceful integration of pilot’s seniority lists during the Delta/Northwest merger.   An almost unheard of accomplishment.

Moak approaches his leadership as an obligation to engage with parties as opposed to the far more common tactic of confrontation.   He allows his actions to speak for him rather than rhetoric and that has allowed him to succeed where many others have simply maintained a status quo that hasnt been working for years.

Now he’ll head the national leadership of ALPA and this is good for a lot of airlines.  He’ll have the opportunity to set a different tone and, perhaps, mentor others into his engagement approach. 

When I say it’s good for airlines, I mean that it is good for both labor and management.  All too often, there is little engagement between those two parties and way too much conflict.  Talking is good and moving off rhetoric and talking points towards real compromise and finding solutions to new problems will be good for everyone. 

It should be very satisfying to see him lead ALPA and he’s a critical person to watch in this industry.

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I like Southwest and feel that they have, more than any other airline, executed an extremely consistent business plan for nearly 40 years.  I think they’re a better value today than they were 20 years ago and I recommend them frequently when people ask me for a suggestion on what to fly. 

That said, I think Southwest has a few weaknesses that have really begun to stand out in the last few years.  One of those is democracy.  There was a time when a passenger on Southwest Airlines knew one thing for sure:  everyone got on that aircraft on pretty equal terms.  Lately, in the drive to attract a more business oriented passenger, things have begun to seem, well, different.

Now some passengers appear to be more equal than others. 

That comes from some of the fees that Southwest has instituted.  Mind you, I like their approach to fees in general because you are getting more for paying more on Southwest vs other airlines charging you for what was once included.   But this rather soft approach to offering something attractive to the business traveler is starting to look a bit silly. 

I genuinely believe that Southwest should look at adopting a business class on their aircraft.  I think they could pioneer a different business class that offers value, comfort and workspace for a great price and I think buying Airtran gives them the chance to take a look at the viability of that.  It would be poor form to dismiss it out of hand at this point.

They’ve already said they’re going to replace/upgrade their IT systems and I think that’s fantastic.  However, I would suggest that instead of an internally focused effort over many years, it’s time to do a cost benefit analysis on adopting an industry standard.  There is a reason for Southwest’s present system and that has to do with the rather unjust way it was handled in other reservations systems nearly 2 decades ago. 

Thing is, that world doesn’t really exist anymore.  I admired their approach to internet sales and going it alone.  I liked that they saved money on travel agency fees back in those days.  But those days are over and I wouldn’t mind seeing Southwest listed alongside other airlines when I shop. 

I think Southwest is now missing traffic because they aren’t listed alongside other airlines on travel websites.  I think they’re too easy to forget in many instances and a bit of a pain to compare fares with at other times.  Adopting new IT systems is a perfect time to do a cost benefit analysis of joining the rest of the world again when it comes to booking a flight. It might be the right decision.

Southwest likes experiments and buying Airtran and deciding to keep the Boeing 717 fleet is an experiment.  Southwest will see how pilots get along with the concept of two fleet types and how managing crews across these types works out for them.  It also allows them to see what happens when they right-size an aircraft to a market.  That’s all good but I think they could stand to go one step farther.

Which leads to the idea that Southwest doesn’t have hubs.  Well, actually, they do.  If you want to call them focus cities, fine by me but they’re hubs.  People fly aircraft into these “hubs” and connect with other flights to other destinations.  The difference is that flights into and out of these hubs are more rationally scheduled and don’t involve “banks” of connecting flights.

But they still have “regional” flights bringing traffic to these “hubs” where passengers can connect to a flight to a destination farther away.   It’s time to look at the possibilities of flying these “regional” flights with different equipment.  It is no secret that I like the turbo-props for these flights because a turbo-prop can generally fly a segment just as fast as a jet when its distances are under 400 miles. 

Southwest has a lot of sub-400 mile routes and I think they’re going to have more in the future, not less.  A fuel efficient turbo-prop would permit Southwest to offer even lower fares and with Southwest’s famous ability to operate and maintain aircraft, I think they could make it work at a level not seen in the US so far.

But if turbo-props are just too revolutionary, they should also take a look at the latest generation of so called regional jets.  I like the Embraer E170/190 class for Southwest.  It fits all their original criteria for a jet and can fly those sub-400 mile routes very quickly and efficiently.  It’s a better choice for a two type fleet than the 717 is.  And it has the range to fly some long and thin (for Southwest) routes that would fit well within their point to point style of flying.

It’s a great time for Southwest to learn from this merger.   I respect their decision to be Southwest but that decision doesn’t mean things don’t change.  Just looking at Southwest’s history for the past 20 years will reveal plenty of change and it feels like one of those moments when SWA can adopt some change while integrating another airline.  They would be wise to examine what Airtran was doing right before discarding it out of hand.

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With the Southwest/Airtran merger announcement, there has been a lot of rampant speculation on what US Airways or American Airlines should do in the face of this industry consolidation.  Many see them about to come under pressure from financial markets and shareholders to find a pathway to play in this consolidation game. 

While you could argue that US Airways is at a disadvantage to any of the SuperLegacy airlines now, I don’t think that AA is so much at a disadvantage that they *must* do something.  In fact, their problem is that a merger doesn’t bring much to the table for them since they would be the surviving entity and they already have high costs.  US Airways is doing just fine for now and I think they can afford to be cagey for a while at the least.

The truth is, I think jetBlue will be under more pressure than any other airline.  Their growth is largely stalled right now and then continue to re-trench in existing markets.  They’re busy defending NYC, Boston and, to a lesser extent, the Northeast.   While I admire how jetBlue got its foothold by operating out of JFK airport, I also think that they’ve begun to forget just how much the Atlantic seaboard chews up airlines. 

Yes, they’ve got their nifty trans-continental routes to the west coast and they appear to do pretty good with those on some level.  What jetBlue doesn’t have is a clearly defined pathway forward.  What’s their stategy?  The status quo?  More and more trans-continental routes that don’t offer all that great aircraft utility?  More flights from the Northeast to Florida?  More flights from Florida to Caribbean leisure destinations?  None of that sounds very attractive.

Lest you think I’m speculating, read this story quoting CEO Dave Barger.   He states they’ll continue to focus on their “growth plan” for Boston and the Caribbean.  I’ll point out that Southwest Airlines is already a national airline with a hole in their network.  That changes with the addition of Airtran and they become *much* more competitive with jetBlue upon completion of the merger.  Yes, I think SWA will stumble some during integration but I do not think that will inhibit their ultimate success. 

Contrary to popular belief, there is some low hanging fruit out there for the right airline.  jetBlue has the right service product, labor costs and, frankly, network to go take advantage of that.  But there is no vision for that kind of growth.

I suspect one thing that is inhibiting such growth is aircraft financing.  It’s a tight credit market out there and good terms on aircraft aren’t nearly as easy to acquire as they once were.  However, there are airlines out there with plenty of the right equipment and who could possibly be bought for the right price. 

I think it’s jetBlue that finds itself under pressure for an acquisition and/or merger.  It can’t continue to grow in its existing markets.  There isn’t any room to grow without a bruising and expensive battle.  I think it is going to take new leadership at jetBlue.  Dave Barger does a great job of keeping operations going and maintaining the status quo but he has done a poor job of setting a vision for growth into new markets.  There is plenty of opportunity out there and many airlines are seeing it and executing a strategy for it.  That is going to put a lot of pressure on jetBlue in the next year or two to find a way to articulate what their next plan is.

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About 24 hours after the Southwest Airlines / Airtran announcement, rampant speculation on who American Airlines should partner with started up.  The truth is, while I can make an argument for them to merge/acquire US Airways, I think they’ll shy away from a merger.  If they do go shopping for an acquisition, I don’t think it will be oriented towards a real “merger” a la Delta/Northwest or ContiUnited. 

There are a couple of targets left.  Alaska Airlines strikes me as one that should interest Southwest, American Airlines and Delta.  I think it’s pretty hard to get a deal done with Delta because of regulatory issues particularly in the Seattle area.  I think it’s pretty hard to for AA to get a deal done with Alaska because both parties have high labor costs and AA just won’t know what to do with the rather unusual operations Alaska performs in Alaska. 

I don’t think anyone is going to buy jetBlue at present and jetBlue’s CEO says they’re going to grow organically.  I would be happy to see jetBlue just get outside of its NY/Florida comfort zone and stop treating the midwest like it has the plague.

Frontier could be an interesting proposition for jetBlue, I think.  Sadly, I also think that Republic Airways is going to hold on to Frontier for dear life given what’s going on in the regional airline world.  Nevertheless, I do think that jetBlue could harmonize Frontier’s service and routes to the jetBlue way and make something of that airline. 

US Airways?  Well, they are the somewhat pretty girl who never gets asked out anywhere except to make some other guy jealous.  Until they get their labor house in order, I think it’s going to stay that way.  Their executive corps, however, ought to be attractive to someone.  Despite all of US Airways weakenesses and their “East/West” style of ops, those guys make money.  There is a lot to be said for that. 

I think they are more attractive for bringing into a new alliance.  Currently, US Airways belongs to Star Alliance but ContiUnited kind of makes them look superfluous.  SkyTeam just doesn’t need them either.  Oneworld aka American Airlines/British Airways,  on the other hand, could perhaps take advantage of them.  The deal would have to be a bit sweet because US Airways, if nothing else, is enjoying a nice “under the radar” ride on Star Alliance right now. 

I can’t think of anyone who could find a use for Virgin America at this point except, well, the Virgin Group.  Even the Virgin Group seems to have a hard time seeing a real value for working with Virgin America.  If they had any money, I would point them to Frontier but I think Republic Airways would just laugh out loud.

The truth is, I think there is suddenly some opportunity out there to start a new airline.  I would look for weak airlines who have major hubs and very little competition.  Some place where business customers and leisure travelers alike are dissatisfied with their current offerings and restrictions.  Some place that has a history of embracing the airline industry and where you can hire experienced people to kick that venture off.  That would be a great place to start something new.  I wonder where such a place might be?

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Regulatory authorities are going to start seeing Southwest Airlines differently as a result of this merger.  SWA has done a great job of characterizing itself as the small underdog.  In truth, it’s a big airline and this merger is going to get authorities such as the Department of Transporation and Department of Justice to see it a bit differently.  SWA flexes more muscle against its own competitors than most realize and this move does eliminate a lot of problems that Airtran was giving it.  Airtran had lower costs and a nice service product and competed very, very well against SWA on major market routes.  SWA will forever be seen differently going forward now.

Southwest’s fleet strategy has always been a popular topic of conversation.  While it’s true that they’ve stayed close to their 737 roots, different aircraft types aren’t unheard of for them.  In the 1970’s and 1980’s, they briefly operated 727 aircraft.  In the 1980’s they bought Muse Air and operated their MD-80 aircraft for a while too.  The addition of the 737-500 was, in some senses, the addition of a different type for them as well. 

Adding the 717 isn’t quite the challenge for them that many think it is.  This purchase grows their fleet from approximately 550 aircraft to 602 737s and 86 717s or 686 aircraft total.  Let’s put that in perspective for a minute.  American Airlines has about 630 aircraft, Delta about 728 and the soon to be ContiUnited will have 700.  Southwest leaps past AA and plays in the SuperLegacy category on fleet numbers.  It will continue to lag behind on capacity measured as revenue passenger miles.  Nonetheless, SWA is a huge player on a global scale. 

There is already speculation about SWA “de-hubbing” Atlanta.  Well, I think the structure  of the routes into and out of Atlanta will change dramatically.  I think we’ll see a SWA-like operation in Atlanta after a period of time.  However, it will remain a “hub” in the sense that will be a major player in the SWA system just like other cities such as Phoenix, Los Angeles, Houston, Dallas, Denver and Chicago.  Those cities are hubs too.  SWA just doesn’t operate flights into their “hubs” like a network carrier does. 

I wonder if SWA isn’t missing an opportunity to reinvent itself with this purchase.  Airtran did many things very, very well and they are a profitable and very competitive carrier.  They introduced Sirius/XM Satellite Radio on their flights.  They were one of the very first airlines to have an all Aircell GoGo Wifi fleet.  Their business class product is popular and upgrades to that business class product were also profitable. 

There are some elements here that SWA could stand to step back and examine.  They aren’t nearly as far from their own business model as they think.  SWA is working hard to attract the business passenger and that business class product might well be worth keeping and even introducing across the fleet.  Southwest is introducing Row44 Wifi (too slowly in most people’s opinion) and now they have an airline that knows how to do it quickly.  They have a unique opportunity to take a look inside the viability of Aircell’s GoGo product and see if they don’t want to reverse course. 

I don’t think onboard entertainment is necessary but I do think the Airtran satellite radio offering is a great value added item on their flights and, again, it’s worth taking a look at.  I don’t want SWA to be jetBlue but the satellite radio quite possibly “fits” within their quirky nature. 

I don’t think many airlines, if any at all, will object to this merger.  It eliminates a lower cost competitor for them and replaces them with someone who has rising costs that are moving closer to legacy airline costs these days.  In addition, the sheer size of SWA and the access it gains to major slot-controlled markets such as NYC and Washington D.C. mean that legacy airlines can now argue that there *is* enough competition in those areas.  I wouldn’t be surprised if Delta and US Airways wanted to revisit their proposed slot swap deal in the near future.

Finally, there is another airline out there that kind of fits neatly into this mix.  An airline that would be as unconventional as a purchase for SWA but which would really be a west coast mirror equivalent of Airtran purchase.  Alaska Airlines.   If SWA is willing to take on integrating an LCC carrier like Airtran, it could take on integrating a sub-legacy carrier such as Alaska Airlines.  Especially one with a fleet type that remains compatible with SWA but which offers even more potential since Alaska Airlines operates a broad range of the 737 family. Such a purchase gives SWA a strong presence in all of the regions in the United States and an opportunity to see how a regional airline (Horizon Airlines) works using a very cost effective type:  the The Dash 8 / Q400.

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If nothing else, mergers today give me an opportunity to come up with monikers for them.  While the merger between Southwest Airlines and Airtran is being described as an acquisition, it is a merger with the Southwest brand surviving.  And this is a pretty big bite for Southwest. 

Southwest has made purchases before but never one nearly so big.  Airtran is a pretty big airline and pretty successful too.  Let’s take a look at the questions we all have.

The Boeing 717:  I think SWA will keep this in fleet for a while anyway.  The airplane works well within the Airtran model and I think SWA has been searching for a smaller aircraft it could operate for a while now.  The 737-500 never really worked that well for them and the -600 just had too high operating costs to be worthy.  This aircraft gives SWA an opportunity to play with their mix a bit more and its easy to integrate into scheduling because there are enough for a pilot base and it doesn’t change their flight attendant mix on other aircraft.  I think this aircraft will stick around for  a while and I think that if SWA does get rid of them eventually, we’ll continue to see a smaller aircraft in the SWA fleet a la the 717.

Flying from DFW.  CEO Gary Kelly says the Wright Amendment prohibits them from flying from DFW and so the integrated airline will cease DFW operations.   I can find nothing that prohibits SWA from flying from both airports and if Airtran departs DFW, this is going to be a pretty big blow to consumers in the area.  Airtran provided so much needed competition on some routes from DFW and if those go away, I think we’ll see fares from American Airlines rise astronomically.  DFW needs to explore this with these two airlines.

Union integration:  I think this is going to be a bit tricky.  On the whole, the SWA pilot and flight attendant contracts are much better than the corresponding contracts at Airtran.  If the SWA unions are willing to integrate somewhat fairly,  perhaps this won’t be too much of a problem.  I think those unions will be a bit fussy about bringing over the Airtran crews and I wouldn’t be surprised to see them try to simply “staple” the Airtran lists to the bottom of the SWA seniority lists.  Gary Kelly needs to do more on behalf of Airtran employees in this area and perhaps he will.

Milwaukee:  I think we see routes shrink in this city and fares go up.  Airtran won over Milwaukee and that wasn’t easy to do.  I don’t know if Southwest will succeed as well as Airtran in that market and suddenly I wonder if Frontier doesn’t have an opportunity in this city.  They know how to hold their own with SWA.

Management teams:  Expect to see a few Airtran executives move over to SWA.  Expect most to depart.  Southwest is a pretty insular company but even more so when it comes to its executive corps.  I wouldn’t be surprised if some Airtran executives are working on their “flare” this morning.

International flying:  I think Southwest will maintain the existing Airtran international routes and I think they’ll awkwardly explore ways to expand it in the distant future.  To withdraw it all at this point would be a big loss.

Airtran’s Business Class:  Say Buh-Bye.  Southwest will dump this product quickly.  Southwest never sees the value of business class and I think this will potentially be a mistake.  Airtran’s business class is pretty nice and very attractively priced.  Retaining it even if just for some markets might not be a bad idea.  Think NYC – Washington, D.C. here.

I think this merger will happen and I think it will ultimately result in a stronger airline.  However, I think it will also be very awkardly executed.  SWA does things its own way and always has.  It always stubbornly clings to its own methods and madness and that works pretty well for them.  However, they are a big boy airline now and it wouldn’t hurt to start looking a little more closely at how their fellow competitors are doing things.  I’m not suggesting change for the sake of change.  I’m suggesting that Airtran figured out how to do pretty well with products that are pretty different from SWA.  Others have too.  It’s worth looking at the other guy’s success before you throw out the bathwater. 

Sadly, I think SWA won’t do this and I think SWA will have some labor problems and I think this will take longer and be more awkward than it has to.  I do think SWA is every bit capable of losing some of the advantages that buying Airtran brings.   Like losing a reservations system that knows how to do things like codeshares and international flights.   This is a risky deal for SWA.  One they can conclude and profit from but I think this will be harder to do than many seem to.

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Southwest Airlines has announced a tentative merger/purchase agreement to buy Airtran Airlines for $1.4 billion today and, yes, I was completely surprised.  It’s a bold move and offers SWA huge access to Atlanta and competition Delta Airlines (who I imagine has already opened up the desk drawer and taken a swig of antacid this morning).  It offers more access to the NYC and Washington DC areas, too.   And it brings that international experience to the table as well.

As much as this is about growth and access to new markets, it’s also about eliminating some damaging competition in other markets.   SWA and Airtran are already beating each other up in the North East and in Milwaukee.  It was soon to be only a matter of time before the bumped heads elsewhere too.   This is as much about Southwest elimating that distraction and allowing it to focus on competing with the SuperLegacy airlines.  More tomorrow.

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There is a rumour that Sun Country Airlines may be in play for being purchased / merged with another airline.  Candidates suggested are Delta, Airtran and Southwest Airlines.

Delta?  Never gonna happen.  They don’t need Sun Country and they don’t need the regulatory headaches that a Sun Country purchase offers.

Airtran?  Kind of doubt it.  Airtran has been avoiding direct competition with legacies lately and they’ve got that area of the country covered with their operations in Milwaukee.  In addition, Aitran isn’t a 737-800 operator and doens’t need that headache at present.

Southwest?  Now that’s a marriage.  One that I suggested at the New Year in this post.  Mind you, I don’t think it will be for the weekly flights to London.  The fleet is compatible and despite concerns over it being entire leased, it’s a good fit and allows SWA to start 737-800 ops just that much sooner and on routes that are that much more lucrative. 

It also offers MSP gates and more opportunities to fly more places.  In fact, it offers just the right kind of opportunities:  international flying.  Southwest Airlines recognizes that international flying is something that they need to consider.  However, it involves an area of expertise that just isn’t at SWA and within their business model.

Sun Country offers that ready-made expertise and to a variety of destinations.  With that experience, SWA suddenly has the ability to go to Mexico and Canada which are already a part of its codeshare work (and where is that codeshare with Volaris, by the way?).  But the experience in the backend, reservations, visas, handling foreign currency, etc. is all offered with a Sun Country purchase. 

It’s a ready made solution for growth but it has one risk. Union agreements.  And Sun Country has a lof of employees who feel that Sun Country was never given an unfettered opportunity to grow.  Whether that’s true or not, it’s an obstacle.  If SWA can convince its unions to offer senior merging on a date of hire basis, it might work.  If SWA’s unions insist on a purchase being “stapled” to the back of the seniority list, it’s unlikely it will work.

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The pilots of Continental and United Airlines have decided to throw a whopper on the table and see if the stink gets them anywhere in their negotiations for a unified pilots’ contract for the proposed ContiUnited merger.  They want an end to all outsourcing of flights.  In other words, they want ContiUnited pilots to fly all the flights.

Never. Gonna. Happen.

Pilots want job security and I can’t blame them.  The investment in both time and money towards their career makes them much more tied to an airline to earn a living than most people experience in their lives.  The seniority system just compounds that issue for them even more. 

But airlines aren’t going to agree to eliminating regional airline partners for their flying.  They can’t.  It isn’t economically viable at the labor rates insisted upon by unions of these legacy airlines.

Each part could give a little on this.  Regional airlines don’t offer just cheap pilots.  They offer flexibility and less expensive flight attendants and even less expensive maintenance.   Both parties need to find a way to offer employees better job security in exchange for more competitive costs.

Given that this is most important for pilots, it seems to me that the SuperLegacy airlines might be better served by “leasing” not only their aircraft but their employees to these regional airlines in down times.  In other words, craft an agreement that allows the SuperLegacy pilots to displace the regional partner pilots when their laid off.  Lease those pilots at the regional partner rate and, at the least, preserve some job security. 

It’s one way to work within the seniority system.  A system that, frankly, pilot unions are using to make their membership become indentured to airines.  It’s a system that I disagree with but if you must preserve it, at least find some flexibility within it.

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British Airways CEO and soon to be chairman of the International Airlines Group, the holding company for the merged BA and Iberia airlines, says he and his company have a large list of acquisition and merger targets as part of a strategy to become the world’s largest airline.

It’s a strategy that would have the potential for really shaking up the airline world because it would be the first real multi-national airline (Air France/KLM and the soon to be BA/Iberia consolidations don’t count given that they are in the European Union.)  Yes, there are already cross-border airline but they’re typically between two countries within an economic union or with strong business ties between each other. 

A real multi-national airline would be much more like something between British Airways and American Airlines or Delta and Cathay Pacific. 

Obviously strong ownership restrictions in many countries would inhibit such a strategy and frankly I’m a bit skeptical of Walsh’s optimism that they can be overcome.  Furthermore, I think that such a grouping is an ill-fit for the current world we live in.  It potentially denies countries strategic capabilities that they both want and need.

Frankly, I think Walsh and the new International Airlines Group would be far better off just making their new airline work profitably for now.  They already have strong cultural problems to solve, I suspect, as well as the need to compete in the present markets they occupy.

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As part of the deal to allow Continental and United Airlines merge, the two airlines will be required to open up some space at Newark Liberty International Airport and guess who’s leasing the take-off and landing spots?

Southwest Airlines. 

I think this is smart of ContiUnited.  They could have found any number of airlines that would be acceptable to the Department of Justice and Department of Transportation but that would mean allowing an airline with potentially even lower costs gaining a foothold.

Instead, they did a deal with an airline that, on some level, allows them to compete.  Both airlines have experience competing with Southwest in various markets and both have managed to co-exist with Southwest without being driven out of markets.   In other words, I think they realized the devil they knew was a whole lot better than the devils they don’t. 

For Southwest, I think this is great.  They get enough slots to do 18 daily roundtrips from an airport that arguably is more convenient to Manhattan and they get to build on their operations in the area by operating from 2 of the 3 major airports in the NYC area.  (3 of 4 if you count Long Island’s Islip airport.)

No announcement was made on what flights SWA might operate from Newark but I have a few guesses.  They could connect to Dulles or Baltimore’s BWI for one.  I’m sure we’ll see some flights between Chicago’s Midway and Newark.  I wouldn’t be too surprised to see a flight or 3 to Houston, believe it or not. 

One thing is for sure, they won’t be flights on leisure routes.

When they’re able to, I would expect a few flights from the NYC to Dallas area and Newark would be a great airport operate those flights to and from.  In the meantime, I would not be one bit surprised to see SWA re-jigger their route system to offer a few one-stop flights between the two cities.   St. Louis or Kansas City could be choices for that.

Why do they only give up slots in Newark?  Continental and United have very little route overlap and the one airport that the two had dominance at was Newark.  Actually, Continental had overwhelming dominance at Newark but when you added in United’s flights to major markets, it crossed the line.  This is good news for ContiUnited and expect their merger to close in late November or early December pending approval from a few other agencies.

In the meantime, someone please hand Senator Oberstar from Minnesota a roll of Tums, please.

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The airline industry is a funny place to work.  Once you’ve worked inside it or lived inside it, it gets into your blood.  It’s hard to walk away from because airlines really are families and one doesn’t walk away from a family very often.  Even the industry is a family.  Two people from different airlines might disagree vociferously on something inside the industry but if an outsider offers a different criticism, you’ll see those two band together like brothers to fight back.  Sound familiar?

Despite the fact that we know most consumers buy on price, there is a strong brand liability that exists out there too.  A customer might choose to fly American Airlines to Europe but if he or she is a Continental fan, you can bet they’ll have nothing but criticisms and comparisons to what they think Continental is.  That customer loyalty, I think, derives from an attraction to the company DNA that was established over 40 years or more. 

American Airlines was always a bit more of a no nonsense airline that appealed to the conservative businessman.  Delta was about southern hospitality.  Northwest Airlines was attractive to that stoic Midwesterner since it mirrored their values.  Continental was always a bit of flash and upstart which attracted the entrepreneur.  Braniff was somewhat similar although there was a certain Texas adventurer to it.  TWA was Hollywood and Pan Am was blue blood.  Those airline personalities attracted similar people and although that has been diluted to a fair degree today, that DNA is still there.

I have to admit that I marveled at how readily people accepted the Delta / Northwest merger.  It was, in my mind, a clash of cultures.  It was as if the Southern Dandy went to Minnesota and married a solid, conservative blonde Swede.  Part of me expected neither family to accept the marriage.  Yet, they made it work.  They not only made it work, they made it look like true love.  I was,  and continue to be,  impressed.   Now and then there is a marriage that works out like that.

But, historically, mergers among airlines don’t often work out like that.  There are still former Republic Airlines employees who will give you a bit of an earful over Northwest Airlines purchase of Republic.   Until TWA’s demise, there were Ozark employees who would still privately confess great irritation at TWA purchasing their home.   Look into Delta and you’ll find Western Airlines employees who feel the same.  It’s usually more a marriage of convenience than a marriage of love. 

Now we have Continental and United marrying.  United, arguably the oldest legacy airline of the United States and certainly of blue blood in the US, is marrying Continental Airlines, a western frontier upstart of a far greater checkered past.  Continental employees are chagrined because they see themselves as proud and independent and the airline who survived the worst and came out of that as one of the best airlines in the world.  United Airlines employees are feeling a sense of loss because despite the fact that their name and headquarters exist, Continental is really the daddy in this union and that just doesn’t seem right to them.  That became clear when John Tague didn’t make the cut in the marriage.  Nor did several other prominent and, quite frankly, strong performing United executives.  It might be United’s name but it’s Continental’s leadership that is going to go forward.

Continental employees wonder why they need United given their success for the past 15 years.  What does United bring to the table that they don’t already have?  United employees speculate that these upstarts are going to be overwhelmed faced with the prospect of running a “real” airline.  The truth is, neither concern is really valid. 

Customers seem to sense the same issues and certainly the home cities of each airlines’ headquarters.  It’s a problem for this merger.  Not an insurmountable problem and I do believe that once the merger is consummated and has time to settle, many of those fears really will go away. 

What airline is a United customer going to be flying after this merger is done?  What airline is a Continental frequent flier going to be a member of when it’s done?  I’ll wager that the average customer just can’t answer that based on the way things have gone so far.  I’m a relatively dispassionate observer to this and I can’t answer that question. 

The problem is that people can sense this fear and they’re reacting to it on many different levels.  It’s a fear that is almost palpable at this point and I think that comes from the somewhat mixed message that the new “brand” is sending.  People see a Continental airplane with a United name and I think that strikes them as an attempt to be all things to all people.  Notice that Delta and Northwest avoided that mixed message. 

You can change the typeface of the name United but you can’t change the mixed message.  Brett Snyder of the Cranky Flier is quoted HERE in the Chicago Tribune as saying:

“I’m a huge fan of making a clean break, unless you’re planning on replicating the service. . . ” and “”I don’t know how you meet expectations from both sides when you’re not really making a clear brand statement.”

Bingo.  He’s dead right.  Expectations aren’t getting met on either side.  This is much more an old school airline merger.  I actually agree that a new brand would have been a far better approach.  Even adopting an old brand that neither had history with would have been better if it set expectations for both sides.  Imagine the reaction if this new union decided to call themselves TWA or Braniff or even National. 

Even a new brand incorporating some elements from both would have sent a better message.  What if they called themselves Flagship Airlines with a new logo designed to evoke the service they intended to deliver?  It would have delivered a much more clear message either way. 

Here is an interesting observation:  Both airlines do have some distant genetic heritage in common.  Walter Varney who founded airlines that were direct ancestors of both United and Continental.  I’m not proposing the name Varney Airlines but I do wonder if there isn’t something in that history that would lend itself to a good name.

The problem is that it’s hard to walk away from the legacies each brand offer.  There are decades of branding invested in the names United and Continental.  There are decades of history behind each name and decades of family history in each name.  Even airline executives have some sort of emotional attachment to their airline and they aren’t immune to being influenced by that despite the belief they are cold blooded people focused on profits.  They just aren’t.  Not even Glenn Tilton who has relatively little history working in the airline industry.

They problem inside each airline is that the employees haven’t been given something to rally around.  How does a Continental employee rally around the idea that their company is losing its headquarters and name?  How does a United employee get excited about seeing his proud airline re-badged in the image of Continental?   A new name would have evoked some rebellion but it would have sent a message about this being a marriage of equals and I think employees and customers might have been vocal about the change but I also think they would have come to accept it relatively quick. . . especially if the new name was a good one that evoked something real. 

You couldn’t introduce a name like “Acura” or “Lexus” or “Lucent”.  That’s why adopting the name of a no longer existing airline might have been better.  It would have given an instant history and acceptance to the name and, yet, signaled a new start.  There are lot of defunct names out there to rally around.  And there are a lot of possibilities when it comes to new names. 

It’s not that I don’t think that this merger will succeed.  I do think it will succeed.  I just don’t think it will go very smoothly and I don’t think people will adjust to it very easily for the next 5 or 6 years.  That leaves them at a disadvantage to Delta and American Airlines. 

The next best thing CEO Jeff Smisek could do is get that entire fleet painted in the new colors faster than anyone could believe possible.  Get those operations consolidated quickly and get the customer facing side of the company unified in appearance asap.  Get something out there that people both inside and out of the company can rally around and accept.  Get the Continental executives up to Chicago as soon as the day of the legal merger and by up to Chicago, I mean have them living there on day one, not commuting.   That’s an important overture to make to the United employees.  Similarly, embed your best Continental managers into United hubs and so that the Continental employees see their influence day to day and don’t feel abandoned. 

This merger is a long way from being done smoothly.  The two entities have to make nice with their union employees and get them to agree on a transition to one contract and none of those employees have a reason to buy into this so far.   One thing is certain:  If the employees don’t buy into this merger and cooperate, this will be a long and painful merger resulting in a huge loss of opportunity in the market place.  The synergies won’t be realized and the financial markets will voice their disapproval fairly quick, too.

Branding is more than just communicating with a customer.  It’s a united front (no pun intended) for employees to work under and without a strong brand to connect to, those employees won’t know who they’re fighting for.

Filed under: Airline History, Airline News, Airline Service, Airlines Alliances by ajax
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A new executive team for the merged airlines Continental and United Airlines has been announced.  We already knew that Glenn Tilton was moving up to non-executive Chairman and Jeff Smisek would be CEO.  However, now we officially know the fate of John Tague.  His position of President is going to Jeff Smisek. 

John Tague is largely credited for the operational turnaround at United and appears to have done a great job while there.  I think it is a shame to see him going away and I do hope another airline out there scoops him up. 

You know, someone like American Airlines who could use a little Tagueness. 

Also going away is Kathryn Mikells, current United Airlines CFO and also somone who has gotten a lot of credit for getting United’s financial house in order. 

Frankly, it bothers me to see the two shining stars of United leaving.

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United Airlines announced a second quarter profit of $273 million and that’s an impressive result.  If Continental’s come in as impressive as that, the heat will be on American Airlines in ways we can only imagine. 

Speaking of United and Continental . . . their respective pilot groups have come to an agreement on transition.  There is a transition agreement now in place for them but don’t think this means that the groups are near a final merge agreement.  The transition agreement just governs how the two airlines will operate with the pilots during the merger transition.  I suspect that obtaining a final agreement is still going to be a bit bloody.

BA cabin crew have rejected the latest British Airways offer for settlement.  After voting was completed, the latest offer was rejected by about 2/3’s of the labor group.   While that isn’t wholesale rejection, it’s significant enough to be a real problem.  The hold up is the restoration of flight benefits.  BA did finally agree to restore flight benefits to crew that had originally had them taken away for participating in the first round of strikes earlier this year.  However, they were restored with loss of seniority and that means they were restored as if these crew were entry level again.  This is an area that I’m afraid I side with the union on.  Those flight benefits shouldn’t have been taken away as a punitive measure and its the one big misstep by Willie Walsh.  The smart move would be to cave in, get another vote going and come to a final settlement. 

At the Farnborough International Airshow, single aisle aircraft orders are happening at a rapid clip.  Both lessors (GECAS, Air Lease Corp, etc) and airlines themselves (LAN, Flybe, etc) are ordering large amounts of aircraft for delivery over the next several years.  LAN has an agreement for up to 50 Airbus A320 class aircraft and Flybe has ordered 35 of the Embraer E-175 jets.  GECAS, GE’s leasing arm, has ordered 40 737-800 aircraft.  Still, I think this reflect the rather dismal orders placed last year more than it does resounding growth for the next few years.  In other words, I think a lot of these are replacement equipment rather than aircraft purchased for growth.

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For the past 3 years or more, we’ve heard virtually every airline CEO talk about the need for consolidation and the problem of too many seats chasing too many passengers.  Now we have Northwest Airlines fully consolidated into Delta and we’re about to see United and Continetal merge together as well.  But does that really solve the long term problems in this industry?

One the one hand, I admire how the airlines are using their dire straits to argue for greater dominance in their industry.  It’s the legacies doing this and their “poor me” story is working very well among the public as well as among their own employees. 

I would argue that, if anything, we need even stronger competiton in the industry for the long term.  The greater dominance we allow isn’t necessarily going to raise prices all that much but what it will do is make it ever more cost prohibitive for new entrants into the market.  That’s the ultimate goal of consolidation:  keep the new guys out and keep the current competition neutralized as much as possible.

Quite honestly, what we really need is for a legacy airline to go out of business and liquidate.  I had long hoped it would be United who had to do this but, sadly, they scrapped by and made it to the other side.  US Airways is often pointed to as a candidate and while I’ll agree they are potentially the most vulnerable, I’m not sure I want to see them go.

I’d like to see one of our behemoths leave. 

Yes, it would put a lot of people out of work for while.  It would lead higher fares in the short term.  It would also allow room for new entrants who’ll bring fresher ideas, staff, aircraft and, wait for it . . . , lower fares.

It will help break the stranglehold that unionization has on this industry. 

What I’m really proposing is that we need a revolution in the US airline indudstry rather than an evolution of the legacy carriers one more time. 

We need airports to have room for new airlines to enter their markets and establish footholds that result in lower fares.  That means someone has to go.

This country needs to quite looking at each individual airline as an essential industry to our economy.  They aren’t.  Not anymore.  If one legacy went out of business and liquidated, the other airlines would move so fast to establish new business in those markets that it would make our head spin. 

In other words, they would grow the old fashioned way:  through competition.

It’s interesting to me that the airlines who have managed to weather the economic recession so well also happen to be the airlines who didn’t contract but, rather, grew themselves as legacies withdrew from unprofitable routes. 

It is often claimed that we need the legacies because they serve the small communities.  I wonder how the small communities feel about paying a disproportionately high fare in the current systems.  The truth is, there are lot of markets that I question the need for air service in many areas.

Does Waco, TX really need flights from Dallas and Houston?  Probably not.  Those residents should probably be driving to Dallas or Houston for their flights.  It costs about $30 to drive to Dallas from Waco.  Air fares between those two cities are currently advertised from $130 to $600 one way at present.  It’s economically wasteful to take that flight.

We, as a country, should be looking to create more opportunities for new airlines as well as existing LCC carriers who want to enter markets but are bullied away from them at present by the established legacy carriers dominance.

Filed under: Airline Service, Death Watch, Deregulation by ajax
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AA CEO Gerard Arpey has been getting somewhat loud in his refusal to acknowledge that there may be value in a merger between AA and US Airways.   His argument is that once you have scale, adding scale doesn’t bring much to the table.  Further, he doesn’t think that US Airways brings AA much considering the hubs that AA is focusing on (Dallas, Chicago, NYC, Los Angeles).  You can read more HERE.

Arpey was responding to analysts who pointed out that AA bought TWA to maintain its dominance when United was going to merge with US Airways and why wouldn’t AA want that now. 

The thing is, no, it doesn’t fit within their current 4 hub/cornerstone strategy.  However, that strategy isn’t showing much potential in returning AA to profit either.  AA is the only legacy airline not projected to earn a profit for this year.  I’ve said it in previous posts and I’ll say it once more.  AA and its executive team doesn’t know how to do merger and doesn’t know how to integrate another airline and, more importantly, doesn’t want a merger because it will, most likely spell the end of some of their careers at AA. 

I don’t think Doug Parker would lead such a merger but suddenly he looks like a decent successor to Arpey, doesn’t he?  Particularly if Arpey wasn’t leading a merger very well.  Consider that US Airways, by far the weakest of legacy airlines, is going to earn a profit this year and they’re doing it despite labor issues and their 2nd tier hub system.  That’s remarkable.  American’s team could learn a few things from US Airways, I suspect. 

There is a message here from analysts.  That message is: “Do something.  Perform.  Show us the money.  You don’t have an unlimited amount of time to perform.”  

It is significant that analysts are now putting the heat on and show no inclination to let up on American.  To the contrary, they’re now openly questioning the potential for success in Arpey’s strategy for the airline going forward.

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The Dallas Morning News Aviation Blog has this post HERE about analysts beginning to like the idea of a merger between American  Airlines and US Airways.   This marriage occurred to me back in April and you can read my post HERE.  Eric Torbensen at the Dallas Morning News thinks it is a terrible idea and I disagree.

The real reason to perhaps not do a merger between these two airlines is that American Airlines is terrible at mergers.  Their employees don’t embrace them and their executive corps approaches them like predators.  As a result, mergers at AA tend to be plain “consumption” rather than growth or partnership.

Now, if they could embrace a merger, I believe one such as this could be good for them.  First, a merger like this wouldn’t definitely not be sexy.  The sexy merger partners are now fully occupied and, frankly, there was perhaps just one that really would have qualified as sexy and doable for AA and that was Northwest Airlines.  They’re gone. But just because an AA / US Airways marriage isn’t the sexiest thing on the planet and just because it doesn’t necessarily bring the gains that another partner would have provided doesn’t mean that it doesn’t make financial sense. 

This one could.  Look at the route maps first.  US Airways offers a hub presence in two areas of the United States where AA is actually a bit weak.  Phoenix is a nice hub in the web and while it isn’t the strongest hub in the country, it does pretty well.  Yes, Southwest is there but guess what?  AA knows how to compete with Southwest. 

Charlotte is a nice Southeastern US hub that pvovides coverage in area that AA hasn’t gotten much traction.  AA tried having a hub in Raleigh (didn’t work) and has, from time to time, tried to expand Nashville.  It has Miami but that really is more of an international gateway city than it is a domestic hub.   So AA has presence in some weak(ish) focus cities for the SE that the Charlotte hub could change for them. 

So, in terms of a domestic network, it works.  It really is quite complementary to AA’s existing system.

There is some compatibility between the executive leadership of the two companies.  Doug Parker is a former AA manager, for example (and his wife still is an AA flight attendant) and some of the other executive staff has roots in AA as well.  Some that don’t are from Northwest and the cultures between Northwest and American Airlines aren’t dissimilar either. 

But let’s talk about the romantic international part of this.  No, US Airways doesn’t offer much to AA that it doesn’t already have.  It’s US Airways weakest area.  But it isn’t a money loser and there are some hidden benefits.  American can probably either A) redirect feed for those flights to one of their existing gateway cities or B) bolster the US Airways international product and make the US Airways international flights a bit more of a competitor.    The smart team would do both.

There is another benefit:  A more diversified fleet.  There is some overlap between the two companies (737, 757 and 767 equipment but the US Airways mainstay aircraft are Airbus aircraft now.  The A320 series aircraft could be useful to redeploy onto AA routes currently being served by the MD-80 fleet.  The Airbus A330 equipment could be redeployed to AA routes requiring a little more capacity than a 767 but which aren’t in need of a 777’s size or range.

Finally, such a merger would offer Oneworld domestic coverage in areas of the US where it is definitely weak.  The Oneworld alliance leans on AA only in the US and the other two alliances were bolstered by at least 2 airlines domestically.  This is a great opportunity to improve the Oneworld alliance. 

There is value in such a marriage.  The problem is, the people who know how to do this kind of marriage and make it work are at US Airways, not AA.  Doug Parker and Company understand the value of a union like this and know that you embrace the partners strength and use it.  Gerard Arpey and Company come from a school that is more about being a predator and consuming your competition without really embracing them as partners.  Since AA is so much larger than US Airways, it’s Arpey who would lead such a merger and I don’t think he’s the right one. 

Actually, I think Doug Parker could do fantastic things for AA.  If he can succeed with US Airway’s assets and weaknesses, he very likely could do wonders for an airline like AA with its resources.  But the AA board would have to want him and despite the recent flare ups against Arpey from analysts, Gerard Arpey still holds the full confidence of AA’s board of directos.  He isn’t going anywhere anytime soon.

Filed under: Airline Fleets, Airline News, Airlines Alliances by ajax
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