Southwest made its intention to purchase the 737-800 official a few days ago and while no one is surprised, it is gratifying to hear it has been made official.  This will be a good choice for SWA going forward and it would appear that their first deliveries in 2012 will be 20+ of the -800.  Gary Kelly has said that that is too small a fleet and indicated that about 80 in the fleet would be about right.  These new aircraft will be replacements for SWA’s older 737-300 aircraft rather than in addition to them.  However, the greater size of the 737-800 means that there will be significant capacity growth in 2012.

Interestingly enough, SWA started advertising for an ETOPS manager several days ago and *lots* of people noticed that.  ETOPS will be necessary for SWA to serve Hawaii.  Just a month ago, I wrote about SWA and Hawaii HERE.  Apparently all of the deliveries in 2012 will be ETOPS equipped aircraft so I think that my thoughts on SWA starting a Hawaii route in 4 to 5 years from now is a touch off the mark.

Instead, I’d say we’ll probably be looking at SWA starting routes to Hawaii in at little as 3 years.  They still have to get the aircraft and they still have to learn how to maintain that ETOPS fleet and they also have to figure out how to do the flights and from what cities should they be flown. 

Gary Kelly, CEO of Southwest, also made an interesting comment or two about the 737 and a new engine option and/or replacement for that aircraft.  Kelly rightly points out that Boeing is talking about having something for its customers in 10 years and comments that: “When you talk about something that’s 10 years from now, that’s not a solution, that’s an idea.” 

I couldn’t agree more. 

The Airbus A320NEO isn’t going to be a 737 killer by any stretch.  In that respect, Boeing doesn’t have much to worry about.  But Gary Kelly is right, Boeing hasn’t got anything on the table.  The next generation 737s started to roll out of the factory in 1996 and that isn’t all that long ago if we were talking about a new aircraft.  But the next generation 737 line weren’t “new” aircraft.  They were evolutions of the original designs. 

It’s true that engine technology is needed but nobody is really driving that technology all that much so far.  Both Airbus and Boeing continue to look at new engines as more an annoyance than a need.   The A320NEO isn’t a Boeing 737 killer but a new single aisle short to medium haul aircraft from Boeing is most definitely an A320NEO killer. 

It concerns me that all we’ve heard from Boeing is that their customers aren’t asking for new engines because it’s clear that airlines aren’t asking just for new engines but new airplanes.  And Boeing is behaving a bit too arrogant with respect to their customer base in my opinion.  I wasn’t much of a fan of the Bombardier CS300 so far but now I kind of hope it makes it and it’s a bit of a Boeing killer. 

If Southwest wants a new, efficient (as possible) airliner, it’s time to get to work.  Because of Southwest wants it, I guarantee you that every large operator of the 737 wants it too.  With fuel prices as high as they are and due to be higher in the future, even a 10 to 15 percent efficiency gain is something an airline can’t afford to ignore or defer.

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Milwaukee has had 14 consecutive months of record traffic and if you ever doubted whether or not airline competition in a market is good, you should get over that.

Airtran, Frontier and Southwest have all been battling it out there and it has been good for passengers and businesses alike.  Yes, there is such a thing as too much competition but in this case we’ll see Southwest rationalize with Airtran and Milwaukee will continue to benefit from two airlines who want their business.

Markets with healthy traffic are always marked by health competition.  Witness what it is like in NYC, Los Angeles, Chicago and even Atlanta.  Now consider what it is like in places like DFW, Cleveland, Houston and Cincinatti. 

I’ve no objection to airlines earning a profit and you shouldn’t either.  But strong competition keeps airlines lean and well managed.  It’s notable that American Airlines probably experiences the least competition overall among the SuperLegacy airlines and is also the least healthy.

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Volaris starts up service between Guadalajara, Mexico and Chicago on December 13th and, yes, they’re serving Chicago Midway Airport.  This is clearly part of the interline/codeshare agreement they’ve been working on with Southwest Airlines. 

They’re currently offering service to Los Angeles, Oakland and San Jose and I’m sure you see a theme here, too.  They are all Southwest cities.   The initial announcement on the partnership between Southwest and Volaris included just those cities and connections being offered on Southwest’s website are for Western states primarily. 

This is a partnership that will get expanded upon quickly.  Just as I’m sure that Chicago is a part of the strategy, I think we’ll also see potential connections offered in cities such as Houston, San Antonio, Denver and maybe even Atlanta.  It’s a good fit and with Mexico regaining Category 1 status in its air system again, they can only work harder to make it worth each airlines’ effort.

This does highlight the fact that Southwest needs a reservations systems that dates at least from the 1990s.  As badly as they need it, I suspect that the Airtran system might just end up being the answer for Southwest.  It would likely be easier to transition to that system than it would be to spend time, money and effort studying all the possibilities or even building their own.  Until Southwest has this fixed, they don’t have much to offer international partners and, yet, the potential in this area is huge for Southwest.

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Southwest Airlines got final approval from its pilot union on an agreement to introduce the 737-800 into the fleet and Southwest did what we all expected Southwest to do:  They announced they’ll be buying the 737-800.

I’m sure we’ll see these aircraft first on flights into and out of slot controlled airports such as NYC La Guardia’s or Washington D.C.’s Reagan National.  The speculative part is Hawaii.  Yes, these aircraft will have the range but that’s just the first issue to overcome.  To fly to Hawaii, Southwest would also have to have these aircraft ETOPS certified.

ETOPS certification would have to be kept up on every aircraft or on a small subset of aircraft that would operate from the West Coast.  There is a certain complexity there that, to me, doesn’t smell like something Southwest would be immediately ready to accept.  They know the value of Hawaii already and I think they would like to fly there via a partner or by themselves again at some point but how soon?

Look for these aircraft to show up in about 1.5 years.  They’ll first deploy to the slot controlled airport routes.  Next, don’t be surprised to see Southwest introduce some trans-continental services with these aircraft.  I don’t think we’ll see a lot of trans-con flying but I think we might see a few select routes get developed with the -800.  If those go well and they like how those distances feel, we then might see SWA prepare to fly to Hawaii provided they can figure out how to maintain ETOPS on either the whole -800 fleet or a subset of that fleet.

In other words, Hawaii is probably at least 3 years away if not more.  SWA may well try to link up with another partner and that isn’t necessarily a bad idea.  However, I think the unions have made it clear that they want to keep the flying “in-house” going forward as much as possible.   With the Airtran merger still on its plate and the integration of the two airlines over the next 2 years, I think a more realistic time to see a flight to Hawaii might be in as much as 5 years.

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Southwest Airlines is going to offer to buy you a drink if you are flying tomorrow on their airline.

And I still think doing this kind of thing is a bad idea. Particularly during the holidays.

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The New York Times has a story about Southwest Airlines that you can read HERE.  People always like to try to define Southwest and, in my view, often credit them in areas that really don’t apply and miss the point to so many facets of their success.

I’m always a bit amused that a distinction in Southwest’s success is so often low cost.  While there is no doubt that offering lower fares is a key component in Southwest’s model, people very often miss the fact that it isn’t a low service model.  To the contrary, Southwest delivers on its promises more consistently and with a smile.  If anything, it’s their low fares that draw people to the airline but it’s the service that makes them a repeat customer.  Let’s not confuse the fact that Southwest has never offered a meal with the lack of service.  Better yet, notice that their view on baggage fees is that they aren’t fair and their customers deserve better.

Another component to their success is both effiency and productivity.  Southwest doesn’t do anything spectacularly different than other airlines when it comes to running their flights.  They still have cabin crew, pilots, ground handlers, gate agents, etc getting that flight moving across the country.  The difference is that Southwest has managed to recognize that their people are a weapon for success rather than the “enemy”.  They pay well, treat their people well and ask for quite a bit in return.  That gives them the edge in productivity.  Let’s not fault them for remaining consistent in that policy for 40 years and, frankly, it’s time to stop waiting for the other shoe to drop in that area, too.

Industry insiders like to characterize them as cold and ruthless when it comes to a market.  First, let’s not act like this is a daycare playground where everyone is supposed to be treated equal and fair.  It is business and in this particular business, competition is almost always fierce.  Just because Southwest is able to fight well doesn’t make them cold and ruthless.  It makes them a good business with good people.

Furthermore, they are, if anything, often a very conservative company.  They study things, experiment, wait for the right moment (and in this business timing is everything) and try very hard to enter new markets when they can do so on their terms, not their competitors.  They are who we would wish our bankers of today would be.  They aren’t the pirates or the rebels, they’re the responsible people who show a great deal of concern for their stakeholders. 

Do they look for weaknesses?  Absolutely.  Is it smart to enter a market where an incumbent has an overwhelming advantage in every way over you?  Of course not.  Timing, as I’ve already said, is everything.  Just because another legacy airline is weak and unable to do business on any real world market terms doesn’t mean that Southwest should treat them with kid gloves.   That other airline’s weaknesses are opportunity and it’s nothing that anyone else in any other business wouldn’t try to capitalize on.

I’m all too often amused at how SWA is made out to be someone clinging to their business model after all these years and how so many perceive them to be unable to change.  Their so agile that they’re moving in new directions while other airlines are still figuring out they have a problem. 

They went sexy in the 70’s and no one ever noticed they went business casual in the 80’s so that their own appearance would match their customer’s own model.  They’ve stuck to the 737 but they’ve driven that aircraft’s design changes over the years with their own needs and few have ever noticed that.  It’s remarkable that one airline could hold such an influence over a business like Boeing and not manage to sell itself it out in the process. 

When there was war in the early 1990’s that suddenly impacted their business, the entire company recognized the needs to reduce costs immediately and did so in a matter of days while other others languished in the markets bleeding red in bright streams.  When fuel became a much more uncertain commodity, they became an early adopter of fuel hedging in order to make those costs much more certain and predictable. 

When they found themselves with no more underserved markets to enter, they didn’t stagnate, they reinvented themselves and began entering larger and larger markets.  Instead of rushing into places at any cost, they charted a course that required them to meet their own criteria  for entering a new market and then executed flawlessly.   If you had asked anyone 3 years ago if they would ever enter the New York City market properly, no one would have bet on that including me.  Now they’ve got a plan to serve it via 3 airports (La Guardia, Newark and Long Island).

It’s hard to call an airline as old as Southwest a new entrant.  Frankly, I don’t they are a rebel either.  I’m not sure they were ever rebel.  They simply run their business better than virtually anyone else and they do it so consistently that no one ever seems to quite believe that there isn’t something hidden.  I think the markets treat Southwest as that family relative you can never quite believe has it together that much since it doesn’t match what everyone else in the dysfunctional family is doing. 

Is Southwest becoming a legacy airline?  No, not really.  They are simply not following the crowd in everything they do.  They follow their own path and sometimes that means they are in step with the crowd and sometimes they aren’t.  Reading too much into it just results in speculation that doesn’t match fact.

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I was a somewhat early adopter of Airtran starting with some flights in the late 1990’s and for a variety of reasons, the airline just worked for me.  No one would describe Airtran as having a luxurious service product but, somehow, it was a service product that found a fan base.

Now there are many Airtran Fans who are lamenting the merger between Airtran and Southwest Airlines and what it means for Business Class.  Right now, it means it’ll be going away. 

I think that’s a mistake.  The way Airtran operated their business class was somewhat unique and was a great upsell for many passengers including me.  I have often arrived for a flight and paid the upgrade fees at the spur of the moment although I have to say that buying that upgrade at the last minute has gotten to be pretty difficult.

Airtran’s business class is a bit special.  It’s really more a decent seat, a few free drinks and a ride at the front of the bus.  It isn’t a luxurious “total experience” that a SuperLegacy might offer but it does embody the 3 best parts of riding in a business class product. 

And at the price it was offered at, it not only made money for Airtran, it also didn’t tax Airtran’s LCC service model either.  Airtran didn’t have to dedicate one of the cabin crew to that section to rub the toes of those passengers and it didn’t have to carry meals either.  They did their drink service and when in the front of the bus, they didn’t charge for the first couple of alcoholic drinks. 

What I’m really saying is that Airtran’s business class actually *does* embody the Southwest service model.  It is the Southwest service model translated by Airtran into a business class product. 

In fact, I think you could retain it and toss assigned seating to the wind and few, if any, would even pause over that. 

But here is the thing:  it’s time to get over the idea that Southwest is the champion of the little people and it’s time to get over the idea that Southwest is completely egalitarian. 

They are neither and, in some respects, they never were.  Southwest was successful in Texas because it offered fast travel between city centers for the new breed of businessmen:  entrepreneurs.  It is true that Southwest did stimulate first time travel in people as it grew across the country but those days are over too.   The 1980’s were a period when air travel became accessible and it was solidified in the 1990’s but the idea that there are a great number of people in various markets who have never considered air travel until Southwest (or other LCCs) showed up is disingenuous at best.

More to the point, an Airtran business class product is well suited to the Southwest frequency model that is still employed today.  Imagine the revenue opportunities that exist in their newest markets from New York City to destinations like Chicago, Baltimore, Washington DC and Houston. 

Southwest has matured in many ways and all for the better.  Retaining a business class product like Airtran’s offers far more opportunity than it does risks and for SWA to dismiss it out of hand is a flawed move.  Keep it, play with it and look for advantages.  Use it to start eroding the appeal that newer LCC models like jetBlue and Virgin America have built up.  If you think it’s the in-flight entertainment those airlines offer that is driving their business, you’re kidding yourself.  It’s the better seat at the better price where they compete against legacy and SuperLegacy airlines.

Southwest’s quick move to announce it would go away struck me as inflexible and particularly so given their agility in most things.  Yes, they are slow adopters, experimenters and generally an airline that waits for scale to develop before they make a move.  The scale is there, Airtran is a ready experimentation and they’ve already adopted a number of features to better accommodate business travelers. 

For all you Airtran Business Class Fans, I’m with you.  It’s worth keeping not just because you like it but because it has all the appearances of being a solid business choice.

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American Airlines is threatening to stop making their tickets available through Orbitz.  Instead of supply this data through a global distribution system provider, it wants Orbitz (and ultimately companies just like Orbitz) to make a direct connection to AA instead. 

At first glance, this would appear to be much ado about nothing but it isn’t.  When Orbitz and others like them get their data through a GDS, they get all the info and they’re able to display fares with a reasonable amount of transparency and thereby show the most competitive fare(s) available.  If they begin to make direct connections, airlines will suddenly have the ability to control what is fed into systems like Orbitz and Orbitz doesn’t like that.

Orbitz (and the others) are popular with the consumer because they are offering competitive choice and that service product promise is to show the lowest fare currently available.  What if an airline is able to decide that those people will only see somewhat competitive fares on those systems and reserve the best values for display on their own website?  That will ultimately drive traffic away from the travel agencies (Orbitz, etc) and towards the airline’s sites where only partner companies will participate in access to the customer.

Furthermore, by eroding the value of the travel agency websites, the airlines would be able to make the picture for what a competitive fare is a bit more “fuzzy” to the consumer.  The last thing airlines want is a competitive marketplace.  The first thing that you, as a consumer, want is a competitive marketplace. 

But it’s that competition that is making it so hard for airlines to raise prices.  Right now, one airline essentially “bids up” the price of a fare and then waits to see if other airlines match it.  If they don’t, the first airline will drop its price back to the old market price.  If they do match it, then suddenly all fares are raised but they are once again perfectly competitive which means market share for those customers doesn’t change. 

Airlines want things as fuzzy as possible and as difficult as possible to price shop because that potentially allows them to raise the prices more.  Right now, airline A might have 10 flights on a route and airline B may only have 3.  But if airline B sells at a lower price, airline A has no real choice but to match it.  This is because we see all the lowest fares displayed on a website and a price differential as little as $5 can change market share quite a bit. 

This is one reason why I believe Southwest should seriously consider getting back on the grid, so to speak.  They offer competitive prices (particularly when you consider their policies on bag fees) that aren’t displayed alongside all the other airlines on these travel agency websites.  In fact, they offer the two things that most customers want:  low fares (or at least competitive) and frequency. 

Ultimately, I expect that American Airlines will have to accomodate Orbitz in some manner.  I say this because no other airline is making this attempt at the same time.  Not having their fares displayed alongside their customers in the present circumstances will mean a potential loss of market share.  Things would look worse for Orbitz if the other airlines were trying to do the same thing.

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Southwest has been pretty candid with people attending the Southwest media day and has made a number of comments and announcements that offer more clarity than we’ve seen in a while.

First up:  Southwest and Volaris Airlines will begin interlining on December 1st.  This is quicker than I would have guessed based on the radio silence we’ve heard on this subject for months now.  It’s not a codeshare because you won’t be able to buy a Southwest ticket to fly on a Volaris flight.  You will, however, be able to seemlessly transition between a Southwest flight and a Volaris flight to Mexico.  You wouldn’t be able to do codeshares at present anyway since Mexico’s air traffic system got downgraded to a Category 2 recently. 

Southwest sees the seniority list integration between its pilots and Airtran pilots as their number one issue.  I agree.  The rational people out there would have you believe that Airtran pilots should be happy no matter what since it is almost guaranteed that they’ll get a pay raise with this merger.  Sadly, rational thought doesn’t enter into the equation when it comes to these discussions.  In addition, pay raises aren’t the only factor when it comes to seniority.  Seniority also determines the type of aircraft you’ll fly and where you’ll be based out of.   I doubt it will be a “date of hire” integration and I doubt it will be a mere stapling integration either.  There will probably be some sort of weighted integration and possibly jobs in the ATL area (and perhaps a few other bases) will be “fenced” off for Airtran pilots for a period of time. 

Southwest says it will be charging $5 for WiFi access on its aircraft.  This is pretty cheap compared to the fees for Aircell on other airlines.  Apparently Southwest has done their homework and determined that’s the sweet spot for maximizing “take” on each flight.  There will be no graduated fee for varying durations of flights.  Southwest doesn’t know what it will do with Airtran aircraft equipped with Aircell because they don’t know what those contracts look like yet and they won’t until the merger is consummated.  I suspect that Aircell will remain in place until those contracts expire and then they will be replaced with R0w44 systems to harmonize the fleet.  That would be a good news for Row44 who hasn’t gained much in the way of market share when compared to Aircell.

Finally, Southwest thinks Atlanta could quickly become its biggest city once it has finished its merger with Airtran.  Las Vegas currently is the largest but Southwest execs see lots of additional route opportunity in Atlanta already.  They’ve identified at least 2 dozen new destinations that could be served and Atlanta is already pretty big for Airtran.  Look for more frequency and a net gain on routes once Southwest really takes over.

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We’ve heard all about the soaring profits at airlines this past week but I wonder if many have noticed the other element in the news:  new flights being added at various legacy and SuperLegacy hubs. 

So far, these new flights have all the appearance of being targeted towards building core strengths at various hubs and focus cities.  American Airlines is building LAX (although mostly through American Eagle flights) for instance and United and American are starting long haul flights from LAX to Shanghai, too.

While we’ve seen very modest capacity growths in the first 2 quarters indicating that airlines were just (barely) keeping pace with demand, this most recent quarter finds announcements that indicate that everyone is trying to nudge themselves towards a bit more growth than before. 

Let me point out that even Southwest’s intentions on buying the 737-800 is a form of capacity growth.  They’ll use that aircraft on routes where there ability to fly frequency is constrained. 

The signs are there but it’s the 4th quarter results and announcements that should signal a trend.  We won’t really know where things are headed until announcements on intentions for next summer are made.

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Instead of engaging in analyst speak for the earnings results airlines are reporting this week and the next, let’s sum it up real quick:  Airlines are earning record profits this quarter (again) and American Airlines continues to appear the weak animal on the plains with not one but two lions starting to eye it. 

The “records” being set with these profits are a bit deceiving.  Delta has had record profits.  It’s also roughly twice the size it was before the economic crash.  United has record profits, ditto.  US Airways has record profits and, yes, they’re roughly twice the size they used to be too.  When Southwest adds Airtran to their company, we’ll likely see new record profits there too. 

What’s driving these profits?  Well, certainly some synergies from the mergers although I suspect they aren’t as great as they are touted to be when these airlines were lobbying for approval of their mergers.  US Airways doesn’t have all those synergies in their flight crews and they’re still performing impressively. 

Network?  Well, again, I think it certainly helps a bit.  I believe the larger networks are improving load factors somewhat and that’s good.  On the other hand, is it all about the network?  No, not really.  I refer you to the fact that US Airways has a lousy network and, again, they’re doing very, very well.

I think the continuing restraint on capacity growth is driving these profits.  That’s great and I am very impressed that the airlines have held themselves in check as well as they have.  It’s nice to see profits in this industry and there are a whole lot of people who need to be paid back for their investments.  This will help do that. 

The question is . . . Will it last?  I’m skeptical.  Very skeptical.  First, some of the load factors we are seeing as “averages” are astronomically high when considered against the past 30 year history of the business.  Even Southwest is enjoying exceptionally high load factors and their business model isn’t based on high load factors at all.  I don’t think such load factors are sustainable.  In fact, I think they are too high as an average for these legacy/SuperLegacy carriers. 

I think branded regional airlines and LCC carriers are going to see a lot of opportunity over the next few quarters to start whittling away at these profits.  Someone will blink and they will add capacity.  When one starts to grow their capacity, many will follow, at least on competitive routes, because self-restraint in this business is dependent upon everyone exercising some. 

If we do continue to see these profits for another year or two, I also think we’ll see new entrants into the market place.  The Sirens will be calling to investors and it will be an irrestible call. 

You can bet that each airline is analyzing their competitors right now and you can also bet that the question being asked is how can we grow or add capacity through better utilization of our fleet right now.  Tomorrow, the question will be about what they can add to their fleet to grow that capacity.  Those questions are being asked internally right now and I do think we’re looking at least a couple more financial quarters of self-discipline.  I also think someone will likely blink when they begin to plan and announce intentions for next year’s summer season.

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American Airlines and WestJet Airlines have announced an interline agreement yesterday and, once again, I didn’t see this coming.  If anything, I would have expected this to develop between WestJet and Delta, not American Airlines. 

The agreement will allow customers to connect seemlessly (with one ticket) to 25 new Canadian destinations with American Airlines (and American Eagle) feeding that traffic to six gateway cities in Canada.  Presumably it will work both ways (Canada to the US) and it is notable that the press announcement mentions a “phase 2” which will feed traffic back and forth to WestJet flights from the US to Canada as well. 

This is a pretty good win for American.  It gives Oneworld (via AA) an entrance into Canada where they’ll compete against the Star Alliance and Air Canada.  It leaves Delta sitting out in the cold with no other airline in Canada for them to connect with.  That, alone, is a bold move.

It also kind of swats at Southwest and its original intentions on Canada via an earlier codeshare agreement it had with WestJet but which was terminated earlier this year after a disagreement with WestJet. 

That sound is the door slamming shut. 

This will sting other carriers in the US and it’ll force them to access Canada through a much more expensive pathway:  flying there themselves. 

With both this agreement and the earlier one AA did with jetBlue, it’s clear that there is some innovative thinking going on at American suddenly and now I wonder what comes next.  I’ve been pretty hard on AA this year but I have to say that I like this move and I think it will benefit them and WestJet a great deal.

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After the merger announcement between Southwest Airlines and Airtran last week, there was quite a bit of speculation on who would be relieved by the announcement and who would be on edge over it.  Conventional wisdom (which includes me) saw this move as relieving Southwest of some burdensome competition in some markets such as in the NorthEast and in Milwaukee.  Airtran competed effectively to drive down pricing with their flights. 

Some have said Delta has nothing to worry about and Frontier has been foolish enough to see this as an improvement for them.  I think Delta needs to worry a lot and Frontier is made weaker from this merger.

In Atlanta, Delta won’t see much change in Atlanta, I agree.  It’s possible that in the regional area near Atlanta, Delta may even do better in the short run.  However, Southwest has something Airtran didn’t:  frequency.  I think that Delta will discover that when Southwest’s capacity for frequency is deployed on traditional Delta / Airtran routes, competition is going to get a bit stiffer.  The truth is, Airtran had many destinations but not always that much frequency.  It’s one reason they were tolerated by many legacy airlines.

However, legacy airlines have generally always defended routes from other carries including LCC carriers by the ability to add frequency.  That’s never worked well against Southwest .  Southwest doesn’t go into a market with the idea of being a small player.  They enter routes where they can deploy reasonable frequency right off the bat and they know how to schedule flights just as well or better than most legacies.  Southwest’s size is already formidable weapon and it got a lot more formidable when the Airtran merger got announced.

Frontier and other LCC carriers (Hi jetBlue!) shouldn’t feel relief either.  It’s that same frequency with an additional weapon that can spell hard days ahead for them, too.  Southwest can compete with anybody’s frequency and I can think of just one LCC in just one area that has the frequency and capability to match what Southwest can ultimately deploy.  jetBlue has that in the New York City area.  But that’s it and Southwest is clearly building momemtum to be a bigger player in the NYC area. 

That additional weapon?  Network.  Yes, Southwest isn’t a traditional hub and spoke carrier but they do know how to make their network work for the consumer.   People aren’t adverse to connections if the price is right and the risk is relatively low.  Southwest has lots of focus cities / hubs to provide network access to destinations that the other LCC carriers just don’t have. 

Frontier has Denver and Milwaukee and is spread thinly in many cases.  While they compete against Southwest in Denver, that’s changing slowly.  They’ll never compete against Southwest in Milwaukee because Southwest is already capable of offering a network of destinations that Frontier can’t begin to approach. 

Southwest has also done something that other LCC carriers have foolishly ignored.  They covered the midwest.  It isn’t sexy territory but it’s territory with lots of industry and commerce and need to get from point a to point b.  It’s an area that appreciates a frugal approach to life and it’s an area with lots of family connections between cities.  It’s also an area that has a strong attraction to the leisure areas that Southwest is strong in such as Florida and Arizona and California. 

And now Southwest will have international capability to those same kinds of attractive leisure destinations in the Caribbean and Mexico.  Frankly, I think Frontier should be very scared of what Southwest can bring to the table because it potentially spells their demise.  I think jetBlue needs to start thinking about how they can grow their network and quite adding flights to the Florida and the Caribbean from the NorthEast. 

jetBlue is also weak in another respect.  They’re building focus operations in cities that are notoriously difficult to operate from in weather.  Their operations can be significantly impacted in New York City, Boston and Baltimore-Washington by the very same storm system.  All three of those are focus cities for them.  Southwest doesn’t have those same weaknesses.  They fly in the same areas and they’ll no doubt grow in those same areas but they continue to manage their risk by operating flights from those areas to other focus cities that are far less likely to be impacted by the same storm system. 

And Atlanta will just add to that capability.  I’m not saying Southwest’s system is perfectly isolated from risk but it is far more insulated from risk than other carriers like jetBlue and even the SuperLegacies. 

Southwest is scarier because it has lots of resources and can operate in a very agile manner.  The LCC’s can’t and the SuperLegacies can only do so much within the limitations of their hub style operations.

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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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