In a BusinessWeek story today, which can be read HERE, I noticed a paragraph that gives some hint as to who wants to be in charge of the new airline if a merger agreement does come about. It says:
UAL, based in Chicago, and Tempe, Arizona-based US Airways are discussing an all-stock transaction to combine the companies, with the smaller US Airways being the acquirer, said the people familiar, who asked not to be identified because the talks are private. The merger would help United steer travelers to international flights from US Airways’ domestic routes, said one of the people.
That sounds like US Airways management being the “lead” group in a merger and, more importantly, Doug Parker as CEO. However, I don’t know where US Airways has the financial capability to be the surviving entity either. (Note: Just because US Airways is the surviving entity doesn’t mean that the name United Airlines goes away. They may well choose to keep that name.) In addition, where does that leave United President John Tague? He is arguably the executive who has best managed United and who is arguably the one to succeed Glenn Tilton as CEO.
Doug Parker and team have done a fairly admirable job in keeping US Airways afloat and viable but they still have unresolved issues with their labor unions at present. Such a merger would mean 3 different groups of pilots who would have fairly strong ideas on which union should represent them and how much they should be paid. The AmericaWest/US West group is the minority group at present but could potentially regain some leverage and power if they could agree with the United pilots. I find it hard to believe anyof the 3 groups would agree with another.
If they really wanted to do this, I suspect they’ll have to give up some substantive group of routes and, possibly, equipment to gain approval. The Washington D.C. area is the trouble point since US Airways has a strong position in Washington, Philadelphia and Charlotte and United has a strong position in Washington as well. I’ll bet Southwest could be interested in paying for routes into and out of Washington National airport but I’ll also bet that UA/US doesn’t want Southwest having a foothold there either.
None of this makes really good sense. If this is a real negotiation for a merger, I don’t see it happening without giving up lots of advantage in Washington which hurts the merger potential. If it is an attempt to bring someone like Continental to the table, I think Continental is smarter than that. That leaves American Airlines and they just don’t seem to like mergers like that. They don’t mind acquisitions but mergers aren’t their cup of tea. However, one could make a case for an AA/US merger that might actually have some benefits similar to the Delta/Northwest merger.
But I seriously doubt AA’s unions would cooperate with a merger like that.
Some analysts see Continental making a bid. I don’t. Merging with United doesn’t give them any advantage they don’t already have and saddles them with labor problems and a fleet that is aging and which doesn’t mix with Continental’s well at all. People keep pointing to United’s position on Asian routes but I would point out that if Continental had the equipment, they could probably siphon off United’s customers without buying the company. Coincidentally, Continental has early 787 positions that could allow them to do just that. I just don’t see Continental going for this.
With the news that US Airways and United are in merger talks, the subject of mergers and industry consolidation among US airlines has been reheated to a high temperature again. For the past several years, there has been a lot of talk about the need for consolidation among airlines in the US in order to return to profitability and there are many advocates (such as Doug Parker and Glenn Tilton of US Airways and United respectively).
New fees seem to have brought in additional revenue but no one can seem to really claim that it has changed the equation for earning a profit for airlines. Advocates say these new fees are helping airlines find a path back to earning a profit and I certainly think that experimentation with these fees isn’t over.
Oil is always a frequent component of profitability. Soaring oil prices just two years ago nearly brought several airlines to their knees but also brought huge profits to other airlines who engage in hedging their fuel costs. I don’t think anyone would disagree that a more stable oil market would not only benefit the airlines but a lot of other industries. The wide oscillations of fuel prices have brought a big element of uncertainty to many parts of the economy.
I’m not sure consolidation is really the answer, however. Frankly, I think one big mistake of the 1990’s and 2000’s is that we have permitted airlines to go through bankruptcies (some multiple times) and reorganize themselves rather than being more insistent on a liquidation or two. It’s politically difficult to do so because liquidating a large legacy airline means tens of thousands of people suddenly becoming unemployed.
Yes, the airline industry is a network business to a large degree and network businesses can do better if they grow larger and capture more market share. I question how viable that is over the long term without restructuring other legacy costs as well. I think it is a nice, immediate answer and certainly offers short term (2 to 5 years) gains in share prices but there are other issues that need to be decided as well.
Seniority is king in the airline business and I’ve really come to believe that that is a huge obstacle to health for many airlines. Airlines have to compete on price in the market place but are not allowed to compete on salaries in the employment market place. Union contracts based on seniority are killing many airlines. Mind you, that isn’t to say that airline employees don’t have legitimate issues too, they do.
Airline employees are expected to quite literally work for poverty wages for years before starting to earn a real family supporting wage and then finally make it to a level for their last 10 or 15 years of work careers where they earn extremely generous wages for the exact same work that a junior level employee does for a salary that is unable to provide modest life. This disparity has to stop. Entry level wages should be higher and senior level wages should be lower. Airline crew should be able to move between airlines without having to re-set to the lowest wage scale again. We have enough airlines in this country that it is somewhat absurd to believe that a strike at one major airline threatens the national economy. It doesn’t. Airline employees deserve to be able to agree on a contract in a much more timely fashion. Failing to do this results in an even greater tenacious hold to seniority since it is the only thing that raises wages.
LCC airlines have managed to remain profitable and grow but only by keeping their business model flat with respect to equipment and staff. This allows them to keep productivity high and prevent creeping wages based on a structure that makes weight and distance the prime factor in pay. Actual work loads and skill sets are secondary in paying flight crew.
No, I’m not sure we need more consolidations and mergers and, frankly, I don’t think such things would substantially raise airfares given that LCC’s are pretty adept at spotting opportunities and entering markets. Virtually the only thing that keeps them from certain routes is legacy airlines holding monopolies on airport space or slots. Even then, those LCC’s are very good at looking for ways around those problems to gain a foothold. Notice how vigorously Delta and US Airways are trying to keep Southwest Airlines from gaining more slots in NYC?
I just saw this report on a New York Times blog HERE today. To summarize, supposedly people writing this blog have had it confirmed by insiders that United and US Airways are in merger talks. Mind you, this wouldn’t be the first time this rumour has gone out although it has been some time since I’ve seen it.
It would make sense on several levels. I’ve always thought that those two companies were more compatible than United and Continental both from a fleet point of view as well as a hub point of view. It would definitely have some challenges in front of it as a merger in certain markets (Washington D.C. for instance) and labor issues that exist at both companies would kind of worry me about getting a real deal done.
I also wonder at who would run such a proposed entity. Doug Parker of US Airways hasn’t shown much interest (if at all) in being second fiddle to anyone else in any proposed mergers. United’s Glenn Tilton would likely be amenable to stepping up to a non-executive Chairman role or leaving altogether but there is a firm “second in command” at United in John Tague serving as President already and who likely expects to rise further with some real justification. Since he and Mr. Parker are essentially contemporaries, they would definitely be in competition with each other to get the top executive job.
Southwest Airlines has announced HERE that beginning in the 1st Quarter of 2011, they will begin flying all of US Airways domestic routes. US Airways, unable to get its pilots to agree among themselves much less on a contract with the airline, has decided it would be more profitable to turn over their domestic network to Southwest Airlines and form a joint partnership that has Southwest feeding traffic into US Airways robust international system of flights.
The aircraft Southwest will use for these new routes will feature Southwest colors with the US Airways logo on the tail. In return, US Airways will keep its own colors on its international aircraft but add the name “Southwest” along the upper portion of the aircraft fuselages.
No US Airways flight crew will be moved over to the Southwest system nor will existing aircraft fleets be exchanged. In a related announcement, Southwest has accelerated its existing orders with Boeing and announced a new 225 aircraft order for 737-800 and 737-900ER aircraft to be used to serve the former US Airways system.
Two days ago, the new CEO of WestJet stated that WestJet would be pursuing a code share agreement with Delta with the potential to implement this either before or in place of their existing agreement with Southwest Airlines. Several reports tie this in with the proposal to give WestJet some slots at (5 pair) at La Guardia Airport in the Delta/US Airways slot swap deal currently being discussed.
First, I continue to be skeptical that there will be an agreement between Delta and US Airways for this major slot swap between La Guardia and Washington National airports given both the FAA’s and Department of Justice’s attitude towards this deal. Other than Delta and US Airways, no one is thrilled about the idea of Delta and US Airways getting to “pick” their competition by granting these slot swaps to airlines who aren’t poised (and never really will be) to compete with these two legacy airlines. If a deal does go through, I expect it will look different than the current proposals and it will involve a transparent auction of these slots to a high bidder.
Nonetheless, this is a bad announcement for Southwest airlines for a few reasons. First and foremost, the thundering silence that continues from Southwest since this announcement was made sort of indicates they were as caught off guard by this as anyone. It isn’t good for such a large airline to appear as unprepared for this development as they seem to be.
Second, the original deal between Southwest and WestJet is part of a 3 nation alliance between Southwest, WestJet and Volaris, all airlines operating in the tradition of being LCC carriers and all with a model similar to Southwest’s own. Southwest was clearly the leader in this alliance and it appears that it’s delays in getting themselves positioned to start this alliance have hurt this agreement. Acting like the 800lbs gorilla and then not getting the job done in time doesn’t make you appear to be an agile player in the airline community.
Southwest has said the delays came from making other changes a priority within their IT system. Whilethere are some changes such as new business class options, none of those changes to date are the kinds of things that should have delayed such an alliance for a year or more. No other airline would have taken nearly as long to integrate into that kind of alliance and that points out problems with Southwest’s IT system. Southwest is accustomed to going it alone on their systems (they do not, for instance, participate in a global reservations system) andhave done so for nearly 20 years. Now, that departure from industry norms is starting to hurt them apparently in being unable to make these kind of changes and integrations in a quick and agile fashion.
Third, Southwest’s image of leadership among LCC carriers is further hurt by this. Many founders of LCC carriers have pointed to Southwest as their inspiration for how to run a modern airline. No doubt that this is true but it also points out that these 2nd and 3rd generation LCC carriers have become more responsive to both their customers and the potential for new business than Southwest has managed. Losing that image of leadership is a bad thing for Southwest both externally and internally.
Making substantial partners wait to engage in a strategic alliance that, by all accounts, should be very beneficial as well as ground breaking is neither smart nor a good show of leadership. Canada really only has 2 airlines capable of entering into an agreement like this and the last thing you want is to annoy the 2nd largest airline of Canada into exploring options with a heavy hitting airline such as Delta and its associated alliance, SkyTeam. Volaris may prove to be more patient but you have to wonder if they aren’t asking themselves if there is another partner in the US who might be interested in them. A partner such as jetBlue or Virgin America or even the Republic Airways two-headed beast, Frontier/Midwest.
This doesn’t mean that a wholesale change in leadership is called for at Southwest but it may well indicate that it is time to find ways to become a leaner, more agile competitor. The days of simply having to show up and winning customers are over. Witness the competition that SWA is seeing in new markets such as Denver and Milwaukee. In this industry, winners attack and grow rather than ponder and play it cautious.
Anyone who follows this industry is well aware of labor problems at many US and European airlines. There have been at least three major strikes I can think of in the last month in Europe (BA, Lufthansa and Olympic). American Airlines seems to have had almost its entire operations labor force at the negotiating table for the past 4 years and not a one of them seem to be acting like a deal is soon to be had with several threatening to ask for release from negotiations to begin a 30 day cooling period and one (the TWU) who has asked for such a release.
Even Southwest Airlines has had a couple of snags in the past year with its pilots union and their TWU local. Delta’s flight attendants are making noise about trying to unionize again and this time they may have the votes for it when you consider that Northwest’s flight attendants were rabidly unionized. Frontier employees haven’t rebelled yet but I kind of wonder if that isn’t closer to happening than many realize given Republic Airways’ direction.
US Airways has problems with its pilots’ unions not being able to get along well enough to come to a consensus on whether or not the sun rose in the east. I do wonder how long it will be before we see the unions at United Airlines begin to overheat much like American Airlines’ already are.
Sure, there are some airlines who are managing to get along with their operations employees pretty well. That includes Southwest Airlines, Continental and even Frontier (for the moment.) However, a pretty vast number of airline employees seem to be simmering just before the boil over point and I’ve begun to wonder if there doesn’t need to be a better industry solution to collective bargaining than what they’ve got now. With the way things seem to be headed, particularly at legacy airlines but certainly not limited to them, there could be a truly momumental perfect storm of labor actions in the US.
I won’t argue who is paid well, paid poorly or over-paid. I certainly won’t argue who is or isn’t over worked either. Frankly, if you think being an airline employee in operations is a cush job, you really don’t have visibility into just what those jobs entail and just how many hours a day they consume. But if there is this much job dis-satisfaction among these ranks, clearly change is called for and I really don’t think this is all about money.
I think this is about job satisfaction. Yes, the union leadership (such as it is and that ain’t much) expresses the grievances in monetary terms but I really don’t think it’s all about the paycheck. I think it’s about feeling job satisfaction and feeling some meaningful reward from the job which, yes, includes salary levels. For airlines, I think this about a need to have greater flexibilty and ways to improve productivity that aren’t constrained by decades old rules.
Who is going to find a better way in this system which is largely based on 1930’s law and habits? I really wonder if there is any industry leadership who has the ability to find a better way.
Instead of mergers galore, I think what this industry really needs is growth.
To most people, that sounds crazy in light of the present economic situation in the industry. It depends on who I think should be growing, doesn’t it? We need to see more growth and expansion from airlines like SWA, Airtran and jetBlue. Heck, let’s throw Virgin America into that mix too. Those are the airlines that are going to drive service and price in this business for the foreseeable future.
Now, how they should grow is up for debate. Each of those airlines is pretty good at what it does and how it does it so trying to merge with an equal really isn’t a great idea. They shouldn’t dilute their corporate culture in favor of growth at any cost. However, that doesn’t mean you can’t pick up a deal here and there. Frontier was a perfect example of an airline that would have been a good buy for any one of those airlines. In hindsight, there should have been a bit more of a bidding war for Frontier.
There aren’t a whole lot of smaller airlines in this country. Frankly, I think Virgin America is more of a candidate to be taken over than to consume someone else. Sun Country Airlines still looks good to me, particularly for someone who wants an good entry into the Minneapolis / St. Paul Market. There was a time when it would be very unwise for most airlines to attempt to compete with Northwest Airlines in that market. Now that they are Delta, have 48 hubs and are headquartered in Atlanta, I suspect an airline could get an edge into that market.
But there are other growth opportunities out there. DFW has space to be a focus city for an airline. So does Houston. Las Vegas is no longer to be a hub for US Airways. St. Louis is an old city but it is still a city of industry with an airport that has nothing but crickets chirping in it. There are plenty of regions lacking in good competition still.
I don’t think a merger of legacy airlines will do anyone any good. Oh, it would take come capacity out of the system which would probably raise prices on *some* routes. I’m not sure if that is “good” for the consumer. It might create further dominance of a region or hub and I don’t see the benefit in that. The Delta/Northwest merger was one that worked because it labor issues were settled, there wasn’t a whole lot of overlap between the two companies routes and each company was accepting of the idea. Those circumstances don’t occur very often.
There has been quite a lot of talk in the media about mergers recently. Financial analysts are high on the idea and two airlines in particular have batted their eyes at potential suitors again.
The CFOs of both United Airlines and US Airways have made recently comments stating they see more consolidation needed in the US airline industry and both said their airlines remain open to the idea of merging with someone. No big surprise because both of those airlines are arguably the poorest performing legacy airlines in the US. It’s also no big surprise that financial analysts now want to see another merger because they’ve seen the financial response to the Delta/Northwest merger.
I don’t see it happening myself. Neither US Airways nor United Airlines happen to be particularly attractive properties for another airline for one. Neither American nor Continental really have anything to gain by mating up with those two for example. Well, Continental could benefit from UA’s Chicago hub and its international business. American already has a nicely balanced business and, more importantly, it needs to focus on its labor problems and get those solved first.
Continental has done better by managing itself and its employees carefully and really isn’t inclined to pick up one of the two airlines with some of the worst labor relations around. They’re kind of smart over at Continental. Now that they’re in the Star Alliance, they have the best of both worlds going for them.
So why don’t UA and US join together? Well, their hubs would fit together kind of nice and there would be some nice synergies to be realized in consoldating operations. Even their fleets kind of work together. However, UA is headed by Glenn Tilton who isn’t interested in giving up his position to someone else unless they, too, are an airline titan. He’d benefit from a merger personally but his ego doesn’t seem to want to let him have UA be the “consumed” airline. He wants to buy and consume someone else.
US Airways is being managed by Doug Parker who has plenty on his hands already with a pilot group that is so dysfunctional that it would make wife-beating appear respectable and his airline is short cash anyway. He’s got no money to buy anything with and his somewhat anemic route structure isn’t all that attractive to any other airline. No one wants his labor problems at all.
Besides, I”m not sure consolidation is what this industry needs. A liquidation could actually be the better answer. More on that tomorrow.
American Airlines and British Airways won tentative US government anti-trust approval to cooperate closely with each other on routes and pricing. Iberia Airlines, Finnair and Royal Jordanian are also a part of this package. The one caveat from the Department of Transportation is that the “partnership” yield 4 slot pairs at London Heathrow airport to other airline(s) that might provide service between Heathrow and the United States.
This partnership is still contingent upon EU approval but I suspect the EU will grant it as well.
Is this good for the consumer? Well, in the long run I suspect so. There is plenty of competition between the US and Europe in general and frankly I suspect travel to London Heathrow hasn’t been this competitive ever already. In this case, I think we’ll see some capacity reduction between AA and BA on those US-London flights and that might well be justified. There may be a few non-stop routes that see fares rise some but overall the general population of the US and the UK will likely find fares pretty reasonable or even unchanged in most respects.
This will be a huge plus for OneWorld members in that they’ll be able to find better coordinated schedules for a variety of destinations throughout Europe and the US. And it should put OneWorld on much more equal footing with both the StarAlliance and Sky Team.
Of course, Richard Branson finds it all outrageous but, then, if you follow Richard Branson and Virgin Atlantic, you knew that he would already, didn’t you. (I do think Richard Branson has finally cried wolf one too many times and no longer gets the credibility he might once have had. One thing is sure, it’s time for VA to start looking for a partnership.)
Both BA and AA might moan and grown over giving up 4 slot pairs at Heathrow but both know that 1) those pairs will yield a tidy sum in a sale and 2) they’ll still have plenty of maneuvering room to make lots of money.
I doubt very much either airlines’ unions will be happy about this though. AA pilots will worry about a reduction of flying on their part which, in my opinion, is only a worry if they continue to fight new ultra-long haul services that AA could use their aircraft on. This is a real concern given this agreement’s potential to free up 777 aircraft to fly to new destinations.
The real win for OneWorld will be gaining anti-trust immunity with JAL for trans-Pacific services. With that agreement and this one, OneWorld gets the opportunity to compete with the other two alliances on pretty good footing and they haven’t had that in quite a while. Both agreements would also make it more attractive for other airlines to join OneWorld now.
I would not be surprised if this development doesn’t suddenly make it a bit more attractive for OneWorld to approach US Airways about joining. US Airways would make for a very complimentary addition to OneWorld and it would allow them to leave an alliance where they are quite literally relegated to secondary status on all fronts. In OneWorld, US Airways could offer good domestic service to the other partners and cooperate well on both trans-Pacific as well as trans-Atlantic services.
Some time ago, US Airways and Delta Airlines came to an agreement to “swap” slots between New York’s La Guardia Airport and Washington DC’s Reagan National Airport. Delta would get a large number of slots in New York and US Airways would get a smaller but more important number of slots in DC. Each airline would get to consolidate their power in the city they’ve chosen to be a power player in.
This required regulator approval from the Department of Transportation and the DOT finally issued their ruling on this. They were OK with it only if each party sold a number of those slots in the respective markets. And they preferred that the slots go to “slot needy” airlines (i.e. airlines who have no slots at those airports or who have an extremely limited number of slots.) In other words, the DOT wasn’t completely comfortable with just how consolidated each airline would become in each market.
Both airlines expressed dismay and offered that they wouldn’t necessarily go through with the deal if those were the conditions. Both felt that the consumer was losing out on improved benefits in those markets. Oh, and of course this is the fault of the Obama administration according to some pundits.
Now, the airlines don’t want to give up those slots to the slot needy because it potentially allows a toehold into two markets that have been very difficult for LCC carriers to find access to. Southwest Airlines, for instance, only managed entry into the La Guardia market by buying the assets of defunct ATA. jetBlue would love access to Washington National but there has been no real opportunity there either. Frankly, both Delta’s and US Airways shuttles between NYC and DC would be pretty threatened by a jetBlue operation running between those two cities and Boston.
Frankly, I’m glad the DOT put those conditions on this swap. First of all, no consumer ever benefited from an airline consolidating its position in a market. The benefits airlines speak of are things like connections to other destinations, through ticketing to other destinations, etc. The benefits are *not* better prices. Ask people how American Airlines is doing in Dallas ever since Delta withdrew from the market.
I don’t mind airlines merging and growing bigger but I do mind airlines carving out domains in certain markets with regulatory approval. Those markets aren’t monopolies to be granted. And in those two particular markets, there isn’t exactly a limited number of customers available.
In fact, in those two markets, LCC carriers have been shut out largely by large, legacy carriers who have “sat” on their slots rather than give them up or sell them. It is quite literally to their benefit to operate a slot pair with a 40 seat RJ rather than to give the slot up because the introduction of competitive fares from LCC airlines who might get a toehold will literally decimate their yields in those markets.
But keeping competition away and even allowing airlines such as Delta and/or US Airways to consolidate their strength in such markets is tantamout to providing artificial support to airlines who have cost structures that are no longer viable in most of the United States. I do wonder what the anti-Obama administration pundits have to say about this kind of government support for legacy airlines?
The truth is, we need to distribute *more* of the wealth in those slot controlled markets, not consolidate it. We need other airlines encouraged to enter those kinds of markets and provide solid competition on routes that are held in a stranglehold grip by legacy airlines. That is what will benefit the consumer.
I received an email pointing me to this video about the US Airways A320 recovery in the Hudson river. It’s a time lapse film of the A320 being pulled up from the river and it’s both well done and even a bit dramatic. Here it is:
These three alliances have been forming, growing and shifting for some time now and it is almost fair to say that they’ve reached a certain maturity that lets us take a look at what the future might hold.
There will always be shifts between alliances as time goes by but the major structures are now in place and let’s be honest in that airlines are not equal partners in these alliances. There are bedrock airlines and there are airlines who are really more associate partners.
In the Star Alliance, US Airways has definitely been more of an associate member than, say, United, Lufthansa or Singapore Airlines and with the recent addition of Continental and the close partnership its formed with United, US Airways is even more the redheaded step-child in this organization.
SkyTeam really has the strongest core though. Formed, in part, from the original Northwest / KLM alliance that began in the 90’s, it now has an extremely strong network that spans both the Pacific and Atlantic oceans. If it has a weakness, it is in South America among South American carriers and I’m not sure if that is really a weakness right now.
The Star Alliance and SkyTeam have both managed to work among themselves in pretty close partnership and develop strong networks playing on each others’ strengths. Schedules between those partnership airlines are pretty rational and they do tend to treat affiliate partners as having value in the organizations.
Then there is Oneworld. Oneworld isn’t so much a partnership alliance as it is a looser affiliation of airlines. To be sure, at one time Oneworld’s members represented a very strong core of airlines who were profitable and very strong on a global level. To a degree, they still are but this has definitely become the weak alliance over time and with the fight over JAL taking place, its now fighting for its life.
Oneworld doesn’t know how to work well with each other. Partners American Airlines and British Airways have dominated that relationship and because of their obstinance over trans-Atlantic routes and slots at Heathrow, they haven’t been able to work closely together over time and develop those relationships that have been grown in other alliances. Because of their dominance, other potential strengths in their network, QANTAS, JAL and Cathay Pacific for instance, haven’t really been exploited fully either.
Oneworld is, for most intents and purposes, an old style Anglo-American relationship with AA, BA, QANTAS and Cathay Pacific dominating that alliance. (If you don’t think Cathay Pacific is Anglo, look up its history and its executive team.)
If Oneworld loses JAL, I’m not sure this alliance survives in the long run. It cannot afford to be an alliance with two dominant partners (AA and BA) and it cannot afford to lose even one trans-Pacific partner. If JAL moves over to SkyTeam, then I suspect over the next few years we’ll see one or more “majors” in that relationship find homes elsewhere.
No matter what Oneworld does, they lose a major network in Japan if JAL leaves the alliance and they have no hope of luring ANA over to their alliance either. The best they can hope to do is build their routes systems into Japan with more direct flights from outside Japan. That isn’t very satisfactory.
They already lack a major partner in China itself (Cathay Pacific isn’t quite that kind of partner) and lack a major partner centered in Korea and Southeast Asia/India.
I suspect we’ll see one or more core partners in Oneworld slip away to one of the other alliances. It wouldn’t be too hard to attract LAN away from Oneworld, for instance. Nor would it be difficult to perhaps walk Cathay Pacific away from Oneworld. That would leave three basic Anglo American core partners who have no harmonized strategy and not much to offer smaller affiliate partners either.
What’s more, JAL doesn’t need their money now that they’ve gone into bankruptcy. The Japanese government is financing them and will provide all the capital they need at this point since they have little choice to do anything else. That means JAL is free to consider a long term strategy and if it can get some real signal that anti-trust immunity would be granted to a partnership between Delta and JAL and the rest of SkyTeam, that’s their best deal.
It has occurred to me that the reason there hasn’t been more worry about the dominance such an anti-trust immunity would grant is that, maybe, Delta has signaled its willingness to draw down its legacy network to and inside of Japan that it gained in its Northwest Airlines purchase. Northwest Airlines not only had a strong system to Japan, it also had a strong network system of flights originating from Japan to regional Asian destinations.
If Delta is willing to let JAL fly that system on its behalf, that may well satisfy regulators in the United States.
According to the Wall Street Journal Middle Seat blog, American Airlines has decided to match the bag fees recently implemented by Delta and Continental. You can read more HERE.
So, at present, Delta (including Northwest), American Airlines, Continental, United and US Airways are now all charging $25 for the first bag and $35 for the second bag with some of the airlines offering “discounts” if you perform your “bag fee purchase” online. That would imply that they each see this price for checked bags being a bit more elastic than one would have thought. Or, at the least, they see it as elastic as long as they all go for the same increases much as the case is with air fare increases.
So far, no low cost carrier has adopted this pricing model or even raised their checked bag fees. I suspect they won’t either as it gives them an opportunity to show themselves as the good guy while gaining some incremental revenue.
If this rise in fees sticks for the next 1 or 2 quarters, I do think it will put tremendous pressure on Southwest Airlines to institute their own version of bag fees, at least by institutional investors and analysts. So far, Southwest and its CEO Gary Kelly have resisted these calls to add checked bag fees and, so far, they believe it is resulting in incremental revenue from passengers switching to Southwest to avoid fees. Since CEO Kelly (and Southwest as a whole) is not one to shade the truth, I’ll continue to believe these claims.
However, with other LCC carriers such as Airtran and Virgin America and even jetBlue (on the 2nd bag) have added fees and do report significantly improved revenues from that, I would imagine that the call for Southwest to add these fees will be defeaning particularly when Southwest could implement a jetBlue or Airtran style program and see improvements to their quarterly results which haven’t been too impressive in the last year.
It is sad but I don’t believe we’ve seen the last of these increases. I do think that some airline will probe the upper limits of these fees just a bit more yet. I do think that Southwest will resist the call to add these fees for at least another 6 months but if there hasn’t been some kind of collapse in the price of these fees by then, I would not be surprised to learn that Southwest has begun to make changes to their infrastucture to implement them. I think the first sign will be the withdrawal of their “no fees for checked bags” advertising.
Delta Airlines chose to announce they are increasing their checked baggage fees. If you pay online, your fee goes from $15 for the first bag to $23 for the first bag. The second bag checked rises from $25 to $32 (paid online). Continental matched those fees almost immediately. While it seems exorbitant to me, I wonder if anyone will really notice right now.
I suspect Delta did this simply because they have pricing power at most of their hubs (ATL, MSP, DTW, SLC, CVG, MEM) and because they don’t think it is going to affect the consumer’s decision about which airline to fly in most cases. Delta doesn’t get a lot of LCC competition at its hubs except for ATL and there seems to be a unspoken agreement with Airtran not to get too ugly there. Besides, Airtran has checked baggage fees too.
The thing is, most online sites that offer booking for airlines in the US do not mention baggage fees when displaying prices for routes. Delta will continue to appear to be very competitive on routes while likely adding additional incremental revenue through the “gotcha” approach. Quite honestly, I suspect they’ll get away with it. At least until there is a healthy recovery in the airline industry and that is likely 18 to 24 months away still. Maybe more.
Will others match it? I suspect that American Airlines might. There is no precise harmony among airlines on these fees, not yet anyway. Continental already had pretty high fees at $18 and $27 for online checked fees (with a $2 and $3 surcharge at the airport). AA is at $20 and $30 respectively whether you check online or at the airport. US Airways is at $20 / $30 for online (with a $5 surcharge for checking at the airport.) United is $15 and $25 for online checking.
By contrast, Southwest Airlines has no fees up to the 3rd bag, jetBlue offers the first bag free and $30 fee for the second while Airtran charges $15 for the first and $25 for the second. In other words, these fees are all over the place. The truth is, as competitive as airfares are on many routes, these fees can change the equation pretty dramatically in some cases since those fees are for each way on a round trip flight.
These fees have added dramatic amounts of revenue to airlines’ bottom line and I don’t see them going away at all. I don’t think the fees among legacy airlines will harmonize much at all until and if online travel sites begin showing an “all in” pricing when comparing fares. Even with such comparisons, I don’t think the fees go away so much as they just begin to merge together among the airlines.
Will anyone else raise their fees? Well, maybe. I’m sure it will be tempting to do so among all the legacy airlines. One or two may even try to raise the ante some. I kind of think both United and American Airlines will try some kind of new mix in the future. I don’t see the LCC carriers playing around with their fees much if at all. They have the revenue and now this may be their chance to follow Southwest’s strategy in a modified form by advertising lower checked baggage fees.
I don’t think Southwest will change its attitude on these fees based on this new development. Their strategy appears to be working for them and they don’t have a history of following the pack when something works. That said, I’m sure it is something they’ll re-examine from time to time and it doesn’t mean they won’t add fees at some point in the future. Right now, they appear to be capturing customers with their ‘no fees” approach and their aggressive advertising seems to have caught some attention.
As much as I hate these fees for the 1st bag checked, I hate that airlines and travel websites have done really little to truly show the “all in” price for these trips. It makes things just that much more murky for the consumer and that is a bad thing. However, the best thing you can do is learn the fees for the airlines you may be shopping for a trip and do the math yourself. You’ll be frustrated by it and no doubt resent it but there isn’t a ready made solution at this time.
Frankly, these developments are just one more reason why I wonder about Southwest re-joining the travel agency world. The world has changed since they left it and, quite honestly, I think they could re-structure their IT infrastructure and re-join those agencies with little incremental costs involved. At that point, they become the no brainer for many consumers from my view. Even as aware as I am of airline options and even being located in the DFW area, even I tend to forget about Southwest as an option sometimes.
One strategy for learning these fees is to visit LuggageLimits.Com (also linked in my sidebar).
USA Today’s Today in the Sky blog is reporting that Mesa Airlines has filed (voluntarily) for bankruptcy reorganization today. Read the story HERE.
I can’t say that I find this surprising in any big way. Their financial situation has been somewhat dire for a while and their stock prices positively abysmal. In many respects, Mesa is the perfect example of a company that is rough on its employees, rough on its customers and abrasive in its own PR. That really isn’t a recipe for success in *any* industry.
Mesa operates flights for Delta, United, US Airways and under their own grand in Hawaii as go! airlines in partnership with Mokulele. They fly the CRJ100/200 (47 aircraft), the CRJ700/900 (58 aircraft) and the Dash 8-200 (12 aircraft). With a desire to shed aircraft from their fleet, my guess is that they’re wanting to rid themselves primarily of the CRJ100/200 aircraft primarily and mostly by breaking leases.
It’s also notable that both United and Delta have worked to end their relationship(s) with Mesa and Mesa is currently in litigation with Delta over the attempt to break the Delta contract. The Delta contract was operated by Mesa subsidiary using ERJ-145 aircraft (numbering 34) and Delta sought to terminate the contract on the basis of poor performance by Mesa. Mesa contends the real motivation behind breaking the contract was to cut capacity rather than performance.
With this new development, I do wonder if Mesa hasn’t just become a candidate for being purchased by another airline.
Unlike this time last year, probably not much. There was some momentum for change last year that really doesn’t exist this year. Airlines will continue to fight to hold their own in the marketplace and with the reduction in capacities, even the worst of the lot will likely cling to life this year.
North America:
Major airlines of North America have made all the changes they can and all are managing their businesses and cash very closely right now. I don’t expect much, if any, change to develop in the next 12 months but let’s take a look anyway.
American Airlines has some labor issues to address but with the current economic climate, they have been getting away with their efforts to defer those issues. Labor unions would like to push a few issues with American but they’re smart enough to realize that now isn’t the time. Most likely they’ll continue their face saving efforts at making a point with their members but I don’t expect any real labor action at this airline this year. Perhaps, if things get better, we’ll see some movement in the 4th quarter.
United Airlines, my least favorite legacy airline, has similar issues that American has with labor but, again, those labor issues aren’t likely to see much movement either. I suspect that United will continue to move more of their flights over to regional airline partners because its worked (for now) and their customers will find themselves on more and more regional jets. Since price is the prime driver for customers right now, they’ll accept that move and hate the flights as much as they always have.
Delta/Northwest should see more of its operatioins combined and, possibly, a unified single operating certificate by the end of the year. That doesn’t mean much for their customers since Northwest aircraft are being painted into Delta colors at a furious rate. The service product is already being harmonized to a fair degree and it’s a good one already.
I don’t see any major aircraft purchases and I remain interested in whether or not they’ll keep their 787 orders. There has been rumour and innuendo that they won’t but I kind of think they will keep them. Their 767 fleet is old (except for the 767-400) and I can’t think of a reason why you wouldn’t want to have the 787 begin filling the role of those aircraft. I’ve wondered if their hints aren’t just an opportunity to get Boeing to get interested in offering a better deal for more aircraft.
US Airways needs two things in this next year. First, they need their pilots to get together and start operating as a single group. As dangerous as it is to try to interfere with a union group, I wonder if US Airways won’t wade into the problem in an attempt to have a final resolution. Certainly they could argue that they’ve been patient enough.
They also need to manage their cash very, very closely. Cash is blood to an airline and US Airways has a bit of risk in this department. Should cash holdings be depleted more, they’ll have to start seeking that merger partner again and no one appears interested in marrying with them. This is another reason it needs resolution for its labor problems. That said, I don’t see US Airways disappearing or filing for bankruptcy again.
Continental Airlines has felt the hurt this past year and its unlikely to feel much better this year. Their business model depended a bit more on business class travel and the economy hurt that demand the most. That said, I can’t imagine a better group of managers for keeping that airline on track through the rest of the downturn. Things will hurt and belts will be tightened a bit more but I don’t see the service product changing. When the economic downturn does really turn the corner, Continental will be better placed to succeed than many.
Despite their recent move to the Star Alliance, I do *not* see Continental getting any closer to United Airlines whatsoever.
Low Cost Carriers / Regionals:
Southwest Airlines continues to manage itself to the tune of its own drummer and the results of their long(er) term thinking are showing left and right. They’ve managed to make solid overtures to business clientele in areas that, I suspect, count more day in and day out.
I don’t see a merger partner in the future for them except, possibly, for Sun Country Airlines. For some reason, I see this as a real winner for Southwest in that it gives them space and routes in Minneapolis / St. Paul, a labor group that is accustomed to delivering Southwest style service and which can be harmonized into the Southwest labor groups relatively easy. There is no rumour of this purchase but Sun Country has its own problems and it’s a match that fits the Southwest acquisition model.
I think Southwest will remain persistent in its Denver expansion and will work hard to create a network in the upper midwest states of Wisconsin, Minnesota, Illinois and Missouri. The wild card, in my mind, is the Washington D.C. area and the NYC/Boston areas. Shuttle type service is what Southwest knows very well and I wonder if they won’t try very hard to organically grow their flights in these areas. If so, Southwest needs to find an “in” at Washington Reagan airport. To do this, they would need to buy a shuttle operation from US Airways and/or Delta. Perhaps US Airways will be interested in such a sale if their cash holdings erode more.
Frontier/Midwest/Republic: I don’t know what happens here. Midwest really isn’t an airline anymore. It really isn’t even a brand anymore. It’s a name for selling tickets. Frontier remains an airline and a brand and Republic seems to want to continue caring for both. Since Republic is managed by very smart people, I kind of think that they may look for a way to wind down the Midwest name over the next 12 to 18 months and make Frontier the primary airline. A tasty cookie isn’t a good reason to keep the Midwest name around.
Airtran deserves some applause. This airline has managed to grow itself some, find new markets and earn some money during one of the worst downturns in the airline industry.
Their move into Milwaukee has succeeded and promises to continue to succeed. Milwaukee is a loyal city, to be sure, but it is a city that appreciates value even more. Airtran has managed to offer great value, good service and appeal to a city that just a couple of years ago was kind of anti-Airtran. The one obstacle in their way is the arrival of Southwest, another airline very good at offering value and appealing to the Milwaukee kind of customer. I think Airtran has the upper hand but they are by no means the sure winner in this market. Southwest may be able to beat them with frequency.
Virgin America keeps showing up and usually right after I become convinced they’ll disappear. I still don’t know what this airline does best and I still don’t see them as being a scrappy enough operation to fight their way into the cities it needs to be in. Virgin continues to dance around Chicago (claiming they can’t get space but if they wanted it bad enough, they could). Their product would servce cities such as Dalllas, Denver, Houston, Chicago, Atlanta, Baltimore, Philadelphia, and, perhaps, Cleveland/Cincinatti very well.
Instead, they added flights from the west coast to Fort Lauderdale and talk about adding service to a Texas city such as Austin. This is too timid. The CEO, David Cush, seems afraid to compete against his old employer (AA) and that is a shame since they have a very competitive and attractive trans-continental product. I would speculate on VA being bought by another airline but . . . why? They just don’t have much there and seem to have little interest in exploiting real advantages that they do have. Maybe they’ll just run out of money and get shut down.
Alaska Airlines has felt the heat from Virgin America but they continue to do pretty well with their little airline and they continue to do it without being aligned with a major. I don’t see much changing for Alaska Airlines. They’ll continue to be a scrappy airline with good service to a limited number of destinations. And, somehow, that seems OK when it comes to Alaska.
I don’t spend a lot of time on two aircraft manufacturers who really are the first real potential competitors to Boeing and Airbus in the future. Embraer and Bombardier.
Let’s take a look at Embraer today. Embraer, a Brazilian aerospace company, got its start in the 1960’s and entered the commercial aviation world with its EMB 110 Bandeirante (1968) and EMB 120 Brasilia (1983) serving the small commuter turbo-prop market.
These tough aircraft from Brazil managed to serve a need in many US markets and I remember them flying for American Airlines in the 1980’s and 1990’s. American Airlines used them to fly multi-stop routes from their DFW hub and others such as Delta and United used them similarly from their hubs.
It was the ERJ-145 that Embraer brought to market in 1995 that took this company to a new level. This line of regional jets were the first to combine small size (as few as 30 seats and as many as 50 seats) with modern turbine jet engines to provide a (near) mainline aircraft experience to the small feeder routes of major airlines. Unfortunately, these aircraft were only economical to operate when jet fuel was inordinately cheap through the 1990’s and early 2000’s.
Embraer knew this and began development on a larger, more capable family of airliners that aren’t quite regional jets and aren’t quite mainliner jets. These new jets, now referred to as “E-Jets”, are the ERJ-170/190 family and this is where Embraer signaled its willingness to encroach on the territory of Boeing and Airbus.
The E-Jets, introduced in 2002, have a seat capacity ranging from 80 to 120 people in an all coach configuration and, at first glance, that doesn’t seem to quite reach into the 737/A320 territory but its worth another look. The E-Jets, at least the larger E-190/195, offer similar size and range to the early 737-100/200 and the first DC-9 series aircraft. This was confirmed when David Neeleman (founder of Morris Air and jetBlue) chose them to start his new airline in Brazil, Azul. US Airways is now deploying this aircraft on its East Coast shuttle routes.
These aircraft offer something that neither the 737, A320 or DC-9 never offered: no middle seats. Designed for a 2×2 configuration, these aircraft offer a coach experience that really is no different than the current offerings from Boeing and Airbus and, in some cases, really better. These aircraft are now serving the routes originally serviced by first generation 737’s and DC-9’s.
And what’s next? Embraer has shown it has the technical expertise to offer a mainline aircraft and if it expects to grow as a company, the next step will find it offering a 737/A320 competitor. If timing is anything to go by, I would be unsurprised by a new airliner being offered in 5 years or so and quite likely offering the new Pratt & Whitney GTF engine.
With both Boeing and Airbus deferring development on the 737 and A320 series of aircraft for as much as 10 more years, there is an opportunity there for makers such as Embraer and Bombardier since even major US airlines are eager to re-develop their fleets with more fuel efficient aircraft.
At some point, both Boeing and Airbus will have to make a few choices. They can choose to cede the 100 to 140 seat market which is tough to imagine given that this where aircraft are truly mass produced.
They can choose to form a partnership with Embraer and/or Bombardier and co-market a new aircraft under one or the other’s brand names. Airbus has some ties to Embraer and Bombardier has had contact with Boeing over the years but neither has anything approaching what would be called a close tie. I think there is some likelihood of this happening and, frankly, I expect that whoever forms ties with Embraer is likely to succeed. Embraer has a bit more financial strength and a much cheaper labor base to manufacture from than Bombardier (located in union-heavy Canada).
The final choice is to go head to head with Embraer and Bombardier. From a personal viewpoint, I hope that both Boeing and Airbus take this route. It can mean only better aircraft in the future for everyone. However, both Boeing and Airbus are currently manufactured in areas with strong union ties (Boeing is reducing this risk with the establishment of an assembly line in South Carolina and Airbus is “experimenting” with an assembly line in China for low production volumes) and with a relatively expensive supplier base.
There is no doubt that Embraer offers a great product and certainly possesses the ability to take it to yet another level. They are poised to take advantage of another family of aircraft that could be made in a way that type ratings between the E-Jets and a new, larger family could be shared. This would be very attractive to a wide variety of airlines.
USA Today published an op-ed found HERE on the honesty of code shares that exist between major airlines and their regional partners. Noting the safety issues that appear to exist in the regional airline industry, they call it a problem for truth in labeling. Is it?
The truth is that the issues that the public has been focused on for the past several months with respect to regional airlines does and does not exist. It depends entirely on the regional airline and the relationship it enjoys with its partners.
Certainly there exists an issue with fatigue and experience among airlines. However, those problems don’t exist simply because regional airlines exist. Even if regional airlines didn’t exist or if they were operated directly by major airlines, those problems would still exist. The problem of fatigue exists because of the existing system of rules governing rest for pilots. Even pilots working for major airlines are enduring more fatigue as a result of work rules.
Experience does count but the perceived problem of experience is a greater problem because we put brand new pilots into situations that require them to fly schedules in and out of busy airline hubs as much as 5 times in a duty shift. A new pilot is potentially flying more hours and flying in and out of busier hubs more often than an experienced pilot working for a major airline. That will only be solved when we require more experience to become a captain.
Unfortunately, pilots (and cabin crew) are tied to a legacy seniority system that they are unwilling to give up. Pilots get upgraded to larger aircraft and into the position of captain on the basis of seniority rather than experience or merit.
For more information on pilots, fatigue and the reason for regional airlines, read these posts HERE, HERE. HERE, HERE, HERE, and HERE.
Airlines use regional airlines differently and according to the agreements they have with their own unions as well as according to their needs for service in various areas. Some airlines own their own regional airlines such as American Airlines who owns American Eagle and Delta/Northwest who owns regional airlines such as Comair, Mesaba and Compass. Other airlines such as United or US Airways contract with independent companies more often.
Now, I think *any* regional airline operating in the United States is operating to a fairly high degree of safety. We have too many laws and regulations in place for any to slip too far down the ladder. However, I do think that independent regional airlines operate with a bit more aggressiveness towards both their operations as well as their personnel. I would point to the independents as having a bit more opportunity to fail in safety than those owned by the major airlines.
In fact, I would regard our regional airlines as generally being more safe than the major were in the early 1980’s.
To call code shares deceptive is a stretch in my opinion. Airlines and travel websites do a pretty good job of revealing both the type of aircraft being used as well as the fact that regional flights are being operated by regional airlines in partnership with the major airlines. A quick check on AA.com, Delta.com, Travelocity.com and Orbitz.com shows that to be true.
If a problem exists, it really exists with the consumer who is either ignorant or unwilling to be an informed purchaser of the services being offered. If the consumer is neither ignorant nor uninformed, then they may also be a bit selfish and lazy by choosing not to act in their own best interests when purchasing a flight.
You really do invite trouble into your life when you purchase your travel based almost exclusively on price. If you could pay $20 more to travel through a hub that is less congested or prone to trouble, wouldn’t that be a small price to pay? If you could pay $20 more to travel on regional airline owned and operated by a major airline, wouldn’t that be a small price to pay?
When you become a slave to one airline through frequent flier miles or the idea that a non-stop flight is always best, you put yourself at risk. Consider whether or not it is better to fly on American Eagle from DFW to Milwaukee non-stop or if it might perhaps be better to do it via Southwest Airlines making one connection and only on a 737. The American Eagle flight will be a cramped regional jet that is prone to being weight restricted operated by an airline that doesn’t exactly have a sterling record for caring for your baggage. The Southwest flight will be flown by the most experienced pilots available in the US using a 737 and your baggage will be handled by people who have an excellent record and who care about their customers. That Southwest flight might take add an extra 45 minutes to your trip and may even cost $20 more but your assurance of a positive experiences goes way up.
Sometimes taking the longer view when planning your travel is best. Particularly when you plan your leisure travel.
If safety is a concern, become an informed consumer. Don’t become prejudiced on the basis of what kind of airplane you’re getting onto. Become interested in what kind of airline is operating that aircraft. There are fantastic regional airlines with fantastic safety records and there are major airlines who are marginal at best with merely OK safety records. Be proactive and enjoy a better travel experience.
Before anything else, I’d like to announce that this is my 200th post to this blog. Quite the milestone all in all.
USA Today’s Today in the Sky Blog is reporting that several airlines have removed their advance purchase requirement for bargain fares this holiday season. Their source, Tom Parsons (CEO of BestFares.com), says that airlines such as American Airlines, Delta, United, Northwest, US Airways, Frontier, Airtran and Midwest have all removed the advance purchase requirement through January 4th. Continental still has a 3-day advance purchase requirement. This would seem to imply that holiday travel is extremely soft this season so far.
At the first of the year, I wrote 3 blog posts shown HERE, HERE and HERE. It was really just my random speculation on what to expect over the next 12 months. Well, now it’s December of 2009. Let’s see how I did.
Boeing 787: I guessed at an April 2009 first flight. It still hasn’t flown although speculation has it flying this month either by December 14th or December 22nd.
Airbus A380: I guessed they would make their goal of producing 21 aircraft this year. As of November 30th, 2009, Airbus says they have delivered 7 A380 aircraft this year. Ouch. This is a program that is in financial trouble. No, I don’t think it will be cancelled. Not yet but please don’t try to tell me this program will make a profit.
My deathwatch had Midwest Airlines going away most likely by a sale. That did happen and while the airline has essentially evaporated (from its original form), it does remain as a brand being run by Republic Airways.
I speculated that Frontier Airlines would be bought out of bankruptcy but I guessed that jetBlue would be the buyer. In fact, Southwest Airlines and Republic Airways were the suitors and Republic won.
I thought that United Airlines and US Airways would announce a new merger with Continental a dark horse candidate for buying United. In fact, Continental became a member of the Star Alliance and firmed its relationship up with United but wisely kept its distance otherwise.
I said that Southwest Airlines would maintain its status quo but that Gary Kelly would be under fire from both employees and outsiders and he was. However, that view is already being reversed again by Southwest’s resurgent strength in the business.
I thought that the Middle Eastern airlines such as Emirates, Etihad and Qatar wouldn’t see a bankruptcy or merger but would slow their growth and aircraft deliveries. That, in fact, has happened and now we see Emirates working hard to distance itself from Dubai World’s financial woes.
China: I said deferred orders. Pretty much what happened.
The Far East: I said airlines from that region would maintain their status quo, probably would not defer orders and might make new orders to replace existing equipment for greater effiency. Again, pretty much what happened.
Australia: I saw QANTAS slowing growth, deferring some orders and fighting hard against new entrants. Again, that’s pretty much what happened. I also saw two weak competitors on the US-Australia routes: United and V Australia. That is pretty much what is happening although V Australia has been pretty smart in working into a relationship with Delta where it appears the two airlines will cooperate with codeshares. United remains alone and with weakening demand.
South America: I said the Argentine government would take Aerolineas Argentinas back from Grupo Marsans and the airline itself would muddle along or contract rather severely in some areas. Bingo. Exactly what happened. I also predicted Azul would become the jetBlue of Brazil and its not hard to guess that that airline is pummeling its competitors. A future prediction was for the airline to fly internationally in 2014 with Airbus equipment. We’ll see.
Africa: I saw Delta continuing to pursue flights to major African cities (true) and SAA (South African Airways) issuing a small RFP for 777 aircraft to replace its rather inefficient A340 aircraft (didn’t happen.)
India: I thought Jet Airways and Kingfisher might merge with the name Jet Airways being retained. In fact, both airlines continue to exist but both are suffering severe financial problems, deferring aircraft deliveries and generally flailing about trying to find a way to continue. One of these airlines will still ultimately have to exit the market and I continue to think it will be Kingfisher. They have the wrong aircraft and the wrong aircraft on order. However, Jet Airways is suffering badly from labor actions among its employees.
United States: I picked United to fail. It hasn’t happened and while they continue to live, their cash holdings are being reduced, they still have severe labor issues, their service product continues to suffer and I still think they should be the ones to disappear. I also thought Glenn Tilton would be ousted and, possibly, replaced by Doug Steenland. That didn’t happen but John Tague has been groomed as Tilton’s replacement. I still think Tilton should go if United can’t fail.
Europe: I thought we would hear of a surprise from Lufthansa. I didn’t like their purchase of SWISS and I didn’t like their flying the A340 in competition against the 777 being flown by many of their direct competitors. They’re still here, still making money and they bought BMI. I still think we’ll here of misfortune from them but apparently it will take a while longer.
Random Speculations:
I thought Southwest might add another aircraft type. It didn’t happen but I think their interest got perked up when they looked at buying Frontier and saw the economics on the Q400.
I thought Delta might order more Airbus A330 aircraft. Instead, Delta is parking them in the desert for the winter season.
I speculated that both China and Japan would defer or drop their regional jet programs. That didn’t happen but the Chinese jet program appears to be a bad aircraft and unlikely to be used by anyone except Chinese airlines forced to buy it.
I thought Bombardier would see a major order (20+) for their Q400 series aircraft from a US customer. Horizon Airlines did up their orders for 10 more but there were no other significant orders.
Airtran to form a small midwestern hub. Yup, that happened. In Milwaukee where they’ve taken over from Midwest Airlines and now face Midwest (brand owned by Republic) and Southwest Airlines entry into the market. I think Airtran will hold on here and continue to develop business.
Last, I hoped that jetBlue or Virgin America would enter the DFW market. Virgin’s CEO, David Cush (formerly of American Airlines) did recently speculate about adding flights to either DFW or Austin. I suspect they’ll choose Austin and DFW will remain a fortress for AA.
That’ s it for my 2009 predictions. I’ll make more at the start of 2010. On the whole, I probably did as well as anyone in making predictions in this business.
