November 27, 2013 on 10:47 am | In Mergers and Bankruptcy | 9 Comments
The US Bankruptcy Court has approved American Airlines’ exit from bankruptcy and merger with US Airways.
Employees of both organizations: Take a moment and enjoy what this means.
On December 9th, a new airline is being fashioned from two old airlines of which both have a very old, very long history.
I truly hope it is both successful and model for both service and price. I honestly do. I hope that the employees of both groups will enjoy higher wages, better working conditions and feel generally more beautiful and handsome.
But a word of caution too: Don’t screw it up with greediness.
<whispering> I’m talking about you flight attendants in case you didn’t realize. </whispering>
November 27, 2013 on 2:00 am | In Airline Fleets | 1 Comment
Emirates Airlines, in Dubai, has made another exceptionally large order for airliners. I usually criticize the airline for its A380 orders but I have some reactions to Emirates purchases on the Boeing side this time too.
First up, Emirates has ordered another 50 A380 airliners. They currently have 39 delivered and another 101 ordered. The configuration used on these airliners offers 517 seats and that is a lot of capacity. Each of those A380 aircraft represents 3.8 Boeing 737-700 airplanes. The growth required to support this fleet alone is something I continue to believe that Emirates will not be able to sustain. If each A380 flies just one flight per day, that is 140 flights a day for the A380.
Who here thinks that there are 140 city pairs that justify an A380? How about 70 city pairs?
And to make matters more interesting, Emirates has ordered (115) 777-9X and (35) 777-8X aircraft. The former should be capable of just in excess of 400 passengers. To be true, Emirates has previously announced its intention to retire some “classic” 777 aircraft of which a small portion of its (119) 777 fleet is comprised.
The size of this airlines’ fleet in 10 years and all invested in widebody, high capacity aircraft is nothing short of fantasy. The airline has grown today but it won’t beat everyone everywhere all of the time. Emirates is planning to add widebody aircraft to its fleet on a basis similar to what Southwest and Ryanair do with the 737. There are orders for 200+ aircraft seating more than 400 passengers each.
I don’t think it is sustainable in the long run. Time will tell.
November 26, 2013 on 2:00 am | In Airlines Alliances | 1 Comment
Alaska Airlines has been a maintstay in the Seattle area for decades and has always done well by providing above average service combined with competitive fares in the area. They have built a lot of loyalty in this area. Over the past two decades, Alaska has also engaged in partnerships with almost all comers.
They have been willing, for instance, to do business with both Delta Airlines and American Airlines (and many other airlines) on the premise that they were too small to ignore anyone and what they had to offer. That worked very well for Alaska.
A few years ago, after the Delta / Northwest merger, Alaska and Delta formed a more special partnership. The idea was that Alaska would provide feed in Seattle for a relatively small group of flights that Delta wanted to operate from Seattle. Flights that, mostly, were to go across the Pacific but which also included flights to Europe and some of Delta’s hubs.
It seemed innocent and very beneficial to Alaska at first but over time Delta grew Seattle into a big focus city that now borders on the verge of being a hub. Delta treats Seattle much like it treats both Los Angeles and New York: a good place to aggregate traffic onto international flights. Since Delta has so many international flights departing Seattle now, it needs more and more feed.
Feed that Alaska can’t provide in total. Alaska’s feed is more expensive anyways in that it doesn’t give Delta the economies of scale that a focus city/hub require. So Delta is adding more and more of its own flights and directly competes with Alaska out of Seattle on many routes now.
Each continues to act as if the other is still a great friend. Neither is really kidding anyone at this point.
At some point, Alaska will have to withdraw and do better at aligning itself with a variety of players again. Alaska is useful to Delta only to the point that Delta is unable to do for itself in that market. Delta is doing for itself just fine.
Alaska won’t pick a fight with Delta and probably won’t appear to do much at all until it finds a way out of this relationship that preserves all relationships. In the meantime, Delta will encroach more.
Competition is alive and well in the United States airline industry and this is a perfect example of the market power a behemoth such as Delta has vs the market power the LCC airlines have. Delta created a major focus city and did so in a few short years quite successfully.
November 25, 2013 on 11:56 am | In Mergers and Bankruptcy | 1 Comment
UPDATE: The judge will be issuing a ruling sometime between close of business today and close of business Wednesday.
There is a private antitrust lawsuit against American Airlines and US Airways being conducted by two private attorneys who have long instituted lawsuits against airline mergers. In a hearing today in US Bankruptcy Court, Judge Sean Lane is hearing arguments for and against a Temporary Restraining Order against a merger as well as other arguments for and against whether or not he (Judge Lane) can approve the merger.
The plaintiffs in the private lawsuit certainly have the right to ask for a TRO but they also have a right to get denied as well. Asking for a TRO at this late date is, at the minimum going to raise many eyebrows since a TRO is generally requested for emergency situations. This merger has been on deck for a long, long time.
Not only do I think the TRO will get denied, I think we’ll see the plaintiff attorneys get walked around the courtroom on the facts behind their contention. The truth is that while there are “plaintiffs” these attorneys represent, this lawsuit is their lawsuit.
Furthermore, a variety of competent parties have already been engaged on the merits of this antitrust trial by virtue of what played out in the Department of Justice lawsuit most recently. Plaintiff attorneys are going to argue that issues go unaddressed and real harm is taking place which suggests that the Federal Judge in that lawsuit didn’t pay attention (and the record reflects the exact opposite) and that the Department of Justice isn’t a competent representative for the citizens of the United States.
The TRO won’t be approved and the merger will be approved. The plaintiff attorneys will stand in front of cameras and microphones and decry the great harm happening to everyone. Journalists will yawn, write their stories about today and the big news will be the merger is approved and ready to be consummated.
Count on it.
November 16, 2013 on 2:00 am | In Airline News, Airports, Mergers and Bankruptcy | No Comments
Delta wants to take over American Airlines’ gates at Love Field Airport in the worst way. They say they can run 18 flights a day to major Delta hubs and put operations in place quickly to do so. Delta argues that it can provide very real, substantive competition at the airport.
Southwest, of course, wants the gates as well.
No doubt others will throw their hats into the ring too.
In less than a year, airlines will be able to operate unrestricted domestic flights from Dallas Love Field to anywhere in the continental United States. That’s a big market for Dallas suddenly.
But the DoJ wants to foster LCC participation in these give ups and that would preclude Delta (and Southwest, in my opinion) as well as other “legacy” carriers from obtaining those gates.
This is why I think that any airline who has less than 20 percent market participation at an airport ought to be able to have a chance to acquire those gates at Love Field and elsewhere. It invites the most qualified new entrant.
What Dallas doesn’t need is a ULCC carrier flying into Love Field airport a couple of times a day. What Dallas *does* need is real competition which an airline such as Delta could provide in very real terms today.
That’s very attractive to me, a person who lives in Dallas. This city doesn’t have much competition. It has American Airlines who dominates DFW in a way that dwarfs the dominance at Washington Reagan National that US Airways enjoys. It has Southwest who dominates Love Field in an even greater way.
So, yeah, real competition from a real, national network airline who can offer real price competition is an attractive idea.
So, let’s not preclude “legacy” airlines.
November 15, 2013 on 2:00 am | In Airline News | No Comments
United Airlines just announced two new non-stop flights into New Jersey with UA Chairman Jeff Smisek and NJ Governor Christie lending their voices to the announcement.
That would be non-stops between Houston and Chicago to Atlantic City.
That, my friends, is LCC and ULCC territory. But it’s United who is doing it and from their two largest hubs, too.
That’s what a truly large airline of scale can do: Deploy flights on unique routes with flexible resources.
November 14, 2013 on 12:36 pm | In Aircraft Development | 3 Comments
The IAM Local 751 has voted against the contract extension negotiated with Boeing and which was recently described as “crap” by the Local President involved in negotiating the contract.
The vote was very decisive in rejecting the contract.
There is a strong belief that IAM membership and local leadership believe there is a better deal to be had here and that new negotiations will begin anew. I think there will be political pressure on Boeing to come back to the table. Exceptional political pressure.
Ultimately, Boeing probably will get in a room with the union and it will probably have a serious conversation.
I also think Boeing is going to have serious conversations with a wide variety of interested parties across the country. And I think several of those serious conversations will carry much more enthusiasm on Boeing’s part.
The union wants what it wants and sees givebacks on things like pensions as a step too far. Maybe it is, for them.
But the landscape of the United States is littered with former employees whose unions resisted change too much on things like pensions. And the landscape contains a lot of bodies of union leadership who did not embrace the need for a new model for business between corporations and unions.
I’m looking at you, Tom Wroblewski.
You might get elected for another term by being dramatic and tearing up contracts symbolically while describing them as “crap”. But who do you lead in 8 or 10 years when yet more productions lines have been established in other locations that are Right To Work states?
And, more importantly, what do you say to the machinist who had a great job and who would have still had a superior manufacturing job who now has to go through job retraining and do a service industry job? Or the guy who has to move to California or Alabama or Georgia or Texas to find another aerospace job? Or who just can’t find a job under any circumstances?
How do you justify yourselves to the unions at airlines who’ve given up a whole lot more than you to keep the very airlines who buy your products alive?
It’s notable that it took 2 bankruptcies and one near bankruptcy in the car industry for unions to wake up and make a better deal to keep those jobs in the United States. It was a scary, traumatic time but 5 years later, that industry is healthy, building better cars than they have in 40 years and there are new jobs being created for the first time ever.
No, they aren’t $35/hour jobs that pay full pensions and no cost health benefits while the worker screws a dashboard to a frame. But they’re good, valued jobs that compared favorably anywhere.
There are two messages to unions in the car industry and its recovery. I hope that both are heeded.
There was a time when all of Boeing’s leadership was tied to the Seattle community. That is no longer the case and really hasn’t been the case for a long, long time. If unions believe that Boeing can’t leave, they are only kidding themselves. If unions think that because there has always been a deal, there always will be a deal, they are kidding themselves. It won’t end today or tomorrow but it will end in a decade.
This is a billion dollar business that has to compete in a highly visible, highly competitive global landscape.
So, I’ll offer this final comment to the IAM in the Seattle area for thought and dialogue:
Will the last IAM member in Seattle please turn out the lights when they leave?
November 13, 2013 on 1:01 pm | In Airline News, Mergers and Bankruptcy | No Comments
I smell a small mouse in this mix. That mouse, hardly a rat, is Virgin America.
From the Department of Justice announcement on the settlement of the lawsuit with US Airways and American Airlines:
“Rights and interests to two airport gates and associated ground facilities at each of Boston Logan, Chicago O’Hare, Dallas Love Field, Los Angeles International and Miami International.”
I think that someone wants Virgin America to get access at the airports it has openly spoken of. Virgin America is a service darling in that offers a superior inflight service experience combined with an LCC pricing scheme.
I think that some or all of these cities will find Virgin America getting the use of these at a pre-arranged price. The DoJ will come off looking like a prince for getting Virgin America, arguably the smallest of LCCs right now, a place at the table.
But the airline, American Airlines, could care less. Virgin America isn’t big enough to introduce pricing power into those markets the way a larger, more established national airline could. It’s a deal that, if it works out that way, does nothing to impact American Airlines and which does nothing to substantially introduce competition.
I think Virgin America will acquire the gates and facilities in Los Angeles, Miami and Chicago. Maybe Boston as well.
Virgin America already has a proper footprint at DFW airport. So I do wonder who might be interested in those gates at Dallas Love Field. It would be egregiously bad to award those to Southwest although I’m sure that Southwest would love to have them.
I actually believe that Southwest is constrained from getting those gates but readers are free to correct me.
November 12, 2013 on 11:03 am | In Airline News | No Comments
The Slot Race is about to begin.
Slot divestitures required in the settlement of the lawsuit between American Airlines / US Airways and the Department of Justice will be the laser focus of all airlines in the US. Just two weeks ago, Southwest Airlines began publicly maneuvering to be at the front of the line for slots at both airports (NYC La Guardia and Washington DC Reagan National). Yesterday, Delta announced it would be happy to take on the slots being given up.
jetBlue can’t be far behind nor Virgin America.
So far, I can’t identify exactly what the terms are of the settlement with respect to those slots. I will offer an opinion on what should happen:
1) Only airlines with a market share at those airports that represents less than 20% should be eligible to bid on those slots. Why 20%? There are currently 5 major national airlines in the United States and they’re becoming 4 airlines. Falling below the 20% threshold invites new entrants and gives incumbents with a small footprint an opportunity to play in the game.
2) Gate space at those two airports should be available consistent with the slots. In other words, new entrants should be encouraged with the ability to get reasonable gate space.
3) I would specifically bar Delta Airlines from competing for slots at both New York and Washington DC airports. Delta and US Airways made their deal in a slot exchange in 2011. That deal gave Delta 132 slots at NYC La Guardia and gave US Airways 42 slots (plus cash and a daily Brazil route authority from Charlotte) in Washington DC. These two airlines have had their day at the buffet line.
With these assurances in place, I think we’ll see some new competition into and out of those airports. Will it be good or ideal? I have no idea. Part of the outcome really depends on the eligible airlines being willing to not only acquire the slots but also being willing to use them effectively in the markets.
While it grates on me to say this, I do think that finding a way for Southwest to continue to build its presence in the New York City and Washington DC areas is a good idea. This puts a national airline with a national network into play in those markets.
Allowing airlines such as WestJet or Spirit to operate a few pairs into and out of those cities doesn’t actually provide much competition at all. Those airlines use and make a big profit from those slots without benefiting the consumer in the form of introducing real competition.
November 11, 2013 on 4:52 pm | In Airline News, Mergers and Bankruptcy | No Comments
After thinking about Southwest filing an amicus brief in the AA/US/DoJ lawsuit all day, it has occurred to me that Southwest plans to argue how:
- Southwest is the pre-eminent low cost carrier in the country
- It needs slots in Washington D.C and New York to wield such an influence in those markets
- Only Southwest can deliver competition against these massive giants
And then to complete the bizarre moment, I would imagine that American Airlines and US Airways will then have to argue that Southwest is not a low cost carrier and doesn’t offer nearly as much competition as people think.
At which point, the judge’s head will explode, I imagine.
November 11, 2013 on 9:15 am | In Airline News | 2 Comments
The AA/US v DoJ settlement came more quickly than I expected and I am busier than usual at this time.
However, a few top level comments until I can sit down and do an analysis.
- I so far see the airlines giving up really nothing that they weren’t already prepared to give up for this deal.
- The gates they have to give up in the key airports does (potentially) remove barriers to entry for new airlines in those markets.
- Delta doesn’t surprise me in their loud, vocal expression that they would like to get those Washington D.C. slots. (This was suggested to me by two sources as being an end game of Delta for weeks)
- I think it’s great that the Republican candidate for governor, Greg Abbott thinks this deal is a win for American Airlines. Sadly, he didn’t originally and did very real damage as a result. Blowing with the wind doesn’t impress me unless it’s an airliner.
More to come.
November 10, 2013 on 1:00 am | In Aircraft Development | 2 Comments
If the Boeing 777-X doesn’t get built in Seattle, where does it get built? Some think that Charleston, South Carolina is a shoe in, I do not. I think Charleston, South Carolina has some real potential and I’m sure that Boeing is going to look at it but let’s not forget that the 787 manufacturing line in Charleston has a way to go before it looks like a Boeing line.
Some think that Long Beach, California has a chance since Boeing is shutting down the C-17 line there. This simply proves that California’s laws on marijuana are the laxest in the nation.
The facilities in Long Beach are very old and were never efficient. Not even in the 1960′s when Douglas built hundreds of aircraft there each at a loss. Trust me when I say that even the McDonnell Douglas managers who are now in charge at Boeing don’t want to ever go back to Long Beach for anything.
I think San Antonio has a real shot at this line. It has the right airport, the right railroads and the right weather. And Rick Perry. San Antonio has a governor who’ll sell his soul to bring a manufacturing line like Boeing’s 777 to Texas. If Europe thinks they’ve seen everything when it comes to tax subsidies, they haven’t see Rick Perry spring into action.
Wherever it lands, I honestly don’t see it going to Seattle and I think that is because the unions answer to every overture from the company is to freak out and threaten the company with more financial impact.
Who puts up with that today? Not many. Boeing knows that, in the long run, finding other places to do business means it has a better chance of being cost effective in the airline game.
November 9, 2013 on 1:00 am | In Aircraft Development | No Comments
IAM local 751 President Tom Wroblewski symbolically tore up a contract that was negotiated (by him in part) with Boeing to keep the 777-X work in the Seattle area. While he did so, he said “I know this is a piece of crap”.
And then he promised to try to see if he could prevent a vote on the contract.
The IAM local may well be counting on holding sway with Boeing by virtue of everyone remembering their damaging strike from several years ago and, if so, I think their crazy.
Boeing learned from that strike. Good or bad, Boeing has figured out that diversifying may cost a lot but it may not cost as much as the IAM Local 751.
The rhetoric being used by the local union officials is so hateful, so damaging that I honestly believe this contract is not only lost but that Boeing will definitely seek to put the 777-X line in a more friendly state.
Others think it’s bluff, I do not. Not with the current leadership at Boeing. There is a bad rift between Boeing and its local unions that financial managers see as an ongoing impact that must be solved permanently.
In short, I think the IAM Local 751 has just lost their membership quite a few jobs over the next 10 years. Even if the union approves the contract at this point, Boeing knows what the union leadership is going to do and it can’t have endless tolerance for ultimatums from the union.
November 8, 2013 on 1:00 am | In Airline History, Airline News, Mergers and Bankruptcy | No Comments
Southwest Airlines and Delta Airlines and others have been running around playing politics with the US Airways / American Airlines merger in ways that leave a person wondering what, exactly the agenda is.
The truth is that the airline industry has never been good at acting in its own interests. To the contrary, the US airline industry is expert at just one thing: shooting itself in its own foot.
And they have a tradition of doing this that stretches back 60 years or more. This isn’t just a deregulation thing.
Airlines cannot resist interfering in things that may result in some benefit to them. And the worst part is that they always do it in a very clumsy manner which finds them not only not getting what they wanted but losing too.
Both Southwest and Delta benefited a great deal from mergers. Both did not have to enjoy friends such as American Airlines or US Airways interfering in the arranged marriages. (Yes, I’m well aware of US Airways hostile bid for Delta and that is quite different.)
These airlines run the very real risk of impacting their entire industry in a way that would prohibit further consolidation and even invite investigation into divestiture by the very largest airlines. It’s no small thing that both Delta and Southwest are a part of that club of large airlines.
November 7, 2013 on 1:00 am | In Airline News | 2 Comments
Southwest Airlines wants to offers its unique perspective on competition in markets affecting the US Airways / American Airlines merger and particularly wants to talk about New York La Guardia and Washington DC Reagan National airports.
Southwest wants to offer that it doesn’t have competitive influence in those markets because it has too few slots. This, of course, is to angle for an advantage in accessing slots at those airports that will almost certainly be given up in such a merger.
I like Southwest Airlines, I really do. But this strikes me as a particularly craven move on their part. The airline has not been willing to pay the market rate for such slots and it has lost opportunities to expand in those markets as a result.
Everyone senses a win coming up for these two airlines and most likely via a negotiated settlement between the Department of Justice and US Airways and American Airlines. Now everyone wants a piece of the action. One wonders just how many airline executives at Southwest, Delta and other airlines have been sticking their oars in to gain advantage.
Absolutely slots should be given up. And those slots should go to high bidders. If we’re not going to treat slots as a public commodity to be managed, then those who own them should at least get the greatest economic benefit from them.
If Southwest wants more slots, it needs to do a much better job analyzing the value and pony up the money. It really is that simple.
November 6, 2013 on 12:51 pm | In Airline News, Mergers and Bankruptcy | No Comments
South America is a land where countries often prop industries far past what is appropriate and generally to maintain jobs for constituencies. This has been what Italy has done with Alitalia, what India has done with Air India and what Argentina has done with Aerolineas Argentinas.
It’s what Colombia could have chosen to do with Avianca and didn’t.
The Wall Street Journal has a story about Avianca’s comeback over the last 20 years which is culminating in Avianca’s stock being listed on the New York Stock Exchange and which will raise $500 million for Avianca’s expansion plans.
Avianca is an example of why private industry is what saves airlines, not governments. There are many examples in the airline industry similar to Avianca but Avianca represents exactly what airlines such as Alitalia need.
Aggressive, entreprenurial restructuring that reduces costs and creates opportunities for genuine growth. There isn’t a government known to man that has such talent.
Avianca’s salvation came from an industrialist who saw opportunity in the ashes of Avianca’s bankruptcy.
Alitalia isn’t saveable. But should the airline go away, there is enormous opportunity for airlines to come in and provide employment with thriving enterprises. The wages aren’t going to be as high, that’s true. No airline that is competing today does offer the kinds of wages and job protection experienced by Alitalia employees. And none should experience such.
With all of that said, I also don’t expect Italy or India or Argentina to embrace reality any time soon either. It’s possible that Italy may be forced to let go but only because of the obligations Italy is under as a function of debt rescue performed by the European Union.
Otherwise, Italy would pour money into Alitalia no matter what was demanded of them by anyone.
November 5, 2013 on 1:00 am | In Deregulation, Mergers and Bankruptcy | 1 Comment
I have a friend who bought American Airlines stock at 50 cents per share. That friend asked me what on earth was going on that the stock rose to just over $10 per share.
These are strange days when an airline stock is actually worth quite a bit while in bankruptcy, on hold with a merger because of a lawsuit. Strange days indeed.
The answer is that there are settlement discussions going on with the Florida Attorney General and with the Department of Justice.
The talks with the Florida AG are to build momentum and whether or not a settlement is reached there is really immaterial.
The talks with the DoJ are serious and Attorney General Holder has come out with bluster stating that the airlines would have to sell assets to get a settlement. The airlines wisely declined to make a comment.
In the world of lawsuits, he who is quiet is usually the one who is winning.
American Airlines and US Airways are very quiet on this.
November 4, 2013 on 1:00 am | In Mergers and Bankruptcy | No Comments
American Airlines and US Airways have so many different parties clamoring to be their friends in court, I’m reminded of my daughter who has over 700 Facebook friends.
People writing supporting briefs doesn’t mean that American Airlines and US Airways wins by the volume of support. The law is the law is the law. And the law in this case is somewhat tightly constrained. Decisions in this case must be made on what market conditions are today, not what they were 5 years ago.
So, if it feels like the argument is won, it is not.
The win in the Department of Justice lawsuit against these two airlines comes from making an argument that centers on what today’s conditions are and, at best, supporting it with comparisons to market conditions that existed in the past.
In other words, you can’t argue that just because the DoJ didn’t file a lawsuit over the last 3 mergers, they shouldn’t now. That isn’t even an argument.
But you can argue that market conditions and competition isn’t materially different from what it was 5 years ago and when those mergers were allowed, outcomes favored more competition rather than less.
Likewise, the DoJ can’t just say “less airlines, more costs”. And arguing that air fares are up isn’t valid either. In fact, arguing that air fares are up and airlines are earning profits this year would be stupid argument. The industry will point out the tens of billions of dollars lost over the last 35 years in aggregate.
One good year does not make for a turnaround.
The DoJ must be able to prove that competition will be reduced AND as a result, the consumer will be harmed. Consumers are not harmed automatically from higher prices. In fact, over the last 5 years, since the start of the Great Recession, lots of items rose dramatically in price. Gasoline is one item that comes to mind. So did milk.
Air fares rose because airlines A) stopped trying to buy market share at any cost B) returned to operating each route as a profitable enterprise and C) consolidated to reduce costs.
A healthy, competitive airline industry that charges a higher air fare may well be in the consumer’s best interest.
Neither side has a sure win here. The airlines have more maneuvering room than the DoJ but the DoJ isn’t without some firepower and it doesn’t have as great a burden of proof as many think it does.
November 3, 2013 on 1:00 am | In Airline News | 2 Comments
A Delta Airlines 767 on its way from Tokyo to San Francisco experienced trouble with an engine and made a diversion to an airport in Cold Bay, Alaska.
Cold Bay has a 10,000 foot runway but I doubt its population of just 108 people was truly prepared to handle passengers from a 767. I would bet that a diversion from a Q400 probably taxes its systems.
Delta sent another 767 to pick up the passengers and carry them onwards to San Francisco but I’m sure the passengers were inconvenienced for at least a full half day if not longer.
November 2, 2013 on 1:00 am | In Trivia | No Comments
and gets a safety video that may be the most hip ever produced. You get to see some pretty good dub step dancing. Enjoy.