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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Filed under: Airline History, Airline News, Airline Service, Airlines Alliances by ajax
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Are airline ticket prices high?  That’s a hard question to answer.  I suspect it depends on the class of travel and the advance purchase state of your ticket.  And a lot of other things.  They’re not higher than they were 30 years ago.  But even to me, an airline enthusiast, they seem a bit high right now.  Or, more accurately, the general airline ticket seems to be of low value to me right now.  You don’t get much for what you pay. 

 

When I was searching for some unrelated information on the web recently, I happend to run across an image of a Braniff International Ad from 1980.   I hope this LINK works.  Notice the airfares listed?   Tampa to DFW is $112 one way.  Tampa to Seattle is just $159.50 each way.  

 

Those might even strike us as reasonable advance purchase economy fares today.  But this was 1980.  A dollar was worth quite a bit in those days.   A Big Mac hamburger sold for about a dollar in 1980.  Today, a Big Mac is considerably over $3.00. 

 

But those airline fares don’t appear to have changed much, do they?  Let’s keep in mind that 1980 was a bad year for airlines and a particularly bad year for Braniff.  Fares were low (relatively speaking) because deregulation had just occurred and airlines were scrambling for market share.  Even at those low prices, not a lot of people were buying.  That would come later.  However, I’ll also point out that the “value” of an airine ticket in those days was far higher than it is today.   You got a meal, free beverages, no bag fees, a comfortable seat pitch and flight attendants who appeared to enjoy their job. 

 

The next time you purchase an airline ticket, think about those prices.   Keeping those prices low has meant trimming costs every year.  Yes, airline tickets are cheap today.  Yes, airlines would love for them to go up a bit.  I’m agnostic on the idea that airlines need to earn more money on each ticket.  Maybe they do.  Or maybe we’ve preserved the airline industry too much by permitting multiple bankruptcies and government cover.   If anything, I’m tempted to argue that we need less regulation and more competition in that business than ever before.

Filed under: Airline History by ajax
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Southwest Airlines has announced that it is canceling its codeshare agreement with WestJet due to numerous and untenable changes requested by WestJet to the original agreement.  Read the Dallas Morning News story HERE.

 

Why am I unsurprised? 

 

It would appear that WestJet’s new leadership wants a new direction and, more important, wants to play with Delta.  The upside to that is who wouldn’t want Delta feeding you traffic?  Delta is huge and has a large network.  The downside is that when you play with Delta, you are, by definition, the junior partner in such an arrangement.  CEO Saretsky of WestJet and formerly of Alaska Airlines probably sees multiple codeshares with WestJet as being the best route going forward.  Coincidentally, this is a strategy that Alaska Airlines has followed for many years. 

 

Also, coincidentally, Alaska Airlines has recently made moves to be closer to Delta. 

 

Is this good for WestJet?  Actually, I really don’t think so.  They had an opportunity to be an equal partner in a 3 way North American partnership that would have linked Canada, Mexico and the United States with 3 very good LCC carriers.  Service types would match, service philosophies would match and each partner was potentially already prepared to cooperate on things more than just a codeshare.  I’m sorry to see this happen as it would have been a great experiment and one I thought had lots of potential.

 

So, where does that leave SWA?  Well, they aren’t saying much other than to just leave the door open to the possibilty of international flights which they’ve done for years now.  It doesn’t really reveal anything.  However, I suspect they’ve already made a subtantial investment in bringing this capability to their IT systems and they’ll probably pursue it to its conclusion if only to continue on with Volaris, their Mexican partner in this deal. 

 

I think that SWA will pursue flights to Canada.  It’s just too easy for them not to do so.  The logistics are surmountable in this case.  They may pursue the start of codeshare cooperation with Volaris to Mexico as their first goal but I suspect their very next goal will be flights to Canada and lots of them at that.  In fact, Volaris can fly those US/Mex flights to SWA focus cities and let SWA carry traffic onward to Canadian destinations.  There is a lot of Canadian / Mexican travel these days.   I’m not sure if current treaties would allow codeshares via SWA between Canada and Mexico but I already see one way of getting around that. 

 

One thing that does stand out is Southwest’s recurring statement about how “hard wired” they are for domestic travel.  No one doubts that but they’ve been saying that for 2 years now.  Most airlines would have gotten past that hurdle by now and it makes me wonder that SWA appears no closer to engaging in their Mexican codeshare yet.  In fact, the WestJet codeshare was supposed to start first and even now SWA’s statements make it sound as if they’re just getting around to the challenge.  Not good. 

 

Also interesting is that, so far, I’ve not found any statements by WestJet on this new development.  They are curiously quiet and I wonder about that.

Filed under: Airline History by ajax
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I was thinking about the lack of empowerment and common sense in airlines (with one or two exceptions) these days and remembered something from this WIKI entry about Robert Six and Continental.  I’ve also read it in Robert Serling’s book about Continental.  The quote is:

 

According to Six biographer Robert Serling, quality was the watchword in every detail of Continental’s operations in the 1960s and 1970s.  In one anecdotal indication of Six’s passion for premium customer service, every page of the airline’s Customer Service Manual was inscribed with these words: “Nothing in this manual supersedes common sense.”

 

Imagine that being in an airline manual today.  Kind of hard isn’t it?

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Midwest Airlines is off my deathwatch.  Why?  Because it is dead, Fred.  Republic Airways has shocked no one by announcing that it will be the Frontier brand that will represent both Frontier and Midwest going forward.  See news on the anouncement HERE.

 

No one will be really surprised by this because at the end of the day, two brands wasn’t going to work with one shared fleet and the Frontier brand is the stronger national brand.  In addition, what national recognition Midwest did have has eroded tremendously in the past 2 years.  Finally, Frontier was just the bigger airline. 

 

Are the animal spokespersons sticking around?  Yes.  Not surprising since the person leading the branding now is the person who developed the aninal campaign for Frontier originally.  The next new animal will be the badger, an animal icon for the state of Wiscosin.

 

Midwest?  I am sorry the Midwest brand is gone now if only because Milwaukee is my birth town and I always felt that the people working for Midwest really did put something special into their airline.  It wasn’t the cookie for me.  It wasn’t the large seats.  It was the nice people.  When you called to make a reservation on Midwest, you got a very friendly and very knowledgeable person.  That had a lot more value to me than a cookie.  

 

Unfortunately, an airline based in Milwaukee isn’t a recipe for success.  An airline based in Milwaukee and using Kansas City as a focus city isn’t a recipe for success either.  I do wish Midwest had gone over to Airtran.  While the brand would have been gone still, I believe the people working for Midwest would have been appreciated more.

 

With the Frontier brand sticking around, I do hope we’ll see a return to a more focused and innovative Frontier identify that, in my opinion, has been muddied quite a bit already.  That Frontier was competing very well in Denver and could continue to compete well so long as we see its unique offerings come into focus again.

Filed under: Airline History, Airline News by ajax
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Over the past few days, there have been a number of news stories about the trial that is to begin outside Paris, France against Continental, 2 former Continental employees and 3 French nationals ( an official with France’s civil aviation authoritythe DGAC and 2 former employees of Aerospatiale.)  Any airline enthusiast knows the story of the Concorde crash July 25th, 2000 and the resulting aftermath of modifications, return to flight and then the permanent retirement of the Concorde in 2003.

 

What is tragic is that the five men and Continental (the corporation) are being tried for involuntary manslaughter and this entire trial bothers me quite a bit.  First, the three Frenchmen being tried strike me as scapegoats put up for trial and the benefit of seeming to be “fair”.  Second, to blame Continental or its employees for this tragedy just seems, well, so very French in attitude.

 

The two former Aerospatiale employees, Henri Perrier and Jacques Herubel, are both very old men and accused of failing to carry out modifications on Concorde after a series of tire blowouts in the 1970’s revealed design flaws that allowed debris from tires to penetrate the Concorde wings.  There is the story of the Air France Concorde that suffered a blowout on take-off from Dulles airport in the late 1970’s that saw its wing tanks penetrated and it managed to leak tons of jet fuel before returning to land. 

 

It is true enough that such flaws were known for a long time.  It was a two part problem.  Because Concorde took off at such higher speeds (as fast as 250mph), it was difficult to build a tire for it that would not catastrophically fail in the event of a blow-out.  Mind you, blow outs just happened more often back then too. 

 

The second problem was the wing.  It was possible for a tire blow out to throw pieces of the tire up against and into the wing of the aircraft where fuel tanks existed.  As you can imagine, it isn’t a good idea to penetrate fuel tanks ever and certainly not next to 2 afterburning engines on take-off.

 

Over time, the tires got better (but not fixed per se) and Concorde managed to fly successfully for 2 more decades before the tragic crash in France.  A little historical context is necessary to understand everything at play here.

 

First, Aerospatiale is now a part of EADS/Airbus.  And guess who owns a large chunk of EADS?  Yup, the government of France.  I should also mention that Aerospatiale was formed from the merger of several government owned aerospace companies in 1970 and continued to be owned by the government of France.  Notice that they are not a part of this trial.  

 

Second, guess who owned Air France in the 1970’s. . . yes, the government of France.   Air France was a government owned entity in a variety of forms until privatization occured in 1999.  However, the French government still owned a majority holding of shares as recently as 2002.  Further, Air France has always been recognized as a national flag carrier in France and even despite privatization, it holds that kind of status throughout the nation even today.  Notice that Air France is not on trial either. 

 

If someone should be on trial for this tragedy, it should be Aerospatiale/EADS, Air France and, possibly, the DGAC (French civilian aviation authority).   At least from the French perspective.  However, it is much easier to lay blame at three elderly men who are old enough to not have any “patrons” in the government still and therefore leave them unprotected from what by all appearances is a failure on the part of the French government rather than these men.

 

I’ll also take note that France has studiously avoided dragging BAe Systems (formerly BAC and the co-builder of Concorde) as they are, wait for it . . . still a first tier vendor to EADS/Airbus although no longer a partner.   No finger was pointed at the UK government for permitting design flaws to continue on for 2 decades and the UK was just as aware as the French.  However, the French have to work with the UK and and business is business.

 

Frankly, I predict that the French court will likely lay the blame firmly at Continental’s feet and assign some to those 3 elder Frenchmen on trial.

 

But the real tragedy will be France failing to shine sunlight upon their own behaviour and complicency in this crash and that makes France a less safe place for all concerned. 

 

Sadly, French arrogance when it comes to this kind of issue still rules today.  When an Air France A-330 was lost over the Atlantic Ocean near the coast of Brazil, the offer of US investigatory assistance was nearly ignored entirely.   That is criminal in itself since the US has the best investigative force for airline crashes in the world.  There is no one who comes close and that is why the US is asked to assist with investigations around the world.  However, the US has the nasty habit of, more often than not, calling a spade a spade.  Something that the French will not tolerate when it comes to their aerospace and aviation industries.

 

The Continental Airlines employees on trial will not be present.  They will be represented and therefore they run almost no risk of imprisonment no matter what the outcome.  However, I think that makes it just easier to blame them as a face saving gesture.   I suspect that no matter how vigorously Continental Airlines defends itself they will be the ones to pay ultimately.  

 

The three Frenchmen on trial may suffer some blame, again as a face saving gesture, but I wonder if they’ll take it.  They have no reason to.  An 80 year old man has little to lose in speaking out at what was going on in the 1960’s, 70’s and 80’s.

 

If this post seems xenophobic, I can see why that might be the interpretation.  However, I stand by my characterizations of both the French government and the French aerospace industry.   I doubt seriously that anyone who has observed the aerospace industry would disagree with me either.  My characterizations are based on their deeds and those deeds have been many over the past 50 years.

Filed under: Airline History, Airline News by ajax
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Southwest Airlines’ blog, Nuts About Southwest, had a post about their cabin interiors which you can view HERE. 

 

If you think aircraft seat pitch hasn’t changed over the years, take a look at their photos.  Particularly the first two photos of interiors.  The seat pitch is dramatically more generous than the last two photos.  The seat pitch shown in the first photo would, at a guess, exceed that of United’s Economy Plus on most aircraft.

Filed under: Airline History, Airline Seating by ajax
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Today, part 2 in my views on whether or not we’ll see a real “Ryanair” style airline here in the United States.

 

Watch what you fly here.  The most recent LCC entrants here have bought Airbus.  No real surprise as Airbus likes to make a heck of a deal on an aircraft for new airlines in the hopes they’ll have the “in” for future orders if that airline succeeds.  

 

Boeing isn’t too interested in that.  They want to see a solid business plan and a real possibility of success.  What’s more, big orders aren’t the enticement they once were for Boeing.  Boeing got burned on a few of those deals with Ryanair being the most notable since it allowed Ryanair to buy aircraft, fly them for a couple of years and sell them at a profit.  Boeing isn’t going to let that happen again any time soon.

 

Is Airbus the right aircraft?  Yes.  No.  Maybe.  I kind of think not.  I think it is well suited to the jetBlue and Virgin America airlines of this country because they can support that upgraded service product nicely.   That said, those airlines would have done just as well with Boeing aircraft.  In fact, jetBlue went with Airbus because Boeing refused to offer a decent price for a decent order.  

 

But Airbus doesn’t strike me as quite the right choice for an LCC.  They’re a bit higher off the ground, have a little worse operational dispatch rate and don’t always have the best range vs weight ration for certain routes.   Yes, they’re a family of aircraft that offers a range of size that captain can fly across the type range. 

 

Boeing seems better.  Supported here in the United States, you have better access to mechanics, parts and plenty of maintenance contractors to keep you going.  They’re a little bit closer to the ground, a little easier to turn around and have a little bit better dispatch rate.  In addition, their range of capacities is a little bit better for routes and virtually every model has trans-continental capability now without being weight restricted. 

 

The model I would look long and hard at isn’t either of those.  I think a new LCC carrier trying to emulate Ryanair ought to take a serious look at the Embraer 170/190 aircraft.  They’re cheaper to operate and can carry a full load of passengers and baggage although little cargo (which isn’t an LCC’s concern anyway.)  They offer a family of sizes, have a good dispatch rate, offer quick turn arounds, great range, good comfort and great potential for routes requiring frequency and low costs.  It is no wonder that David Neeleman chose them for his new airline, Azul, in Brazil.

 

But you can go used in the US and do pretty well too.  Allegiant Airlines buys used MD-82/83/87 aircraft, for instance.  They MD-80’s are overbuilt, cheap to buy and still pretty cheap to operate.  They have range, good dispatch rates, ease of maintenance and they’re abundant on the used market.   The same is true of older Boeing 737 models (pre Next Generation models) and those are becoming to cheap to purchase as well. 

 

In the end, an LCC needs an aircraft type that is relatively easy to expand into a fleet, keep one class of pilots flying it and which has a ready source of aircraft to augment and/or replace the fleet with. 

 

One type, many sizes should be the rule.   Ryanair uses one size, the Boeing 737-800 and Southwest basically uses one size, the Boeing 737-700 but they can afford to do so.  A new LCC needs operational flexibility and being prepared to use the three basic sizes of either type would be a good thing. 

 

But you can split your types too.  Airtran did this successfully by entering the world with DC-9s, transitioning to Boeing 717s and then growing in capacity by bringing on the Boeing 737.   That worked because while they needed two different pilot groups, the pilot groups could be kept “rational” with the same pay rates.   jetBlue split their types between the Airbus and the Embraer(190) and split their pilot groups pay rates too.  There was risk involved in that but jetBlue avoided that by offering pay rates on the Embraer that were as generous as that being offered other pilots flying mainline aircraft at other airlines. 

 

Find airports that welcome you and that have demand to locations you can serve.  Sounds easy but it isn’t.  In the US, airports tend to be wedded to airlines that have served them for decades.   When DFW opened, it was served by a number of major airlines and each terminal served one or more airline.  Now, DFW has been taken over by American Airlines (nearly 4 of 5 terminals) and does little to serve the needs of airlines who aren’t AA. 

 

Airports need to figure out that putting all their eggs in one basket with a major, hubbed airline isn’t a good strategy in the long run.  Once those airlines have that dominance, they use it to beat airports down on fees and coerce airports into paying for infrastructure the airlines then get to own.  It doesn’t benefit the local economy to have one dominant airline as prices rise and service falls.  This isn’t just true for DFW either.  When airports begin to aggressively pursue new entrants, everyone will win.

 

New and existing LCC entrants need to make a better argument too.  All too often, LCC’s tend to fear competing in those markets dominated by a major legacy carrier and that’s a mistake.  Airtran wasn’t afraid to go up against Delta and it paid off.  jetBlue wasn’t afraid to compete in one the most competitive markets in the world (NYC) and against some of the biggest airlines.  In the past, there weren’t good examples of what an LCC can do for both an airport and a metropolitan area.  Now there is and new LCCs in particular need to use that to their advantage. 

 

Treat your staff well.   Airlines sell a service product and while you may get customers on price, you’ll keep them with service.   Offering strategies to your crews that permit you high productivity and your crew a living wage along with a good working conditions can only lead to your success.   Treat them like commodities and you’ll fail.  Southwest, Ryanair, jetBlue and Airtran get this.  Skybus and Mesa Airlines don’t.  Look at who is making money. 

 

Quality of life is just as important to airline crew and staff as wages.  Airlines that offer good quality life tend to have happy crew flying their flights and treating their customers right.  At the end of the day, it is a lot cheaper to keep a customer than it is to find new ones every week. 

 

Will we ever see a close replica of Ryanair’s model here on a national basis?  Yes, I think so.  Right now, no.  The market is too crowded but that will change again and new airlines will be started again.   US attitudes towards fees and advertising are changing, although slowly.  

 

First we need to see a major airline liquidate or merge with another to reduce capacity some more.  Then we need to see an uptick in the economy that induces people to spend some money on travel again (both leisure and business travel.)   There needs to be a glut of aircraft useable for such a venture (and that’s happening already) and airports need to figure out that it is in their best interest to find space for these new entrants.  That really hasn’t started to happen yet but it may yet still happen.

Filed under: Airline History, Airline Service by ajax
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Since Virgin America began operations, I’ve been watching for something sensible to happen.  There have been a few developments that make sense. 

 

In addition to VA’s initial trans-continental routes, they began to add some West Coast service to places such as San Diego, Las Vegas and Seattle.  This let me increase aircraft utilization since those routes from San Francisco and Los Angeles weren’t 6+ hours but, rather, 2 hour (or less) hops.  And having a bit of network to feed into those trans-con flights made sense too. 

 

But this put them into competition with a few very well established airlines as well.  United, Southwest, jetBlue and Alaska Airlines all operate on the West Coast very effectively and on the same routes. 

 

Alaska Airlines, a legacy airline with a very good full service product started to jump on the anti-VA bandwagon and issued a number of objections to their “US Owned” status to the DOT.  Most likely because VA had a product that competed very well against their full service business class product and that was a major source of revenue.   Alaska Airlines had a lot to lose on some of those routes in particular.  Strangely, United remained pretty quiet and probably because their frequent flier program kept their business customer pretty loyal.

 

Speaking of frequent flier programs, that was another area that Virgin America was a bit lax in and that kind of surprised me too.  They had 2 extra years to develop a strong program and have the infrastructure in place to support it.  It was something that, in my mind, would have made sense since the business customer likes such programs and they had a good trans-continental service product to attract those people.  Instead, it was rolled out a tad late and still lacks much of a partnership with anyone. 

 

Although VA positions itself as a low cost carrier, it really offers a 2 class service product that is comparable to any legacy airline and, in many cases, it is a service product that is much better. 

 

Aircraft are equipped with a two class cabin (first and coach) called, oddly enough, First Class and Main Cabin.  There is a Main Cabin Select product but that’s really access to Main Cabin seats that have a bit more legroom (exit aisles and bulkhead seats) with some of the First Class service product (meals, beverages and premium tv channels are free).  It’s an economy plus plus or semi-business class product. 

 

I believe all airlines could stand to offer more service products through their cabins and this was an area that I thought VA was kind of smart in.  I still think a lot of airlines could stand to differentiate even more but I liked what VA had there.   It was more “business” than “coach” than a lot of airlines’ economy plus products and even competed very well against a similar offering from jetBlue.

 

jetBlue really took things to aother level with their LiveTV offering on their aircraft.  Virgin America took it to yet another level by offering a full entertainment system (including TV) that even allowed shopping and the ability to order food and drink from a menu, thus eliminating the traditional beverage and meal cart services.   The system, called Red, worked pretty well although some reviews had it not always working or in need or a re-boot from time to time.  Such systems do take time to work out bugs and time for staff to learn to work with. 

 

VA also got aggressive and was the first US airline to offer GoGo inflight Wifi on its aircraft.  With accomodations like power ports at each seat and the existing entertainment offerings, this was likely adding whipped cream to the ice cream.  All of their aircraft are equipped with it and Virgin says they’re doing OK with it.  Probably more so than some airlines. 

 

All of these offerings cost a lot of money to both purchase and maintain and VA continued to see red ink as time passed by.  (It is difficult to get a very good picture of VA’s finances because it continues to be a private company instead of a public corporation.)   At one point, rumors that its US investors wanted out spread around and Alaska Airlines filed yet another objection to VA with the DOT who, recently, yet again ruled that VA was more than sufficiently US controlled.  (Read THISfor more info.)   CEO David Cush did continue to speak publicly that their revenues were improving monthly and that he did think VA was edging closer to an operating profit.

 

In fact, VA did manage to eek out a small third quarter operating profit as reported in December which, frankly, surprised a lot of people.  I know I was.  It was a 59% improvement (according to VA) over the previous year’s third quarter and they managed to make it happen in what has been arguably one of the worst economic climates for airlines ever.  This got my attention.  Frankly, the climate hasn’t been good for VA since they started to improvement during those times is impressive, to me anyway.

 

Virgin America is also a bit unusual for the airline industry in that it has a number of women in senior leadership positions.  Their SVP for Inflight Services, VP – Marketing, SVP-CFO and VP – Planning & Sales are all women. 

 

Also curious is the rather interesting Canadian influence in their leadership.  The Chairman of Virgin America is Canadian Don Carty, former Chairmen and CEO of American Airlines.    Frances Fiorello, SVP – Inflight Services has had a long career with Candian airlines such as Canadian Pacific, Canadien Airlines and Air Canada.   Bob Weatherly, SVP of Flight Operations, has a similar Canadian history. 

 

And then there is the American Airlines connection which kind of puzzles me at times.  Don Carty, David Cush, Diana Walke,  and Ross Bonanno each have a history with AA.  Virtually all their senior leadership has extensive with experience with previous airlines.  In fact, after looking into their biographies, it made me realize just how VA might be managing to make it despite all predictions against them. 

 

It’s a strong team with a strong background in successful airlines that, for the most part, have reputations for good cost control and good service products. 

 

Virgin America has been on my death watch for at least a year.  Now, a lot of my inclination towards that has been based on routes.  Yes, they’ve grown and, yes, they’ve added routes.  But they don’t seem to want to really compete except where there is really low hanging fruit against their service product. 

 

They recently opened up routes between, of all places, Fort Lauderdale and Los Angeles and San Francisco.  Obviously they saw some opportunity there but I don’t get what the attraction is in adding those two routes before a lot of other opportunities.

 

VA doesn’t have an East Coast network at all.  They have destinations in NYC, Boston and Washington, D.C. (in addition to the Fort Lauderdale routes) and that’s OK.  Competing on the East Coast is brutal and those three main destinations have enough originating traffic in them that they don’t necessarily need network traffic feeding in on the West Coast yet.

 

David Cush has, at times, talked of adding routes from the West Coast to Chicago but he wants O’Hare airport and claims there are no gates to be had.  This isn’t exactly true.  There are gates but VA doesn’t want to pay the price to get entry to them.   There were, at one point, gates available at Chicago’s Midway airport but VA doesn’t like that idea either. 

 

More recently, Mr. Cush dropped hints of adding a route possibly to Austin or Dallas / Fort Worth.  Most agree that Austin might happen (there is a strong tech connection between Austin and the West Coast) but doubt the DFW possibility. 

 

You see, my problem is that VA seems to be ignoring the possibities in the middle of the country.  With their service product, they could compete very well against AA on routes between DFW and San Diego and Los Angeles.  They could compete well with AA and United on routes between Chicago and Los Angeles and San Francisco.   There is a strong connection between Denver and Los Angeles and despite the back alley fight going on in Denver, it has possibilities. 

 

They’ve by-passed Portland, Oregon which has strong ties to both LA, Seattle and San Francisco and Alaska Airlines, who owns a lot of that traffic has already proven to be susceptible to VA’s service product.

 

Indeed, if you look at their route map right now, they have every appearance of avoiding any destination that is a real hub for a legacy airline. 

 

I can’t think of a market that is more need of a real competitor in service product to destinations on the West Coast than DFW.   Completely dominated by American Airlines, the service product and prices to West Coast destinations is weak and expensive respectively.  Atlanta could stand a bit of competition on routes to the West Coast too.   The same is true for Miami, Minneapolis / St. Paul, St. Louis, Detroit, Kansas City, Cleveland and maybe even Philadelphia and Baltimore. 

 

It’s always a nice strategy to enter airports where the barriers to entry are easy and cheap when you’re getting started.  But VA is more than 2 years old and clearly has a product that, like jetBlue, can compete against major airlines and win.   In any of the major hubs I”ve named above, they are dominated by one or two airlines on those West Coast routes that are flying old aircraft with little new service product and who have much higher costs than VA.  It isn’t going to get easier to compete with these guys with time. 

 

That’s why a part of me continues to view VA with skepticism.  New airlines don’t win by being afraid to compete.   Airtran and jetBlue are perfect examples of airlines who were willing to go up against major legacy airlines and beat them on both price *and* service.   Airlines who weave and duck from their opponents tend to lose.  Skybus was a great example of that. 

 

There are often moments that are ripe for smaller businesses to make a commitment to going against their major competitors and, if you wait too long, those moments go away and never come back.  I’m starting to sense that Virgin America is beginning to lose those moments. 

 

Would I fly VA?  Sure.  I’d love to enjoy their service product.  However, they fly nowhere I want to travel so it is going to be a long time, if ever, that I get to try them.  Would I suggest them?  Absolutely.  At least for now.  They aren’t going to go bankrupt any time soon.  They’ve managed to get past that infancy stage now and kudos to them.  They offer some fantastic prices on their routes and I doubt anyone would be disappointed by flying them.

Filed under: Airline History, Airline News by ajax
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I tend to ignore Virgin America often even when they do make the news.   I’ve had a lot of trouble figuring out what this airline is supposed to be and even more figuring out whether or not they are really going to succeed. 

 

VA has made some news in the past couple of months, though, and I figured it was time to talk about them. 

 

Virgin America began as a concept annunced by the irrepresible Richard Brandon (founder of Virgin Atlantic and the Virgin Group) and it went through quite a few iterations before it launched.  It changed its announced name from Virgin USA to Virgin America, for instance.  Ownership structure was fiddled with several times to meet US restrictions on foreign ownership of airlines.  Business leaders changed and their original CEO, Fred Reid, was eventually removed to satisfy the DOT and gain permission to launch. 

 

Their approach to finding a home was weird to me and kind of reflected a European viewpoint that led me to believe they weren’t necessarily looking at the US market properly.  After leading a kind of competition to find a home, Virgin America settled on San Francisco as its “operations” home and New York City as its “corporate”  home.   Neither location struct me as particularly wise because NYC and California are expensive places to operate and they’re no more representative of the United States than a lot of other locations.

 

While they went through the start up process, Virgin America faced a lot of criticism from other airlines.  Flatteringly, it was quite a bit more than many startups have received over the years.  On the surface, the objection was always to the perceived foreign ownership of Virgin America.  My own sense was that other US major airlines saw another potential jetBlue starting up and given jetBlue’s success, yeah, it would worry a few airlines. 

 

Strangely, at the end, some of the loudest objections came from Continental Airlines who, from my point of view, had the fewest reasons to fear Virgin America’s competition.  Continental had a strong 2 class operation that was highly favored by businessmen for both its service, comfort and frequent flier program.   From my perspective, American Airlines and United Airlines had the most to fear from this upstart’s trans-continental plans.   Even jetBlue had some reason to be worried since VA’s product most closely competed with jetBlue’s and had the biggest chance of nibbling away at jetBlue’s customers.

 

I think the biggest concern from existing airlines was that, once again, a well financed 2 class airline was entering the market that had low labor costs and brand new efficient aircraft.  Startups always have low costs because the airline industry is based on seniority.  A new airline with all new employees quite naturally has some of the lowest labor costs but that does change over time and it really depends on the airline on whether or not those costs rise dramatically or not. 

 

jetBlue has been able to keep its labor costs relatively low by being pretty good at taking care of their employees, for instance.   By having such low costs, airlines like jetBlue and VA, are able to compete very hard on those trans-continental routes that are many airlines bread and butter. 

 

When VA agreed to remove CEO Fred Reid from the operation after no more than 9 months of operation after the certification was awarded, they had to go find a new CEO.  Now, Fred Reid never had the kind of reputation that I would expect an operation like VA to need or want.  Formerly of Delta, Fred Reid performance at Delta was mixed and he certainly wasn’t a charismatic leader which I thought would help VA quite a lot in the US.  Richard Branson’s kind of bravado has never played nearly as well in the United States as it has elsewhere in the world.

 

My thought was that VA would seek a more personable, charismatic leader who would not only have a strong airline background but who would also be a good public figure for this venture.  VA, apparently, felt otherwise and found their next CEO at American Airlines in the form of David Cush.  

 

Mr. Cush certainly fit the bill when it came to having a strong airline background.  He had 20 years of airline experience in a wide variety of positions and a great education too.  The thing is, Cush did it all at the most conservative of airlines, American Airlines.  Huh?  Yes, Cush had youth going for him and he does present himself rather well but it still didn’t mesh in my mind.

 

I suspect VA’s investors, most particularly its US investors, wanted someone who had a very strong financial background and who understood just how important it was to preserve cash and operate with strong controls in place.  They had, after all, funded VA with more money than had ever been put together for an airline startup in the US when VA began.   He did most recently work as Vice President of Alliances and Chief of Sales for American and this hints at Mr. Cush’s ability to access corporate clients.  With VA’s transcon strategy, this kind of made sense.

 

Virgin was so delayed in getting permission to start up, it leased several of its delivered Airbus A320 aircraft to the late Skybus Airlines.  When they did begin to operate, they were hindered in fully starting up operations because some of those aircraft were occupied until Skybus failed miserably. 

 

But . . . operate they did.  Finally in August of 2007 and fully 2 years delayed, they began flights between San Francisco and NYC and Los Angeles and NYC.  This wasn’t a bad start in that they were connecting major business centers with lots of traffic but it didn’t allow them to really get high utilization of their aircraft and pricing on those routes has always had lots of competitive pressure so they lost lots of money operationally. 

 

Every airline loses lots of money in its first months and years.  Airlines really operates lots of small businesses.  Each route is really its own business and it takes time to grow those routes into profitable operations and it takes varying time to do it for each route.  It is an investment that takes time to go profitable and much more time to provide a good ROI (return on investment.) 

 

VA was off and running and I was still scratching my head.  There were still many parts to this airline that defied rational thought in my opinion.  Tomorrow, more on VA and its service and routes and where it is today.

Filed under: Airline History by ajax
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