A pox on all of your houses

January 12, 2016 on 11:03 am | In Airports | No Comments

Love Field has been screwed up since Fort Worth Congressman Jim Wright decided to muck with issues involving Dallas Love Field and Dallas / Fort Worth airports.

And no one has had enough political courage to recognize a vastly different reality as compared to 35 years ago.

There is this myth that there is space at DFW airport.  There isn’t.  DFW airport can longer accommodate a major airline entering the marketplace at this time.  DFW airport admits it needs at least one more terminal and is beginning the very long, very arduous process of approving, designing and building a new terminal.

So, yeah, we should have that ready by 2030.

Love Field airport was capacity constrained the day the 5 Party Agreement to end the Wright Amendment was signed.  All of the parties knew it and all knew that they were kicking a can down the road.

And it took less than a year after the restrictions lifted for a major legal battle over access to the airport was begun.  A sure sign the deal was bad from the beginning.

A pox on the City for treating Love Field as a second cousin in the airport game.  Love Field isn’t a luxury and it has provided exceptional competition in the marketplace to lower fares.  Particularly after October 13, 2014.  All of the Dallas / Fort Worth area benefits because while Southwest, Virgin and Delta are driving prices down at Love Field, they’re also driving them down at DFW.  I know this because suddenly it is exceptionally cheaper for me to fly to places such as Portland, OR and Norfolk/Richmond, VA.  More than a hundred dollars less than it used to be.

This is the only market to see lower fares rather than higher fares in the last year.

A pox on Southwest Airlines for knowing that they were kicking that can down the road and then beating everyone up for not getting what they wanted.  Southwest signed the deal and knew the impact of the deal and still made the deal.  Now it would like the deal changed but it has resorted to bullying the City and other airlines in a courtroom.  Take some responsibility for agreeing to a bad deal and be a leader in solving the problem.

And not for nothing SWA, Love Field isn’t your own private airfield.

A pox on American Airlines for forcing such a deal when it had everything it needed already at DFW.  Your desire to constrain trade was so strong that you politically forced a deal that has hurt the city, hurt Fort Worth and hurt other major benefactors to the community (SWA and supporting industries).  That’s No Bueno and you could be a leader in getting this changed but you won’t.  You have your own airport and you’re damned if you’ll help a city or a sister airline in any way.

A particular pox on Aviation Director Mark Deubner for not identifying the risks and addressing them via the Dallas City Counil so as to not impede commerce at the airport.

A big pox on Fort Worth for clinging to the idea that inhibiting Love Field is what’s best for Fort Worth.  Major metropolitan areas have multiple airports.  It wouldn’t be so bad for you to fire up some flights into one and let’s talk about how you built Alliance Airport with the expectation that it could have “overflow” from DFW.  The fact of the matter is that Fort Worth is big enough to support a smaller airport with services.  Your insecurities against Dallas show up time and again in the airport game and it hurts the entire metroplex.

And lastly, a pox on both State and Congressional leadership in this area.  Who are you keeping happy?  This has been a legislatively botched compromise over and over again.  Bringing political solutions to a market area problem has resulted in a mess.  I am not a Republican and I am not a Democrat either.  I believe regulation is good but I believe political constraints on commerce for a single situation in this area is stupid.  Undo the stupid and allow the market forces to develop transportation responses according to genuine needs.

This is a metro area of nearly 7 million people and the only major metro area that is politically constrained by Congressional law in this way.  Let it go, things will work out and I promise you that the city of Fort Worth, a city of 1.8 million people, isn’t going to be forced to drive to Dallas to take an airplane ride.

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Venezuela goes old school

July 9, 2014 on 11:36 am | In Airline News, Trivia | No Comments

Airlines such as American Airlines and Delta Airlines are sharply reducing the number of flights they are flying to Venezuela at this time.  The problem is that while they like the flying, they can’t get their money out of Venezuela.

Most recently, American Airlines has said it has over $700 million that it cannot retrieve from the greedy hands of Venezuela’s government.  $700 million is a lot of money for any company and even for an airline, that’s a lot of cash. News reports now say that nearly $4 billion (with a “b”) is being restricted by Venezuela due to currency restrictions in place.

Venezuela (and some other countries) are greatly restricting the amount of foreign currency that can leave the country at any one time.  Because of rampant inflation and hyper-inflation induced by socialist movements in such countries, these nations now have a severe problem is coming up with enough “hard” currency to pay their global bills.

That’s significant when it comes to Venezuela because this is a nation that has had a profitable oil export going on for years.  Typically that brings in more than enough foreign currency to balance outflows for most nations.

The worst of this is that as these balances grow in these countries, they look more and more attractive to hold on to.  $4.9 billion is a lot of money to a nation such as Venezuela.  In fact, it’s about 1% of Venezuela GDP.

Think about that for a moment.  For foreign airlines alone, Venezuela is intentionally restricting as much as 1% of its GDP.

How is this done?  The nation devalues its currency strongly and regularly.  An airline such as American Airlines sell a ticket for say, $200, it’s paid for (in Venezuela) in Venezuelan Bolivars at the official exchange rate.   That exchange rate is set by the government.  But the government changes that rate arbitrarily and lower before that money gets to the airline.  Here is a simplified example:

SuperStar Airlines sells tickets in Venezuela for Bs 1000.00 (One thousand Venezuelan Bolivars).  Juan Diaz purchases a ticket and pays in cash Bs 1000.00.  The exchange rate is (officially set by Venezuela) set at 4 Bolivars to $1 US.  The airline collects this money into a Venezuelan bank account in that currency.  Now, periodically, SuperStar Airlines would like to have that currency sent back to its headquarters in the United States.  But the Venezuelan government makes this very difficult to do because it’s a large sum of money.  Basically, this currency has to be sold for dollars and the only place those dollars can be purchased (legally) is the Venezuelan government.

So the Venezuelan government “sells” dollars for an exchange rate that is set at Bs 5 to $1 and suddenly the money that SuperStar Airlines has is now worth much less.

What makes this worse is that the Venezuelan government is maintaining several different exchange rates that are “official” and those are egregiously unfair to the businesses such as airlines operating to and from that nation.  In addition, the government is devaluing its currency more in the exchange rates that primarily effect foreign businesses.  Furthermore, it’s only permitting a trickle of cash to be exchanged and sent out of the country at a time.

This results in a condition where it just doesn’t make sense to fly to Venezuela.  Actually, it doesn’t make sense to do any business in Venezuela and one could be tempted to call Venezuela the Alitalia of countries at this point.  When you can’t make money and take it back home periodically at a rate that allows you to earn a reasonable profit, you just have to stop doing business in that country.

This is what many airlines are doing now.   One thing that the former President (of Venezuela) Hugo Chavez understood was that he needed foreign businesses to do business in Venezuela and he kept this game at a tolerable level.  New President Maduro and his government is not making it tolerable because to do so means they cannot throw money at their citizens to stay in power.

And staying in power is important.

This is very reminiscent of how many nations in South America operated in the 1960′s, 1970′s and 1980′s.  And it killed those economies.  Airlines had to be very creative with how they got money out of those countries legally.  Braniff was very good at this but even Braniff would find itself doing very odd things from time to time.  For instance, its leather seats came from leather from Argentina. That leather was “exported” by Braniff because they had to buy something to take “value” out of the country.  Leather was a  way to get “value” out of Argentina.   Other times, executives would travel to the Latin American country in question, buy financial instruments of various types (often bonds) and then stuff their suitcases with them and come home.  I know this because that is exactly what my father had to do at Braniff more than once.

When an airline gets to the point that it says it is untenable to continue business in a nation, that’s pretty bad.  Airlines will do business with just about anyone if there is money to be made.

I strongly suspect that Venezuela’s response will be that their airline will fly people where they need to go.  Except . . . how will that airline gets its money out of those countries when they use retaliatory measures (allowed) against Venezuela?  This is only one chapter of a multi-story chapter.  Stay tuned for more.

 

 

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Mergers: Success and Failure

May 15, 2014 on 4:25 pm | In Mergers and Bankruptcy | No Comments

In the airline industry, mergers are a mixed bag of successes and failures.   Continental Airlines, for instance, nearly died twice due to poorly executed mergers.  Northwest Airlines was impacted for years and years from its merger with Republic.

In more recent history, those mergers have been more successful such as US Airways (from America West and US Airways) and Delta (Delta and Northwest).  The jury remains out on Southwest and Airtran (although this is trending towards success) and US Airways and American Airlines.  Sadly, I think the trend on United is that it is failing as a merger.

Delta is the rock star of airline mergers and I think there two great reasons why.

First, Delta engaged in an airline merger that built a powerhouse network.  Delta and Northwest had hubs that were truly complementary and which brought together a strong domestic network and a strong international network.

That union of networks provided genuine revenue synergies that you rarely see in a merged airline.  The networks supported each other and built upon strengths and didn’t merely see capacity reduction on common routes.

The second reason Delta hit the right pace is financial.  This airline watched its capital costs and set financial targets for performance that, for the first time, included paying for the cost of capital at an airline.  Instead of buying all new aircraft, the airline has managed its fleet carefully using aircraft that had low capital costs but which also provided near competitive fuel efficiency.

The airline also managed its revenue appropriately by focusing on doing something that my own father was a vocal advocate for:  treating each city pair and route as a business that should be profitable.  Instead of asking that a sum of routes make some kind of profit, Delta expects its routes to ultimately become profitable or to be removed from its system.

The airline is no loner focused on being the biggest airline nor the airline with the greatest frequencies.  It’s focused on being the most profitable airline and managing to that goal by ensuring what it does brings a return on investment to the company.

And who embodies this same kind of approach?

Definitely Southwest although they continue to be on my watchlist.  Before anyone says it isn’t the same Southwest Airlines from 20 years ago, let me offer this:  I wouldn’t want it to be.

Southwest does watch its routes carefully still and does work hard to ensure it’s city pairs are profitable.  However, they are clearly going more network than ever before and I do wonder if the complexity is going to overwhelm their good senses.  Time will tell.

I think the American Airlines / US Airways merger has the potential to be more profitable than Delta in time.  And I think it will have one key advantage over Delta:  Better aircraft.

Delta is walking a very fine line on its fleet ages and will be in danger of getting into trouble from a fuel spike as a result.  American will have one of the newest, most fuel efficient fleets around and that will help mitigate against fuel spikes quite a bit.

United, I think, is a growing failure and the truth is that while I think this has a great deal to do with poor management, I also struggle to find a compelling argument for merger these days.  The synergies don’t seem to be there and I don’t see the two parts adding up to a sum greater as a whole.  The jury may still be out on this merger but the jury foreman is taking final votes and it’s not looking good presently.

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Competiton in the Dallas area? Probably not this year.

April 22, 2014 on 9:10 pm | In Airline Service | No Comments

There is the prospect of new found competition in the Dallas area when we see Southwest able to fly where it wants domestically starting October 13 of this year.

The problem is, the more I think these developments through, the more I think that we won’t see much of that competition in 2014.

Right now, Southwest is selling itself on convenience and doing well with that story.  I think they will sell their new routes as convenience based options and I’m sure I’m not the only one to notice that their route announcements are focused on the business traveler.

Repeat after me:  Business travelers value convenience over price.

Delta is also focused on the idea of serving Love Field by connecting to Delta’s hubs.  Frankly, I don’t see that being a very good strategy because . . . do you want to fly to Atlanta to connect somewhere else or do you want to fly Southwest or American Airlines and just get there.  Delta, I think, may well not even fly their intended routes.

American Airlines is in an odd place as well.  The airline must focus on integration intensively and can’t afford to pick a fight in Dallas right now.  While they exited bankruptcy in pretty good shape, there are some fences to mend in Dallas over service.  I think that 2014 and, possibly, 2015 will be spent on getting the airline’s act together.

Airlines have figured out that fighting for marketshare is a losing proposition for everyone involved.  Each CEO has made his mark (Gary Kelly, Richard Anderson and Doug Parker) by showing restraint.  That trend should continue for some time.

However, if Southwest is able to lure away the business traveler from the SuperLegacy airlines in the Dallas area on its new routes, I think all bets are off.  That is a target market worth fighting for.

But it will take time for Southwest to make its case to the traveler that it’s a worthwhile choice to fly from Dallas to Atlanta, New York, Baltimore, Chicago and elsewhere.  You have to get a passenger to try the service and Southwest cannot afford to make a mis-step with those passengers.  Service must be excellent and comfort must be of high value.  It will take time to get travelers to try them out on the new routes and Southwest has to figure out how to do that while its local competitor (American Airlines) deploys fresh new aircraft and fixes it service issues at its home hub at DFW.

Look for late 2015 to be the real moment of competition if there is any.

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Delta wants some Love

December 16, 2013 on 3:14 pm | In Airline Service, Airports | No Comments

According to the Dallas Morning News, Delta Airlines has released a schedule that now includes October 2014 and apparently Delta expects to fly a massive number of flights from Love Field to its own hubs.  By massive, it would appear that Delta has 22 flights to its hubs in Atlanta, Detroit, Minneapolis/St. Paul, New York La Guardia and Los Angeles.  The only two cities missing are Salt Lake City and Seattle.

Delta wants to use the American Airlines gates at Love Field that it rents today for those flights.  22 flights from 2 gates seems a touch optimistic so I do wonder if Delta has something else up its sleeve.

Southwest has 16 gates and no one is entirely sure if they can have more than that.  American Airlines has 2 gates and United has 2 gates.  According to restrictions put in place in winding down the Wright Amendment, no more gates are supposed to be built.  The real shame of that is that there are several gates across the tarmac from the main terminal originally built for Legend Airlines that would be exceptional for use in a Delta operation.

The City of Dallas and the airport authorities don’t want to allow expansion at Love Field.  They want traffic to be focused on DFW airport but . . . DFW airport is actually pretty full at this point.  There will be a few gates at DFW available for use once Terminal E is renovated but not many and they’ll go quickly.

So why not open up Love Field even more?  I wonder if Delta isn’t planning to sue for more access myself.

In the meantime, let’s ponder for a minute the chance to fly Delta to its hubs from Love Field airport in less than a year.

That’s what I meant by Change, It’s coming.

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Change, it’s coming

December 15, 2013 on 11:37 am | In Airline News, Airline Service, Airports, Mergers and Bankruptcy | No Comments

With the US Airways / American Airlines merger done this past week, everyone is speculating on change we can expect but in the Dallas / Fort Worth area, I think we can expect change in at least 4 different areas and it’s all good for those in this metropolitan area.

1)  American Airlines will slowly return to being the on-time, service oriented airline that it once was.  Parker & Company know how to fix operational issues and get planes going where they need to go.  I also think we’ll see the benefit of code-share flights through the system to destinations that might well yield lower prices.

2)  Southwest Airlines will be unchained on October 13, 2014.  On that day, Southwest can fly where it wants to from Dallas Love Field as long as it is in the domestic 48 states.  This will not only offer us opportunities to fly non-stop to major cities in the US but it will also put some competitive pressure on American Airlines (and other airlines) on routes to and from the DFW area.

3)  Ultra Low Cost Carriers will move quickly to find their toehold at DFW.  There is a lot of low-hanging fruit to be had in this area and Spirit Airlines has figured that out.  I expect Spirit, Allegiant and Frontier to all try to get gate space and establish operations in this area.  Those ULCC airlines will put some competitive pressure on both American Airlines and Southwest Airlines who both could use it in this area.

4)  While I think United has missed a huge opportunity in the DFW area over the past 2 years, I have noticed that Delta hasn’t.  I expect Delta to work itself more and more into the DFW area and I think they will do this both at DFW and Love Field airports.  Delta has been doing very well at establishing point to point flights and encroaching on its competitors territory.  They pursue a modest push into markets with the resources that only an airline such as Delta has.

Most airlines know that there is a limited time left to encroach in this market and if you think that airlines executives aren’t worried about Doug Parker, you are only kidding yourself.  They know what Parker and his team can do with the resources that AA has and that is a big reason why many attempted to sabotage this particular merger.  Parker was never a great threat with US Airways because of the limitations it imposed on him and his team.

I said it two years ago and I’ll say it now:  As soon as American Airlines declared bankruptcy, that was the time to move hard into the DFW area.  Several airlines missed that opportunity to become entrenched (Virgin America and jetBlue) and some saw the opportunity and grabbed it solidly in their fists (Spirit and Delta).

It’s all good for those living in this area or those wanting to fly to this area.  In one year, I believe we will see much better services and air fares that remain competitive.  Don’t kid yourself, however, those air fares won’t be predatory.  They just won’t be exorbitant.  So if you’re waiting for an uber-bargain of the early 2000′s, your wait will be fruitless.

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Delta and Alaska in Seattle

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.

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Love Field Gates

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.

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The Settlement: Part 2

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.

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Wouldn’t you like to be Delta’s friend? Or Southwest’s?

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.

 

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Cold Bay, Alaska

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.

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Delta Holiday Safety Video

October 30, 2013 on 11:53 am | In Trivia | 3 Comments

Delta has a new holiday safety video and it’s entertaining.  See if you can spot the Yeti.

 

 

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Billion Dollar Baby

October 22, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | No Comments

There have been a number of airline industry watchers who have private and (sometimes) publicly expressed concern that American Airlines’ case with the DoJ on the subject of competition was hurt by American’s ability to turn a profit right now.

American Airlines has indeed earned a Q3 profit and it was a respectable one.

Delta Airlines had a Billion Dollar 3rd Quarter.  $1.6 Billion to be exact.

While you digest that news, consider that Delta doesn’t have the lowest costs around this town.

So, when we consider that the airlines of size (Delta and United) and what they’re able to produce for themselves in profit, consider the size of the warchest that that gives those two airlines.

And then explain how the much smaller American Airlines and US Airways are going to fare against those behemoths.

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Who says there is no competition among airlines anymore?

October 7, 2013 on 11:57 am | In Airline News, Airports | No Comments

United Airlines has announced routes into the fortress hubs of Delta just days after Delta announced flights into UA fortress hubs.  United is adding routes from both Los Angeles and San Francisco to Minneapolis / St. Paul and Atlanta.

Delta previous announced routes from Seattle (which is nearing “hub” status for Delta) to Los Angeles and San Francisco.

First, Los Angeles is actually no ones hub but it is a strong focus city for all.  Los Angeles serves as a major gateway city for airlines and just like New York City, everyone wants to be dominant there.  A few years ago, American Airlines spoke of Los Angeles being a part of its “corners” strategy.  More recently, Delta has been building its operations up there.

Los Angeles won’t be anyone’s hub because it isn’t suited to such operations.  It will, however act as a gateway city with significant focus city operations just as New York JFK and Newark airports serve the same role in that area.

There is a lot of first class and business class traffic in the Los Angeles area and everyone wants a larger piece of it.  Delta is ready to battle it out with United in that market and United is responding.

The two SuperLegacy airlines will trade more and more blows with each other but neither will gain advantage much over the other.  However, both will gain advantage over the smaller airlines in those markets such as American Airlines, US Airways and LCC carriers.

The one airline who can hold their own in those cities is Southwest Airlines.  They are the equal of UA and Delta from a domestic point of view.

These route announcements are just one more sign of the power the two largest airlines both have and which they will wield to gain advantage in the marketplace.

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What’s relevant and who have you been talking to?

September 26, 2013 on 3:52 pm | In Airline News, Mergers and Bankruptcy | No Comments

US Airways and American Airlines want to know two things from the Department of Justice.

First, they want to know the details of what the Justice Department did in evaluating four previous airline mergers in the past decade.  The DoJ doesn’t want to give up this information and says what they did in the past is not relevant.  Only the current market conditions are relevant.

It’s true that the law says that mergers must be based on the hear and now essentially.  However, how that evaluation is done is another story altogether.  The airlines will try to make the case that by changing the “how” of evaluating mergers affects they outcome.

And they would be right.  One item that has been glaring to all since this nonsense began is that the DoJ chose to evaluate airport pairs rather than city pairs and dismissed the market power of LCCs altogether in that evaluation.  I think that US and AA will (rightly) make the point that in changing how an merger was evaluated, they changed the perception of the effects and therefore the DoJs suit has no merit since it did not use accepted practices that have provided analysis for mergers for a substantial period of time.

In other words, evaluated with the methods and tools, the US/AA merger would pass scrutiny because of the market conditions that would be uncovered by these methodologies.

Second, US and AA want to know who the DOJ talked to in evaluating this merger.  The reasons here likely have to do with two things:  They want to know the source of bias in how the DoJ chose to evaluate this merger and I suspect they think that some other airline or airlines were attempting to torpedo the merger.

What’s that?  You are shocked?  Shocked that some other airline may be attempting to arrange a clumsy backdoor outcome in the airline industry?

I’ve thought about this for 3 days.  I think that US and AA are on to something here.  And I think that it is jetBlue and/or Delta who may be playing that game.  If I put money on things, I would guess that Delta likely spoke unfavorably using its recent experience in doing its deal with US Airways over New York City (La Guardia) slots.  I think that Delta used its experiences with the DoJ during that last deal to color the market dominance picture with the DoJ.

I also think that Dave Barger decided to take advantage of a moment to portray jetBlue as a poor, underfed, uncared for LCC who never has advantages over anything.  Mostly because jetBlue would love to have some dominance at Washington Reagan National.  Take note of the fact that CEO Barger recently opined that US/AA ought to be made to give up all the AA held slots at Washington Reagan National if a merger is allowed.

I do believe that Washington Reagan National should be required to be “opened up” a bit by slot givebacks by both airlines.

I also think that any airline with greater than 50% dominance at any slot controlled airport should be required to lease out or divest themselves of slots to get under that 50% control.

But, hey, I’m a radical compared to the DoJ.

There is a hint of clumsiness in how the DoJ has gone about this over and over.  And it does smell of influence.  I also expect that, by now, US and AA have been told off the record of such discussions by those closer to the DoJ investigation.  If there has been influence, we’ll find out in a short while.  The airline industry has never been known for its ability to finesse anything.

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Market Share in NYC

September 24, 2013 on 1:20 pm | In Airline Service, Airports, Mergers and Bankruptcy | No Comments

In an unrelated story about United Airlines in the New York City area, some interesting statistics were noted by the Dallas Morning News.

The two SuperLegacy carriers, United Airlines and Delta, have 24.7% and 21.3% market share respectively.  No giant surprise but let’s look at what the next two airlines are in that market:

jetBlue:  13.3%

American Airlines:  12.3%

Yes, jetBlue beats AA in that market.  Let’s look at the next two airlines:

US Airways:  4.4%

Southwest:  2.8%

If we combined American Airlines, US Airways and Southwest in the NYC marketplace, we would have an airline with just 19.5% share of the market.  Still less than Delta and still considerably less than United.

And be mindful of the fact that SWA isn’t even considered a player in the NYC market as they’ve been unable to obtain gates or additional landing slots at the airports.

Care to guess who comes after Southwest?  That would be British Airways and Air Canada.  Yes, two foreign carriers are next in line with shares of 1.4% and 1.2% respectively.

On the tail end are Spirit and Virgin America with about 1% of the market each.

So when we talk about how there is an imbalance in the marketplace, let’s be mindful of the fact that the top two largest airlines (United and Delta) combine to own nearly 50% of one of the most competitive markets in the world.

And if you combined both AA and US Airways, they would still be at a significant disadvantage with just 16.7% of the NYC market.

I don’t disagree that the combination’s dominance in Washington D.C. should require divestiture of slots by those two airlines.

But the economic pricing power that the two SuperLegacy airlines have today are so great that they will gain more share over time rather than less with the current market conditions.  More of that market share means even more pricing power which means even greater increases in air fares.

But, hey, far be it for me to introduce rational thought in the US Airways / AA merger argument.

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Delta buys Airbus

September 6, 2013 on 1:00 am | In Airline Fleets, Airline News | 4 Comments

Delta Airlines has announced an order for some Airbus aircraft and before anyone signals that this is the end of days moment for Boeing . . . relax.

Delta today is comprised of Delta yesterday and Northwest Airlines of yesterday as well.  Northwest Airlines was a big user of Airbus aircraft.  The organization does have a great deal of experience operating Airbus aircraft now.

Furthermore, no airline of Delta’s size can afford to continue to buy from one single supplier and be responsible to both their company as well as their shareholders.

And who says Airbus builds a bad product?  I sure don’t.  Delta has learned that the A330 works very well for them sitting between their 777-200 and 747-400 aircraft.  Part of this order is a “top up” of the A330-300 type to the tune of 10 additional aircraft.  Delta has (10) Airbus A330-200s and (20) Airbus A330-300s already and an additional (10) A330-300 aircraft sounds, to me, like Airbus is growing some capacity at the top end of their fleet.

The A330-300 is their second largest aircraft seating-wise, believe it or not.

And Delta ordered (30) A321 aircraft as well.  This is an airplane that arguably most US based airlines will be buying as it has been identified as a 757 replacement on certain missions.  Given that just 30 of them have been ordered, I suspect that the A321 offers a better replacement than the 737-900ER  in certain missions likely requiring more density rather than range.

No airline can afford to skip Airbus at this point.  Likewise, no airline should skip Boeing either.  Each manufacturer has viable products that can meet needs.  Aircraft manufacturers can no longer offer delivery positions that make it possible to stay in one product family.  Well, not easily anyway.

 

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Announcing London to Austin Non-Stop. . . Say what?

September 4, 2013 on 1:00 am | In Airline Fleets, Airline News, Airline Service | 2 Comments

British Airways has announced its intentions to start a London (Heathrow) to Austin, TX flight initially flying 5x a week (all but SAT and WED) going to daily later in 2014.  This new flight will start early next year and I’m pretty sure it marks the very first trans-Atlantic flight for Austin.

No, this won’t be using a 777 or a 747.  It will be done with a 787-8 and it is a perfect example of what the 787 allows an airline to do. If British Airways can make this route successful at all, it will yield more revenue than asking American Airlines to bring the passenger to Dallas or United Airlines to bring the passenger to Houston.

But there are implications for the vaunted alliances and, in this case, Oneworld.

Why is it in an airline’s best interest to remain in an alliance and even a trans-Atlantic joint venture if it can simply deploy the right sized aircraft to the route and pick off all the low hanging fruit.

There are also implications for airlines who have not adopted the 787 in any great numbers.  Some airlines continue to view the 787 as a 767 when, in fact, it isn’t.  If all you ever needed was a 767, you would probably be better off buying a 767 from Boeing new (they still offer them).  The 787 can do 767 missions but the genius of owning one is that it can also provide exceptional flexibility and provide more opportunities for profit than the 767 ever had a hope of providing.

Flexibility, we’re learning, is a key component to earning profits at airlines.

I believe that Delta Airlines has shown great restraint and excellent analysis in how it has so far managed its fleet in almost every respect.  The one area I did not believe to be smart was their deferral of 787 aircraft. Tying their fortunes to continued use of their 767s will impact their ability to be flexible and entreprenurial on a global scale.

Likewise, I believe that we’ll see United Airlines start to truly exploit the possibilities of their 787 aircraft in the near future and that will provide competitive intensity to Delta Airlines that we have not yet seen so far.

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Let’s talk about competition, airlines and taxes: Part 2

August 18, 2013 on 1:00 am | In Airline News, Deregulation, Mergers and Bankruptcy | No Comments

Let’s talk about competition among airlines.  Has competition been damaged over the past 8 years?

Truth be told, I felt it would be when the Merger Mania started.  I really did.  I thought that choice would go down, pricing power would go way up and airlines would become even challenging to fly for even business travelers.

That really isn’t what happened.

Before I go further, let’s all acknowledge that the financial crisis, resulting recession and US economy has impacted the airline industry in the worst ways.  Airlines have been smacked around on an unprecedented level.  Remember how much fuel has risen over the past 8 years?  Milk?  Even the guy who mows your lawn?

What makes you think those rise in costs are any different for the airlines?  Even the cost to borrow money in that industry is exceptionally high relative to prime interest rates.  No one believes in the long term viability of airlines much.  So, it’s hard for you and it’s hard for the airlines and their prices may be somewhat higher but they are not double or worse.  They climbed as did most of your other costs related to transportation.  That isn’t inappropriate.

I have railed at the “lock” that American Airlines has on DFW and how much higher people in the Dallas / Fort Worth area pay for air fares to other major cities as a result.  Similar situations exist in Atlanta, Chicago, Denver, Salt Lake City, Minneapolis / St. Paul, Detroit and elsewhere.  But it has been quite bad in the DFW area for years despite the competition provided by Southwest Airlines via Love Field Airport.

That has changed dramatically now.  Airlines are now competing with American Airlines in the DFW area for the first time in decades on many routes.  There is now real choice when going to Chicago or Denver.  I can fly to Newark (NYC) for fares less than $700 for the first time in a decade.

And the same is true in other cities now.  Those cities are seeing airlines which finally have enough scale and network that they are comfortable making a play for passengers in new, non-traditional markets without just buying the customers.

Witness Delta’s recent announced intention to take the West Coast Shuttle traffic away from the incumbents (United and Southwest Airlines.)  That would never have happened even 3 years ago.

We often talk about Southwest and the Department of Justice recently referred to them as largely irrelevant in competition when they filed their lawsuit.  But wait!  Southwest is already competing strongly against airlines such as American Airlines, United Airlines and Delta Airlines in their fortress hub cities and to take them as irrelevant is just silly.

Need I remind people that Southwest has entered non-traditional markets such as New York La Guardia and Newark Liberty Airports?  Southwest *bought* its way into the Atlanta market and it gave a world class beating to Frontier in both  Milwaukee and Denver.  In fact, United got its head kicked in by SWA in Denver as well.  Continental was so afraid of Southwest that as United it went to war against them operating (potential) international flights out of Houston.

There is more high profile competition in place today than we have seen in almost 2 decades.  Let’s celebrate that for a moment because it *is* good for the consumers.

Even the casual traveler has seen new options in the form of the ULCC carriers such as Spirit and Allegiant Air.  In fact, those ULCC carriers are actually keeping LCC carriers such as Southwest (who really isn’t an LCC anymore), jetBlue and Virgin America honest.

Even I can admit that I’m wrong and I admit it.  We *do* have considerable competition today and it is more healthy competition in the right ways than in the last 30+ years.

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Let’s talk about competition, airlines and taxes: Part 1

August 17, 2013 on 1:00 am | In Mergers and Bankruptcy | No Comments

If we use the premise put forth by the US Department of Justice that the US Airways / American Airlines merger is bad for the consumer, then we need to take a very hard, long regulatory look at all of the US airlines, many of its busiest airports and taxes as well.

If anyone was truly concerned about competition in the airline industry, the Justice Department should have continued to block mergers as they did with the original United Airlines / US Airways merger (which was vastly smaller than the one being proposed today).  Instead, they did not.  Rather, a few years later they signaled with US Airways the idea that mergers were necessary in the airline industry landscape.

Quite frankly, I was perfectly happy to see the status quo maintained pre-2005.  That landscape saw:

  • Delta Airlines
  • Northwest Airlines
  • United Airlines
  • Continental Airlines
  • US Airways
  • America West
  • Southwest Airlines
  • AirTran Airways
  • American Airlines
  • Alaska Airlines
  • jetBlue

It was a pretty well balanced mix of airlines of both the legacy and LCC flavors and pretty well distributed across the United States.  Barriers to entry were, compared to today, fairly low.

Then several bankruptcies occurred which included US Airways, United Airlines, Delta Airlines and Northwest Airlines.  One airline (America West) had to get a massive loan after September 11th and essentially reorganize itself to survive as well.  Another airline, American Airlines, got Billion Dollar givebacks from its employees to lower costs instead of performing a bankruptcy.

Of the 11 airlines listed above, 6 suffered exceptional financial trauma.  Another 2 existed on fine line of financial trouble:  AirTran Airways and jetBlue.  Only 3 managed their finances appropriately and saw appropriate returns on investment:  Southwest, Continental and Alaska Airlines.

So we permitted mergers and this is what happened:

  • 2005:  America West takes over US Airways and retains the US Airways name.
  • 2008:  Delta and Northwest merge as equals and retain the Delta Airlines name.
  • 2010:  United and Continental merge as equals and retain the United Airlines name.
  • 2011:  Southwest Airlines takes over AirTran Airways and begins the wind down of the AirTran name.

By 2011, the competitive landscape was dramatically different and American Airlines had to throw in the towel (it should have in 2006, in my opinion) in November of 2011 by filing bankruptcy itself.  In the 2012 / 2013 period, the new airline landscape looks like this:

  • Delta Airlines:  Revenues  $36.6 Billion (2012)
  • United Airlines:  Revenues  $37.1 Billion (2012)
  • American Airlines:  Revenues  $24.8 Billion (2012)
  • Southwest Airlines:  Revenues $17.0 Billion (2012)
  • US Airways:  Revenues $13.8 Billion (2012)
  • Alaska Airlines:  Revenues  $4.6 Billion (2012)
  • jetBlue:  Revenues  $4.9 Billion (2012)
  • Virgin America:  Revenues $1.3 Billion (2012)
  • Frontier Airlines:  Revenues $1.4 Billion (2012)

As you can see, the airlines that exist today are hardly equal despite the perception otherwise.  For instance, Delta and United Airlines both are roughly equal as airlines but the next biggest by revenue is American Airlines which is a staggering $12.3 Billion behind.  If you added US Airways revenues to American Airlines revenues in 2012, you still come in at just $38.8 billion.  Put another way, the new American Airlines Group would operate at roughly the level of United and Delta Airlines.

Southwest would be at a disadvantage seemingly but Southwest’s revenues are based entirely on US based operations and therefore see Southwest operating at parity with the other 3 large carriers.  So, now we have 4 carriers operating at roughly the same scale in the domestic US market.

The remaining four airlines:  jetBlue, Virgin America, Frontier and Alaska Airlines have combined annual revenues of $11.2 Billion or a number that is still less than that of US Airways.  It’s notable that those last 4 airlines are nowhere near national airline scale.  They are all regional or niche in their marketshares.  They can and will survive and at least 2 of them have every opportunity to organically grow much larger.

What my point in all of this?  Scale is critical in this industry and while those billions in revenues sounds healthy, airlines often earn zero profits on such revenues.  The dollars are large, the profits are tiny, at least until very recently.

If you stop the mergers now, you have two giants and three other airlines that would have to be labled as “at risk” over the next decade.  While you allowed that to sort out, the two giants would only become . . . more giant.  And the bigger they grow, the more influence they have on airports and route infrastructure.

So, if you feel the combination of US Airways and American Airlines is anti-competitive and anti-consumer, then you *must* be ready to “break up” Delta and United Airlines.  They don’t have the potential to be dominant.  They already are dominant.  So much so that they dwarf every other airline in the industry.

More on these subjects tomorrow.

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