May 1, 2014 on 12:30 pm | In Airline News, Mergers and Bankruptcy | No Comments
jetBlue hasn’t impressed me in a long, long time. That’s a shame because this airline was quite literally the best funded, most successful start-up airline ever until the board panicked and asked David Neeleman to leave the leadership.
Neeleman has two qualities I really like when it comes to airlines. He knows how to sport real opportunity and meet it with innovative solutions. He also knows how to learn from mistakes.
Since his departure, jetBlue has worked on growing routes on some of the least profitable routes ever. This airline has stuck to the northeast corridor and Florida like a bad stain on a white shirt. There is no real growth and jetBlue let its relationship with American Airlines influence it’s strategies in ways that were laughable.
Laughable because American Airlines tossed aside that relationship instantly upon a change in the regime at AA. There is no leadership at jetBlue, only stewardship.
With a still low cost workforce, an efficient fleet and an opportunity to draw upon the largest O&D markets in the world, it barely turned a profit. Other airlines with far less advantages are doing dramatically better.
Without better leadership, I really don’t know where jetBlue goes. I don’t even necessarily see added value in this airline when it comes to mergers. Their position at JFK is somewhat valuable but only marginally so as that airport is less effective than La Guardia or Newark. They have some valuable slots but they’re not ideal.
Spirit Airlines and Allegiant are going to nibble at their business from the bottom. Southwest and SuperLegacy airlines are going to intrude on their marketshare more and more from the top and there is no great alliance to be had with anyone else in my view.
There was, in my opinion, one great merger opportunity but it would have required a very strong leader with a lot of courage. I could have seen a merger between jetBlue, Virgin America and Frontier. There was enough fleet harmony, relatively few seniority issues and core strengths in area of the United States to make that work.
The combined airline could have focused on the West via Virgin America and Frontier Routes using SFO, LAX and DEN and could have used jetBlue assets and strengths to make inroads in the midwest and tie together the East and the West.
But Frontier is going ULCC. Virgin America has slowed its growth but improved its profitability greatly. And jetBlue is just stagnant.
More importantly, I don’t see enough of a leader at any of those airlines and I don’t see enough of a leader sitting on the sidelines to make it happen.
jetBlue had its growth and had its momentum killed with the Neeleman ouster and that’s a shame. It’s gone from jetBlue to jetWho? over the past 8 years and what a lost opportunity that is.
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.
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.
September 13, 2013 on 11:37 am | In Airline Service, Airports, Mergers and Bankruptcy | 1 Comment
jetBlue CEO Dave Barger has decided that jetBlue *does* have a dog in the merger fight and has announced his (jetBlue’s) belief that American Airlines should lose all its slots at Washington Reagan National Airport if the merger goes through.
He means those slots held by AMR, not the new American Airlines.
He may even have a point but Mr. Barger would be well advised to pay close attention to what airports his own airlines dominates at before deciding he does have a dog in the fight. That dog might bite him.
jetBlue holds a lot of slots at JFK airport and cooperates with American Airlines.
Maybe American Airlines (new) should have to discontinue its lucrative relationship with jetBlue due to dominance in the NYC, Boston and Washington areas.
Blatant land grabs are shameful no matter who makes them. I realize that those slots are something all airlines covet. If you cover them so badly, advocate a fair and equitable system for allocating them that remains dynamic over time.
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
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.
July 2, 2013 on 10:41 am | In Airline Service | No Comments
Businessweek has a story about former jetBlue CEO David Neeleman being interested in perhaps purchasing jetBlue in the near future. Neeleman denies interest in purchasing jetBlue but it does bring up a subject that I find interesting.
jetBlue is the airline that could and did but no longer does. After 6 years, I cannot point to this airline as entity that shows much opportunity for growth and which certainly seems to put in rather poor results for such a young entity with nominally good partnerships. It isn’t that the airline performs at a loss. It’s that the airline just kind of coasts on what is arguably very good times for airlines.
Growth continues to be focused on the congested cities of the north and the Caribbean and when they do add the odd midwestern city, they do so very timidly. It’s not as if this airline is proceeding at its own pace and with deliberate design. It’s as if it is creeping around the United States looking for the odd piece of low hanging fruit desperate not to be noticed by a Big Bad Legacy Airline.
That’s no way to run an airline and particularly not in the upper Northeast Corridor.
I think it would be great to see David Neeleman buy jetBlue and do something bold with it again. I also think that David Neeleman could do better by starting another airline in the US and allowing jetBlue to muddle along. Neeleman seems to correctly sense that the airline has a sickness that won’t be easy to cure.
May 4, 2013 on 1:26 pm | In Airline Fees | No Comments
Delta and American Airlines have matched US Airways and United Airlines with $200 domestic change fees for those who want to change their tickets.
We think this is a mistake on the part of all these airlines and an opportunity for non-traditional, non-network carriers. What’s the opportunity? The chance to court some business travelers.
We tend to think of the business traveler as this road warrior who is traveling by airline 4 days per week and . . . not so much. The real business traveler travels barely enough to get real status in a frequent flier program and usually their status is so long that they do not get the upgrades they hope and pray for.
In fact, for most of those business travelers, it’s a back of the bus experience over and over again.
Southwest and JetBlue and others such as Alaska Airlines now have a greater opportunity to court businesses and their traveling employees by pointing out a lower “all in” cost to get where they need to go.
January 13, 2013 on 1:00 am | In Airline Service, Airports | 2 Comments
About a year ago, a few airlines started to enter the DFW market and that made me thrilled. For all too long, American Airlines has dominated virtually all routes from Dallas / Fort Worth to all other destinations. It’s even been able to manage keeping its pricing up on intra-Texas flights against Southwest. The last time a truly competitive fare was found in Dallas was when Delta was still here operating a hub.
I saw the entrance of Virgin America on routes between DFW and LAX/SFO as a great start and American Airlines clearly didn’t like the competition because it did what it always does and tried to scare away the airline. Virgin America CEO David Cush has never said anything but glowing things about VA’s performance to and from DFW.
JetBlue came to town as well with 3 flights to and from Boston. Boston is a route that is, again, dominated by American Airlines and which had very high fares and by all reports, those flights do very well, too.
Spirit Airlines has come as well and they’re killing it. Spirit has been adding routes and now is adding a crew base in Dallas because it’s discovered an untapped demand that is the result of very little competition in Dallas. Hey, folks who live here like a good deal as much as anyone when it comes to a leisure destination.
But a year later, I see two airlines (JetBlue and Virgin America) maintaining their status quo. I wonder what it is about the middle of the United States and Texas that scares these two airlines so much. Particularly when you have a major legacy carrier sitting here airling and another LCC carrier (Southwest) raising fare prices in this market considerably. There is some low hanging fruit.
If I had been Virgin America, I would have targeted Dallas for routes on LAX and SFO for sure. I would also have laid on flights to New York City and Washington D.C. I would have opened up a gate in Chicago and connected LAX, SFO, NYC, Washington, D.C. and DFW to Chicago in a heartbeat.
If I had been JetBlue, I would have added flights to New York City, not just Boston and I would have looked at some point to point flying to its Caribbean destinations as well. We’re as close to the Caribbean as anyone in the Northeast and it’s a popular vacation destination for this area.
But it hasn’t been done. A year later, these two airlines sit with their timid schedule into and out of Dallas from their strongholds while AA prepares to come out of bankruptcy as a cost competitive airline that potentially is mated with US Airways. I would have spent the last year building loyalty on routes that those airlines could serve well by offering the fares people want here and getting them just a little too addicted to excellent service on modern aircraft.
It’s disappointing to me, the consumer, because I think that DFW is a destination where a lot of “upstart” airlines could succeed more. The fear towards AA and SWA defies my imagination at this point. And there is Spirit Airlines who is taking advantage of the moment and growing like crazy. Go figure.
January 8, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | No Comments
Virgin America is going to be flying into Newark Liberty International Airport in the near future with flights from Los Angeles and San Francisco. It’s a destination that Virgin America has coveted for some time but which has been unable to get into due to slot restrictions at the airport.
The real surprise, to me, is who they’re getting the slots from: American Airlines
American, through its bankruptcy proceedings, is terminating existing leases of its slots to both United and Porter Airlines and making those slots available (plus additional slots direct from AA) to Virgin America for the exact same price.
Given just how much Virgin America has attacked American Airlines on certain routes, I’m rather surprised at this development. This development potentially puts pressure on American Airlines on transcontinental routes between NYC and SFO/LAX. American doesn’t have dominance at Newark and certainly isn’t the dominant airline in NYC at this time.
The dominant airline at Newark is United Airlines and certainly so for that route between those airports. Between SFO and JFK, both Delta and United have more dominant positions but AA is certainly not a minor player either. Between LAX and JFK, American Airlines is the dominant carrier but only barely so with Delta and United also being major players.
So I can make a few interpretations here.
First, American sees United as the competitor to fight with on these routes and wishes to make trouble for United in the form of Virgin America. Why AA doesn’t wish to add frequencies into and out of Newark, I do not know. There are several trunk routes that presumably would fit neatly into AA’s system for that airport.
Second, American has traditionally viewed even upstarts like Virgin America as a threat and gone to great lengths to price them out of markets. AA has most recently done this when Virgin America entered the DFW market with flights from LAX and SFO. So perhaps American views Virgin America as insignificant competition when compared to the SuperLegacy landscape. Personally, I wouldn’t be quite ready to write off Virgin America when you give them access to an airport in the NYC area that plays very well into their strengths.
Third, I now wonder if American (primarily CEO Tom Horton) is starting to eye Virgin America as an acquisition. This isn’t quite as far fetched as it might seem. Virgin does have some valuable landing slots (although many are currently leased) into slot constrained airports. Virgin is also run by a former American Airlines CFO, David Cush. And Virgin has the equipment that American has decided to adopt for its future: The Airbus A320 and A320NEO.
Virgin America has done poorly and even I think it’s time for Virgin to seek a partner. Their value isn’t much at this point given that they’ve never earned a profit and their position has worsened in the last year. An acquisition of Virgin America would essentially be an asset purchase to get their hands on aircraft faster. Virgin America has nothing in terms of infrastructure, IT, leadership or service product that AA wants or needs.
Right now, I think that AA wants Virgin America alive to provide competition to the airline that best represents trouble for it: United Airlines. That competition can hurt United in the near term and allow some breathing space for AA to gets its bearings and start competing with United again. If I’m right, I would not be surprised if the next market we hear about Virgin entering is Chicago. Virgin has wanted to fly into O’Hare airport for a long time as well but hasn’t been able to get decently located gate space thus far.
It could be one other thing: This could be part of a strategy to form partnerships with Virgin America and a closer partnership with jetBlue to give both Delta and United more trouble. Virgin America competes hard with United on the West Coast and on trans-continental routes. It also competes heavily with Alaska Airlines on the West Coast and Alaska Airlines has been moving closer and closer to Delta.
On the East Coast, American’s partnership with jetBlue has worked out OK and expanding upon that partnership would put some pressure on both Delta and United as well. Since this strategy benefits two of the Cornerstone markets of AA, this may well be the purpose.
For now, we’ll just have to watch this play out. If a US Airways / AA merger isn’t consummated, I’ll be ready to bet heavily on a partnership approach to building the AA network upon bankruptcy exit. This may well be Tom Horton’s method of not engaging in a merger where he is ousted. He may well be ready to argue that AA can do as well or better in this approach vs a merger.
November 2, 2012 on 1:00 am | In Airline Service | No Comments
Virgin America has a net loss of $671 million. It’s a great airline and certainly the one that everyone said they wanted but . . . it ain’t making money.
And it should be by now. Virgin America never quite seems to close the revenue gap despite promises that that will happen. Yes, they have succeeded on many routes and, yes, they are popular with the business traveler who has tried them but . . .
Virgin America doesn’t offer the business traveler what he wants: Frequent flier miles that go someplace they want to go.
The true business flyer already can access great service and comfortable seats. They get upgraded on the legacy airlines and sniff at the lowly economy fliers who trudge past them. They don’t *need* more service. It’s a nice to have when it comes to Virgin America for these travelers but not a must have.
What the legacy airlines have that Virgin doesn’t is frequent flier miles that give these people the chance to fly their family to great destinations for vacation. Virgin America doesn’t. Unless you want to go from San Francisco to New York City. Not many do.
As much as I want to support Virgin America as a contender, there comes a time when such an airline needs to go away. I believe that time might be arriving since they have no (announced) plan to improve revenues and profits. Their advantage is evaporating quickly against legacy airlines and despite their low costs, they can’t even beat Alaska Airlines.
Who should buy them? You know, a great businessman such as David Neeleman could put JetBlue, Virgin America and Frontier together and create a national airline. I’m just pointing out the opportunities here since each airline uses the same aircraft type (Virgin and Frontier use the CFM powered version while JetBlue uses the IAE powered version) and which would suddenly have focus cities that cover the East Coast, West Coast and even part of the Midwest.
It’s not a foolish idea. There are synergies there that would serve all three airlines. Each has some valuable slots at slot controlled airports. And a 3 way combination isn’t entirely unprecedented in this industry either.
Use JetBlue’s reservations and IT infrastructure. Use Virgin America’s A320 orders for expansion and use Frontier’s assets to build a real Midwest operation.
But it would take a very visionary airline industry leader. Someone who has started successful airlines and who is brave enough to take advantage of opportunities and who knows how to compete with major legacy airlines. Someone who, you know, is driven and leads well. A guy who speaks both English and Portuguese.
October 25, 2012 on 1:00 am | In Airline News | No Comments
Terry Maxon of the Dallas Morning News has a summary of 3rd Quarter Earnings that brings clear light to how airlines have done these past 3 months. Before going further, let me say that both companies and pundits like to exclude special items from their analysis of earnings. It is the airlines’ way of saying “Yeah But!”
Yeah, but if we had not screwed up on our hedges, we would have made this much. Yeah, but if we had not had to pay off a bunch of senior employees to leave, we would have made this much.
I don’t like Yeah Buts. Special items occur every month, every quarter and every year. More so than ever before. It’s time to accept that it is what it is regardless of how special items affect performance. Now on to a few observations:
Delta Airlines is doing exactly what CEO Richard Anderson said was necessary in the airline industry. They are raising their margins considerably to truly cover their capital costs as well as their operating costs. Well done. Very, very well done. Admittedly, they are farthest down the road in the New World Order of consolidation but it is a consummate performance nonetheless.
Alaska Airlines: Ditto! They are playing their game perfectly right now.
Hawaiian Airlines: Again, well done and particularly so in light of where their market was just a few short years ago when it comes to competition. Yes, they face less complex challenges than continental US airlines but they still are performing well.
US Airways: I’ve already said it once this week. These guys know how to run an airline and earn a profit even under trying circumstances. They make a better case for merger with their financial results than any PR machine could make publicly in the news.
United Airlines: It’s time for these guys to get a little more on the ball. One begins to sense a certain lag in realizing their synergies and having a seamless system. Special items shouldn’t be killing your entire net income at this point.
JetBlue: Nice job but kind of a yawn. We’ve been seeing roughly the same level of performance for years with no substantial growth whatsoever. I’d rather have Alaska Airlines than JetBlue at this point.
Southwest: I think their recent performance reflects their merger. What I think hasn’t been brought up but should be is that their merger isn’t exactly brand new at this point and the lag is primarily due to how ill equipped they were to absorb another airline with respect to their systems. Consider this: SWA has made noise about how their IT systems impact their ability to do business with the rest of the world for a bit over 5 years. They are operationally seeking to do business with the rest of the world in many different ways and they are certainly changing the way they operate to be more in line with a legacy airline. SO WHY HASN’T THE IT PROBLEM BEEN ADDRESSED AGGRESSIVELY AT THIS POINT?
American Airlines: B’ah. Even with artificially contained costs and a fairly friendly bankruptcy judge, they continue to lose money. What’s the definition of insanity? Doing the same thing over and over again expecting a different result?
Summary: It’s no surprise that the two top performers are also partners and close ones at that. These are airlines that know what they’re doing and who exercise strict discipline in operating their airlines. Yes, I’m talking about Alaska Airlines and Delta.
No one is talking about growth, everyone is talking about capacity restraints and raising margins. Well, all except American Airlines. That alone speaks volumes.
August 22, 2012 on 1:00 pm | In Airline News | 1 Comment
JetBlue CEO David Barger says that not only have they not received a non-disclosure agreement from American Airlines nor any contact regarding a merger, JetBlue does not want to merge with American Airlines.
Under any circumstances. Barger says that JetBlue sees its future as a successful independent and not bringing any value to the table in a merger with an airline such as American.
I agree. Purchase of JetBlue is an asset purchase, primarily, where American Airlines would suddenly be free to try to operate JetBlue routes with a cost structure exceptionally higher than JetBlue’s. Even after a successful, stand-alone bankruptcy exit, AA is unlikely to be able to operate at the same cost level of JetBlue or even close to it. So how does it win with JetBlue routes?
I like JetBlue still but I do think the airline has stagnated considerably since the departure of David Neeleman. In fact, I think that JetBlue has missed opportunities just preceeding and after American Airlines’ bankruptcy filing. Opportunities that I think Neeleman would have gambled on and won. That said, the airline is profitable, successful and operating in its niche acceptably. Barger isn’t wrong about not adding value to an airline such as AA.
July 12, 2012 on 10:58 am | In Airline News | No Comments
It is being reported that American Airlines is now considering 5 merger partners and they are US Airways Group Inc., JetBlue Airways Corp, Alaska Air Group, Republic Airways’ Frontier Airlines, and Virgin America. There are interesting choices here but at the same time one can see a less than enthusiastic theme here.
Alaska Airlines is a great airline and has a great operation on the West Coast of the United States. That said, be 100% sure that Delta isn’t about to let Alaska Airlines get away without a fight. I would rate this opportunity rather low.
JetBlue is another interesting option in that it would bolster American Airlines in its cornerstone market strategy as it applies to New York City with its operations centered on JFK. I think that JetBlue is rather stagnant and while it offers market share, there is nothing else here to be gained and given AA’s history of buying airlines and then not knowing exactly what to do with them. . . this merger could happen but it adds little value to AA overall and certainly doesn’t bring American Airlines back into United and Delta’s scale. All it does is leave existing AA management in control of AA.
Frontier and/or Virgin America? No value added here. There is no great complementary system found here, the management of either airline isn’t doing very well and the most that happens is that AA eliminates a tiny bit of competition on some profitable mainline routes. These are red herrings in my opinion and I think there is very little probability of a real merger with either of these airlines.
US Airways: Enough said already. There are complementary systems, there are good executives who know how to make money and there is enough scale to compete effectively with United and Delta. It’s interesting to me that US Airways’ Doug Parker says that he still hasn’t been contacted by anyone with American Airlines. This is the least attractive merger path for AA executives and, yet, the one that makes the most sense.
I think the intent in leaking these potential merger partners to the press is to appear to be doing something about examining all options while focusing all the real effort and work on a stand-alone emergence from bankruptcy. While that gives people like Tom Horton a chance to realize extremely beneficial financial rewards and an opportunity to keep their jobs, I’m not sure that it means that US Airways can’t be the dominant merger partner.
AA is almost certainly going to emerge with a higher market capitalization than US Airways presently has. However, that doesn’t mean that they have very much maneuvering room against US Airways who has been building cash holdings and operating their business both profitably and sensibly. AA’s current cash holdings are almost certainly going to be reduced in this bankruptcy and will be needed to finance both operations as well as aircraft purchases. Furthermore, creditors and shareholders aren’t likely to be amused at the notion of using those cash holdings for a purchase of US Airways.
I would like to see a conversation about AA’s ability to be a dominant merger partner today. This is an airline that has essentially dismantled every purchase and just made it go away. Reno Air, TWA and Air California all were airlines purchased by American and removed from the competitive landscape without adding any real value from the purchase with the exception of some aircraft. They were, for all intent and purpose, minor asset purchases.
Is that what creditors and shareholders want to see out of the next merger? My guess is that won’t fly with anyone.
June 20, 2012 on 1:00 am | In Airline News | 1 Comment
Remember the JetBlue flight where the captain had to be locked out of his own cabin due to unstable behavior on his part? The aircraft diverted to Amarillo, the captain was hospitalized and the passengers were accommodated with another flight crew and compensated for their inconvenience. Well, a group of those passengers is now suing JetBlue because they were “in fear for their lives” during the episode.
No doubt it was a tense and even scary moment in some respects. Unpleasant at the least and inconveniencing as well.
But a lawsuit here is just silly. Fear alone and fear that lasts a short time and fear from an event that had a good and successful outcome isn’t justification for suing an airline for millions. I wouldn’t question the fear but I do strongly question just how much fear one experiences when the airplane stays in control and the misbehaving captain is corralled and controlled in fairly short time? It’s not good, it’s not ideal but let’s face the facts: It wasn’t the worst situation that could happen either. Try a landing on a short runway in rain with a 20 knot crosswind component.
Shame on the passengers for their agreeing to be a part of this lawsuit. This is acting like a child rather than adult on their part.
May 12, 2012 on 1:00 am | In security | 1 Comment
An 18 month old baby of Middle Eastern descent was removed from a JetBlue flight this week due to this child’s name being on some portion of the No Fly List. The TSA worked with the airline but also states that it did not put this name on the no fly list and did not play a role in the child and its family being removed from the flight.
All good and fine except that this is clearly a security failure. Let’s consider the fact that this was an 18 month old BABY. Then let’s consider that despite the obvious circumstances and despite the fact that the parents were not on a No Fly List, everyone “followed protocol” and did the stupid thing.
Good security comes from good judgement. Clearly we, as a country, continue to not use good judgement.
April 14, 2012 on 1:00 am | In Airline News | No Comments
Respected airline consultant and research engineer Bill Swelbar has recently taken a swipe at the idea of a merger between US Airways and American Airlines in a blog post. Swelbar suggests there may be more benefits to a full integration between AA and JetBlue and Alaska Airlines who just as adequately (if not more adequately) cover areas where American is weak (the West and East Coasts).
Swelbar is factual and correct about AA’s weaknesses in these areas with respect to its network and market shares. He’s also correct in that those two smaller airlines do operate in the weakest portions of American’s network.
I see significant problems for that kind of approach. First, Alaska Airlines is increasingly under the influence of Delta Airlines these days and enough so that I do not think it can afford to ignore Delta’s desires entirely and Delta would like competition to go away. Second, JetBlue already has some agreements in place with American Airlines that do bring a benefit but it also has little incentive to cooperate with American Airlines as AA doesn’t bring much to the table for JetBlue.
Both Alaska and JetBlue are working hard to be all things to all carriers in the form of interlining, codeshares and alliance agreements and that works for both airlines very, very well. Alaska works at this from a domestic perspective and JetBlue plays more on the international side of things but they’re both pursuing the same strategy and it’s a strategy that works well for both. Why give up success for the risk of fully integrating with AA and under AA’s management? If I’m a shareholder for either airline, I don’t like the idea.
Furthermore, at this point, this isn’t about what AA leadership wants. It is already rapidly becoming much more about what AA’s creditors want and what their shareholders want. And what they want is performance.
A marriage with US Airways can be disrespected over and over but there are two exceptionally important things to be mindful of. US Airways knows how to run an airline well and earn money despite labor issues. They also know American’s business pretty well and they’ve got an established track record that didn’t exist in the same form back when they made a bid for Delta. Creditors will listen to them carefully today.
US Airways also has the strengths that are complimentary to AA’s network. They aren’t the most optimal strengths but they are one hell of a lot better than American Airlines standing alone. Philadelphia, Phoenix and Charlotte are very complimentary to AA’s strengths. No, there isn’t much overlap that would result in “synergies”. I would argue that the so called “synergies” of reducing capacity via a merger are harder to obtain than generally appreciated, overvalued and largely non-existent today as a result of consolidation and capacity restraint that has gone on for the past 4 years.
New mergers will benefit from scale and operational expertise. They’ll benefit from having a more diverse fleet that permits “right size” flying on routes. They’ll benefit from international alliances.
There is a great example for that last part. US Airways is now the awkward partner in the Star Alliance with United filling that role on a far greater scale within the United States than US Airways does. US Airways could benefit a great deal more from Oneworld than it does Star at this point and a merger with American makes Oneworld very competitive in the United States again. A great reason for Oneworld partners to stand aside and look at these issues with less emotion and more reason.
April 5, 2012 on 1:00 am | In Airline News | No Comments
Spirit Airlines has announced new routes from DFW to San Diego, Detroit and Toluca/Mexico City to start on June 21st. I’m pleased about the competition but I still remain uninterested in flying on Spirit myself. The ULCC carrier clearly sees opportunity in the DFW marketplace and I think they are right.
Spirit isn’t going to kill American Airlines on those routes although its notable that American is the dominant carrier on all three. It’s likely to siphon off extremely low value passengers from AA and perhaps even a few from Southwest Airlines.
I like the competition showing up because I think some pressure could be applied to American Airlines on many of its routes.
I suspect we’ll see other LCC carriers such as Virgin America and JetBlue make more overtures to DFW with more routes over time. The airport has the space and let’s not forget that American will almost certainly shrink at the airport in terms of terminal space and will remain very limited in its response to this competition for the next 12+ months.
March 27, 2012 on 10:09 pm | In Airline News | No Comments
A JetBlue Captain began acting erratically on a flight from New York City to Las Vegas. When the captain left the cockpit, the co-pilot locked the door and passengers ultimately restrained the man. The captain began speaking about threats from Afghanistan, Iraq and other places. No doubt he’s suffering from a break and there is nothing funny about that.
The worst part? The aircraft diverted to Amarillo.
I’m pretty sure there were no convenient JetBlue aircraft in the area to fly out there and take over.
March 17, 2012 on 1:00 am | In Airline News | No Comments
The Irish government has long threatened to sell its stake in Aer Lingus which is currently at 25.1%. In fact, that intention seems to get announced annually while no action is really taken on the part of the government to actually engage in the sale.
A number of airlines have expressed at least some interest in acquiring the stake although those same airlines also express concern about the pension obligations that Aer Lingus has presently. Most would prefer to see the Irish government get those obligations settled before a sale takes place in order to avoid the risk that the airline may be financially impacted by them sooner than later.
Airlines such as Ryanair, who already owns 29.4% of Aer Lingus, as well as Qatar, Etihad and even JetBlue appear to have expressed strong interest in the airline stake. I regard Ryanair as a very unlikely candidate simply because I think the Irish government has no desire to see the two airlines consolidated and, frankly, because Ryanair CEO Michael O’Leary already pisses them off regularly as it is.
Qatar and Etihad are interesting candidates and may well throw their hats into the ring but there is the issue of foreign ownership of the airline. It is unlikely they would be permitted to acquire much more of a stake in the airline and, as a consequence, they’ll be unlikely to influence the airline’s operations as much as they may want.
JetBlue seems also unlikly for reasons having to do with the fact that JetBlue isn’t an international airline, not really, and its knowledge of the European marketplace is limited to say the least. They do benefit from an existing close relationship with Aer Lingus but that can only go so far for JetBlue.
One other entity sometimes considered is International Airlines Group, holding company for British Airways and Iberia Airlines. That group is engaged in purchasing BMI presently and hasn’t stated a preference for Aer Lingus publicly. However, IAG CEO Willie Walsh is a former Aer Lingus executive who knows the airline, knows the government and knows european airlines. If the BMI purchase were to fall through or be impacted by regulatory requirements, I would not be surprised to see them turn their attention to Aer Lingus.
At the end of the day, I don’t think the Irish government really wants to sell its holdings. The airline still operates as the flag airline of Ireland and its a source of pride for a country who feels strongly about representing itself internationally. I think they like talking about the sale but I think no one wants to explore the political impact of such a sale very seriously. It’s safer to hold onto the shares than suffer consequences in the voting booths.
As for Aer Lingus itself, I think they would like the government to help out with the pension obligations and then have the freedom to operate with less political influence than they currently experience. That said, Aer Lingus has struggled more often than not to earn a profit and few see the carrier as a strategic purchase. The airline needs better strategic relationships with other airlines and it is difficult to get those into place when the Irish government yields a heavy influence on the airline’s operations.
January 2, 2012 on 10:31 am | In Airline News | No Comments
Over the past 12 months, FlyingColors has doubled its readership and has seen nearly 1000 blog entries reached with enough words written to equal a book with over 1700 pages. But enough about me, let’s look at the last year in the airline world.
Southwest Airlines did its deal with Airtran and bought itself an Atlanta base of operations and some very valuable landing slots at Northeastern airports. As if that wasn’t enough, it made a firm deal on a bunch of 737MAX aircraft and agreed to take on even more 737-800 aircraft for its routes. However, the airline wasn’t without some trouble: Airtran pilots tried real hard to step on their on feet in a seniority deal with Southwest Airline pilots.
American Airlines struggled (more) and lost more than a Billion dollars (again). Instead of making any real progress with its labor force, it decided to file bankruptcy but not before having made a historic order for aircraft from both Airbus and Boeing for the A320 and 737 series aircraft (with both A320, A320NEO, 737 and 737MAX in the mix). 2011 also saw long term CEO Gerard Arpey depart the company (to work with former Continental CEO Larry Kellner) and AA President Tom Horton took over.
Virgin America has horned in on American’s routes, Frontier has struggled more and more under Republic Airways leadership and US Airways still doesn’t have pilots or flight attendants integrated onto one seniority list. JetBlue decided to fly more to the Caribbean, entrench itself even more at JFK airport and blew it during an October snowstorm (again). United and Delta made money. Quite a bit actually.
I think we’ll see Frontier either spun off rapidly in 2012 or the rapid decline of the airline necessitating bankruptcy of Republic Airways. I don’t see a real strong suitor for Frontier except, perhaps, JetBlue but since Frontier isn’t based at JFK airport, I do wonder at JetBlue interest in an airline like Frontier.
I think we’ll see Alaska Airlines find even more odd partners for its success and still manage to cozy up close to Delta while doing it. Southwest will start painting Airtran aircraft in its colors and operating even more great deals to more places from Atlanta but I also think that if any slots at JFK, LGA, EWR, IAD or DCA come available for purchase, Southwest will bid the cost of a Boeing and lose again.
I think it’s possible that Virgin America will make money in 2012 and I think it is really possible that we’ll all be pleasantly surprised by that. The determining factor? Cost of fuel.
United will order a nice chunk of aircraft and I’ll bet that it will be an order similar in mix to the American Airlines order from both Airbus and Boeing. However, I do not think it will be similar in size. I think it will be a partial fleet replacement with lots of options for incremental change in the fleet.
I think Delta will continue to make a big pile of money with very little controversy surrounding it except that I think Delta will look for and execute a plan to encroach on more Legacy and SuperLegacy airline routes as it has announced its intention to do so from La Guardia Airport. I also think that Delta will decide its not afraid of Southwest and it will decide to give Southwest a taste of bullying it hasn’t experienced before. Particularly in Atlanta. It’s not just an opportunity for Southwest to succeed in Atlanta but it is also an opportunity for Delta to capture lost customers.
I think we’ll see capacity restraint for another year and higher air fares than seen in a long, long time. I do not expect to see another new airline show up and I think we may well see one true LCC depart the picture if things get particularly rough with respect to fuel prices or competition. Milwaukee will become the regional airport it was intended to be instead of a bloody battleground between LCC airlines.
Tomorrow: The rest of the world