Is a US Airways / American Airlines merger wrong?

August 13, 2012 on 1:00 am | In Airline Service | 1 Comment

As was inevitable, there are now public interest groups decrying a merger between US Airways and American Airlines as anti-competitive and bad for the consumer.  No surprise.

Industry consolidation has been good for airline profits and we definitely have seen airlines move towards a more sustainable business model as a result.  I would, however, credit capacity restraint for as much improvement in airline profits as anything else.  Frankly, all of the major airlines in the United States (with the exception of AA) have impressed me with their discipline in the marketplace.  It isn’t a discipline ever seen before and after 4 years, I think we’ve seen a transition to a truly different way of operating airlines.

That new model for operating as an airline includes looking at routes in the right manner, for once.  They are now being treated as “businesses” and evaluated individually for profitability.  In the old model, it was about market share at any cost.  The problem with market share at any cost is that it required unfettered, almost violent, competition between airlines on routes and found routes being operated at a substantial loss for years.  That has largely stopped now and I applaud the airlines for showing enough discipline over the last 4 years to make that stick.

Airlines also now seem to recognize that defending market share at any cost is a bad model as well.  Curiously, the one airline that seems to have continued to trouble itself with defending routes is American Airlines.  Until bankruptcy, the airline has “punished” intruders on its “turf” over and over again with high frequency, high capacity and extremely low fares to push out that intruder.

Finally, I think airlines have actually realized that providing a reasonable service experience is important again.  It’s not the service model of the 1970s or 1980s, no.  However, it also isn’t the embodiment of the idea that all a customer ever wants is a rock bottom price.  If price was truly the only key to winning on a route, Spirit Airlines and Allegiant would be exploding with growth never seen before.  They aren’t.  In fact, what we have seen is that broader offerings of service levels attract more revenue per seat and that’s what airlines need.

US Airways has, in many ways, been a leader in executing change to meet the new industry model.  It has figured out how to drive incremental revenue in ways that exceed most any other airline.  At the same time, they have steadily improved customer experiences across their lines both on and off the airplane.  They are now an airline that can be depended upon to deliver passengers to their destinations reliably and with their luggage.  Am I the only one to notice that US Airways is about the only legacy airline to not experience a major public embarrassment over customer treatment in recent times?

American Airlines is actually the antithesis of US Airways and has shown a strong reluctance to acknowledge the industry changes.  They’ve pursued market share, they’ve defended routes at all costs, they’ve been more price driven than any other legacy airline and many LCC airlines.  They have not upgraded or improved their cabin experiences in any significant way since the 1980s.   Their website drives customers away or at least angers customers.  Their aircraft are old, inefficient, and painful to fly.

The SuperLegacies, United and Delta, have done quite a bit to improve everything across the board and one thing that AA hasn’t done:  evaluated routes for profitability on  a regular basis.  Furthermore, UA and Delta now see opportunity on routes that have traditionally been owned by American Airlines.  They’ve even overwhelmed cities where American Airlines was once a major presence and a dominant player (NYC, Wash D.C., Chicago, Los Angeles).

SuperLegacies are now evaluating competitors routes and going after those routes which are yielding major revenue.  Delta and United both are targeting both AA and US Airways as well as holding their own against airlines such as JetBlue and Southwest Airlines.

Yes, American Airlines and US Airways need each other.  American’s operations need US Airways executives who know how to methodically fix operations in a lean manner.  US Airways needs American’s hubs and routes to build much better network yield.  Yes, US Airways can exist quite nicely as a stand-alone airline.  It cannot expect to rise to the scale of the SuperLegacies and compete both domestically and internationally over the long term without a merger.

A combined US Airways / AA company nominally looks like the biggest airline in the world once complete.  That won’t necessarily be true.  There will be consolidation and rationalization between the two airlines  but the entity will be a member of the SuperLegacy group and it will have the potential to compete in the market on a level playing field.  That’s all they can ask for.

3 SuperLegacy airlines, Southwest (who doesn’t quite fit into any category now), and a smaller stable of LCC carriers looks about right for the modern competitive landscape.  At this point, I actually think we will see increased competition over the long term among the Big 4 and that will be good for the consumer.  We will not, however, see that increased competition until there is a Big 4 and until those airlines have time to settle their operations in the new competitive landscape.  If the US Airways / AA merger were consummated by the end of 2013, I would expect a rational and highly competitive marketplace to be fully emerged by 2017/2018.

If there is an area where I see reduced competition in the US, it’s among the LCC carriers (and doesn’t include SWA).   I think the narrowed gap in costs and differences in revenue models between the LCC carriers and SuperLegacies removes the best business argument for an LCC carrier.  It will be a struggle for those carriers in the future and we do need them.  On the other hand, if a relatively new LCC carrier with rock bottom costs can’t compete against SuperLegacies, the market place has done its job.

So, no, I do not think the proposed US Airways / American Airlines merger is wrong.

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Service with a Smile

March 21, 2012 on 1:00 am | In Airline Service | No Comments

Customer service rankings of airlines are very interesting to me these days because it is the LCC carriers such as Southwest Airlines, JetBlue and Virgin America who are doing very well in these.   There was a time when legacy airlines such as American Airlines, United Airlines, Delta Airlines, etc would be the ones to garner high rankings and largely because they were regarded as full service airlines.

Before I go further, let’s just toss out first/business class experiences.  They are typically quite good no matter what airline you are on and it isn’t worth doing too much comparison.  The truth is, if you’re flying in first or business class on most any airline, you’re going to be well taken care of.

Economy class is where the differentiation takes place.  Legacy airlines have dumbed down their service so much over the past 4 years that few customers see real value in flying on these airlines.  The typical customer flying mainline service from one of these airlines can expect a cramped seat on an older aircraft on a flight whose departure and arrival are far more dependent upon a hub system that can have immediate ripple effects when there are problems at a hub.  In addition, that customer can expect to pay for checking baggage and even privileges such as a well placed seat or softdrink.  Best (or worst) of all:  the consumer can expect a less than friendly experience from service staff and that extends from the front door of the airport to the back of the aircraft.

That isn’t the experience on most LCC carriers.  To the contrary, a passenger can generally expect to *not* pay for checking a bag, not pay for a non-alcoholic drink, not pay for a snack and even not pay for changing a ticket (Southwest).  The aircraft are far newer and frequently have onboard entertainment available for purchase and WiFi for a small service fee.  The service staff tend to be friendlier from front of airport to back of aircraft and the fee structures that do exist don’t generally come off as someone nickel & diming the passenger.

In short, the LCC carriers are generally offering far greater value for the price of an air fare than the legacy airlines are.

The truth is that LCC carriers aren’t really low cost anymore in terms of sheer price.  In fact, it’s been noted that LCC fares are ranging far higher than once before and often they let the legacy carriers set the price in markets.  Where the LCC carriers are winning is in the value delivered:  few or no fees, better service, more comfortable aircraft, etc.

Ironically, this is how airlines differentiated themselves until the late 1970s.   Then, airlines didn’t get to differentiate on price because fares were set by regulatory authorities.  Instead, they could differentiate on schedule and service and they certainly did so.  People often flew those airlines based on the kind of service they enjoyed.  A TWA passenger wasn’t typically a Braniff passenger.  An American Airlines passenger wasn’t typically a Pan Am passenger.

That’s happening again.  A Southwest passenger tends to not be a JetBlue or Virgin America passenger and vice versa.  The differentiation is on service.  Southwest passengers tend to like the reliable, consistent and fast service.  JetBlue passengers enjoy the amenities vs price.  Virgin America passengers like the full service approach versus legacy airlines.

If you believe that your experiences on legacy carriers has been lacking, I couldn’t shout loud enough in favor of going to the LCC carriers for your needs.  The service experiences are far superior (in general) and for the same or lower price.  Each has their own loyalty programs that are as generous as anyone else’s as well.

This is an area where Virgin America does very well.  They are entering traditional route markets and competing on service for the business traveler successfully.  Their schedules are well suited to those travelers, their service product is superior and their prices are vastly more reasonable on those same routes.

And that’s the way it will continue to trend.  Legacy carriers who’ve even got their act together are still competing largely on price alone and while that works to a degree, it doesn’t work well over the long term.  To a degree, this is being answered with Economy Plus seating on these flights but those service options largely make it possible for the airlines to offer the frequent flier an “upgrade” that isn’t what  an upgrade used to be.  If it was intended as a real service upgrade of value, the pricing for that seating would be far more competitive than it is.

LCC carriers will continue in this path because they have a sustainable service model and a business model that allows the airline to earn the profits necessary to be sustainable as an airline.  They haven’t lost sight of the fact that service with a smile wins customers and keeps them.

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Frontier could have some game as an LCC

March 6, 2012 on 12:48 pm | In Airline Fees, Airline News | No Comments

It’s been said publicly by many that Frontier Airlines will be refocused on Denver again and that it will become an ULCC airline in the spirit of Spirit or Allegiant Airlines.  Many think this is difficult to imagine for Frontier and in some ways, I agree.  However, I think another ULCC isn’t such a bad idea.

The truth is that existing LCC carriers aren’t all that low cost any more.  Even the newest are raising fares right alongside the legacy airlines and that has significantly impacted the consumer and, I think, degraded demand.  Airlines are constricting capacity over and over and over again and while the rising fares do make up for that, it’s noticeable that every quarter we hear about an airline restricting growth or even contracting themselves in light of the market place.

I believe the reason we see Spirit and Allegiant doing as well as they do has a lot to do with the fact that they are the airlines who are able to stimulate and benefit from the incremental demand that appears with a lower air fare.  I’m referring to the Southwest effect, yes.  With the consolidation that has gone on for the past 6 years in this industry, I’ve wondered when new entrants were going to appear and I think the only reason they haven’t is due to the lack of available investment capital.   It’s hard to start a well funded airline right now.

But Frontier isn’t in need of that kind of capital.  Based in Denver, the airline could actually fight back against what are essentially 2 legacy airlines whose air fares are considerably higher today than they were 2 years ago.  There is money to be made there and money elsewhere too.

It requires lower costs and fees on everything, yes.  Frontier will need to add seats, reduce frills and start charging fees for anything it can find while lowering air fares dramatically.  This is real work but isn’t capital intensive work.  They can do this. 

Can they succeed?  I think that depends a great deal on the management team and its willingness to sharply execute a ULCC plan.  There is no need to take too long to implement the ULCC strategies.  Implement them and start undercutting your competition as fast as possible.  Move aggressively into markets where you can show a difference against the legacy carriers including Southwest Airlines.   It really isn’t as far fetched as it might seem at this point. 

The truth is that the airline marketplace has changed dramatically over the past 3 years as a result of the economy, fuel prices and consolidation.  Furthermore, most consumers have accepted the fee structures and despite hating them, they’re paying them.  So why not a ULCC that aggressively plays against the legacy airlines and older LCC carriers?  That model might not have been ready for prime time 5 years ago but a lot can change in 5 years.

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Cornerstone Strategies

October 27, 2011 on 1:00 am | In Airline Service | No Comments

One result of the consolidation that has gone on in the US airline market is that we have 3 SuperLegacy airlines with each roughly the equivalent of each other in size and revenues.  Each of those SuperLegacy airlines has both fortress hubs as well as hubs in extremely competitive markets.  I speculated that the result of these mergers would actually be more competition rather than less in major markets because that’s where the money is.

American Airlines has a plan that involves channeling 98 to 99 percent of its traffic through one or more of five “cornerstone” markets:  Dallas, Miami, Los Angeles, Chicago and New York.  There are just two fortress hubs in that mix today:  Dallas and Miami.  Los Angeles and New York are highly competitive markets for all airlines and Chicago is a major hub for both AA and United as well as being a strong focus city for Southwest Airlines. 

Delta Airlines retains its strength in Minneapolis (fortress hub), Detroit (fortress hub), Atlanta (fortress hub + LCC carrier encroachment), Salt Lake City (fortress hub) and competes aggressively in New York and Los Angeles.

United Airlines has its focus on Houston (fortress hub), Chicago (major hub with AA and Southwest), Washington DC Dulles (fortress hub), Denver (fortress hub + LCC),  San Francisco (hub) and competes strongly in the New York City and Los Angeles markets.

It’s not hard to see who the loser is here.  American Airlines has the highest costs and suffers more competition in more of its focus cities.  Even in Dallas, a fortress hub if there ever was one, American Airlines gets to face increasing competition from LCC carriers at DFW who’ve identified exceptionally high fares on cities they can serve and they face increasing competition from Southwest Airlines at Love Field particularly in 2014 when the Wright Amendment essentially goes away.  Miami is strong revenue wise but will never serve as a convenient hub for the rest of the United States.

The only way these airlines continue to grow is to make inroads in these competitive major markets.  Their established dominance leaves little low hanging fruit to explore.  If one were feeling predatory, an airline such as Delta would begin to focus on cities such as New York City, Los Angeles and Dallas.   So far, Delta has engaged with the competition in the first two cities.  Why do this?  Because American Airlines can no longer afford to fight sustained battles on its home turf on price and its service product is at least a generation behind the other two SuperLegacy airlines. 

In fact, I would maintain that engaging American Airlines in the DFW area could yield great success over 2 or 3 years.   American cannot fight that kind of engagement off on price alone.  It doesn’t have the service product it once had and its regional airline is one of the worst in the country at this point.  There is a reason why Virgin America and Spirit Airlines have shown up there.  There is a reason why Lufthansa is doing well with flights to Germany there and there is a reason why Emirates smells an opportunity there too. 

The weak animal in the forest is American Airlines.   If Delta and/or United can work up a sufficient warchest, competing for AA customers in its cornerstone markets can provide growth.  But they aren’t immune to encroachment themselves.

Both airlines suffer competition from LCC carriers and, in particular, Southwest Airlines.  Look at where SWA is now a viable and cost effective alternative to the SuperLegacy airlines.  Los Angeles, San Francisco, Phoenix, Denver, Dallas, Houston, Chicago, Washington D.C., Atlanta and New York City (3 airports currently).  Southwest can provide price competitive fares, an equal or better economy service product, an equal or better ontime record and flights that are just as convenient if not more convenient at the end of the day. 

Southwest achieves that while also serving what I would describe as 2nd and 3rd tier cities.  Cities such as Kansas City, St. Louis, Nashville, Salt Lake City, Las Vegas, Lubbock, Little Rock, Indianapolis, Pittsburgh. Albany, Buffalo, Norfolk, Seattle. . . you get the idea.  And they serve these cities with a better offering than most SuperLegacy airlines.  In fact, Southwest tends to not just get the most frugal passengers but also the most value oriented passengers.

What’s different between those two?  Frugal flies the cheapest flights . . . period.  Value oriented passengers pay for the most bang for the buck.  A value oriented passenger pays a premium price for a fare that lets them travel efficiently, comfortably and without fees.   He or she doesn’t buy the cheapest fare.  They buy the SWA business class fare because it is hundreds of dollars less than SuperLegacy fares, doesn’t nickel and dime them and provides convenience they can no longer get from other airlines. 

They do well with those passengers in their focus cities but they do really well with those passengers in those 2nd and 3rd tier cities.  Do the math:  Fly on AA from Little Rock on an MD-80 or regional jet in cramped quarters to a hub or fly on Southwest on a more comfortable, newer 737 and direct to your destination. 

Those cornerstone strategies used by SuperLegacy airlines are heavy weights hung around their necks.  First they’ll survive at each other’s expense and then they’ll all suffer at the hands of the more convenient LCC carriers.

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Will air fares be lower in the fall and winter?

September 12, 2011 on 1:00 am | In Airline Fees, Travel Hints | No Comments

Will air fares be lower in the fall and winter?

It depends on what your standard is for low.  If you mean lower compared to this summer, yes, they probably will be a bit lower.  If you mean lower than last year, I think not.

Airlines continue to manage their capacity very closely and consolidation has brought more capacity management into play.  LCC carriers such as Southwest are not acting like rebels right now in that they’re joining most fare hikes quite willingly. 

I do expect some fare sales and I do think that some of those advertised fares will be incredibly low.  I also think that the number of seats available at those fares will be incredibly small.  They are the “door busters” of air fare sales.

Should you buy now?  I think you can hardly go wrong buying a ticket for holiday travel right now.  It’s possible that a lower fare might come along in a few instances but I think the probability of that is quite low. 

Expect seats on LCC carriers in the holiday season to be at a premium.  Particularly on airlines such as Southwest and jetBlue as their no baggage fees for a checked bag make travel for families much cheaper.  A family of 4 can save as much as $200 and that’s real money.

So, if I were looking for an inexpensive fare for holiday travel, I would buy now.  If I were hoping for a great fare for a whimsical trip, I might wait just a bit longer.  I do not think that we’ll see a plethora of low, low fares until after January 1st.

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What is and isn’t a merger effect.

July 15, 2011 on 1:00 am | In Airline News | No Comments

A reader wrote me yesterday about some pricing he saw between Kansas City and New York City (Newark Liberty International Airport aka EWR)  recently.  In the past, he’s always flown Continental on a regional jet non stop for a competitive price.  Most recently, he saw the same flights for far higher prices than in the past with other airlines offering one stop pricing that reflected what he was used to.  He asked if this was one effect of the recent Continental / United merger and I said that I didn’t think so.

I think the pricing were seeing from airlines today, particularly on non-stop exclusive routes, is reflective of just how hard it is to make money in this business today.   In United’s case, they probably enjoy more competition into and out of Newark than they used to.  However, they also need to earn more money and show promised profits.  On exclusive non-stop routes, they’re going to price seats for the most they can get. 

Business travelers do differentiate between non-stop and multi-stop flights.  They may be closed off from traveling in business class these days but most aren’t being required to take the least expensive coach seat.  In the reader’s particular market, they probably fill those regional jets with mostly business travelers and business travelers remain a big piece of profit for airlines.

I pointed out to the reader that he could probably enjoy almost as quick a flight on more comfortable equipment if he shopped Southwest Airlines but that points up another issue.  With the conflicts going on with Global Distribution Systems and American Airlines as well as the fact that LCC carriers in many cases are using GDS companies and/or online travel agencies to advertise their fares.  Absence of those fares being shown makes it possible for network carriers to raise prices on those GDS systems and earn more.

And this is why I would like to see LCC air fares start showing up on these travel websites.  I think there is quite a bit of low hanging fruit for the LCCs to reach on these sites and I think the travel websites have the potential to continue on in the travel world if they find a way to embrace and entice LCC carriers.  In addition, it narrows the fare gap we see between network carriers and LCCs.

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Priorities: What is an airline selling?

May 14, 2011 on 1:00 am | In Airline Fees, Airline Service | 1 Comment

What is an airline selling these days?  Food?  Baggage transportation? In flight entertainment?  Mood lighting?  Opportunities to upgrade to business class?

It’s kind of hard to tell these days what an airline is selling with the dilution that has occured as a result of de-bundling services.  The truth is, airlines are more frequently in the news for some subsidiary service they’ve de-bundled than they are for their primary service product.

The primary service product is transporting passengers reliably between point A and point B and if you don’t do that, no manner of any fees is going to make you profitable.  It won’t matter how many channels of TV you have if the customer can’t get where he/she is going on time frequently enough to build trust, you aren’t going to make a profit.

Think I’m wrong?  Ask yourself why Southwest succeeds with a very basic service product even compared to many other LCC airlines. 

It’s about the customer getting where they want to go when they wanted to get there, stupid.

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One More Left

April 11, 2011 on 1:00 am | In Airline News | No Comments

Airline CEO Doug Parker says that there is one more big merger deal to be done in the United States and that is with his airline, US Airways.    Parker’s comment was made during US Airways recent media day.

The question is, who?  I’ve said before that US Airways and AA could actually do a nice deal when it comes to the complementary nature of the two airlines but I have also noted that you would be combining two airlines with very bad union relations right now.    Furthermore, neither has the cash to do the deal and a stock swap is just swapping one so-so share for another. 

The truth is, I think US Airways has something AA needs.  The executive team.  The US Airways executive team manages to deliver profits despite being an airline with not a lot of international traffic and an airline with no hub that anyone views as particularly strategic.   I would like to see that team manage American Airlines’ resources.  I think we would all be pleasantly surprised financially.

I actually don’t see a partner for US Airways.  Not right now.  It isn’t an low cost carrier (ironically enough, US Airways stock symbol is LCC) as the models are two widely apart.  It isn’t an airline that shares a similar fleet as US Airways flies Boeing and Airbus and within the Airbus fleet, it flies two somewhat dissimilar fleets of A320 series aircraft. 

I cannot identify an airline that has a strategic position that would complement US Airways routes without being a clash in every other way.  JetBlue owns JFK and an Airbus fleet but the clash in cultures and everything else makes me shudder.  The same is true for Frontier Airlines.

Southwest has no interest in them.  They simply identify where US Airways is strong and then move in to compete with them.  Southwest wins and US Airways moves along to another place.

SuperLegacies?  They don’t need US Airways.  There is no real route rationalization to be had in many cases and the few places where one SuperLegacy might want more dominance are places where anti-trust regulation is unlikely to grant it.

Right now, US Airways is on its own and that’s OK.  This is a profitable airline and, in many cases, more profitable than SuperLegacies.  5 years from now may prove differently but I don’t see it in the next 2 years or even 3.

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Fares, Fees and Fuel Surcharges Part 2

March 16, 2011 on 1:00 am | In Airline Fees, Travel Hints | 1 Comment

Before you shop for a fare to travel this spring or summer, remember one thing:  You will almost certainly pay more than last year.  And, not for nothing, you probably should.  Gasoline prices are way up ($0.50 / gallon to date for my area just over the past 2.5 months) and so are costs for things like food or even dining out.  It costs more to do business today and the airlines are subject to the same events that drive costs as we are.  If you’re laboring under the idea that airlines are fat cats just squeezing money out of people, well, reset your mind on that.  One has to wonder why anyone would go into the airline business given the very few profits available.

But if you want the best price, it is time to get smart and if you do play it smart, you’ll not only be rewarded but airlines just might start paying attention to customer dissatisfaction as well. 

It’s hard to do but start by figuring out what your needs are not just in going from Point A to Point B but also who you are traveling with, how much luggage you might take and whether or not you might be more flexible with your travel dates.  Let’s say that you, your spouse and one child are traveling on a vacation.  Can you combine 2 or more people’s clothing needs into a larger suitcase and keep it under 50lbs?  If so, you may well save on baggage fees.  With baggage fees costing people as much as a couple of hundred dollars extra for this kind of trip, there are real savings to be had.  My own family follows this philosophy and we’ve discovered that we can generally eliminate at least one bag to be checked and often two.

Consider your choice in airports.  Many metropolitan areas have 2 or more airports and those choices can yield big savings.  Perhaps it costs less gas to access one or another.  Often rental cars at a secondary airport can be less expensive than at the primary airport (this is that demand thing again).  Low cost carriers like secondary airports because it costs them less to fly there.  Shop your choices. 

In addition, if you’re already going to rent a car, check to see if there is another airport within 1 to 1.5 hours from where you want to be.  Sometimes the savings can be huge and well worth the drive.  I once flew to Tampa Bay for $140 less than flying to Orlando.  I was already renting a car and it cost me just about 1.25 hours to drive plus the gas cost which then was cheap but even today would yield worthwhile savings.  Particularly when you multiply that fare savings by 3 or more who are traveling with you.

See if leaving on a day different than a Friday or Saturday saves you money.  You might reduce your vacation stay by one day out of 7 or more days but  you may be willing to give up that day for a savings of $300 or more, right? 

Check the alternative LCC carriers as well as the traditionals.  Allegiant Airlines and Spirit Airlines are the airlines of fees, for certain, but if you can plan your trip right on them, you may well save hundreds of dollars.  You might not be in the most comfortable seat but if you’re savings $300 or more on air fares, I’m guessing 2 hours in a 30″ seat pitch seat will be tolerable if you’re on a budget.  If you do choose one of these airlines, READ THEIR RULES CAREFULLY.  Everything costs a fee and several are “opt out” type choices when purchasing your ticket. 

Don’t rule out legacy airlines.  It’s often surprising to me just how competitive legacy airlines are when faced with fighting for business against a few LCC carriers in a market.  Sometimes, when it comes to advance purchase fares, the legacy carriers are the better deal even with their fees. 

Are you using airline miles to pay one or more fares?  Well, maybe you can travel alone and your family can travel another airline cheaper but you can all arrive at the same airport within an hour or so of each other.  It seems awkward, yes, but I also suspect that if you can save $200 or more with this strategy, it might just be worth spending an hour in an airport waiting for the second part of your party.

Before you buy, compare, compare, compare.  You have a computer so use it.  Put both your airline choices up on the screen and be certain of every thing you’re paying before you pay.  Fuel surcharges are going to make a big difference in the cost to families this summer and if you can fly an airline that doesn’t have them, you may well save significant money.  The same is true for baggage fees.   Even airport taxes and fees can be different between a primary and secondary airport in a city and different enough sometimes to more than pay for the inconvenience of choosing one over another. 

Most people would use great care and consideration when spending $1000 or more on a piece of furniture for a home or a home improvement.  Why not use the very same care and consideration on your vacation?  There are real savings to be had out there for someone who invests an extra hour of time into their search.  That extra time frequently results in big savings and everyone likes an extra $100 bill in their wallet.

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90/10

February 7, 2011 on 1:00 am | In Airline News | No Comments

Evidently Ryanair thinks it should be shutting down at least 10% of all routes it opens or it isn’t doing its job.  Its argument is that many of those routes have never been flown before and it is impossible to predict success for all of them. 

This makes considerable sense but it is also worth pointing out that Ryanair’s outsourcing model for ground support also allows them to contract away from unsuccessful routes without feeling pinned in by the costs to withdraw from a market.  In addition, its decisions on these routes are uninfluenced by other considerations such as regional flights feeding into these routes.

Other airlines could stand to be a bit more brutal over their routes as well.  All too often one set of routes is operated unprofitably to support the money it feeds into more successful routes.  The Ryanair model (and other LCC airlines as well) of insisting that route support itself is the better, more sustainble pathway to success.

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East Coast, West Coast, Mid-West

September 9, 2010 on 1:00 am | In Airline Service, Airports | 3 Comments

There is a reason there is a lot of focus on the near mid-west and east coast when it comes to airlines.  That’s where people are.  The population density in our eastern half far exceeds that of our western half.  Even LCC carriers “get it” and if you think otherwise, look at the focus of jetBlue, Airtran and Southwest Airlines.

But I think the opportunity of the west and mid-west is getting ignored.  All one has to do is take a look at routes flown from the DFW, Houston, Kansas City, Salt Lake City and, yes, Las Vegas area and wonder at the possibilities.  Yes, the flights are a bit longer in length and time but they also fly in and out of airports that are far less congested and far less affected by weather. 

Southwest ignores routes from DFW while it waits to fly unrestricted from Love Field in 2014 and I think that is a mistake.  jetBlue has ignored the Dallas market despite the fact that it connects an amazing number of people to areas where it already has a strength:  the east coast and west coast.

Airtran has game in the east and even in the upper-Midwest now but it has ignored the west so far and that puzzles me.  It’s an airline that is clearly ready to go to the next level and be a real national player.  Frontier is playing some in the west via Denver but take a look at the fares it is charging on those western routes.  I think Frontier is more vulnerable than it thinks. 

More importantly, I don’t think there has been the same LCC stimulus in many western markets that we’ve seen elsewhere.  Many LCC’s operating routes in the west seem to have come to some tacit agreement with legacy airlines on competition.  With the exception of the west coast, we don’t see much LCC stimulus going on past 150 miles east of the west coast. 

There is opportunity there and the airline that figures out how to build a better network there is potentially set to earn a great deal of money.  Sure, Southwest is out there and they do have pretty good coverage but even they could stand a little competition these days.  At least outside of California and Arizona.

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The Right To Growth?

September 4, 2010 on 1:00 am | In Airline News | 1 Comment

In an interview with TheStreet.Com, jetBlue CEO Dave Barger says that jetBlue has earned the right to grow.  His justification for that comes from jetBlue having positive cash flow, steady earnings and it’s contrarian nature that has lead to success at difficult airports.

Personally, I think all airlines have a “right” to grow.  I just think they have to make a busines case for it and as far as I’m concerned, have at it. 

I think this signals something else.  Here is an LCC announcing its attention to grow in almost insolent manner.  In particular, Barger declares their intentions at Washington Reagan National and fails to mention that his opportunity for growth there comes from a partnership with American Airlines that included a slot swap.

But this is somewhat classical behaviour on the part of LCC’s.  They see revenue opportunities on routes that legacy airlines are only, at best, barely managing to cling to and the LCC’s want to earn that money.  Their costs are lower and they can handle going in at a lower fare and capturing the business.  The only tool a legacy has to use to fight off that competition when that happens is adding frequency and matching prices for a sustained period.  It does work sometimes.  From time to time, a legacy airline can fight off an LCC intrusion but it’s hard and it does eat up cash and resources until it’s over.

That was easier to do when there were few LCC’s and they were focusing on peripheral airports and lesser routes.  Now we have quite a few LCC carriers and they want in on the big action.  That’s why we have Virgin American flying trans-continental routes, jetBlue flying from JFK and Southwest Airlines introducing itself at both La Guardia and now Newark airports. 

Can legacy airlines fight these attacts on many more fronts as the airline business recovers in the US?  Maybe.  At least to some degree.  But I suspect they’re going to have to be a bit more choosy on their fights and I think w’re going to see some markets where even SuperLegacy airlines concede, eventually, to LCC intrusion. 

Dave Barger and jetBlue are the first to declare their intentions but they won’t be the last.  It’s notable that all of the US LCC’s are earning good profits and increasing their revenue base (with the exception of Virgin America who has yet to earn a profit).  That makes for a warchest and with their sizes approaching a critical mass, they can afford to take on more and more legacy airlines.

Airtran did it in Atlanta.  jetBlue did it at JFK airport, Southwest did it in Denver and now it’s happening at Washington Reagan National.   It’s going to happen at more and more airports too. 

One alternative defense might be for more and more legacy airlines to strike deals with LCC carriers and offer them some success but access they can control as opposed to an all out fight that results in legacy airlines bleeding red with losses. 

Look for more airlines to declare their intentions and justify those intentions with their current earnings and revenue growth.

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Budget Airlines

September 1, 2010 on 1:00 am | In Airline News | 1 Comment

JAL is considering setting up a budget airline with some of the money it was given by the Japanese government to compete against the budget offerings of other airlines in Japan.  For the past 20 years, a number of airlines have conceived of this idea that an airline within an airline designed as an LCC is a great idea.  Continental has Continental Lite.  Delta had Song.  United had Ted and the list goes on.

If it is such a great idea, how come none of those offerings are around? 

They can have some value.  They can show an airline a model for operating differently and more cost effectively and that may be worth something. However, I don’t think the cost of setting up an entire new brand is worth learning those lessons.

Indeed, those budget airlines inevitably end up being a compromise to ensure that labor unions for the Mother Ship don’t spurt blood from their eyes and try to doom the airline.  As a compromise, they’re unsatisfying because they don’t yield the same results a real LCC aka budget airline enjoys.

The best thing a JAL can go is get on with the slashing.  Slash costs, labor and anything else that stand in the way of profitability including vanity routes and vanity aircraft.  Reduce your fleet to as few types as possible and get new labor contracts that ensure productivity that is on par with those you are competing with. 

In other words, rip the band-aid off, don’t tug at it slowly.  Get it done and the quicker you get it done, the quicker you start to show the rewards of your work and, hopefully, some of those rewards should be profits.  It’s very tough to do it and you definitely have to have the right leadership to get it done. 

I question the leadership at JAL if this is truly what’s being considered.  It’s delaying the inevitable and simply burning more cash than necessary.  Cash that came from the Japanese taxpayers. 

Often in the US, a hatchet man is hired to make the hard cuts and slash costs and once he’s done, he’s replaced with a different leader who is tasked with maintaining those savings and leading its staff to a happier place.  Indeed, Glenn Tilton was supposed to be one of those guys but he’s continued to hang on long after he was done. 

What JAL needs is an unconventional businessman who knows how to wield a hatchet.  Someone who is at least familiar with businesses that burn a lot of cash each day and which depend on reliable revenues to survive.   What they don’t need is someone interested in serving political masters who want jobs saved rather than businesses fixed.

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Consolidation or Competition?

July 7, 2010 on 1:00 am | In Airline Service, Death Watch, Deregulation | 1 Comment

For the past 3 years or more, we’ve heard virtually every airline CEO talk about the need for consolidation and the problem of too many seats chasing too many passengers.  Now we have Northwest Airlines fully consolidated into Delta and we’re about to see United and Continetal merge together as well.  But does that really solve the long term problems in this industry?

One the one hand, I admire how the airlines are using their dire straits to argue for greater dominance in their industry.  It’s the legacies doing this and their “poor me” story is working very well among the public as well as among their own employees. 

I would argue that, if anything, we need even stronger competiton in the industry for the long term.  The greater dominance we allow isn’t necessarily going to raise prices all that much but what it will do is make it ever more cost prohibitive for new entrants into the market.  That’s the ultimate goal of consolidation:  keep the new guys out and keep the current competition neutralized as much as possible.

Quite honestly, what we really need is for a legacy airline to go out of business and liquidate.  I had long hoped it would be United who had to do this but, sadly, they scrapped by and made it to the other side.  US Airways is often pointed to as a candidate and while I’ll agree they are potentially the most vulnerable, I’m not sure I want to see them go.

I’d like to see one of our behemoths leave. 

Yes, it would put a lot of people out of work for while.  It would lead higher fares in the short term.  It would also allow room for new entrants who’ll bring fresher ideas, staff, aircraft and, wait for it . . . , lower fares.

It will help break the stranglehold that unionization has on this industry. 

What I’m really proposing is that we need a revolution in the US airline indudstry rather than an evolution of the legacy carriers one more time. 

We need airports to have room for new airlines to enter their markets and establish footholds that result in lower fares.  That means someone has to go.

This country needs to quite looking at each individual airline as an essential industry to our economy.  They aren’t.  Not anymore.  If one legacy went out of business and liquidated, the other airlines would move so fast to establish new business in those markets that it would make our head spin. 

In other words, they would grow the old fashioned way:  through competition.

It’s interesting to me that the airlines who have managed to weather the economic recession so well also happen to be the airlines who didn’t contract but, rather, grew themselves as legacies withdrew from unprofitable routes. 

It is often claimed that we need the legacies because they serve the small communities.  I wonder how the small communities feel about paying a disproportionately high fare in the current systems.  The truth is, there are lot of markets that I question the need for air service in many areas.

Does Waco, TX really need flights from Dallas and Houston?  Probably not.  Those residents should probably be driving to Dallas or Houston for their flights.  It costs about $30 to drive to Dallas from Waco.  Air fares between those two cities are currently advertised from $130 to $600 one way at present.  It’s economically wasteful to take that flight.

We, as a country, should be looking to create more opportunities for new airlines as well as existing LCC carriers who want to enter markets but are bullied away from them at present by the established legacy carriers dominance.

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Airtran Happy and Interested In Industry Consolidation

April 22, 2010 on 1:00 am | In Airline News | 1 Comment

Airtran has expressed how happy it is that they did not win their fight to acquire Midwest Airlines a fwe years ago and notes that they are the dominant player in Milwaukee now.  My feelings as well.  It is sometimes difficult to grow a business because of the capital requirements but it’s also very, very hard to integrate two airlines and it rarely realizes the expected benefits often touted during merger talks. 

 

Bob Fornaro, CEO of Airtran, has also expressed interest in what might be happening with industry consolidation through purchases and mergers and says they want to play a part.  However, it isn’t the role you think.  Airtran sees those developments as opportunities to pick up assets such as aircraft, slots and routes that may have to be divested as a result of a merger between two entities. 

 

I’m pretty sure that Gary Kelly (CEO of Southwest) would add a “hell yes!” to that. 

 

The airline industry has seen a lot of growth among the LCC carriers (and whatever you think, US Airways is *not* an LCC carrier despites its stock exchange identifier) and virtually all of that growth has been organic.  These airlines do the work of identifying good business targets and building the business of the route properly.  Each route between two cities is rally a “mini” business of the airline.  To build that business requires investment, time and good analytical skills.  Maintaining that business requires good analytical skills and agility. 

 

Legacy carriers shun executives from LCC carriers.  If I were to take over as CEO of a legacy carrier, I would head hunt avidly among the LCC carriers.  Those are the industry executives with the talent and skills to run an airline today.  Unfortunately, legacy carriers tend to promote within and stick with their legacy management corps.

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Mergers 2010

April 9, 2010 on 8:00 am | In Airline News | No Comments

With the news that US Airways and United are in merger talks, the subject of mergers and industry consolidation among US airlines has been reheated to a high temperature again.  For the past several years, there has been a lot of talk about the need for consolidation among airlines in the US in order to return to profitability and there are many advocates (such as Doug Parker and Glenn Tilton of US Airways and United respectively). 

 

New fees seem to have brought in additional revenue but no one can seem to really claim that it has changed the equation for earning a profit for airlines.  Advocates say these new fees are helping airlines find a path back to earning a profit and I certainly think that experimentation with these fees isn’t over. 

 

Oil is always a frequent component of profitability.  Soaring oil prices just two years ago nearly brought several airlines to their knees but also brought huge profits to other airlines who engage in hedging their fuel costs.  I don’t think anyone would disagree that a more stable oil market would not only benefit the airlines but a lot of other industries.  The wide oscillations of fuel prices have brought a big element of uncertainty to many parts of the economy. 

 

I’m not sure consolidation is really the answer, however.  Frankly, I think one big mistake of the 1990′s and 2000′s is that we have permitted airlines to go through bankruptcies (some multiple times) and reorganize themselves rather than being more insistent on a liquidation or two.  It’s politically difficult to do so because liquidating a large legacy airline means tens of thousands of people suddenly becoming unemployed. 

 

Yes, the airline industry is a network business to a large degree and network businesses can do better if they grow larger and capture more market share.  I question how viable that is over the long term without restructuring other legacy costs as well.  I think it is a nice, immediate answer and certainly offers short term (2 to 5 years) gains in share prices but there are other issues that need to be decided as well.

 

Seniority is king in the airline business and I’ve really come to believe that that is a huge obstacle to health for many airlines.  Airlines have to compete on price in the market place but are not allowed to compete on salaries in the employment market place.  Union contracts based on seniority are killing many airlines.  Mind you, that isn’t to say that airline employees don’t have legitimate issues too, they do. 

 

Airline employees are expected to quite literally work for poverty wages for years before starting to earn a real family supporting wage and then finally make it to a level for their last 10 or 15 years of work careers where they earn extremely generous wages for the exact same work that a junior level employee does for a salary that is unable to provide modest life.   This disparity has to stop.  Entry level wages should be higher and senior level wages should be lower.  Airline crew should be able to move between airlines without having to re-set to the lowest wage scale again.  We have enough airlines in this country that it is somewhat absurd to believe that a strike at one major airline threatens the national economy.  It doesn’t.  Airline employees deserve to be able to agree on a contract in a much more timely fashion.  Failing to do this results in an even greater tenacious hold to seniority since it is the only thing that raises wages.

 

LCC airlines have managed to remain profitable and grow but only by keeping their business model flat with respect to equipment and staff.  This allows them to keep productivity high and prevent creeping wages based on a structure that makes weight and distance the prime factor in pay.   Actual work loads and skill sets are secondary in paying flight crew. 

 

No, I’m not sure we need more consolidations and mergers and, frankly, I don’t think such things would substantially raise airfares given that LCC’s are pretty adept at spotting opportunities and entering markets.  Virtually the only thing that keeps them from certain routes is legacy airlines holding monopolies on airport space or slots.   Even then, those LCC’s are very good at looking for ways around those problems to gain a foothold.  Notice how vigorously Delta and US Airways are trying to keep Southwest Airlines from gaining more slots in NYC?

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Southwest – WestJet – Delta

March 31, 2010 on 12:30 pm | In Airline News | No Comments

Two days ago, the new CEO of WestJet stated that WestJet would be pursuing a code share agreement with Delta with the potential to implement this either before or in place of their existing agreement with Southwest Airlines.   Several reports tie this in with the proposal to give WestJet some slots at (5 pair) at La Guardia Airport in the Delta/US Airways slot swap deal currently being discussed. 

 

First, I continue to be skeptical that there will be an agreement between Delta and US Airways for this major slot swap between La Guardia and Washington National airports given both the FAA’s and Department of Justice’s attitude towards this deal.  Other than Delta and US Airways, no one is thrilled about the idea of Delta and US Airways getting to “pick” their competition by granting these slot swaps to airlines who aren’t poised (and never really will be) to compete with these two legacy airlines.   If a deal does go through, I expect it will look different than the current proposals and it will involve a transparent auction of these slots to a high bidder. 

 

Nonetheless, this is a bad announcement for Southwest airlines for a few reasons.  First and foremost, the thundering silence that continues from Southwest since this announcement was made sort of indicates they were as caught off guard by this as anyone.   It isn’t good for such a large airline to appear as unprepared for this development as they seem to be.

 

Second, the original deal between Southwest and WestJet is part of a 3 nation alliance between Southwest, WestJet and Volaris, all airlines operating in the tradition of being LCC carriers and all with a model similar to Southwest’s own.  Southwest was clearly the leader in this alliance and it appears that it’s delays in getting themselves positioned to start this alliance have hurt this agreement.   Acting like the 800lbs gorilla and then not getting the job done in time doesn’t make you appear to be an agile player in the airline community. 

 

Southwest has said the delays came from making other changes a priority within their IT system.  Whilethere are some changes such as new business class options, none of those changes to date are the kinds of things that should have delayed such an alliance for a year or more.  No other airline would have taken nearly as long to integrate into that kind of alliance and that points out problems with Southwest’s IT system.  Southwest is accustomed to going it alone on their systems (they do not, for instance, participate in a global reservations system) andhave done so for nearly 20 years.  Now, that departure from industry norms is starting to hurt them apparently in being unable to make these kind of changes and integrations in a quick and agile fashion.

 

Third, Southwest’s image of leadership among LCC carriers is further hurt by this.  Many founders of LCC carriers have pointed to Southwest as their inspiration for how to run a modern airline.  No doubt that this is true but it also points out that these 2nd and 3rd generation LCC carriers have become more responsive to both their customers and the potential for new business than Southwest has managed.  Losing that image of leadership is a bad thing for Southwest both externally and internally. 

 

Making substantial partners wait to engage in a strategic alliance that, by all accounts, should be very beneficial as well as ground breaking is neither smart nor a good show of leadership.  Canada really only has 2 airlines capable of entering into an agreement like this and the last thing you want is to annoy the 2nd largest airline of Canada into exploring options with a heavy hitting airline such as Delta and its associated alliance, SkyTeam.   Volaris may prove to be more patient but you have to wonder if they aren’t asking themselves if there is another partner in the US who might be interested in them.  A partner such as jetBlue or Virgin America or even the Republic Airways two-headed beast, Frontier/Midwest. 

 

This doesn’t mean that a wholesale change in leadership is called for at Southwest but it may well indicate that it is time to find ways to become a leaner, more agile competitor.  The days of simply having to show up and winning customers are over.  Witness the competition that SWA is seeing in new markets such as Denver and Milwaukee.   In this industry, winners attack and grow rather than ponder and play it cautious.

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US Airways, Delta and airport slots

February 10, 2010 on 2:00 pm | In Airline News | No Comments

Some time ago, US Airways and Delta Airlines came to an agreement to “swap” slots between New York’s La Guardia Airport and Washington DC’s Reagan National Airport.  Delta would get a large number of slots in New York and US Airways would get a smaller but more important number of slots in DC.   Each airline would get to consolidate their power in the city they’ve chosen to be a power player in. 

 

This required regulator approval from the Department of Transportation and the DOT finally issued their ruling on this.  They were OK with it only if each party sold a number of those slots in the respective markets.  And they preferred that the slots go to “slot needy” airlines (i.e. airlines who have no slots at those airports or who have an extremely limited number of slots.) In other words, the DOT wasn’t completely comfortable with just how consolidated each airline would become in each market. 

 

Both airlines expressed dismay and offered that they wouldn’t necessarily go through with the deal if those were the conditions.  Both felt that the consumer was losing out on improved benefits in those markets.   Oh, and of course this is the fault of the Obama administration according to some pundits. 

 

Now, the airlines don’t want to give up those slots to the slot needy because it potentially allows a toehold into two markets that have been very difficult for LCC carriers to find access to.  Southwest Airlines, for instance, only managed entry into the La Guardia market by buying the assets of defunct ATA.   jetBlue would love access to Washington National but there has been no real opportunity there either.  Frankly, both Delta’s and US Airways shuttles between NYC and DC would be pretty threatened by a jetBlue operation running between those two cities and Boston. 

 

Frankly, I’m glad the DOT put those conditions on this swap.  First of all, no consumer ever benefited from an airline consolidating its position in a market.  The benefits airlines speak of are things like connections to other destinations, through ticketing to other destinations, etc.  The benefits are *not* better prices.  Ask people how American Airlines is doing in Dallas ever since Delta withdrew from the market. 

 

I don’t mind airlines merging and growing bigger but I do mind airlines carving out domains in certain markets with regulatory approval.  Those markets aren’t monopolies to be granted.  And in those two particular markets, there isn’t exactly a limited number of customers available. 

 

In fact, in those two markets, LCC carriers have been shut out largely by large, legacy carriers who have “sat” on their slots rather than give them up or sell them.  It is quite literally to their benefit to operate a slot pair with a 40 seat RJ rather than to give the slot up because the introduction of competitive fares from LCC airlines who might get a toehold will literally decimate their yields in those markets. 

 

But keeping competition away and even allowing airlines such as Delta and/or US Airways to consolidate their strength in such markets is tantamout to providing artificial support to airlines who have cost structures that are no longer viable in most of the United States.   I do wonder what the anti-Obama administration pundits have to say about this kind of government support for legacy airlines? 

 

The truth is, we need to distribute *more* of the wealth in those slot controlled markets, not consolidate it.  We need other airlines encouraged to enter those kinds of markets and provide solid competition on routes that are held in a stranglehold grip by legacy airlines.  That is what will benefit the consumer.

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Will there ever be a long haul, low cost air carrier?

January 17, 2010 on 8:00 am | In Airline Service | 3 Comments

There have been a few attempts to create long haul, low cost carriers over the past several decades.  Laker Airways and People Express were two examples of that from years past.  Neither succeeded in the long run due to competition but also because long haul flights are a different creature.

 

Now I’m beginning to think someone could do it.  It would require a few very special adjustments to make it successful and those adjustments would be a real challenge to accomodate but, yes, I think someone could do it.

 

Michael O’Leary of Ryanair has talked of doing this but his concept, at least how he has laid it out, is fraught with peril since it is based on a Ryanair strategy. 

 

Long haul flights really only work between two large population centers because they do depend a lot on airport infrastructure and originating traffic in those areas.   They are international and that requires airports that can accomodate customs and immigration facilities and airports that have runways that are long enough for long haul aircraft. 

 

They also can’t depart and arrive at just any time.  Not to be attractive anyway.  So schedules are much more important and frequency isn’t necessarily the key as much as finding routes that offer high aircraft utilization. 

 

Until recently, they also required really large aircraft such as the 747 or DC-10/MD-11 to lower the costs per available seat.   Filling those aircraft day in and day out is difficult on a point to point basis if you don’t have really large population centers to feed those aircraft.

 

Things have kind of changed though.  For one, there are aircraft that might be suited to such operations which offer very low CASM (cost available seat mile) but which aren’t so big that they become difficult to fill.  I’m thinking of the Boeing 787 and 777 and the Airbus A330 and A350. 

 

These aircraft are capable of long haul flight, offer enough capacity and the kind of operating costs that might just make such a venture possible.   In particular, the 787-8 and A330 make this look real attractive. 

 

The one twist that I think you would need is partnerships to feed these flights at major cities that would serve as the departure points for such flights.  In the past, I would be skeptical of this being possible.  Now, not so much.  Southwest Airlines is forging partnerships with LCC carriers in Canada and Mexico (WestJet and Volaris) and its just the kind of partnership that a long haul LCC venture could use.

 

Imagine an LCC carrier using the A330 or 787-8 flying routes such as DFW-London or Chicago-London or NYC-London.  Or even Portland, OR to Amsterdam or Denver to Germany.   Maybe even Salt Lake City to Japan. 

 

The best aircraft would be the 787-8.  It would accomodate medium to long haul flights perfectly with low enough CASMs for virtually any city pair.  Its expected to be more low maintenance than any other aircraft of its kind.  It could become the 737 of long haul quite easily. 

 

If you had partnerships with LCC carriers on both sides to feed connecting traffic (something else that Southwest has done a time or two with its relationships with ATA and Icelandair (which was actually an interline agreement), you might be able to do it. 

 

Imagine Southwest Airlines feeding such an LCC in places such as Denver, Baltimore, Pittsburgh,  Portland or Seattle and Ryanair feeding such a venture at airports such as Dublin, London-Standsted or Frankfurt-Hahn.  Or, perhaps, Airtran feeding such an airline from Atlanta to Rio de Janeiro with Azul providing the feed in Brazil. 

 

This new LCC would have to be the “codeshare” on the domestic/regional flights and its own entity on the long haul international portion.  Domestic/regional partners would benefit from the additional regional traffic but really should not be selling tickets from Kansas City to Rio de Janeiro via Atlanta.  It goes against their models.  These partnerships should be about each sticking to their models but providing some interlining between the two. 

 

Oddly enough, I see airlines in two parts of the world being able to do this.  The United States would be ideal because a US based long haul LCC carrier can reach around the world from the US borders.  The other area would be one based in the Middle East such as Dubai which could also reach around the world. 

 

With Open Skies agreements falling into place left and right, the right aircraft being available now and LCC IT infrastructures becoming flexible enough to enter into this kind of partnership, it might just be possible in the near future.

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Delta and Continental up baggage fees, will anyone notice?

January 13, 2010 on 8:00 am | In Airline Fees, Airline News, Travel Hints | 2 Comments

Delta Airlines chose to announce they are increasing their checked baggage fees.  If you pay online, your fee goes from $15 for the first bag to $23 for the first bag.  The second bag checked rises from $25 to $32 (paid online).   Continental matched those fees almost immediately.  While it seems exorbitant to me, I wonder if anyone will really notice right now.

 

I suspect Delta did this simply because they have pricing power at most of their hubs (ATL, MSP, DTW, SLC, CVG, MEM) and because they don’t think it is going to affect the consumer’s decision about which airline to fly in most cases.  Delta doesn’t get a lot of LCC competition at its hubs except for ATL and there seems to be a unspoken agreement with Airtran not to get too ugly there.  Besides, Airtran has checked baggage fees too. 

 

The thing is, most online sites that offer booking for airlines in the US do not mention baggage fees when displaying prices for routes.  Delta will continue to appear to be very competitive on routes while likely adding additional incremental revenue through the “gotcha” approach.   Quite honestly, I suspect they’ll get away with it.  At least until there is a healthy recovery in the airline industry and that is likely 18 to 24 months away still.  Maybe more.

 

Will others match it?  I suspect that American Airlines might.   There is no precise harmony among airlines on these fees, not yet anyway.  Continental already had pretty high fees at $18 and $27 for online checked fees (with a $2 and $3 surcharge at the airport).  AA is at $20 and $30 respectively whether you check online or at the airport.  US Airways is at $20 / $30 for online (with a $5 surcharge for checking at the airport.)  United is $15 and $25 for online checking.

 

By contrast, Southwest Airlines has no fees up to the 3rd bag, jetBlue offers the first bag free and $30 fee for the second while Airtran charges $15 for the first and $25 for the second.  In other words, these fees are all over the place.  The truth is, as competitive as airfares are on many routes, these fees can change the equation pretty dramatically in some cases since those fees are for each way on a round trip flight. 

 

These fees have added dramatic amounts of revenue to airlines’ bottom line and I don’t see them going away at all.   I don’t think the fees among legacy airlines will harmonize much at all until and if online travel sites begin showing an “all in” pricing when comparing fares.  Even with such comparisons, I don’t think the fees go away so much as they just begin to merge together among the airlines. 

 

Will anyone else raise their fees?  Well, maybe.  I’m sure it will be tempting to do so among all the legacy airlines.  One or two may even try to raise the ante some.  I kind of  think both United and American Airlines will try some kind of new mix in the future.   I don’t see the LCC carriers playing around with their fees much if at all.  They have the revenue and now this may be their chance to follow Southwest’s strategy in a modified form by advertising lower checked baggage fees. 

 

I don’t think Southwest will change its attitude on these fees based on this new development.  Their strategy appears to be working for them and they don’t have a history of following the pack when something works.   That said, I’m sure it is something they’ll re-examine from time to time and it doesn’t mean they won’t add fees at some point in the future.  Right now, they appear to be capturing customers with their ‘no fees” approach and their aggressive advertising seems to have caught some attention. 

 

As much as I hate these fees for the 1st bag checked, I hate that airlines and travel websites  have done really little to truly show the “all in” price for these trips.  It makes things just that much more murky for the consumer and that is a bad thing.   However, the best thing you can do is learn the fees for the airlines you may be shopping for a trip and do the math yourself.  You’ll be frustrated by it and no doubt resent it but there isn’t a ready made solution at this time. 

 

Frankly, these developments are just one more reason why I wonder about Southwest re-joining the travel agency world.   The world has changed since they left it and, quite honestly, I think they could re-structure their IT infrastructure and re-join those agencies with little incremental costs involved.  At that point, they become the no brainer for many consumers from my view.  Even as aware as I am of airline options and even being located in the DFW area, even I tend to forget about Southwest as an option sometimes. 

 

One strategy for learning these fees is to visit LuggageLimits.Com (also linked in my sidebar).

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