Alaska Airlines merging with Virgin America reminds me of the AOL / Time Warner merger

May 23, 2016 on 12:48 pm | In Airline News, Airlines Alliances, Mergers and Bankruptcy | No Comments

When AOL merged with Time Warner to become an even bigger media company, a primary reaction was a dot com bubble was buying a multi-generational colossus.

But others who paid attention were quite a bit more concerned in the dissonance between the two companies in terms of leadership and culture.  In short, they were incompatible and didn’t understand each other.

I understand the desire for Alaska Airlines to buy an airline.  They are in a “eat or be eaten” world and presently look very attractive as a hors d’oeuvre for a much bigger airline.  So buying someone lets the airline continue to exist rather than become food for another.

Pardon me.  This merger is nuts.

The airline fleets are entirely at odds with each other.  The service products are entirely at odds with each other.  The networks are somewhat at odds with each other and where they aren’t . . . it doesn’t mean Alaska Airlines is going to pick up the customers from a consolidation point of view.

The company cultures are way at odds with each other.  Alaska Airlines has a multi-generational history and a very unionized, very conservative airline culture.  Virgin America is the millenial who just turned 24 and thinks they should be a vice president in their first job.

What bugs me more about this is that no one seems to be calling anyone out on this.  That alarms me.  Analysts and everyone else shouldn’t like this merger at all.  It doesn’t speak to merger synergies and it doesn’t look like a merger that is easily accomplished which means it looks like one hell of an expensive merger.

In the face of incredible and record setting airline profits in the past 2 years . . . no one seems to care very much.

And that’s what scares me about this industry.  It appears to be losing its focus again.

 

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Southwest and Love Field Airport

January 21, 2016 on 3:32 pm | In Airports | No Comments

Southwest Airlines has filed notice of intent to appeal Judge Kinkeade’s ruling that Delta could continue to use gates at Love Field Airport.  Southwest says that Delta is tresspassing and Delta says Southwest has a monopoly and the City of Dallas was last seen taking the last train to Clarksville.

Love Field is a public airport.  I don’t expect it to be infinitely adjustable to all demands to use the facility.

I do, however, expect it to be more flexible to airlines than simply accomodating Southwest and Virgin America.  That’s a No Bueno moment.

We got here because Southwest got greedy, the City of Dallas refuses to push for more gates and American Airlines wants Southwest boxed in. This anti-competitive and a restraint to trade to many airlines.

So let’s turn Love Field into a private airport, sell it to Southwest for a reasonably low sum and let Southwest do what it wants.

Or even better, sell the airport to the highest  bidder and let them fight it out.  If Southwest doesn’t want the faclilty and has “Dallas fatigue”, then they can move over to the new facilities at DFW or even just walk away.

There is another alternative though. . . create more gates, have an annual auction for all gates and highest bidder gets unrestrained use for 1 year.

Things to think about in the airline industry.

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Virgin Gets The Gates

May 9, 2014 on 4:09 pm | In Airline Service, Airports | No Comments

Virgin America appears to be the winner of the 2 gates at Love Field according to numerous reports in Dallas media.  There is no official city announcement to date but reporters are citing two unnamed sources in the City Manager’s office confirming this outcome.  Dallas media is rarely wrong with such sources.

It’s an acceptable outcome for Dallas.  It won’t really increase competition in this marketplace very much except on a few long haul routes out of Dallas but it will be quite interesting to see the effect Virgin America has on those routes as I think it will provide justification for pursuing even more competition in the marketplace.

When I’m asked who I would like to see get those gates, that’s a tough question.  Frankly, after much thought I’ve begun to think that Dallas might have actually been best served with common use and better served by Delta Airlines or American Airlines flying out of those gates.

Let me make an announcement:  There is room in the DFW marketplace for a shorthaul provider using the Q400 or ATR72 to serve markets in the Texas regional area out of DFW.  In my opinion, you could very well make a killing with this airline.

Particularly if you base out of DFW.

From DFW, you could serve:  Houston (2 airports), Austin, San Antonio, Corpus Christi, Brownsville-Harlingen, McAllen, Abilene, Laredo, Midland-Odessa, El Paso, Lubbock, Amarillo, Little Rock, Fayetteville, Tulsa, Oklahoma City, Shreveport, Memphis, and New Orleans.

You can string together low frequency cities for a better load factor and you can do high frequency turns at larger city airports.  And you could probably do a deal with some of the other airlines serving DFW to interconnect.

Your seat costs would be superior, your weather would be more than acceptable and your price would make your competition whimper.

In the meantime, let’s be glad the The Great Gate Fight is over (we hope) and see what comes next.

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More on the gates: The City of Dallas blindly drives towards a brick wall

May 7, 2014 on 1:21 pm | In Airports, Mergers and Bankruptcy | 1 Comment

The City of Dallas promises a decision on the Love Field gates held by American Airlines at this time.  Their plan is to have a briefing on the LEK Consulting report, an executive session briefing by the City Attorney and then there will be an open discussion.

In my opinion, the City of Dallas is marching blindly towards major lawsuits from a number of parties.  The City Council has apparently chosen to believe that the sudden demand for these gates means they get to be the big players.

Careful what you ask for.  Airlines have vastly more powerful legal resources and the US Justice Department is never amused at amateur hour getting in the way of a Justice Department decision.

If Dallas chose to acknowledge the lease currently held by American Airlines and permit a reasonable sub-lease, it would be ironclad in its ability to withstand challenge.  Maintaining the status quo, so to speak was its safe and legally appropriate choice.

By choosing to dangle these gates around on the pretext of benefiting The Citizens, Dallas is opening itself up to at least 3 lawsuits by my count.  Lawsuits that will cost Dallas and find Dallas having to bow to a legal settlement that could well be far worse than the present proposed outcome by The Leaseholders (aka American Airlines).

Evidently Dallas has a lot of extra money laying around these days and doesn’t mind the costs to its citizens.  It has already spent $50,000 on consulting to expose itself to these (potential) lawsuits.

If the City of Dallas wishes to promote the welfare of its citizens in this airport, the City should publicly and strongly advocate for a (needed) expansion of Love Field with gates held for common use by all airlines (including Southwest) on a periodic auction basis (annual is best).  That’s what would best benefit the city and certainly that is a “best investment” for The Citizens.

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Jet Who?

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.

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Dallas and The Gates

April 29, 2014 on 12:44 pm | In Airline News, Airports, Mergers and Bankruptcy | 1 Comment

The City of Dallas’ transportation committee met, deliberated behind doors and then decided to push the Love Field Gate Issue up to the full city council yesterday.  I noticed that one particular person was involved in the hiring of L.E.K. Consulting to determine who should get the gates:  Aviation Director Mark Deubner

Deubner seems intent on making a hash of managing Dallas Love Field in ways that go beyond the norm for this day and age.  Deubner is the same person who made a hash of the negotiations surrounding the Braniff Maintenence and Operations building on Lemmon Avenue last year.   It’s become quite clear that Dallas Love Field won’t be thriving under this man’s direction.

I think that the City of Dallas getting involved in this issue is going to backfire on the city in ways that City Council Members can’t entirely imagine.  First and foremost, it’s unwise to interfere with the United States Justice Department and the disposition of antitrust issues.  Second, the City Council has no legal standing to determine who gets those gets short of crazy arriving on the door step.

And Virgin America getting those gates isn’t crazy.

If the cities of this country want to control their airports better and do more for their local citizens (aka The Consumers), then they need to stop making long term, exclusive leases on gate space.  Auction it off on short term leases or control it on a flight by flight basis.  Keep your flexibility and sell your city like nobody’s business.

But you don’t get to make deals and then revisit just part of them.  If the City of Dallas attempts to control who gets those gates under the present circumstances, they’ll be a part to several lawsuits in which the only sure loser will be the City of Dallas.  And it will cost the city millions of dollars with zero possibility of an outcome that benefits its citizens (aka The Consumers.)

In fact, when Aviation Director Mark Deubner hired L.E.K. Consulting, he exposed the city to a lawsuit right there.  He forced the city into taking a position by virtue of asking a consulting company to establish what was best for the city when the city didn’t have any business asking that question at this point.

So, now it is entirely possible that even if the Dallas City Council leaves the issue alone and permits the gates to be sub-leased, other airlines may well sue the city because it doesn’t fit anyone else’s notion of what should happen.

If Mark Deubner had left things alone and the City of Dallas had left things alone, they would have been fairly protected and any outcome would have at least benefited the citizens (aka The Consumers) marginally more than the present situation.  Neutrality was the smart play here.  And an abiding desire to interfere on the part of City Management has exposed Dallas to consequences that will cost a great deal of money.

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City Consultants Point to Southwest

April 28, 2014 on 12:32 pm | In Airline Service, Airports, Mergers and Bankruptcy | No Comments

City of Dallas consultants, L.E.K. Consultants, has come out saying that it’s Southwest Airlines who should get the 2 American Airlines gates at Love Field Airport.  Their rationale boils down to the idea that Southwest will drive the most passenger traffic for the city and that is therefore the most economically sound justification.

Their criticism of the Virgin America lease is that it removes some flights from DFW airport and transfers them to Love Field.

You can’t look at this picture statically.  Driving passenger traffic isn’t necessarily what’s best for consumers.  It may well seem good for the city but it won’t necessarily be good for consumers.

As foolish as I think some of the Justice Departments moves have been in the AA bankruptcy, they aren’t incorrect in the idea that these things should drive competition and benefit consumers.

The consultants seem to be squarely aimed at the idea that what’s good for a business will be good for consumers.  I would disagree with that.

What Dallas has needed most for a long time is competition on a variety of long haul domestic routes in and out of Dallas to a variety of destinations.  Southwest will provide some of that sorely needed competition on October 13th.  And they will provide it regardless of whether or not they get those gates.

Virgin America will provide some of that competition too although I would argue that we could use a more creative and extensive LCC than Virgin America.

What is most needed at Love Field is . . . wait for it. . . . more gates.  20 gates just isn’t enough.  Absent more gates, Southwest should be relieved of its burden to give up gates to get gates at DFW.  The competitve landscape has changed and, unfortunately, that change occurred before the end of the Wright Amendment on October 13th.

But 20 gates at Love Field isn’t enough.  Chicago Midway serving as an adjunct airport very similar to Love Field has 43 gates.  Would I suggest that Love Field should have that many?  No.

But the airport cannot serve any other airlines very effectively despite being open to do so at this time.  6 to 10 additional gates would make sense at the airport.

Barring that, Southwest should not be required to give up gates in order to use gates at DFW airport.  In making the deal to lift the Wright Amendment, the parties involved essentially constrained Southwest Airlines from growth in the DFW area.  In fact, the deal was designed to penalize Southwest if it wanted to grow by using DFW airport.

Isn’t it time to quit taking swipes at Southwest for not moving out of Love Field Airport more than 35 years ago when DFW was opened?  Southwest is a huge employer in this area and a huge tax contributor and excellent corporate citizen.  Why do we want to exact revenge against the very kind of company we should want in our community?

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Virgin America at Love Field

April 25, 2014 on 11:41 am | In Airline Service, Airports, Mergers and Bankruptcy | No Comments

Well, in an unofficial official announcement by Virgin America at Love Field Airport in Dallas, Virgin America says it will get the two gates at Love Field.  The airline says it has approval from the Justice Department and American Airlines and needs only to get approval from the City of Dallas.

And I think they will get such approval, too.  Strangely, the City of Dallas has never treated Southwest Airlines with the deference you might expect.  Furthermore, I have long thought that giving the gates to Southwest (legal or not) was probably a step too far in creating an airport monopoly for a single airline.

Is Virgin America the right candidate?  I kind of think not.

I think that they are supported by the Justice Department because they favor LCC carriers and Virgin America purports to be that.

I think they are supported by American Airlines because they are a weak(ish) competitor to American Airlines.

Virgin America will only offer flights that are long haul and to major destinations such as San Francisco, Los Angeles and New York.  They might get a few flights in to Chicago, a route so dominated by American Airlines that they have near hourly flights.

American likely saw Virgin as having the least impact to them in the market.  If that’s true, then it probably isn’t that good for consumers in the DFW area.

Virgin America will be good for people who want to fly to Los Angeles, San Francisco, New York, Washington D.C. and Chicago.   It’s notable that AA is the powerhouse on all of those routes while Southwest Airlines will be starting similar routes out of Love Field on October 13 of this year.

But the frequencies will be low enough that it is unlikely to have impact on fares, I think.  To the contrary, I think that this is great for Virgin America as they will experience high yields from these routes as a result of the other two airlines maintaining course.

And this decision could drive me to write yet one more article on why we should auction off gates and slots at airports that are constrained.

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Change, it’s coming

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

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

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

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

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

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

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

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

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

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And Virgin America gets into the act

November 2, 2013 on 1:00 am | In Trivia | No Comments

and gets a safety video that may be the most hip ever produced. You get to see some pretty good dub step dancing. Enjoy.

 

 
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Virgin America and the elusive profit

May 14, 2013 on 1:00 am | In Airline News | No Comments

Virgin America has been flying since 2007 and by all accounts is an excellent experience for travelers.  By many accounts, the airline sees very good load factors as well.  Their airplanes are new, their entertainment appears well done and their executive team is experienced.

But they still don’t make money.  Each quarter we hear about how profit is just around the corner.

Now we’re hearing that by deferring aircraft deliveries and restructuring debt, Virgin America will make a profit and enjoy an IPO immediately thereafter.

I think maybe not.  There is something wrong here that I fear is not going to be fixed by restructuring debt or deferring aircraft deliveries.  Airlines are earning exceptional profits at this point and Virgin America still can’t get its act together enough to get close to a profit.

Is it the debt side?  I’m sure there is some drag there but I more strongly suspect that the revenue side isn’t being addressed appropriately.

What I suspect is that Virgin America is lowering its prices on routes to get market share and isn’t earning enough revenue to be profitable.  And that’s shame.

The airline has a problem in marketing, I think.  It’s a flash airline.  It looks like it’s for thin people who are actors and models.  It doesn’t look like an inviting airline for the everyman who needs to fly from Los Angeles to Dallas.

So what does Virgin America need to stay alive?

It might need a new CEO and a new marketing person.  It might be important to be “flash” to Virgin Brands Richard Branson but even Virgin Australia / Virgin Blue doesn’t ignore the common man in its marketing.

 

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Competition at DFW

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.

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Virgin America gets into Newark

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.

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Someone please buy Virgin America

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.

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That’s the Spirit

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.

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Everyone wants a DC slot

March 16, 2012 on 1:00 am | In Uncategorized | No Comments

Every airline under the sun is submitting applications to the FAA to fly a route that is outside the perimeter rule for Reagan National Airport in Washington, D.C.   Virgin America wants to fly from San Francisco to DCA.  Southwest and JetBlue want to provide non-stop flights between DCA and Austin.  Southwest plans to offer follow on service from Austin to San Diego.  Alaska Airlines wants Portland, Oregon to DCA. 

Like I said, everyone wants a piece of the action.  Why?  Well, those flights outside the perimeter are typically good revenue earners because they are limited on those routes, provide direct connectivity to politicians and businessmen and provide access to an airport that is very difficult to get.

And once you have those slots, you’re often able to reuse them for something else that falls within the original constraints of the award if you want.  A toehold at DCA is very, very valuable to an airline. 

Who gets them?  I actually tip this towards the JetBlue and Southwest proposals for connectivity to Austin.  It fits within a strong need.  I think that flights to San Francisco and Portland aren’t as attractive because there is decent competition on those routes albeit via Dulles airport.   I do think that connecting state capitols and, in particular, those of politically powerful states such as Texas, will be an unofficial driver in this choice.

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Virgin America and Philly

January 20, 2012 on 8:52 am | In Airline News | No Comments

Virgin America has decided it will fly from both Los Angeles and San Francisco to Philadelphia as its next routes.  Philadelphia isn’t the coveted route into Newark that Virgin America wants so much but these routes do fit into its value proposition quite nicely.

Virgin America’s value comes into play the most when the flights are longer.  Why?  Because passengers value the inflight entertainment, inflight internet and on-demand food service on a flight where the duration is longer rather than a shorter hop.

Philadelphia makes for a good fit and I do think we’ll continue to see routes added that are of this nature over time.  In my mind, Virgin America’s service works better on flights of a duration that is greater than 2.5 hours.  I also expect we’ll see more mid-continent routes over time as well.  However, many of those mid-continent routes stretch to the East Coast and that means acquiring slots at many airports that are very, very hard to come by.

It’s possible that airlines will have some opportunity to acquire those slots as a function of American Airlines’ bankruptcy.  The problem is that those slots are extremely expensive to acquire.  We certainly saw that on the recent sale of slots (ex-Delta/US Airways) from both the NYC area and Washington D.C. National airports.  Airlines such as JetBlue were willing to bid exorbitant prices to get them. 

Airlines need those slots and most particularly Southwest Airlines and Virgin America.  The question is, will they be willing to invest the money to win them?  Southwest has the cash but likes a value purchase.  Virgin America doesn’t have large cash reserves and has to focus on earning a profit some time soon.

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Welcome to the New Year – Part 1

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.

North America:

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

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Virgins vote to stay non-union

December 28, 2011 on 1:00 am | In Airline News | No Comments

Virgin America flight attendants have voted to remain a non-union shop with 223 voting for unionization and 324 voting no.  Under the both the new and old rules of the NMB, Virgin flight attendants would remain a non-union group.

It’s interesting to me that despite new airlines growth into larger and larger organizations and despite the perceived job protections and benefits afforded several labor groups at highly unionized airlines, these new airlines labor groups are generally all voting no to union leadership.

That makes me wonder if the perceived value of union leadership is just that diminished or are the airlines themselves simply doing a good and proper job in the way they treat these labor groups?  What is telling is that no one at these non-union airlines is suffering when it comes to work conditions and none are being fired arbitrarily either.  In fact, one could argue that at least one airline, Delta, treats its flight attendants generally better than most and particularly so for the most junior segment. 

These are curious times for unions as all have failed to gain ground and some have lost ground in these labor groups.

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Frontier is looking a bit ugly

November 12, 2011 on 1:00 am | In Airline News | 2 Comments

It was in the news earlier this week that Frontier is laying off an additional 120 people in Milwaukee.   Likely these are more former Midwest employees but the hit hurts just the same. 

It’s another sign of just how much Frontier is bleeding and another sign of just how much Republic Airways is approaching their investment with a lack of enthusiasm. 

Frankly, I thought Southwest was the better suitor for Frontier but I didn’t believe that Republic would lose interest quite that rapidly either.  The truth is, Republic has never shown much enthusiasm for its purchases of Frontier and Midwest.  They blame high fuel prices for their problems.  I blame a lack of expertise in running a brand airline, getting rid of the expertise that did come with Frontier and just not really going “all in” with their purchase.

There is now speculation that there will be no interested buyers for Frontier and it is hard to argue with that.  There is a tiny bit of speculation that Frontier could be of interest to JetBlue largely because of fleet commonality and, somewhat, service commonality.

Going up against Southwest and United in Denver is not for the faint of heart.  I don’t disagree that jetBlue could be interested and I do think there is some “fit” there.  I also don’t think JetBlue has enough guts to make such a purchase.  They have signaled their complete happiness with being the airline they are today and have made little effort to grow into new markets.  Denver certainly isn’t an attractive market for the risk adverse management of JetBlue.

But another airline does come to mind.   Virgin America.  The fleet commonality works and they *are* being smart about competing with legacy airlines.  I don’t think you would see Frontier in Milwaukee for very long or quite as much flying in Denver either.  But I think Virgin America has an aggressive enough management cadre to figure out how to make Denver profitable and how to use the remaining fleet to enter into other profitable markets quicker.

The real question is whether or not Virgin America could even financially swing such a deal given how much Frontier is burdened with debt.

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