State of the Airlines

Monday, January 31, 2005

NEWS: United Airlines Flight Attendants Approve Deal

United Airlines announced today that their flight attendants have approved their tentative contract. The deal includes wage reductions of 9.5% which should come out to around $131 million in annual savings. The approval margin of 56% was far slimmer than the pilots who approved their new deal by a margin of 75%. It makes one wonder if everyone at United really understands the severity of the situation. This contract, like all of the ratified contracts to date, must be approved by the bankruptcy court before going into effect. The court has made it clear that they will not review and approve any of the new union deals until ALL of them are ratified. So we all have to wait to see what comes of the tenuous situation between the mechanic's union, the airline and the bankruptcy court before we can move on to the next chapter of this soap opera. Twenty six months in bankruptcy and still counting...sigh.

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NEW: United Airlines Pilots are On-Board

United Airlines announced today that their pilots, represented by ALPA, have approved the latest tentative contract which includes yet another round of concessions for the union members. Approval rate was around 75% which shows pretty good solidarity in my opinion. United is not breathing any easier though. They are still waiting for the results of the flight attendant vote on their tentative contract and have a group of cantankerous mechanics to deal with. Flight attendants should complete voting today. The mechanics union is scheduled to go before the bankruptcy court to present their deal today as well. Another interesting week at United Airlines.

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NEWS: Airline Earnings Recap

Here's a quick rundown of the airline earnings (or lack thereof) announced over the last few of days:

American Airlines: 4th Quarter loss of $387 million (up from $111 million loss for the same period last year), $761 million loss for 2004

Northwest Airlines: 4th Quarter loss of $420 million, $848 million loss for 2004

Southwest Airlines: 4th Quarter profit of $56 million, $313 million profit for 2004.

Continental Airlines: 4th Quarter loss of $206 million, $363 million loss for 2004

Delta Airlines: 4th Quarter loss of $2.2 billion, $5.2 billion loss for 2004. And no...that's not a really is billion.

America West Airlines: 4th Quarter loss of $49.7 million, $89.9 million loss for 2004.

AirTran Airways: 4th Quarter profit of $1.1 million, $12.3 million profit for 2004.

JetBlue Airways: 4th Quarter profit of $2.4 million, $47.5 million profit for 2004.

United Airlines: 4th Quarter loss of $664 million, $1.6 billion loss for 2004 (yes the "b word" again)

Frontier Airlines: 4th Quarter (calendar) loss of $11.1 million, Frontier is actually in their fiscal 3rd Quarter for I'm not sure what their year end 2004 result would be...accounting is so weird.

Alaska Airlines: 4th Quarter loss of $44.9 million, $15.3 million loss for 2004

US Airways: 4th Quarter loss of $236 million, $611 million loss for 2004

Update: Added Delta Airlines and Continental Airlines
Updated update: Added America West Airlines
Update part 3: Added AirTran Airways
Update Quattro: Added JetBlue Airways
Updated yet again: Added United Airlines
Ummmm...Updated: Added Frontier Airlines
Here's another update: Added Alaska Airlines
New Update: Added US Airways

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Friday, January 28, 2005

NEWS: United Airlines Mechanics Throw Down the Gauntlet

United Airlines mechanics represented by AMFA have voted to reject the latest contract proposal from the airline. Union officials are reporting that the rejection was "overwhelming". Furthermore, they have voted to approve a strike should the bankruptcy court approve changes to their existing contract. I have to admit I am a bit stunned. The implications of this are huge. United Airlines has tentative contracts in the works with 4 of their 6 unions and now has to fall back and re-group. The bankruptcy court has said it would not approve any of the tentative contracts until each union had approved their deals. United can petition the court to nullify the mechanic's contract but the threat of a strike will loom large in the minds of the leadership at United. A strike would almost certainly be the end of United. I am forced to think that AMFA believes they have a proposal that the bankruptcy court will approve in lieu of the current offer from the airline. You know...United appears to be winning one race...the race to be the first airline to liquidate in 2005. They just nosed ahead of US Airways. the way...the pilots and flight attendants will conclude voting on their respective contract offers on Monday. This could get ugly.

Updated 01/31/2005 @ 1530: It looks like the mechanics stand alone...the pilots and flight attendants have approved their deals.

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OPINION: Falling Behind in the Airline Industry.

All of the airlines were hit hard by fuel costs in 2004 and by the looks of it 2005 may not improve in that aspect. But the blow delivered by fuel costs were cushioned for a few airlines due to the fact that they were well hedged on fuel(fuel bought in advance at a pre-negotiated price). So why is it that the majority of airlines missed this opportunity, or at best, did not take full advantage of the opportunity to hedge agressively on fuel? To me this is where you start to delineate the smart airlines from the not-so-smart. Maybe not-so-smart isn't the right term...maybe the term is distracted. As in distracted by bankruptcy proceedings. Distracted by arduous union negotiations and the all consuming drive to cut costs. Maybe thats my point. While some airlines are able to devote their energy on "go forward" decision making others are locked in a process of "clean up" decision making. Its not that some of these struggling airlines are not making progress, its just that the progress is too slow. This is why I still believe that United Airlines and US Airways are doomed. They continue to thrash in bankruptcy while the rest of the airline industry moves on.

By the way, this opinion brought to you thanks to a discussion I had with one of the 5 people who have seen my blog (he's an employee, I made him look).

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Thursday, January 27, 2005

NEWS: Checchi Checks Out Some NWA Stock

Al Checchi, the former Northwest Airline chairman that employees loved to hate (some still do), has sold off 21% of his stock in the airline over the last week to the tune of around $7.5 million dollars. All of this occured after Northwest announced their 4th Quarter loss. Checci still holds 3.7 million shares of the airline's stock after selling off 1 million in these latest transactions. Checchi, like him or not, is a shrewd businessman so I find it interesting that he chooses to off a million shares after the airline announces their loss without waiting for the share price to rebound a bit. What does Mr. Checchi know?

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NEWS: JetBlue Beats the Guess-timators

JetBlue announced a $2.4 million profit for the 4th Quarter. That's not a huge number but it beat the analyst (aka the guess-timators) who were expecting a loss for the airline. It appears that fuel hedging carried the day for JetBlue much like it did for Southwest Airlines in 2004. JetBlue has turned a profit every quarter since they went public in April 2002 making it the darling of Wall Street. It will be difficult to continue that streak through 2005 since fuel prices do not show any sign of a major decline. Furthermore, there is some manuevering among the low fare carriers that will place more competitive pressure on JetBlue. We saw this most recently with the announcement of new routes for budding low cost carrier Song. But JetBlue remains well capitalized, their leadership seems adept at reacting to the market and their business plan seems will be an interesting year.

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NEWS: United Airlines Earnings Land with a Thud

United Airlines announced a 4th loss of $634 million underperforming versus analyst estimates that the airline would lose $629 million. Hey, whats a few million here and there. United points to fuel cost a primary surprise. But this poor performance is second only to Delta's whopping $2.2 billion dollar loss in the 4th quarter. Yet I remain far more concerned with United's ability to remain solvent than I do Delta's. Delta is already working on a new business plan, United is still in the cost cutting phase. Too much to do, too little time.

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Wednesday, January 26, 2005

NEWS: The Airline Salary Conundrum

The Wall Street Journal recently published an article on airline executive salaries that I would really love to link you to but unfortunately it requires a paid subscription. So here's the gist of it. Being a successful airline has never been easy and its even tougher now. Thus, the airlines need to attract the best and brightest management people available and retain the best people they already have. How do you do guessed baby! But wait, these are the same airlines that are asking the labor unions and employees for big pay cuts. What's an airline to do? Yeah, I don't know either but I'm sure it involves some very creative compensation packages. On a final note...this marks my first post using the word "conundrum"...I couldn't be more proud.

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NEWS: Pilots Counter Continental Airlines

The pilots for Continental Airlines have laid out an offer to take $122 million in cuts annually while putting some pension and job guarantees in place. This is all in an effort to help the airline reach its "absolute minimum" goal of $500 million in annual salary and benefit savings that it says are needed to survive. No word on how far apart the two sides are but the union must feel that they need to make their best deal and soon. Continental has already made deals with several employee groups to the tune of $169 million in annual savings...but the mechanics and flight attendants are not part of these deals. I gotta think that the pilots believe the first major union to cut a deal will be the best off of the bunch...heck that strategy was working for United's pilots union until that pesky bankruptcy judge threw the deal out. The pilots at Continental won't have that problem. And they know that Continental is not yanking their chain either...the union had an independent group go over the financials and come to the conclusion that hey the airline needs to cut more costs.

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NEWS: The Next Verse for Song

With the spotlight burning bright on Delta Airlines and their recent fare restructuring and billion dollar losses its easy to forget that their low fare spin off Song is still around. But Delta Airlines released a couple of tidbits that put their little brother into the news today. First is the announcement they will be expanding Song's service from JFK to Los Angeles, San Francisco, Seattle, San Juan and Aruba (mmmmmm...Aruba). This expansion coincides with the arrival of 12 new aircraft which will bring their fleet to 36. Next, Delta announced that current VP of Marketing Joanne Smith will become the president of Song upon the departure of John Selvaggio. Cool, I'll bet you can count the number of female airline president's on one hand. And before anybody gets all whipped up about that comment its simply an observation. Anyway, I'm kind of fascinated to see what Delta is going to do with Song. With Delta evolving towards the low fare carrier model and Song already there what will the differentiation be? Is Song simply a prototype for the new Delta?

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NEWS: Ticket Change Fees - Scourge of the Business Flyer

USA Today published an interesting article on a familiar and expensive topic for business travellers...fees for changing your ticket. Airlines argue that they need this money to cover admin costs and "make up for revenue that could be lost from the change". I'll allow that providing a person the ability to change their tickets is a service that the airlines can charge its customers for. If that cost is truly $50 then I suggest that the airline needs to seriously evaluate their cost structure. And I will not challenge that an airline, if it so chooses, can decide to charge its customers a change fee that covers lost revenue due to the change. I will, however, challenge the wisdom associated with that decision. The public is simply tired of it. They are tired of supporting a policy that is designed to protect the hideously complex fare structure created by the monster yield management process used by many airlines. (Anybody feel a trend in today's posts?) Southwest fee. JetBlue...small fee. Get the hint?

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NEWS: Travelocity Feature Offers a Peak in the Airline Backroom

A new feature called Flight Navigator to be offered by Travelocity will offer folks shopping for airline tickets a look at three new pieces of information: coupon redemptions, dynamic package offers, premium cabin class or onboard services or amenities. In addition it will show the shopper a seat map with available seats before they buy a ticket, a feature normally not available to the flyer until after the seat is purchased. Now some airlines, and even some travel agents, are not that hot on this idea. They say seat availability and fares change all the time so the information might not be accurate. I say it is offering the flying public just a little peek at how often the airlines are juggling seat availability and fares in an attempt to maximize profits (yield management). I've said before that these hyper agressive practices end up alienating consumers. The smart airline will see this as an opportunity to market pricing and availability in a new way.

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NEWS: ATA Ups the Pay Cut Ante for Pilots

ATA has raised the stakes in an effort to get their pilots to take further pay cuts. The pilots had rejected another round of pay cuts a couple of weeks ago. As it turns out, this was due a feeling that those cuts would go to fund a $6 million retention fund designed to keep 47 key "office" personnel on staff. OK, I'll give that one to the pilots. I think I might have been a little miffed about that too. ATA is now pulling back the retention fund and putting a $2.4 million severance deal on the table. So instead of looking to retain people they are now looking to encourage people to quit and will pay them to do so. Talk about a rolling reversal. No word yet from the pilots union who, as of Monday, had not heard about the deal.

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Tuesday, January 25, 2005

NEWS: ATA Taps Southwest for Restructuring

ATA announced that retired Southwest Airlines exec John Denison has been hired as co-chief restructuring officer to help guide the airline through their bankruptcy. Push me over with a feather. Who would have thought that someone from Southwest, albeit retired, would have a hand in ATA's recovery effort. What I am trying to say is that Southwest Airlines bought into ATA for a reason (maybe several reasons) and putting someone into the recovery effort seems logical. I can hardly wait to see how this plays out.

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NEWS: US Airways Optimism Runs Rampant

US Airways took out ads in numerous papers and sent out customers emails proclaiming they airline sees "clear skies ahead" and that "the most difficult days are behind us". Reality Check: US Airways still needs to find a way to exit bankruptcy on June 30. To pull that off they need to, amongst other things, find another $250 million dollars that some investor(s) would be willing to part with. So lets put on a happy face and all link arms. Optimism or spin make the call.

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NEWS: AirTran Airways 2004...Earnings?!?!

That's right its not a typo, it does indeed say AirTran Airways and earnings. The airline posted an ever so slim profit of $1.1 million for the 4th quarter and a $12.3 million profit for fiscal 2004. The results beat most analyst estimates who were predicting a loss for the airline in the 4th quarter. AirTran has been working very hard to make sure it can compete with the likes of Southwest Airlines and JetBlue and perhaps they are making some headway. I only question their decision to operate two fleets of aircraft (Boeing 717 and 737) which flies in the face of the Southwest model. Not that this can't work mind you but it does complicate the equation. Complex isn't impossible...just harder.

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Monday, January 24, 2005

NEWS: 2005 - Here Comes the Pain Part II?

Industry watchers are already saying that the 2005 results for the airline industry may be worse than 2004. How much worse? Like triple worse. Ugh, another year of huge losses? Where does it end?
The reasons cited are our old friends, oil prices and brutal competition and overcapacity. Oil prices? On the surface this would seem like something that would treat (or perhaps abuse) every airline to the same degree. Not true, those airlines who hedged big on fuel will be better off (yes Southwest Airlines I'm talking about you again, quit gloating). Brutal competition? Major airlines are still reeling trying to go through the great reformation that will allow them to compete with the low fare carriers. Delta Airlines stepped up by being the first major carrier to actually do something besides cutting costs. They have taken the next step by dismantling their antiquated and bloated fare structure. Other airlines need to get moving. Overcapacity? Supply and demand plain and simple. The 4 people who have read my blog know how I feel on this one. We have too many airlines and the bankruptcy courts are keeping it that way. Some airlines have gotta go and soon.

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NEWS: The New Airline World Order

Today's hero of the moment is Nawal Taneja. Mr. Taneja is the chairman of the aviation dept. at Ohio State, has authored several books on the airline industry and has some really smart observations on (article) about where things could be headed for the airline industry. Mostly I like him because he sees it like I see it. The industry will emerge with fewer airlines. Its the only thing makes sense. But he says it much smarter than I do so read the article.

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OPINION: Regulate or Free Market

It was only a matter of time before someone would lose their mind and start waxing poetic about how much better things were when the airlines were regulated. I am starting to see this in some articles and all I can say is stop it, stop it right NOW. Much like disco music, airline regulation is a thing of the past that is really best left in the best. The government does kind of a crappy job of running itself like a business so how can you expect them to set up regulations to make airlines profitable. Regulated airlines made money because, at the time, they offered a unique product that did not need to reach the masses to make money. Business flyers and the occasional vacationer were enough. Now airlines offer a product whose use is so widespread its a commodity. Commoditized markets are tough to make money, just ask any company trying to make money producing personal computers.

Want your government to make a difference? Then tell them to update the bankruptcy rules that allow failing airlines to flounder about for years only to come out of bankruptcy without being any more viable than they were before into an industry that doesn't need as much of the product that they have to offer. -pause...breath in- Time to step aside and let the free market clear out some airlines.

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NEWS: Indy: Just say No to Hubs

The Indianapolis Star has an interesting article on the growth and competition seen at the airport in their fair city. Admittedly the article has an ever so slight bias towards the Indy airport but I think it makes some good points. The biggest being that you don't need a major airline making a hub out of your airport to get the flights that you need. In fact, in this day and age it might be more of a burden (cough-Chicago-cough, hack-Minneapolis-hack) having a major airline presense trying to call all the shots and driving out low cost competition. I'll go as far to say that major airlines use the jobs they offer to push airport commissions, local and state governments into decisions that they otherwise might not make. Right now, I'm thinking its not a fair trade. Go Indy go.

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Sunday, January 23, 2005

NEWS: Airlines Take a Shot from Mother Nature

Proving that she can still throw a punch, Mother Nature laid down a swath of snow from the midwest to the east coast over the weekend. The snow and often blizzard like conditions wreaked havoc on flights in Minneapolis, Chicago, Philadelphia, New York and countless smaller airports. Days like these can be the bane of airline operations as they struggle to accomodate stranded people all over the country. For every person trying to get out of a snow laden airport there is another person trying to get into that airport from somewhere else in the country. Troubles are compounded by the fact that delays often mean flight crews will need rest and replacements are difficult to move into position. It goes exponential in a hurry. While these problems are nothing new the cost associated with them can be large. Just one more factor that is sapping the cash reserves of the weaker airlines.

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NEWS: United Airlines Says See You This Fall

United Airlines CEO Glenn Tilton is once again sliding their bankruptcy exit date, now moving to sometime this fall. This after the courts gave them a 90 day extension on their recovery plan exclusivity period late last week. In my opinion even fall may be ambititious for the airline. One gets the feeling that United has been devoting all of its time and efforts on re-financing, re-negotiating and cost cutting in general. Now that this phase appears to be behind them its time for the airline to figure out what it is going to be when it exits bankruptcy. They have a few options. My bet is on a domestic structure built to feed an increased focus on international markets while completely spinning off their low cost fledgling Ted. Of course that's IF they make it out of bankruptcy which is still a low probability in my book. I remain unconvinced they are stronge enough to make it through what will be another brutal year of competition in the industry.

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Friday, January 21, 2005

NEWS: United Airlines Gets More Time

The bankruptcy court has granted United Airlines an additional 90 days for its exclusivity period. This means another 90 days of protection from any competing bankruptcy recovery plan. Thus United gets some extra time to try and secure all their union deals and put their exit plan into play. We'll see if they can put that time to good use.

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NEWS: Independence Air Finds Some Benefactors

Maybe benefactors isn't the right term...technically the correct word is investors. However, there are those who would look at the decision to buy a large chunk of FLYi stock, parent company of Independence Air, more of a gift than an investment. Be that as it may its exactly what happened. Two seperate investors purchased the equivalent of around 12.5% of FLYi stock on Friday. While this isn't going to save Independence Air it can't hurt to have a couple of big hitters take a stake in your airline. Something that might give their efforts to stay out of bankruptcy some credibility while they search for new investors.

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NEWS: US Airways Win Labor Concessions

US Airways Employees represented by the IAM have ratified a best and final contract offer. This contract covers around 8800 employees including mechanics, stock clerks and a few other groups. The contract will mean $353 million in annual savings for the next five years and puts US Airways over the $1 billion mark in total concessions to date...a major milestone in US Airways' plan to exit bankruptcy. And now...the reality check. Approvals percentages for most of the major groups represented ranged in the low 60% area. Not exactly a mandate...more of a begrudged "whatever".

While I admire the whole of US Airways for throwing down in an effort to save their airlines I still feel there is better than a 50% chance that US Airways will not last the year. Frankly I still don't think they will make the end of the first quarter. Too many factors remain that work against US Airways not the least of which is a need for more financial backing and a new way to do business. It will be a challenge to try and infuse energy and momentum back into their recovery effort.

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Thursday, January 20, 2005

NEWS: Airline Water Quality about a nice refreshing glass of water while we all sit back and try to come to terms with the mountain of money lost by the airlines last year. According to the EPA you might want to make sure that water didn't come from the lavatory or galley water system on the aircraft. The EPA is still finding contaminents in the water... mostly coliform bacteria. Opinions seem mixed on on just how dangerous this is but there you have it. I wonder how the water on an aircraft compares to the stuff coming out of my faucet at home?

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NEWS: Hawaiian Airlines gives Pilot's Union a Little "Nudge"

Looks like Hawaiian Airlines had to up the ante in the ongoing negotiations with their pilots union. Hawaiian filed a motion to have the bankruptcy courts extend and modify the terms of the current contract. I'm thinking that the judge is going to go along with this as long as the airline isn't trying to invoke anything to radical. All the other union deals hinge on finalizing a deal with the pilots and their exit from bankruptcy is on hold until they can take care of this. Much is at stake. The pilots union is the odd man out here...I don't think this is where they want to be.

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NEWS: Continental Airlines Loss...Coulda Been Worse

OK I warned you a couple of days ago that this would happen and it turns out I was right. The airline reality distortion effect is alive and well. See, airline analyst fired up their calculators last year and figured that Continental Airline would lose something like $178.4 in the 4th quarter give or take a couple of thousand. So when Continental's losses came in around $174 million (after backing out some accounting expense odds and ends) everybody kinda said, Hey...not so bad. So there it is, losing a $174 million is not so bad...whoa...I need to sit down...I'm getting dizzy.

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NEWS: How Bad is Delta Airlines Loss

Nobody expected Delta Airlines to make money this year or the 4th quarter for that matter but the magnitude of the loss left even the experts a bit surprised. I mean really, $2.2 billion! It left me does an airline rack up this kind of loss? Come to find out it takes a real understanding of balance sheets to truly understand this but Bill Mann over the the Motely Fool (link) does a really nice job of bringing it down to my level. Turns out you can back around $1.4 billion out of that loss for what can be called non-cash expenses. I won't even try to explain. Suffice to say that the cash type losses are in the neighborhood of $780 million. Still not chump change. Anyway, Delta's 4th quarter results underscore the fact the airline is still walking that thin line between struggling business and bankruptcy. But they are walking the line boldly trying to slash costs and reform the way they do business. It remains to be seen if bankruptcy will become a neccesity.

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Wednesday, January 19, 2005

NEWS: Southwest Airlines makes Money but...

Lex at the Financial Times pulls two Southwest Airlines related numbers together to make an interesting point. (link)

Southwest reported a $56 million profit for the 4th quarter of 2004. Reality Check: Southwest saved $174 million in Q4 thanks to their aggressive fuel hedging policies. Some really smart people at the Financial Times have done the math for me...without the fuel hedges its estimated that Southwest Airlines would have lost around $50 million.!

It appears that Southwest Airlines will remain fairly insulated from the brutality of current fuel costs. Its being reported that they have 85% of their 2005 fuel needs covered by hedged fuel prices. This is a big advantage for Southwest...strike that...a huge advantage that will allow them to continue their low fare assault on the industry. I can't be upset with them for using this advantage but I find the implications a little disturbing. The vaunted low fare carrier model held up as guiding light for all to follow might need some tweaking to work in today's airline environment.

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NEWS: United Pilots Get a New Deal

United Airlines and their pilots union announced they have reached a new agreement to replace the one thrown out by the bankruptcy court earlier this month. Voting will now commence and run through the end of January. Apparently the two sides kept the crayons inside the lines drawn by the judge because the new agreement does not challenge any of the aspects that got the original one thrown out. I haven't seen the terms on the new deal but I am sure the numbers will be significant. United has stated before that they expect some of the largest give backs to come from the pilots.

Update: Terms are being reported as a 14% reduction in pay and benefits to the tune of $180 million a year in savings.

Update to the update: Sorry mixing up the terms...thats an 11.8% cut...which as it turns out is the same as the previous agreement. Looks like they focused on cutting out the pension related terms that set the bankruptcy court off.

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Tuesday, January 18, 2005

NEWS: Hawaiian "Happy" about Tax Judgement

What do ya' know. Two Hawaiian stories...thanks Google.

After a fairly lengthly dispute with the IRS the courts have finally decided that Hawaiian Airlines must pay the IRS $23.2 million in back taxes over the next 2.5 years. I know what your thinking...that sucks...but with a little perspective it doesn't seem so bad. See the IRS was gunning for $129 million so to come out owing less than 20% of that seems better somehow. And once again we find ourselves in the airline reality distortion field where a judgement in the millions of dollars AGAINST an airline doesn't seem to sting so much.

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NEWS: Hawaiian Airlines Pilots Union Holds Out

OK, so I found some news on Hawaiian Airlines.

Hawaiian has new deals with five out of its six unions, the sixth being their pilots union represented by ALPA. This, in and of itself, is not big news for an airline in bankruptcy. What is news is that the lack of this agreement is going to push back Hawaiian's hearing to emerge from bankruptcy. That hearing was Jan 25, then rescheduled to Feb 8 which is doubtful because the airline and ALPA are not even scheduled to talk until Feb 14 and 15. The stakes are deal with the pilots union means all the other agreements will not go into effect either. To Hawaiian's credit it sounds like they are trying to work this out. But its being reported that they are also preparing to have the courts consider nullifying the contract ala US Airways. Kinda like your Dad when he says "Don't make me turn this car around". On one hand, he can't get to you right away...on the other...when he gets there he's gonna be really mad.

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OPINION: Hey...What's Up with the "Other" Airlines

The buzz surrounding the likes of Southwest Airlines, JetBlue, Delta Airlines, US Aiways and ATA has been intense lately. AirTran, Continental Airlines, Comair and Northwest Airlines have had some "airplay" but to a lesser degree. But the newswire has gone strangely silent on some of the other players. Where's the latest on American Airlines, Frontier Airlines or America West? How about Hawaiian or Aloha? All of these airlines are working (quietly apparently) to come up with the answers on how to survive in the new airline world order. All of them have a pretty good view of the bankruptcy abyss...some better than others. I really want to know what they are up to, what their strategy is to weather the storm. I'm looking but there doesn't seem to be much around. Just an observation...that's all.

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OPINION: Airlines 4th Qtr 2004 - Here Comes the Pain

Plenty of rumbling amongst the industry pundits and analyst regarding the fourth quarter losses that are going to be posted by nearly every airline in the US except Southwest Airlines. Overall the losses for the industry will be big...really something in excess of $2 billion big by all estimates. Oil prices remained high, the pressure to discount ticket prices remained high and the cost cutting measures of late have not had time to impact the bottom line. Just an early warning for my readers (all 3 of you) that, by the time we are done talking about this, you'll be unfazed by very large numbers. Your reality will be skewed to the point that losses in the hundreds of millions will seem like a victory for the ailing airline industry. Hopefully this warning will help you all avoid the need for therapy.

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NEWS: China Gets Advice from...United Airlines?

Government officials in China have been smart enough to look at their population in conjunction their rapidly expanding airline sector and think, "Hey...this could get out of hand in a hurry". But the decision to meet with United Airlines to discuss the ins and outs of the airline business leaves me wondering...are they trying to learn what to do or what NOT to do. I suppose either way the folks from China will leave with the information they need.

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NEWS: The A380 Gamble

While this is not directly related to airlines it will be soon enough. The corporate buzz machine that is Airbus unveiled their new behemoth, the A380, amidst lots of pomp and circumstance. While there continues to be a lot of speculation as to whether this aircraft has a place in the new airline world order Airbus is sprinting ahead touting the aircraft as the answer to life the universe and everything. They point to the 149 orders for this yet to be flown aircraft as proof that they are on the right track. Airbus claims the A380 will offer better range, lower operating costs and the holy grail of improved cost per passenger when compared to its closest competitor the Boeing 747. And the comparison is startling. The A380 in 3 class configuration will carry 555 passenger, one-third more than a 747. In full economy you are talking 800 people!'s your reality check. Reality #1: All of the Airbus claims to better range, fuel efficiency and costs are based on design calculations. The aircraft has not even left the ground yet. I'll wait for a flight test before buying into the hype. Reality #2: Name the number of airports that are ready to deal with this beast of an aircraft and the number of passengers it carries. The answer, right now, is probably none. The 747 delivers enough passengers at once to challenge even the largest airports ability to process people and luggage. The larger airports will need to invest millions (lots of millions)to upgrade facilities. How many of them will decide its just not worth it? In my book there is a lot to be proven before the A380 can be considered the next revolution in airline history.

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NEWS: Comair President says goodbye

This story has been bubbling for a couple days so I figure its worth a mention. Comair President Randy Rademacher announced his resignation in the aftermath of the Comair computer fiasco of the holiday season. There had been some that put the blame for this squarely on his shoulders. I find that hard to believe, normally screw ups of this magnitude take several bad decisions from more than one person. Its too bad because Comair seemed to be making some headway under his leadership. But in the end somebody's head was gonna roll for their foul ups that lead to thousands of delays and cancellations over the holidays. Delta exec Fred Buttrell will pick up the pieces and move on. Buttrell headed the group that worked with Comair from the Delta side.

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NEWS: Virgin Gets Closer to the US

Richard Branson confirmed yesterday that he is in the final stages of securing the financing required for his low cost US airline. Major backing has not been announced but he wants to get his airline off the ground (get it? the ground...nevermind) this year so things should start falling into place quickly. I'm not sure how I feel about this. The market is so capacity overloaded that I wonder about the need for another carrier. But with so many majors on the brink of being sucked into the abyss he must see an opportunity to wedge himself into the market. JetBlue proved that a well funded start up with a decent business plan could carve out a niche. I am sure that Virgin US (or whatever it will be called) will be well funded and Branson seems to have a formula for success. So we'll just have to sit back and watch.

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Monday, January 17, 2005

NEWS: Independence Air Gambles on Vegas

OK...alright...its a cheesy title. I couldn't resist. But at least Independence Air is trying to look to new markets as part of their desperate attempt to avoid bankruptcy. They announced that they will start regular service from Washington Dulles to Las Vegas with the shiny new Airbus A319's. Independence Air had recently cut back service in an effort to contain costs but apparently they are not content to cower in the corner hoping to just ride this out. Frankly, I hope they make it...if anything because they have a cool name and I tend to root for the underdog.

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NEWS: Continental Continues Cuts

Continental Airlines announced an agreement with another of its unions today to the tune of $99 million in cuts. The airline continues to search for ways to come up with another $500 million in annual savings by Feb 28. Discussions about failing that objective seem to start all sorts of mumbling about liquidity problems and further cuts. So keep Continental on your February Dates to Remember list right along with US Airways.

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NEWS: Southwest Spurns DF/W for Love

Southwest Airlines made it clear several weeks ago that they would rather compete for Dallas Fort Worth passengers out of Love Field rather than DF/W. While they are still fighting the battle to have Love Field flight restrictions lifted Southwest has delivered another little slap in the face to the officials at DF/W. Seems DF/W is conspicuously absent from the list of ATA-Southwest codeshare cities. So not only does Southwest not want to fly there, they don't even want their passengers to connect and fly there via ATA. All of this despite the fact that the good folks at DF/W airport are throwing in a load of nice things for anyone who will take over gates left open when Delta Airlines left town. Things like 1 yr rent free in Terminal E (hey...that's got a nice ring) and $22 million in "other" incentives doesn't seem like chump change...granted that there are a couple three stipulations to get the big bonus package behind door number one. But Southwest is remaining true. Southwest is in Love (Field) and does not want to leave.

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Saturday, January 15, 2005

NEWS: US Airways - Monetary Magicians?

US Airways...somehow...some way...has convinced GECAS that they have come up with the additional $100 million in savings or cash as required by their agreement. GE Capital owns around half of the US Airways fleet so failure to meet this obligation could have been devasting. But something is not right here. Eric Randy, GE spokesman, said...and I quote..."They've let us know they've identified the savings they need. We'll be talking about the details." Huh? How's that again..."They've let us know...We'll be talking about the details"? GECAS has a history of being lenient with struggling airlines but I find this kinda shocking. I guess I just assumed that there might be something a little more tangible to substantiate something like....oh....let me see...$100 million. Apparently finance works on some sort of inverse proportionality principal where the more money that's involved the looser the rules get. In any case this all smells a little in smoke and mirrors. And its STILL not enough to save US Airways.

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Friday, January 14, 2005

NEWS: Southwest goes on the Codeshare offensive

The impact of the Southwest Airlines- ATA partnership reverberated today with further info on their codesharing agreement. This codesharing means that Southwest will have access to 11 cities via flights on ATA. Yeah, I know, codesharing is nothing new and 11 cities isn't much to write home about. What is interesting is that one of the cities is Minneapolis/St. Paul (ok, that's two cities). Southwest has avoided the Twin Cities for quite some time as it doesn't fit their profile for expansion. The Twins Cities airport is not underserved and there is no viable secondary airport for Southwest to operate out of. But ATA already had a presence in the Twin Cities so now Southwest can taste the fruit before they buy it. Ostensibly this means that NWA should have a little more low fare competition on a few of their routes. Anyone who has observed Northwest knows how fiercely they defend their turf and they have certainly taken some shots at running ATA out of town. But a Southwest backed ATA could put some pressure on Northwest to compete. As I said, the Twins Cities market is not underserved when it comes to flight availability. What IS underserved is the amount low fare competition available.

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NEWS: More Money for US Airways

As expected the Airline Transportation Stabilization Board (ATSB...don't make me type it again) has approved a plan that allows US Airways to continue to use their government provided cash to operate. And as I said previously this move only proves that the government is not going to be the one to put US Airways out of business. They don't want to be culpable. All it says is that the government believes that US Airways has enough collateral to cover the loan...for now.

It does not say anything about US Airways chances for survival which I say are somewhere between "as-if" and "not in a million years". Labor strife, fuel costs, increased competition in their own backyard, the need for further investments and the fact that the market really does not need their capacity should be enough to finish this.

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Thursday, January 13, 2005

OPINION: Yield Management Hurt the Airlines?

John Gapper, my hero of the moment, hits it dead on with his opinion piece in the Financial Times. I've said before that the airlines were headed into the toilet long before 9/11. I've said that the major airlines were caught flat footed when their high fare business travellers quit flying or defected to low fare alternatives. I think Mr. Gapper has one reason why. Airlines, especially those in the US, spent a tremendous amount of time and money developing yield management programs that allowed them to monetarily exploit travellers at every turn. Any business flyer who has bought a last minute (which apparently is anything less than 7 days for an airline) ticket has felt this pain. So the very thing that was designed to maximize profits for the airlines ended up driving away the apple of their eye...the business traveller. They were practically driven into the arms of their low fare competitors. Ironic when you think about it.

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NEWS: Be Careful What You Ask For

Its no secret that the American public has been whining incessantly about the restrictions placed on cell phone users while flying. This whining has been so long and loud that the glacial bureaucracies of the FCC and the FAA have actually started to work on what could be done to lift the restrictions. First this was greeted with smug satisfaction...Seeeee, they are going to work on this, it could happen. I'd be free to use my cell phone, no longer forced to pay exorbitant prices to use the seat back phones. Then there was a pause and small sound in the background, a murmur really. These same people started thinking about what this really means. Then it hits them...Holy crap, can you imagine the sound of dozens of people trying to hold conversations over all of the ambient noise associated with an aluminum tube flinging through the air at 500 MPH? And now this from USA Today.... 7 out of 10 travelers want to KEEP the cell phone ban. Count me in with that 7. My theory is that all of the companies that make noise cancelling ear phones are the ones actually pushing for this ban to be lifted.

Now if you could convince the FAA that my iPod and my PDA are not going to send the aircraft spinning to the ground upon take off and landing then that would be progress.

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NEWS: Psst...Southwest...check this out

OK, like Southwest Airlines needs any help picking new markets to exploit. Now they have people volunteering them. Analyst Michael Boyd is suggesting Southwest should make a move on Charlotte, NC as it is suffering from US Airways withdrawal symptoms much like Pittsburgh. Southwest CEO Gary Kelly said the airline is considering Charlotte. I wonder if Kelly had a funny look on his face when he said that? You know...that kinda apprehensive shut-the-h**l-up look that you get when somebody starts putting your semi-secret plans out into the glare of the press.

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NEWS: Delta's Fare Plan Suddenly Cool

Another day...another trend of opinions. We are starting to see analyst warming up to Delta Airlines' little scheme. JP Morgan analyst Jamie Banker (an analyst named Banker...go figure) feels that other airlines might learn a thing or two from Delta and that this plan might help them improve revenue while taking passengers back from the low fare carriers. Welcome to my side of the fence Mr. Banker, I've been waiting for you.

In related news Delta is reporting records sales on their website the day after their fare changes went into effect. Other sources are saying the travel managers are busy re-booking tickets to take advantage of the new deals. I am sure this ground swell will even out but hey...the goodwill can't hurt.

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Wednesday, January 12, 2005

NEWS: A Little Gift for Independence Air

Seems Wall Street likes the agreement between Independence Air's parent company, FLYi, and GECAS to terminate the lease of 10 aircraft this quarter and arrange for the early return of another 6-10 next quarter . The bonus is a $19.5 million loan from GECAS. Based on this news shares of FLYi jumped about 36% on Tuesday. Now for some perspective...that 36% put their stock price at a high of $2.14.

There is still the matter of the other 27 aircraft they operate that have lease deals in need of re-negotiation with other lenders. They need some latitude and grace from everyone to recover. Timing is crucial. Delta's fare plan hits right in the bread-basket and fuel prices are still high. But hey...revel in that good news for right now.

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NEWS: US Airways Exec Abandons Ship

US Airways Senior VP for Marketing and Planning (phew...that's a mouthful) Ben Baldanza has decided to get while the gettin's good. He will leave US Airways to take over the reins of Spirit Airlines as president and COO. Most reports are citing him as a prime player in the restructuring of US Airways so the running opinion is that this departure could hurt a bit. Just add it to the growing pile of things that are going to put an end to US Airways.

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Tuesday, January 11, 2005

NEWS: AirTran says Me Too

Southwest Airlines to Pittsburgh, JetBlue plans New York-Boston and now....AirTran to Indianapolis. Now this move seems to be text book Southwest. AirTran is looking to swoop into a market served by struggling ATA Airlines. ATA has been forced to cut back flights while they look for ways to bail water.

The low fare airlines are certainly staying on their toes. Southwest, JetBlue and AirTran are all looking for ways to exploit the plight the their weakened competitors. Frankly that's what they should be doing, its smart business and it should be good for the flying public.

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NEWS: JetBlue vs. Southwest

Not to be upstaged by Southwest's announcement that they are marching into Pittsburgh, JetBlue announced that they will start flying New York-Boston around the October time frame. For whatever reason I found myself comparing the two announcements. Southwest is looking to fill a void left by the declining US Airways. Its a time tested Southwest formula, find an under served market and take it over. Its worth noting that Southwest did stretch a bit in deciding to take on a market that does not have a secondary airport for them to use (like Midway in Chicago for example). Not quite their modus operandi but overall this is what Southwest does and it works for them...a lot.

JetBlue's move seems a little bolder than Southwest's...and by bolder I mean riskier. New York-Boston is a route served by heavy weights like American and Delta. I don't think its under served. The saving grace in JetBlue's plan may be their product which, in my opinion, should compete head to head with the big boys. JetBlue is still finding a way to deliver what is, by all accounts, a higher end product at discount prices. Business flyers are starting to like it...a lot.

Interesting...that's all.

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NEWS: Delta Fares are...Still Here.

Two bits floating around the news that caught my eye here. First, there seems to be a mild amount of surprise that Delta Airlines is not making a wholesale retreat from its fare restructuring plan (I'll say it again, this is NOT a simple "fare war"). I'm sure they will have to adjust some of their plans but overall I believe Delta is willing to play out their full plan here. Why I'm saying that leads me to the other thing I noticed. See I kinda cheated because Delta's fearless lord and leader has been surprisingly forthright with the press on the fact that he is sure they have made some mistakes in their initial implementation . Not irrepairable mistakes, but mistakes that they will adjust for and move on. Seems right to me. Game still on!

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NEWS: ATA Pilots to the Airline: Find Another Way

ATA's pilot union voted to not accept the latest $6 million cost cutting contract proposal from the airline. Seems they don't think much of the management at ATA and they have said as much to the press. Apparently they are calling ATA's bluff at the $43 million they have already given back. While this may not be the straw that breaks the camels back I have to think that ATA may run out of momentum (and operating funds) a little quicker than some of the other troubled airlines. This can't be helping.

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NEWS: US Airways holds breath as union votes

The mechanics/baggage handlers union for US Airways is voting as we speak on the latest proposal from the airline. Then there is that other thing the union is voting on right now as well, a little thing called a strike. US Airways has said that a strike could lead to immediate shut down and liquidation. Yeah may be that eventuality is coming to US Airway's doorstep even if the mechanics decide to come along for the ride. Tick tock tick tock...

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NEWS: United wants no pension obligations

United Airlines told the bankruptcy courts today that it needs to kill of its pension programs as part of its plan to survive. This is where I say it needs to stop. Running your airline into the ground (figuratively of course) and causing lots of good people to lose their jobs is one thing. But trying to take away the pension plans that (a) you signed a contract to pay and (b) people tend to plan on know...when they retire, is simply wrong. Its really reprehensible in my book. I think the judge ought to look United square in the eye and tell them that they are obligated to at least cover the pensions they have built up to date. Striking a new deal going forward is a different story. If United can't cover the promises they made and find away to make it work then they need just need to shut it down and put the assets first and foremost to cover these costs.

And irks me a little that United pulls this immediately after the mechanics and flight attendant unions came to the table and made their deals with management. Deals that, unfortunately, did not cover pension plans.

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Monday, January 10, 2005

NEWS: Independence Air says take my aircraft...please

Smaller, but no less troubled, Independence Air struck a deal with aircraft leasing powerhouse GECAS to end the leases on 10 aircraft this quarter. They also get a double word score for getting GECAS to loan them $19.5 million. Whether or not this can help save the struggling airline...who knows. News on the airline's position has been scant of late. I'm thinking things still look kinda grim for them.

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NEWS: US continues to prop up US Airways

Its being reported that the US is probably going to allow US Airways to spend more of their cash reserves than originally agreed upon in their bankruptcy dealings. This is a move that is surely a sign that the government is not going to be the one to put the nail in US Airway's coffin. At this point its a probably safe bet that any one of the other factors hammering on US Airways will bring about its demise before the remaining assets drop below the $718 million they owe the government. You've got the $100 million they need to secure or save to keep GE from dropping the hammer on their debt restructuring. Did I mention that the deadline for this is Friday? As in this Friday. You've got a group of mechanics that are really pleased to accept the latest proposal from US Airways courtesy of a court decision. Southwest Airlines isn't even waiting for the funeral to move into Pittsburgh, a traditional US Airways stronghold. Current projections say US Airways may not make any money until 2006 at the MOST optimistic maybe as long as 2008! Ugh...stop the ride, I need to get off.

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NEWS: The Twin Cities Hub Premium

Ahhh I love it when they dust off this classic. The Minneapolis Star Tribune has a pretty fair article on the lastest study showing that the good folks in the Twin Cities tend to pay more for tickets than folks with a decent low fare airline presence. Northwest Airlines defends their pricing saying that their fares are falling and that the large percentage of last minute business flyers contribute to the higher than average ticket prices. Same arguement they give almost every time this arguement comes up. My take...Northwest provides a benefit in the form of non-stops and international flights that might otherwise not exist. The flip side is that the Twin Cities pay more, no matter which way Northwest wants to spin this information. Northwest has one of the best protected hubs in the country. With no viable second airport, an airport expansion plan that is "Northwest-centric" and the ability to dump a ton of capacity into any market it is unlikely that relief (in the form of a low cost carrier) is coming any time soon. But the bottom line is that I can't blame Northwest for their pricing policy. It the customer will pay more then you should by all means take advantage.

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What Really Ails the Industry

Finally, an article that makes sense mostly because it makes a point I have been yelling about.
The AP ran this article (Meg Richards, AP Business Writer) regarding the impact of the latest "fare war". While the title irks me (this is really so much more than a fare war) it goes on to dig into some relevant stuff about what's really wrong here. Ms. Richard rightly points out:
"If one of the big carriers did go out of business, it would actually help the remaining airlines survive. Almost everyone agrees the biggest problem facing the industry is excess capacity -- too many seats in the sky."
Spot on! She gets a good quote from Brian Hayward, airline analyst at Zacks Investment Research in Chicago.

"It's impossible. If you like layoffs and the threat of bankruptcy, then be in the airline business," said Hayward, of Zacks. "Until somebody bites the bullet and seats go away, and I mean go away permanently, not to be replaced by someone else, we'll see these problems continue."
So the analyst need to stop talking about how bad Delta's new fare structure is for the industry. The pressure to compete at these new levels is intense and, hopefully, this pressure is finally going to force the excess capacity out of the market. This will be GOOD for the industry on the whole.

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Friday, January 07, 2005

NEWS: Here come the union deals.

Well that didn't take long. United Airlines is reporting that is has reached a tentative agreement with its mechanic's union and that they are close to a deal with their flight attendants. All of this just one day after US Airways voided the mechanic union's contract and on the same day that a judge set aside the agreement between United and their pilot's union. Two observations. First, its not lost on me that two United unions make a deal immediately after the pilot's union deal got vaporized. Maybe the judge got it right when he indicated that the deal was unfair and a potential roadblock to the other unions settling up with United. Second, its an ironic twist that the United pilots union, who were the first to make a deal, are now the last major union at United without a deal. Go figure.

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OPINION: Other info on Delta's fare plans

I punched around the internet to try and track down the genesis of the fare structure that Delta Airlines has put into play. I found these items of interest.

08/14/2004 – Delta announces a new fare plan for its Cincinnati market. Articles on the internet indicate that Wall Street was pleased with the move and their stocks moved up on the announcement of the program.

01/05/2005An article on has some interesting comments from Delta’s chief marketing officer, Paul Matsen. He says that the test of this fare structure in Cincinnati resulted in a 30% increase in traffic there. Now here’s the good stuff …and I quote… "There will be a short-term dilutionary impact from this - as we experienced in Cincinnati," said Paul Matsen, Delta's chief marketing officer, during a conference call Wednesday. "Over time, the effects of fare simplification are offset first by traffic increases...Secondly, we get productivity and efficiency benefits." He goes on to say that Delta is whacking something like 6,000 special fare programs. 6,000! Talk about operational overhead!

So what’s my point?

First, I got a punch in the head for every analyst who is bashing Delta’s new fare structure and saying its going to bring the industry down. You forfeited the right to criticize this move by not nailing it when they did it the first time. In fact, Wall Street rewarded them for it, where is that treatment now? This time the analysts have been swayed by the whining of the other major airlines saying this might hurt them. So this makes Delta’s plan a bad idea?!?! PUHLEASE. Delta is NOT required to stand still for the rest of the industry. If Delta is on to something and the other airlines can't compete then that's too bad. If it shakes out some weak players then so be it. Compete or move on.

Second, Delta believes they know what to expect for their business plan under the new fare structure. They’ve played this game before albeit on a smaller scale. They understand that they are going to take a short term hit for the long term benefit. Let the games begin.

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OPINION: Can Unions Last?

Face it...the various unions that represent a huge number of airline employees are getting pummeled right now. Nobody is really talking about this because everyone's busy trying to figure out which major airline will be the first to punch out. But the question is there. What role can the union's play in the recovery of the airline industry both short and long term?

I can see that for the immediate future its all about damage control. Minimize the hits to wages, benefits and work rules while trying to give the hand that feeds you enough room to recover. But the airlines that are truly struggling are out of time, negotiations are no longer an option in the face of mounting pressure to make cuts now. Thus, US Airways gets the courts to simply void a labor contract. Other major airlines are not that far away from this point. Every union needs to take notice. Give till it hurts and then give some more...quickly! Otherwise unions are going to become irrelevant in the new airline world order. Its a nasty sentiment but its the way I see it.

Long term, the bargaining power of the unions are going to be determined by memories of this whole ugly period in airline history. I'll remind you again, dear reader, that the downfall of the industry was coming with or without 9/11. 9/11 was just an accelerant. With that in mind I do not believe unions will command the power they once did. They can remain relevant by forging partnerships to work with the doing away with the adversarial role that became prominent in the 90's. The focus must be on appropriate wages for your airline not just trying to one-up the last union that made a deal. Protect your workers but allow work rules that allow the airline to efficiently use its labor force. This way the unions become a part of the solution versus a problem to be solved.

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NEWS: Back to the drawing board for United

A judge today threw out United Airlines' deal with its pilot union. This deal had come under fire recently by both the federal pension bureau and United's creditors. In the end I think the judge sees that this deal was going to hamstring other union negotiations which in turn will destroy their exit from Chapter 11. Thus, the judge must try to preserve that exit path.

The decision has got to put a serious hole in the recovery plan that United is trying to float. Maybe there is some salvation in the recent decision allowing US Airways to void the contract of their mechanic's union. But United is desperately trying to avoid that tactic as it has a tendency to turn your merely sullen employees into an angry rabble. Time is short for United.

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OPINION: Reduced Fares, Revenue Loss

Just a quick thought on, guessed it, the effect of reducing fares. Analyst keeping banging on the projected revenue losses that could be seen via Delta Airlines' new fare structure. The real question in my mind is what will the effect on profit be? Wouldn't it be odd if fares were cut, revenues went down but profits (or at maybe just losses) started improving. This is the test then. Are the costs cuts and re-tooling within the major airlines enough to allow them to compete with discount airline style fare structures? Because in the end I think this is what needs to happen. Major airlines needs to be able to operate in manner that allows them to make money while charging close to discount prices. I say "close to" because I still believe there is value in being big enough to offer flexibility to the flyer in the form flight frequency. People will pay extra if it means that they can go home tonight versus staying an extra day in a hotel.

I support Delta's move, they can't wait any longer to start down this path (and I think they will benefit from leading the charge). That being said, I think they still need more cost containment. Its going to be a bumpy ride.

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NEWS: Growth in the discount airlines

The Boston Globe posted an article on the effect that growth has on a discount airline and its actually got some good points. The point (in my mind) is that discount carriers need to be cautious with their plans. Additional aircraft need to be able to produce the revenue to pay for themselves. Single fleet types are generally the rule (though we see JetBlue and AirTran breaking this rule....hmmmm). The size of the organization needed to run the airline needs to be managed tightly as does the inevitable increase in wages with an aged payroll. The article leads me to ask a couple of questions.

First, is there a break point on the size of an airline? When does economy of scale advantage for being a big airline start degenerating into a yoke around the collar?

Second, is there a life limit on an airline? Is there a point where, no matter how efficient the airline is, the overhead associated with a well aged payroll/pension plan can simply no longer be supported? There are hints of this with the dearly departed Pan Am, Eastern and even TWA. We see it today in the major airlines who are, for the first time, making massive cuts in payroll to try to recover. And these cuts are going to be permanent. This is not a temporary "give-back" situation as has been seen in the past.

I don't pretend to have the answer. Southwest had to deal with one of these factors, increasing wages, just this year with two of its unions. Being successful has its price in the form of paying up to the labor unions. As mentioned above JetBlue and AirTran are breaking the single fleet rule, long seen as a key to efficiency and success for a discount airline. It looks like the answers will play out in front of our eyes...we just have to be patient (I hate that).

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OPINION: The Fare Cuts Everyone Loves To Hate

Man...I just CANNOT get off this subject. Every bandwagon analyst out there is basically calling Delta's plan to re-work their fare structure the bane of airlines and apparently the catalyst for the down fall of airline civilization as we know it. So let me get this straight. First, the analysts scream that the majors need to revamp the way they do business to compete with the discount airlines. Cut costs the analyst said and Delta responds with a brutal round of cost cutting. So why is it that these same analyst grab their axes and pitchforks and decide to lynch mob Delta for taking the next step to emulate a simpler fare structure favored by the discount carriers? I really MUST be missing something. If Delta can make money with this plan then they win...those that cannot compete lose. Tough bounce. The airlines that are going to fail this year (United, US Airways, Aloha) have SO many more problems than airfares. You simply cannot try to blame Delta for their imminent demise.

Here's a great quote for no S**T files,

"BB&T Capital Markets on Friday upgraded Southwest to "buy" from "hold," saying the nation's most profitable airline is best insulated from Delta's plan.

"We expect little or no revenue impact for Southwest," analyst Anthony Cristello said."" Source: CBS MarketWatch

Maybe that's because Southwest is already doing what Delta aims to do? So why would it impact them?

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Thursday, January 06, 2005

Opinion: Bankrupt Airlines and Overcapacity

People are questioning Delta's decisions to simplify and reduce fare structures. Some are going as far as saying that it is forcing an airfare war that is unhealthy for the industry. I say bull. Delta is adopting a new business plan, plain and simple. The real problem is not airfare wars its chronic overcapacity...basic supply and demand. So, sadly, we need a couple of majors to leave the industry. The human impact is grim, thousands of employees are going to hit the bricks in search of a new job in an already tight job market. This is made worse by the number of specialized individuals working in the industry. I feel for these folks and having been laid off twice in my airline career I do understand. But it must happen. Market forces demand it and these forces almost always win.

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NEWS: Judge terminates US Airways labor contract

Machinists at US Airways, the nation's seventh-largest carrier, were facing pay cuts of up to 35 percent and the loss of thousands of union jobs after a bankruptcy judge on Thursday -- for the first time in U.S. airline industry history -- unilaterally terminated a union collective bargaining agreement. Source: Associated Press

My Commentary: I gotta admit I never thought that US Airways would get away with this. But now that this is done you'd better stand to the side because the other bankrupt airlines will be moving at top speed for a similar verdict (can you say United?). This is a bitter pill for the folks in the union...but its been coming for a while. Labor unions have been in a game of one-ups with each other for years continually pushing salary and benefits to new heights. I can't argue with trying to improve your position but its outta hand and now its abruptly snapping back. Salaries, benefits, work rules are all going to be overhauled and rightfully so. The industry simply cannot support the overhead (in fact it couldn't handle it before 9/11).

Now the funny part. This judgement, in the end, is going to be irrelevant to US Airways. My opinion is that they are still headed for liquidation. This ruling is, however, quite relevant to the airlines that will survive and the unions who represent their workers.

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OPINION: Why are airlines allowed to linger in bankruptcy

Internal and external observers all hammer on the terrible state of US Airways and United which causes me to wonder why the bankruptcy courts are allowing them to wallow in the muck of an ugly Chapter 11. Why keep them around? My answer is timing, in this case factor in one election and one upcoming State of the Union address. The airline industry is poised to expel a large number of worker into the ranks of the unemployed. The Bush Administration did not want to talk about this during their campaign and they don't wanna talk about it in the State of the Union. So enter the bankruptcy courts to prop up the airlines for a while (yes, I am aware of the whole checks and balances thing...but do the math). Its basically privatized welfare and it allows a certain amount of controlled failure within the industry. I claim victory on this little conspiracy theory if United or US Airways liquidates within the first quarter of 2005 (its my blog, I make up the rules).

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NEWS: Pilots unions request information on laser beams

Airline pilots unions say the government should explain how pilots can protect themselves from laser beams and inform them of incidents where pilots were blinded by beams. There have been eight recent incidents of laser beams flashing cockpits. The Federal Aviation Administration said it will release advice for pilots soon

My Commentary: Sorry, why do I have this vision of a dozen guys sitting around saying "lazer beams" while making little quote movements with their hands ala Dr. Evil.

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Others match low Delta fares; some say cuts will hurt revenue

US Airways and Northwest Airlines have matched Delta Air Lines' fare cuts of up to 50% in markets where they compete with Delta. One analyst expects the fare cuts to cost the industry $3 billion a year in revenue. Delta's changes are expected to benefit business travelers who will pay less for a first-class ticket. However, the lower prices may lead to fewer first-class seats available for frequent flier upgrades." Source: AP via the ATA Smartbrief

My Commentary: Yeah yeah...I know I commented on a similar article yesterday but I wanted to hit up the analyst quote, "One analyst expects the fare cuts to cost the industry $3 billion a year in revenue." I don't know if this holds true in the new airline world order. My opinion is that $3 billion was never going to be realized. Business flyers are shopping for fares, planning trips in advance and cutting back on first class travel. And if the price isn't right they are simply staying put. So I say that $3 billion was a ghost anyway. Now, if you start putting more reasonable fares with fewer restrictions in front of these folks I think they start flying more. Delta isn't just throwing this out there willy nilly...they've had this in place in a couple of test markets. If memory serves it put more butts in seats at prices that Delta can still make money on...what a novel concept.

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News: Southwest to start Pittsburgh service as US Airways cuts flights

"Discounter Southwest Airlines will start service in Pittsburgh in May and move deeper into what was once US Airways' territory. US Airways is dismantling its hub in Pittsburgh; it now handles 65.4% of the airport's flights, down from 87.9% two years ago. Southwest officials say the airport fits the carrier's business model because it is "overpriced and underserved." Source: The Dallas Morning New via ATA Smartbriefs

My Commentary: As the majors struggle to re-invent themselves Southwest continues to take advantage. Its good to the the king.

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NEWS: Delta lowers fares in new structure; Northwest opposes changes

"Delta Air Lines today will lower its fares by up to 50% and eliminate a Saturday-night stay requirement. Under the new structure, a first-class one-way ticket will cost no more than $599, a change that will benefit business travelers. Northwest Airlines opposes these changes and says they will weaken industry revenue. Delta also said it will begin adding a fee to tickets not booked through its Web site. " Source: Air Transport World

My Commentary: Could it be that Delta is actually getting a glimmer on what they could do to morph their business plan into something that can work in the new world order of airlines? Only time will tell because they are going to have to commit to this long term to see the benefits. I think they are on the right track. As for Northwest...shut up and quit whining. Most major airlines are looking to innovate and overhaul their business plans because they do not have the benefit of operating in one of the best protected hubs in the nation? If you think its a bad idea then just let it play out...the market will decide. More likely Delta's idea threatens to further dilute the effectiveness of your revenue model based on outrageous fares charged to business flyers and last minute flyers. That business plan was dying before 9/11 every happened and its not getting better.

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Airlines - BLOG ON!

Everybody's got a blog and do I. My target is the airline industry. Having worked in the industry for 10 years I simply have the urge to sound off on the news and events that are playing out.

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NEWS: Some agents steer travelers away from US Airways

"Some travel agents fear more disruptions at US Airways and are booking clients with time-sensitive travel plans on other airlines. The airline canceled hundreds of flights and mishandled thousands of pieces of luggage during the Christmas weekend after a wave of workers called in sick. " Source:USA TODAY/Associated Press (1/4)

My Commentary: US Airways is beginning to accelerate towards the black hole of liquidation. The problems for them grow more complex every day. Costing cutting simply is not enough. Their labor force is angry and recent events have pushed public confidence in US Airways to all new lows. And now travel agents won't even throw them a life line. My guess? They will be done in the first quarter of 2005.

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NEWS: Airlines Slump on Data

A disappointing revenue report from Continental sent the airline sector into a tailspin Tuesday.

Continental reported late Monday that December unit revenue slumped
from a year ago, even as passenger demand rose. The airline's monthly
performance report draws close attention because Continental is the only
major U.S. carrier to disclose monthly unit revenue data. Airline
revenues have been sagging because of a glut of capacity and fierce
price competition, and Continental's report suggests the situation isn't
improving. Source:

My Commentary: Excuse me?!?! This report only "suggests the situation isn't improving".
Maybe this report itself only "suggests" it but when taken in context of
the state of the industry it freakin' screams it. This is more evidence
that the bankrupt airlines just need to GO so that the semi-healthy ones
can survive. Sooner or later the capacity has got to normalize.

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