JetBlue has made no secret of their intentions to offer some sort of elite status (though they are very careful to avoid the word "elite") as part of their TrueBlue program. It has not materialized yet, but all indications are that the development process is well underway. But what about some other features that the program could add?
They’re taking that question to their members directly as part of an email/survey campaign to see which other features of a loyalty program will make their members happy. There are four choices in the list right now:
I could easily be happy with all four coming to fruition; there’s absolutely nothing wrong with any of them. That said, I chose to limit my votes to provide prioritization to the bits that I think are more valuable.
Which would you choose?
So American Airlines‘ parent company AMR has filed for Chapter 11 bankruptcy protection. They’re saying "business as usual" (no real surprise there) but what does the filing really mean? There have been plenty of major airline bankruptcy filings in the past couple decades and much can be learned from them. But this one is rather different than the others and there are some interesting things that might come out of it.
Miles & Tickets
Nothing is really going to change in the operations for the near future. The points aren’t going anywhere anytime soon and neither are the flight operations. At least not on most routes. There will be some additional schedule changes in the coming months but nothing that wasn’t already likely to happen. In short, there really is nothing to worry about as a customer, at least not yet.
As for the miles specifically, I did get a chuckle out of this bit in the email from AA today:
The AAdvantage miles that you’ve earned are yours and will stay yours, subject to usual policies…
The irony here is that the "usual policies" explicitly states, "Accrued mileage credit and award tickets do not constitute property of the member." Glad they cleared up that little confusion.
Big sales and promos
The past few Chapter 11 bankruptcies that have happened in the industry were accompanied by major sales and promotions to keep customers flying in the face of uncertainty. There are many suggesting that will happen again here. I’m not so convinced. Unlike most of those recent bankruptcies this one is not a debtor-in-possession filing. That means that there isn’t a major bank along for the ride pulling the purse strings. Yes, there are still major creditors anxious and working to make sure that they will get their cash, but there is no significant investment of new money right now from a party looking to insure that new investment. Plus the $4Bn+ in liquid assets offers a decent run rate for the company. In short, no need for a fire sale so one seems unlikely.
Breaking the union
Reading the quotes from the new CEO this morning it seems clear that this move is focused on breaking the unions. Management has decided that their cost structures are too high and they’re going to attack the one bit they have a way to force change on – labor. American does have some high labor costs, partly because they still have their pensions funded, but their total costs aren’t actually that far out of whack with their competitors from what I’ve seen on recent data. So even if they do manage to renegotiate the union contracts down they’re still in a pretty tough spot. There’s only so much you can cut on the cost side if you’re not actually generating revenue.
At the same time, a work slowdown or "work-to-rule" action by the unions could cause trouble. It will be interesting to see just how quickly the contract negotiations happen and how big the cuts are. That could significantly affect the passenger experience.
What about the planes?
American just placed an order for 460 new jets, a wholesale refresh of their narrow-body fleet and then some. And much of that purchase was predicated on leasing the aircraft. Leasing companies aren’t generally keen to do business with companies in bankruptcy, though at least the new aircraft will have a high enough residual value that the leaseholders will be somewhat covered. Still, this isn’t likely to make their interest rates any better.
As for the existing fleet, the company has made it clear that they reserve the right – as is granted to them under the law – to slow payments on the existing contracts as they look at renegotiating them. Reading the bankruptcy filing, however, it is not clear exactly how many of the aircraft are tied up in leases or what that liability is. These numbers are significant, but not horrible based on a reasonable revenue model:
As of September 30, 2011, maturities of long-term debt (including sinking fund requirements) for the next five years are: remainder of 2011 – $1.1 billion, 2012 – $1.7 billion, 2013 – $1.0 billion, 2014 – $1.5 billion, and 2015 – $778 million. Future minimum lease payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of a year as of September 30, 2011, were: remainder of 2011 – $309 million, 2012 – $1.1 billion, 2013 – $1.0 billion, 2014 – $861 million, 2015 – $703 million, and 2016 and beyond – $6.3 billion.
There will definitely be savings that come from working some of those contracts and likely from grounding some planes, but it is hard to see that making a sufficient difference to bring the company back from the edge. There is also nearly $1Bn locked up in landing slots and routes that is mortgaged to lien-holders, something that seems unlikely to be sold off anytime soon.
Prelude to merger?
The Delta/Northwest merger was prefaced by both carriers’ bankruptcy re-orgs. The US Airways/America West was also borne out of the US bankruptcy shortly prior to that deal being announced. Is that something we could see out of this filing? There are a number of folks already suggesting that the only way for US Airways and American to survive long-term is to combine their resources.
That would be a disaster.
Yes, it worked for DL/NW. It worked in large part because they were more or less in lock-step on the way out of their bankruptcies and were moving in the same direction anyways. Plus their route networks were incredibly complimentary. The US Airways and America West route networks were complimentary, but that’s where the benefits stopped for them. The results of that merger are a labor relations nightmare. It is something of a miracle that the carrier is still managing to operate and even eke out profits from time to time given that burden.
A merged AA/US would have the existing US labor issues as well as the AA labor issues that have been slowly smoldering and which appear likely to boil over into a full-blown fiasco depending on just how bad the cuts are on the contract front. Nothing like slashing $7 billion in pensions liabilities to make your work force feel respected and happy about their future participation in the company. There is the chance that a merger between the two could be seen as American acquiring US Airways and thus the AA union – with its much larger workforce – could absorb the US union and force down the rules upon them. But even that wouldn’t necessarily solve the labor relations issues.
Some other have suggested that Alaska Airlines might be a ripe partner. Or possibly JetBlue. Sure, it is possible, but seems unlikely as neither of those – both of which are profitable for the most part – gets much value of picking up the mess rather than cherry-picking bits as desired in the future.
What’s really going to happen?
If you’ve read this far and think I actually know what I’m talking about then I guess I’ve got you fooled. I actually believe the stuff I’ve written here but I have no idea if it’ll actually play out that way or not. I do know that I’m not worried about the operations or the miles, at least not yet. The company is likely to pull through well enough and has the cash to run long enough that I’ve got no immediate concerns. And any long-term actions will almost certainly protect the AAdvantage program anyways, so even that isn’t much concern.
It certainly does seem like those pilots who retired recently en masse and cashed in on their retirement plan might’ve made a smart move. Oh, and the fact that the CEO retires and joins up with former Continental Airlines CEO Larry Kellner in a private equity company is certainly an entertaining development.
American Airlines parent AMR has filed for Chapter 11 bankruptcy protection today, ending the long waiting game of wondering just when that would happen. In addition, CEO Gerard Arpey is CEO no more; Thomas Horton has taken over the roles of Chairman, CEO and President of the company. The move is not much of a surprise, with the company’s stock price having decreased significantly in recent months (down ~75% in the past 6) and the topic of bankruptcy having been swirling for nearly as long. So what’s next?
Operations are expected to continue as normal, at least on paper. And that makes sense given the Chapter 11 filing. Flights will operate and the AAdvantage loyalty program is safe. At the same time, however, the company has made it clear that the main thrust of their efforts for the reorganization period will be to "address our cost structure, including labor costs, to enable us to capitalize on these foundational strengths and secure our future," according to Horton.
In other words, look for some upset flight crews in the coming weeks and months as their union contracts are tossed out and they are forced to negotiate new ones. "Work to rule" campaigns and other similar efforts would not be at all surprising. It could get ugly out there.
The company does have $4.1 billion in cash available which means they aren’t using debtor-in-possession financing, a good thing in general for the operation. Combined with the statements indicating that the company will honor all existing fuel and interline agreements, however, that only furthers the idea that this move is nearly entirely a union contract negotiations tactic.
Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges.
This should be interesting to watch.
If you’ve got $60,000 then that opportunity can be yours. Even better, the deal comes with a round-trip charter flight on any Virgin America route currently operated within the United States.
It is actually a pretty great deal for the charter flight option especially if you go for the transcon routes. The hourly charter rate at that point gets to be pretty close to costs of much smaller aircraft. Plus, they’re throwing in the standard catering kit for free to passengers. Open bar!
I wish I had the spare cash to do this. It would be an incredible party. Alas, I haven’t won the lottery lately.
Thanks to Dan over at Things in the Sky for pointing this out earlier.
Apparently some hotels in India have learned from the airlines in the USA about how to book their properties – with more guests than they have rooms available. I suppose I should at least be happy I was informed a month in advance, right? Still, with room inventory drying up in Kochi (Cochin) rapidly for Christmas week getting a replacement is not going to be pretty. Thanks to an email I received from hotels.com I’m stuck in that position.
Last week I finally booked our hotel room for the four nights we’ll be there. At least I thought I did. I got the confirmation email so I figured I was all set:
Turns out that wasn’t really the case. Late last night I got this email from the company:
This is an urgent message regarding your reservation with the Hotel Arches for 12/23/2011. Unfortunately the hotel is unable to accept your reservation for your upcoming stay. Due to these unforeseen circumstances, we would like to offer you comparable alternate accommodations.
Your reservation has not been cancelled, but due to a limited amount of availability it is very important that we speak with you as soon as possible.
The agent explained it that the hotel called them and denied the reservation I had made, despite my having paid in full for the room. Not good at all. Still, given the opportunity I figured I’d make a go of trying to get the best I can out of the deal. Like maybe a big upgrade for the same price. They confirmed the reservation, after all.
I tried to be reasonable for starters, looking for something else in the same neighborhood around the same price point. They had this one listed on their site:
Imagine my surprise when the agent called to confirm the room and was told that it did not actually exist. Craptacular. The only other room they’ve got available in the same area is a much cheaper guest house. I’ve booked a backup reservation there while working the other bits but I’m still hoping for something better to get out of the deal. I’d like to avoid the Holiday Inn over in the new part of town (one of the other options I was given) and if I can swing the Vivanta by Taj (lists at $400+/night!) I’d be quite psyched. But I’m not betting on that actually working out.
Back to the drawing board…
Virgin America wants things to be different. Very different. David Cush, the carrier’s CEO recently was interviewed by Scott Mayerowitz from AP and there are a few interesting bits in the Q&A that offer up a rather unique view of how he sees the company fitting in the market and how his old company, American Airlines, is doing these days. Here are a few of the bit I found most entertaining.
Q: How much more are people willing to pay for [food & entertainment on demand] services?
A: The model is getting them to pay the same amount with a much lower production cost.
For a guy who thinks he’s looking at the bigger picture and the long-term view of the airline it is not at all clear how he plans to maintain this approach. Every airline starts out with lower costs initially. The problem is that maintaining that cost structure is incredibly difficult as labor seniority (and the correlated costs) only go up over time. Yes, the new fleet means decent fuel efficiency but that will erode (or require major capital expense) over time as well. Doesn’t seem to be a particularly useful approach to long-term survival.
Q: How can you attract business travelers when your miles can’t be redeemed for Hawaii, Europe or other places you don’t serve?
A: The mile problem will be solved early next year. We have basic agreements with Virgin Atlantic and Virgin Australia that will be fully reciprocal. We also have agreements with Cathay Pacific, Singapore and Emirates that will develop into frequent flier relationships.
This is quite interesting and certainly will be a welcome change. Even if the reciprocity rates aren’t particularly great – and I’d bet they will not be – having more earning and redemption partners is a great thing for customers. Of the independent US-based carriers Alaska Airlines has done the best at this (and they’ve also been around the longest to figure it out) while JetBlue has a minimal partnership with American Airlines. Growing those relationships is about more than just having an interline agreement for ticketing and baggage; it is nice to see Cush recognize that value.
Q: In Dallas, you’re telling fliers to "dump your older airline for a younger, hotter one." American responded by slashing fares to San Francisco and Los Angeles. Can you survive this fare war?
A: We’ll survive. At current fares, it will not be a profitable route but it wouldn’t be such a loss-making one where we would consider any type of reduction. You have to be in Dallas-Fort Worth if you’re going to be a business airline.
This is a particularly interesting view on the value of certain markets (elsewhere in the interview there is also discussion of pulling out of the Toronto market). Apparently there are some markets so important that losing money over a long period of time while serving them is OK. He doesn’t note just how much they’re losing or for how long they’re willing to keep losing that money, but it is quite a claim. Definitely makes me wonder about the long-term plan once again.
Q: Do you think that American is on the right path?
A: It’s hard to tell. There’s a culture there that is perhaps a bit risk-averse. In the past, it was always an airline that was willing to accept risk. The industry’s consolidated around it and all of a sudden American finds itself in third place. I don’t know if they have the answer. I do know their top guys. They’re smart, capable but at some point you need to stick your neck out a little bit if you’re going to get out of a rut.
Well, cutting chunks of the route map is one version of sticking ones neck out, I suppose. For a guy so keen to run a very limited airline with a very limited route network, it seems that telling others who are running a much more complicated setup that they’re not trying hard enough is an entertaining stretch. That’s not to say I think the AA plan is particularly great, but they also cannot really effect wholesale change just by flipping a switch. There’s a lot of momentum to be dealt with there.
Q: Mile for mile, airplanes burn more fuel than cars, trucks or trains. Do you think this poses a problem for the industry?
A: If we don’t find a way to clean up air travel, we’ll become a pariah. We’ll be what the coal companies used to be.
How about, "Planes are ever improving in efficiency and they allow for connectivity in the world and great advances that cannot be had any other way," as a response rather than shying away from the problem with your tail between your legs?
Q: In ten years, do you see Virgin America being a full-blown national airline?
A: That’s not our goal. The biggest discipline we need to have is not outgrowing the model. That means maybe 100, 150 aircraft, probably no more. The goal would be to be consistently profitable, the highest quality airline where we can hopefully make a few hours of people’s day a little bit nicer.
This is perhaps the most interesting of all the responses. It makes sense from one point of view, but that is a very simplistic approach. No airline is going to be all things to all people; the numbers simply don’t work out. At the same time, however, artificially limiting yourself to only serving major cities or only serving limited frequencies is a sure fire way to make sure that you’re not going to meet customer needs. And when serving those markets becomes a matter of entering into markets that area already rather competitive the revenue pressures are going to be even harder. I respect the theory but I don’t think it maps to the real world very well.
It seems to me that most of the answers Cush offers up are rather small-ball or short-sighted views of the market and how to operate successfully in it. Maybe I’m wrong, but I’m certainly not feeling all warm and fuzzy about the company’s future reading his views.
Read the whole story here if you want more.
Posit: People think an airline might be financially shaky.
Consequence: People stop buying flights on said airline.
Result: Pretty soon it is financially shaky.
Conclusion: You can make airlines fail.
Please forgive the paraphrasing of one of my favorite movies, but I thought it was a great view into how things can go awry with an airline. And, in my case, it is nearly exactly what happened.
For our trip to India and Sri Lanka over New Years we needed some local flights. Last time we were in India we flew on Kingfisher and SpiceJet and enjoyed them both and I was quite willing to consider them again for this trip. Kingfisher had flights on the days and times we needed them and they were actually $10-20 less per person than the other cheapest fares available. Yet I still didn’t book those flights. Because Kingfisher has been appearing financially shaky lately.
The company has missed payments on fuel bills and otherwise decided to cut costs, leading to ad hoc flight cancelations randomly. That’s normally enough to cause me to shy away, especially on a trip where our time is limited and there will be some non-refundable expenses outside the airfare. So I booked elsewhere.
A couple of days later I see the news that I probably made the correct choice: one of the routes I was considering booking with Kingfisher is no longer being operated. Whoopsie. Sure, it meant rearranging our schedule a bit in India to skip the COK-CMB route but I did it without hesitation once I saw the potential issues with the Kingfisher flights. And I have no regrets at all.
I’m also not going to pretend that the $150 in lost revenue from me is what caused the flight to be pulled from the schedule, but the coincidence of the timing was awfully convenient.
ps- Bonus points (and maybe a drink chit or two) if you can name the movie.
JetBlue and WestJet were the winners of the auctions for landing slots at New York City‘s LaGuardia airport and Washington, DC‘s National airport according to reports. JetBlue had made it clear that they intended to bid on the slots and their win there is not particularly surprising. WestJet is a slightly bigger surprise (and only won at LaGuardia); the carrier appears ready to attack the "golden triangle" commuter traffic from Ottawa, Toronto and Montreal to New York.
On the JetBlue side there isn’t any particular indication yet of what the routes will be used for (or even an official confirmation that they won). With an equal number in both DC and LaGuardia it would be possible to take on the US Airways and Delta Shuttle operations, though that also seems unlikely; the market doesn’t need a third player in that space. There are enough other routes that could be operated from the two airports which makes Shuttle service seem unlikely. And with $72MM invested in acquiring the slots it seems to make sense that they’re going to want to maximize revenue, not just attack other established markets.
Most surprisingly to some observers is that Southwest apparently declined to bit at both airports. Southwest was the main instigator of troubles with the previous efforts to distribute the slots so their absence from the auction is somewhat surprising. That said, with their purchase of AirTran the need to acquire slots through the auction process was rather diminished.
Thanks to the help of Cbmaz from FlyerTalk some photos of the new 767 interior are now available. This is the first plane from Continental that has a proper Economy Plus cabin and the new flat BusinessFirst seats as well.
As you can see from the photos they have maintained the 2-1-2 arrangement in the forward cabin, with the single seat angled just slightly to allow for the foot cubby-hole under the storage tower in the seat in front.
The economy seats actually look different than any of the other Continental seats I’ve seen. No idea if they are a new brand or not, or if they are particularly comfortable, but they definitely look different than the others I’ve seen on Continental flights.
Also of interest is that they have removed a couple lavs from the the plane to add four more BusinessFirst seats to the cabin. They also added seats in the coach cabin, even with the refit and adding E+ into the mix. The only minor downgrade is that the regular economy seats went from 32" to 31" pitch.
Looking forward to flying on these in hopefully the near future.
Faced with "poorly performing" routes and an uncertain economic future, Delta has announced that they are trimming six international destinations from their Atlanta hub in 2012. One of the destinations, Shanghai, has been an on-again, off-again operation with limited service (currently only 2x weekly). The other destinations being cut – Athens, Copenhagen, Moscow, Prague and Tel Aviv – were all seasonal destinations which are not being reinstated as originally expected in the Summer ’12 season. Oh, and the timing of these cuts is a bit of a smack at the ATL airport authority. The airport’s new international facility is scheduled to open in 2012 right as demand is apparently drying up.
A few seasonal destinations from New York City are also being cut by Delta, including Manchester, U.K.; Budapest, Hungary; and Berlin.
But it isn’t all cuts for Delta. They are picking up the slack for SkyTeam and anti-trust alliance partner Air France, operating the Seattle – Paris route starting in March the day after Air France leaves the market. On that route it is most likely a fleet utilization issue as the two carriers share profits and expenses on many transatlantic routes thanks to the ATI arrangement. Delta will also be adding service between Detroit and Paris, likely for similar reasons.
There’s a lot more red on that map than green.