I’m often intrigued by the information I can glean from Twitter chats. I tend to avoid them more than participate in them but a chat this past Friday hosted by @JohnnyJet and @CJMcGinnis piqued my curiosity so I tuned in. The chat was about summer travel and used the #TravelSkills tag for tracking the conversation. The two hosts didn’t waste any time getting in to what is often a touchy subject: How much is a reasonable price for airfare?
My answer was actually easy to come up with. For summer travel I’ll spend up to 100,000 points for a business class trip to Europe. And I’ve been quite successful in finding those when and where I want them over the years. But that’s just me. What was interesting to me were some of the other responses I saw to the inquiry. Seems that a lot of people think that $1000 is an reasonable upper limit, with many believing that even lower fares are "fair" for such a trip.
Some responses based the price on where they’d end up:
And some considered where in the USA they were starting as part of the thought process:
Every single one of the numbers tossed out as being "fair" was actually below the average cost to operate the flight which would carry the passenger on the trip (based on published average cost data from the airlines). So, with the exception of some bargain fares on oneworld carriers to Dusseldorf (and even those are ~$900 from the east coast), it seems that many of the chat participants are going to be disappointed. Chris points out that average fares are in the $1200-1500 range already and there are no signs of those dropping much anytime soon.
Fares are higher on average than they have been the past few years; there is no doubt about that. Even off-season fares are higher. That mostly comes from less competition, less capacity and a desire by the airlines to actually make some money. Absolute fares are at or near all-time highs, while inflation-adjusted fares are still quite reasonable according to DoT analysis (note that the DoT data is for domestic, not international, but the trends are similar):
Not adjusted for inflation, the $367 third-quarter 2012 average fare is the fifth-highest average fare for any quarter since BTS began collecting air fare records in 1995. The highest was $385 in the second quarter of 2012. The previous third-quarter high was $361 in 2011. Third-quarter 2012 fares were $243 in 1995 dollars, down 18.1 percent from the average fare of $297 in 2000, the inflation-adjusted high for any third quarter (Tables 1 and 2).
Here’s another bit of analysis from Airlines for America, the industry trade group in the USA. It uses DoT data to track overall international fares since 1990 (a subset shown here).
These are overall averages for all international travel, not just peak season transatlantic. Still, the numbers make it hard to believe that getting peak season airfares at below average rates is going to work out well very often.
There was one slightly off-topic aside in the conversation which was also rather entertaining:
Apparently relatively normal airfares are, in some cases, shocking.
Don’t get me wrong – I don’t like paying very much for airfare and when the fare is too high I either don’t travel or I go somewhere else. But I also go in to the transaction knowing what to expect and being able to tell if I got a good deal or not rather than just expecting that fares are always so low. At the end of the day I guess I’m just surprised how low some people think airfare should be to be considered reasonable.
No wonder the airlines are struggling to eke out profits. For too long passengers have become used to the cheap fares offered as a result of excess capacity and increased competition. Mergers and ATI deals have cut almost all of that out of the system. And with the impending US Airways/American Airlines merger and Delta/Virgin Atlantic ATI request working their way through the regulators the competition is going to decrease. It is good for consumers that the airlines are able to remain in business. But that will mean higher fares, more crowded planes and fewer choices, all of which make for not-so-happy passengers.
India’s Kingfisher Airlines is dead (all claims by founder Vijay Mallya to the contrary) and the vultures are circling its carcass, picking up the scraps as they try to move forward. Air India is hoping to take over several of the old check-in counters at Mumbai’s airport and local LCC GoAir is hoping to move their operations into the terminal where Kingfisher was previously operating. That move would include taking over the office space in addition to flight operations. And Jet Airways has already applied to buy some of the route authorities Kingfisher surrendered when they ceased operations. More than 120 international frequencies to eight countries were idled when Kingfisher shut down.
I’m sad that Kingfisher is dead. I got to fly them in 2005 and had a great time on the short flight; I even still use the small amenity kit case I got on that flight to carry my liquids (yes, it is clear, has a zipper and is less than 1 quart). But they are dead and no amount of hoping or dreaming seems likely to change that. It is about time that the Indian aviation world moves on, letting other carriers take advantage of those resources and growing the markets.
We are another step closer to the merger of US Airways and American Airlines today following a hearing in the bankruptcy court in New York City. The planned merger was approved by the judge overseeing the bankruptcy reorganization of AMR, American’s parent company. The approval was expected and allows the two carriers to move forward with their efforts, though it is also far from the last approval needed.
But it was not all smooth sailing during the hearing. Tom Horton, the current CEO of American, is due to receive a severance payout of $19.9 million in cash and stock as part of his stepping down for Doug Parker to lead the combined company. That part of the deal was blocked by the judge who stated, "Approving it today is just not appropriate." It seems that there are issues with the way the bankruptcy code is written and the fact that the merger was consummated in bankruptcy rather than after AMR emerged from the court’s protection. The judge noted that he doesn’t object in principle to the payout but that the law simply didn’t allow him to approve it at this time.
Perhaps this is why Horton was so adamant for so long about wanting to emerge from bankruptcy before agreeing to merge with US Airways. Odds are that he’ll get paid anyways eventually so maybe this is more of a delay than denied. Still, it is always interesting to watch these processes play out.
If you’re surprised about the impending announcement expected Thursday morning of a merger between US Airways and American Airlines then perhaps you should get out more. It has been the talk of the industry pretty much since American filed for Chapter 11 bankruptcy protection over a year ago. And now the speculation about when they will merge can end, replaced with even better speculation about what will happen to the merged carrier.
We know a few things, or at least we’re pretty sure. Doug Parker will be in charge; Tom Horton will be a non-executive Chairman and will be paid handsomely for bringing the company almost out of bankruptcy. The carrier will keep the American Airlines name, brand and Texas headquarters. They will remain in the oneworld alliance and keep AAdvantage as their loyalty program. No surprises there.
But what about the things we don’t know?
- What happens to the Alaska Airlines partnership, for example? Especially considering the recent announcement of an even tighter partnership.
- When will Dividend Miles be rolled in to the AAdvantage program and which program rules will they keep. The two are plenty different and there are plenty of reasons both sides will lobby to keep theirs.
- Which hubs get shut down?
- Will they ever figure out how to expand into Asia and Europe in a sizable way without depending on partners?
- Which PSS will they choose? American has been looking to get a new one for some time now; will they use the merger as the impetus to replace both systems with something brand new?
- How long until the extensive short-haul network US Airways operates on the east coast can be redeemed for tiny amounts of Avios?
- Just how badly will consumers get screwed with less competition and higher fares?
Oh, and perhaps the biggest question of them all: Will Doug’s plan to use the AA unions to out-vote the US and HP unions and end their integration woes actually work?
In the meantime, make sure you look at a status match to Alaska Airlines Mileage Plan program, just in case. And now is probably a good time to pick up a US Airways credit card if you haven’t lately. Getting an extra 40,000 points in the combined program isn’t a bad thing.
Definitely going to be fun to watch over the coming months, more so than watching the speculation about when the merger was going to happen.
Late last week the pilots at American Airlines ratified the latest contract with the company. The pilots were the last of the labor groups without a new agreement following the company’s bankruptcy filing just over a year ago and now, with all the labor deals finalized, the company is finally in a position to complete their reorganization efforts. But will those efforts include a merger with US Airways?
It is no secret that US Airways is keen to see such a deal nor that American is hoping to emerge from bankruptcy as an independent operation. There was even a formal proposal from US Airways at some point in November, a deal which suggested US would hold 30% of the combined company and AMR 70% valuing the combined company over $8bn. That would be huge, though American executives apparently felt that the offer was a bit light. Then again, the AMR executives are still holding to the line that emerging from bankruptcy as a stand-alone company is the best option. It isn’t clear whether they simply think that is the best option for their job security – Doug Parker, US Airways’ CEO has made it clear he wants to run the combined operation – or for the company as a whole. It is hard to believe they do not see some additional consolidation in the industry as good for their operations.
From the pilots’ perspective this move is very much not an endorsement of the current management. In fact, the Union has come out with the bold statement that "this contract represents a bridge to a merger with US Airways." In other words, just enough to get by until something better can be arranged.
The question is whether American Airlines – and really their creditors, not current management – things that the US Airways offer is that something better. I’ve got my popcorn out, ready to watch the show.
It is not clear that the future of SAS is a particularly strong one. The carrier is fighting against LCCs including Norwegian which is adding long-haul service as they take delivery of 787s in 2013. Plus they are saddled with high labor costs and relatively high debt loads and multiple hubs in a very tight geographic proximity. Oh, and they’ve recently been put on notice by their creditors that failure to cut some costs would see funding dry up. Perhaps not the most optimistic situation to be in.
And yet the carrier is looking to expand. They reached a compromise with the labor unions which should be sufficient for now. And, with that behind them for the near term, the route map is growing. SAS is going to try to survive through growth, not by shrinking. Here are the additional routes.
- Stockholm to Innsbruck, Pula, Palermo, Cagliari, Thessaloniki, Tel Aviv, Pristina and Alanya
- Gothenburg to Nice, Pristina and Östersund
- Oslo to Salzburg, Berlin, Budapest, Santorini, Cagliari, Palermo, Pristina, Valencia, Malta, Lisbon, Athens, Tenerife and Pula
- Bergen to Dubrovnik and Antalya
- Trondheim to Split
- Stavanger to Antalya
- Copenhagen to San Francisco, Budapest, Prague, Newcastle, Cagliari, Palermo, Alanya, Thessaloniki, Pula and Biarritz
- Helsinki to Paris, Rome, Prague, Geneva and Östersund
- Kittilä to Turku and Tampere
This is an interesting collection of destinations. The mix between business and leisure is very much there. And some great new options for award seats should come from this, too.
Will it be enough to save the carrier? I suppose we’ll see soon enough.
The coming years should see growth in the employee ranks at American Airlines according to company CEO Thomas Horton. In a letter to employees this week Horton indicated that the company intends to grow the pilot numbers by 2,500 over the next five years. That growth is similar to the announced plans to hire flight attendants in the near future. The growth is expected to support, among other things, the growing international route map for the carrier; those flights are longer and on larger planes requiring more crew to operate. The hiring will also cover 650 pilots on furlough and offset 500-600 who are approaching mandatory retirement in the same timeframe.
The carrier announced four specific new routes this week which they intend to serve starting in Spring 2013. The new routes being launched are:
- Dallas/Fort Worth ─ Seoul, South Korea starting May 9, 2013
- Dallas/Fort Worth ─ Lima, Peru starting April 2, 2013
- Chicago O’Hare ─ Dusseldorf, Germany starting April 11, 2013
- New York JFK ─ Dublin, Ireland starting June 12, 2013
The Seoul route will operate in conjunction with American’s oneworld partner JAL. The Dublin and Dusseldorf routes will operate as part of the airline’s joint business agreement with British Airways and Iberia. The Dusseldorf route will also operate as a codeshare with oneworld partner AirBerlin. Passengers will have access to a number of onward connections on the AirBerlin route network out of Dusseldorf.
And while the pilots’ union contract issues are still out there the other labor groups seem to be on board with the latest plans. The head of the union even expressed mild satisfaction with the hiring plans, though also noting that the company still isn’t as big as it has been in the past. So, has American turned the corner in their bankruptcy reorganization? These latest moves suggest that they think they have.
Hypothetically speaking, what would you do immediately after concluding negotiations with 2,200 flight attendants to buy them into retirement? In the case of American Airlines the answer is to hire 1,500 new ones. From an internal memo to the other FAs:
Now, on to some exciting news that I’m very happy to confirm. We’re at an interesting and rather unique juncture in regard to our flight attendant corps, because with the exception of our new Mandarin speakers hired in 2011, we will soon be able to do something that we haven’t been able to do since 2001: hire new flight attendants in November 2012! With 2,256 flight attendants electing to separate from the company via VEOP or TSP, along with our need to begin an aggressive training schedule to prepare for combined operations as well as our new Premium services, we’re planning to hire more than 1500 new flight attendants over a 12 month period. We look forward to welcoming new faces and working together to bring a fresh energy to our team, while at the same time giving current flight attendants the opportunity to move up the seniority list and many will no longer serve reserve.
American will also be merging the domestic and international FA bases. All domestic FAs – more than 400 each month – will undergo a two week training course to be able to also work international flights. Existing international FAs have a one day course to learn the new premium service process.
One other random interesting bit from accounts of the change is the depth to which the seniority lists run at American. The company hasn’t hired in 11 years so it is clear that the newest hires won’t be moving up in the ranks for a while. But there are some domestic bases where FAs with 23 years experience are still drawing reserve lines. The LAX international base is even higher. I cannot confirm those numbers but I have no reason to doubt them. That’s some crazy seniority.
If you read the Middle Seat column over at the WSJ then you may have noticed a rather bold set of claims being laid out by author Scott McCartney in this week’s column. He starts with a quite direct call to action, "…[A]void American Airlines." A few lines later McCartney notes that "American’s operation is in shambles." Ouch. For a company currently in bankruptcy reorganization that’s not the sort of press you want to be getting from a rather well respected pundit.
McCartney has some stats to back up the claim. The past several days have seen more than one sub-50% on-time performance turned in by the carrier; today doesn’t look quite as bad yet but a 66% on-time rating going in to mid-afternoon isn’t much to be proud of either. By comparison, the other majors in the USA are running 20+ points better right now.
And the company is canceling flights – some immediately and an extra 1-2% in the coming months – to handle the staffing issues they’re dealing with. Or just to cut capacity in general as the biggest carriers seem to be doing anyways, even without staffing issues. Is that going to be enough to solve the problems?
So everyone recognizes there is a problem, but is this the fault of the unions as McCartney suggests? Certainly the pilots are unlikely to be happy about AMR being approved to vacate their contract and impose new work terms and pay rates. But they are also denying that they’ve taken organized action against the company. Then again, it is unlikely they’d admit to a sick-out or work-to-rule action which would put them in a rather difficult position with the NLRB and their pending strike vote.
And, just to keep things interesting, the company has notified 11,000 employees this week that they might be losing their jobs at the end of the year. The company expects that only about 4,400 will actually see that happen but the law requires them to notify anyone who might be fired so more notices are being sent than will likely be put into play. Still, that sort of thing isn’t going to help employee morale much.
Folks who have been around a while will remember similar actions like the so-called "Summer of Hell" at United Airlines a decade ago. O’Hare was a mess. And both the company and the pilots eventually lost in that standoff, but not before pissing off tons of customers along the way. The current situation puts American on a similar trajectory and it is hard to be too optimistic that things will get much better before they get worse. Regardless of which side you blame in this mess, it is clear that there is most definitely a mess happening and the customers are getting screwed.
As for my travel habits, I’m not booking on American but that’s mostly because I generally don’t, not because of this latest "unrest" in the operation. I think it will take a more extended disruption before passenger habits change. But I can see that happening if things don’t get better in a hurry. And from my view here in the cheap seats I’d say it is 50-50 right now on whether things get better or worse in the next couple months.
This week saw American Airlines back in front of the bankruptcy judge in NYC, arguing that their pilot contract should be vacated. Last time around the airline wasn’t successful, being told by the judge that the proposed changes were too far-reaching. The company fixed the filing and, not surprisingly, the judge agreed with them this time around. The pilot contract has been vacated and the new term sheet will be implemented in the near future.
As part of the new terms, American can increase the number of codeshare flights in operation domestically and also increase the number of flights operated by larger regional aircraft. They’re wasting no time in exploring the second of those options; American is already negotiating with Republic Airways to operate some of the 200-ish additional larger RJs the company is permitted to put into operation as a result of the new contract terms.
Neither of these moves is particularly surprising and probably not groundbreaking as a precedent. Still, the move increases the ability of the carrier to proceed in merger negotiations, something they started in earnest last week, signing an NDA with US Airways. Still a ways out from a merger actually being announced, but clearly that is the direction things seem to be moving at this point.
So, not a ton of surprises here, just the wheels of bankruptcy court hearings grinding slowly on.