Posted by Seth on February 6, 2012 under News | 
The hits just keep on coming with airline bankruptcies this month. Following on the cessation of services from Spanair and Malev in the past several days a US-based carrier has filed for Chapter 11 protection this morning. The company is Global Aviation Holdings, Inc. and they are the largest operator of charter air service for the military, among other things. They also operate under the brand names World Airways and North American Airlines.
The filing comes as the company found itself with very little cash on hand when a customer withheld a $20MM payment. They are also faced with significantly declining demand for services as the US Government is reducing troop movements, meaning fewer charter operations. Combined with declining rates for services the company now sees itself with a glut of aircraft on lease. They intend to reject 16 of 30 active leases, returning those aircraft to the lessors as part of the reorganization.
The net impact of all these moves is pretty minimal on most folks but it does show yet another airline that managed to build an operation on unsustainable ideas and the effects of their failures.
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Posted by Seth on February 3, 2012 under frequent flyer, News |
Kingfisher was dealt a potential death blow yesterday when the airline was suspended from IATA’s ticketing clearinghouse due to reported non-payment. The clearinghouse is used by hundreds of airlines to process payments for interline tickets and other multi-carrier transactions. Roughly 80% of interline transactions worldwide are settled through the system so being suspended is a huge blow to the carrier.
The company claims the suspension was triggered automatically by the IATA systems when a technical glitch prevented their scheduled payment from reaching the clearinghouse:
As a result of a recent internal system failure, certain credits did not hit our ICH account in time, triggering an automatic suspension. Kingfisher would like to confirm that all its dues via ICH have been settled in full and it has absolutely no outstanding due as of date,
Despite claiming to be current it appears that IATA has not yet commented or reinstated the carrier to the systems.
Adding fuel to the fire is the announcement today that the planned February 10, 2012 ascension of Kingfisher into oneworld is being delayed, with no revised date yet announced. FlightGlobal is carrying the story, with quotes from both oneworld and Kingfisher executives on this latest development. Said oneworld CEO Bruce Ashby:
These are turbulent times for the airline industry in India and many other parts of the world. We have been working closely with Kingfisher Airlines over the past months and it has become increasingly clear recently that the airline needs more time to resolve the financial issues it is confronting before it can be welcomed into Oneworld. Will work with Kingfisher Airlines with the aim of setting a new joining date once it is through this current period of turbulence.
This delay is somewhat reminiscent of the frequent delays that Air India suffered in their attempts to join Star Alliance over the past few years. Those efforts were eventually scuttled after multiple delays.
Without access to interline booking revenue is seems unlikely that Kingfisher will be able to realize the revenue needed to pull themselves out of their financial morass. With many unpaid or severely delayed bills the future of the carrier is very much in question. It is not surprising that the alliance is not interested in bringing the carrier on board as their liabilities for interline travel could be significant.
This is a serious blow for oneworld, as another member carrier, Malev, ceased operations today, also under financial pressures they could not overcome.
Not a good day in the aviation world at all.
Hat tip to Flying With Fish for the head’s up on this one.
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Posted by Seth on February 3, 2012 under News |
Hungarian flag carrier Malev has ceased operations following demands from creditors that certain balances be paid immediately or in advance. The carrier has been struggling for many years; those debts finally caught up. The move grounds the airline’s fleet, stranding several thousand passengers and leaving the company’s ~2,600 employees with an uncertain future. The shutdown was apparently precipitated but ground handlers in Tel Aviv demanding payment up front for services. Similarly, a plane in Dublin was not permitted to depart, supposedly citing the company’s accumulated debt as the reason.
The airline is relatively small, but they do hold 27 routes out of Budapest where they are the sole carrier. While it is likely that other carriers will step in to pick up some of those routes such changes will take time and in the interim a number of passengers will be inconvenienced by the service termination.
The move is also a blow to global alliance oneworld, of which Malev is a member. The group is adding other carriers, including Air Berlin and Kingfisher, but those carriers are also struggling somewhat financially.
This cessation follows that of Spanair from last week. Truly a sad time in the skies over Europe.
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Posted by Seth on February 2, 2012 under News |
As part of yesterday’s announcement that American Airlines plans to lay off a whole bunch of employees they also issued new offer sheets to their main unions, stating their opening negotiating position for the collective bargaining contracts. The offer to flight attendants is open to the public for review and it makes for an interesting read. I’d be pretty upset as a flight attendant reading it over.
One of the most talked about bits I’ve seen is the termination of the international route pay scale. Those routes will still draw a minor additional pay bump ($1-3/hour) but not the fully separate pay scale like they do today. I can see this upsetting the FAs but I’m not so sure it is justified. The long-haul flights seem to be the better gigs, with less overall work and they’re easier to max out a monthly schedule without actually flying so many days. Those are real benefits of those trips; getting paid extra to work them seems way too favorable towards the FAs. But I can certainly see why they’re going to be upset with the change. The proposal also cuts the incremental pay that is normally accrued over 70 hours per month.
Beyond that, there are some significant changes to the work minimums that are more serious as I see it. In order to qualify for medical coverage and vacation accrual the flight attendants would be required to work 540 hours annually rather than the current 420. That’s a pretty big jump. It also increases the total minimum number of hours which must be worked annually to remain employed to 200.
The proposed rules would also significantly change the duty hours for flight attendants, making their work days longer, the number of potential hours per month higher and then guaranteed minimum time off between trips lower. Rather than being guaranteed five breaks of two days in a month they’ll get the same 10 days guaranteed, but only in one day increments. Again, all changes that are certainly going to upset the flight attendants.
The company also intends to change the staffing level assignment decisions and hotel choice policies. In both cases the policy will shift from "mutually acceptable" to company-mandated, with input from the union considered. Not a guarantee of downgrades here, but certainly there are some changes the company has in mind where there could be cuts.
Finally, the company plans to cut the pension plan, replacing it with a 401(k). They plan to cut healthcare for retirees over 65, replacing it with a Medicare supplement. The will cut life insurance for all retirees.
All these cuts and yet, when I review the term sheet, nothing in it actually seems all that unreasonable. Yes, the terms are worse than the current contract in many ways. Other than the profit sharing plan there actually isn’t really much in the way of improvements for the FAs in the offer. But it just doesn’t seem that unreasonable to me. Yeah, I know that there are many more hours worked beyond the block time. I understand commuting to the crew base. I get all of that. The numbers still just don’t seem that bad to me. Such is life, I suppose.
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Posted by Seth on February 1, 2012 under News |
In the weeks since American Airlines filed for bankruptcy protection they haven’t really done all that much. There were a few planes retired and that semi-awkward admission about the multi-million dollar housing in London. Oh, and plenty of bonus miles opportunities to keep customers from completely abandoning them. But not much in the way of announcements on what the restructuring would actually look like. That changed today.
Management finally met with the unions and announced their intentions: cuts of roughly 14,000 jobs across the company in hopes of saving about $2 billion annually, 60 percent of which they hope will come from employee costs. The cuts will come across all areas of the company, including 4,600 mechanics jobs, 4,200 ground service positions, 2,300 flight attendants, 400 pilots and 1,400 in management and support services.
Now comes the fun part for the airline and employees, negotiating the details of the actual cuts. Plus, they have to get the bankruptcy judge in New York to actually approve the plan. This was the primary focus of the original filing and now it is clear just how deep the cuts will be.
The real issue, aside from the potential customer service impact of the cuts, is whether trimming the labor force is actually enough to save the company. There are a number of folks who are not particularly convinced, and I’m one of them. Cutting costs is only part of the company’s problem, and it is the easy half to solve. They will dump the old planes, get newer, more fuel efficient ones and also get out of their pension liabilities. And fire a whole bunch of employees. The cost cuts will happen.
The much harder part will be continuing to provide a high level of service (or shifting to one, depending on how you see the service levels today) with 20% fewer front-line employees. It will be driving revenue levels higher on an ASM basis rather than constantly offering discounts and promotions to sell tickets. And it will be growing a route network, with or without partners, that can compete to capture the corporate contracts the airlines need to generate consistent revenue.
Achieving those goals will be just as important to the success of the carrier coming out of bankruptcy as the cost cutting is. And they’re much harder to actually plan and implement than just firing a bunch of employees. In the mean time, best of luck to the folks soon to be unemployed. It isn’t pretty out there, especially in the airline business.
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Posted by Seth on January 27, 2012 under News |
Spanish regional airline Spanair is apparently ceasing operations effective immediately, shutting down their network of flights with virtually zero notice. The move comes as Qatar Airways has cut off talks with the carrier about becoming an investor and infusing cash to help keep the airline afloat. Additionally, the Catalan government has decided to cease providing additional loan funds to the carrier. Most reports from Spain suggest that the company will not be flying any more at all, though there are also a few updates trickling out which suggest there might be additional flights tomorrow. Most of the reports are in Spanish and I’m depending on Google Translate to get the gist of the situation but I’m guessing I’m not getting everything completely correct.
This move also cuts out a chunk of service for Spanair’s partners in Star Alliance. The carrier often had good inventory for awards and also generally a good regional network for connecting passengers on the Iberian peninsula. Then again, this is the same company which repeatedly sold codeshare inventory on US Airways metal at ridiculous discounts (or errors) to the point that US Airways cut off their codeshare agreement not too long ago.
Sad to see an airline fail and so many folks newly unemployed (estimates suggest ~4,000). Good luck with accommodation if you’ve got Spanair flights booked.
Posted by Seth on January 10, 2012 under Flying, frequent flyer, News |
As part of their bankruptcy reorganization efforts American Airlines has announced that they are cutting the longest route in their network, the flights between Chicago and Delhi, India. The flights are being terminated as of March 1, 2012. Live from a Lounge (a local on the India side) and One Mile at a Time (a quite vocal AAficionado) have both weighed in on the topic, mostly with disbelief. To me the surprise is really that it took the bAAnkruptcy to do the route in.
At least one analyst out there says the route was losing $40MM annually. And naturally you’re going to cut anything that isn’t profitable in a reorganization, right? The problem with that approach is that, at this point, nearly everything American touches is not profitable; they’ve got the inverse of the Midas touch. The real question should be whether a route can be profitable, not whether it is right now. And in the case of the Delhi flight, the answer is still no.
It is the longest route in their system, roughly 7500 miles in the air each way. That’s a whole lot of fuel that needs to be carried so the plane can make it to the destination, and that fuel has increased significantly in cost since the route was launched in 2005. It seems that even if the company could get the labor costs down, their stated goal in the bankruptcy process, the other fixed costs of the route are still too great.
The same analyst who asserts the $40MM annual losses also suggests that there are a few other routes which are hemorrhaging cash and which seem primed to be cut: New York-London, New York-California, Chicago to Delhi, Beijing and Shanghai and Miami to Buenos Aires. Seems unlikely to me that all those are going to be touched. The London routes gets the advantage now of ATI, something that was far too late in being granted by the authorities on both sides of the Atlantic. That should help significantly for margins on that service. The transcon market is an interesting one and I could see some changes come, but I doubt they’ll fully retreat. And the South America service seems to have way more potential than the Asia routes, putting it squarely in the "potentially could be successful" category.
Could the Beijing and Shanghai routes be on the out? Loads to China are down and the yields are likely following. At the same time, however, getting back into that market is incredibly challenging. Plus, there aren’t particularly great onward connections if you look to partners. It seems much more likely that the China routes could be profitable and that they’d stick around a least a bit longer.
The other consideration for American, more than individual routes, is the combined effect of cutting too much on the route map. Their international network was already somewhat anemic outside of Latin America and further cuts won’t help that. Even with partners and the ATI agreement, it is hard to market and sell flights to corporate contracts when you don’t actually have service to the destinations they need to serve. And a merger with US Airways, JetBlue or Alaska Airlines isn’t going to solve any of those problems.
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Posted by Seth on December 19, 2011 under Flying, News |
Millions of dollars have been spent to learn the answer to this question. Thus far, all indications are that it is not possible. But that doesn’t stop folks from trying. Apparently there is another billionaire out there looking to become a millionaire, because someone is apparently going to give it a another shot.
Odyssey Airlines is the supposed name of the upstart which is expected to launch operations between London‘s City Airport and New York City‘s JFK with a Bombardier CSeries jet in an all business class configuration. This service would compete directly with the twice daily service offered by British Airways on Airbus A318 jets, with the added advantage of not requiring the fuel stop in Ireland on the west-bound leg.
The operation would launch in 2014 or 2015, assuming the timeline for the aircraft deliveries doesn’t slip. Oh, and there is apparently no one out there who actually works for Odyssey Airlines, so none of these details can actually be confirmed, but that hasn’t stopped many from reporting on the potential.
Breaking into the aviation market is horribly difficult and expensive. Doing it on one of the most heavily trafficked routes – NYC-LON – where there are something like 30 daily frequencies split between at least 5 carriers is even more challenging. And doing it in an uncertain market where fuel costs are significantly higher than they were last time a couple upstarts tried to break in is almost certifiably crazy. On the plus side, the new aircraft will have lower operating costs, but that doesn’t come anywhere close to guaranteeing success.
Also of interest is that the company involved has supposedly ordered 10 aircraft. That’s way too many to operate only on the NYC route so it can be presumed that there might be other routes considered as well. I can think of a few others in the same range that would be likely candidates, but they are also heavily contested and there isn’t a whole lot of room on the margins to make it work.
Don’t get me wrong – I hope it actually launches and that I get a chance to fly on Odyssey. But, much like Maxjet, SilverJet and eos before them, I don’t expect that opportunity to last long.
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Posted by Seth on December 13, 2011 under News |
One of the editorial columns in the New York Times this past Sunday was a piece titled The Unprofitable Skies, a commentary on the recent bankruptcy filing from American Airlines. More than just a jab at American, however, the editorial seems bent on offering up an assessment of the air travel industry as a whole. And their view is not particularly optimistic.
The company’s employees and pensioners are already bracing for job and benefit cuts. Yet the pain brought on by a big bankruptcy is unlikely to transform the industry into a profitable one.
Even more damning is the conclusion they draw:
The airline bankruptcies of the past decade were often followed by big mergers, including those of US Airways and America West, Delta and Northwest, and United and Continental. If American follows the recipe (some analysts have suggested US Airways as a partner), three big airlines would control 70 percent of the national market. Such concentration is unlikely to spur airlines to improve a dismal record on consumer satisfaction. The industry’s long-term lack of profitability is bad for consumers, employees and investors. But bankruptcy filings and megamergers may not fix the problem.
I tend to agree with this view to some extent, but not so far as they’ve taken it. Yes, less competition generally means higher fares and fewer choices for consumers. There is less motivation for the carriers to solve their systemic problems if there aren’t alternatives. At the same time, however, such a concentration of the market actually makes it easier for the smaller carriers to differentiate themselves and to show that there is value in the differences they offer. The question is whether or not customers care.
The NY Times piece seems to be convinced that the industry stands no chance of being profitable anyways and that the service is so bad no one will buy it. In reality, the vast majority of customers simply are buying whatever is cheapest without caring so much that the service can vary dramatically depending on the carrier chosen. There are some airlines who seem to be able to demand a marginal premium from their passengers but not enough to make a significant difference on the balance sheets. At least not yet.
But fewer competitors in the market and the commensurate higher prices likely mean that the airlines have a chance to swing towards profitability. At least for a little while. Yes, it will be at the expense of the employees who have or will lose part of their pension. And at the expense of the customers who will see fares increase (and in many cases the fares are already up recently).
The Times seems to believe that the industry can be profitable, provide tremendous customer service and do so without loss of choice for customers or higher fares. It isn’t quite clear what they’re basing that belief on. It doesn’t seem to be from any rational point of view.
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Posted by Seth on December 6, 2011 under News |
American Airlines has made reduction of costs the cornerstone of its bankruptcy reorganization plans. From the very beginning they’ve made it clear that they expect to cut costs pretty much across the board. This includes returning some aircraft to lessors and getting out of some real estate deals and also, hopefully, renegotiating labor contracts. That last part likely just got a lot harder.
A nine-member panel was appointed to represent unsecured creditors of the company and three of those seats are held by representatives of the company’s unionized workforce. The pilots, flight attendants and ground workers each received a seat on the panel, along with Boeing and other creditors. Having that strong a union voice in the courts as recommendations are heard is going to make it much more difficult for the company to pull a fast one on the employees, but that also seems to be their only plan for getting out of the bankruptcy so that could hinder those efforts.
In other bankruptcy news, some analysts are suggesting that American should scale back operations at Chicago, Los Angeles and New York City and focus on their fortress hubs in Miami and Dallas-Ft. Worth. Fortress hubs are great, I suppose, for the business. But when that’s all you have you’re horribly susceptible to competitors showing up and fighting. And that sort of fight isn’t what an already struggling company needs to be faced with.
Always interesting to see what’s next…
Posted by Seth on December 1, 2011 under Flying, News |
Common decency suggests you don’t kick a man while he’s down. That sort of policy doesn’t necessarily apply in business, however, and it definitely doesn’t apply for Spirit Airlines. Following on their $11 (plus a myriad of fees that no one can ever reasonably figure out) sale to celebrates American Airlines‘ filing for Chapter 11 bankruptcy protection earlier in the week, the Spirit announced a few new routes today focused on the troubled carrier’s fortress hub at Dallas Ft Worth.
Spirit announced this morning that they are launching four new destinations with once daily round-trip service this spring. The new destinations are LaGuardia airport in New York City, Atlanta, Boston and Orlando. The first three are big business markets where American will almost see an erosion of yields thanks to this move. That’s not going to help in their efforts to keep the revenue up. At least it is only once daily service compared to the AA frequencies on offer (BOS – 8, ATL – 12, LGA – 15, MCO – 11) so there is still going to be plenty of opportunities for AA to keep most of their business.
In other bAAnkruptcy-related news, AA has filed the paperwork to return 24 aircraft to lessors, starting the process of shedding some of their costs. Most of the planes are already grounded so it won’t affect capacity. Yet. They’ve also canceled two pilot recall classes, shifting those pilots back to furlough status.
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