Monthly Archive for October, 2008

Alitalia’s Union Troubles…Again

Published
by
Dan Webb
on October 31, 2008
in Alitalia
. 0 Comments

If you were like me, you thought that the whole Alitalia thing was taking care of. Well, Reuters reports today that there is more trouble.

The Italian investor group planning to buy Alitalia (AZPIa.MI: Quote, Profile, Research, Stock Buzz) warned on Thursday that it would walk away from the deal if the bankrupt carrier’s unions failed to get on board with new work contracts.

CAI abandoned talks with unions late on Wednesday after refusing to further modify the contract. There is a Friday deadline for presenting a binding offer for Alitalia’s best assets.

The investor group said on Thursday that striking a deal with the unions was a precondition for proceeding with the takeover, seen as Alitalia’s last shot at avoiding liquidation.

While the story is a bit light on the details of everything going on, I’m going to say that the unions just need to stop getting in the way. Apparently, they still think that fighting and ending up with no airline is better than some airline left. Yes, I know unions exist to protect workers but I think we’ve hit the end of the line here - the unions just need to accept that CAI gives them.

The Northwest-Delta Deal Closes

Published
by
Dan Webb
on October 30, 2008
in Delta and Northwest
. 0 Comments

Well the Department of Justice finally approved the merger between Delta and Northwest. In addition, according to this report the lawsuit that some travelers had filed to prevent the merger has been settled. Delta was quick to send out an announcement on this one. I received this WorldPerks e-mail yesterday:

Dear Daniel Webb,

We are excited to announce that Northwest Airlines is now a part of Delta!

For you, this means it’s business as usual right now, as we combine to create a premier global airline with a leading presence in the world’s major markets and a best-in-class loyalty program.

Rest assured that there is no change to your WorldPerks miles or your program status. And, you should continue to:

* Purchase tickets and modify existing reservations as you’ve always done via nwa.com or NWA Reservations at 1-800-225-2525
* Check in, check baggage and do business directly with the airline you are flying just as you did before the merger
* Earn WorldPerks miles as usual with Northwest and our Mileage Partners
* Redeem WorldPerks miles for award ticket travel, PerkChoice Cash and Miles award tickets, and items on WorldPerks Auctions
* Enjoy uninterrupted access to WorldClubs

And if you become a WorldPerks Elite member, you will enjoy complimentary upgrades when flying Delta. It’s just one of the many WorldPerks advantages you’ll enjoy as we work to combine our programs in a smooth and seamless manner, while providing the exceptional service you know and expect.

As always, our #1 priority is to get you to your destination safely, on time and with world-class customer service. Please visit nwa.com for more merger information.

Thank you for your continued loyalty and support.

Richard Anderson
Chief Executive Officer - Delta Air Lines

Now, of course some aren’t too happy about the deal:

Kevin Mitchell, chairman of the Business Travel Coalition, said the merger will mean higher fares and fewer connections between mid-size cities and business centers. He said he was concerned about an enlarged Delta and other possible airline combinations and joint ventures.

“A first priority of the new administration should be to reconsider the rationale behind antitrust-immunized alliances and the market power they can exercise to the detriment of consumers,” said Mitchell, who testified before Congress in April against airline mergers.

I’m going to be blunt here and say I really dislike comments like this as someone who is pro-merger and pro-alliance. Are money-losing airlines the best for consumers? And these alliances that “exercise to the detriment of the consumer” have made global travel easier for many.

In terms of “higher fares” and “fewer connections” - to be honest I think that’s already happened! The airlines have raised fares this year, and all the airlines have always significantly cut capacity - especially Cincinatti. In my opinion, if some smaller markets don’t get service to every single hub of the airline, that isn’t a huge problem. For some reason many keep thinking that this merger will make lots of cities drop off the route map. To put it simply - if there’s still demand that city is most likely going to stay open.  It’s just that unnecessary overcapacity is now going away.

If there should be anyone concerned about cuts, it should be the regional airlines. The new airline now owns three regionals: Comair, Mesaba, and Compass, but also contracts out work to Pinnacle, SkyWest, ASA (now owned by SkyWest, Freedom (owned by Mesa), and Repubic subsidiaries Shuttle America and Chautauqua. I wouldn’t be surpised to see some of these airlines get cut in the future.

I continue to be optimistic about this deal - so much is going right for it already and I think the airlines are quite compatible\. The only issue that remains is the new fleet is kind of a mess - but I do remember reading about some of the advantages that this mixed fleet has. For example, Northwest’s 747s might be useful on some of Delta’s international routes.

Anyway, I’m looking forward to seeing how it develops!

Continental’s New “Perk” Hints at the Future of Bag Fees

Published
by
Dan Webb
on October 29, 2008
in Continental, Industrywide and Random
. 0 Comments

Yesterday a press release from Continental came into my inbox. When I read the first part, “Continental Waives First Bag Fee,” I got quite excited, but then I read the next part: “For Continental Airlines Chase Credit and Debit Cardmembers.”

The perk is pretty much how the headline reads. People traveling with the primary cardholder will receive the waived fee “if they are listed in the same reservation and check in at the same time.” Those who have the Presidential Plus card get both bags for free (one of the nice perks of a card with a $375 annual fee, I guess).

Now, this can be a good perk for flyers who don’t fly often enough to get elite status. According to this page the annual fee for the basic Continental card is $85. So after three roundtrips with a first checked bag, one will make back the annual fee in baggage savings. Heck, a family of three will make it back with just one trip. This perk does make the card a bit more attractive.

But, there is a negative side to this change, of course. Don’t get me wrong, this is a nice benefit for credit card holders, but until a few months ago the first two bags were free, which is still annoying. I think that this move shows that Continental (and probably the other airlines) is planning to hold on to the fees for awhile. If they were planning to drop them due to the drop in oil, why make no bag fee a credit card perk? Record oil prices gave the airlines a convenient time to add on the other fees, but it appears that even an enviornment with lower fuel they will stay. They still provide extra revenue along with other benefits, like the potential of less mishandled bags.

In other words, I think we’re going to have to get used to them.

Note…Ben blogged about this when it was leaked on FlyerTalk if you would like to read his comments.

Will Lower Oil Prices Change Some of the Airlines’ Strategies?

Published
by
Dan Webb
on October 28, 2008
in Random
. 1 Comment

Oil is now trading in the low $60s. I never thought I would say that. Due to this summer’s peak in oil prices, the airlines were doing everything possible to reduct fuel costs. What happens now?

I think that overall, lots of the efforts will stay in place. For example, many airlines have adopted the practice of taxiing on only one engine. While this move saves less money than it did before, it still saves money, and plus this is an inexpensive way to save fuel. But I still think many of the ways used to save fuel that were more expensive will remain. Blended winglets cost money to install, but they still save fuel. The only thing that has changed is how now an airline will recoup the cost in fuel savings. Still, if oil prices continue to fall a bit less airlines might be convinced to do the change.

The one thing that I see affected by the drop, though, is fleet planning changes. I wonder if United still thinks it is worthwhile to remove all of its 737-300s and -500s from the fleet, and if it is possible at all for them to reverse that decision.

But the lower prices can possible affect future supply if they continue to fall. For example, extracting oil from oil shale and oil sands is more expensive and requires a more expensive oil price to become economically viable. While the oil price hasn’t hit these floors (I think), it’s getting a bit closer to those levels. My concern is that if oil prices continue to decline, exploration will decrease.

With the Geeks (Again)

Published
by
Dan Webb
on October 27, 2008
in Random
. 0 Comments

I completely forgot to mention here that I was last week’s guest on the Airplane Geeks podcast. If you want to take a listen you can find the episode here.

Could AirTran and Southwest be Partners?

Published
by
Dan Webb
on October 27, 2008
in AirTran and Southwest
. 0 Comments

An interesting tidbit was on Today in the Sky last week:

AirTran would consider a passenger-sharing “codeshare alliance” with low-cost rival Southwest, AirTran CEO Bob Fornaro told analysts while speaking a conference call detailing the company’s quarterly earnings. “If Southwest was willing to talk, we’d certainly be willing to listen,” Fornaro said.

There is one key benefit that and AirTran partnership would give Southwest: large cities that it doesn’t serve. AirTran has a hub in Atlanta and serves Charlotte and Washington (Reagan) as well as LaGuardia and Newark (and White Plains, too). I think New York is the most important of those. While I really like what Southwest has been doing to attract more business passengers, I think until the airline (or a partner) serves New York City, something big is missing for business travelers. AirTran also serves some of Southwest’s big cities to make transferring relatively easy - BWI, MDW, and MCO come to mind first.

Now, the important question is how likely this is. Today in the Sky also reports:

Beth Harbin chose not to comment on Fornaro’s remarks. She told AP that Southwest is “really focused now on Canada and Mexico.” Southwest has already announced plans to codeshare with Canadian carrier WestJet.

(Note: AirTran does serve Cancun according to its route map.)

I think it is also important to look at Southwest’s last codeshare partner, ATA (now defunct). The partnership was similar on one regard as Southwest was able to provide codeshare service to cities like New York (Hawaii was popular too). But it came about differently - it happened after Southwest made an investment in ATA after it declared bankruptcy. ATA was also a smaller airline at the time, I believe.

So, I’m not so sure on how likely this is to happen - but it’s always fun to speculate. :)

Saturday Links #16

Published
by
Dan Webb
on October 25, 2008
in Saturday Links
. 0 Comments
  1. JetBlue opened its new terminal at JFK, and the company has a great blog on it. A friend of mine did use it on the first day of operation and wasn’t incredibly pleased. Her main complaint was that there are loads of places for a nice lunch or dinner, but not much for breakfast.
  2. Republic changed its agreement with American.
  3. Northwest posted a net loss due to hedging charges, just like Southwest. Excluding that and other charges, it actually made a profit.
  4. Northwest’s Cargo division continues to lower fuel surcharges.
  5. US Airways also posted a loss. Including special charges it was $865 million. Excluding them it was $242 million.
  6. The airline also issued a press release regarding its efforts to boost its liquidity.
  7. Continental is bringing its paperless boarding pass procedure to Cleveland.
  8. JetBlue posted a relatively small loss of $4 million.
  9. AirTran posted a loss.
  10. Like other airlines, Alaska made a profit when special items were excluded.

What Credit Crisis? There’s Republic!

Published
by
Dan Webb
on October 24, 2008
in Republic
. 0 Comments

Ok, I know that yesterday I promised I would go over earnings reports. While I’m not doing that today, hopefully next week I will have some analysis.

Yesterday, an e-mail from Republic Airways arrived in my inbox. The company will loan up to $35 million to US Airways. The first $10 million has alwasy been provided, and $25 million more can be provided in the first quarter of next year.

Republic has been part of a good number of financing news lately. Part of the airline’s deal with Mokulele is an $8 million line of credit. Part of the deal with Midwest was a $15 million loan, with a possible additional loan of $10 million. Republic was also part of a bid for financing for Frontier.

Republic has certain been making some interesting moves in this area, but it has helped them make some new partnerships. I think it can only help them in the future.

Cathay Interested in British Airways

Published
by
Dan Webb
on October 23, 2008
in British Airways and Random
. 0 Comments

What purpose does an alliance serve? Well, in many cases it is a merger without the mess of one. One airline might want to work with another but not necessarily combine with it. Perhaps the best example of this situation is Continental’s new partnership with United. In other cases, countries restrict foreign ownership. In the EU, non-EU investors can only invest up to 49.9% in the the company, and in the US it is even stricter. So an alliance allows the airlines to work together but remain separate.

In other cases, I think, the separate airlines are kept as part of national pride. For example, take Alitalia. If Lufthansa would have offered to help but only if Alitalia became part of Lufthansa, I think many would be angry that Italy’s national airline would go away.

Anyway, back to my main topic. Yesterday it was reported that Cathay Pacific was interested in a takeover bid of British Airways. While at first it appears that such a deal violates the previously mentioned EU rule, apparently because Cathay is 40% owned by a British firm, it is allowed. The partnership certainly makes sense. The two airlines are already in oneworld, and as such are already working together.

I think that I found this story interesting not because of this specific partnership, but in terms of existing partnerships and future ones. I would not be surprised at all to see future deals like Cathay and British. Lufthansa has already acquired other carriers. With all three alliances in possession of or looking for antitrust immunity, I think in the future we will be seeing more and more consolidation.

Anyway, I just found that news story interested. Tomorrow I’ll be going back to earnings. I’ve already skipped over a couple of reports from the past few days, and JetBlue, AirTran, and US Airways released today.

An Alliance Between…Airports?

Published
by
Dan Webb
on October 22, 2008
in Random
. 0 Comments

We have all herad of airline alliances like Star, Skyteam, and Oneworld, but what about an alliance between airports? Obviously some airports already work together as they are managed by the same large group, like BAA or PANYNJ. But now, Aeroports de Paris (who operates CDG and ORY) and the Schipol Group (operates AMS) have decided to form an alliance and will invest 8% in each other, and some committees will be formed to facilitate the cooperation. The alliance is initially supposed to last for twelve years.

The airports hope to work together on things on the group like airport retail, and it looks like they are looking to standardize some infrastructure and save money by purchasing things together (or as they put it, “explore the possibility to generate synergies by combining their purchasing volumes”). But they also hope to work together in terms of airlines. These airports should ring a bell for most - Skyteam, specifically Air France-KLM. ORY and CDG are major Air France Hubs, and AMS is KLM’s major hub. The press release mentions this in a couple of places:

Aeroports de Paris and Schiphol Group will jointly approach future international airport developments with a key focus on strengthening the dual hub within SkyTeam network internationally and have an opportunistic approach in non SkyTeam zones.

Additionally, Schiphol Group and Aéroports de Paris expect the cooperation to strengthen their relationship and integration with their largest clients, among which Air France-KLM, through optimized connectivity between the two airports, aligned processes and best-in-class airside operations (Collaborative Decision Making) and infrastructures (e.g. luggage sorting systems, baggage tracking device). The alliance will also improve the competitiveness of both airports vis-à-vis specialized or regional hubs and enhance their market attractiveness for all carriers by offering more frequencies to markets such as Eastern Europe and South America.

This idea is quite intriguing to me and I think it can be good for the airlines (specifically Air France-KLM), but also consumers. The release mentions that “both partners will also cooperate to develop more attractive retail areas and customer experience.” Hopefully this move can lead to a better airport experience for passengers. I’m certainly looking forward to seeing how this works out, and I wonder if any other airports will try to do the same.