Monthly Archive for February, 2011Page 2 of 3

Hawaiian Continues Asian Expansion

Published
by
Dan Webb
on February 14, 2011
in Hawaiian
. 1 Comment

Earlier this morning Hawaiian Airlines announced it would continue it Asian expansion, with daily service to Osaka, Japan beginning on July 12. The service will be initially operated with 767-300ERs, though Hawaiian notes in a press release that the route will eventually be served with A330-200s.

Currently, the route is already flown by JAL daily with a 767-300ER. Hawaiian’s codeshare partner Delta also operates the route with daily A330-300 service, and current schedules show the airline is slated to increase capacity by flying a 747-400 on the route instead.

It’s been interesting to see Hawaiian’s Asian route map expand quickly over the past few months – Tokyo-Haneda was added in November and Seoul launched last month.

The new route requires government approval.

A Quick Look at Some On-Time Numbers

Published
by
Dan Webb
on February 11, 2011
in JetBlue, Southwest and United
. 0 Comments

I have to admit that I’m really falling in love with the DOT on-time numbers, both the raw numbers and the Air Travel Consumer Report. There’s plenty of stuff to look at but I wanted to share some highlights (and what I want to investigate further) now that the DOT has released December numbers.

For the month, JetBlue came in last, with only 58.6% of its flights arriving on-time – that’s something I want to investigate a little bit more. The harsh weather on the East Coast could have been a large factor there.

Also worthy of further study – Continental and United. For December, United’s on-time performance was a little over 10 points better than Continental’s, but for the whole year its closer (3.8 points). Either way, United has put in a lot of effort to improve its on-time performance, so it will be interesting to watch the integration with Continental’s operation.

But I continue to be interested in Southwest’s results. The carrier’s ranking improved in December, coming in 14th place (it was 16th in November). But there are some other interesting results – the DOT reports that Southwest had 103 flights (or 4% of the total) that were late more than 70% of the time. That’s a small number of flights, but it is also the highest number of the carriers that share data.

I decided to graph the average difference from scheduled departure/arrival times for a few of the major carriers for December, and I found the results pretty interesting, especially Southwest’s:

At first blush, there are some interesting nuggets in this month’s numbers…so hopefully over the next couple of weeks I’ll have more to share.

JetBlue, the E190, and the West Coast

Published
by
Dan Webb
on February 10, 2011
in JetBlue
. 0 Comments

In August 2007, JetBlue CEO Dave Barger said in an interview with Bloomberg that the carrier’s new Embraer 190s would begin operating longer stage lengths and also operate routes on the West Coast. The move came as the E190 operation became more reliable.

“Let that mustang out of the corral….The E190 will now let us explore other geography,” he said.

Government traffic data shows that the E190 began operating in California for JetBlue beginning in May 2008. That data also shows that the E190s stopped operating out of JetBlue’s Long Beach focus city in April 2010 (yes, I realize I’m a few months late here). I decided to ask JetBlue about the change, and here’s what they had to say:

Deploying our E190s back to the East Coast enhanced operational simplicity for JetBlue, allowing us to focus on one fleet type on the West Coast. Additionally, we were able to redeploy the E190 aircraft to popular new business frequencies like DCA to Boston.

And that reasoning makes total sense to me. Just for fun, I decided to look at some government traffic data to find the average scheduled departures for the A320 and E190 out of Long Beach. I found it interesting – the E190 operation would be built up during weaker months while the A320 would reach its peak during the summer:

So once again Long Beach is an all-A320 operation. Will we ever see the E190 make a comeback? I think it’s possible. Long Beach has become more of a regional hub as late, so the E190 could be a fit. What could also be interesting is if JetBlue might ever be able to use Long Beach’s commuter slots for E190 operations.

Anyway – like I said, I’m a few months late here, but I just found it interesting.

Why I’m Coming Around to Rapid Rewards 2.0

Published
by
Dan Webb
on February 9, 2011
in Uncategorized
. 1 Comment

I’ll be honest – when Southwest unveiled its new loyalty program awhile back, I wasn’t sure what to think. In general I really like the idea of tying loyalty to revenue instead of segments or distance. One could argue that Southwest’s current program puts long-haul travelers at a disadvantage, and that those buying fully refundable fares are not properly compensated for their additional spending.

That being said, there are a couple of downsides to the new program. For one, some loyal fliers could be disappointed with the new program. Second, Southwest’s current loyalty program has a very nice simplicity to it – 16 one-ways and you have a free flight.

But, I’m starting to like Rapid Rewards 2.0 for a couple of reasons. First, Southwest is seeing an increase in full-fare passenger. Full-fare passengers made up 20% of Southwest’s fare mix in the fourth quarter. Plus, Southwest is also seeing more full-fare passengers, as CFO Laura Wright said during Southwest’s last earnings call:

Although still below our 2008 nominal passenger levels, our full fare passengers have continued to grow year over year suggesting that business travelers are returning or at least consumer spending habits are changing. In the fourth quarter of 2010, we experienced an increase in the nominal full fare passengers versus the third quarter. Normally, you would expect a seasonal sequential decline moving into the fourth quarter. This suggests we’re finally seeing a rebound in our business travelers. Our fourth quarter full fare mix was 20%, which is up about two points from the fourth quarter of last year and it’s up two points from the third quarter of 2010, and of course this is on a higher load factor as well.

Southwest also said its Business Select passengers were up 19% year-over-year in the fourth quarter. So Southwest is growing (right now) its group of customers that pay for higher fares. These passengers will be better compensated in the new program, so one would hope even more will come.

I still have some concerns about the new program. First, it’s kind of complex. There’s something to be said for having a simple program like Southwest, or have set award levels like other airlines. Second, some of the benefits of the program are tied to the Rapid Rewards credit card. Yeah, the credit card helps Southwest bottom line, but that ends up increasing switching costs for travelers.

Anyway, when Southwest announced the new program, the airline said it “has the potential to contribute hundreds of millions in incremental revenue annually for Southwest, net of any associated program costs, to be fully realized over the next several years,” so it will be interesting how the program performs compared to expectations.

Also, I wonder if Southwest will start openly status matching? Their new elite tiers are promising – free Wi-Fi for the highest elites is very interesting for sure. I wonder if Southwest will be willing to give A-List to any Delta Medallion members who ask once the AirTran deal closes.

Here’s one more quote from Southwest CFO Laura Wright from last week’s Raymond James Airline Growth Conference. I didn’t include it in the post since its a bit long, but it’s worth a read:

First of all, we have a very good frequent flyer program today, lots of loyal, frequent flyers, but we know that there’s some deficiencies in our program, particularly with respect to some business travelers. So, we have been working on an all-new
program over the past several years. We launched it in early January, so all the details are out there on how the program works.
But we think it’s going to be very valuable from a top-line revenue perspective several ways.

So first of all, we think the new program will bring new travelers to Southwest who — particularly business travelers who may be tied to another program today. We think it will also increase the loyalty of the customers that we already have who may fly us for certain flights but not all flights.

And then finally, there’s significant opportunity, Jim, in our partnership opportunities. We currently have a credit card, which is very lucrative, with Chase. But when we look at our share of the credit card business relative to our size, we underperform some of the legacy carriers and we certainly think that the changes in the program that we’ve made are going to make that — having that card more attractive.

So, we think the Rapid Rewards program is going to be a multiyear build up to its full potential, probably three to five years, but we are anticipating the potential benefit to be in the hundreds of millions of dollars. So it’s a — this has really been our significant initiative for 2011.

Delta Unveils Economy Comfort

Published
by
Dan Webb
on February 8, 2011
in Delta
. 15 Comments

Delta Air Lines yesterday announced the launch of its new Economy Comfort product, which will provide enhance amenities to certain elite members or those who pay for an upgrade upon check-in. The offering is an enhanced coach seat with additional (up to four inches) legroom and 50% more recline than normal seats. The seats will be available in the first few rows (about four) of the economy cabin.

Economy Comfort also offers priority boarding and free alcoholic beverages in addition to the beer and wine available for all passengers. Delta says that the product will be available on all internationally-configured aircraft for this summer’s flying.

Image credit: Delta Air Lines.

The new seats are free for those traveling on full-fare economy tickets (makes sense) as well as those who are Platinum or Diamond Medallions in SkyMiles, Delta’s loyalty program. Everyone else will have to pay, with prices ranging from $80 to $160 one-way. Silver and Gold Medallions, however, will receive 25% and 50% discounts, respectively. Silver and Gold Medallions will still have free access to certain premium seats as well for no charge.

I have few thoughts on this:

Delta tells me that the space for the Economy Comfort seats, generally speaking, will not be coming from reduced legroom for the rest of the economy cabin. In some cases, the airline has removed a row of regular economy seats to make the extra room. The economy cabin traveler part of me welcomes this news, but the airplane/finance dork part wonders if that removal puts some slight upward pressure on CASM. But even if this move does have an effect on unit costs, I doubt Delta would make this investment without expecting an increase in revenues, whether that comes from upgrade fees, new customers, increased loyalty, or a combination of the three.

Image credit: Delta Air Lines.

One item that’s worthy of note is now all four members of the SkyTeam joint venture – Air France, Alitalia, Delta, and KLM – now have some form of a premium economy product for international routes. What’s also interesting is that Delta and KLM’s products here are quite similar – basically a coach seat with more legroom and recline. Air France and Alitalia, however, have gone for a full-fledged premium economy cabin, with their Premium Voyageur and Classica Plus cabins, respectively.

The new product will also be seen on some domestic routes as well, like Delta’s BuisnessElite service from New York to Los Angeles and San Francisco. Delta is still a new entrant in this market, and this move could make them more competitive. I find this move important because American (Flagship Service) and United (p.s.) have an international-style service on these routes, and Virgin America and JetBlue have strong offerings as well.

Of course, a discussion on extra legroom at a United States-based carrier requires a mention of United’s Economy Plus. The airline has yet to make a decision on its future. I’ve thought that it will survive in one form or another, but I’m sure Delta’s announcement will factor into that decision. It is worth noting that Delta’s Economy Comfort seats will only be on internationally-equipped aircraft, while Economy Plus is found on allpre-merger United mainline aircraft and larger regional jets.

Overall, I like this move by Delta as its a nice way to reward elite members, generate some ancillary revenue, and possibly win some new customers. I also appreciate that the seat pitch for the economy cabin will remain about the same.

On Southwest’s Ancillary Products

Published
by
Dan Webb
on February 7, 2011
in Southwest
. 1 Comment

When it comes to fees like bags and reservation changes, Southwest hasn’t followed the crowd. That decision doesn’t mean, however, that the airline has decided to give up on non-fare revenue sources. Southwest CFO Laura Wright shared some interesting details on the subject last week at the Raymond James Growth Airline Conference.

Image credit: Southwest Airlines.

Wright reported that Southwest’s Business Select product, which offers bonus Rapid Rewards credit, priority boarding, a free alcoholic beverage, and priority check-in and security (where available) produced $88 million in revenue. Meanwhile, EarlyBird Check-In, which offers priority boarding (after Business Select and A-List) for $10 one-way, raked in another $98 million. Wright added that Southwest’s “pet service, unaccompanied minor and third and excess bags contributed about $50 million to our 2010 results.”

If you total all those numbers up – that’s an additional $236 million in annual revenue for Southwest. Now, that number might sound small. For example, Delta’s bag fee revenue for just the third quarter of last year was $259.5 million. But, to put things in perspective – $236 million is slightly over half of Southwest’s full-year net profit of $459 million.

And while Southwest has some ancillary products are bringing in additional revenue, Wright said last week that Southwest’s decision to not charge for bags is also helping its bottom line:

Finally, you know I’ve got to bring this one up, we’ve been very pleased with the success of our “Bags Fly Free” campaign. It certainly had a significant impact on our load factor. And we’ve continued to see our share of the domestic market continue to increase. Just in the past week, the DOT released the third-quarter traffic data, and Southwest Airlines’ domestic market share increased to 21% of all domestic O&D passengers.

I just find this really interesting. Has Southwest struck a perfect balance here? They’ve found new sources of revenue while continuing to maintain a pro-consumer image. Its advertising certainly helps, but I think a big factor here is that Southwest has been introducing new products, and not charging for things that were formerly free. (One could argue that a bit, since Business Select eliminated the chance of getting A1-A15 for free, but I think that’s different than starting to charge for the first bag. Another exception would be the charge for the third bag.)

But the other question – what new products can Southwest add in the future? I think they’re stuck with things that are brand new, with Wi-Fi, which is fine, but I think there are some other opportunities that might not work with Southwest’s current image. For example, I’d love to see Southwest charge a same-day change fee because that would probably be cheaper than upgrading to a non-refundable fare, but Southwest has been broadcasting the fact nationally that it doesn’t charge any change fee.

On a slightly-related note, I would love to see Southwest share more details in the future about the revenue performance of its Wi-Fi offering, but that might be a bit pre-mature since only a fraction of the airline’s fleet has been equipped with Row 44. Meanwhile, Southwest is planning to replace its reservation system in the near future – I wonder what kind of additional opportunities that opens up?

Frontier Announces New Regional Routes

Published
by
Dan Webb
on February 4, 2011
in Frontier
. 1 Comment

Yesterday Frontier Airlines announced that it would be launching service to three new cities this April with ERJ-135s operated by fellow Republic subsidiary Chautauqua Airlines. Manistee, Michigan and Rhinelander, Wisconsin will receive nonstop service to Milwaukee. Frontier will also begin service to Ironwood, Michigan, though these flights are one-stops through Rhinelander.

The flights will be subsidized through the Essential Air Service program. The EAS contract for service to Ironwood and Manisetee (awarded to Great Lakes in 2008) expired in May 2010, and Frontier’s bid won. (You can see Frontier’s full proposal here.)

Frontier will receive a total of $3,082,383 in annual subsidies to help support the service. The contract lasts for two years.

Midwest Airlines, which has been integrated into Frontier, used to serve these cities through its Skyway subsidiary, but the flights ended as Skyway was removing its Beech 1900Ds from service. Eventually, the airline portion of Skyway was shut down, but the company survives as provider of ground handling services. Midwest then Skyway service was later replaced with SkyWest CRJ-200s. After Republic acquired Midwest, the SkyWest contract ended and was replaced with Chautauqua ERJ service.

Allegiant Tweaks 757 Plans

Published
by
Dan Webb
on February 3, 2011
in Allegiant
. 1 Comment

I haven’t written about Allegiant’s 757 plans since they were originally announced last March, and a lot of changes have taken place since then. Allegiant was originally planning to have two 757s in service by the end of this year, but unfortunately that hasn’t happened yet due to some regulatory issues.

Photo Credit: David Parker Brown.

Allegiant said in November that it was now planning to launch Hawaii service in 2012. It also said it would purchase its third and fourth 757s in December 2010 and January 2011. These aircraft would then be leased through 2012, though Allegiant can bring one back after summer 2011  if it so desires. The next two 757s would then be purchased in November of this year.

The company’s fourth quarter earnings release hinted at some changes, as it mentioned one 757 purchase has been pushed to 2011, and that three 757s had been leased. An investor presentation posted today provides some more insights.

The leasing agreements for the third and fourth aircraft appear unchanged, but Allegiant has now leased out one of its first 757s until summer 2012. Meanwhile, the purchases for the third and fourth aircraft that were scheduled for December and January have now been pushed back to February. The purchases of the fifth and sixth 757s are still expected to close in November.

Allegiant will now have one 757 operating this year, and the airline says it will start flying in revenue service early this summer.

As I look at this, I would guess that Allegiant doesn’t have too much interest in operating the 757 domestically, but operating one aircraft will allow them to get experience with the aircraft type, which should help in the ETOPS application process. (ETOPS180 certification is required for Hawaii flying.)

I have to say I like this move, though. The 757 acquisition might not have gone as well as originally hoped and planned, but Allegiant has found an interesting solution through these leasing agreements. In fact, the company expects to earn between $15 and $18 million in revenue from them.

Meanwhile, it will be interesting to see where Allegiant schedules the one 757 this summer. And of course, since the leased aircraft are scheduled to be back in 2012, it will be exciting to find out what Hawaiian routes will be launching with its 757 fleet that year.

JetBlue and South African Plan to Expand Relationship

Published
by
Dan Webb
on February 3, 2011
in JetBlue and South African
. 5 Comments

Last May, JetBlue announced that it had signed an interline agreement with South African Airways that would provide “new and convenient connection options for both SAA and JetBlue customers wishing to travel between the U.S. and southern Africa,” according to JetBlue.

The two airlines are now looking to expand that relationship to include codesharing – this according to a filing made with the Department of Transportation yesterday. In their application, JetBlue and South African say that they plan to begin placing SAA’s code on JetBlue flights beginning on February 15, subject to government approval.

Photo Credit: Russell Hill.

Not surprising, most of the routes that will carry South African’s code are from JFK, but there are a few from Dulles as well. SAA must love operating from JFK, right? I mean, if they’re looking for better connectivity they could give Newark a shot to tap into Continental/United’s massive hub. But JetBlue is most certainly the best option for JFK.

Here’s a list of the routes: Continue reading ‘JetBlue and South African Plan to Expand Relationship’

Guest Post: What to Do With Virgin Atlantic?

Published
by
Dan Webb
on February 2, 2011
in Virgin Atlantic
. 3 Comments

My friend Gavin Werbeloff is back with another guest post, this time on the future of Virgin Atlantic, which is a bit up in the air right now. He has some very interesting thoughts:

The Virgin brand has always been synonymous with style and independence. Virgin Atlantic, the first of the Virgin airlines, was founded in 1984 by the mercurial Richard Branson as a young and edgy airline designed to counteract of the staid and stodgy British Airways. The airline started out by serving Newark Liberty airport from London Gatwick with a single 747-200, and later expanded its list of destinations as it received more aircraft. Virgin has always had an adversarial relationship with British Airways. Virgin has never had the scale to truly compete with its Heathrow stable mate, but has constantly played the buzzing mosquito, engaging in legal action, reporting BA to the authorities as a whistle blower, as well as publicly opposing any co-operation between BA and it’s Oneworld partner American Airlines.

Photo Credit: Devesh Agarwal, BangaloreAviation.com.

In truth Virgin has always been a niche player at Heathrow, whose unique experience is a draw for those who desire something different. To a certain extent, this has been by design. Virgin Atlantic has made the conscious decision to remain smaller, as scaling up its unique premium product offerings would be exceedingly difficult. That being said, its Terminal 3 premium check-in and car service is miles ahead of its competitors, and the Virgin Clubhouse at Terminal 3 is consistently voted one of the best airline lounges in the world. The other side of this coin is that its operations are less able to withstand irregular operations. On one occasion, I was notified three days in advance that my flight from London would be delayed by 12 hours, because the aircraft had maintenance issues in Sydney.

Virgin Atlantic was arguably the single greatest beneficiary of the bankruptcy of both TWA and Pan Am, as the resulting 1991 re-shuffle of the Bermuda II treaty granted it access to London Heathrow, the world’s busiest international airport. Under Bermuda II, Virgin Atlantic became one of 4 airlines with regulatory permission to fly between the United States and Heathrow. The other three airlines were BA, American and United Airlines. Virgin Atlantic grew quickly in the 1990’s, utilizing its prized Heathrow location to open up routes to the United States. In 2000, Singapore Airlines bought a 49% stake in the airline form Virgin Group, and the two have a deep code-sharing relationship. Virgin currently serves seven U.S. cities from Heathrow and an additional two from Gatwick. Virgin also benefitted from government scrutiny of American and BA. Despite their membership in the same global alliance, anti-trust concerns on both sides of the Atlantic prevented cooperation between the two on transatlantic routes between the US and UK. Regulatory barriers to entry in its most lucrative markets protected Virgin from the brunt of competition, but Heathrow’s slot restriction also prevented more robust growth. Virgin is the number-three slot holder at Heathrow behind BA and BMI. Continue reading ‘Guest Post: What to Do With Virgin Atlantic?’