Unfortunately, with all the airline news this week, I won’t be able to post that much as I’m currently attending AirVenture in Oshkosh, and helping to cover the event for Flightglobal.
I promise I’ll be back soon, however. 
Monthly Archive for July, 2011
American’s large order for narrowbodies was quite fascinating, for a few reasons. Here are a few quick thoughts:
- Obviously this announcement is a huge win for Airbus, as this is its first order from American since it ordered the A300 back in the 1980s.
- It’s quite interesting to see that American’s order appeared to be enough to make Boeing pull the trigger on a re-engine. Boeing’s bid appears to have been made pretty quickly, however, as the Boeing board still needs to approve the re-engined 737.
- Why did American split? I have to think it’s a pure play for bargaining power. Yes, American has ordered two families that (essentially) do the same thing, but I’m guessing they negotiated good pricing, and plus Airbus and Boeing together are providing $13 billion worth of financing through operating leases.
- Interesting data point – based on American’s 10-Q it appears that the leased aircraft are the current technology aircraft, not the re-engined ones.
- By the way, is adding a bunch of operating leases great for American long-term? Yes, it reduces capital expenditures and spread out cash flow, but the tradeoff is it increases the airline’s fixed costs – how will this affect American’s ability to adjust capacity to demand in the future?
- American’s been pretty mum on exactly what variants from the 737 and A320 families they will actually receive. How that all shakes out, and what exactly American’s logic for its future selections will be fascinating to research.
- American has plenty of its own problems, such as poor financial performance, plenty of debt, and a labor cost disadvantage. This deal appears to do little (if anything) to address these structural problems. While these new aircraft will certainly help American improve its performance, I do not this order is a panacea by any means.
As most people reading this have already read, Delta announced on Friday that it was looking to “adjust” service to 24 smaller markets. The regional carriers providing the service have given the DOT 90-day notice of suspending flights.
All of these markets, save for Butte, Montana have service (sometimes one-stop) to old Northwest hubs (Detroit, Memphis, and Minneapolis) with service from Mesaba. (Mesaba serves most of these markets, but the carrier has permission from the DOT to mix in Pinnacle flying.) As mentioned here before, most of this relates to Mesaba’s Saabs being retired.
Delta is not necessarily looking to cut all of these destinations. The carrier said, however, that “subsidy rate must be higher in order for Delta to fly larger regional jets on the routes in question.” Some of the cities are unsubsidized at this point, and with Delta cutting service these could now become part of the EAS program. In some cases, Great Lakes is interested in picking up service.
Basically, this move just provides a lot of flexibility. For example, if the DOT doesn’t select a new carrier in time and Delta Connection service has to remain, a subsidy begins anyway.
A chart of the cities is below, with load factor and EAS status (provided by Delta). Through some DOT digging I discovered what carrier is providing service, and any re-applying carrier was mentioned in the DOT filing.
Based on what I’ve found so far, some interesting patterns emerge. First, all of the Memphis flying is gone, which isn’t that shocking as Delta adjusts that hub. Second, it appears that Delta is still interested in serving all the unsubsidized markets, but just wants a subsidy to help make it work. Also, generally (not surprisingly) Pinnacle/Mesaba service is most likely to remain at the cities with the highest load factors.
Of course, no one really knows how this will all play out. While the DOT filings on the subject have outlined what carrier (if any) is interested in bidding on service, but there’s still a bidding process that needs to be done. For example, Great Lakes is interested in providing service at Fort Dodge, but Frontier (Chautauqua) participated in the latest bid, and we’ll have to see if they give it another shot.
Finally, on a completely random note I’d (unofficially) add Rhinelander, Wisconsin to this list of small cities. Delta recently said it was suspending service there, but Frontier’s new unsubsidized service there fulfills the city’s EAS service requirements, so this city is a bit less complex than the others.
Last Friday, American announced that they had entered into a sale-leaseback agreement with AerCap to cover up to 35 737-800 aircraft. This very-common type of deal is a great way for an airline to generate some quick cash, and American is no stranger to it. In fact, American parent AMR generated over $1.4 billion in cash flow through sale leasebacks last year – with much of that probably coming from a $1.6 billion sale-leaseback deal with GECAS announced in 2009.
What is interesting, however, is that the sale-leaseback deal seems to be paired with a change in American’s 737-800 delivery schedule. At the very least, the carrier has increased its 737-800 orderbook, and appears to have also accelerated some deliveries. The company said Friday that the deal covers 26 previously-ordered aircraft, three newly-ordered aircraft, and six purchase rights. Those purchase rights, if exercised, cover 737s that would be delivered in the 2013-2014 timeframe.
Based on an updated delivery schedule provided by American, 2011 and 2012 737-800 deliveries appear unchanged at 15 and 28 aircraft, respectively. The carrier also said 14 aircraft will be delivered in 2013.
American had previously said in May that it was expected 11 737-800s “beginning in 2013” and also said in its first quarter 10-Q that it “had firm commitments for eleven Boeing 737-800 aircraft and seven Boeing 777-200ER aircraft scheduled to be delivered in 2013 through 2016.” Based on these changes in semantics, it would appear that American is accelerating some 737-800s. I am completely speculating here, though.
Anyway, this makes sense as a way to build up cash, though American’s news release doesn’t outline the value of the deal. But this move especially makes sense because it would appear that American’s deal with GECAS is just about done. American said in 2009 that “this latest financing commitment means American has the ability to finance all of its remaining 737 deliveries through 2011,” but last year the carrier bolstered its 2011 and 2012 orderbook for 737-800s.
The carrier’s 2009 10-K said the deal covered “737-800 aircraft…scheduled to be delivered in 2010 and 2011.” The 2010 10-K, however, said the deal involved “737-800 aircraft…delivered in 2010 and certain Boeing 737-800 aircraft deliveries scheduled to be delivered in 2011.” I might be splitting hairs here, but note the insertion of the word “certain.”
Like I said earlier, I’m completely speculating about most of this here — but either way a very interesting deal.
JetBlue appears to have followed in the footsteps of American and United, making its own (public) labor negotiations website.
According to a WHOIS search, it appears the domain name JetBlueFacts.com was created on June 10 this year – shortly after the Air Line Pilots Association (ALPA) had requested that a union election be held. (You can see the JetBlue ALPA Organizing Committee website here.)
In a shock to no one, the company’s position is against ALPA.
“Obviously, I’m not surprised to see national unions have interest in JetBlue. Let’s face it, I think our model is a threat to their continued existence,” says JetBlue CEO Dave Barger in a video posted on the website. ”I’m looking for your support of the company by voting no to ALPA,” he says later.
JetBlue’s pilots have attempted to unionize before with the JetBlue Pilots Association – an effort that failed in 2009. Pilots at the New York-based carrier currently each have their own Pilot Employment Agreement (PEA).
Other parts of the website are pretty crystal clear on JetBlue’s position:
Choosing ALPA – or any union – isn’t something you take out for a test drive. It is a virtually permanent choice, and one that may impact your career forever. It will also fundamentally change the culture and company we have built working together.
Now that ALPA has filed and requested election, the time has come for you to make your choice, and make your voice heard. Do you want to continue the work we’ve done together, and continue building the airline that is changing our industry? Do you want to preserve your seat at the table and your individual choices through your individual PEA? Or do you want to change course and follow the lead of the legacy carriers who have come before us? Delegate your seat at the table to someone else? And lose your individual right to choose in favor of the collective will?
The election is currently scheduled for July 26. It would certainly appear that JetBlue views this election as a referendum on the company’s business model and culture. (I could propose that it’s also a referendum on JetBlue in the post-Neelman era.)
Of course,it’s not impossible for an airline to be unionized and still maintain a great culture – Southwest would be the shining example here.
Ever since its purchase of Frontier in 2009, Republic Airways Holdings has just been fascinating to observe. Lately, labor has been a very interesting issue, as Frontier’s pilots recently authorized concessions as Frontier looks to restructure its business, and a short while later the International Brotherhood of Teamsters was selected as the one union to represent all pilots at Republic subsidiaries (including the furloughed Midwest pilots).
Frontier’s pilots had previously been represented by the Frontier Airlines Pilots Association (FAPA), while pilots at other Republic subsidiaries (Shuttle America, Republic, Chautauqua) were represented by the Teamsters. The Midwest pilots were ALPA, while the United Transportation Union represented Lynx’s pilots.
The recent election for pilot representation came after the National Mediation Board concluded in April that all of the carriers were operating as a single transportation system. A union election was authorized a month later. (FAPA had asked for reconsideration by the NMB’s decision remained.)
Before the scheduled tally of the votes, NMB documents indicate that Republic had requested the NMB to “postpone the tally scheduled for June 27, 2011 while it considers whether a corporate restructuring and planned divestiture of majority ownership of Frontier Airlines, Inc. (Frontier) affects the Board’s determination that Frontier is part of the single transportation system with the RAH operating subsidiaries.”
Republic held that the situation had changed now that it had entered into a new labor agreement with FAPA. As part of this deal, Republic agreed to changes including an agreement to “further separate the Frontier management structure to include appointing a separate Frontier Chief Operating Officer and an independent Director of Labor Relations for Frontier” and also had also “agreed to divest itself of its majority equity stake in Frontier no later than December 31, 2014, after which a separate Frontier Board of Directors would be established.
In its response, however, the NMB said that Republic did “not cite any Board precedent to support its request and the Board, when faced with similar facts in past cases, has denied requests to delay representation investigations pending the completion of business transactions.”
Interesting stuff. I would imagine having a single union across all the Republic carriers could certainly have an effect on Republic’s possible future attempts at attracting new investment into Frontier.
On Saturday, I had the chance to fly to Chicago and attend a United party in honor of Tom Stuker, the first United frequent flyer to reach 10 million miles flown on the Chicago-based carrier. Stuker has taken over 5,000 flights and averages over 29,000 miles per month. I’m not sure if I would ever be able to handle that!
While the comparisons to Ryan Bingham from Up in the Air immediately come to mind, Stuker is no Bingham. See, Bingham, George Clooney’s character, goes through (much) of the film as the stereotypical “do you know who I am?” elite flyer, taking much of the special service he receives for granted and feeling entitled along the way.
Stuker, however, acted completely differently. There were plenty of hugs with United employees, and he even teared up a bit while giving some remarks to the crowd in the Red Carpet Club. The gratitude he expressed to United employees for giving concessions to help the airline survive was particularly heartfelt. (Sadly, I was out of memory card space on my camera at this point!)
I took some video of the event, along with the presentation of gifts to Stuker by CEO Jeff Smisek. Stuker also received the first-ever titanium Mileage Plus card:
If you’re interested in watching the entire event, check out Darren Booth’s Frequently Flying blog.
For disclosure’s sake, United’s PR department had invited me to the event, and also comped my airfare. I was greatly appreciative of this, as most airline PR departments are running on a tight budget. It was really great to see United invite some of the social media folk to the event – I think at one point someone even referred to us a “Twitter royalty”!
Yes, I realize that I might not make a lot of new friends because of the above title – but hear me out!
As I’m sure people have noticed over the past couple of years, overhead bin space has been at a premium. This change is most likely caused by higher load factors compared to past years, as well as passengers bringing more items onboard to avoid checked bag fees.
I think many would agree with me when I say that more carry-on bags have made the boarding process a bit more lengthy, which can negatively affect an airline’s operational performance.
Spirt Airlines, the only carrier to charge for carry-ons has cited this as a reaons for implementing the fee. Here’s what Spirit CMO Barry Biffle told Cranky Flier a couple of weeks ago:
We were averaging 17 gate-checked bags per departure at LaGuardia. The reason is because airlines lie to you, not Spirit, well, they don’t really lie but they’re allowing you two bags when there isn’t enough space above all the seats for everybody to jam a bag up there….We’ve ended up with a better customer experience. Our total turn is down by 7 minutes because I’m not gate checking bags. Are we evil or are we actually the best option for consumers?
Of course, another likely reason for the fee is the fact that Spirit’s ultra-low-cost carrier business model relies heavily on ancillary revenue. But what’s interesting is that Spirit now charges less for a checked bag than they do for a carry-on – providing an economic incentive to leave them behind at check-in.
The other reason I don’t like checked baggage fees is that I feel they are not evenly administered. On some of my past flights airlines have been offering free checked luggage in anticipation of the fact that the overhead bins will be full. I don’t find this policy fair.
Now, I’d rather not see every airline adapt Spirit’s policy of charging for carry-ons and checked bags. I realize ancillaries have become an increasingly important revenue stream accross the industry, but I believe passengers should be allowed to take at least one bag for free (in addition to a laptop bag/backpack/murse/etc.).
So here’s what I’d like to see an airline try – get rid of the first bag fee and start charging $15-$20 for a carry-on (in addition to a personal item).
To be honest, this idea will probably never fly – not every airline is, for lack of a better word, as shameless as Spirit. (I mean that as a compliment!) Hell, if I was a manager at an airline I’d be afraid to try it. There’d probably be a very strong and swift PR blowback. Not to mention, one would think that airlines would want to keep carry-ons free for elite members, so that could lead to some enforcement issues at the gate that could possibly add to boarding time.
Either way, I’d love to see an airline try this.
Last week, Hawaiian announced some interesting changes to its interisland fleet – changing the ownership structure of its existing aircraft and also committing to expand the interlisland fleet.
The carrier’s current interlisland fleet is composed of 15 Boeing 717s. The have been ”operated under long term leases from Boeing Capital Corporation (BCC),” as the press release puts it, but Hawaiian has purchased all of them “in a refinancing transaction that reduces its fleet costs over the long term.”
According to an SEC filing that outlines the deal, the total price of the aircraft was $230 million. What’s interesting is that Hawaiian is using loans of approximately $193 million from Boeing Capital to help finance the deal. So Boeing loses the regular leasing payments but gets interest income instead. One would assume that interest expense is cheaper than what Hawaiian is paying monthly for leases. In addition, each loan is “subject to a balloon payment at maturity” so that reduces Hawaiian’s short-term cash expense. The loans have an eight-year term.
But Hawaiian has made some other changes – including leasing three more 717s from Boeing Capital. The aircraft are set to be delivered in September, October, and November and will be under eight-year leases. If I had to guess, I would suggest these aircraft are ex-Midwest 717s owned by Boeing. These aircraft were slated to head off to Mexicana – but we all know how that turned out. So Boeing at least gets some of these aircraft flying again and probably gave Hawaiian a nice deal.
So why expand the interisland fleet? Hawaiian CEO Mark Dunkerley said in the press release that “with our increasing service to Hawaii from Asia, demand for our interisland flights during peak hours of the day and during popular travel periods has never been higher.”
I just found that interesting – as Hawaiian has diversified its route network lately, which I think helps them greatly as more US domestics move to the Hawaiian market.
According to that same SEC filing, it also appears that Hawaiian has entered into some loan agreements to help finance its upcoming A330 deliveries.
Speaking of Hawaiian’s widebodies – I wonder how much their long-term plans are affected by Airbus’ decision to delay the A350-800 by two years. That should help make for an interesting earnings call in a couple of weeks.
Remember how Delta was criticized for all the bag fee revenue it earned? When put in context, it’s not that bad!
The DOT finally released the rest of the 2010 financial data. Personally, I believe finding how much of total revenue comes from baggage fees is the better than looking at the total number. The results are below – but here are a few caveats. Regional airlines are excluded. For example, Republic reported bag fee revenue, but I have no idea how much of that is Frontier versus network carriers. Also, Continental Micronesia was still separate at this time and I did not add them to Continental’s results. Also – these numbers are for all of 2010.
For those who follow airlines, it should be no shock that Spirit came out on top in terms of this metric. (So Delta got all the criticism because…?) Likewise, it shouldn’t be shocking that Southwest was right on the bottom considering it still has two free checked bags.
The other thing I’m wondering is how many bags carried by the legacy airlines are carried for free through credit card deals, elite status, etc.
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