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Chart of the Day: Hawaii Now 16% of Alaska’s Capacity

Published
by
Dan Webb
on February 27, 2012
in Alaska
. 5 Comments

I was recently going through Alaska’s recently-released 2011 10-K, and the company provided a simple, yet very thought-provoking chart of its capacity by region. It’s very interesting to see how Alaska’s network has developed  - over the past three years Hawaii’s share of capacity has doubled, while the West Coast’s share has decreased by roughly eight percentage points.

Looking at this chart makes me wonder what’s next for Alaska’s growth over the coming years, especially as it begins taking delivery of the 737-900ER (Alaska expects to have three at the end of the year). The airline has already announced new service for this year in a bunch of different markets, including more regional flying out of San Diego and Portland, Honolulu flights from San Jose and Oakland, and new service from Seattle to Kansas City and Philadelphia. (the 10-K has a handy chart of everything that’s been announced so far).

Southwest Says the “Number of RNP Approaches Has Slowed”

Published
by
Dan Webb
on February 23, 2012
in Southwest
. 1 Comment

Southwest Airlines has taken many large and difficult steps to prepare for implementing Required Navigation Performance (RNP), not least of which included training its entire pilot group. But the steps had a significant payoff: RNP allows a carrier to fly more efficient procedures  that can reduce fuel burn. When the Dallas-based launched RNP operations in January last year, it estimated the program would provide “anticipated savings of more than $60 million per year once all Southwest airports have efficient RNP procedures.” It appears, however, that those savings are taking a bit longer to materialize, according to Southwest’s recently-filed 2011 10-K.

“For reasons out of its control, Southwest’s total number of RNP approaches has slowed to fewer than 400 per month,” the company noted. To put that figure in context, Southwest had previously noted 600 RNP approaches were flown in the first week the program was active. Southwest flew a total of 6,790 RNP approaches last year, but 1,400 of them (around 20%) were flown in the first 20 days of the program.

The airline noted that it “must rely on RNP approaches published by the FAA, and the rate of introduction of RNP approaches has been slower than expected, with RNP approaches currently available at only 17 airports.” When Southwest started RNP operations last year, 11 airports were part of the program.

But the issue is not simply the introduction of approaches – Southwest also noted that “even at airports with approved RNP approaches, the clearance required from air traffic controllers to perform RNP approaches is often not granted.”

“As a result, in the second half of 2011, the Company decided not to equip its Classic (737-300/500) aircraft with RNP capabilities,” Southwest concluded.

RNP is an exciting technology that holds lots of opportunity for Southwest and the industry as a whole — hopefully progress will be made in this area soon.

American Provides More Detail on Planned Revenue Improvements

Published
by
Dan Webb
on February 22, 2012
in American
. 1 Comment

Earlier this month, American CEO Tom Horton said in a letter to employees that it planned to achieve $3 billion in annual improvement to the business. $2 billion of this benefit is slated to come from cost savings, while the remaining $1 billion would come from enhanced revenue generated by “network scale, fleet optimization, and product improvements.”

Yesterday American Chief Commercial Officer Virasb Vahidi sent another letter to employees providing additional detail on the $1 billion in incremental revenue that American wants to generate by 2017.

Vahidi estimated that changes in American’s fleet will provide “almost two-thirds” of the revenue improvement, saying that “ renewal of our fleet is instrumental to our plan because it means more profitable flying with much more cost-efficient planes.” But the regional side is a key part of American’s future plans as well (emphasis mine):

Re-gauging is expected to provide American with the flexibility to appropriately match aircraft size with market demand. Under our existing labor agreements, we are limited in our ability to fly large regional jets, which puts considerable downward pressure on our unit revenue performance. This challenge is evident in our Chicago hub, where our primary competitor has the ability to match supply with demand by time of day, given its substantially larger fleet of large regional jets. With the expected relaxation of limitations in our pilot agreement, and capitalizing on the new small narrow-body fleet and additional regional flying, we will be able to replace our current aircraft with those whose size better match the demand in our network.

American’s current proposal to the Allied Pilots Association would allow the carrier to have more than 250 large regional aircraft  (up to 88 seats) operating in its network. Such a proposal would mark as significant change for American, whose only large regional aircraft are 47 CRJ-700s and 36 ATR-72s (as of December 31). Both types seat less than 70 passengers. It’s worth noting that this latest proposal appears to differ significantly with American’s November proposal to APA, which entailed all aircraft over 50 seats being flown by mainline pilots under special rates and work rules.

Also included in Vahidi’s letter is the continued development of alliances with other carriers, which would generate “almost a third” of the $1 billion revenue improvement. “We also intend to grow our Joint Business agreements across the Atlantic with British Airways and Iberia and across the Pacific with Japan Airlines and Qantas,” wrote Vahidi, who added that the airline has “successfully acquired and retained corporate and high-value customers, who are attracted to our integrated global network.”

American also plans to pursue more domestic codesharing (as it has in the past):

…with additional contractual flexibility, we will be able to enter into new, and expand existing, codeshare agreements, particularly in locations where slots or facilities constrain our ability to grow. This will give us more domestic feed than we have today to be able to support our aspirations for a larger international presence, as well as an expanded domestic network to compete with our competitors.

Certainly JetBlue seems like an interesting potential partner here. The two carriers already have an interline agreement, and further collaboration could help American tap JetBlue’s expansive JFK route map to help feed its international flying. American has also said previously that it wishes to further develop its relationship with Alaska.

Vahidi also mentioned brand modernization as part of American’s goals:

As part of our business plan, we are planning to refresh and modernize our brand and customer products and services by making substantial investments, with the overarching objective of making American the premier airline for high-value customers. Our disadvantaged cost structure and balance sheet have greatly limited our ability to invest in products or match our competitors’ actions in some cases. At the same time, our competitors used their profit advantage to invest in winning high-value customers. For example, both Delta and United are installing lie-flat international business class seats, and adding premium economy offerings and upgraded inflight entertainment.

None of the three areas of focus listed by Vahidi seem particularly shocking, but American does have plenty to do in every area. Two of the major issues brought up by Vahidi – an expansion of domestic codesharing and larger regional jet flying – would require a change in American’s scope clause with its pilots. American has been unsuccessful in getting this relief from its pilots thus far, but naturally those negotiations weren’t going on in a Chapter 11 scenario.

 

Chart of the Day: Spirit’s Revenue Sources

Published
by
Dan Webb
on February 20, 2012
in Spirit
. 0 Comments

Yesterday Spirit announced its fourth quarter financial results, and I was very interested to see the growth in the airline’s non-ticket revenues. Year-over-year growth in non-ticket revenue per passenger flight segment was just over 15% in the fourth quarter, much lower than the airline has experienced in the past.

Much of this declining rate can probably be attributed to some of Spirit’s ancillary products becoming mature. For example, Spirit introduced its carry-on luggage fee during the third quarter of 2010, so the fourth quarter of 2011 has the first year-over-year comparison where the fee has been present for all of both quarters being compared.

Over the past few quarters, Spirit has been able to keep its fares low by relying on ancillary revenue growth. But I wonder if these days are coming to a close. Spirit has unbundled many products in recent times, including boarding passes printed at the airport. What’s the next big thing for ancillary revenue? Is there anything that can come close to the revenue pulled in from bag fees?

From my viewpoint, it seems that Spirit will have to rely more on base fares to increase revenues in the future. That’s not necessarily a problem, however. As long as Spirit can keep a gap between its fares and those of its competitor’s, then ancillary revenue growth isn’t as much as a big deal. Spirit’s existing ancillary products can help the airline maintain its price advantage (at least from a base fare perspective).

Source of revenue data: various Spirit SEC filings found here, here, and here.

Southwest Obtains Lease Rate Reductions on 717s

Published
by
Dan Webb
on February 13, 2012
in Southwest
. 0 Comments

Southwest Airlines has obtained more favorable lease rates on many of its Boeing 717 aircraft that joined its fleet as part of the acquisition of AirTran Airways. Southwest recently-released annual report noted the existence of “lease rate reductions negotiated for the Boeing 717 leases.”

While Southwest did not provide much more in terms of detail, the annual report for Boeing Capital Corporation suggests that it could be the lessor behind the rate reductions:

In the fourth quarter of 2011 we revised the contractual terms of our leases with AirTran in conjunction with a full guarantee from Southwest of those lease payment obligations. Revenue and earnings are expected to be approximately $30 million lower in 2012 due to these lease revisions.

Southwest noted in its annual report that 80 of its 88 717 aircraft are leased, and also said that it “has determined the Boeing 717 aircraft does not fit within its long-term overall fleet plans.”

The move comes after it was reported in August that the leases of the 717 aircraft were up for discussion:

With leases expiring between 2017 and 2024, the airplanes may stay in the Southwest fleet for quite a while, but [Southwest CEO Gary] Kelly said the future of the 717s, which it leases from Boeing, is among the matters under discussion as Southwest talks to Boeing about future aircraft orders.

AirTran represents a significant portion of Boeing Capital’s revenue – 21% in 2011. The company noted that AirTran is “our largest customer in terms of revenue and portfolio carrying value.”

On a combined basis, including AirTran results prior its acquisition in May, Southwest/AirTran recorded $389 million in aircraft rent expense in 2011.

Delta’s New Boarding Pass

Published
by
Dan Webb
on February 9, 2012
in Uncategorized
. 2 Comments

I know I’m a few days late on this one, but I wanted to share (for those who hadn’t seen it already) that Delta has unveiled a new style of boarding pass – and I really like it! I’ve been unhappy with some airline boarding passes that make important information (like boarding time) hard to find, and this new format makes everything very accessible.

The extra white space does look a bit weird at first, but Delta is going to put it to use soon. The airline wrote on its blog that passengers will be able to “use a single document for up to four flight segments.” I hate keeping track of multiple boarding passes, so I look forward to this change.

Photo Credit: Delta Air Lines.

While Delta’s new boarding pass looks great, Virgin America’s (kiosk) boarding passes are still my favorite. All the important information is easy to find, their small size allows them to easily fit in a pocket without folding, and plus they are printed on thicker stock than other airlines use so they don’t crumple easily.

Delta Kicks off 2012 With a Double-Digit Unit Revenue Increase

Published
by
Dan Webb
on February 7, 2012
in Delta
. 1 Comment

If you’ve been reading my blog for awhile or have listened to me on the Airplane Geeks Podcast, you know that I love random bits of airline data. So it should not come as a shock that I am thrilled that Delta has started to include revenue results along with its monthly traffic results.

The Atlanta- based airline appears to have kicked off the new year very well, reporting a 14.5% year-over-year increase in consolidated passenger revenue per available seat mile (PRASM) in January. The increase was driven by “company’s capacity discipline and revenue momentum contributed to a strong increase in yields,” according to Delta.

For anyone interested, PRASM can be calculated by taking yield (passenger revenue divided by revenue passenger miles) and multiplying it by load factor. So both pricing and capacity measurement are reflected in the number. Delta’s consolidated load factor was up 2.3 points, to 77.5%, so that increase probably played a role in the double-digit PRASM increase (in addition to yield growth, of course).

Delta added that “all regions generated double-digit unit revenue gains” but the strongest performance was in the domestic and transatlantic markets. Total transatlantic capacity for the airline was down 9.7% year-over-year, the largest decline of the regions where Delta operates. The airline said last year that it would be working with its joint venture partners to bring down capacity in this market.

The airline’s PRASM increase compares favorably with other carriers that have reported the same metric so far. US Airways said last week that its January PRASM rose 10% year-over-year, while Southwest today estimated a 7% increase.

Southwest’s Entry and the Distribution of Fares

Published
by
Dan Webb
on February 6, 2012
in Southwest
. 2 Comments

The “Southwest Effect” is a pretty well-established topic at this point – the original DOT report on the subject was published in 1993. The impact of Southwest entering, generally, is a steep decrease in fares along with a boost in passenger traffic. Oftentimes the former of the two is measured in terms of average fare. Lately I’ve been playing around with the DOT’s DB1B database to look at the distribution of fares (in this specific example, a cumulative distribution is presented).

One of the markets I’ve found interesting of late is Boston- Philadelphia. This graph compared the fourth quarter of 2009 (the last full quarter before Southwest announced service) with the same period a year later. It’s pretty interesting, especially the top 50% of fares. Previously a big range of those were seen in the market, but that wasn’t the case once Southwest came in.

I’m hoping to do more analysis like this in the near future, and take a look to see if a similar effect has been seen in other markets where Southwest entered. Also, Southwest ended up cutting the Boston- Philly route, so it’d be interesting to take a look at this market a bit further to see how it developed for them.

It’s worth pointing out a couple of things about the data I used. First, fares under $50 are excluded in an attempt to exclude fares that are just taxes and fees (like award tickets). Also, fares listed aren’t considered credible in the DB1B Ticket database are excluded. There were also a few fares over $600 in both periods, but I just cut off the x-axis there for purely aesthetic reasons.

Charts of the Day: Traffic at Eliminated/Reduced Hubs

Published
by
Dan Webb
on February 2, 2012
in Uncategorized
. 0 Comments

Earlier this week I was playing around with some DOT data, specifically DB1B (a 10% sample of tickets that tracks origin and destination passengers) and T100 (which tracks all traffic). By using these two databases together, one can get a decent estimate of how many passengers at an airport are actually flying to/from there or are simply connecting passengers.

I decided to do just that for three hubs that have seen days of higher passenger numbers – Pittsburgh, Cincinnati, and St. Louis for 2000 through 2010 (full-year 2011 data isn’t out yet). A similar pattern seems to emerge with each one. Despite big reductions in passengers driven by capacity cuts, total O&D traffic remained relatively flat — which I think shows that it’s a challenge for new entrant carriers to make a move in such cities since so much of the prior traffic was driven by connections. Cincinnati, I think, is a perfect example – Delta’s cut a load of flying, but I’d argue that most of those cuts were in areas where there wasn’t a bunch of local demand, and most of the connecting traffic could be funneled elsewhere.

Of course one wonders what cities could be at risk if we see yet another round of consolidation. The Charlotte Observer had a good story about CLT’s prospects in the case of any potential deals that involve a US Airways.

Anyway, enough rambling — here’s what I found:

A Quick Note on On-Time Statistics

Published
by
Dan Webb
on January 30, 2012
in Uncategorized
. 0 Comments

Yesterday I was participating in the usual weekly recording on the Airplane Geeks Podcast, and I noticed that my fellow co-host Rob Mark wanted to discuss an article entitled “Delays Worse After JFK Runway Work Done.” Some interesting points about the DOT’s on-time database popped into my head as I was researching and preparing for last evening’s discussion, and I think some of them are worth sharing here as it shows the importance of properly using government data to draw conclusions.  Let’s take a look at two of the first paragraphs in the story:

When construction began in March 2010, officials said the revamped Runway 13R-31L would reduce flight delays by cutting the time planes spent traveling to and from the gate by up to a minute, or an estimated 10,500 hours a year.

But since the runway reopened in July 2010, the percentage of late arrivals and departures has increased.

When playing with operational data, it’s very important to be using the right statistics. According to the article, the runway was supposed to reduce taxi times, but instead uses late departures and arrivals to judge its effecgtiveness, which in my opinion is an error. First, departure delays are based on gate departure time, so a shorter taxi to the runway wouldn’t have any affect on departure delay. One could argue that a shorter taxi-in time for the inbound flight could lead to better departure performance, but I think that’s a pretty minor factor. Second, there are many factors that can affect flight delays, so using broad on-time statistics and implying that the runway is involved isn’t accurate. (Granted, the author does mention that delays have many causes, but that’s buried a few paragraphs into the article.)

If we actually look at taxi times (which is included in the DOT data), the story at JFK looks quite different. The author compared October 2009 – March 2010 to the same period a year later. In the later period, taxi in times at JFK were shorter in five of the six months being compared. Taxi out times were shorter in four of the six months.

But while taxi time numbers are (in my opinion) more reflective of the runway’s impact on operational performance, there’s still some very important caveats to consider. First, the DOT data doesn’t have any information on weather conditions at the airport, so if one month is stormier than the other a fair comparison might not always be generated.

The other issue with the DOT database is that a bunch of flights aren’t included, as the data only covers domestic flying. Second, only carriers that “have at least one percent of total domestic scheduled-service passenger revenues” are required to share their data, so that excludes smaller airlines like Virgin America, Spirit, and a bunch of regionals. The only exception is ExpressJet, which reports voluntarily. Obviously this can be an issue at a major airport like JFK. Just for fun, I took the T100 segment data, filtered out flights operated by all-cargo aircraft*, selected airports with at least 10,000 departures, and determined how many of those flights were performed by carriers that didn’t report data that month:

The DOT on-time database is very powerful and has a wealth of useful information for those interested in operational performance. But one has to be careful with the data and understand its strengths and weaknesses when analyzing it.

*I was having a tough time with this decision. Obviously, freight and boxes don’t have feelings and won’t get ticked off about a delay, but those flights are still buzzing around and can have an effect on congestion. But in the end I felt that eliminated all-cargo flying was the best for this post.