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Southwest Interested in DCA Slots (Again)

Published
by
Dan Webb
on January 13, 2012
in Southwest
. 1 Comment

Southwest Airlines plans to apply for two Washington-National slots being divested by Delta Air Lines, according to a recent DOT filing by the Dallas-based carrier.

The move comes after Delta notified the Department of Transportation (DOT) that it would be suspending regional jet service between DCA and Jackson, Mississippi (the slots for the service were awarded in 2004). After Delta’s notification to the DOT, US Airways proposed in a filing to operate Washington – Jackson service “until such time as the Department reallocates the two slot exemptions.”

Southwest then chimed in, saying that it “has no objection to US Airways’ application for interim service in that market,” but it also plans to “submit an application in the reallocation proceeding that will generate far greater public benefits than US Airways’ small aircraft service in the DCA-JAN market.”

“[T]o allow US Airways to obtain slot exemptions on a permanent basis – and thereby increase its already dominant share of DCA slot holdings – would fly in the face of the Department’s recent decision on the Delta/US Airways ‘slot-swap’ requiring those carriers to give up DCA slots in order to preserve competition,” Southwest added.

This move isn’t enitrely shocking considering Southwest’s participation in (and subsequent loss of) the slot swap auction. While only a single slot pair is up for grabs, it will still be interesting to see if Southwest can grab it to bolster AirTran’s existing service at National.

Southwest Adds Atlanta – Los Angeles

Published
by
Dan Webb
on January 12, 2012
in Southwest
. 0 Comments

Southwest announced yesterday that it would start flying its own metal between Atlanta and Los Angeles, an existing AirTran route. While it’s certainly notable that Southwest is adding a new transcon flight, it is also worth noting that  it appears that the move will have no effect on capacity.

For example, here’s a (heavily cropped to save save) screenshot of the AirTran website taken last night showing an ATL-LAX and LAX-ATL flight that are still listed but not bookable:

If one looks at the Southwest website, the timing of the new flight is nearly identical to the old AirTran flight:

Essentially, it looks like one of the four AirTran flights in the market is being replaced with Soutwhest.

Anyway, Southwest starts its own service to Atlanta next month with flights to Austin, Baltimore, Chicago, Denver, and Houston.

Chart of the Day: Regional Jet Block Hours

Published
by
Dan Webb
on January 11, 2012
in Uncategorized
. 2 Comments

The dramatic growth in regional flying, especially of the 50-seat jet variety during the late 1990s through early 2000s, was nothing short of impressive. Nevertheless, totally regional jet flying in the US appears to have topped out over the past few years. Here’s a chart of total block hours of major regional jets at US carriers over the past few years (2011 isn’t included because all of the data hasn’t come out yet):

A quick look at this graph leads to a few interesting points/questions/things to consider:

  • If so many 50-seat regional jets weren’t tied up in long-term, multi-year contracts, how many would still be flying today to support mainline flying?
  • While larger regional jets certainly have an increased presence in the US industry than they did a few years ago, 50-seaters still dominate the landscape. Will scope clauses at mainline carriers continue to relax to allow for more of these aircraft to enter the market, or might management and labor find a way to bring this flying in-house? (The latter isn’t the most likely scenario but it’s worth considering.)
  • If oil prices were to keep on rising, let’s say to $120 for hypothetical, how much further would regional jet flying be reduced?
  • What happens to all the 50-seaters as more and more come off contract over the coming years? Obviously exactly what happens depends on the economy, oil prices, etc., but still interesting to consider.
  • What replaces 50-seaters as they age? The only regional jets in production right now are of the larger variety, and the only aircraft in the 50-seat area that’s currently in production (that I can think of) is the ATR 42. In what scenarios aircraft like the CRJ-700/900, E-170/175, Q400, ATR-42/72 work as replacements?

Porter Plans Sixth US Destination

Published
by
Dan Webb
on January 9, 2012
in Porter
. 3 Comments

Canadian carrier Porter airlines plans to grow its transborder presence next year, noting in its most recent traffic results release that “a sixth U.S. market is…anticipated by spring.” While the airline didn’t provide any further details, it is worth pointing out that Cincinnati, Cleveland, Detroit, Philadelphia, Pittsburgh, and Washington, DC are listed as potential destinations on the carriers route map in its inflight magazine. In the United States, Porter serves Boston, Chicago (Midway), and Newark with multiple daily flights, and also has seasonal flights to Burlington and Myrtle Beach.

Meanwhile, 2011 marked dramatic growth for Porter, with a 35.9% year-over-year traffic increase on a 19.2% increase in capacity, resulting in a 7.5 point load factor boost, to 61.7%. And that load factor increase was certainly seen on the carrier’s big three transborder routes. Here’s the load factors on those routes for the first six months of the year (the most recent data available at the moment), as per the DOT:

While load factor growth is certainly nice to see, it doesn’t always equate with profitability. It is worth noting, however, that The Globe and Mail reported last month that privately-held Porter would turn it first annual profit in 2011.

Chart of the Day: 757 Routes

Published
by
Dan Webb
on January 5, 2012
in Uncategorized
. 4 Comments

Obviously the narrowbody market (and the huge number of orders for the A320neo and the 737MAX) was one of the biggest stories in 2011. A common question about these narrowbodies, however, is if these aircraft serve as adequate replacement for the existing models flying around today – especially the 757. As The Street reported in August, this question appears to be in the minds of airline management teams as well:

…[US Airways CFO Derek] Kerr plans to talk with Airbus executives in an effort to determine whether the Airbus A321neo might be configured to offer range and power similar to the 757. “That’s what we’re trying to get them to do, to give it some more legs,” he said. The carrier has asked Airbus to offer extended operations capabilities for the aircraft so that it can operate on the longer, over-water flights.

I was recently poking around some DOT traffic data, was able to examine exactly how many 757 departures were of the longer-range variety. Naturally, I looked at 2011 (June was selected because it’s the latest month for international data at the moment), but I also decided to compare this to 2004, the year before blended winglets for the 757 went into service.

While the 757 is still predominantly used on routes that are (generally) no longer than a domestic transcontinental flight, the type has only seen growth in departures on longer-haul flights. Flights 3,000 miles or longer represented a mere 1.5% of total 757-200 departures in 2004, but represented 9.1% of flights in June 2011.

In recent years the 757 has certainly found a new role as an aircraft that can serve thin routes across the Atlantic and in other markets — it will be interesting if the latest narrowbodies from Boeing and Airbus will be able to perform the same function.

A Few Notes on Gogo’s IPO Filing

Published
by
Dan Webb
on December 27, 2011
in Uncategorized
. 3 Comments

Internet connectivity provider Gogo filed for an IPO on Friday last week, and its prospectus filed with the SEC has some interesting nuggets of information. Personally, I was quite excited to read through everything as many airlines haven’t provided much in terms of details when it comes to Wi-Fi usage and revenue, and unlike baggage or change fees, they aren’t required to break out these revenues when they report financial data to the DOT.

SplatF went through much of the IPO filing already, and they take a stab at perhaps the most interesting data point: usage rate. “With roughly 355 million passengers having flown on Gogo-enabled planes since 2008, Gogo has only provided 15 million sessions — about 4% take-up,” the website reports. But it does appear that Gogo is making some decent progress in revenue growth. SplatF notes that “total ‘average revenue per passenger’ on commercial airliners in the first 9 months of this year was $0.41, up from $0.26 in the year-ago period, and up from $0.15 in full-year 2009.”

I found a couple of interesting things in the SEC filing as well. First, it’s worth putting  Gogo’s commercial airline revenue in context. Gogo generated just under $59 million in service revenue during the first nine months of 2011. That’s over a 100% increase from the same period a year ago, but so far it appears that connectivity has yet to become a major source of revenue for airlines, as they only get a portion of those revenues. But even if we disregard that for a second – that $59 million for Gogo as a whole pales in comparison to other carriers. In the first six months of 2011, for example, Delta alone earned over $424 million in baggage fees, according to the DOT.

It’s also worth noting that so far Gogo’s commercial aviation business appears to be dragging down the company’s financial results as a whole. The segment loss for commercial aviation was $20.8 million in the first nine months in the year, while Gogo’s business aviation segment recorded a segment profit of over $19 million. That $20.8 million loss, however, is a strong improvement from a $50.8 million loss in the same period last year (page F-17 of the SEC filing has a breakdown of these segment results).

But while Gogo has been experiencing losses over the past couple of years, at least its results are improving. The company’s operating loss for the first nine months of the year was $26.5 million, much smaller loss than the $66.4 million loss experienced over the same nine months last year.

Gogo also detailed its growth strategy, and I found a few bits interesting. It’s not entirely surprising that the company wants to keep expanding service with existing customers, saying it palns to “leverage…[its] unique ability to cost-effectively  equip each commercial aircraft type in an airline’s fleet to increase the number of Gogo-equipped aircraft, targeting full-fleet availability of the Gogo service for all of our airline partners.”

What will be very interesting to watch is Gogo’s plan to go international through a partnership with Inmarsat. Gogo said that it hopes to laverage ” our existing domestic relationships with members of each of the major global airline alliances, as well as the strength of our platform offering and proven track record, to help us to partner with members of these alliances outside North America.”

If Gogo is targeting the alliances, Skyteam seems like a logical step. Delta is already a huge customer for Gogo, as the compnay noted that “approximately 45% of revenue generated by our CA [commercial aviation] segment for the nine months ended September 30, 2011 was generated through our agreement with Delta Air Lines.” United has already announced a deal with Panasonic for Wi-Fi, which includes international aircraft, and based on Delta’s recent emphasis on inflight Wi-Fi I’m sure they’d like to stay competitive here. (American has also said that its upcoming 777-300ER aircraft will feature Wi-Fi service, but it didn’t provide much in terms of details.)

Chart of the Day: Average Fares

Published
by
Dan Webb
on December 26, 2011
in Uncategorized
. 1 Comment

Earlier this month, the Department of Transportation (DOT) released its usual analysis of quarterly fares, and the second quarter data indicates that airlines have (overall) been successful at raising fares as they (generally) remain tight on capacity. Since the second quarter of 2009, domestic fares are up 22.4% and 17.4% on a nominal and an inflation-adjusted basis to 1995 dollars, respectfully. (The DOT uses the Consumer Price Index to make its adjustment.)

Despite this recent increase, fares still seem pretty low on an inflation-adjusted basis.  Fares in the second quarter of this year were nearly 15.8% lower than they were in the same period in 1995!

Frontier and Southwest Spar Over Chicago-Cancun

Published
by
Dan Webb
on December 22, 2011
in Frontier and Southwest
. 4 Comments

As most people reading this blog already know, USA3000 is winding down operations, and will be shutting down at the end of next month. That decision has created an opportunity for Frontier. The Denver-based carrier applied last month for authority to fly from Chicago O’Hare to Cancun, Puerto Vallarta, and Cabo, saying:

The commencement of service will coincide with the termination of service by USA3000 on these routes on or about January 30, 2012. Frontier has entered into an agreement with Apple Vacations to replace Apple Vacations’ current allocation of seats on USA3000′s flights on these routes.

This sounds like a great plan for Frontier, right? The airline can launch some new service in partnership with a well-known travel company, which can provide some nice additional revenue. Unfortunately for Frontier, Southwest has thrown a bit of a wrench in this idea and can potentially prevent Frontier from flying between O’Hare and Cancun.

Southwest can do this because of the current bilateral between the US and Mexico, which in many cases allows three carriers of each country to serve a market. Currently three carriers are allowed to fly between Chicago and Cancun: American, United, and USA3000. The end of USA3000′s service creates an opening for only one carrier, and now Southwest is proposing that its AirTran subsidiary fly to Cancun from Midway with daily year-round service. (Southwest/AirTran did not have any objection to Frontier’s desire to fly to Puerto Vallarta and Cabo.)

Southwest’s sums up its reasoning for why it should get the slots instead pretty well in this paragraph found in a DOT filing:

Because Frontier has no meaningful presence at Chicago, no existing base of Chicago customers, and no feed support for ORD service, it would provide virtually no public benefits beyond the local Cancun market. AirTran/Southwest, on the other hand, with its huge network at Chicago Midway connecting to dozens of cities, will unquestionably be able to generate large amounts of traffic to support MDW – Cancun service as well as to leverage this valuable U.S. authority to the benefit of a large number of communities beyond Chicago.

Frontier has submitted a response, and it’s certainly an interesting read. For example, take a look at this bit (emphasis mine):

With its usual modesty, mega-carrier AirTran/Southwest would have the Department believe that only it could provide substantial public benefits to the traveling public with the third U.S.-carrier designation for the Chicago-Cancun route. However, close scrutiny of the market and the competing applications reveals the fallacy of that position and demonstrates the superiority of Frontier’s O’Hare-Cancun service proposal.

Frontier makes multiple arguments in support of its bid, including that it will be the only carrier going head-to-head against United and American at O’Hare, that it will be using larger aircraft in the route (A320 vs. 737-700), and it will launch service earlier than AirTran.

What I found most interesting is how Frontier tries to use one of Southwest/AirTran’s arguments to show that they don’t understand the Chicago-Cancun market. Here’s what Southwest/AirTran argued:

AirTran explicitly proposes in its application to provide year-round daily service between MDW and CUN. In contrast, Frontier’s application states only that it will operate service between Chicago and Cancun “up to seven times per week,” which clearly suggests that its service will be less than daily for at least part of the year….In addition, while Frontier’s application states that it plans to provide service on a “year-round” basis, Frontier has operated almost all of its current Cancun services on a seasonal (less than year-round) basis. For example, Frontier operates seasonal service in the IND-CUN and SLC-CUN markets (October through April), MKE-CUN (December to April), and MCI-CUN (October to August).

Frontier then argues that what AirTran thinks is an asset of its application is actually a weakness:

AirTran mistakenly believes that it has found an important deficiency with Frontier’s proposal, pointing out that Frontier’s service proposal was for “up to 7 flights weekly” as compared to AirTran’s proposal for daily service. But, that point actually supports Frontier’s application because it underscores AirTran’s lack of understanding of this Mexican beach market.

Frontier continues:

Moreover, it is ironic that AirTran/Southwest would try to make an issue about Frontier’s realistic, year-round schedule proposal given that (i) AirTran only operates 5 times weekly to Cancun from AirTran/Southwest’s Baltimore hub during September/October, (ii) AirTran flies only once per week from Milwaukee to Cancun, and (iii) Southwest has never operated any scheduled service to Mexico.

It’ll be interesting to see how this one turns out for either carrier. Routes like these seem like a great opportunity for Frontier, and of course it’s fun to watch Southwest make moves to build up international service.

Virgin America Posts Opearting Profit in Third Quarter

Published
by
Dan Webb
on December 21, 2011
in Virgin America
. 1 Comment

Virgin America earned a $16.2 million operating profit in the third quarter of this year, but swung to a net loss of $3.3 million during the quarter, down from a $7.5 million net profit in the same quarter last year. Operating margin slipped 4.8 points year-over-year, to 5.6%.

“Although higher oil costs weighed on our overall financial performance for the quarter, as a young airline still fueling growth, we’re pleased to see continued strong revenue performance and to have achieved an operating profit for the quarter,” said CEO David Cush in a press release.

Virgin’s operating cost per available seat mile grew 14.6% year-over-year during the quarter. Much of this increase was attributable to fuel costs, as fuel cost per gallon rose 42.5% year-over-year, to $3.25. Unit costs excluding fuel rose 2.1% year-over-year, an improvement over the 8.2% increase the company reported in the second quarter. Total operating expenses rose 51.5% year-over-year to $274.4 million. Total operating revenue rose slower, 43.8% year-over-year, to $290.6 million.

Total unit revenue, meanwhile, rose 8.8% year-over-year. Virgin noted, however, that “RASM in the carrier’s established markets improved by 17 percent year-over-year.” That measure excludes routes added within the past year.

It’s a bit concerning to see that Virgin couldn’t pull off a net profit in the third quarter, and obviously the airline needs to take more steps to become (sustainably) profitable. But the big story today is cash. Virgin said that at the end of the third quarter it had “$24 million in unrestricted cash and $42 million in total liquidity,” down from $26 million in cash and $53 million in liquidity at the end of the second quarter. That decrease isn’t great, but Virgin has now taken some big steps to boost cash and finance it upcoming deliveries:

Today, Virgin America also reports it has raised an additional $150 million in a new four and a half year debt facility funded in December, further improving the Company’s cash position. The Company has also obtained lease financing commitments for 13 Airbus A320 Family aircraft slated for delivery between October 2011 and September 2013. In addition, the Company has closed on a financing facility for the majority of its pre-delivery payment obligations (“PDPs”) due on the first 20 aircraft within its order of 60 Airbus A320s, scheduled to begin delivery in the summer of 2013.

Those moves should give Virgin America some more breathing room and flexibility to continue its growth plans, that will hopefully lead to more sustainable profitability for Virgin going forward.

Delta Announces LaGuardia Expansion

Published
by
Dan Webb
on December 20, 2011
in Delta
. 5 Comments

Last Friday, Delta announced its post-slot swap schedule for LaGuardia, revealing an expansion plan that includes multiple daily flights to new destinations such as Charlotte, Dallas, Houston, and Miami. That move makes a whole lot of sense considering Delta’s push to win the market for New York business travel. (Cranky Flier noted yesterday that the boosts in large-city service comes at the expense of smaller markets.)

Over the weekend I dove into some DOT O&D data to take a look at Delta’s additions to see what it meant for the airline’s coverage of the top 50 destinations from LaGuardia (table below). By my count, Delta already had service to 24 of the largest 50 domestic destinations, and will be adding service to 13 more with this latest schedule move. That leaves 13 remaining markets not served. Let’s take a look:

  • Ten of those thirteen markets, like Los Angeles and San Francisco are restricted by LaGuardia’s perimeter rule. Delta could fly to these longer-haul destinations if it wanted to, but would only be allowed to do so on Saturdays.
  • One of the top markets is Chicago-Midway, and Delta already has ample service to O’Hare. (In 2010, Delta ended Midway-LaGuardia service and replaced it with O’Hare flights. It’s worth noting that the MDW-LGA flights initially replaced O’Hare-LaGuardia flights back in 2007!
  • The remaining two airports are Akron-Canton and Williamsburg, both of which have nonstop service from AirTran. In the case of the former, Delta is already adding service to Cleveland so it isn’t much of a big deal, in my opinion. In the case of the latter, Southwest is closing that station altogether in March, and Delta will be adding service to nearby Norfolk.

Edited at 11:49pm on 12/20 to note that the data used to generate the table only included domestic markets.