August 2007 Archives

Most companies celebrate big birthdays like a century with big public ceremonies, but UPS, the old United Parcel Service, marked its 100th anniversary quietly and perhaps a little bit oddly. The company, which operates one of the largest all-freighter air fleets in the world, gave each of its 420,000 employees a small bar, about three inches long, made from the melted-down airframe of the first aircraft it bought for its fleet back in 1981. The 727, N907UP, flew from the UPS hub at Louisville, Kentucky, where the carrier bases its North American operations.

AirAsia is on the move again, this time to Vietnam.

Fresh from signing up none other than Richard Branson as an investor in his long-haul low-cost venture AirAsia X, Tony Fernandes is keeping up his frenetic pace of deal-making by signing a letter of intent with a Vietnamese transport group to set up an AirAsia style airline in the country.

And in typical TF style he has grabbed top level endorsement for his initiative, posing with none other than the country's premier Nguyen Tan Dung at the signing. Tony did however bow to protocol by taking off his AirAsia cap - we thought that it was surgically stitched to his head so often is he seen with it.

It was a New York kind of minute. Hundreds of the beautiful people who hang around the powerful and well suited, almost as many of the not-so-beautiful pressies and their scruffy techie types such as camera-persons and sound-persons, jammed into a room at New York’s sprawling JFK airport to hear that they were in fact in American Airlines' new JFK terminal. It had to be New York…everyone was late. Finally, a snappily dressed little guy walks in, tailed by many men in very nice suits and then those short-haired types with radio ear pieces. You could tell who the New Yorkers were: they all recognised their mayor, Hizzoner, Mike Bloomberg, mayor of all five boroughs of New York City, and they all said, “who’s that guy next to Mike?” And you could tell the airline types, because they all recognised Gerard Arpey, the American chief right behind Hizzoner. The airline types all said, “Hey who’s that guy in front of Gerard?” On this Hizzoner was slightly fuzzy, introducing Gerard as 'George' Arpey, but he got the airline's name right, so no one was upset.

News agencies covering the US court case over the BA price-fixing affair have, as billed, been revealing the names of more British Airways execs cited in court documents.

Some are still at BA, others, like former commercial director Martin George and head of corporate communications Iain Burns have left.

According to reports, up to 10 British Airways executives could be named in court in the US over the price-fixing affair involving BA and Virgin Atlantic.

Whatever job you do this is a nightmare senario - being cited in court over your day-to-day job.

It certainly looks that way.

The business and political arguments for splitting up the world's largest airport group - BAA's seven airports dwarf every other group according to the Airline Business airport financial ranking - seem to become more compelling as each week goes by.

It is the possible break-up of the London Heathrow/Gatwick/Stansted BAA trio that has the widest ramifications. The UK's Competition Commission says it will take a year to make its recommendations.

Fresh from winning the battle for Midwest Airlines, Texas Pacific Group or TPG, with "passive" backing from its silent ally, Northwest Airlines, was true to form. One of its partners, Richard Schifter, told analysts on a webcast that TPG will eventually seek an exit strategy from its new property, as it does with other investments. “Our history in the airline industry has been that our investments tend to be over several years,” such as its investment in the old America West Airlines. TPG gradually sold off that stake over more than a decade and its initial $66 million stake in the carrier ended up giving the group a profit of more than $600 million. It's likely that it will do the same with its Burger King holding some day. Among TPG’s options for Midwest , said Schifter, are cashing out by a flotation or initial public offering of the carrier, or selling out its controlling stake. “It is clear that Northwest is a passive, minority investor”, Schifter told reporters and analysts, adding, “But by no means is that the exclusive scenario". TPG is a bridge, in a sense, between owners, as its corporate symbol (above, left) suggests.

Midwest Airline’s board announced a final, binding decision to sell out to private-equity giant TPG, the Texas Pacific Group, with Northwest Airlines included as a ‘passive’ investor. Their $450-million all-cash plan was preferable to Midwest than AirTran’s sweetened last, final and best offer of $445 million in cash and AirTran shares. AirTran chairman and chief executive Joe Leonard said AirTran Airways accepted the Midwest decisions. “AirTran doesn’t need to merge with any other carrier to achieve our business goals”, Leonard said. Leonard’s long-running pursuit of Midwest had presented two differing beliefs in the future of smaller carriers: AirTran insisted that a low-fares, high-growth model was the only way to survive in the competitive environment, but Midwest, noted for its leather seats, baked-on-board cookies and higher levels of service, instead that service would win the future. The airline had launched a campaign dubbed ‘Save the Cookie’ to enlist support for a stand-alone Midwest, and had wide support from flyers in the region, both the two-footed and the furrier, quadriped types.

Just as Ireland’s own Aer Lingus is bracing for a pilots' strike, or what they call industrial action, it also gets some good news: Aer Lingus just became the first European carrier to win blanket approval for EC/US flights next March under a US Transportation Department action. The Irish carrier can basically do what it wants and start advertising and taking reservations. After the open skies pact between the United States and the European Community was inked for a March 2008 opening, the US authorities invited such applications, and they have poured in from giants such as British Airways, Lufthansa and others. Aer Lingus, which broke away from the oneworld alliance and will be on its own, already plans to increase service to the Washington area via Dulles and also plans to add San Francisco International and Orlando with its new Airbus A330s as they come into the fleet. Aer Lingus is the first European carrier to get the blanket okay, and Delta was the first US-flag flyer to win the broad authority.

When an airline announces just one or two flights a day to an airport, one sometimes wonders why it’s bothering to make the news. So when American said that its Eagle affiliate will start turboprop service in and out of Miami late this year on two routes, one with just a single daily flight, one did wonder: the ATR-72 turboprop flights go just once daily to and from Savannah, Georgia, and twice a day, morning and evening to and from Sarasota/Bradenton, Florida, and that doesn’t make that much sense until you look at the schedule: to Savannah, the flight leaves at 8 o’clock at night - a good time for business flyers connecting from American’s huge Latin hub at Miami, an operation that already dominates the air-traffic and air-travel flow southwards from all over the States.

It’s back the cliffs’ edge, and the story’s hero is hanging on by his fingernails….just when we thought the Midwest saga was over, it isn’t. About a day after Midwest’s board had announced a final, binding decision to sell out for $424 million in cash to private-equity giant TPG, the Texas Pacific Group, with Northwest Airlines included as a ‘passive’ investor, and all seemed settled, it wasn’t.

A number of Midwest shareholders questioned the Northwest role and just a day after AirTran said it was out of the game, it came back in with an again-sweetened bid “at the behest of Midwest shareholders”. Hedge funds, the anonymous investor groups that buy and sell stocks on the hopes that they’ll rise or fall steeply in special situations like buyouts, have played a role in the Midwest saga for months. One fund, Octavian Management has pleaded with Midwest to accept a deal with AirTran. The fund, which is a 7.4% owner of Midwest, has said a merger with AirTran would make “enormous strategic sense.” After the TPG deal, another fund, Pequot, an 8.8% owner of Midwest, claiming to be the biggest stakeholder in the airline, objected to the TPG deal, saying it presented potentially hobbling competitive issues. Midwest management said only that it would consider the offer at a board meeting, but couldn’t promise it would make a definite resolution.

In the September issue of Airline Business I have tried to explain what actually is being investigated around the globe when it comes to price-fixing.

This is what I wrote in the magazine late last year on the subject.

And, simply because it makes for fascinating reading, below find the full list of contacts between British Airways and Virgin Atlantic (as provided by BA) detailing exactly who talked to whom and about what in their price-fixing case.

The suspense is over: AirTran let its bid for Midwest Airlines expire and said the two airlines had ended discussions of a possible merger, AirTran chairman and chief executive Joe Leonard announced. The Midwest board then announced it had chosen to sell the airline to giant private equity firm Texas Pacific Group with Northwest Airlines included as a 'passive' investor.

AirTran had pursued the Milwaukee-based carrier for more than a year, raising its bid several times and finally offering a combination of cash and stock that it valued at more than $400 million. The TPG offer, however, is all-cash, and is valued at about $424 million. So if there’s a White Knight here, is it the big money guys, who nearly bought Qantas, and who had nearly bought the old US Airways, or is Northwest? Leonard blasted private equity in a statement issued very late on a Sunday night as the story unfolded, saying “the Midwest board has chosen a path that will benefit current senior management by selling out to a private equity firm and a so-called 'passive' investor, whose involvement will surely raise antitrust concerns, casting doubt for shareholders on whether a transaction can, in fact, close.”

Suspenders! That's what we used to say when a film or a television series ended in suspense-producing cliff-hanger. And that’s how the weekend must have been at Midwest Airlines. AirTran Airways’ hostile bid for Midwest formally expired Friday night 8 August, the uninvited suitor carrier has until Monday’s business opening to extend or revise the offer. Word emerged late Friday that Northwest Airlines was negotiating a role as a possible White Knight – not to buy Midwest but to become a passive investor in the carrier as it continues manoeuvring to avoid AirTran. An AirTran spokeswoman had no details but the Orlando-based airline said Friday evening that support for its takeover plan among Midwest shareholders now stands at nearly 63% since proxy-voting totals were last revealed.

Richard Branson and Tony Fernandes – can anyone think of a more flamboyant combination?

Below Branson is with Fernandes earlier today after announcing Virgin Group’s 20% investment in Fernandes’ new long-haul low-cost carrier AirAsia X. From left to right are two AirAsia flight attendants; AirAsia deputy group chief executive Kamarudin Meranun; AirAsia X chairman Kalimullah Hassan; Fernandes, director and founder of AirAsia X; Branson, chairman and founder of the Virgin Group; Malaysian Finance Minister Tan Sri Nor Mohamed Yakcop; and AirAsia X chief executive Azran Osman-Rani.

Airport security in the US has never been tighter. Or is it? The Transportation Security Administration here has tightened up its rules on liquids, gels and indeed solids, instituting new tighter policies for inspection of larger handheld electronics like Gameboys and such. They’re worried. After all, the head of the Homeland Security Department, Mike Chertoff, recently told a television chat show that he had a “gut feeling” about the the bad guys and that they were planning something bad. Chertoff, whose agency is in charge of the TSA, ordered even more shoe inspections after that. One’s feeling of well-being was reassured perhaps, though it has been shaken by the various bits of news about minor security breaches at airports around the country, including this latest bit of monkey business.

The first time is never easy, especially if you have the word 'virgin' in your name. That was certainly the case for Virgin America, the new low-fares, high-service US carrier that either is or isn’t affiliated with Richard Branson’s Virgin airline and entertainment empire, depending on who's talking. It took the San Francisco-based carrier more than three years to get off the ground after Branson associates first proposed it, in large part because it was affiliates of UK-citizen Branson who proposed it back in June 2004. After rejigging its ownership to meet the US rules, Virgin America finally took off on Wednesday the Eighth of August on its first flights, in both directions between New York and San Francisco.

Indeed the first day’s flight found weather was cloudy and generally unpleasant, much like the airline industry today. According to one journal that was on the scene, Virgin’s chief executive, Fred Reid, was late, and a high-profile guest, TV comedian Steven Colbert, missed the inaugural flight.That didn’t keep the airline from gaining plenty of free PR. One flyer was so eager to get on the first flight that he shelled out $5,400 in a charity auction for a coach seat that was priced at $138 for everyone else. Techies drooled over the carrier's new cabin interiors, including subdued lighting, in-flight entertainment at each seat and its hi-tech massaging seats for first-class flyers.

Jeff Potter, the head of Frontier Airlines, mystified the airline business when he said he was leaving the Denver-based carrier that he had led for the past five years and where he had worked much of his career. The airline made it clear that Potter wasn’t being forced out, and board chairman Sam Addoms (right), who himself is about to leave the airline for retirement, lamented Potter’s departure from the chief executive's post for a very upscale resorts company. Jeff, 47, kept his new job a secret over a weekend, setting off a flurry of merger rumours. These faded once it became clear that very few carriers are in a position to buy. The one airline that most wants to get into a merger, United, couldn’t pass muster with the competition authorities if it tried to buy its main rival at Denver. Potter and Addoms have developed an airline that gets high marks from everyone except investors, who may be growing impatient with its history of deficits. Folks will miss Potter, says Denver Post business columnist Al Lewis, who thinks the big bucks at his new job will far outweigh the relatively modest $622,800 that Potter made last year. Airline Business profiled the man and the carrier in March.

It’s only just opened at London Gatwick, but the Yotel hotel empire is spreading by degrees. The Japanese capsule style hotel chain already has plans to open another Yotel at London Heathrow by early 2008 and now has announced it will be opening a Yotel at Amsterdam Schiphol airport by the end of 2007.
Brought to us by entrepreneur Simon Woodroffe, who launched the Yo! Sushi Japanese restaurants (think sexy sushi), Yotel is billed as “an innovative hotel concept providing business-class hotel accommodation at affordable rates” and is specially designed for locations where space is scarce. Rooms are 7-10m² in size.
Reviews of the Gatwick branch, which opened at the start of July are mixed. Read the Guardian and Times’ view on Yotel.

Delta’s chief operating officer, Jim Whitehurst, has become a regular on Capitol Hill, making the rounds of the corridors of power, lobbying for the airlines’ new plan for FAA funding. This is something of a curiosity since he’s only 38 and has only been in the industry since 2002. Usually the airlines like to send a grey-thatched senior statesman type or trademark industry figure like Bob Crandall. Whitehurst, in town to lead the Air Transport Association’s lobbying of the powerful House Ways and Means Committee the other day, has a simple explanation: “all of the other ATA executives were busy in the day that the first hearing was scheduled, and I was the only guy available”.

The major airlines' long-running fight for a new FAA funding system continues to run. The carriers are stepping up their fight as the deadline nears for the expiration of the present system of ticket taxes and passenger fees - which expire with end of the government’s fiscal year at the end of September. They’re pushing for a new scheme in which they would pay the Federal Aviation Administration for air-traffic services on a mileage basis that, they say, accurately recognises the FAA’s real cost of providing traffic control service. The FAA itself says it wants and needs a cost-based system and is working with the airlines on this is the largest overhaul of the charging systems since the 1970s. If the existing system is not replaced or renewed by the next fiscal year, the FAA could face a find its airways trust fund accounts empty within two months, says the FAA’s chief, Marion Blakey. But new fees and taxes can’t be imposed without a nod from some powerful people on Capitol Hill including the all-powerful House Ways and Means committee, the tax-writing panel, and its counterpart, the Senate Finance Committee. These panels are composed of members of Congress who don’t get elected by raising taxes of any kind. The members who decide these vital things are the people who've been on the Hill the longest.

Delays at UK airports have been deemed so poor that a website has been set up to shame the airport operators into action.
Travel company Travel Counsellors has launched the airport delays website, and is encouraging UK travellers using to complain about bad service, including delays at check-in, immigration and security.

Virgin Atlantic is celebrating the opening of its new Narita clubhouse. Check out the glossy pictures. Virgin claims the clubhouse provides the usual business area and snack station, all in a "unique Virgin atmosphere".
The design apparently allows natural light to "flood" into the area, as well as giving passengers great views of the aeroplane.
How do you think it compares with London Heathrow's clubhouse?

They say cheats never prosper, so the hefty fines being meted out today to British Airways over its role in colluding with Virgin Atlantic over long haul fuel surcharges seem suitably just.

BA received a severe £121.5 million ($243 million) rap this morning from the UK's Office of Fair Trading and it seems likely to take another multi-million hit later today when the US Department of Justice dishes out its part of the fine. BA put aside £350 million in anticipation of the fines a few weeks ago which is apparently enough to cover both these fines and any civil litigation that may follow.

Under assault for more than a year, Midwest Airlines has held out against the entreaties of AirTran, saying the market likes its independence. But after the market’sresponse to the two carriers in the second quarter, with Midwest profits plummeting and AirTran’s soaring, the besieged may be forced to listen. In other words, it may be opening the gate and letting in the foe. The airline said that it was still not accepting the AirTran offer but was putting out for sale sign in the form of a committee just created to “to explore strategic and financial alternatives that would serve to enhance value for the company’s shareholders” and to make a recommendation to the board. That’s corporate for ‘let’s see if we can get a better offer’.