Americas: February 2007 Archives

Spirit Airlines, which went to south Florida to bring low fares service to the warm weather from throughout the northern States, is going farther and farther afield, adding destinations deep in Latin America to its growing Caribbean network. It wants to add flights to Lima. Peru, in May, using 144-seat A-319s from its Fort Lauderdale hub; the airline would also serve Chiclayo, which is on Peru's northern coastal plain, with weekly flights in addition to the daily Lima service. Chiclayo is the fourth largest city in Peru and has more than a million residents; as importantly, numerous Peruvian expats live in South Florida, and many of them are from secondary cities in Peru.

The Peruvian cities would be Spirit's second and third destinations on the South American mainland, after Caracas, Venezuela, to which it has rights from US authorities (but not yet from the Venezuelan aviation agency). That too is an ethnic or 'VFR' (visiting friends and relatives) market as much as a business route, like so many other Spirit routes such as planned service between Fort Lauderdale and Port-au-Prince, on Haiti, which is not an island attracting a lot of US vacationers or business executives.

Fred Reid came to Washington the other day to offer to quit. Reid, who used to be the number two at Lufthansa and then was the number two at Delta, now is the number one at Virgin America, where he overseas a fleet of 11 Airbuses that aren't allowed to fly anywhere.

That's because the Transportation Department has refused to give Virgin clearance to begin operations, citing the fact that Richard Branson's UK-based Virgin Atlantic interests are among the chief backers of the San Francisco-based Virgin America. As with most nations, the United States limits foreign investment in and control of airlines based in the country and flying its flag.
To satisfy the DoT, Virgin (America) has arranged new backers, rejigged its financing and limited Virgin Atlantic's presence on its board. And Reid has offered to resign if that will make the regulators happy enough to clear Virgin (America). The DoT regulators had cited Reid's close ties with UK citizens in the Branson group as signs that the Brits had a pervasive influence on Virgin (America) management.

Reid added with considerable emphasis that having been born and bred in the San Francisco bay area, he was probably a US citizen, but insisted that he would resign if he had to. The airline would still continue seeking to fly. "The patience and tenacity of our investors is legendary. They are not willing to give up. It is too good of an idea. We have come too far to stop."

But Reid did acknowledge in response to a question from AB that the carrier had begun leasing out on short-term contracts some of its 11 Airbus A320s while it awaits clearance. It has negotiated two leases with a start-up US carrier that Reid would not name, and is negotiating two more leases to a foreign carrier he declined to identify.

Reid also pointed out that Virgin had added a good American to its board, having named Sam Skinner, the former US transportation secretary, former White House chief of staff who is an executive for a Chicago- based utility, as its vice chairman. Reid also urged people at the Aero Club of Washington lunch where he spoke to sign Virgin's online petition urging the DoT to clear it. http://www.letvafly.com.

The airline passenger bill of rights is what's caught the imagination, as several very powerful members of Congress, from the chairman of the House Aviation Subcommittee to a pair of senators, one Democratic and one Republican and one from California and one from the state of Maine, to various outraged and angered members of congress, are scribbling out new rights for all. The last time Congress was ready to pass a bill of rights for beleaguered flyers in the wake of the now legendary 1999 Detroit debacle in which Northwest stranded hundreds of flyers within sight of their gates, the solons came within hours of getting a bill out there that the airlines couldn't live with; it was only a last-minute compromise brokered by Sen. John McCain that established a voluntary code of conduct. This included promises of better communication and other steps to avoid kidnapping the customers. It held off more serious legislation for a while, but back in December the DoT's Inspector General found that airlines were not living up to their promises. So here we go again, but this time it may well happen. People have been angry since December, when an American Airlines jet sat on the Austin, Texas, tarmac did hours, launching a blogging and internet passenger rights campaign. Newspers have found other underreported incidents around the country and pushed them.

The Senate bill comes from Baraber Boxer, a California Democrat, who is pals with the House leadership of speaker Nancy Pelosi and who is a determined legislator. Read about her bill here.

This growing clamour for more rights for more people more of the time has the airlines really worried, especially since some of the bills would mandate procedures to get people off of planes stuck out on the tarmac. While the carriers may well have their pocketbook and bottom lines at the top of the mind, they also make the point that have Plane Mate mobile lounges or mobile gates zipping out on snow-covered or iced-in runways to bring people back the terminal may not be exactly what you want to have going on in a crowded airport in the middle of a blizzard.

That's not the only thing he has to worry about: at about the same time that Neeleman was apologising to investors, American Airlines said that it liked New York, too, and would beef up its service in the Big Apple. In a move that presents as serious a threat to JetBlue as any force of nature like the weather. American will finish a $1.1-billion terminal expansion at JetBlue's home base of JFK, starting flights to Las Vegas, adding cross-country frequencies and in general making itself a bigger presence. Neeleman says he's not too worried since a lot of the new American flights are from LaGuardia, which JetBlue doesn't consider its home base, and others are from Newark, where the big guy is Continental Airlines.

The Bog Apple or Gotham is big city. Continental leads, carrying 20.7 million passengers, for a 19.9% market share at the three New York airports. American, the long-time No. 2 in the New York region, had a 14.2% share, with 14.8 million passengers. JetBlue, which began flying in February 2000, carried 13.6 million passengers, for a 13% market share. Measuring just domestic service, JetBlue is second only to Continental in the market, with 13.2 million passengers to Continental's 14.4 million. American is third, with 10.8 million domestic passengers. In total traffic, JetBlue has surpassed American at JFK, with 11.6 million passengers to American's 7.9 million last year.

And he thought the ice storm was bad....Stuff keeps falling on JetBlue chief Dave Neeleman's head and he keeps apologising. Perhaps rightly so, after an operational foul up during a snow and ice storm stranded dozens of JetBlue planes on its New York JFK tarmac for as long as 10 hours, outraging 130,000 passengers and getting the airline five days of non-stop negative media coverage. That's the sort of thing that happens when you're in the media and television capital of the US, and the home to every major television network, and that's the sort of thing that happens when you tick off those mild, mellow, ever-tolerant New Yorkers.

So Neeleman, a devoutly sincere fellow, has been apologising ever since. Repeatedly, anywhere and everywhere that will let him, from cable TV to youtube.com, that online arbiter of taste, and in some six million emails, some of which have been sent out repeatedly. Part of Neeleman's apology consists of a new offer, refunds of about $10 million plus $16 million worth of vouchers to delayed flyers, plus a promise to do better, a promise conveyed in full-page newspaper ads as well as on the TV. You can see one of Neeleman's apologies here. The crisis, which lasted for several days as JetBlue "pre-cancelled" some 1,200 flights, could cost the airline as much as $30 million this quarter, Neeleman told investors. Listen to Dave talking with investors and analysts in a webcast. JetBlue is also promising something it calls the Passenger Bill of Rights.

Maxjet Airways has had a rocky few months, with a change of chief executives and a route cancellation, but the all-business class start-up is confident it can fight off a new wave of competitors.

Last week Maxjet's newly revamped management team was in London, promoting its product to the press. A new sale, with one-way fares that start at only £299 or $499 before taxes, and a new advertising campaign is clearly a reaction to Silverjet, which launched all-business class services in January and hosted its own reception in central London the previous week.

"We were the first ones with an all-business class product. We now have so many copycats," chief executive Bill Stockbridge said at the reception he hosted near Trafalgar Square.

US and indeed world markets were rocked late last week with the news that the British were coming. British Airways, that is, was coming to buy AMR Corporation, the parent of American Airlines. The UK flag carrier would team up with Wall Street powerhouse Goldman Sachs to take AMR private for a sum between $8.2 billion and $11.1 billion, said a stock-touting columnist in the widely read Business Week magazine.

After the recent round of airline merger talks in the States, some people thought the report made sense, and others bought into it because the power of private equity has been demonstrated repeatedly by deals in the news, not the least of them the proposed $8.7 billion Qantas buyout by private equity.

And AMR and BA had done business with each other before. The two carriers are partners in the oneworld alliance and had sought a grant of bilateral antitrust immunity back in 2002 until the regulators blocked it. Airline shares shot up as frantic investors scurried to get in on the gold rush. By late Friday they were surrendering their gains to profit-takers, and to reality.

You gotta' admire Marion Blakey, the FAA chief in the U.S. of A. She's always been what the call a 'steel magnolia', all Southern charm beneath which lies a mind like a steel trap and a firm personality that takes no gruff from nobody.

She wended her way to the National Press Club in Washington the other day, and Airline Business was lucky enough to get a nearby seat to hear Blakey discuss the FAA's plans to open up the mandatory airline pilot retirement age of 60 to debate and comment with an eye to raising it to age 65 for pilots on the major US-flag carriers.

This has been a hotly debated issue in the States, with most portraying the Age 60 rule as unfair to a generation of pilots who are exercise freaks, pre-dawn joggers and who are like the rest of us, or most of the rest of us, are living longer and healthier. All of which would seem to have near universal acceptance, except by the major pilot union, ALPA. ALPA, which represents about 60,000 pilots at almost every major airline (except American Airlines) opposed any rule change, arguing safety but in reality fearing that the adding five years to pilot careers would upset the apple cart for younger members who make sacrifices early in their 'back-loaded' career so they can get promotions over to the left seat and higher paying jobs.

The airlines had been wary since adding five years to what is often a career of just 25 years does weird stuff to actuarial tables and would probably raise the pilot salary ceiling even higher, though they didn't fight it the way ALPA did. (ALPA actually reversed its position on the issue a few years back after serious internal debate).

An industry panel that was supposed to tell Blakey if it was a good idea to raise the retirement age broke down in a stalemate late last year, sending her not a recommendation but study. So for Blakey, now in the final year of a fixed five-year term, it was risky to make any decision. To come out for raising it would seem to be a brave decision, but here she had political cover; after all the advisory committee punted, giving Blakey no political cover, one way or the other.

She could however find justification in the ICAO position. "I'm a big fan of international co-operation and we're going to do what ICAO recommends", she told the Press Club. When people asked about individual waivers, about retroactivity or about the guys who will be caught in the gap during the year of two of debate that is bound to follow, Blakey's response was the same: "we're following ICAO". Discretion is after all a part of valour. Read the advisory committee's pros and cons and the FAA's reasoning: http://dms.dot.gov, search for docket 26139.

The bigger and heavier you are (or at least, the aircraft you are operating) the greater the savings you are going to make from Vancouver International Airport Authority's decision to cut landing fees for international passenger and cargo flights to match charges for domestic services.

Vancouver is bucking the general trend of airport fee increases, which have received so much criticism from airline bodies in recent years.
The new rates, effective since the beginning of the year, mean that cargo operators flying Boeing 747 freighters into the airport will pay 32% less in landing fees this year than they did in 2006.

The annoucement chimes with stipulations in open skies agreements such as that between Canada and the USA that require international and domestic landing fees to be the same.

The unusual thing is that the authority feels that it is a sufficiently strong financial position to be able to reduce international fees rather than increase domestic ones to even them out.

"This is a strategic move to help increase Vancouver's competitive advantage and stimulate related growth and economic benefits for the region," says chief executive Larry Berg.

'Coincidence? You be the judge', the announcer would boom in conspiratorial tones on the radio ortelevision programs heralding the latest unidentified flying objected or other phenomenon.

Two flash headlines from the other day brought this to mind: 'US Airways Ordered to Stop Serving Alcoholic Drinks' and US Airways Withdraws Bid for Delta'. Not to put too fine a point on it, but the bosses at US Airways seemed to have sobered up, and quickly, after they ran into roadblocks from the Delta creditors who were the deciders of the Airways $10 billion bid for the number three Delta.

A "disappointed" US Airways Chairman and Chief Executive Officer Doug Parker said, "We would have created a better and more financially stable airline that offered more choice to consumers and increased job security to its employees".

Parker was much more mellow about the alcohol problem; it seems state liquor authorities in New Mexico found that the airline did not have a licence to serve booze there, and until it gets said state permission, the carrier may not serve or sell beer, wine, or hard stuff to people on any of its flights that take off or land there.

But seriously, folks, as the announcer might say, does this mean an end to consolidation? Some observers think that the legacy carriers will just breathe a sigh of relief and go back to their restructurings now that they don't have to pursue merger negotiations begun largely as defence manoeuvres in response to 'Deltaways', as some dubbed the hypothetical US Airways/Delta combination.

Meanwhile the ever-reliable Ray Neidl of Calyon Securities says big deals are probably off for the next six months but after that "consolidation will occur". Neidl notes that Parker and the US Airways management team have clearly established themselves as credible with the financial powers-that-be and would probably be an acquirer.

But Parker's entire rationale for going after Delta was that it was easier to do a deal within the context of bankruptcy, so one has to ask if US Airways will abandon this strategy. On the other hand, they're making so much money at US Airways that they can afford champagne when other carriers are still on a beer budget.

Stay tuned.