It is an ill wind that blows everybody off course, but then again someone’s always the beneficiary. Take for instance the push for airline passenger rights. The airlines just won a big victory, with federal court throwing out a New York State law that guaranteed food and water for passengers stranded on planes stuck on tarmacs. States can’t pass laws that tread on federal territory, said this ruling; if they could, one state might mandate gluten-free food on planes leaving its airports, and so on. This is called the 'crazy quilt work' theory, in which North Dakota says one thing and South Dakota another about a service or product that is a nationally offered. After all, what if every state had a law requiring airline flight attendants to smile?
March 2008 Archives
Dave Neeleman, the founder of JetBlue and something of a pioneer in low-cost airlines, has gone to Brazil. But he’s not running from charges or avoiding extradition, as do some of the Brazil-bound. Instead Neeleman is going to start another new airline. Neeleman’s new venture will be called by a name he will choose from entries to its website, which translated means 'Your Choice'. This is highly interactive website, and an attractive one as well. It’s a tough market, the Brazilian one, with a huge domestic low-fares presence in the form of GOL, as well as TAM, a domestic and international powerhouse, plus frequent starts-ups and failures. One, BRA Transportes Aereas, lasted about 13 months before folding last November.
Earthquakes, coups, disasters, bankruptcies. Have we no good news? In a word, NO. Or at least that’s what we told our friend Addison Schonland at IAG the other day for his latest podcast wrapping up the week. Our colleagues Runway Girl (Mary Kirby) and The Dewline (Steve Trimble) joined us with some more news, although Runway Girl did have some upbeat if minor news. But all in all it’s not a good time to be an airline. One carrier, Aloha, was forced into its second bankruptcy in three or four years by crazy fuel prices, while another, Skybus, is rejigging its routes as its fuel costs too go up. Then two of the biggest carriers, American and Delta, decided to ground some of their MD-80s to make sure that they had inspected them properly. This stranded thousands and made major headlines and more bad news for the industry. Left Field discusses the groundings (very) briefly here.
American Airlines is facing up to social networking with a new linkup with Facebook, the social networking platform that has attacted millions of people, most of them young and many of them hip, who put personal postings on the web in the hope of finding friends, influencing people or creating new 'net groups. The largest US airline, American says its Facebook presence is different, because even though many airlines have a page on Facebook (‘Hi, We’re Air Indiana’), this is first time an airline has a custom-designed application, says American’s Billy Sanez. The American application, Travel Bag, of course has points of entry to American's own site, aa.com, where the Baggers can reserve flights and other travel packages.
It’s a crisis, and the airlines know it, but what happens if it gets worser or more worse? Our friend Bill Swelbar, the MIT airline guru who writes Swelblog, has an idea that he thinks may catch on. Bill says that the oil crisis is something like the crisis that overtook aviation after the 9/11 crisis. After all, it’s an external event over which the airlines simply have no control, somewhat like a force of nature. This could allow airlines to trigger a legal provision that they used back late 2001 when they furloughed or fired many of their workers and parked or disposed of some of their planes. It’s called force majeure, and it withstood a number of earlier challenges. You can read Bill’s explanation of this legal doctrine and how it could apply by going to his blog. (Full disclosure: Swelblog references a Left Field posting, but we thought the world of Bill long before he quoted us.)
It’s been a bad couple of weeks for a lot of places like Meridian, Mississippi, or Fargo, North Dakota, and other towns that have been told that they’ll be losing much of not all of their Delta Air Lines service this month or next. For Orlando, the Central Florida tourist magnet, it started out pretty bad when Delta, the airline that’s leaving Fargo, Meridian, Bellingham, Atlantic City and a couple of other places, said it was cutting a lot out of flights at Orlando as part of a system slash. But if they were shedding tears in their daiquiris, Orlandonians had only a brief crying jag, because the next day, JetBlue said it was formally making the city near the Magic Kingdom of Disney into its next (and seventh) focus city. The New York-based discounter will grow from six gates at the International airport (MCO) to 10, ending a split operation in which its domestic flights use one Orlando terminal and its international flights another. JetBlue added international flights from Orlando in early March with service into Santo Domingo, Dominican Republic, and Cancun, México. It is also hoping to start service to Bogota under a Transportation Department redistribution of US-Colombia routes. It has served cities in Puerto Rico from Orlando for some time, and the city has become an important one in its network.
Delta set a far-reaching round of cuts to deal with the rising cost of fuel, but its number two executive would not comment on the progress or lack thereof toward a merger. President and chief financial officer Ed Bastian declined to take questions on the announcement by its pilot leader that the union could not agree on steps that would allow the Atlanta-based airline to merge.
The carrier, the nation’s number three, made clear that it saw an immediate crisis that demanded a swift reaction beyond waiting for oil to come down or trying to combine with another carrier. While other major carriers including United and Continental said they too were trimming capacity, Delta’s cutbacks, including job cuts, were more wide reaching.
Delta said Tuesday that it will be “reducing 2008 domestic capacity by an additional 5% by August, resulting in a 10% year-over-year domestic reduction. These reductions will be made through a combination of decreased utilization and parking 15-20 mainline aircraft and 20-25 regional jets. The airline revealed the cuts in a regulatory filing as Bastian addressed an investor conference. Bastian said the mainline aircraft could include Boeing 767-300s now in domestic service, 757s or possibly MD-80s. “We’ve had some strong expressions of interest (from possible buyers). Or we may just park them,” Bastian told the JP Morgan airline and transportation conference.
The dominoes that were supposed to fall in response to a Delta/Northwest airline merger may stand. Other carriers had tentatively talked combinations that they would pursue had the number three Delta done a deal with number four Northwest, but in the wake of a virtual veto of that transaction by Delta’s pilots, they are expected to stand alone. United Airlines, where chairman Glenn Tilton has been urging industry consolidation for several years, was widely believed to be in tentative talks with Continental. It had no immediate comment. Delta has declined to comment in any detail on its strategic plan, but says a special committee formed to consider mergers or other major initiatives is still active. Delta president and chief financial officer Ed Bastian is expected to shed some light on the carrier’s thinking and plans when he addresses investors at a JPMorgan conference in New York on Tuesday mid-day.
One noted observer said he expects Delta to concentrate on trimming its network and internal steps rather than a merger to cut costs. “We may just have been saved by the bell and the price of oil. Consolidation is going to come and should, but perhaps this deal just was not do-able,” said William S. Swelbar, director of the MIT Airline Project.
The world is waiting for that shoe to drop, and it may be a big one. The biggest network carriers are pretty widely expected to be ready to start some cutbacks and possible fleet groundings as oil keeps rising faster than cost cutting or even than fare increases. This latest crisis, or stage of the long-running crisis, is forcing the carriers to look at revising their business plans. And they’ll have to do it on a faster timetable than the long day’s journey into night that a merger runs on. On Monday, oil was over $111 per 42-gallon barrel before dipping as bad economic news from around the world led traders to bid it down, on the belief that OPEC may pump more in a move to bring down prices and so keep its customers from dipping into recession. Mergers present a lot of problems other than taking time, and a good and smart friend of ours, George Hamlin, has some thoughts. George knows whereof he speaks: he worked for TWA in its glory days, has worked for Airbus and consulted for many majors. He's now with Airline Capital Associates or ACA as it's known.
Storm warnings posted around a region are one thing, but when the red danger flags go up coast to coast, it’s time to be very careful about how much sail you have exposed to the gathering winds. So it is with the airlines of the US. As the price of fuel stays well above the $105 a barrel level, or about $3.50 a gallon, something’s got to change, warn three of the leaders of the largest airlines. Delta’s Richard Anderson at the end of the week warned of dramatic changes at the airline, and said details were on the way, promising “a comprehensive plan we'll be rolling out in to the changes in the marketplace.” At the same time that Anderson issued his dire warning from Atlanta, Continental’s Larry Kellner in Houston was also telling people to be ready for changes. “If these (oil) prices continue, we will have to make some tough decisions to make sure the size of our network is right for a world with fuel at such astronomical rates.” Their statements follow a warning by Doug Steenland of Northwest Airlines last week that oil at these levels was “a budget buster” for his and other airlines. None of the chiefs detailed the next step beyond suggesting network trims or fleet cutbacks, but Steenland repeated the widespread belief that consolidation is just a matter of time.
It may be one of those places that Americans muddle together in their mental maps as a sort of lump of Europe, but Croatia is a destination that is now an open skies beneficiary. The US and Croatia signed a bilateral that lifts restrictions on service between the two nations and also allows seventh-freedom cargo rights. Despite the Balkan history of unrest, this area has been peaceful in recent years and has drawn European tourists to its main city, Zagreb, as well as its beaches along the Dalmatian coast. That of course is the reason why Left Field finds this bilateral breakthrough so compelling: it gives folks more chances to visit the (supposed) home of that fine breed of canine, the Dalmatian. The carriers are ready for the rush even though Croatia Airlines' turboprops carry just 48, not 101, Dalmatians.
Southwest Airlines, beloved of Wall Street and frugal flyers, is in a fight for its fame and the public trust. In the course of six days, it found itself facing a record FAA safety fine of $10.2 million, a probe by the FAA, by a congressional committee, by a federal whistleblower-protection agency and by its own internal watchdog. And it found that some 40 of its Boeing 737 classics needed inspections beyond those it already inspected, albeit after a deadline set by the FAA. Its shares fell the most they have dropped since 2002, while its chief executive officer, Gary Kelly, flew to Washington to brief acting FAA Acting Administrator Bobby Sturgell on actions the Dallas-based company is taking to ensure its compliance with FAA directives. When the FAA said last week that Southwest made 1,451 flights with the uninspected aircraft after disclosing the lapse in 2007, the carrier put three employees on leave and hired an outside investigator to look into its procedures, starting the six days of hell.
Read on to hear some talking heads talking sense about this week.
Capitol Hill’s leading aviation expert went on the attack against the FAA after the agency proposed its largest-ever safety fine- $10.2 million - against Southwest Airlines. Jim Oberstar, the House Transportation Committee’s chairman, told reporters, “Complacency has likely set in at the highest levels of FAA.” He said at a news conference that “we’ve seen the pendulum swing away from vigorous enforcement of compliance toward a carrier-favorable, cozy relationship with the airlines.” A veteran of more than three decades on transportation issues in the House and the author of laws about FAA inspections, Oberstar has long been allied with airline and aerospace labour. And he has been a frequent critic of the FAA. Oberstar says that his committee was conducting an investigation of the Southwest issue - specifically, charges that the Dallas-based carrier misled the FAA about inspections for fuselage cracks - after FAA whistleblowers came forward. The FAA then scooped him by announcing the proposed fine and leaking the news of the penalty to the media before the committee could hold a scheduled hearing. “It’s not a coincidence” that the FAA acted when it did, and it’s "outrageous" that the agency did not respond to the whistleblowers, he said. Oberstar also said he'd have to postpone the hearing anyway, because he was about to be hospitalised for hip-replacement surgery.
ATA’s at it again. Not the big Washington lobby, the Air Transport Association, but ATA the airline, once known as American Trans Air, is again leaving Chicago Midway Airport. This time, it’s probably for good. The carrier said the other day that it was ending all service at Chicago Midway by June. Someone you know discussed this with Chicago's National Public Radio station. The airline had said at the time of its October 2004 bankruptcy restructuring - which eventually made it a partner to Southwest - that it would pull out of Midway. It stayed on, in large part to satisfy Southwest’s need for a code-share partner as the Dallas-based carrier expanded at Midway. Now, though it’s no half-way measure about Midway, and the carrier says that it will end its service between Chicago and both Oakland, California, and DFW on April 14 and halt its Midway service to Cancun and Guadalajara on June 7.
Reporter’s notebook from San Diego: the fog lifted from this port city just in time for Airline Business’s NetworkUSA 2008 to bring together about 250 airport and airline people in our eighth annual conference. But still hanging over the folks here was the air of uncertainty that’s enveloped the US airline world since it emerged that Delta and Northwest were in serious combination talks. Will there be a merger and what will happen to my airport if there is?
Well, Left Field spent a day last week with two of the top executives of Delta, and came away with the pretty clear belief that not only is there not about to be a merger but that the guys from Atlanta really deep down in their Delta hearts don’t really want one. Ed Bastian, Delta’s president and chief financial officer, told us, “we don’t feel a compelling need to urge” and in any case his focus was on Delta’s stand-alone plan.
We told this to folks here at NetworkUSA, and we were joined by a long-time friend, Holly Hegeman of planebusiness.com. Holly’s been online for more than a decade with her insight, including the gold that she gathers from airline securities analysts and the Wall Street community.