June 2008 Archives

Our friend Kevin Mitchell has spent the week warning of an end to service at many airports as the fuel crisis continues. He's even set up a website, savemyairport.com. Kevin testified the other day before the House Small Business Committee hearing that was probing how the airline crisis is hurting businesses everywhere such as travel agencies, hotels and others. But Mitchell's warnings have drawn a response; our friend Jay Campbell, in a post on his blog The Beat, questioned "BTC's hyperbole," a entry in which he quote several folks including yours truly.

But one of the most interesting responses comes from our friend (isn't it good to have so many friends?) Kristie van Auken, the Akron/Canton airport's indefatigable (that means tireless) communicator. Kristie, who has her own blog, says that Mitchell listed her airport as one of about 150 that are threatened by cutbacks.

Out of the garage and CRASH...Southwest proudly rolled out some schedule change the other day, the results of a major upgrade of its "Garage-O-Mizer" scheduling software.  It's called that because an employee developed it at home on his own time. As the blog Nuts About Southwest explains, "He had cracked the problem on his own and produced the solution himself, over Christmas break, on his home PC-metaphorically, in his garage.  He had done what was actually thought to be mathematically and technologically impossible at the time.  THE "GARAGE-O-MIZER" WAS BORN," writes Bill Owen, Southwest's schedule development lead planner explains.

But now, Owen explains, "The November 2008 schedule marks the debut of a new schedule optimizer, the new 'Global Optimizer' - one that takes all of our schedule rules and preferences and actually picks the one schedule that scores the absolute highest based on the in-put parameters we supply. Thousands of criteria are considered..".

Yes, it does seem like an airline cuts flights, routes or employees every day. That's because they do. And probably should. The latest comes from American Airlines, which said earlier it would do some deep slashing. Now they've detailed their plans, and they include ending all service to not one, not two, but three state capitals. They're Harrisburg (Pennsylvania) at the right, Providence (Rhode Island), and Albany (New York). And it doesn't stop there. American and its Eagle unit are cutting out pretty much all O'Hare service to the Gulf Coast, that Katrina-ravaged region where Eagle had just begun building up in the last year.

The US airline industry just isn't worth a great deal. Look at the market cap of the US network carriers and compare it with just about any other segment of the world industry, and you'll see what we mean. Or least you'll see what Mark Schulte of Taurus Corporate Finance Group means. The US network carriers - Alaska, US Airways, Continental, Northwest, American, Delta, and United- are worth about $7 billion, based on valuations in mid-June, while the low-cost sector is worth about $11.6 billion, he says.

Combine them, and you're still not worth as much as the European network carriers ($26.5 billion) or the Asian network carriers ($26.2 billion). But all these estimates of what an airline group is worth fade when compared with the two big package and express carriers, FedEx and UPS. FedEx comes in at just under $25 billion, but (drum roll) consider UPS. Schulte says it's got a market cap of about $67.6 billion. (At the left above is our idea of a market cap, ideal for wearing on a rainy day when you're going to market.)

Things are tough all over. The latest blow was at UAL's United Airlines, where the carrier will furlough some 950 pilots later this year. The airline announced some dramatic capacity cuts totalling more than 14% a week or so ago, and now says that it just won't need as many pilots. These layoffs are about 15% of United's 6,518 pilots. United says that it will also trim some of its bag handlers and others for a total of about 1,600 job cuts by next year. The airline said it was continuing "discussions with ALPA and all of our unions on ways to mitigate involuntary furloughs." The union had no immediate comment, but Left Field did. You can hear him here. And you can hear Left Field talking about the oil crisis here and here.

Suddenly sympathetic, a persistent critic of the airlines is taking his case, and theirs, to Capitol Hill. Although Kevin Mitchell of the Business Travel Coalition is a frequent visitor to the Congress, he's usually there to chastise the airlines if not to condemn them. But in recent days, Mitchell has become somewhat of a Cassandra, warning not of the crisis that's coming but of the one that's here and now. The other day, he released a series of studies by Airline Forecasts that predicted a possible series of liquidations in the airline industry. The top 25 carriers will spend over $28 billion more for fuel this year, and the major airlines could lose up to $9 billion over the next 12 months, says the head of the forecasting firm, professional airline pilot Vaughn Cordle.

It used to be simple. To figure out when people would buy airline seats and for how much was a fairly straightforward undertaking: just look at what they did a year ago. That's how airline revenue management worked, with a few tweaks here and there. But the formula has changed with the change in consumer habits as the new airline paradigm, the paradigm of crisis, is upon us. Roger Harris, the chief revenue officer for Sun Country Airlines, explained the changes the other day. "Consumers and travelers are changing the closer-in side of the curve, waiting and then booking earlier as they see that the price of fuel is rising every day. They wonder oif the price is going to go up again, so they make their last-minute bookings a little sooner in the last few days before the flight." But the data does not follow their purchases soon enough, Harris told the Low-Cost Airlines World Americas 2008 Conference. "We need more and better data, and we need it sooner," Harris said. 

Please, please Pittsburgh officials are flying to Dallas today to beg, er, we mean ask, Southwest to increase its flights at their very empty airport. US Airways has declared Pittsburgh an 'un-hub' and cut back service at the Steel City dramatically. The carrier, which had once made Pittsburgh one of its major hubs, has cut service there progressively from 500 a day just seven years ago to about 70 now. Meanwhile, Dallas-based Southwest came in in May, 2005, growing from 10 daily flights to more than 20 now. So, we wonder, who else might be begging Southwest for more service?

The bag match match and the Piedmont pour: US Airways as expected came out and matched the American fee for checking a first bag, pegging it at $15 - the same as United, which had attached the ancillary charge earlier in the day. But Tempe, Arizona-based US Airways is also rolling out an array of other charges. The most interesting fee: $2 for a can of Coke, Pepsi, or whatever. This is reminiscent of much earlier battle, back when US Airways was still USAir and had just taken over Piedmont (much a better airline, in our not-so-humble opinion.) Back then, it was faced with a choice between Piedmont's tradition of giving customers a full (and free) can of Coke, or the USAir cabin service alternative of pouring just a glass of soda for the passenger. After a minor rebellion, it decided to stick with the Piedmont pour - at least for a while.

Perhaps American and United are competing again - at least on extras. United has just matched American's plan to start charging for the first checked bag, (yes, the first), following American's decision to adopt United's plan to start charging for the second (extra) checked bag. United will impose the $15 fee, raising perhaps $275 million a year; much like American, it exempted premium-level frequent flyers and those in first or business class. United is also raising fees on overweight and third bags by 25%. The fact that both of the nation's two largest carriers are charging the fee makes it all but certain that will soon become universal, and US Airways is expected to be the next to jump on board. Left Field talks about the United decision on Chicago Public Radio here.

An interesting way to write contract: write it so that no matter what the other guy does, he'll be in breach of contract. That, it seems, may be what Delta is doing with its regional contracts. That's one interpretation you could put on Delta's aggressive campaign to end its flying deals with two regional airlines, Mesa and Pinnacle.

The carrier told Mesa back in April it was ending its contract with Mesa's Freedom Air unit, which flies 41 planes for Delta. The feeder had failed to complete enough of its flights in recent months and so was in breach of contract. Mesa, which needs the business, sued and won an injunction. Delta denied then and denies now it is playing dirty, but it is paying hardball.

When the big guy pulls out...the ink was barely dry on American Airlines' memo that it will be cutting back its San Juan, Puerto Rico, flights dramatically when comes this word that JetBlue will be increasing its service to the Island. For instance, it will offer seven daily flights from New York JFK by December; that's up from three now, and the frequencies will grow gradually. And it's along with daily flight to Aguadilla and Ponce, two of the Island's smaller destinations. From Orlando, JetBlue will offer four daily flights, double its current schedule, as well as flights to the other two cities. Orlando, interestingly, is the single largest source of US visitors to the Island.

Coming after United's 737 retirements, Continental's move to park its 737 Classics marks the end of the old-generation Boeing 737 as a significant player in the United States. The last big player is US Airways, and their fleet, mostly used in Northeast-to-Florida service, has been living or flying on borrowed time. People often get dewy-eyed when an aircraft leaves the fleet, but having flown those United -500s and indeed those truly decrepit US Airways -400s, with their broken seatbacks and sad, tired interiors, we are glad to see them go. (The above repainted 737-400 is seen in better days!) They are not only too old, too slow, and too small to make money, but in today's fuel-price environment, they're just too thirsty. And airlines have been reluctant to upgrade their interiors since they're going to go and be beer cans some day soon. For some thoughts on who and what might replace them, our friend and colleague Flightblogger has some thoughts. 

The end of UniTED: United's slash-and-burn attack ends (among other things) TED, the low-fares airline-within-an-airline that parent UAL began in 2004; with Ted's demise comes the end of the second generation of brands within brands, an experiment that leaves no certain result. United's move is as much a judgement on aircraft types as it is on the sub-brand strategy, but it is pretty clear that the carrier just saw no point in operating a even lower fare unit when oil is $130 a barrel. The airline wants to use Ted's 56 Airbus A320s in mainline service and will park its Boeing 737-300s and -500s to make way for them. This is clearly a wiser use of an asset, given the lower fuel burn of the European plane. And in any event, United is a low-fare carrier, whether or not it is low cost.

Now the alliances are cracking down. The airlines have long used analytic tools - i.e. data-interpretation programs to figure out if the corporate customer was fulfilling its side of contracts. They want to see if the company is actually delivering on what it's promised, from the number of flyers to the number of segments it has agreed to use; in return, the airline is supposed to make sure that it gives the corporate account access to certain airfares. Now, as the global alliances take a larger and larger share of corporate accounts, these big groupings are moving to crack down, too.

How do you measure a negative? Well, you don't and can't but one group thinks it can when it comes to airline trips not taken and taxes not paid. The group, the travel industry association, a trade group, has added its voice to the study of the cost of delays airline delays with an estimate of how many travellers are avoiding the airline system in the US. TIA said that 28% of air travellers it surveyed avoided at least one trip because of problems at the airport, hassles with security and the like. (You know the story.)

"The air travel crisis has hit a tipping point: more than 100,000 travelers each day are voting with their wallets by choosing to avoid trips," said Roger Dow, president and chief executve of the association. More than half the avoided trips would have been for leisure, so Florida destinations are losing visitors, for instance. Travelers expect hassles at Chicago O'Hare Airport and decide not to fly to South Florida, he said.