July 2008 Archives

This is not good. One of the first publications to compile autumn (fall for us Yanks) flight listings is out and it does not look good. eSkyGuide, the electronic version of the Executive Travel Sky Guide, says that domestic flights for the collective fall months, September-October-November, will average 172,017 per week, down 8.5% versus the same period last year. Low-cost carrier flights for the collective fall months, September-October-November, will average 36,687 per week, down 4.1% versus the same period last year. Janet Libert, the editor-in-chief, says, "Not since 9/11 have we seen such a dramatic change in airline schedules."

So what? The DoT's new proposals on new slot rules for New York's LaGuardia, JFK, and Newark constitute a big docket, but one filing caught our eye as cutting through the Gordian knot. Howard Kass, the US Airways guys in Washington made his filing and, unlike most of the other many commenters, said he wouldn't go through the reasons why this idea of taking landing slots away from airlines and then selling them back was a not a good one. Instead, he said "we simply ask the DoT and the FAA to step back, look round and observe the current state of the airline industry."

Michael E. Levine, a pioneer of airline deregulation, had a few very interesting obiter dicta in a talk he gave the other day to Washington's International Aviation Club. He suggested a segregation, a bifurcation as it were, of air travel between leisure travel and business-oriented travel may emerge from the US crisis - as is the case in Europe, with two networks coexisting. Levine asked more questions than he answered because (a) he knows he doesn't have the answers, and (b) that's what economists do, anyway. You can read his speech by going to the Club's website.

But here are some fascinating bits: Now, though, "as prices go up, price-sensitive travelers are leaving the system. Flights are consolidated into larger aircraft to get CASM down to where RASM has a prayer of covering it. As aircraft size rises and total passenger volume falls, the system shrinks. As the system shrinks, it become less attractive to convenience-oriented travelers and they resist paying more for less....Where will it end? ...Will leisure transportation continue to be produced jointly with business transportation?"

Such a guy. JetBlue's chief executive officer, Dave Barger, took a voluntary 50% cut in 2008 base pay for the rest of the year. The reduction, in effect through Dec. 31, puts Barger's salary at an annual rate of $250,000, the airline said in a Securities and Exchange Commission filing. Barger, 50, took the step "in recognition of the challenges faced by the company and its employees in the current industry environment," JetBlue said. Barger (above, left), who took over from JetBlue founder Dave Neeleman (above, right)in May 2007, had a base salary last year of $200,000 that was part of a total package of just over $514,000. The airline has entered rocky territory since Barger took office, losing $7 million in the last quarter alone. Fuel has risen by more than 80% since Barger took over.

It will be different. Indeed, it's the fire next time. No, not the end of the world, quite, but if US majors go back into bankruptcy in this crisis, they may not come out. That is the view of Phil Baggaley, a leading analyst with Standard & Poor's, which downgraded the debt of AMR, the parent of American, UAL, parent of United, and NWAC, parent of Northwest. On Friday afternoon, Baggaley held a teleconference to explain his thinking and had some every interesting thoughts. "Really, there is less left to fix in the case of some of these airlines that have gone through bankruptcy or even that have not," Phil said. The easy fixes - unsecured debt, pension fixes, and the like - are gone. The really big change is in the industry's fleet: "In a perverse way, the strength of the aircraft market runs against, in some ways, the ability to reorganize. If you have an airline going into bankruptcy and it has a fleet of mostly new aircraft, if there's a very strong aircraft market, creditors may be more inclined to say, 'Hand over the keys. We'll just take them back, no matter what happens to you'," he says.

Even the angels are having pains. Name two airlines that make money: that's right, Southwest and Allegiant. And Allegiant is really a sort of travel company rather than an airline. So Southwest comes along and puts out another stellar quarter, its 69th profitable earning period. Net earnings of $321 million in the quarter, pumped up by a few special items. Without them, a net of $121 million. Wow, Sort of. Listen to the earnings call and you'll hear chief executive Gary Kelly tell the tale of the hedges: without Southwest's famous fuel hedges, the Dallas-based discount king would have lost $134 million in the second quarter. As Kelly said, "Nobody at Southwest Airlines intends to lose money, but I can't guarantee that won't be the case."

At last, a win for the travel agents. Sort of. It may not be David versus Goliath as much as Goliath versus Behemoth, but a victory of sorts. The agents were facing increases of as much as four times for fees charged by payment clearinghouse ARC, or Airlines Reporting Corp. ARC, which is owned by the airlines, proposed raising the annual administrative charge from $145 to $395 for agencies with a single locations or for a headquarters; fees for branches would go up less, from $145 to $150, while the transaction fee would increase from 1.7 cents to 2 cents. The agents, already hit by airline commission cuts, protested, and took their case to an independent arbitration panel, which settles disputes between ARC and agents.

The panel waited until just about the last minute before the July 24 fee hike, ruling just days before the deadline that the new fees did not "represent a fair allocation of costs between carrier and agents." The new scheme, it held, "represents a shifting of ARC's cost burden from the carriers to the travel agents without any proven benefit."

Allegiant Air likes to pick obscure kinds of places and link them with hot spots like Las Vegas or Fort Lauderdale, Fla. It began service to the Florida city last November but has decided that some of its new routes just aren't making money. It said it will end flights September 7 between FLL and: Allentown/Bethlehem/Easton, Penn.; Chattanooga, Tenn.; Greensboro, N.C.; Huntington, W.Va., and the Tri-Cities, Tenn., airport. The last two would have seemed natural choices, with almost no service anywhere and certainly none to Florida. Allegiant will still link Orlando Sanford with the Tri-Cities, which are Kingsport, Bristol, and Johnson City, Tenn; from Huntington, which dubs itself the TriState Airport (West Virginia, Kentucky, and Ohio), it will also still serve Sanford. Allegiant accounted for more than half of Huntingdon's 8,000 boardings in June, the airport's highest levels in over 13 years. And at Lehigh Valley, Pa., the ABE airport, Allegiant increased boardings by some 120% between 2006 and 2007. So you have to wonder: maybe it's the FLL minihub, not the spokes, that's the problem.

This is not Left Field. This is a woman named Martha MacCallum, who co-hosts a show on Fox News television called the Live Desk, and she and fellow blond Trace Gallagher had Left Field on the other day. Because Live Desk is a steady stream of talking heads, they don't archive it, but Left Field was talking about how bad things are for the airlines in general and about the airport in Las Vegas, city of sin, sand and 'gaming'.

Seems the city fathers and mothers there want to renovate and expand Terminal Three at McCarran International, but at the last minute, Southwest Airlines decided that the development would cost just too much. Southwest has long led the industry in keeping a cap on airport expenses, but Las Vegas is unique in its appeal domestically and internationally. We're sorry you can't see the debate, but trust us, it was profound, insightful and full of wisdom.

We're not sure what a synergy is (we hear they don't make very nice house pets) but they got a lot of them down there in Atlanta. That's the word from Delta, which has refined its estimates of how much it will save from its Northwest merger and how much it will cost. During Delta's second-quarter call the other day, Delta President and CFO Ed Bastian said that the two carriers had refined their estimates and come up with $2 billion a year after 2012. "We expect total synergies of in 2009 of roughly $500 million, increasing about $500 million a year until you get to the full run rate in 2012," he said. And the pilots at Delta get a 3.5% equity stake and those at Northwest get a 2.38% stake in the new Delta, he said. The new joint contract that has been agreed upon will include pay increases of roughly 4% a year through 2012.

You can not smash the omelet after it's been scrambled. Or, a cut is like a thing of beauty: it's forever. That the clear statement of American's top guys, chief executive Gerard Arpey and chief financial officer Tom Horton. Asked what they would do with their announced cutbacks if fuel prices came down, Arpey said, "The capacity reductions we are making are permanent. We are not bringing these planes back." Any new aircraft would be used to replace the existing fleet, not to add new capacity, he said. In other words, as American's CFO Horton says, "These cuts are permanent." American is also moving the retirement date for its A300-600 fleet up by several years and will have all of the very big and quite old 'Buses out of its fleet by the end of next year.

The last of the old guard has left Southwest Airlines. Colleen Barrett, the airline's mother in chief and head of culture, had her last day in the office the other day, and is retiring. Herb Kelleher, a founder, has left, and Gary Kelly, a long-timer but still a new kid on the block, has taken over titles and now runs the show. Colleen, who stays on the payroll through July 2013, had her last day at the airline's Love Field, Dallas, headquarters. It was marked by the ringing of cowbells. During her childhood in Bellows Falls, Vermont, her mother used to ring "that darned cowbell" every time she or one of her brothers would celebrate an achievement. You can find some footage of the ceremony here:  http://www.youtube.com/watch?v=7BZw_TDCfek  and also here http://gallery.swamedia.com/videos/value=open/type=video. (Colleen and Herb both continue to share their wisdom and experience with Southwest but are out of day-to-day operations).

Ads on the baggage carousel. Ads on the fold-down seatback trays. Ads on the ticket jackets (where they still have them). Now, ads on the boarding pass you print at home you check in on line. That's the premise of Sojern, a venture that launches today on Delta flights at Las Vegas and spreads over the next weeks onto other cities on its system as well as on American, Continental, Northwest, United and US Airways. The ads are for restaurants, shows, clubs, golf courses, and other venues in the flyer's destination city. Gordon Whitten, Sojern's founder and chief executive, said he saw passengers walking through the airport with boarding passes full of white space, or as he put it, "empty billboards."  A former Intuit executive, Whitten says that as many as 40% of check-ins are on line for about 280 million annual boarding passes.

So much for private ownership as the answer. For a long time, critics said that airlines would suffer as long as they had short-term perspectives imposed upon them by short-term owners - mainly investors, pension funds, widows, orphans and the like. If they didn't have to meets the public every 90 days and tell it their most intimate secrets, airlines could engage in longer-term planning, blahblahblah. You know the rap.

Well, maybe the example of Midwest Airlines disproves the thesis. Much praised and much liked by the flying public, the Milwaukee-based carrier went private at the beginning of the year when private equity in the form of The Texas Pacific Group (TPG) and former Midwest rival Northwest Airlines bought out the carrier. Now though Midwest is going through the writhing maneuvers that we have learned are the sure signs of disaster.

Former Transportation Secretary Norm Mineta is despairing. "Right now, partisan jockeying for position and Senate cloture" or the filibuster procedure make any legislation such as energy policy reform difficult, said Mineta. "I just don't see too much being done" on energy reform. Speaking at an energy and air-service summit, Mineta said, "if not now, when?  My fear is we're going to dribble this opportunity away until after (the presidential election in) November and then try to pick it up in January."

But that, said Mineta, a Democrat who led the House Transportation Committee and then served in a Republican administration, will depend on the nomination of cabinet secretaries under the next president. That could easily take until June or July of 2009, says Mineta, now the vice chairman of Hill & Knowlton and still one of Washington's  'go-to' guys on airline issues.

He spoke as the airlines launched a lobbying campaign in conjunction with unions, school bus and truck drivers, service station operators and the like. SOS NOW is the campaign's moniker, for Stop Oil Speculation Now. The group is pushing for some sort of bill in the next 30 days, a goal that UAL chief executive Glenn Tilton says is feasible. ATA chief Jim May says that the campaign, which would increase regulation of futures traders, has generated a million messages in the last three days alone.

You'd think there's nothing new to say about how bad things are for the US airlines, but Left Field can always come up with something. He did the other night on ABC's World News, one of the nation's Big Three evening newscasts. The news come on a day when Northwest Airlines was in the headlines after it said it would lay off thousands and also start charging for a first bag and as well as raise ticket-change fees and when US Airways was getting attention with its decision to end many in-flight films.

You can read a text version of the story here, and can, if you click in the right places on the image, get a video version. The reporter is Lisa Stark (left), ABC's airline and transport reporter - and one of the few knowledge people among the very many in the nation's electronic media. The report also has bits from Julius Maldutis, the noted airlines analyst, and some US Airways executives.

No surprises? ExpressJet has finally pulled the plug on its independent branded service, a venture (or adventure) in point-to-point flying it began just over a year ago, when its former parent Continental Airlines pulled the plug on some of its flying as Continental Express. XJet said its 39 Embraers used in the operation will go back to their lessors by next June, while the flying will end in September. Its service, which it sold through such marketing slogans as "get over stopovers/stopovers are so last week," was a boon to some airports that had not had very much non-stop service, on such routes as Oklahoma City to Sacramento or Boise to San Diego.

Cui bono? The English, at least the old-fashioned sangfroid Oxbridge types love to ask that. It means (loosely) "To whose benefit?" or, "Who Wins?" That's the question to ask in the very big news that Southwest Airlines has signed its first big international deal, a code-share with Canada's WestJet. They're both fine airlines, even though WestJet is slightly more of a hybrid than Southwest.

But if you look at a route map, you have to wonder what's in it for Dallas-based Southwest. Yes, some Southwest flyers will want to go to Canada in the summer, but to our aged eyes it would seem that the prime beneficiary is WestJet, based out there on the prairies of Alberta.

Here's a first look at one of the new laptop-totting, TSA-friendly bags that Left Field was talking about the other day. This one comes from Skooba Design, which is a Rochester, NY-based luggage maker. The point is that the laptop itself sits in a different part of the bag from the wires, mice etc., and so the TSA screener can see the device when scanning it. But a Harrisburg, Pa, based company called CODi may be first to market. They should be on the market in August, according to company spokeswoman Julie Bancroft.

Other companies are rushing to get their checkpoint friendly products to market, including Targus, Pathfinders, and others. Skooba calls its product Checkthrough, and says it will have detailed images and the like ready some time this month. The image above is a marketing image. It's not sure when it will be on the market, but probably this fall.

US airlines just aren't worth that much. And even though it's tempting to call them a bargain, buyers aren't exactly lining up. (Why should they?) But here are the numbing numbers. The 10 largest US carriers, from American to Alaska and JeBlue, had a collective market cap of about $16.4 billion at the end of the second quarter; that's down by 61% from the end of 2007's second quarter, when they were worth just over $42 billion. People like to talk about how Southwest is worth so much, but even though it's worth more than the other nine combined at $9.4 billion, its market cap is still down from $11.2 billion a year ago.

They shouldn't have been surprised and they weren't. The flight attendants at American Airlines have been bracing for word that there would be some layoffs or furloughs after the carrier announced a reduction in flights and in the fleet for later this year. When word come of a looming 900 layoffs, the Association of Professional Flight Attendants was ready, sort of, and Frank Bastien, its national communications coordinator, said that he was very glad indeed that company had decide on a "Voluntary Bridge to Retirement" program. When the RIF starts sometime in this quarter, flight attendants who are 50 years or older and who have at least 15 years of seniority will be offered a one-time severance payment of $15,000 if they give up recall rights. They do get some medical and free flying rights.

It's not the bag. It's the laptop. That's the lesson despite the great rejoicing at word that the TSA, the Transportation Security Administration that guards the nation's airports, was prepped to approve new carry-on bags for laptop computers. If you use these new designs, you don't have to take your machine out of the bag, put it in a separate tray and then repack it. The New York Times' Joe Sharkey actually broke the news with brief interview with the TSA's chief, Kip Hawley, in which the Kipster said it would allow new bags as soon as they come on the market. The reason why you have to take your computer out of its bag is that most people have so much other stuff in there - cords, mouse, mice, modem, q-tips, combs, etc., etc. - that the x-ray machine can't get clear view of the laptop and its guts and so the screener can't tell if it's really a laptop.

The TSA issued a request for statements of interest in March asking bag makers if they could come up with a new design, and several said that they would offer a new bag that either a stand-alone protective sleeve or a fold-down sleeve that would contain the laptop itself. Targus, a major producer of bags, is planning to offer one this autumn, as is Pathfinder Luggage.

This is good to know. The Hartsfield-Jackson International Airport, aka Atlanta, is a gun-free zone. Yes, it is a fact: you may not bring a gun or concealed weapon into the airport. Well, you couldn't anyway, at least not past the security gates, but airport manager Ben DeCosta came out and held a press conference "to make it 'crystal clear' to the public that concealed weapons are not allowed at the world's busiest airport. Unless you are traveling with your weapon properly secured in your checked baggage in accordance with FAA and TSA regulations, (unless) you're a sworn federal, state, or local law enforcement officer or armored security personnel, you are not allowed to carry weapons on airport property." This would seem routine and straightforward, but Atlanta is in Georgia, and Georgia is in the Deep South.