Strategies and tactics: 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.

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.

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.

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.