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The Painful Merger Lesson

November 11, 2008 By Leave a Comment

A little over 3 1/2 years ago two large airlines, US Airways and America West, merged to create the new US Airways.  Since then planes have been repainted, counters rebranded, and operations merged on the surface.  However, once you start looking further the story changes.

Earlier this year a disgruntled US Airways “East” (original US Air) pilot group voted for and got new representation under the US Air Pilots Association, freeing itself from the Airline Pilot’s Association (ALPA). This move was made after an arbitrator responsible for merging the two pilot group’s seniority lists made a decision that arguably hurt the seniority of many US Airways pilots.  Since this move there have been lawsuits filed and threats made between the two former pilot groups, US Airways and America West.  It is so bad that neither will legitimately recognize the other as being part of the company.

In addition to these struggles, many former America West customer service personnel have had a tough time changing to the US Airways name and brand.  The America West brand, one they worked hard to make successful, is their identity and change is not easy.  Old US Airways customer service personnel are also facing tough times as hubs are closed or reduced and jobs are being lost on the East Coast due to the new West influence.

With all of these problems still showing up 3 1/2 years later, how will Delta manage to get Northwest successfully into the fold?

The first and most important step is that the pilot groups have been talking throughout the entire process, already reaching and voting on a mutually beneficial labor agreement.  Second, Delta has started to adopt many of Northwest’s policies, fees, and culture so that the changeover for Northwest personnel will be less painful.  Flight attendant’s are already gearing up for standardized uniforms even as the two airlines operate independently.

It seems that thankfully the lessons of the still mangled US Airways merger are being learned and adapted.  Hopefully future mergers will take this “people first” approach and realize if the employees aren’t on-board, you may find fewer and fewer passengers on-board.

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Why Did Southwest Pick Volaris?

November 11, 2008 By Leave a Comment

Yesterday Southwest Airlines announced that it would enter into a Codeshare Agreement with Mexican airline Volaris.  Southwest has been talking for a while about expanding its network outside of the United States through codeshare agreements and has done so in the past.  In the past, however, Southwest has chosen airlines with already established route structures to specific destinations, something Volaris  does not have.

Volaris currently serves a number of markets throughout Mexico, however it serves no destinations in the United States.  Conversely, Southwest serves hundreds of markets in the United States but not one in Mexico.  So how do these route networks connect?

It’s assumed that Volaris will start serving select shared markets in the United States which will allow for Southwest’s passengers to easily transfer to these international flights.  To make this happen, Volaris must get the authority to operate in the United States and then create the infrastructure or lease the infrastructure to operate here.  I don’t expect Southwest to try connecting south of the border with its fleet, otherwise it wouldn’t have bothered with the code share.

Neither airline has released details on the agreement, and it will be interesting to see how it pans out.

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United Making Smart Fuel Decision

November 9, 2008 By Leave a Comment

Yesterday, United announced that it may have to ground up to 100 airplanes in response to growing fuel prices. Today, the airline took an even better step by adding fuel surcharges to most domestic tickets sold. Passing the cost to the consumer is the only way that airlines will be able to keep up with fuel costs and remain profitable in the future.

The average large airliner uses 500-1,500 gallons of fuel every hour that it is in the air. Until now, airlines have been able to absorb the increased fuel costs by changing they way they fly to save fuel. Now with $3.00 per gallon fuel prices, it is impossible to offset growing costs. Instead, all airlines need to take United’s lead and start passing rising costs on to consumers.

When the price of fuel goes up, the price to ship a package via UPS, FedEX, or the US Postal Service goes up. Milk prices have risen along with countless other items that are shipped to stores. All of these price increases are the result of companies passing on their increased costs to consumers. Airlines should be no different.

The average US flier has enjoyed the same air fares for roughly the last 30 years. Fares have not gone up with inflation or changed due to increasing or weakening demand. A ticket that cost $100 in the late 1970′s probably costs right about $100 today give or take a few dollars. Airlines have been unwilling to increase fares due the rise of internet bookings where passengers are automatically shown the lowest price flights first and are much more willing to buy the first fare they see. Prices have also stagnated because of reduced demand following 2001. As a way to lure more passengers to air travel, airlines kept fares low. Now airlines are afraid to unilaterally raise fares and risk losing business to other air carriers.

It is time for prices to go up and for the cost of airline tickets to accurately reflect what it costs to fly and airplane across the country. Other airlines need to take note and start passing their real costs of business on to the consumer. Only then will the industry complete its turnaround and the airline will once again be profitable.

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Turnaround in the Works?

November 9, 2008 By Leave a Comment

After getting hammered by growing fuel costs through three quarters of 2008, is the airline industry staging a comeback?  Just this week, United announced it was rolling back its increased second bag fee, fuel surcharges were removed from most frequent flier programs, and web and phone booking fees also took a tumble.

The quick fall of jet-fuel prices over the last month has certainly helped the airline pocketbooks, but it may be a little too premature to say what will happen long term.  Knee jerk reactions to immediately changing market conditions are a hallmark of the airline industry and the pattern that usually gets it into trouble.

If the airlines are going to move towards long-term profitability, they must make flying enjoyable again.  While this doesn’t mean they need to return to providing ever available service for free, they need to make their services more enjoyable overall.  If an airline wants to sell a meal, make it a substantial meal equal to those served in first class or on international flights.  If they want to sell beverages, make them 20 oz bottles, or bring the prices in-line with vending machines and other sources.

Another way to entice travelers to fly is ensuring quality customer service.  This starts with increasing morale and increasing wages to front-line employees.  Airlines have stopped caring about their own people which are ultimately what make the bottom line grow.  Quality customer service is the number one reason I hear for travelers selecting the airline they are flying on.  I have met more travelers that avoid certain airlines due to customer service than any other reason.

I have NEVER heard anyone say “I don’t fly XYZ Airlines because generally their prices are too high.”

While these changes will cause a small increase in overall expenses, the benefit could be huge for the airline.  I may just buy a $5 plate of food, but I sure won’t buy a $5 bag of mixed nuts I was recently offered.

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Southwest Going High Class?

November 7, 2008 By Leave a Comment

Southwest Airlines has announced the introduction of new “Business Select” fares for last minute bookings. These fares which are higher than the average Southwest fare are aimed at business travelers who are willing to pay more for a few extra services.

Extra services received for paying major bucks at the last minute include a guaranteed “A” zone boarding card and a complimentary cocktail. “A” zone boarding will allow business travelers to select seats that may give them better opportunity to conduct business, such as an aisle or front bulkhead.

This could be a smart marketing move if it does prove able to lure business travelers from other airlines. Airlines increasingly need the extra revenue generated by travelers willing to spend a few extra dollars for their tickets to offset higher oil costs. Gary Kelly, CEO of Southwest Airlines, anticipates that this move will generate up to $100 million in extra revenue per year, a significant increase. The average fare difference will be $10-30, hardly a deal breaker for the cost conscious.

Southwest will continue with one-class seating and no pre-assigned seats as it has successfully done for years.

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The Cost of Bringing it All With You

August 22, 2008 By Leave a Comment

A story published in the LA Times today revealed that surfers are paying as much as $150 domestically and $300 internationally to check their surfboards as baggage.  This, in addition to the ever increasing list of baggage fees imposed by almost every major airline has me wondering when or if it will stop?

One passenger even mumbled to me today: “Tell your boss to raise ticket prices, not charge me to check my bag!”

What are your experiences with baggage fees?  Are they out of control?
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Gallons Per Mile

August 22, 2008 By Leave a Comment

Oil powers the world, and since it powers the world it also powers all those airplanes up in the sky.  With record high oil prices sending the price of gas through the roof it has become increasingly expensive for airlines to power their aircraft.empty fuel tank

When airliners gas up we measure how much we need in terms of pounds.  The very rough calculation is about 6 pounds per gallon of fuel (it’s more like 6.6 but round numbers are easier). At cruise altitude and at normal cruise speeds, most modern airliners burn between 3200-6000 pounds per hour depending on the size of the aircraft.

Doing the math, on the average airliner we burn roughly 650 gallons of fuel per hour.  Now multiply that by the $4 or so per gallon and you come up with a whopping $2600 per hour at cruise just to pay for the fuel.  That’s not counting the takeoff or climb which can routinely burn twice as much fuel.

To compare all of this to your car, let’s look at miles per gallon.  The typical sedan gets about 28-32 mpg on the highway when driving at about 65 mph.  An airliner burning 650 gallons of fuel an hour covers roughly 500-550 miles in that hour.  This translates into about 1.25 gallons per mile, ouch!

So now it’s easy to see how every $1 increase in the price of oil means $1.6B in extra cost for the world’s airlines.
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Hawaiian Grows on Aloha's Misfortune

April 4, 2008 By Leave a Comment

The collapse of Aloha Airlines last week has left the door open for remaining Hawaiian carriers to expand operations.  Hawaiian Airlines has announce that it will bring additional aircraft online and step up inter-island and mainland flying to help displaced passengers.  go! airlines also announced increased capacity by adding two more aircraft to its fleet.Hawaiian Ticket Counter

 Hawaiian Airlines has also stepped in an offered free mainland flights to travelers stranded by Aloha’s shutdown.  According to the airline there are still over 100 displaced passengers waiting to get to Los Angeles.  To increase inter-island capacity, Hawaiian has brought an additional Boeing 767 aircraft online to help with the spike in demand.

go! airlines, which has been credited for Aloha’s collapse, has also announced that its fleet is growing.  It will double its fleet to four aircraft and increase from 54 to 94 flights per day.  In addition, Mesa Airlines has announced that it will replace go!’s current fleet of 50-seat CRJ-200 aircraft with larger 90-seat CRJ-900 aircraft.  go! is heavily subsidized by Mesa’s other operations which have taken a hit recently with the loss of a large portion of Delta Connection flying.

Although this may be a boom time for current Hawaiian operations, time will tell if they are careful enough not to create too much more capacity.  Flights were not that full before the Aloha bankruptcy, so this may just be a small spike.

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Hawaiian Grows on Aloha's Misfortune

April 3, 2008 By Leave a Comment

Hawaiian Ticket CounterThe collapse of Aloha Airlines last week has left the door open for remaining Hawaiian carriers to expand operations.  Hawaiian Airlines has announce that it will bring additional aircraft online and step up inter-island and mainland flying to help displaced passengers.  go! airlines also announced increased capacity by adding two more aircraft to its fleet.

 Hawaiian Airlines has also stepped in an offered free mainland flights to travelers stranded by Aloha’s shutdown.  According to the airline there are still over 100 displaced passengers waiting to get to Los Angeles.  To increase inter-island capacity, Hawaiian has brought an additional Boeing 767 aircraft online to help with the spike in demand.

go! airlines, which has been credited for Aloha’s collapse, has also announced that its fleet is growing.  It will double its fleet to four aircraft and increase from 54 to 94 flights per day.  In addition, Mesa Airlines has announced that it will replace go!’s current fleet of 50-seat CRJ-200 aircraft with larger 90-seat CRJ-900 aircraft.  go! is heavily subsidized by Mesa’s other operations which have taken a hit recently with the loss of a large portion of Delta Connection flying.

Although this may be a boom time for current Hawaiian operations, time will tell if they are careful enough not to create too much more capacity.  Flights were not that full before the Aloha bankruptcy, so this may just be a small spike.

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ATA Airlines Files Chapter 11, Ends Service

April 3, 2008 By Leave a Comment

For the third time in just two weeks an airline has run itself out of business.  Today ATA announced that it had discontinued all flights and would be letting nearly all of its employees go.

ATA Takeoff ATA was once the nation’s 10th largest air carrier, and for the last four years had partnered with Southwest to provide service to Mexico and Hawaii under a code-sharing agreement.  The end was abrupt, with most passengers and employees finding out at the last minute.  Employees in Hawaii were notified as they were preparing for the last flight out Wednesday night.  Passengers at Chicago’s Midway Airport were greeted by signs at the ticket counter.

Although a relatively minor player in the airline market, ATA’s demise will be felt.  Southwest has abruptly lost its ability to sell tickets to popular destinations outside the 48 states, and Hawaii has lost another source of mainland flying.  In Hawaii, fares could jump even higher as diminished competition leaves the door open.  For Southwest, it means the acceleration of programs to allow them to fly internationally on their own.  And for consumers it means canceled flights, re-bookings, and less competition.

As the price of fuel keeps rising ATA is likely not the last victim.  We wish its nearly 2,200 employees good luck.

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