Filed in archive
Aviation News
on April 26, 2010
Today American Airlines announced that their highly anticipated Chicago- O';hare- Beijing non-stop route was being postponed. In the official directive posted on their website, they cited a lack of commercially viable slots in Beijing. Apparently, Chinese aviation authorities didn't like something about American's application. Or maybe American didn't adhere to the guan xi principles (paying off the right people ).
"Trouble in paradise? Beijing's new terminal may be a little emptier after American postponed their new route."
I'm obviously kidding, but if the reports are true, this is just another blow to American's re-vitalization plan. Already shut down from flying to Tel Aviv because of TWA, American's pilots have the right to deny American's intent to serve any route. Why is this a problem? Well American can't operate a long-haul route or buy the aircraft to do so without their pilots signing off on it. It's the only reason American hasn't firmed up that 787 order.
The new Beijing route was American's latest attempt at tapping into the lucrative, growing, Asian markets, especially China. Other than their existing Chicago- Shanghai route, American's presence in Asia outside of Japan is minuscule. American really needs Beijing to work, because otherwise, they might not be able to make any route work (the Beijing market is growing fast!!!).
China's reluctance to work with American could turn into a headache for The People's Republic as well. With all the recent outcry over its treatment of foreign companies (see Google), the Chinese aren't going to be too happy if this blows up in their face. Why would it? Just consider the obvious. If China is seen as being hostile to a large, important US corporation, especially one looking to provide new competition, it is a reasonable conjecture, that the WTO will get involved. Could China be forced to back down? If they won't, then this is just the latest blow to American's growth potential.
Flickr Credit: http://www.flickr.com/photos/brostad/4151934877/
Filed in archive
Aviation News
on April 21, 2010
Well today, American Airlines' holding company AMR announced its financial results for 2010's first quarter. Now while American made plenty of strides in the past year: such as keeping Japan Airlines in OneWorld, and getting ATI with British Airways, their financial results reveal some very disturbing figures.
© http://www.flickr.com/photos/mrmystery/3605066972/
Let's start with the loss itself. It amounted to $505 million, but if we exclude a $53 million special charge related to the devaluation of Venezuela's currency, the actual loss was $462 million. A year previously, if we similarly negate special charges, American lost $362 million in the first quarter of 2009. Why is that so troubling? Well, 2009 represented absolute rock bottom for US airlines. It was what most people consider the lowest point of the recession, and airline traffic had fallen off a cliff. So how did American lose more money in 2010?
The answer lies in the 5.7% rise in costs that AMR reported. When your costs are rising, there's no way you can make a profit. But the issue is that American failed to keep its costs down. By comparison, Delta, who is almost twice as big, only saw a 1% rise in costs.
© http://www.flickr.com/photos/mllopart/4355238848/
And therein lies American's fundamental problem. As long as their cost structure remains exorbitant, nothing the airline can do will push them to a profit. And, the advances made in capacity cuts are useless if it doesn't help your bottom line. So those flight attendants who want to strike... If you don't do your part to keep costs down, you may not have a job in a couple years. Oh yeah, as I pointed out yesterday; American's flight attendants are the least cost-efficient in the US.
AMR's reports weren't all bad. Their cash position grew to $5 billion from $3.3 billion, a huge jump. And revenue grew by 4.7 %. But till the airline gets its costs under control, they won't get back to profitability.
Filed in archive
Aviation Products
on April 21, 2010
So yesterday I ran the first post in a series known as the Southwest Airlines Difference. Today is Part 2. I want to look at a couple more things that make Southwest a whole different animal.
3. Aircraft- Ah the 737... To aviation fans like me, the single type aircraft proliferation that Southwest engages in is disappointing; especially so when you consider their gorgeous livery.
But one has to admit that their policy of only using the Boeing 737 is intriguing. They, along with Alaska Airlines, are the only US airline to have a single type of aircraft in their fleet. The policy actually makes a lot of economic sense. For an airline that doesn't fly internationally, or to Alaska and Hawaii, the 737 has all the capabilities they need. Its seating range of 120-140 seats in single class configuration is conducive to profit because it offers the right match between capacity and frequency. And having solely one type of aircraft reduces maintenance costs, because you only have to train one kind of mechanic, only have to have one type of registration, only have to file documents in the name of one aircraft.
The second thing that Southwest does, is utilize its aircraft much better than other rivals. Because they don't really connect passengers, they can schedule aircraft more effectively because they don't need waves of departures. The second thing that ups their utilization is the simplified boarding process. Having only one class of service means that the drawn out tiered boarding system doesn't take time away from flying. And having one class of service saves valuable time between flights; time that would be lost preparing the service for first class passengers. And the most important factor in aircraft utilization, the sheer volume of their operation. With 3,150 flights daily, of all lengths and types, Southwest can mix and match planes to achieve maximum efficiency.
Tune in soon for Part 3
Flickr credit: http://www.flickr.com/photos/stuseeger/3118251161/
Filed in archive
Aviation Products
on April 19, 2010
Southwest Airlines. It's name is probably the most respected among US airlines. From being named one of the top
companies to work for year in and year out by Business Week, to being ranked 21st in a list of the 60 most visible US corporations , Southwest seems to just
win accolade after accolade. Even customer service problems couldn't stop this juggernaut. That being said, I'd like to take a look at what makes Southwest Airlines different.
© http://www.flickr.com/photos/stuseeger/3806880544/
1. Business Model- I have said this before and I probably will say it again, but Southwest's business model is far different from those of legacy carriers. As a low-cost carrier, Southwest Airlines relies on large volumes of passengers to make a profit. While a legacy carrier could make routes to airports such as Peoria and Allentown work, Southwest only operates from mid-size to large cities (Las Vegas, Los Angeles), or small cities close to larger ones (ie: Manchester, New Hampshire). The other major facet, is that they try to serve the smaller airports in towns, which are usually more convenient than their larger counterparts ( Dallas Love and Houston Hobby vs. Dallas-Fort Worth and Houston Intercontinental). The second idea behind their business model is the idea of no frills service. The idea behind this is to strip away everything nonessential to air transport, thereby lowering the cost. An example is the fact that there is no inflight entertainment on Southwest. Also, until previously, the airline didn't allow passengers to connect through hubs, which meant you could fly from Point A to Point B only if Southwest operated the route.
2. Low Costs- Southwest is sucessful at its model precisely because it has low costs. Southwest doesn't have the large pension obligations that the legacy carriers do. And their route network is conducive to lower costs. How so? Well Southwest Airlines only serves 68 airports, major legacies like United and Delta serve upwards of 200. Every airport that an airline serves adds cost, because to serve an airport, you have to have employees there; baggage handlers, gate staff, check in staff, etc. By having a small number of airports, but large quantities of routes between them, a lot of these costs can be rolled over from flight to flights. Southwest was also smart enough to hedge fuel in 2008, which though it may not seem sound now, sets them up well for the future of high oil prices.
The second thing that keeps its costs down are productive employees. Though Southwest pays relatively higher wages to its workers, it also gets a lot more out of those workers. Take their flight attendants for example. Their average annual compensation of $53,027 was the highest among the 12 major US Airlines. But did you know that the average Southwest employee is more productive than his or her lower paid counterpart at Continental, American, or United. And those higher wages probably help improve the service quality of their flight attendants.
© http://www.flickr.com/photos/planephotoman/264321523/
So tune in tomorrow for Part 2
Chart A- refer to this to see how productive workers are. The unit of measure is Block Hour Cost- or BHC, which is basically how much on average the airline paid a flight attendant for work done from the moment the aircraft door closes at departure of a revenue flight until the moment the aircraft door opens at the arrival gate following its landing.
All data taken from The Airline Data Project- but number crunching done by yours truly:
1. Frontier 26.98565007
2. jetBlue 37.4818347
3. AirTran 42.10034014
4. Allegiant 45.02502945
5. Midwest 57.24297189
6. Alaska 63.17175018
7. Delta 65.53078556
8. US Airways 69.67719298
9. Southwest 70.03037507
10. Hawaiian 79.64933993
11. United 80.21382894
12. Continental 87.54639543
13. American 96.46511628
Filed in archive
Aviation News
on April 19, 2010
Well JetBlue seems to be feeling left out by all the merger talk, because they decided to announce a couple of new routes. Most airlines generally add new routes earlier in April or in late March, when they first upload the schedules. But JetBlue has waited till now to announce the new routes, allowing them to make a splash. Anyway, the new routes are dailies to both Fort Lauderdale and Orlando on Airbus A320 aircraft, and will first fly on November 17th.
JetBlue had this to say about the new service: "We welcome the Hartford community onboard for JetBlue's high-quality, value-oriented service between the Gateway of New England and Florida's sunny resorts, parks and beaches."
And they're right. Despite their relationship with Pratt & Whittney, Connecticut's largest employer, JetBlue isn't exactly going to draw a huge amount of business class traffic on these routes. But their high density A320s should draw the sun-seekers from the drab Northeast. Being the second largest airport in New England, routes out of Hartford should draw from the affluent 1 million+ metropolitan area. JetBlue is also offering connections to the following destinations:
Austin
Nassau
Cancun
Montego Bay
San Jose
Bogota
Santo Domingo
and every podunk little town you can think of in Puerto Rico
Really no surprises up there, except for maybe Austin. Though I doubt they'll get a lot of traffic to AUS, it makes sense because AUS is probably their strongest base after the focus cities.
Overall, Hartford was a good choice for JetBlue's 63rd destination and I hope to see more service there in the future.
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