Alaska-Delta Battle in Seattle comes at the expense of United, Southwest

National media and trade magazines are paying attention to the increasing battle between Alaska Air Group (Alaska Airlines and Horizon Airlines) and Delta Air Lines (including its regional airline partners) in the Battle in Seattle as the latter dramatically increases its presence here, but the focus appears to be on the wrong parties.

While the headlines and stories point to the “Delta challenge” to Alaska, a review of the traffic statistics and market share data provided to us by Sea-Tac Airport yesterday show that Alaska and its regional sibling, Horizon Air, and Delta with its regional partners are growing at the expense of United Airlines and Southwest Airlines.

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Airbus, Boeing face pricing pressure

Airbus and Boeing face pricing squeezes that are the result of their continuing price wars and two products that need price cuts to maintain sales.

The fierce single-aisle battle between Airbus and Boeing, and to a much lesser extent, between Airbus and Bombardier, puts pricing pressure on the A320ceo and to some degree the A320neo.

Airbus and Boeing each blame the other for a price war that has put pressure on margins for the in-production airplanes, but market share battles are only part of the issue. There is the need to keep the production lines humming for these airplanes in advance of the transition to the re-engined A320neo and 737 MAX, particularly as the Big Two up production rates over the next few years.

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New American Airlines now a reality; big challenges ahead

December 6 passed without fanfare, but the New American Airlines is a reality.

The first day of stock trading, under the symbol AAL, begins today. The Ft. Worth Star-Telegram–the hometown paper of the Ft. Worth-based AA–has this story, posted Saturday. The New York Times provides this analytical piece.

We know the US Airways management team reasonably well and we think they will be much better than the former American management. American hasn’t been the same since Bob Crandall retired in 1998. Crandall’s successor, Don Carty, had a lousy tenure. He originated the acquisition of Reno Air, a small airline headquartered in Reno (NV), for reasons that passed all understanding. In doing so, he created ill will with the AA pilots union (which, in fairness, wasn’t hard to do with this bunch of malcontents), creating all sorts of labor issues. Carty also acquired Trans World Airlines, another merger of mysterious motives that appeared more to do with market share than business sense. TWA’s only US hub by this time was St. Louis (MO), a mere 250 miles from AA’s massive Chicago O’Hare hub. TWA’s fare structure was low, competing as it was with fellow-hubber Southwest Airlines and able to attract traffic on price rather than quality.

We’ll never know whether the TWA merger would have been a success. The 9/11 terrorist attacks happened shortly after the acquisition, and by 2003, American was on the ropes. Carty negotiated steep concessions from the employee unions, but the deal unraveled when it was revealed that management simultaneously lined up for tens of millions of dollars in executive bonuses. Carty was forced out in the quid pro quo to complete the concession deal.

Carty’s successor, Gerard Arpey, gained respect from the employees. Over the next few years, more concessions were sought by Arpey as he strove to keep American from following all its peers into bankruptcy. But those bankruptcies allowed all the competitors to shave pension plans, cut wages and benefits and other costs while American remained burdened with higher costs across the board. In November 2011–10 years after 9/11–American finally succumbed and filed for Chapter 11. Arpey, who disagreed with the decision, resigned and was succeeded by Tom Horton.

We were never impressed with Horton, particularly with his view that he deserved $20m in the bankruptcy restructuring. He’s non-executive chairman of American but will leave the company soon. He provided this farewell message to employees.

Doug Parker, the CEO of US Airways and America West Airlines, who engineered the merger, is the new CEO of American. Parker and his team never got the respect we think they deserved for keeping US Airways alive, profitable and competitive with perhaps the weakest route system of the US legacy airlines.

Parker was an early proponent of adopting ancillary fees, a practice passengers really don’t like. But the industry had changed dramatically and free meals, free checked baggage and other stuff of history became just that for all the airlines: history. Today, most carriers make their profits from fees and not the tickets they sell.

Parker will have challenges to bring American back into the forefront of top tier airlines. Its reputation and employee morale have been battered. US Airways continues to rank near the bottom of passenger surveys. Employee group integration at US Airways from the merger with America West continues to be difficult; now add American to the mix.

AA and US will continue to fly under separate banners and certificates for some time, following the examples of United-Continental and Delta-Northwest. Integration of reservations systems, frequent flier programs and so on will undoubtedly present huge challenges. We fully anticipate passenger disruptions, also following the pattern of the other mega-mergers.

One of the things we expect to see is an employee contest for a new livery to replace the one adopted by Tom Horton. The tail logo is just awful, though the fuselage and stylized eagle are fine. When America West and US Airways merger, Parker held an employee contest and the winner is what’s painted on the US Airways planes today. It was a good was to involve employees. Then legacy paint jobs of the predecessor airlines were added to the fleet. We have no doubt this will happen at the New American. There are plenty of aviation geek ideas for an American livery. Some may be found here. From this link, you can click through to various other sites for some pretty creative ideas. We like several of the renderings at this website. The last two are what Horton should have adopted.

Delta orders Airbus–a look back at the history between the two companies

Delta Air Lines announced an order today for 30 A321ceos and 10 A330-300 HGW. This is the first Airbus order from Delta in two decades; the only previous order was for nine A310-300s during the days of CEO Ron Allen. Allen ordered these aircraft shortly after acquiring A310-200s/300s when Delta bought part of the failing Pan Am.

But when the 1991 Gulf War happened and the US airline industry went into a tail-spin, Allen undertook a cost-cutting procedure that eliminated all A310s from the fleet, including the new orders–before all nine had even been delivered.

Delta subsequently was one of three US airlines to sign a 20-year exclusive supplier agreement with Boeing; American Airlines and Continental Airlines were the other two. But when, in 1997, Boeing and McDonnell Douglas proposed merging, the European Union demanded that the exclusive supplier agreements be voided. Boeing agreed not to enforce them. Still, Delta did not order Airbus until now.

But the current Delta management, led by Richard Anderson,* once ran Northwest Airlines. This management took over Delta upon its exit from bankruptcy following 9/11 turmoil that decimated the US airline industry. Anderson and his team ordered from both Airbus and Boeing while running Northwest, preferring to maintain a dual-source supply of airplanes. Anderson’s Delta previously ordered 100 Boeing 737-900ERs.

Delta is one of the few airlines that has yet to order the re-engined Airbus or Boeing single-aisle airplanes. The philosophy is that it wants to see the new technology in action before signing on. Northwest Airlines was the US launch customer for the Boeing 787, an order placed after Anderson’s team left NWA. Delta inherited this order when NWA was acquired, but Anderson’s team didn’t like what was happening with the 787-8 program and deferred the 787 order to at least 2020, according to the data base Ascend. Many think Delta may never take the 787, but this remains to be seen.

Delta came very close to ordering the Bombardier CSeries, but its caution against new technology and a worsening economy at the time killed the order for the time being.

  • We recently resumed doing an email-only newsletter after a hiatus of several years. In the one issued Tuesday, we discussed the implications of the first flight of the Boeing 787-9. The Wichita Eagle wrote this article based on the newsletter.
  • *A reader pointed out we originally wrote “Ron Anderson.” Ron Anderson is another figure in aviation we know, who once worked for FedEx and was the founder of Intrepid Aviation . Thanks for the correction.

Odds and Ends: Lorenzo weighs in support AA-US merger; lawsuit could delay AA RJ replacement; 93% airport concentration

Lorenzo supports AA-US merger: In a radio interview with Bloomberg news, Frank Lorenzo supports mergers in the US airline industry and the proposed one between American Airlines and US Airways. Lorenzo is the former CEO of Texas Air Corp, and Continental Airlines. Lorenzo said labor, shareholders and stakeholders would lose if the Department of Justice prevails in its effort to block the merger.

DOJ lawsuit might impact Bombardier: An analyst for a Canadian investment bank thinks the DOJ lawsuit could delay an order by American to replace some of its regional jet fleet. The Scotia Capital analyst covers Bombardier, so his focus is on the impact to this company but Embraer is competing for the business, too.

93% Airport Concentration: While DOJ whines about the prospect of the New American Airlines controlling 69% of the slots at Washington Reagan National Airport, the Dallas Morning News cites a report that 93% of the airport traffic at three airports is controlled by the combined Southwest Airlines-AirTran company.

Our own Milestone: Today we surpassed one million views in a single year, running about 55% YTD ahead of last year.

Time for some irreverence

We were on a United Airlines flight recently–a Boeing 737-900ER, so it was legacy Continental Airlines. It was equipped with the Boeing Sky Interior, and this was the first time we’d seen the interior outside of a mock-up. It was as nice as we’ve often said.

On board was a mother and her lap-child (which is a bad idea, but that’s another topic). We are always fascinated to watch a newborn-to-about-two years old discover the world. This little tyke was taking in the Sky Interior and the blue mood lighting and thought it was pretty cool. So did we.

The Captain, as one often does, announced we would be descending shortly and we would be arriving at the C Concourse, “C as in Continental.” It was obvious which legacy airline making up today’s United he was from.

On approach to O’Hare, we wound up doing a full go-around. By this we mean engine throttles way up, nose attitude way up and a sharp left hand turn. First time in all the decades of flying we’ve had one of these. Speaks well of air safety. All the pilot said was he was directed to do so by the controller because there was an airplane in front of us.

On the next leg, we were on a Bombardier CRJ-200, or what we call a Tinker Toy airplane. Before push back, the pilot asked for two volunteers to move from the front to the back for weight-and-balance. Seems the airplane is designed for a full load and 2,500 lbs of cargo and we only had 1,500 lbs, so two people needed to move to the back to offset the thousand pounds. Several comments to those two passengers about their weight as they moved down the aisle.

Odds and Ends: 787-10/777X; 737NG engine issues; American-US Airways

787-10/777X: Aspire Aviation has this long analysis of the current status of these developmental programs.

737NG Engine Issues: Aviation Week on February 8 had a report of thrust irregularities on the Boeing 737NG. The Seattle Times reported it on line last night and in print  today. And then the  Seattle media went mad. We’re perplexed. The issue goes back five years, it happened 32 times and not since December when a fix appears to have–fixed it. What’s the big deal?

American-US Airways: The long-awaited merger was announced today and to our great relief, the US Airways management will run the place. American CEO Tom Horton is booted upstairs to non-executive chairman, much as was Glenn Tilton in the United-Continental combination. Unfortunately the AA-US merger keeps the awful tail livery rolled out by Horton a few weeks ago.

United’s 787s delayed, but nobody is saying why

There appears to be a lot of focus on delays in delivering the next Boeing 787s to United Airlines–which has received one–but neither Boeing or United is saying what’s behind the delays. (Update, Dec. 1: one of the three was delivered yesterday.)

According to the Ascend data base, line numbers 45, 50 and 52 are supposed to be delivered this year and 55 and 77 are supposed to be delivered in January. All are with GEnx engines.

Here are some possible reasons for the delay:

  • Rework is the obvious one. The first “clean” airplane to come off the Boeing assembly line in Everett was around line #66. The lower the line number, the more rework. UAL’s line numbers are higher, but rework is still necessary.
  • GEnx engines. The failures on the 787 and 747-8 GEnx engines were unrelated and, as these things go, not especially severe, but fixing them is, we are told, complex for engines already assembled. Qatar refused delivery of its first 787 because of the GEnx issue. Contractually delivery has been accepted but the airline also wanted additional IFE (inflight entertainment equipment) installed and physically hasn’t accepted delivery. So…
  • IFE upgrades: These UAL 787s were ordered by Continental Airlines prior to the merger and it’s been reported in the press that the delays in Boeing’s delivery left UA/CO will older, less sophisticated Buyer Furnished Equipment (the IFE). Maybe UAL wants more current IFE?

We were asked by media if this is another blow to the 787 program. We don’t think so. At this point, we haven’t heard of anything about the reason for the delay and pretty well shrugged it off anyway.

Meanwhile, Airbus is in talks with at least some of its A380 customers seeking compensation for the operational interruptions resulting from required inspections related to wing rub brace cracking. Compensation could amount to millions of Euros per customer.

The downward spiral of American Airlines

We’ve been watching with dismay the downward spiral of American Airlines.

This once-great carrier is hardly recognizable any more. It is perplexing to us how a management team that got its training under Robert Crandall and helped create such a great carrier could have gone so wrong.

Crandall retired in 1998 and was succeeded by Don Carty. We have to admit we preferred that Bob Baker, the EVP of Operations, succeed Crandall but Baker already had battled cancer and was viewed as probably on a shorter life span given the nature of his cancer. Unfortunately, this assessment was correct and Baker died a few years later.

Carty, on the other hand, was Crandall’s number two (to Baker’s number three) in the company. But Carty had also been CEO of Canadian Airlines and frankly, we were never too impressed with his leadership there. It was this that gave us trepidation when he succeeded Crandall.

The Crandall team also included Gerard Arpey, who subsequently succeeded Carty after Carty so screwed up labor relations that he had to go. Carty acquired Reno Air, a small MD-80 operator with a hub in Reno (NV) and in the course of doing so, created immense discord with the AA pilots union, having failed to lay the ground work with them for the acquisition. Reno Air brought zero to American and less than zero when the labor relations debacle is considered.

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Missing Bob Crandall

The link to a video of Bob Crandall on the Charlie Rose show speaking to airline industry issues, and the bankruptcy at American Airlines, spurred some comments from our readers. The most interesting comment came from a Doug Stephan, whose comment is reproduced at the end of this post.

When we co-owned Commercial Aviation Report (until recently called Commercial Aviation Online by Flight Global, which became the fourth owner of the company), we resided in Dallas in Bob Crandall’s backyard at American.

Naturally the proximity gave us many Crandall stories. Stephan’s comment spurred us to remember some. We share a few with readers today.

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