Leeham News and Analysis
There's more to real news than a news release.
Odds and Ends: Change fees; Two ex-NTSB members rap Boeing, FAA, current NTSB
About those change fees: Last week we reported from the US Airways Media Day and among the topics was that of change fees. US Airways matched United Airlines to charge $200 if you change your ticket. Here’s an article about how to deal with these fees.
Here’s another article about change fees, and how they’ve soared in recent times. If you think fees in the US are bad, look at the table and note in particular Ryanair’s fees–this carrier is notorious for charge for everything, and at steep prices, something subject to this funny video:
[youtube http://www.youtube.com/watch?v=ZAg0lUYHHFc&w=560&h=315]
Why are fees becoming so prevalent? Because this is where airlines are largely making their profits. US Airways said last week it expects to earn $600m from fees this year. This is more than its entire profit from 2012. This means airline operations lose money and profits come from the fees.
Also on US Airways: we also reported last week about some outstanding labor issues between the IAM at US Air and the TWU and American Airlines. An agreement over the weekend was reached about merging these two workforces under one union banner, according to Terry Maxon at the Dallas Morning News.
Ex-Members Rap FAA, NTSB: We bet they won’t be invited to a reunion. James Hall and John Goglia, former members of the National Transportation Safety Board, had harsh words to say about the FAA, Boeing and the NTSB over the certification of the Boeing 787 and the subsequent fix. Hall said the FAA needed to recertify the airplane, not just the battery.
Ethiopian Airlines resumed service with the 787 over the weekend, while Japan’s ANA engaged in a proving flight. This Wall Street Journal article (via Google News, so everyone should be able to read it) references additional measures required by Japan.
US Airways Execs talk to us about fleet plans, change fees and the AA livery
We had the opportunity to sit down for a one-on-two interview with Scott Kirby, President of US Airways, and Derek Kerr, EVP and CFO, during the annual media day. We covered labor, fleet planning, change fees and the new American Airlines livery.
When we talked right after the merger was announced, you indicated that all the labor problems at US Airways were solved and you had agreements with American’s labor groups. Yet I read about continuing labor issues. Bring me up to date about this.
Derek Kerr: I think what we’re talking about is we have a road to solve all the labor problems. The contracts have a methodology for the pilots and flight attendants for who we’re going to get there. The only thing we have right now is our ramp and mechanics. We don’t have a deal with our ramp and mechanics and we’re negotiating that today. That is in normal negotiations. We’re going through with a mediator. That really is the only area where we are working on from a stand-alone perspective to try and get a deal done with our group. It’s a little complicated because we are trying to work the two groups (TWU represents American Airlines, IAM represents US Airways-Editor.) From the standpoint of where we are today, we have to road to get the pilots done. We have the road to get the flight attendants done. We have the ramp and mechanics on [the American] side complete. We have a six year deal. We’re trying to get our group together with that.
American is taking about 65 A319ceos. US Airways has a large fleet. You indicated when we talked right after the merger was announced that you expected to use some of US Airways’ 319s on American routes, but at that time it was too soon to draw any conclusions about the integrated fleet plan. What is your thinking today?
Forward Looking Statements–the Fast Version
Publicly traded companies in the US must go through a ritual of providing “Forward Looking Statements,” which are filled with legalese that are getting longer and long.
To be in compliance at yesterday’s media day, US Airways dutifully issued its Statement:
[youtube http://www.youtube.com/watch?v=8ALEX13g0_s&w=420&h=315]
Odds and Ends: $500k per plane to fix 787, says FAA; China’s Airbus order
Cost of 787 fix: It will cost nearly $500,000 per aircraft to install the battery fix in the Boeing 787, documents released by the Federal Aviation Administration indicate. The actual math is $466,666. Analysts believe the 787 grounding cost Boeing about $600m, which the CEO said yesterday was absorbed in the R&D budget. Jim McNerney also said there are no contractual obligations to compensate customers for the grounding, but something will likely be worked out.
LOT will resume flying the 787 June 5, it was reported today.
China’s Airbus Order: It appears China is satisfied with the European Union’s about face on carbon taxes. Readers may recall China opposed the EU’s attempt to levy taxes on foreign airlines over carbon emissions. China vowed not to buy any Airbus aircraft–particularly the A330–in retaliation. Several other countries opposed the tax, though these didn’t go so far as to boycott Airbus. Today an $8bn order for Airbuses, including the A330, was announced by China.
US Airways Media Day-Part 3
Bev Goulet, SVP and Chief Integration Officer, American Airlines
Robert Isom, EVP-Chief Operations Officer, US Airways
Elise Eberwein, EVP People, Communications and Public Affairs
BG:
- Merger benefits flow to shareholders and stakeholders, employees, customers, and communities.
- This will be subject to a lot of scrutiny. Delta-Northwest, Continental-United, Southwest-AirTran all had skepticism.
- We’re taking a different path.
RI
- You go through a period of time where the public sees intense integration. People forget everyone has issues with reservations integration.
- Mergers are difficult, but we can’t take a break. We operate through the merger.
- Customers won’t threat us as one airline until we act, look and feel like one airline.
- Media will never let us live it down if we screw up.
- 110,000 employees have to be motivated. Enough people to fill Michigan stadium.
- 6,700 flights serving 41% of world’s population.
- AA-US will have more than 1,500 aircraft, more than Airbus and Boeing combined delivered in 2012.
Reader confidence rising about Boeing battery fix for 787
Reader confidence has risen over the battery fixes designed by Boeing and approved by the Federal Aviation Administration for the 787 in our unscientific poll.
In the third of three polls we’ve conducted–one before details of a fix were revealed but after they were broadly outlined in the media; one right after the Tokyo press conference; and the latest after the FAA approved the design–a majority of the minority now say they are ready to fly the 787 once it is modified. The two previous polls revealed a majority of the minority were not ready to fly the airplane for up to two years.
It’s clear Boeing and the customers still have some confidence-building to do–but it appears progress is being made.
USAirways Media Day-Part 2
Robert Isom, EVP-COO
- 2012 had more zero flight cancellation days than the prior seven years combined.
- Best operational performance metrics since the US-HP merger.
- 2012 topped on-time performance of legacy carriers (Hawaiian tends to be better-Editor).
- US Airways ranked #2 in 2011-2012 after Delta is four key metrics. Was last in 2007.
- The more compliant you are with safety will translate to reliability, efficiency, service. It serves all your goals.
- The distinguishing factor is what happens when things don’t go right.
- We want to build on momentum from record-setting 2012.
Andrew Nocella, SVP Marketing and Planning
- Phoenix equals 24% of flying; Charlotte 36%; Philadelphia 34%; Washington DC 6%; other 1%. Dramatic change from 2006 when core flying was 83%; now it is 99%.
- Now have 243 slots in Washington DC, from 193 from pre-Delta transaction.
- London Gatwick may be a great airport but London Heathrow is a more profitable airport. Began CHL-LHR March 30 with A330-300.
- 16 A321s coming into fleet this year to replace and up-gauge the airline in 2014/15. 767s start leaving the fleet this year.
- Contracts for 159 USAirways Express aircraft up for renewal, or 2/3rd of US regional fleet. Too small to be profitable now.
US Airways Media Day-Part 1
We’re at the US Airways Media Day and we’ll provide updates throughout the day.
First up is Doug Parker, CEO of US Airways and the new CEO of American Airlines when the merger is consummated.
Doug Parker:
- This media day is a little bitter-sweet. It’s the last one we will do here in Phoenix. (This is #13.)
- We’ve talked about consolidation over time, how US didn’t have to participate but would be better if it did. We talked about what the industry needed to do to be better. We talked about a lack of focus on labor, which was dysfunctional, a lack of discipline. The industry was improving on all fronts. Today the industry is much better with the exception of government policy.
- In 2010 I talked about the lack of profitability with oil a problem.
- In 2011 talking about how the recovery was real, in good and bad. Oil prices was as high as in 2008. US made over $100m, a $1bn turnaround from 2008.
- In 2012 we talked about how we were in a position to make a choice for a merger, not because we had to.
Odds and Ends: Boeing kills fish plan; Consultant still spooked by 787 fix; new 787 poll
Boeing kills fish plan: The Spokane Review has this story about Boeing killing a plan to further protect fish in the Puget Sound area. We knew of this effort in December. The proposed rules would require huge water detention ponds at Renton and Everett to retain stormwater runoff to prevent pollution in Lake Washington and Puget Sound waters. The dimensions were so large there was inadequate land available at Renton. At that time the size of the Everett hadn’t been computed.
If the new rules went into effect, we were told Boeing would have likely begun moving work out of Washington, costing jobs.
The Washington Department of Ecology, which was behind the move, is proving more and more schizoid in its approach to the environment. On the one hand, it proposes highly onerous rules such as this and causes headaches to the suburb in which we live over critical areas rules. On the other, it’s poised to approve a permit to another suburb that will allow direct injection of contaminated stormwater runoff into a drinking water aquifer.
This falls into the category of “what are you thinking?”
Spooked about 787 fix: Richard Aboulafia, consultant with The Teal Group who has done work for Boeing in the past (about five years ago), remains spooked about the fix, according to this article. Are our readers? We’ve done two previous polls, one before the Boeing fix was outlined, one immediately after. Now that the FAA approved the fix, we’d like to ask the following again.