The Disaster that is US Airways

I missed this while I was gone but thought it worth reposting here. US Airways is removing its in-flight entertainment system from all domestic flights. US claims they will save $10 million in fuel from the weight reduction of not having the systems on-board. The main thrust of the argument is that people don't pay them $5 for headsets anymore and, here is where it gets good, the studios don't give US Airways the movies for free.

This is just sad. It shows just how unfocused an airline can be when they A. Are try to complete and a merger and B. Are trying not to go bankrupt. Let's be clear: FUEL IS NOT RESPONSIBLE FOR CHANGING CUSTOMER BEHAVIOR. The charging for headsets gimmick has been going down the drain for a long, long time. First, you can use your headset. Second, the IPOD. If US Airways didn't have the foresight to tackle this consumer change, then what will they be able to tackle?

In October, they say they will be testing a lightweight fiber optic system to deliver entertainment. My bet is that US Airways doesn't last long enough for this to be rolled out.

Stayin' Alive

This post is a bit circumstantial but it is a topic worth pondering. Yesterday, AirTran announced a $13.5 million Q2 loss. Aside for the obvious hit to the balance sheet, this type of hemorrhaging forces AirTran -- and many other airlines -- into survival mode. If you read the linked Atlanta Journal-Constitution story will see a detailed description of everything AirTran is doing to stop the bleeding: attempting to renegotiate contracts with the Teamsters, slashing flights and securing an agreement with a credit card company with an acceptable line of credit.

That's all great. But, the main issue here is that none of the above activities are revenue generating and only one -- flight slashing -- was successful in lowering costs. As you get to the end of the story you see that AirTran's Q2 year-over-year revenue was actually up 13%, but costs jumped 37%. So, yes, cost-cutting is great, but airlines stuck in these position have to spend a tremendous amount of human resources negotiating deals with 3rd parties to save money. And all while that is happening it is a difficult dynamic to also concentrate on getting that other side of the equation up.

Premium News Roundup

Two updates on premium travel:

1. My post yesterday regarding the disappearance of all premium aircraft is no longer valid, as OpenSkies announced today they would be removing the 30 economy seats on its aircraft and replacing them with 12 Prem+ seats. This had been long rumored and the timing is not surprising. The seats will be in place by October 1st just as OpenSkies enters the peak period for premium traffic.

2. Continental unveiled a new Business product. They are going lie-flat and it will be a huge upgrade. It is a wider seat and extends to 6'6 when fully flat. However, as Cranky points out, window passengers are going to have climb over their aisle counterparts to get to the bathroom. This a let down. Most premium passengers travel alone and thought of paying $4000 for a ticket and then having decide if your bathroom needs are urgent enough to risk waking the person next to you isn't the most appealing proposition. On the other hand, it is probably easier to jump over a flat bed than an angled seat.

Airport Domino Part II

Back in June I cited a report out of Canada regarding Ottawa's decision to reduce its airport landing fees to help reduce the impact of rising fuel on the airline's that serve the city. Now, we have the opposite story out of LAX.

The airport board projects "Airline projections indicate that flights will decline by almost 17% at LAX in November while the number of available seats will drop by slightly more than 11%." As result landing fees are going up $0.50 at LAX and $0.27 at Ontario. It is a small change -- only $300 or so for each 747. Still, as the article's airline expert du jour notes, these charges will likely be passed on to the consumer.

As a side note, the story notes that LAX will be hit harder by the downturn since it is not a hub for any carrier. Last I checked, United still had a hub there.

Classism Wins Out

The deal is done. On Friday, British Airways announced that it has completed the purchase of L'Avion and will integrate it into OpenSkies by early 2009. Over the past three years we saw 4 airlines attempt to fly across the Atlantic with only business class seating. It is now official -- if you want to fly business class you are going to have to share the plane with people flying in a "lesser" class. Ah, the humanity.

Trip Report

I'm back in the States after nearly three weeks in Europe. I flew over in Business Class on US Airways and return on TAP Portugal and US Airways. I'll add a few comments about the return later on, but the highlight was the outbound on US Airway's fairly new 767 product.

US Airways #742
PHL (6:20 PM) - BCN (8:25 AM +1)
Monday, July 7

The trip started with a very typical US Airways experience. As we were relaxing in the US Airways lounge we noticed on the board that our flight had been delayed. There was a mechanical on the old 767. No big deal, the lounge staff told us they'd keep an eye on it and let us know when we should head down for boarding. So after about 90-120 minutes we got the word and headed down to board. It turned out the staff wasn't really paying attention and my wife and I boarded as they were closing the door, nearly missing the flight. Classic.

Once on board, though, I was impressed with the product. I've been spoiled by Eos for the past couple years, but this product definitely served me well. I even got a good nights sleep.

The service began with with olives and a wonderful “make-your-own” salad. I had the mahi mahi entrée and it was subpar. The fish was fine but it was incredibly dry with no real sauce to spice it up. I ended up dumping balsamic on it.

The personal entertainment device worked well enough, but the movie selections were lacking both in quantity and quality.

However, I was sleepy after dinner and I pushed the sleep button on the seat. These seats are lie flat angled seats so for a while you feel like your falling down the seat. But, eventually I got very, very comfortable. I'm only 5'10, so the seat fit me well. However, I'd imagine it would start getting uncomfortable for anyone over 6'0 ft. By the time we arrive in Barcelona, I was fully rested and ready to go to breakfast at Barcelona's famous Boqueria (I had octopus, pictured below).

European Vacation

No Chevy Chase references here. Channel 9 will be on a break until July 27th as I take a trip to Europe. Thanks to everyone for reading over the past few weeks. When I return we will have a couple trip reports, a new home and an improved site.

Perspective

As the US airlines continue to tank, it is worth remembering that there are airlines beyond our borders that are doing quite well, even as fuel rises. This month's Air Transport World notes in its feature article that US airlines "will fall the farthest in 2008, as the collapse of the dollar means they are fully exposed to the run-up in fuel prices."

Also, if you happen to get a hand on ATW's "World Airline Report", a quick read reveals that carriers across the world are innovating to maximize revenues from the one segment that can consistently provide demand: premium travelers. Almost every other strategy out there involves upgrading the business class product and introducing or reconfiguring premium economy. This is a great thing for business travelers and leisure travelers looking for a step up. Need proof? Just check out Qantas' new premium economy product.

Oil Isn't Everything

As crude oil prices climbed last week, the airline sector took a hit across the board. Nothing new here. But, then you see news that Allegiant filled 94% of its seats in June, up 5.4 points from the previous year, and you wonder if the stock should really should have fallen 17% over the last five days?

Frequency vs Route Map

The arm-chair upside to this OpenSkies-L'Avion merger is that we will all quickly learn a great deal more about BA's strategy for its new baby business class airline. Based on all available information, it always seemed like OpenSkies would opt for Route Map vs Frequency. They'd launch Paris and then expand with single frequencies to other cities such as Brussels and Amsterdam.

With this strategy OpenSkies can assure they do not flood the market with too much capacity and it gives it more pricing power for the demand. However, as a business class carrier they'd be betting on that frequency would not severely impact its demand. That is, that if I am John Doe business class traveler, then I would love OpenSkies so much that I would fly on them at anytime, rather than a competitor that allows me to possibly get on an earlier flight or gives me comfort that there is a later flight if my original flight is cancelled.

But, with the L'Avion purchase they now have 3 daily flights from NYC-PAR. My bet is that they quickly shed one of these flights and settle on 2 flights and that will be the maximum they offer any market. Either way, after a month or two, we'll have a good idea on how they plan to expand OpenSkies.

BA - AA - IB

British Airways is back in merger news with reports of a ménage à trois "operational merger " with American Airlines and Iberia. The article notes, "The deal would allow the companies to combine nearly all aspects of their operations, including sales, purchasing and marketing, leading to lower costs and greater economies of scale." And it goes on to say that it could lead to a full merger if foreign ownership rules changed in both the United States and Spain. I'm no expert on this subject, but I find that unlikely.

BA and AA have tried this twice before and have been rejected due to the behemoth monopoly the combined operation would have for transatlantic travel, specifically its Heathrow slots. The two carriers are betting that the industry's flailing state will convince regulators they need to approve this move.

This is a bit beyond my expertise, but something about getting the US, UK and Spanish governments to approve an airline merger doesn't seem all that likely.

OpenSkies Absorbs L'Avion

The big news of the morning is British Airways' purchase of L'Avion. BA shelled out a strikingly low 33 million Euro for the airline (68 million - 35 million in cash reserves) and will absorb L'Avion into OpenSkies. I discussed the impending possibility of this purchase in my podcast last week. Marc Rochet is an ex-BA guy and it is likely that relationship played a part in this move.

I had always heard that L'Avion was profitable, but with the entrance of OpenSkies and rising fuel costs I'm not sure they had any chance but to take the 33 million Euro and walk away. As for OpenSkies, they quickly gain a small customer base and, perhaps, more importantly, additional slots at Orly.

I had the pleasure of flying L'Avion once back from Paris. My assessment was that it delivered on its promise of Low Fare, Business Class French Style. It was not in the class of more upscale products like Eos or BA Club World. But, it never intended to be either.

Update: Others have pointed to the 757s as the key addition in this purchase. And that makes sense. According to all-knowing Wikipedia, BA has 13 757s. A note on the page indicates that BA plans to transfer 6 to OpenSkies. I'm not sure how this move fits in, but it seems to me that if OpenSkies wanted to launch other cities immediately they could do so without L'Avion's planes. But, given fuel, the more 757s the better.

All-Star Break

Well, not really. This week marks the end of the first 6 months of 2008 and it has been, um, not so good for the industry. Not that you need proof but check out my handy dandy chart below:

Sure, it may be hard to read the details on this chart, but it tells the larger story. Everyone is down and down big. Allegiant and JetBlue are down about 40% for the first six months and they are outperforming their peers. Southwest is the lone exception with a meager 6% gain since Jan 1st.

And, oh yeah, oil is above $140.

So while the numbers are ugly let's take a quick trip down memory lane:

The year started with MaxJet passengers fighting for seats back across the Atlantic after a Christmas shutdown. Then came April where we said goodbye to Skybus, Aloha, ATA, Champion and Eos. Frontier also filed for bankruptcy protection. And Southwest and American spent nearly as much time inspecting and/or fixing planes as they did flying them.

In early April, we also learned that Delta and Northwest would be merging. Then later in April Continental told us they would not be merging with United. However, they reconciled their differences and in June they announced a cooperation. We also lost Silverjet along the way and it seems clear that Midwest will be the next to go.

However, none of these events get my 1H 2008 award for most memorable day. The winner is May 21. On May 21, 2008 American announced it would charge $15 for the first checked bag. The legacy commercial airline model that had existed since deregulation had changed forever.

Fee Fun

The New Yorker chimes in with a satire on the latest round of airline fees:

"Luggage surcharges are old news at my airline....Staring blankly at the seat back in front of you for the entire flight is no longer permitted on my airline. If you have brought nothing to read, a book will be provided for your use, at a charge of fifty dollars. Flipping through the airline magazine or the duty-free catalogue in your seat pocket is allowed only while the aircraft is on the ground and other reading matter is temporarily inaccessible."

Check out the full Shout & Murmur by David Owen here.