US August passenger airline employment down 2.2 percent

By BA Staff

U.S. scheduled passenger airlines employed 380,328 workers in August 2013, down 2.2% from a year earlier, as per the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS) reports. August was the 12th consecutive month that full-time equivalent (FTE) employment for U.S. scheduled passenger carriers was below that of the same month of the previous year.

Scheduled passenger airline categories include network, low-cost, regional and other airlines. 

The decline in FTEs may be due, in part, to two factors.  First, American Airlines, the industry’s third largest employer, filed for bankruptcy in November 2011 and reduced FTEs by 7.2% year-to-year. Second, network carriers have experienced increased fuel costs and have reduced contracts with the regional airlines that operate less fuel-efficient regional jets.  Regional airline employment is down 5.1 percent year-to-year.

The five network airlines that collectively employ two-thirds of the scheduled passenger airline FTEs reported 2.5% fewer FTEs in August 2013 than in August 2012, the 13th consecutive month with a decline from the same month of the previous year. Delta Air Lines reduced FTEs by 4.2%, and American Airlines 7.2%. United Airlines increased 0.2% FTEs, US Airways increased FTEs by 2.8% and Alaska Airlines by 3.1% from the same month a year earlier. Network airlines operate a significant portion of flights using at least one hub where connections are made for flights to down-line destinations or spoke cities.

Of the six low-cost carriers, half i.e. Spirit Airlines, Allegiant Airlines and JetBlue Airways - reported an increase in FTEs while the other half, Frontier Airlines, Southwest Airlines and Virgin America, reported a decline. Low-cost airlines operate under a low-cost business model, with infrastructure and aircraft operating costs below the overall industry average.

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NTSB says no mechanical failures found in Southwest Airline's New York crash

The United States National Transportation Safety Board has developed the following factual information on the July 22, 2013 accident in which a Southwest Airlines flight 345, a B-737-700, landed hard at New York’s LaGuardia Airport (LGA), and the nose-wheel of the aircraft collapsed.

The captain has been with Southwest for almost 13 years and has been a captain for six of those years. The captain has over 12,000 total flight hours, over 7,000 of which are as pilot-in-command. In 737s, the captain has over 7,900 hours, with more than 2,600 as the pilot-in-command.

The first officer has been with Southwest for about 18 months. The pilot has about 5,200 total flight hours, with 4,000 of those as pilot-in-command. In 737s, the first officer has about 1,100 hours, none of which are as the pilot-in-command.

This was the first trip the flight crew had flown together and it was the second leg of the trip. The first officer had previous operational experience at LGA, including six flights in 2013. The captain reported having flown into LGA twice, including the accident flight, serving as the pilot monitoring for both flights.

The en route phase of the flight, which originated in Nashville, was characterized by the flight crew as routine. On approach into LGA, the first officer was the pilot flying and the captain was the pilot monitoring. SWA 345 was cleared for the ILS Runway 04 approach.

The weather in the New York area caused the accident flight to enter a holding pattern for about 15 minutes. The crew reported that they saw the airport from about 5-10 miles out and that the airplane was on speed, course and glideslope down to about 200-400 feet.

The crew reported that below 1,000 feet, the tailwind was about 11 knots. They also reported that the wind on the runway was a headwind of about 11 knots.

SWA 345 proceeded on the approach when at a point below 400 feet, there was an exchange of control of the airplane and the captain became the flying pilot and made the landing.

The jetliner touched down on the runway nose first followed by the collapse of the nose gear; the airplane was substantially damaged.

At this point in the investigation, no mechanical anomalies or malfunctions have been found. A preliminary examination of the nose gear indicated that it failed due to stress overload.

Investigators have collected five videos showing various aspects of the crash landing. The team will be analyzing these recordings in the coming months.

Parties to the investigation are the Federal Aviation Administration, Boeing Commercial Airplanes, Southwest Airlines, and the Southwest Airlines Pilots Association.

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Video: Changing a Boeing 737 CFM56 engine at Southwest Airlines

by Devesh Agarwal

A CGI rendition of the Southwest Boeing 737 MAX

Without a doubt, an aircraft's engines are one of the most complex parts on an aircraft. After the airframe, the engines are the most expensive item an airline buys, and normally an airline signs separate contracts for the airframe and the engines.

With thousands of rotating parts, and temperatures reaching close of one thousand degrees, engines require regular maintenance. Almost all engine manufacturers like General Electric, Rolls Royce, Pratt and Whitney, CFM, and IAE, offer a concept of 'fixed total cost of operations' wherein the airline pays the engine vendor a fixed cost per hour of operation of the engines and the vendor is responsible for maintaining the engines. This concept is better known as "power by the hour".

Some airlines like US low cost carrier, Southwest Airlines, have extremely large fleets, and find it more economical to have their own maintenance and engineering operations. For Southwest, these engineering centres are based at their major hubs of Dallas, Houston, Phoenix, Chicago, and Atlanta. The centres routinely swap out the CFM56 engines of their all Boeing 737 fleet. Since an aircraft earns money for an airline only when it is flying, airlines always keep spare engines, which are swapped out, allowing the aircraft to be put back in to service quickly. The engine then undergoes repairs and maintenance offline.

The CFM56 engines powering the Boeing 737NG weigh about 2,500kgs each, and even the well experienced technicians at Southwest take between four and seven hours to do a routine engine swap. In the video, observe the synchronism of teamwork that makes this complex task look routine, a task Southwest technicians perform over 154 times a year.

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US Aviation Review 2012: Vinay vs. Cranky Flier

by Vinay Bhaskara and Brett Snyder

Earlier this month, I had a chance to do a little bit of back and forth with Brett Snyder (a.k.a Cranky Flier) about some of the biggest news stories in US aviation from last year. While the idea was that we’d do a lot of debating, it became mostly a discussion (what was that line about great minds….?).

We started off with the potential US Airways/American merger.

Vinay: From a network perspective I really like this merger more than most for American (and of course for US Air) because it really plugs a lot of holes.

Domestically, there is still a lot of incremental value in secondary NE markets (ALB, ROC, SYR, BDL, et. al) connecting them north to south along the East coast. Philadelphia is a strong and stable origin and destination (O&D) market with limited low cost carrier (LCC) penetration and little room for LCCs to expand b/c of terminal space in the medium term. And Philadelphia is a strong connecting hub with a good European network. It is consistently undervalued as a hub in my opinion, and adding Philly would allow American to flow connections to Europe over Philadelphia, leaving the valuable slots at New York JFK for premium O&D flights.

Charlotte is a unique hub that fills a huge hole for American (even United would highly value a Charlotte hub). From a pure network perspective, there is no other hub in American’s network that can serve the traffic flows that Charlotte can’t; Miami is too far South and Dallas Fort Worth too far west. While Northeast-Southeast flying isn't high yielding in the aggregate there is some high yield traffic there. Flying from the rest of the country to the Southeast is plenty high yield. Plus, demographic and economic trends point to a rosier future for the South as well as for Charlotte. O&D may be a little low in Charlotte at the moment for a hub its size, but it is fast growing thanks to the banking industry, and more importantly high yield. Some international overlap is present with Miami, but the domestic scale means that Charlotte is a viable hub (or at least 85-90% of its current capacity is).

Do I even need to describe the value of Reagan? It’s the preferred airport for DC business travel and of huge strategic value.

Phoenix has questionable value; cost creep from the merger pushes a lot of its flying to unprofitability. The one good thing is that the main competitor Southwest is facing heavy cost creep as well, but even so it’s heavily squeezed by Dallas Fort Worth to the East and Los Angeles to the West.
The Delta/Northwest merger proves that fleets don’t matter to a merger of this scale.

A lot of synergies in terms of consolidated negotiating of contracts, as well as increased attractiveness to frequent flyers are often ignored. These effects number into the hundreds of millions of dollars annually.

From a labor perspective, it has the potential to be a nightmare, though the toxicity of AMR employees seems mostly directed at Horton and current management. I do like that AMR is waiting to complete bankruptcy before merging; this allows them to merge from a lower cost base and not push up US Airways’ costs too much.

It’s also important to note that US Airways management team is amongst the best in the business. Doug Parker and co. have taken an imperfect and challenging situation and turned it into record profits. Bringing that kind of strategic vision to AA’s more powerful network and customer base can only mean good things.

In summary, I’d say that neither US Airways nor American needs to merge. Rather, it adds a lot of value for both parties and would create a stronger airline.

Cranky Flier: I agree with nearly all of what you've said, but I want to focus on that last point.  It might be true that neither American nor US Airways needs to merge, but I would say that US Airways needs it less.

US Airways has found a profitable niche over the last few years.  It has been consistently profitable with a lower revenue base because it has been able to achieve costs to match.  But that is really what the airline is - a niche player.  It can help to complement other larger airlines, as it does in Star Alliance today, but it is not a world leader.

American, on the other hand, is supposed to be one of the big three.  It's the North American anchor of oneworld and it has powerful partnerships.  But when it comes to being a network carrier that serves the US, it falls short of its competitors.  With mergers, Delta and United have created networks that serve the needs of the US.  They are actively working to build partnerships to make sure that Americans can get anywhere in the world without leaving the family.  American doesn't have that.

Sure American has good partnerships with strong airlines around the world, but it still can't get anyone from Providence to Atlanta.  In fact, it doesn't even fly to Providence.  It has a real lack of connectivity up and down the east coast and that is a big problem for an airline that needs to compete for high dollar traveler loyalty.  And while it dominates Latin America with its partners, its European network is very weak.  Delta and United both have powerful jumping off points in New York that allow for single stop connections from much of the US to much of Europe.  American is forced to double connect people more often than not.

A US Airways merger rectifies these problems.  No, it doesn't give American a hub as powerful as that of Delta or United in New York, but it does give the airline Philly, a respectable hub which, as you say, has little low cost penetration and a strong local traffic base.  That Philly hub combined with National in DC and Charlotte means that there is tremendous ability to connect small and large towns alike all along the east coast.  Charlotte provides the only natural competitor to Atlanta, and that would give American a rare leg up on United in that region.

And Phoenix, while likely to shrink in a merger, still provides a crucial point for connectivity throughout the West.  Dallas/Ft Worth can't serve everything west.  That's very clear in the fact that American no longer serves places like Burbank or Oakland.  This is where Phoenix can make a difference.

A merger doesn't solve everything, but no merger can.  Sure, it fails to give American a Pacific presence, but that's not the point.  The point is that it brings American so much that there's no need to focus on what it can't deliver.

Will there be labor unrest in a merger?  To some degree, sure.  Are mergers all difficult?  Yes, of course.  But if American really wants to compete with Delta and United, then it needs more strategic heft.  And a US Airways merger gives the airline exactly that.

We then moved on to the IT issues with the United/Continental merger.

Cranky Flier: I don't know that they [United] did anything wrong with the original physical integration itself.  There were some minor issues but in the end, it went fairly smoothly.  The problems that followed were two-fold.

First, they just couldn't be bothered to wait until they had a graphical interface for SHARES.  Instead, they forced all the United folks who used graphical interfaces before to learn command-driven SHARES.  From what I can tell, training wasn't adequate, so you have a lot of agents that just didn't know what to do.  I believe the new graphical interface has been introduced (or is in process), but there was a lot of unnecessary pain just because they were in too much of a hurry.

The other problem is that they didn't bother to find out if SHARES could handle everything it needed to do.  Upgrades became a nightmare early on.  Then there have been all kinds of issues with reservations not ticketing, especially with partner airline awards.  It simply doesn't seem like it can handle the tasks that it needs to handle.  This seems very surprising because US Airways seems to be running alright on SHARES.  Granted, it's not exactly the same system, but you would really hope these problems would have been discovered before making the switch.

The end results is that customers are very uneasy.  You have people wanting to reconfirm everything multiple times because of how many problems there have been.  And the problems seem to have gotten worse over the last couple months, at least for our clients.  This can't continue.  People will keep having miserable experiences due to tech problems and they won't keep flying the airline forever.

Vinay: I don’t really have much more to add. I find it interesting that it was a training malfunction in that they didn’t give the United employees either sufficient training to work with Continental’s interface or didn’t wait for the new interface; I think that’s on United management for not planning properly.

Empirically, I can empathize with everybody who had to go through some trouble with the whole United reservations mess. This past summer, my father and I were flying out to Kansas City and there was a thunderstorm that turned Newark into a mess. There were literally hundreds of disaffected elites (let alone customers as a whole) packed into Terminal A where United has less than 60 flights a day, and I can only imagine how bad it was over in Terminal C. And it was taking the United customer reps 20-25 minutes just to deal with each customer and so we got in line at around 9 pm, and didn’t get rebooked till closer to 1 am.

But the more interesting question  is how much this affects revenue and profitability for United. Their Q3 and Q4 financial performance was rather poor from a revenue and margin perspective. Even while the aggregate operational performance has gotten better over Q4, as you’ve mentioned the issues have not completely subsided. When as a corporate customer/business traveler do you start to book away from United because you’re afraid of a lack of reliability? Because even if they only lose a few such customers at the margin, it has a tangible impact on PRASM and profitability.

Cranky Flier: I think any bookaway will be temporary.  They will get this fixed and they will start firing on all cylinders.  It's just taking longer than it should have.  And longer than it did with Delta/Northwest.

Our focus then shifted to the Delta/Southwest deal for 717s

Vinay: Shifting gears a little bit, I’d like to talk a little bit about the Delta/Southwest 717 deal.
First, from a Delta perspective, it’s pretty much a continuation of the same strategy that brought them the MD-90s (and before that with Northwest the DC-9s and DC-10s) at dirt cheap rates. I know you described it as a “Moneyball” style of strategy earlier this year, and I’d agree. Delta is taking assets (airplanes) that are undervalued and thus relatively cheap on the world market, and then using them profitably. The strategy to minimize capital costs makes a lot of sense in the current environment and Delta is happily paying off its debt, even as the other US carriers commit to huge capital commitments in the form of massive aircraft orders (even Southwest). I also wonder if Delta will apply this strategy to A320s and 737NGs as those end up on the used market and their valuations fall in the face of the re-engined products? I know that the 737-900ER order is ostensibly supposed to partly replace the A320 fleet, but there is a chance that a deal too good to pass up on A320s will arise at some point over the next 3-5 years. Because of current trends in US and global oil production, especially the rise of alternative sources like shale oil and tar sands, the long run trend in oil prices looks to be declining, though oil prices are obviously quite volatile and there’s always the potential of environmental regulations driving up prices. So the downside risk for Delta of having a fuel inefficient fleet and being hit with a huge oil spike is relatively low in my opinion. From a network perspective, the 717s slot right in. They help backfill some of the lost capacity from the 50 seat regional jet reductions, and I think they’ll be especially useful for larger markets from La Guardia.

It’s the Southwest side of things that’s much more interesting in my opinion. Right after the merger, the thought was that AirTran’s international ops and the 717s would open up new windows of expansion for Southwest in international flying and smaller domestic markets. We're finally seeing some of the international flying, but the smaller cities have been a bust. In fact much of AirTran domestic has been culled. Atlanta is more than 40 daily departures off its AirTran Pre-merger levels. The 717s are cheap, paid off, and more fuel efficient than the 737-500s. Yet Southwest could not make them work because the CASM rose too high. And I think that comes back to Southwest's rising labor costs. For the past 30 years they've been granting steady pay and benefit increases to front line workers and offsetting that with steady growth and high productivity as well as fuel hedges. But now they've saturated the US, the hedges have expired, and productivity has slipped. And the end result is a rising cost base to such a degree that Southwest is now being forced to jack up fares; they aren't really an LCC anymore. And there's no real easy solution either. they could do what US legacies did and force wage freezes and benefit cuts down the unions' throats, but Southwest has extremely good labor relations and it's employees do tend to enhance service more than those at most US airlines (empirically). Another answer might be more fees a-la the legacies; but given Southwest's marketing strategy that's a no-go in the short term. More international flying and Hawaii flying will help buoy revenues but overall, the 717 deal points to broader structural issues within Southwest. Your thoughts?

Cranky Flier: Yeah, if we look at Delta, this acquisition really is just a continuation of a successful policy.  But I would argue that the 737-900ER is more of the same.  It's a new airplane but it's not the MAX, so I bet they were able to get a good deal simply because of that.  Delta really is opportunistic.  If the ability to pick up other airplanes for cheap arises, I'm sure it'll pounce.  But I would be shocked if they found something as sweet as this 717 which allows them to ditch a bunch of fuel inefficient 50-seaters and bring more flying in-house making employees happy.  The cherry on top is that Southwest is paying to outfit them in Delta's configuration, doing all maintenance, and painting them.  They'll be delivered like new to Delta ready to go.  Beautiful plan.

As for Southwest, I just don't know what to think.  I was excited about the possibility of Southwest being able to service smaller cities - it could open new opportunities I thought.  But Southwest pulled out of nearly every small city AirTran served.  It also went and ditched the 717, paying dearly for the privilege, effectively saying it can't do it at all.

So that puts all of Southwest's eggs in the international basket.  There is limited opportunity in the US for the airline.  Hawai'i and Caribbean/Latin are really the only growth opportunites that are big enough with high enough fares to support Southwest's higher costs.  That can tide them over for awhile, but it's sad to think that's the only thing out there.

You would imagine that Southwest would have to start adding new fees seriously at some point.  They have danced around that point with some minor fees like charging you if you no-show for a flight, but they haven't touched bag fees and change fees.  They've really dug themselves a hole if they even try at this point because marketing has really drilled it into people's heads.  I think they can still get away with charging for a 2nd bag, so that would be something.  But they are in a very sticky situation now.

Editors Note: After I wrote about Delta getting used A320s/NGs, Richard Anderson on Delta's Q4 earnings call:

"Given the glut of narrow-bodies coming on the market right now, we think that there is going to be significant opportunities because residual values on eight to ten year old narrow-body airplanes are on a significant downward slide. And we will continue to be with the glut of airplanes there."

And we finished up by discussing the drama surrounding United, Southwest, and the fight for international service at Houston Hobby.

Cranky Flier: The whole thing seemed absurd to me.  Southwest only flies to Hobby in Houston and it wants to push internationally.  It stands to reason that it would want to operate those flights out of Hobby instead of splitting its operation into two airports.  That would just be stupid.  But the response United gave to this plan was simply absurd.  It trotted out all these consultants to do studies saying how it would ruin the entire Houston area and United would have to slash and burn everything.  Oh please.  Southwest might do some Caribbean and Latin flying but that's about it.  Yet United acted like it would have to lay everyone off and stop flying to Houtson altogether.  (Yeah, that's only a slight exaggeration to how silly they sounded.)

Even after Southwest won the battle, United tried to blame flight cuts and staff lay offs that were in the works on the decision.  Southwest isn't even starting to fly for some time and nobody knows exactly where they'll go.  To blame the addition of a customs/immigration facility at Hobby for the cuts is just a joke.  I imagine United might pay for this for quite some time with local Houston politicians.  I don't think they should be expecting any favors.

Vinay: I agree that it was very much a knee-jerk reaction from United, and probably a bad one in terms of the Houston market moving forward. But it is important to point out that United is far and away the leader in the US-Latin America market in terms of profitability, with a superb 29.9% net margin (though American has the highest yields thanks to its Miami hub) as per DOT data for Q3. And for the most part, United’s Latin American network is through Houston. They command extremely high fares on some of the O&D monopoly markets to and from Latin America. When you throw Southwest into the equation, it takes away a lot of the VFR and leisure volume, as well as potentially some of the incremental business travel. And some of the connections to Mexico that are very competitive through Houston will be lost to Southwest at Hobby.  Will all of this kill United? No. But it is a significant threat to what is one of their cash cows. I think we all saw with the annual results last week that United is not in tip top financial shape. Regardless of their methods, I think it is understandable that United would strike out and try to shunt this in whatever way possible. Houston is a large and growing city with a large enough O&D base to sustain these two operations simultaneously. And we’ll likely see United manage its capacity allocation to Latin America better; large RJs versus mainline to Central American and Mexico for example. And all of this assumes that Southwest is able to get an international operation with all related reservations infrastructure in place by 2014; far from a sure bet.

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Delta's 717 Delivery Schedule

In late May, the news broke that Atlanta-based Delta Air Lines would be leasing 88 Boeing 717-200s from its newly minted rival in Atlanta, Southwest Airlines. The Dallas based airline, which acquired the fleet of 717s from its merger with AirTran Airways (through which it also inherited a hub in Atlanta), had previously utilized only  a single fleet type (the Boeing 737) for its entire 40+ year long history. But the new economic realities of growing labor costs and slower traffic growth at Southwest have combined to make the 717s uneconomical.

Either way, Bangalore Aviation can now reveal the tentative details of Delta's 717 delivery schedule. Earlier, Delta had made the acquisition of these new aircraft contingent on its pilots approving a new contract that contained changes to Delta's scope clause and increases in profit sharing with amongst other issues. This contract was approved on June 29th, and thus Delta will begin to take delivery of the 717s from August 2013. They will take on the aircraft at a rate of 3 per month continuously (with the exception of December 2013 when they will take delivery of 4 aircraft) until the end of 2015, at which time all 88 717s have been delivered. See below for Delta's full 717 delivery schedule.

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Southwest Airlines reveals initial 737-800 operational details

US low cost carrier Southwest Airlines has released some of the details of the planned initial utilization of their new fleet of Boeing 737-800 aircraft.

Southwest's first two 737-800s (out of 73 that were ordered), will enter service on April 11, 2012. These aircraft will come equipped with the new Boeing Sky Interior that features larger windows, mood lighting, and enhanced overhead bins.

These first two aircraft will be based in Chicago-Midway and Baltimore-Washington, and be used primarily for flights to Florida. From that point, the operation will spread outwards, with the aircraft "flying longer-haul routes like between Chicago Midway and the West Coast, between Baltimore/Washington and California, and between Florida and Las Vegas."

Southwest will take delivery of 2 additional 737-800s on April 22nd, 2 more on May 13th, and by the beginning of August will have 20 737-800s in the fleet.

The 175 seat 737-800s for Southwest will feature single-class seating with 32 inches of seat pitch, more than is typically offered by the full service US airlines in their economy classes.

We will update this post with flight schedules when they become available.

However, the initial flight has been confirmed as Southwest flight 1717, departing Chicago-Midway for Fort Lauderdale on April 11th, at 7:00 am.

(Image Credit)

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Southwest Airlines posts net profit in Q4 2011

After falling to an unprecedented pretax loss of $226 in the third quarter of 2011, Dallas based Southwest Airlines once again returned to net profitability, earning $152 million, or 20 cents per diluted share.

Revenue grew 32% to $4.1 billion, while operating expenses grew 37% (with fuel and related expenses jumping 59) (All figures vs. Q4 2011.

Southwest's performance beat analyst's estimates significantly and topped the net income of $132 million from last years fourth quarter.

Full year profit dropped from $459 million in 2010 to $178 million in 2011. However, this figure was good enough to maintain Southwest's record-setting 39 year streak of continuous profitability.

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VIDEOS: The new Southwest Airlines cabin

On Tuesday, Southwest Airlines announced a series of changes to its interior, including the addition of 6 seats to their 737-700 aircraft and a reduction in seat pitch offset by a decrease in recline.

The new cabin also features, "recyclable carpet, a brighter color-scheme, and a more durable, eco-friendly, and comfortable low-profile seat that weighs less than the current seat."

All 372 of the airline's 737-700 aircraft will be retrofitted with the "Evolve" interior beginning in March 2012. Completion is targeted for 2013, and the interior will also be fitted onto the 737-800s which will begin to arrive on property this year, as well as on the carrier's plethora of 737 MAX aircraft which are tentatively scheduled for delivery starting in 2017.

The following video is a time-lapse of the first Southwest 737 to be retrofitted.



Read below for the full details of the new cabin.

The Evolution of the New Cabin Interior Improves Customer Experience and Preserves Personal Space

With a continued focus on Customer comfort, Evolve: The New Southwest Interior retrofit enhances the Customer Experience:

• Modern Cabin Design: The new design incorporates natural, earthy tones combined with Southwest's iconic Canyon blue and clean, aluminum accents for a more modern, fresh appeal. The redesign is inspired by Southwest's past with a nod to the future.
• Lighter and More Comfortable Seat: The redesigned low-profile seat is more durable, made of eco-friendly products, is lighter, and more comfortable.
• Increased Under-Seat Space: The new design allows for more under-seat room for carryon luggage and approved pet carriers.
• Customer Living Space: Reducing the recline from three inches to two inches preserves onboard personal living space while still allowing for ample seat adjustment for Customer comfort.
• Seatback pockets: The new netted seatback pockets are streamlined to provide more knee room.
• Headrest: The fixed-wing headrest provides better neck and head alignment with side-to-side support for sleeping.
• Improved Ergonomics: The combination of the low-profile cushion and fixed wing headrest improves ergonomics by positioning Customers "down and back" into the seat, allowing for better lumbar support, armrest alignment, and increased personal living space.

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Guest Post: The unique air cargo industry

The air cargo industry is quite obviously different from the passenger airline industry. Beyond both offering services that mostly focus on transportation via air the two industries share little else. Let's get into it.

For passenger airlines, the exchange of services (and in some cases, goods) is pretty much entirely contained within the airport or the aircraft. Passenger airlines offer an airport to airport service where travel and accommodation beyond these gateways is ultimately up to the passenger.

The cargo industry offers a very different service. When I worked for a major international cargo service (full disclosure: DHL is the company I previously worked for so my goal is to approach this from an academic and unbiased narrative), we offered what we called "door-to-door" service. That is, a company employee would pick up a package from a customer's home or warehouse and the package(s) would be delivered to the home or final destination of wherever the customer required. Customers were not required to drive to the airport and check their cargo in with the airline and then have another person at the closest airport that the airline served to the package's final destination waiting to pick it up.

Cargo carriers also deal with the logistics of offering a "door-to-door" service. That means massive fleets of everything from vans and trucks to aircraft, bicycles, motorcycles, cargo ships, trains, and I've even seen branded segways. It is easily surmised from this point that there is a lot more overhead and operational costs to be able to maintain these kinds of service. To be able to control these extra costs there are some operational differences that vary from the passenger transport business.

First is the aircraft. Cargo aircraft operate entirely different schedules and have an entirely different set of costs than passenger aircraft. The biggest advantage is the regulations that mandate the amount of maintenance required on the aircraft on a regular basis. Now don't think that these cargo aircraft are deathtraps - they just aren't. They are immaculate aircraft. They just don't require some of the more in-depth inspections that passenger aircraft are required to go through. This provides a benefit to the cargo airlines in the form of reduced operating costs.

This also allows many cargo carriers the ability to operate much older aircraft. This is another huge economic benefit. Buying a used MD-11 with tens of thousands of hours on the airframe is worlds cheaper than a brand new 747-400F(reighter). This directly puts the cargo carriers at another economic advantage. With lower costs for the acquisition of these assets cargo carriers can afford, in many cases, to purchase these aircraft outright instead of leasing them. This is just like purchasing a car and paying in full with cash - it just means no monthly payments, no interest payments, no outstanding liabilities in the ledger, and in a pinch assets that they can potentially liquidate to free up some cash. All of these aspects of the industry are utilized, particularly by the American based cargo carriers.

Cargo carriers almost exclusively operate at night. This provides a multitude of benefits as well. First of all these night operations are essential for their time-sensitive deliveries. The deadline to ship a package is usually in the late afternoon so that people can still drop off packages one their way home from work and still be delivered to the other side of the country before noon the next day. This means mostly having night time operations to move the cargo.

Some cargo airlines deviate from this route though. One way this is done is by contracting out the air portion of cargo movement. Mostly that is done by paying a passenger airline or other carrier to carry cargo for them. You may be surprised to learn that some of the largest cargo carriers (measured by total tonnes carried) are passenger airlines. Delta and Southwest are constantly in the top 10 largest cargo carriers in the world, and it makes sense. Delta operates over 4,000 flights a day and there is cargo on just about every flight where UPS operations only about 1,000. Granted those 1,000 UPS flight are pure cargo and the 4,000 Delta are mostly passengers, they are still comparable.

Another way this is done is by purchasing space on a contract cargo carrier. FedEx does this with one company called Mountain Air Cargo. All of Mountain's aircraft are painted in FedEx logos and fly routes specified by FedEx but have their own non-FedEx call-signs and flight numbers. This is a great way for FedEx to be able to server smaller markets without having to purchase, maintain, and staff the smaller aircraft. This also allows for some cities to receive important and sensitive air cargo that can not be delivered by the large MD-11's or 747's. It is obvious that in some cases passenger and cargo operations are one in the same. The two may travel in different cabins of service but still are essential to quick and on-time delivery.

In some aspects cargo and passenger air carriers are very alike. When it comes to pure cargo carriers though, the air cargo industry leverages important economic benefits to create a very resilient and sustainable industry.

--
Jesse Ziglar works as an analyst for a major carrier in the southern United States. More of his writing can be found at his blog Air Transparency. He can also be found on Twitter: @airtransparency

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Guest Post: Top 10 US airline stories of 2011

There was plenty of airline action in the US this year, so when I was asked to come up with the ten biggest stories of 2011, I quickly realized that was a tough task. After much thought, here is my list of the ten biggest stories to hit the US airline industry in the last year in chronological order.

Southwest Overhauls Rapid Rewards

It had been rumored for years, but at the beginning of 2011, Southwest finally rolled out its new Rapid Rewards frequent flier program. The new program is dollar-based, so it swept aside the standard Southwest had used since inception of the program. Many fliers were angry at the change, but the bigger issue involved all the technical glitches after launch.

American Takes On the GDSs

This fight has really been going on for years, but it heated up early in 2011 with lawsuits flying back and forth between American and the Global Distribution Systems (GDSs). Airlines have been unsuccessful so far at truly altering the relationship with the GDSs, but it’s not for lack of trying. This fight will continue for years to come.

Premium Economy Grows in Importance

United had its Economy Plus offering on the airplane for years but nobody responded. That all changed in 2011. First, Delta announced it would put Economy Comfort on its international fleet. It later followed that up with an announcement that the domestic fleet will get it as well. Meanwhile, the new United confirmed that it will keep Economy Plus on its airplanes. Even American got into the act by vaguely mentioning that there will be a premium economy product on its newest international aircraft, the 777-300ER.

Delta Tracks Bags Like FedEx

Airlines had begun boosting their bag tracking capabilities awhile ago, but Delta finally became the first airline to give travelers what they wanted – FedEx-style bag tracking throughout the travel process. The airline even came up with a nifty little iPhone app that lets you scan your tags and automatically follow them along the way.

The Rise of Streaming Video

In the inflight entertainment world, wifi-based entertainment systems finally took center stage. American announced it would start streaming video on some flights while others jumped on the bandwagon as well. This is only going to grow in popularity.

Delta and US Airways Finally Swap Slots

It seemed to take forever to find the right mix, but Delta and US Airways did eventually propose a deal that the Department of Transportation liked. Delta took most of the US Airways slots at New York/ La Guardia airport while US Airways took most of Delta’s at Washington/National. It’s not completely finished yet, but we’re in the home stretch. The landscape of commercial aviation in both cities is dramatically changed for the better.

Spirit Gets Aggressively Domestically

Little Spirit Airlines has thrived with its ultra low cost carrier model in Florida and the Caribbean, but it made a big push this year to bring it to the domestic market with new flying in Vegas, Chicago, Dallas/Ft Worth, and Phoenix/Mesa. This trend has thrived in Southeast Asia and Europe, but it hasn’t quite caught on in the same way in the US . . . until now.

Delta Cuts Small Cities

Delta decided that the time had come to cut a slew of small cities from its network if it couldn’t get more government subsidies. That’s just one little move in a growing trend. As economics change, small cities feel the brunt of the pain. They’re going to keep losing service at alarming rates.
The Illegal US Airways Pilot Slowdown

It’s no secret that US Airways pilots haven’t been happy with their contracts, but they’ve done very little themselves to fix that problem. Instead, they’ve done counter-productive things, like putting together an illegal slowdown. The courts got involved and told them to back off. They have for now.

American Files for Bankruptcy Protection

The final story is a big one. American, the airline that long touted its pride in being the last of the giants to have not filed for bankruptcy, finally lost that battle. It filed for bankruptcy protection and the process of cutting costs began. We don’t know what American will look like in a year, but it’s going to look different than it does today.

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Brett Snyder is the author of the award-winning Cranky Flier blog. He is also the President and Chief Airline Dork of Cranky Concierge air travel assistance.

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2011 US airline industry review - The return of profits, but only just

Air travel and economic growth are widely recognized to be linked together; the industry typically grows at about double the rate of economic growth. However, despite the economic malaise in the United States, 2011 was not a bad year for the aviation industry here.

As US airlines dealt with stagnating demand and appreciating fuel prices, they still managed to pull of the most impressive feat in the business; making a profit. The trends in the industry that shaped these changes were:

The year of the capacity cut

The typical mindset of the airline industry has always been growth; gaining market share, buying more planes, serving more destinations. One need not look far to understand this; the Indian market itself is touted as one of the best in the world, primarily because there is so much traffic growth. But as we pointed out in our most recent podcast, the Indian airlines are making heavy losses, with capacity growth outpacing demand. For much of the 2000s, the US market was in a similar place.

Since the US airline industry was de-regulated in 1978, airline management has constantly overvalued market share and pure size (not unlike the Indian government’s treatment of Air India today). It is not incorrect to say that they literally chased market share off cliffs; if an airline’s hub was invaded, the typical response was the initiation of a price war, with heavy consequences for all. This was an industry that lost a net of US $59 billion between 2000 and 2010, and a large part had to do with the fact that carriers tried to grow their way to profitability, rather than actively managing their business to make it profitable.

Now capacity cuts are certainly not the only factor in the sustained profitability of US carriers in 2011 (the recent wave of consolidation was the biggest long term factor- it cut needless capacity from the market). But they are the biggest non-structural change from years past. Whether it was Delta cutting small turboprop markets and slicing off about a third of its New York JFK transatlantic operation or Frontier withdrawing from its mistake of a Milwaukee hub; US carriers very actively managed their capacity and were quick to slash unprofitable flying. Overall, the second half of 2011 has seen US carriers cut capacity by around 1% versus the same period in 2010, and North American carriers (basically throwing in Canada’s small market as well) are projected to have grown capacity by just 2.3% year over year versus 2010.

Capacity discipline helps keep revenue afloat

Vedant Agarwal/BangaloreAviation

One of the most interesting paradoxes in the US market has been the unit revenue strength shown by not only traditional full service carriers like Delta and United, but even from low cost carriers (LCCs) such as Southwest Airlines and JetBlue. Typically, the industry’s problems during recessionary periods, and in general during the 2000s was that LCC’s would always undercut pricing by legacy carriers; when fares needed to go up, the Southwests, JetBlues and AirTrans' of the world refused to increase them. But perhaps because the major two low cost carriers Southwest and JetBlue are dealing with flattening growth and rising costs, the LCCs have been much more receptive to keeping fares high, paying dividends for the industry as a whole.

Simply put, the US airline market is in the midst of perhaps the fastest growing revenue environment since the mid 90s, while the US economy itself is muddling through the tail end of the Global Financial Crisis (fingers crossed anyway). Premium travel has grown well, but recession policies curbing profligacy are still in effect, so the broader revenue gains have come mostly from smart management by the airlines.

That mythological creature known as profit

The airline industry is almost universally recognized as a poor investment; with relatively limited barriers to entry and irrational new entrants, the concept of pricing power barely exists. Richard Branson has been quoted as saying that, “the easiest way to become a millionaire is to start off a billionaire and go into the airline business.” Consistent profitability has, to this point, eluded the US airline industry for more than ten years; 2010 and 2011 together look to break this trend once and for all; North American carriers posted record profits in 2010 and are projected to make a round US $1.5 billion by IATA in 2011.

On a micro level, the performance of US carriers was very encouraging in 2011. Industry leaders United and Delta took advantage of Chapter 11 reorganizations and mergers to record projected profits of more than $800 million apiece. Southwest Airlines and JetBlue both utilized of continuously appreciating revenues to cover rising costs, and US Airways countered by showing remarkable cost discipline. Alaska Airlines seems to have hit upon a magic formula out in the Northwest, and niche players Spirit, Allegiant, and Hawaiian all maintained solid profitability. Even financially tenuous Virgin America finally recorded a quarterly operating profit earlier this year, and Frontier Airlines is currently in the midst of an analyst-approved re-structuring plan that will hopefully return it to profitability. In fact, outside of loss-leader American Airlines, which filed for Chapter 11 Bankruptcy Reorganization earlier this month, the US airline industry was singularly profitable in 2011, an all too rare occurrence in this business.

The Decline of the Regional Jet and Small Cities

Vedant Agarwal/BangaloreAviation

Alongside this pattern of capacity draw-downs and growing revenues, 2011 marked the end of the line for the 50 seat regional jets which became pervasive in the early part of this decade as feed aircraft for US full service carriers. But the combination of rising fuel costs, and a loss of pricing power due to over-supply of these jets appear to have killed off the economics of 37-50 seat regional jets once and for all. Delta was most aggressive in making these cuts; it will have retired more than 120 regional jets since the merger with Northwest back in 2008 by 2012. But other players are cutting back as well, and American’s recent bankruptcy looks to allow them to shrink American Eagle as well.

Naturally, the decline of regional jets has hurt its most frequent users; small airports. These locales, typically enhanced by the federal government’s Essential Air Service (EAS) programs, depend almost solely on regional jets to provide them with air links to the rest of the United States. However, as we saw with Delta cutting service to 24 small cities, and the general decline of EAS flying by US major carriers, many routes to small American cities just aren’t worth the while of the airlines any more. I personally feel that longer term; this problem will be solved by a Renaissance in more economic turboprop aircraft. But in the near future, small cities will face a significant drop in capacity.

An investment in the passenger experience… for those who are willing to pay

Devesh Agarwal/BangaloreAviation

2011 was also marked by continued investment in the passenger experience, a welcome trend after the dark period in the middle of the decade when US carriers slashed service in an effort to more ably compete with low cost carriers.

The past few years have marked a return to upgrading the passenger experience with one significant caveat; it now comes at a price. US legacy carriers are now relying more heavily than ever on high-revenue passengers to drive profitability, and for these passengers, the travel experience is only getting better.

United, Delta, and American all added/re-enforced their Premium Economy cabins this year, and most major frequent flyer programs (FFPs) rolled out increased perks for high-value travelers. But beyond these lucky few, the most significant investments came in the space of ancillary products (in the US things like food, duty free, fast boarding, et. al), where the US carriers heavily expanded their offering. Even as the US carriers moved towards fleet-wide WiFi and a future in-flight entertainment (IFE) system based on streaming media, they simultaneously continued to charge for it; there is now most certainly a value proposition for WiFi in the air.

All of that being said, it’s also time that I took a look at how I feel the industry is moving in 2012. Thus, here are my 5 (not-so) fearless predictions for the US airline industry in 2012, in no particular order

• No US carrier will order the A380 or any other Very Large Aircraft (VLA) - Despite John Leahy’s comments about United Airlines earlier this year; the US international market is too fragmented with the individual carriers having too many potential hubs for an A380 sized airliner to work; this market is moving towards 787 and A350 sized fleets, not the other way around.
• United will order the MAX for their narrow-body replacement - In December, both Boeing and Airbus submitted RFPs to the new United Airlines for an order to replace the carrier’s fleet of 150-200 seat aircraft. Their new Continental Airlines based management was consistently pro-Boeing in the past, and the MAX with its significant fuel burn reductions will be available before the neo; a must in such a competitive market as the US
• US Airways will take a flier at American while in Bankruptcy- Considering that US Airways president Scot Kirby is on record as saying that the US airline industry needs more consolidation, it is highly likely that US Airways will make a bid for American Airlines while the latter languishes in Chapter 11 Bankruptcy.
• A major US regional carrier will shut down- Pinnacle came close in 2011, and the deteriorating economics of regional jets dictate that one of the players will likely fall in 2012. My personal choice? Cincinnati-driven Comair.
• Delta will de-hub Cincinnati and Memphis - The writing has been on the wall for Cincinnati and Memphis with Delta for a long time. These two hubs were built on the regional jet, and with the decline of that type, coupled with a shifting of resources to Delta’s new hub at La Guardia, I predict that Delta will officially de-hub these two operations in 2012.

Readers, what are your thoughts on 2011 and 2012 in the US market? Let us know in a comment below.

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Boeing 737 MAX logs first firm order from launch customer Southwest Airlines

The 737 MAX now has another customer. Southwest Airlines, the world's largest Boeing 737 operator has announced an order for 150 of the re-engined 737s, as well as 58 next generation 737s. The order for 208 planes, worth almost US $19 billion at list prices, represents the largest single order in Boeing history, topping previous orders from Emirates and Lion Air this year.

Southwest Airlines currently operates 565 Boeing 737 aircraft (excluding those of merger partner Air Tran), 370 current generation 737-700s, and 195 Boeing 737 classics. The new order increases their order backlog to 341 737s, plus 65 further orders for 737-700s held by AirTran.

Southwest will be the launch customer for the 737 MAX, with first delivery tentatively scheduled for 2017. No indication has yet been given as to the delivery schedule for the 737 NGs.

According to Boeing, the 737 MAX currently has more than 900 firm orders and purchase commitments from 13 different customers. Boeing maintains that the 737 MAX, which will be powered by CFM International's LEAP-1B engines, will provide 10-12% better fuel burn and CO2 emissions than current generation 737s and 7% better operating economics than the Airbus A320neo.

For Southwest Airlines, the order is not surprising; the carrier has been very complimentary of the MAX since it was launched. Grappling with labor cost increases and plateauing growth, Southwest had chosen to reduce its fuel expenditures to keep unit costs manageable.

Regardless, congratulations to both Southwest and Boeing for signing this deal.

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Southwest ads hits legacy airlines' baggage policy

In its "Bags fly free" series of ads, US low fare carrier Southwest Airlines hits out at the chargeable baggage policies of "full service" carriers like American, United, Continental, Delta, US Air, and British Airways.

In India we are getting ready to celebrate the five days marking the festival of Diwali, the biggest holiday of the year. Travel is high, and with the gift giving and receiving, a lot of bags are travelling.

Thanks Southwest. Just as a reminder, in India bags with all carriers, full service and low fare, fly for free, at least till 20kgs/44lbs.

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Southwest Airlines launches nationwide fare sale in the US

Southwest Airlines is offering its passengers additional discounts with airfares starting at $59 one-way to select destinations nationwide. Fares must be purchased by Sept. 3, 2009, and are available for travel everyday except Fridays and Sundays from Sept. 9, 2009, through Jan. 7, 2010.

Examples of fares include (see Additional Fare Rules below):

• $59 one-way between Las Vegas and Phoenix
• $59 one-way between Baltimore/Washington and Manchester
• $89 one-way between Los Angeles (LAX) and Seattle
• $89 one-way between Cleveland and Minneapolis/St. Paul
• $109 one-way between Dallas Love Field and Chicago Midway
• $109 one-way between New York LaGuardia and Ft. Myers

Southwest Airlines differentiates itself from other airlines by offering the first two checked-in bags for free subject to size and weight limits, no fees for a window or aisle seat, and complimentary snacks, sodas/soft-drinks, and smiles.

For full details and fares visit Southwest Airline's website www.southwest.com

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Video: Southwest Airline's Boeing 737 makes fiery landing at Houston

Today is shaping up to be a Boeing videos day. We have videos of the second Boeing 787 Dreamliner roll out, and another of a Japan Airlines Boeing 747 sucking a baggage container.

Now a video of a Southwest Airlines Boeing 737 which had a gear problem causing a fiery landing at Houston airport.

Great video from CNN and KTRK Houston. I am surprised at the number of passengers coming down the slide with their briefcases and hand-baggage. Pay special attention to the first man with his briefcase at the edge of the runway, and the second chasing his papers over the tarmac. Extremely fool-hardy and unsafe. May be Southwest will train its cabin crew better.

You can hear the Air Traffic Control (ATC) tapes here.

The detailed report from Aviation Herald

A Southwest Airlines Boeing 737-300, registration N371SW performing flight WN-519 from New Orleans,LA to Houston Hobby,TX (USA) with 47 passengers and 5 crew, just landed on Houston Hobby Airport's runway 22, when a tire blew a few seconds after touch down. While the airplane slowed down, the tower reported seeing smoke from the right landing gear and a small fire. The airplane stopped on the runway just past the intersection with runway 12R/30L, video footage of the landing showed the outer right hand main gear tire ablaze. The airplane was evacuated via the slides. Emergency services quickly put out the fire.

The airport had to close runway 04/22 and 12R/30L for about one hour until the airplane was towed off the runway.

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Video: Southwest Airline's new LIFT(TM) coffee

The video says it all. If you have tried the new coffee, please post your feedback via a comment.

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How Kingfisher and other airlines should leverage Twitter to build their brand

Kingfisher Airlines recently became the first Indian airline to get on board the social nano-blogging service Twitter.

Following the success of JetBlue and Southwest, quite a few airlines have joined Twitter, including British Airways, Qatar Airways, Gulf Air, and United Airlines.

While I laud the bold initiatives by Kingfisher Airlines, at present it is only broadcasting adverts and updates -- a common mistake being made by most major airlines.

Twitter is not a bulletin board or a list server, it not about only advertising links and special offers all the time, its about building a brand, bonding with, and creating a community of present or potential customers.

JetBlue has over 435,000 followers on Twitter and Southwest Airlines is at 25,000. JetBlue makes extensive interactions with customers via Twitter the norm, sometimes causing passengers to wonder if JetBlue is spying on them. Not that JetBlue gets it right all the time. Dave Peck had a poor experience with JetBlue on Twitter and found Southwest offering him flight options (on their airline of course) while JetBlue delayed it's response to him.

Like it or not Twitter is all about real time nano blogging. It is all about here and now. On Twitter it is critical that you react to an existing or potential customer quickly, work out a solution, and communicating the answers and solutions with them.

If you put your brand on Twitter, you have be ready with a quick and reactive customer service model which understands this fine nuance. Any company should use Twitter to interact with customers and utilise the opportunity to create a positive brand experience at that given moment.

The other airline I have found following this norm is Qatar Airways. Less known than its cousin, Emirates, QR is building it's brand via Twitter very effectively answering simple queries from customers, tweeting job openings, receiving praise and brickbats from customers, generally keeping tabs on what customers think of the airline.

With it's strong customer focussed heritage Kingfisher Airlines can easily use Twitter more effectively by learning from the experiences of JetBlue and Southwest, as should other airlines.

Now, how can we convince SpiceJet, Jet Airways, IndiGo and other Indian carriers to join Twitter?

Remember you can follow Bangalore Aviation on Twitter.

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