02 August 2007

Midwest and AirTran - all over bar the shouting?

The inevitable is almost here. AirTran subject to a last minute stumble will finally be able to gobble up the smaller MidWest Express.

The Little Airline that started out as the Kleenex Express will likely cease to exist and Air Tran will have a new mid western hub in MKE.

We are suckers for the little guy but the economics of the airline biz does not allow a premium domestic service to operate in this manner. So the brave experiment will likely end early next year if not before

Will AirTran allow fresh cookies on board. I doubt it. Joe Leonard is trying to lose weight



Is Iberia worth it – or will the Spectre of Qantas still haunt?

Iberia is at the moment being poked and prodded like a contestant at a very ritzy beauty pageant. With only the Joint TPG/BA team allowed anywhere near the books – you can ask why anyone would want to pay for the company with one of the most bloated payrolls in Europe. Simple. 12 straight years of profit. Oh yes and add in the combined effect of the AF-KL deal as a model and you have an interesting cocktail that someone clearly thinks is worth it.

So what do we think?

Without touching the books and with only public reports to work with we feel it comes down to a certain amount of cojones and ego. BA is literally challenging or daring LH to come out and play. The latter has effectively grown by stealth through defusing competition and broadening its base while at the same time building a set of vassal states to feed its dual hubs in FRA and MUC.

Effectively we are neutral on it. We can’t see the large scale synergies emerging because the London Madrid Axis has been in place for many years. Unlike AF KL who were in different leagues and therefore could engage in joint value, BA and IB wont achieve anything like that. Sure BA will have a growth opportunity in LATAM (one of the bright growth spots in international inter-regional travel) but it is still a small base. IB won’t benefit because it is a mature market and there isn’t the value proposition to move to BA's core markets such as Africa and the orient. So the only other reason for doing it is defense. While there are some short term gains – long term value is far from assured.

Risk factors abound:

Open skies on the transatlantic
Premium niche carriers
LCCs especially Ryanair, Easyjet and Air Berlin

So we remain ambivalent to the deal. We think that it’s necessary but fundamentally we don’t like the match up.



Battle lines drawn Big Airlines vs Big wigs Corporate Plane toys

Here at T2 we have been a big critic of the current "market" based system for allocating Air Space resources such as ATC.

The big airlines have launched into this using a somewhat lame metaphor. Welcome to the party boys! A new website has been launched http://www.smartskies.org/ which aims to put the blame for ATC gridlock at the door of Corporate Jet users.

Not so fast everyone. Surely Delta and others are just as conflicted. Since Delta's Elite service is actually part of the enemy of this community. http://www.airelite.com/ So is Delta speaking out of 2 sides of its mouth. You betcha. But lets not stop here. One of our other gripes with the US Airlines is their diversion of resources by using more smaller planes (IE less Air Space efficient) aircraft to service domestic points. We have a raft of studies that show the air traffic (measured in aircraft movements) is increasing much more rapidly vs total passengers (RPMs). Yes Delta - your mainline fleet reassignment has resulted in more planes in the air which are less efficient. I am just picking on Delta because they are being a particular hypocrite in this debate.

Moral of the story - let he that is innocent cast the first stone.

But the real urgent issue is a full and open debate on the true cost of the Air Space. For that I believe the smartskies.org website is a useful forum for the debate. So everyone - lets have a full and sane (that means rational) debate and come to a long term solution. The old devil worship of General Aviation should not be sacrificed at the alter of public opinion. The FAA needs to fix what is broken and to use a rational pricing mechanism that recognizes the true cost of the Air Space, the runway space and the bits in between.



30 July 2007

Watch out Europe - here comes Virgin

Great article today in WSJ on interview with Steve Ridgeway MD of Virgin Atlantic.

One critical element is what VS will be doing to combat the loss of its oligopoly position at LHR. We believe that VS will be taking on weak carriers and uncompetitive premium product airlines. Watch out all of you EU carriers with a slightly inferior product (AZ you have been warned) because Virgin has you in their sights. Air France's legendary surly flight attendants better go to charm school now! Also watch out for additional markets with high premium traffic and low transatlantic lift. Specifically look at markets like DC, Seattle, Denver and Vancouver. As a clue look at the coming route map for Virgin America.

Worth the read - interesting battle. VS will be battling (like BA who is similarly affected) the peer and above crowd (Read BA and LH) and now the niche carriers such as L'Avion, Maxjet etc.

Competition is definitely out there. Long may it rear its pretty head