AA Lays Out Business As Usual... For Now

As expected American Airlines has petitioned the court in its Chapter 11 pleadings to pay its obligations to the distribution channels.

For now that means its business as usual.

AA is quite far along in building an independent distribution infrastructure that supports direct and indirect distribution services. Rather than relying on a single channel for its revenue management - it is already one of the most diversified of the major network carriers.

It is unlikely that AA is going to change that strategy mid stream. Even with Tom Horton at the controls - the company would be ill advised to place most of its eggs back into the GDS only basket.

The company has invested much time and effort in building a multi-functional and advanced capability network of services. While it still depends 65% (from court filings) on the agency marketplace, the company has built a number of new bridges into the channel.

Many have mistakenly assumed that its drive to Direct Connect was to eliminate the Agency from the mix. Nothing could be farther from the truth. AA has embraced the agency community and is not going to walk away or do anything that will undermine that relationship. However it does not mean that the distribution channel systems can ride on the back of this relationship. AA has made it clear it believes that it needs to control the product offerings and the holistic nature of its pricing.

Many legacy airlines have yet to focus on the issue of consolidated pricing of the air fare products. AA has grasped that nettle and is moving to ensure that it will  deploy the necessary technology to deliver that end. Its new Jetstream reservation system being developed on the HP Agilaire platform will incorporate several ITA Software innovations. Check out the case story of the Boombox implementation.

Anyone who thinks that AA is going to back off from its ultimate goal of controlling its distribution has not understood the animal. In my view the company will emerge stronger and more competitive from Chapter 11. And whatever it takes to ensure that it can deliver its products in a cost efficient manner - it is going to pursue.

After the make nice period is over, we are going to see AA implementing the necessary processes and structures to ensure that it remains competitive. If not why go through this Chapter 11 process.

Cheers

Don;t Be Blue At A Failed Relationship

Most breakups are lets face it less than amicable. People don't just wake up one morning and say "Rationalizing our relationship is not working let's just be friends"

I understand that breakups can now be handled by a wide variety of media. Text (there is even a lame website called TextBreakup), Tweets, and of course the true sign you have been ditched is when your paramour changes her/his status on facebook back to SINGLE AND LOOKING.

In business some of the best laid plans of a business relationship can just fall afoul of the realities of the business environment.


Germany's biggest airline, Deutsche Lufthansa AG, in December 2007 paid $300 million for a 19 percent stake in JetBlue Airways Corp. There were big plans for feeding via JFK and the other points where the 2 airlines intersect. For the smaller airline it was a precursor to a number of deals that have seen them also tie up with some time rival American Airlines who also is in a rival Alliance. 

But to be frank there has been little execution of the grand vision and Lufthansa seems to be pulling in its horns across the board. The German airline's plans for world domination included at the time expansion into the German speaking market and a bold run at different markets like USA (JetBlue), UK (British Midland) and the oft rumoured but never consummated take over of SAS.  With a few bad quarters under their belts - and a general softening of traffic in the markets where its most heavily vested - LH seems to be pulling back. Its put the for sale sign out at Castle Donnington (the English Chateau that doubles as the HQ for BD), now the The Wall Street Journal  is reporting that LH is looking to exit out of its relationship with JetBlue. 

JetBlue and Alaska are the largest unaligned airlines (Southwest should be excluded from this list). Both of them have resisted combining with other larger airlines. AS has a slew of partnerships and has a strong feed as a result while shoring up a fortress on the North South Routes. Effectively AS has conquered the West Coast markets and solved that perennial problem of Mexico vs Hawaii by straddling both effectively.  JutBlue has built a series of very nice hubs in Boston and JFK as well as a number of smaller ones across the country. 

Perhaps what we are seeing is the precursor to a merger between these two feisty and mostly profitable strong regional airlines.

Now there's a thought.

Cheers
 

And Delta Makes 6 - Impact on OTAs

I was playing with the stock of the big 3 public OTAs and the 4 largest airlines to compare their stock performance over the past 6 months.

In the wake of the decision by Delta Airlines to use the Farelogix distribution system, it is clear that the US market for distribution has now been clearly redefined. The big 5 US traditional model airlines - US Airways, American Airlines, Delta and Continental/United have now all signed up for the service. Technically Southwest may have too as they are consuming Air Tran who is also signed up with Farelogix. (So that is how I got to 6)

If the market as determined by the stock prices represents the wisdom of the crowd then I think we can clearly see that Orbitz is being spanked.



Click on the image to see a clearer image of the lines.

The Stock symbols are:

PCLN= Priceline
OWW = Orbitz
EXPE = Expedia
AMR = American Airlines
DAL = Delta Airlines
UAL = United Continental
LUV = Southwest Airlines

The recovery of Expedia since the change of direction is beginning to show.

I think we just witnessed a seismic shift in distribution balance.

Cheers

1 Blind Mouse

Hickdory Dickory Dock, the mouse ran up the clock. The clock struck one and the rest of the industry died in a nuclear holocaust.

OK so its a parody but it hides a very serious message.

I read today the latest missive from the kitchen table in Radnor PA. BTC released yet another of its fine episodes in "as the world turns"

QUOTE:

"For two and one-half years, despite major corporations’ substantial collective purchasing power and their continuing calls for full disclosure of fee data, airlines have refused to provide the travel agency sales channel with this vital information. This refusal is well-defined evidence of a marketplace that is not functioning properly." END QUOTE.

Well this is not the case.

Each airline is obliged by law to explain its pricing and provide that information to the public. It so does - or risks the wrath of every consumer protection and government regulatory body under the sun.

And let me be clear - there have been transgressions in the past.

But in the main the US airlines are good at this. They provide the information to the consumers and to the agency community.

A long time ago - the airlines got tired of using the rather poor legacy GDS vehicles for disclosure of information. Instead they turned to the preferred form of communication that the vast majority of both consumers and travel agents use today - namely the Internet.

C'mon guys. No one owes anyone a living. Comparative shopping COULD have been easily provided in an innovative form by these GDS players but they chose not to. Consequently this is why Google stepped into the game and bought ITA for $700 million. If the GDSs had done their job well and in a time when there was good cooperation with the airlines - then companies like ITA and Everbread etc would not have been able to come into being. So let us not shed a tear for companies who today make between 27% (Travelport 2010 Q4 numbers) to more than 46% profit on their GDS operations. (Amadeus 2010 annual report).

And this continual obfuscation over the real issues is just INSANE.

Everyone should as a matter of course READ the complaint in full. Then make up your mind. There is a lot of information that should give food for thought to a lot of people. Surprisingly I found it very informative as an eye opener onto the issues.

DO NOT DISMISS THE CONTENT & DETAIL. It has relevance for everyone concerned with this debate.

DO NOT JUDGE until you have read the document and the expected responses from Travelport. I hope that the complaint comes to trial early but alas I fear that American justice moves at a slow pace. About the only thing I agree with the Press Release is the following statement:

"Expensive and years-long court proceedings"


Cheers

jetBlue Completes Migration To Legacy Carrier

In the recent years - airlines have fallen in love with the Low Cost Carrier model - LCC. But more recently as the strictures of the model start to constrain the growth of the business - the startup LCCs are started to adopt more hybrid like characteristics. At the same time the legacy full service network airlines have adopted many of the LCC characteristics. This dual trend - big airlines becoming hybrid and LCCs becoming hybrid has now passed a formal milestone. The first LCC to become a full service legacy carrier.

Welcome to the old boy club JetBlue.

In the past 3 years jetBlue has undergone a radical transformation. Here are some of the things it now does:

1. Participates in ARC
2. Participates in GDSs
3. Interlines
4. Hosted in Sabre
5. Is partially owned by LH

Etc etc

So as you can now see - jetBlue has become a full service network carrier just like all the others. Voila - completing its transition.

Seems like the LCCs are the dying breed despite their greater profitability.

Hmmm food for thought.

Cheers

OneWorld Breathes a Sigh of Relief

JAL Stays with OneWorld and announces AA as its "new" partner.

In what the WSJ called a "come from behind" victory for AA - it would seem the legal risks became the big issue.

Anti competitive restrictions could have been pretty intense. There were 2 challenges. AMR had already threatened a protracted legal battle if Delta teamed up with JAL. And the other issue would have been a potential anti-competitive challenge.

So OneWorld can breathe a sigh of relief. However does this make JAL better or (more correctly in y opinion) more viable? The jury will be out for a while on this one.

Cheers

CO To Boost LHR Flights

CO is boosting its daily schedule from LHR to 7 come the October schedule. This includes 5 to NYC and 2 to IAH. With some slots acquired recently (presumably from BD who disposed of a few) this puts CO at a distinct advantage for the New York Market. With at least 3 of its services with the larger 777-200 planes, DL has no match with just 2 767-400s on its schedule.

You have to wonder if DL is playing a game here. Forcing the EC to hold BA and AA into a corner by not upping its schedule. The proposed BA-AA alliance has 13 nonstops this summer. Don't forget that CO also has access to the 4 Virgin flights.

Ah gotta love politics

Cheers

JAL Stock Almost Worthless, BA Steps Up Noise

BA is offering benefits to JAL valued at between $164-240 Million - surprisingly roughly what the DL arrangement will deliver. However examination of the deal shows that it contains something that JAL doesn't really want. Not that BA has a lot of cash to dole out anyway given its pension deficit.

For example slots at LHR. Especially since JAL canceled one of its flights to LHR in 2009 to save money - so it already has a daily slot available!!!

Still the offers are getting tempting. With the cash deal now gone, OneWorld partners are scrambling to secure the ailing (see stock charts!!!) carrier. However noticeably quiet in all of the conversations has been Cathay Pacific. Actually the Hong Kong based carrier stands to gain if JAL exits the alliance.

So the battle continues. But I stand by my prediction that DL will win bar some last minute squeaking. And there does seem to be a lot of it...

Cheers

Whose On The Favorite List At American?

I just went to see "Up In The Air" its a great movie. While I am not quite of the same league as George, I can empathize with a lot of this. I recognize many people I have met in the story, and apart from George may even resemble one or two of them. However it is rather a long advert for American! Even Sam Elliott's appearance is a little over the top. But its a great fun watch.

Recently I have written a fair amount about American Airlines and its new direct distribution approach.

So now its probably appropriate for all of us to look at the list of who is "approved" so far. While I have had the list for nearly two months - I think now is a good time to share.

So for those of you who are really keen to see this you can find the link here:

http://www.t2i.biz/AAdistpals

Enjoy!

Cheers

AA To Mandate 100% Direct Distribution

And so it comes to pass.

The first Full Service Network Carrier to come to the market and advocate a complete break from the traditional GDS based model. AA's Cory Garner announced this week that AMR's airline subsidiaries will move to 100% direct distribution.

Max Hopper must be spinning in his retirement home with this one. AMR and its former child Sabre have finally come to break apart. In less than 60 days AMR has broken the chains that bind that seemed so formidable back in the 80s and 90s.

On August 29th they announced they were bailing out of Sabre's hosting. And earlier this week at CASMA they announced they were bailing out of the GDS model that Sabre used to dominate.

There can be no simple words to describe this fundamental shift in AA's position. We should note that this has not been a sudden decision but a long term progression as the former child moved slowly but inevitably towards conflict with its parent.

So now you have it. Two of the World's premier carriers have now clearly laid out their opposition to the GDS holistic one size fits all model. AA and LH - via different methods have defined the new world order.

Of course this could not have come at a worse time with the GDSs primping themselves for IPO. Now two of the largest content providers have created opposition to the very business model that they are hoping to take to the IPO market.

The WOW team and Sabres joint investors (TPG and Silverlake) must not be happy bunnies this weekend. Needless to say Blackstone must also be a tad PO'd.

You gotta love this business. It is NEVER dull.

Cheers

EC To Rule Soon on BA/AA

The European Commission is due to rule some time in the next few weeks on the British Airways and American Airlines (oh yes don't forget Iberia) Transatlantic Alliance.

I find it curious that so far the regulatory bodies have not taken too hard a look at this. Well maybe they just might.

With US Congress seemingly leaving this as unfinished business - and therefore tacitly approving the arrangement - it may all be up to the Commission to make a stand on the subject.

However it would not be a done deal. In April this year the Commission announced that it was going to investigate Transatlantic Alliances. So even if they rule this week - as we have seen with the issues of Lufthansa and their various expansionist moves, they can go back and do more investigation.

Frankly I would be really surprised if the Commission allows the arrangement to go through without a further extension of their investigation.

So let's see what happens next... it could be interesting.

Cheers

The Big US East Coast Switcheroo

Well the dust is clearing on the giant switch of airport slot assets on the US East Coast. It started yesterday with Continental and Air Tran doing a relatively small switch. AirTran AP reported planned to swap some Newark landing slots with Continental Airlines’ slots in Washington and New York, effective 25-Oct-09 AirTran would give Continental ten slots, gate and Jetway access at Newark in exchange for six Continental slots at Washington and four slots at LaGuardia.

Then the US Airways Delta swap was announced today.

As the Professor understands it, newly engrossed Delta acquires 125 slot pairs at LGA, US Airways acquires 42 slot pairs at DCA with international rights to Brazil and Japan both to be served from Charlotte. It is likely that cash will also change hands but that was not fully clear yet.

What is interesting is that the basis for this is swapping Regional and Commuter slots for mainline service slots in all the respective markets.

When the smoke clears it will mean a lot more nonstop services on the West Coast. It will also change the competitive landscape.

In my mind the winners here are US Airways in Washington market (who will be able to provide nonstop service in many markets particularly in the long haul arena now that West Coast services are possible from DCA). Correspondingly UAL will face increased competition despite having seen off several players who have attempted to boost services from the area - for example the spectacular collapse of Independence Air.

For New York - Delta will become a formidible competitor to Continental its cross town rival.

Is there a loser in all this?

In my opinion there are several losers. American will see its fall from top dog go even further, I have already given an opinion on UAL and CO. But perhaps the biggest loser(s) will be the small communities who currently receive nonstop service from both LGA and DCA airports.

Is this good?

Well lets see what Transportation Secretary LaHood has to say. For sure the disadvantaged will be clamoring for some mitigation.

Cheers

Star Current and Future Members Unhappy

So the DoJ has taken the gloves off on the ATI for CO to join the Star Alliance.

Justice is clearly sending a message that the concentration of the Alliance model cannot impede competition. And more power to them for finally waking up to that fact. The Europeans up till this point have perhaps been more aggressive - however the fait accompli of several alliances and mergers in the face of airline shut downs has muted their voice in decrying the behavior.

I believe that the DoJ is right in recommending dis-approval of the ATI. At the same time they should also not allow the BA AA transatlantic ATI to proceed. Approving one means by definition approving the other. But what of the existing DL/AF alliance? well there is already and existing Star set of immunity so the balance is really still there. So overall - it probably should be allowed to remain albeit with certain caveats based on performance in the next few years.

Let's hope that rationality trumps expediency.

Cheers

BA AA IB - last chance? Maybe, Maybe Not...

The guns are drawn the submissions are in and the old protagonists are lined up ready for the great shoot out at the Heathrow Coral.
Could this be the last chance for the BAAABI alliance to get its long sought anti-trust alliance approval?
In my humble opinion - there is no certainty one way or the other.

So lets do a quick review.

BA+IB. This has gone nowhere lately due to the GFC and the impact on the premium business market especially LHR-NYC. IB is feeling the pain but perhaps to a lesser extent that BA how is publicly wearing its hair shirt with Willie Walsh being surprisingly open about the extent of the impact on the former UK Flag Carrier. With the pound's fall against the Euro the value proposition would be hard to make in pure financial terms. Therefore I believe that this part of the deal is dead for now.

The Star and DL/AF alliances have powered ahead and built a considerable legal and commercial framework for Transatlantic service. While the product doesn't match the commercial model yet - and it will take some time to do so - these make a compelling case for equal consideration for BA and AA.

Virgin's unaligned status is perhaps the biggest fly in the ointment for the proposed tie up. Sir Richard is vociferous in his opposition. He knows full well that should the alliance be approved then his position as an independent will become almost if not actually untenable.

On the regulatory front - the Regulators have bowed to airline pressure and suspended some key anti-competitive measures such as the use it or lose it rule at major EU airports.

So will it happen?

My personal opinion is that judging from recent approvals under the current incumbent of the EC's Transportation Czar that their will be tacit approval. However not so fast. The EC has launched investigations into the LH dominance while at the same time approving LH's acquisition of BD. There is no rush on anyone's part at the moment. The sea of red ink - with IATA screaming BASTA - will likely be $9 billion this year. There really is no urgency to get this done. The impatience of BA and AA even if Transportation gives them approval will have to wait for significant anti competitive investigation that frankly could take years.

Like I said at the beginning - this has yet to run its course and while another battle with the old gunslingers shooting at each other doesn't mean the end is in sight.

I think we can rest easy in our beds knowing that there will not be any major casualties and even if someone does get wounded - they are going to get up and fight another day. Wyatt Arpy and Doc Walsh are not going to be the heroes, not today anyway.

Cheers

Delta to Agents: Pay Me Later?

So Delta has joined the chorus of pay for access to airline owned content.

Richard Anderson CEO said during today's analyst call reporting on Q1 results:

"Over time, the industry will evolve, People will pay us for our content." Clarifying that the content would be also purchased by GDSs - or maybe that Agents will pay via the GDS Anderson said:

"But GDS costs, will continue to come down. Ultimately, GDSs will pay for content, as is done for hotel bookings."

Following on from AA's Arpey, his comments seem to represent a statement of intent - a volley in the war that will come to a pitch battle in 2011 when the Full Content Contracts come up for renewal.

Gerard Arpey said, clarifying his earlier comments "I was simply making the observation that the paradigm in the airline business has been that historically we pay our distributors to sell our product. And that has been shifting over many years, because we have been able to cut domestic commissions, domestic overrides and booking fees.

I notice that nothing was said about the cost of Google in all this discussion.

So pay me now or pay me later - WILL YOU PAY?

Indeed a question for many of us to ponder.

Cheers

Arpey Awarded Golden Foot Award

Today's winner of the Golden Foot Award goes to the CEO of AA - Gerard Arpey. But there is a catch... he is not wrong.

For the lively debate on the subject go to Travel Weekly to see him being skewered royally.

http://www.travelweekly.com/article3_ektid192998.aspx

Now why do I say he is not wrong?

Well AA is paying for commissions and Booking fees in total, so it is a semantic use of words. But the fact is that there is a cost for distribution that the Airline is paying and that he thinks that is too much. Despite the removal of TRAVEL AGENT standard commissions from the lexicon (at least in most major markets), it doesn't mean that some agencies - particularly larger Corporate Agencies, OTAs and their ilk who are not in receipt of "commissions and booking fees" in some shape or form.

Can AA do anything about this? Yes they can and to a large extent they are attempting to do this. I need not re-hash some of the initiatives but there are a number of them out there.

All airlines are paying distribution costs. Not only is this true but there are new costs for distribution which have arrived and these are not cheap. For example at the recent CASMA conference last month the CPA for a reservation via Google was quoted at $20. That is more costly than a conventional GDS based booking. Yes there is an elephant in the room called Google. Perhaps Mr Arpey should have a look at those costs.

Still - AA's PR folks must be reaching for the heartburn medicine today and doing damage control.

So Mr Arpey - Your virtual Golden Foot award is hereby awarded for bravery in the face of adversity and perhaps for not being explicit enough in your comments.

Cheers

PS thanks to whoever owns this image...

BAAABI All But Dead in Its Current Form

The now stalled negotiations between British Airways, Iberia and American Airlines to form a true joint venture are all but dead in their current form after BA's leader Willie Walsh told a Spanish Newspaper that “These negotiations aren’t a distraction for our management team,” he said. “BA and Iberia know each other very well, so I don’t feel under any calendar pressure.”

Perhaps not so for him - but in March his opposite number at the former Spanish National Carrier indicated that a decision was both imminent and would indeed be made at the end of March. Well that came and went with no public announcement. So pretty much that puts paid to the possibility of a BA+IB merger in the short term.

So this leaves the proposed BA+AA+IB (BAAABI to you and me) JV in limbo. American might just start to get impatient with their European cousins.

In my opinion the IB+BA merger has lost its luster and wont regain it for some time. Willie has many more urgent issues on his plate. When he says this topic "isn't a distraction for our management team" that is somewhat of an understatement. BA has many pressing issues on its plate that far outweigh the merger. Not least of which of course is the current situation with its traffic numbers. March is likely to be awful at the very time when the US market is actually showing some signs of life. Whereas total US travel agency transaction numbers were off by a lesser amount in March that the disastrous numbers in Jan and Feb, International yields went into the toilet.

So does the transatlantic JV make sense in this environment? Specifically booking numbers for March show that international transaction numbers were off by 8% vs the total transactions off by 11%. However when the value of all US agency issued tickets is counted the proportion was reversed 27% vs 25%. I guess those Wall Street Types have either stopped traveling or are slumming in Coach - or more likely on domestic airlines. Anecdotally we are hearing that many recipients of US government bailouts are quietly instituting a buy American policy. The logic is that the US public would be really outraged if they thought that their tax dollars were being used to fly in business or first on a foreign airline when their own carriers are hurting so badly. Thus BA is clearly hurting badly and their numbers show it. BA's profile on the Transatlantic that represents such a large part of its business right now just stinks.

However with Continental getting its Star anti-Trust immunity nod this week - AA at least must be thinking that things are looking up. Not so fast quickdraw. AA+IB+BA's share of traffic at LHR is not dropping - actually it has climbed. With AA closing LGW and STN last year all their eggs in the Southeast of England are now concentrated at LHR. The dominant position that the triumvirate comprise at Fortress LHR is not likely to change any time soon either. Thus the dominant position they would exert on the Transatlantic market remains a threat to any competitor.

QED I think my supposition is that BAAABI is still dead.

Let's hope that they can come up with something magical to revive this.

Cheers

Gol Is American's New Gal

with TAM running around with Star in her eyes, American is clearly feeling jilted. This means that the rearranging of the deckchairs is going on in LATAM. So the JJ/AA code shares look like being swapped for UA/CO based Code Shares. So this puts American at a disadvantage. Not to be outdone (well they waited a while before they started officially dating), so now the American Broad has a new gal - GOL.

AA with up to 69 flights a week US to Brazil clearly needed a new dancing partner. So AA and Gol (yes another LCC interlining) will go steady for a bit. Whether it becomes more, remains to be seen.

And over in the blue corner remains Skyteam with almost no one in LATAM to dance with.

Cheers

Cathay to BA - Go Away!

Rebuffing any thought of a possible tie up between the declining valued BA and the greater value but smaller Cathay Pacific - its CEO - Tony Tyler wasted no time is telling Willie, Martin and the boys (via the article in the Telegraph)that they were welcome as OneWorlders but no more than that at Cathay City.

In a battle of the top dogs, Cathay Pacific chief executive Tony Tyler - a Swire man - said his airline has no intention of merging with British Airways, which is worth half as much as the Hong Kong-based carrier. In an interview in the Telegraph , he said he does not agree with BA chairman Martin Broughton who stated in early January that the Oneworld alliance will fall apart if the BA tie-up with American Airlines fails. while Cathay has been hit by the recession and has cut capacity growth for 2009 from 6-7% to broadly flat, it is seen as being more profitable than its London based Alliance partner.

British Airways hopes for a partnership now seem to be looking a tad thin. The Iberia merger is all but dead - killed by the free fall in the pound and the poor British Carrier's performance, Qantas and BA never made it past the first date despite having been engaged and almost married successfully before. With the new Obama Administration in power - the prospects for a tighter alignment between AA and BA don't look quite so good unless Gordon and Barack want to make nice and Fly Mandy wants it.

Here is the full article - worth a read.

http://www.telegraph.co.uk/finance/newsbysector/transport/4402441/Tony-Tyler-plane-speaking-from-a-merger-sceptic.html

Cheers

BA take another dive - Walsh facing music

BA has finally issued the long awaited profits warning.

This has a ripple out impact that will likely see the Iberia merger killed off. Actually the situation of the collapse of the pound vs the Dollar and Euro has seen Iberia now worth more than BA.

The escalating costs and the reduction of premium traffic is now acknowledged as hurting the UK former national carrier.

Walsh needs to step up and start looking hard at some more action to address some of these issues.

On the positive side - a return to their corners of BA and IB will make it harder to make the really larger BAAABI deal work. My prediction is that IB and BA will walk away from a marriage but will continue to push the BAAABI idea for now. Given the other arrangements in Star and Skyteam - this makes more sense. Not sure that Virgin however will agree.

Cheers