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

CO's Farelock vs. EC's Cooling Off

A lot of people are excited about Continental's new FareLock Product. The European's are about to ammend an existing law which will guarantee that a customer can cancel within a new grace period. The agency community fears it would be in serious trouble if the amendment to the Consumer Rights Directive tabled by Scottish MEP Catherine Stihler is passed. Why a Scottish MEP is doing this of course is open to question.

Her fellow MEPs on the Internal Market and Consumer Protection committee vote on the amendment at the end of January. The Legislation would take effect within 3 years.

Which is better - the Professor questioned aloud? - Your homework for the week is to answer.

Cheers

What this would mean - is that customers - whether they had paid a deposit or the amount in full, could cancel their holiday booking within two weeks, and demand a refund, regardless of whether the agent has already passed the payment onto the supplier.

Interestingly this would kill a whole revenue sector for the agent not to mention creating a lot of issues for them.

Can They Survive Without Merging?

Travel Weekly USA posited in Friday June 25th email that the fate of the merger hung on survivability. The recent hearings in Washington DC over the proposed merger are showing a harder time for the parties than the Delta/Northwest merger had under the Bush Administration. There are lots of reasons for this but there was a less than veiled threat put out by the airlines themselves which is – Let us merge or we fail and cause havoc. The dilemma was succinctly outlined in the Senate version of the hearings by its Chairman: "If this merger is approved, our passenger aviation system will have one less global network carrier, and I am not certain if this is good or bad, but it is increasingly clear that the current structure is not financially sustainable," Senate Commerce, Science and Transportation Committee Chairman Jay Rockefeller (D-W.V.) said at the start of his committee’s hearing earlier this month on the merger.

This is potentially true, but only part of the story.

As far as the overall ability of the two airlines to better compete – there is little duplication. For United Airlines the situation is more precarious than Continental. UA has mortgaged just about everything including some of its international routes. Its planes are old and even the announced order of 787 and A350s wont be on the flight line pool for many years. For what was for many years the largest US airline (indeed the largest by pax and flown miles worldwide for a while), the situation is not that great. For CO the situation is not precarious. It is healthy and so regarded on Wall Street. It has a relatively young fleet. It has good labour relations and a sensible route structure.

The labour relations have not started out well. The two Pilot Unions have failed to come to terms on “non-monetary” issues. Most likely seniority. The UA guys are so old that they would trump CO’s guys. The issue of seniority among pilots has been messy before. It still is over at US Airways with HP and US pilots still battling it out in court. I have flown more than a few DL flights this year where the crews have thanked me for “Flying Northwest”

But where I have the most trouble is in the competition area. The DoT seems hell bent on supporting the merger because they buy the argument of survival. The DoJ seems not to agree. The doctrine of bigger is better is not in the consumer’s best interests. As I have raised before the argument of “too big to fail” seems to be creating a monster no matter what the underlying arguments might be. Is that in the best interests of the US government which in essence would be agreeing to underwrite the ultimate commercial viability of the nation’s possibly soon to be largest airline. I think it comes down to the consumer’s best interests. In the more than 30 years of deregulation in the USA – the consumer on the whole has benefitted. It is not the government’s responsibility to police the stupidity of investors and managers. To return to a controlled oligopoly market either through mergers or regulation that must ensue, in my opinion, is not in the interests of the consumer. The basic economic argument points to a significant rising price to the consumer.

The better question is probably – do we need New United? If we take the worst case scenario that current UA fails, the impact across the board would be that the industry could accommodate such a failure. But both carriers are arguing they are vulnerable. CO’s Smisek and UA’s Tilton said, as standalone carriers they would not be able to weather the next big economic or industry "shock." The argument that one or both carriers could end up in Chapter 11 is being trumpeted. A new entrant however would possibly (I would say likely)emerge to challenge the status quo and offer low cost services domestically. The other carriers would be the stronger for it.

A challenging question. So what do you think?

Cheers

SkyFi An Endangered Species?

Onboard Internet has been a boon for people like me. I love it. Can't get enough of it. But hate the cost.

My travel is so varied - USA Domestic and long haul and to different places that I cannot get the same service. Also my ability to be loyal is very tough because of the variety.

So I was surprised to see the announcement today that CO is halting its deployment of OnBoard Internet.

With Row44 pretty much out of it (they lost the fight at Alaska who switched to GoGo) and GoGo struggling - there could be a chance that this will collapse just like Connexion by Boeing before it.

I so hope not.

Cheers

UA+CO - The Debate Rolls On

The wonderful battle that will keep us entertained for many months has just been joined. UA+CO went from the UA+US potential merger in less than four weeks to a full blown merger announcement by the New United pair on May 03. Now the dust has had some time to settle we can start to sort the elements out and see who sits on which side of the debate.

On the positive side sits obviously the airlines themselves. They have brought in a whole cadre of experts to support their position. Many of the experts are from the macro economic fold whose view is that the failure to merge will result in disadvantaged players so they tend to look at the bigger picture in the hope that the little issues can be resolved with exceptions. The basic economic argument is that the US market can only support three big airline alliance networks. If you would like the read the paid for analysis from Airline Economics click on the link. I suggest you do read it as it provides good ammunition for both sides of the argument, and its a good document to read anyway.

Also aligned with this position is the Department of Transportation which fervently believes in Big Airline. If you want some evidence of this look no further than their recent rulings and awards.

From a certain perspective it seems that the past 100 years of airline transport might have been an aberration in some people's eyes but you can't fault the millions of people who worked in it and pioneered the (mostly) safe and reliable utility service model that we have today. Not to mention the millions more who have invested in it.

So on the opposition side are the soon to be disadvantaged Houstonians (and others who will feel the pain like Ohio) and the likelihood that the DoJ will flex its muscles to either kill, hobble or delay what could be inevitable. And then there is Mr Oberstar. The Senior Congressman from Minnesota. he is the most powerful man in Congress in aviation interests. He staked his position in an Op-Ed piece in USA Today of all places on May 13th. One week earlier he had formally asked US DoJ to block the merger. Seeming to support him, on the House side, Judiciary Committee Chairman John Conyers says he "wants more specific answers after getting a letter from the two airline CEOs that he found lacking in specific answers."

One notable voice to come out in opposition is former AA Chairman Robert Crandall. Still as Acerbic as ever just celebrated his 12th anniversary of his retirement from AA's top position (May 20th 1998). But so far things are pretty quiet and it would seem that most of the focus is on who does what next - clearly Mr Parker and Mr Arpey are probably chatting via crackberries about forming what would then become the largest US airline.

And let me add one element to the fire of the debate. Oberstar was suitably less than vocal during the NW+DL discussions as he used his position to secure more concessions from DL for his home state of MN. He made some suitably mumbled comments that he could use later to justify his position that he did put up SOME opposition to the original merger that resulted in new Delta. Did the rot set in then? partially in my view. But to some extent this form of consolidation/concentration power was inevitable. That doesn't make it right or proper.

So let me return to the issue of the economic argument. I don't see anyone on the pro merger side saying much about Southwest. Surely the arguments being made fail at the evaluation of WN's position in the market. They started at zero and became the largest US Airline in the main organically unlike its larger brethren who ALL had some major merger in their history. It also consistently blows away the competition in profitability. All without any alliance (except for that somewhat quirky Transtar experiment in the 1980s and the even stranger ATA short lived alliance. But these were marketing agreements and as I have noted before we can still expect to see some of these from every player.

Nor do I buy that the GDSs exert so much influence (one of the older merger arguments) that this is a factor in the urge to merge. Virtual Interlining is now possible and is already in practice by individuals and systems.

Therefore in my view the argument that economics make this the only way to go fail on a large number of points. But - the practice of not allowing an airline to fail in bad times yet to merge in good times in my view is inconsistent.

The possibility for increasing competition can be seen in such proposed arrangements as the cosying up of partially Lufthansa owned JetBlue's relationship with AA and other airlines. The approved route and facility swap between Delta and US Airways is yet another example.

I am of the opinion that the merger of UA and CO will lead to an increased concentration which in turn will result in a reduction of service totally and quality (assuredly). We need good old fashioned competition to keep the market honest. Allowing CO and UA to merge their operations totally as opposed to allowing perhaps a lesser alliance such as one that currently exists with the A++ anti-trust immunity would hurt competition. It is a decision that for me is a bridge too far.

The alternatives are acceptance or rejection of the companies proposed merger. I think that the current level of alliance is more than adequate to maintain competition within the market. If the merger is allowed to proceed then the US consumer will be disadvantaged. At the end of the day that must be the determining factor.

Cheers

Should US Airways Be Given Exemption At PHL?

Hoping to slide in the request for an exemption for their operations in the heavily congested north east USA, US Airways is hoping to be exempted from the upcoming performance based customer charter due to arrive next month.

So the question is should the airline (based in sunny Arizona) be excused the delay rules. Remember that several airlines including American Delta and Jetblue have requested exemptions for JFK and Continental has requested the same for EWR based on the current situation (one runway is out at JFK) and in general for the ATC congestion there.

The new DOT rule states that if domestic flights sit on the tarmac for more than three hours with passengers aboard, airlines face a fine of up to $27,500 per passenger. Thus airlines will be more likely to cancel a flight rather than paying heavy fines.

Note that at the present time the US DoT has not ruled on these requests. The new regs come into force next month.

In my opinion there is a case to be made for the current JFK situation until the runway resurfacing project is complete. But whether the others are eligible - that is a different matter.

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

LH Tightens Grip and Gets Toe Hold In USA

Not content with its first foray into the English Speaking geographies via the UK through its BMI acquisition, Lufthansa is now carving its initials on jetBlue. It already owns nearly 20% of the equity and now it has filed for a set of code-shares from JFK and presumably other markets in order to bolster its presence in the New York market.

With United focusing on its very close relationship with new BFF Continental, LH wants more than just a casual relationship for one of the larger US market. While the code share arrangement was almost inevitable (LH has never yet taken an equity position in another carrier without a code share deal), one cannot help but think the recent mega slot swap in New York (which made Delta the top dog) didn't have some bearing.

Most especially LH was left with almost no feed at JFK clearly a condition that the German mega carrier could not let continue.

This is a win win for both carriers. JetBlue gets access to Transatlantic feed (EI's marketing agreement doesn't exactly create head spinning numbers). LH gets domestic feed to just about any market with convenient connections throughout the USA all the way from San Jose to Burlington VT.

The new reality of coach/economy travel and a comparable product in the back cabin makes for an easy fit.

Don't expect this arrangement to be a rush job. jetBlue's aging Navitaire OpenSkies system has a hard time with connections. So the full implementation of the code shares may have to wait until SabreSonic comes up fully.

Also an interesting side note here, the timing cannot just be coincidental. With CO getting ATI approval just weeks before this announcement - it makes for some interesting discussions about the dominance of Star Alliance. Perhaps some of Justice's fears were not unfounded. Someone at Dept of Transport must be thinking that they didn't pay full attention to this eventuality. Perhaps even Mr Oberstar can raise the issue again. However the door of the stable is likely have any impact on that herd of horses who are long gone! All in all competition across the Atlantic has been decidedly lessened.

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 and CO get Green Light – but at what price?

Much has been made of the DOT’s decision to proceed with minimal restrictions on the approval of the enlargement of the Star Alliance with CO and the approval of the new A++ group.

It seems that the DoJ had little influence over the decision despite laying out very clear anti-competitive objections to the proposed (and now approved) action. This would indicate a clear differing of opinions in the matters of air transport amongst the new Administration.

Looking behind the scenes therefore we can expect that there will be a number of future issues where Airline related matters are brought before the two Departments. For example should UAL and CO decide to enter into a merger agreement – a matter that the DoT clearly did not address in their ruling – then Justice would likely form a distinct barrier to that smooth approval process.

I believe that this is going to be a war that will entail many battles and that neither department is likely to give quarter on the subject. There will be heightened sensitivity by DoJ to matters of competition in Aviation related actions in the coming 3 years before the next Administration takes office. That should be interesting for all of us.

Interesting Non?

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

Is she really going out with him? CO dates the old broad UA

I just don't know - maybe I am feeling nostalgic. Continental the "new" young Turk has agreed to date the Old Girl United.

Driven from the arms of Northwest by the wiles of Delta - Continental has been invited to join Star and is getting the Royal Family Treatment. However joining is not going to be allowed for quite some time.

So now we see the Alliance map being re-drawn. Non-US Airlines and Star (in particular LH and SQ) have been coveting a domestic base in New York the largest metro in the USA. Clearly the pull back by United from JFK left a void in the Star Alliance route structure. (Heck it shows how much UA cared - they even sold the JFK-LHR route and slots to DL).

The sickest airline of all in the Star Alliance (now that Varig is long gone from there) is now US Airways. So you can just hear Mr Parker singing that song.

But I have a hunch that this is not going to be smooth sailing. Remember that LH bought a large chunk of the now Neelemanless JetBlue.

I suspect that there is a lot of conflict and soul searching going on in route planners spreadsheets right now. And if for no other reason than there is now some really heavy duty anti-competitive influences at work - I think Mr Oberstar and Mr Minetta might want to think about opening an investigation into concentration in the airline marketplace.

For sure this is a story that is going to run for a long time. And it ain't over till the fat lady sings. So if the smooth headed Mr Joe Jackson would get up to the Mike and start singing... he may be there a while.

Cheers

Timothy

Expressjet dodges the Bullet, Other ACMI carriers not so good

Expressjet. Well done chaps. Finally resolution to their current dispute with former parent CO. I believe that this marks the turning point in the ACMI type contracts. Other airlines from Skywest to Mesa need to read the fine print of these new contracts which work for both parent airline and contract carrier.

So who is next for the heat? Probably Pinnacle. However all the airlines who have size able numbers of 35-50 seater RJs are vulnerable now.

Now it's a full scale rout - Continental joins the cuts

One of the industries best performers (well at least in the USA market), Continental has decided to join the cutback guys and will slash over 3,000 jobs according to the Wall Street Journal. This will include sending out pink slips pretty soon, retiring some of their gaz guzzlers in its fleet (note CO already has one of the youngest fleets) and slashing domestic capacity 16%. Kilner and Smisek will forgo their salaries this year. (Kilner is starring in an ad campaign appearing in the WSJ promoting Houston).

Formally, of the big boys, this leaves only Southwest and Northwest to announce their cuts.

We anticipate that there will be further cutbacks coming from Frontier and Alaska who already announced retiring the RJs. Spirit air already announced its intention to ax at least 400 jobs in Florida.

Used 737-300s anyone?

Cheers

Timothy

Continental Two Step?

So UAL's United Airlines having jilted its fellow Star Alliance Partner US Airways is not promoting a deal with Continental as the wave of the future.

Having been the "rebuffer" already in merger talks in April, CO would be very unwise to hook up with the rather long in the tooth Chicago based carrier in an alliance partnership. Its fellow Texan, AMR corp is very keen to have Texas a solid OneWorld Alliance market.

For those of you who have not been following the Forsythe Epic Saga of Airlines - here is a recap of CO's position.

Rejected United on April 26th. Recovered its Golden Share back from Northwest (even if the Delwest marriage doesn't go through). Has danced with AMR for a partnership and entry into the OneWorld Alliance. Is constrained until 2010 from leaving its current alliance Skyteam unless Delwest does go through then it can leave 9 months after that formal Union takes place. CO is not a party to the 6 way Skyteam Anti-trust immunity (AF-KL-CS-AZ-NW-DL).

CO is therefore every-one's favorite gal to sleep with but she is playing hard to get. The only one, the two time visitor to Chapter 11 has not slept with at this point is the sole other US airline still standing who also has taken two visits to the Chapter 11 courthouse - US Airways. (Aloha doesn't count anymore as it is no longer offering passenger service).

So decisions decisions. Perhaps there is a possibility of a happy arrangement where there is regular fraternization with more than one player. A Texas Two-Step with AMR and a Pas De Deux with United? Perhaps even CO can take a leaf out of Alaska Airlines playbook where lots of players get to sleep with the Eskimo. Domestically that means CO-NW-AA-DL and HA. Internationally a further few with CX-QF-LN-KL-BA and AF are all partners.

Boy this is getting more complicated than SOAP.

So We Change Partners..

A new 3 way is being proposed. BA/AA/CO. This far more appropriate than the proposed mergers in our view and is the appropriate response by all 3 players.

Digging beneath the surface - it is interesting to see who wins here. Actually all 3 do.

BA and AA get further into bed. The likelihood is that the US DoT will finally allow the transatlantic version of the Code Shares to take place as a result.

AA gets a long sought after link to CO and protects its base. Fortress Texas! AA has benefited for many years from the withdrawal of DL from the Dallas hub. This has left fares high.

CO probably gets the most immediate value with incremental revenue which should outweigh the loss of the Skyteam business.

BA's shares rose this morning 5% on the news.

Continental follows Delta in exit from Certified Tours for inhouse Vacation Packages

Earlier this year, Delta Airlines announced its intention to terminate its long term agreement with Certified Tours for in-house Vacation and Tour services. Now Continental is following suit.

Certified actually was founded by Delta staffers and for many years enjoyed a very close relationship with the airline. In recent years that relationship drifted somewhat. Now too it would seem that Continental feels the same way.

The importance of Vacation packaging - especially Dynamic - has been a hot topic for the US and other markets. We believe that, critically speaking, the technology supporting the Tour Operating has not kept pace with the consumer demand for self service. All Tour Operators need to review their technology needs and provide solutions that are easier for the consumer as ultimate user.

While the profitability of Vacation Packages sustains many intermediary businesses, we believe that this will come under pressure in the coming year as Airlines and other suppliers seek to lower costs again.

Hurray! Someone is listening. CO rejects UA and US.

Larry Kellner and the Houston Oilers are to be congratulated - no urge to merge this time around.

Staying independent is now a prudent course. Merging with a bigger United or a sick US Airways might lead to Houston losing another home team.

Let's hope AMR seems this the same way and doesn't pursue either of the ugly sisters.

The WSJ is speculating that AMR will attempt to persuade CO to jump from Skyteam to OneWorld. CO was careful to leave that door very publicly open. Of course Star would benefit enormously if they dumped at least one of the two sick US airlines and replaced them with CO. With two transatlantic hubs (EWR and IAH) CO is a better bet than either UAL or US for Star.

Interesting... curiouser and curiouser.

The United Dance - CO vs US

So the rumours continue to swirl with regard to UAL, in our mind the weakest of the US carriers and the most in need of resolving its urge to merge.

Any proposed marriage with United will be a shotgun wedding at best. There is more than one person wielding that firearm too.

I believe that Continental is the best option, a UAL+US would be an unmitigated disaster.

I still firmly believe that these marriages - arranged, shotgun or out of love (sic) are all unsavory and unsuitable unions.

Cheers
Timothy

The Game is ON - Continental Redeems Golden Share

OK - so while I hate this - it looks like the game is afoot.

CO has redeemed its Golden Share back from NWA. So now the consolidation game can commence in earnest. It is no longer about common sense. It is about the cojones of boys and their toys.

I am firmly convinced that the best result here for CO is to take on the bigger fish and become the residual management team of a combined UAL/CO. Tilton seems to have outlasted his welcome in Chicago. Besides the $35 million in cash must be burning a hole in his pocket.

For American- this leaves few options. They definitely don't want to have to rescue US Airways. She who is decidedly the ugliest sister in all of this. But American's ego knows no bounds.

One prize is the shy and distant cousin - Alaska Airlines. She now has a great presence in the West Coast with 3 major hubs (SEA, PDX and LAX). A low cost operation and a great commuter airline - Horizon.

As I have said many times I hate this. This is bad all round.

Cheers

Timothy