Why buy? Southwest's new Frontier

Maybe it's better to buy something because you want it instead of buying to collect a debt. That may be the lesson in Southwest's surprise bid for Frontier, the Denver carrier that ageed in June that it would be taken over by Republic Airways. Frontier owed Republic money and this way it could satisfy its creditor and keep flying. With Southwest ownership, Frontier flies for another year or two and likely gives way to Southwest's own Boeings after Frontier sells off its Airbus fleet.
What does Southwest get? It gets to bump United even further out of Denver, where UAL was always the big player. UAL now has about 35% of the Denver business, while Frontier has some 20% and Southwest has just 12%. Granted, that 12% is a lot more than Southwest's share at Denver just three years ago when it started up in the Mile High City.

Kellner quitting Continental, keeping kudos

From Houston comes word of a big change in the airline industry: the most important airline chief you've never heard of is stepping down and getting out. Larry Kellner, CEO of Continental Airlines for the past five years, leaves the carrier by new year. Kellner will be running a venture capital firm, removing himself even further from the spotlight.

That was Kellner's trademark: no one thought of the man as the identity of the airline, in stark contrast with his predecessor, the larger- and louder-than-life Gordon Bethune. Everyone knew Bethune, and when he walked through an airport, folks ran up to Bethune, almost like the faithful flocking to a church leader, eager to kiss his ring.
But what Kellner did was extraordinary: he kept Continental in the top ranks of performers, both in financial and operational terms, he managed its transition from the SkyTeam to the star Alliance, and he avoided a rush to a merger. These days, survival is a major achievement, and Continental did a lot more than survive.

Railin' on the future....

A wise man we know called up the other day to say that he thought Amtrak had a truly bright future. Even though we've been hearing that for a long time, maybe it's true now that the price of gas is back on the way up and airline and airport congestion is as bad as it ever was. You can hear Leftfield chat with IAG's Addison Schonland about the rails' bright destination by clicking on the link here.

The Dismal Equation, continued

Airlines lead off their second quarter earnings, or rather losses, this week, with American Airlines first up, or down, as the case may be. American's prospects are, in a word, lousy. Its revenue is likely to have slumped by more than 20% or by some $1.3 billion, a rate that outpaces the serious cutbacks American made in its capacity since last year's second quarter.
There's the rub: no matter how steeply they cut back their capacity, the airlines continue to suffer even steeper revenue declines. May revenues for the major US carriers slumped 18%, and at American, summer bookings are behind last year's. The big papers - The New York Times and The Wall Street Journal - both see a possible liquidity crisis. We did, too.

Transatlantic carveouts and tougher antitrust

In a decision that pretty much rejects the attorney general's new approach to competition policy, the Transportation Department said it would 'carve out' or take off the list for antitrust immunity some transatlantic routes operated by the Star Alliance now that it's going to grant the immunity to Star once Continental joins it.
For better or worse, antitrust immunity for alliances, which lets members meet and set fares and service levels, is relatively common, and the Transportation Department said in early April it was inclined to give the expanded Star what it wanted. Then came the Justice Department.

After staying silent on the request for immunity, the Justiciaries waited until late June to come in with a set of massive objections. Star's whole plan was anti-competitive, said Justice, urging the regulators at DOT to 'carve out' a slew of routes if it is to give the antitrust permission.
After some consideration, Transportation agreed to remove from the exemption such really big routes as New York to Copenhagen, Stockholm, Geneva and Lisbon, but reversed its earlier thinking and said that two routes into Frankfurt, from Washington and New York, would get the antitrust shield. Which of these sets of routes strike you as more important? Let us also note that all Star Alliance routes between the US and Beijing, China, would also be without the immunity. But as for the larger Justice objections, the Transportation guys seem to be saying, 'buzz off.' All of which says that while there may be a 'new spirit of antitrust enforcement' over at the Justice Department, it hasn't yet spread throughout the government.

Bankruptcy beat: Chapter 10 and counting down

Could the industry be headed back to bankruptcy court? People like to say 'yes' anytime they see a trend that they don't like. Take, for instance, an opinion writer at The Wall Street Journal who said that the Justice Department was pushing the airlines toward the edge with its opposition to an antitrust immunity for the Star Alliance now that Continental is joining that group. Next thing you know, the airlines will be looking for a bailout like the auto industry, he says.
Maybe not, but let's not rule out another trip to the courthouse. Consider: United is now paying one of the highest interest rates anywhere on a financing it just did, while American had to beg its creditors to restructure a loan. The fall travel season looks anemic at best, and carriers, led by Southwest, have put autumn fares on sale already - months before they usually do. Consumer confidence is down again after a brief uptick, and people just don't want to spend money. Phil Baggaley from S&P says that we're still at Chapter Ten in the book of business but won't rule out Chapter Eleven as early as next winter.

Air fares on air

They're nice to us over at NPR; they had us on Morning Edition the other day, and one point we made bears repeating: international routes, a source of profit strong enough to help keep down domestic fares, are now suffering, and their prop is gone. So domestic fares are going to start back on the way up, and have already begun to do so. The back of the plane is getting pricier as the front empties out, with premium travel, travel in first and business class, continues its plunge. Revenues from premium fell by 44% in April, reports IATA. And it's going to get worse, with transatlantic travel plummeting, enough so to threaten the future of British Airways.