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.

After Yemenia crash, EC moves to ban 'em all

CNN International called the other day, wanting to talk about EC Transport Minister Antonio Tajani's call for a global blacklist of airlines. Tajani wants to expand the European Commission's three-year-old list of airlines that it doesn't allow to fly into its airports or in its airspace. Interestingly, he made his proposal a couple of hours after the crash of a Yemenia A310 into the Indian Ocean near the Comoros Islands. Yemenia was under a partial EC ban: only its newest aircraft, not the A310, could be used on flights to the EC.
Leaving aside the question of Tajani's timing, which CNNi questioned, one has to ask: if the blacklist were global, who would compile and enforce it? Whose standards, criteria and rules would be used? How would it be enforced globally? Does ICAO, the UN-affiliated International Civil Aviation Organization, have the desire, or the will, to take on the task? All of these are questions that deserve thought before we nod in rapid assent.

(Photo: Wikipedia)

United in card game, agents up in arms

A move by United Airlines to shift some of the cost of selling tickets is setting off the very type of reaction that United doesn't need just now. The once-largest airline, number two United told many travel agents that they'd have to absorb the fees imposed by credit-card issuers in ticket sales. The fees, amounting to 2% to 3% of the total, are just part of the total $710 million bill that United pays each year, but for travel agents, who make little more than that on each ticket they sell, it's a real threat.
Agents, already burned by cuts in the ticket-sale commissions paid to them by airlines, have naturally rebelled. If the move pushes travellers to shift further from buying through travel agents to buying at an airline's own website, they'll lose opportunities for comparison shopping, Steve Tracas of vacation.com says. Agents can offer the widest spectrum of price information, says Tracas, a former US Airways sales executive.
But it could have further implications: on-line travel agencies like Orbitz and Expedia would likely have to start charging booking fees, fees that they had once charged but began cutting earlier this year, says PhoCusWright, a travel consultancy. Kevin Mitchell, the airline gadfly from the Business Travel Coalition, says the move is a way for United to lower its credit costs and so build its cash reserves in preparation for another bankruptcy filing.

Nuts about LaGuardia: Southwest makes a note

Fare's Fair: We want to give a nod of the keyboard to Nuts About Southwest, the Southwest Airlines blog. They picked up Airfield's post about the discounter's entry into the New York City market with its eight daily flights at LaGuardia. Since we were less than over-enthusiastic about this development, we're flattered.
But we have to repeat our restraint: these flights aren't shuttles, as some have called them, and they're not a major threat to incumbents.
They're ways for Southwest to fill out its system. Remember, five of the flights are to Chicago's Midway and three are to Baltimore. Midway and BWI are two of the carrier's major connecting points, and as much fun as flying is on the LUV line, getting to spots in Florida or the Midwest through a one-stop or a connection is hardly a deep competitive challenge. If Southwest had wanted to challenge others, it would have set flights between LaGuardia and Florida and cities in the (lower-case) southwest. Still...

Southwest diary: No New York Earthshakes

Southwest just began service at New York's LaGuardia, and that's been occasion for a load of stories about how the low-fares leader is changing its business model and transforming itself. Well, it is a sight, the image of a Southwest plane in or at least near Gotham, but the airline's eight daily LaGuardia flights mark more of a continuation of its recent service patterns than any big, radical shift or major change. The carrier began its focus on big, big-city airports years ago when it went back into Denver, moved into Washington's Dulles and Philadelphia and even the Twin Cities. It needed places to grow and it could find more profitable growth at these close-in airports than at Midland, Texas, or even at Omaha. Southwest had outgrown the tertiary airports of the world a long time ago, and had exploited the secondary airports such as Long Island's Islip or Manchester, N.H., about as much as it could.
The airline's been after higher yielding business travelers for a couple of years. It ended its trademark 'first come, first seated' boarding rules with "Business Select," in which flyers pay a little more and get to go to the front of the line, and also earn extra frequent-flyer points and a free drink.
The really interesting question is this: will Southwest bring down LaGuardia fares (the so-called "Southwest Effect") or will LaGuardia bring up Southwest fares? No, we're not saying that Southwest will be another full-fare airline and never would, but we'd note that other low-fare carriers that have entered the LaGuardia market, carriers such as AirTran, are pretty proud of the yields they get in the Big Apple.

Seeking the bottom un-farely

Everyone's looking for the bottom, from housing to retail to...airlines. In fact, they're looking so intently that they're feeling a bottom before their toes start to touch. The latest premature eureka comes from observers who note that the major carriers are trying their second fare hike in two weeks. Led by American and United, the big guys added another $10 to $20 on to roundtrip fares (depending on distance).
These observers seem to be placing a lot on Rick Seaney, the farecompare.com commentator. "The pace of domestic airfare sales has dried up recently," says Seaney. "I have been cautioning consumers for the past month that they procrastinate on purchasing airline tickets at their own risk - two airfare hikes in the past few weeks is the strongest signal I have seen that the bottom is either here or near," he says.
But let's inject a few notes here: the low-cost carriers, led by Southwest, JetBlue and AirTran, aren't taking part in the fare hikes. In fact, they're launching and pushing sales, and many of them are for travel in the peak summer period. AirTran just began a $44-and-up promotion for travel through November, and Gary Kelly, the Southwest airlines chief, says June revenues look weak and probably won't improve until the rest of the economy finds its bottom.

Flinty Republic moves: buy 'em when they're broke

No, this is not consolidation. This is not the beginning of the next merger wave. This is not even about 'bottom fishers'. Instead, Republic Airways' buying spree - in which it is buying both Frontier Airlines in bankruptcy court and Midwest Airlines from private investors - is about protecting its investments. Republic, which owns three regional carriers, has been a lender of next-to-last resort for other airlines. It put money into the US Airways bankruptcy, and it lent Midwest $15 million last year as the Milwaukee-based carrier teetered on the edge. That deal came with strings: Republic also got a deal to fly its regional jets for Midwest, and so a source of revenue. With Frontier, based in Denver, Republic's $108 million bid to bring the carrier out of bankruptcy is way to recoup moneys Frontier already owes it for some flying that the Indianapolis-based Republic did for it.
The deals do also get Republic two brand-name airlines, each of which has had a strong, almost cult-like following. In Milwaukee, where Midwest is based, people think of it as their hometown airline, while Frontier has a similar appeal in Denver. Of course, both cities also have Southwest, whose competition certainly helped squeeze Frontier and which just announced service at Milwaukee.
(Photo: Republic Embraer in Midwest Airlines livery, via Flickr)

Clear closes, clouding 'trusted traveler' choices

For once, the TSA is not to blame. Doubtless, the Transportation Security Administration will get blamed, but the demise of Clear, the privately owned firm that promised to get flyers through TSA checkpoints more quickly, is more complex than federal obstructionism. The card company, founded by noted journalist Steve Brill, had begun with the premise that if it could provide the TSA with a promise that its members were indeed who they said they were, they could get through the TSA's airport checkpoints more quickly. Frequent flyers only had to give Clear a fingerprint and an eye scan and let it do a little background check; in return for that and their $200 annual fee, road warriors and other knowledgeable flyers would go to a special lane where they underwent the usual TSA checks.
The difference was that this was a lane where everyone else knew just what to do, rather than becoming flustered by such challenges as opening their bags or keeping their boarding passes out.
But Clear said late on Monday that its bankers and lenders had run out of patience and it was shutting down. The TSA, even though culturally wary of cooperating with a private vendor and deeply suspicious of 'special treatment' for any group of flyers, had worked with Clear, making room for it at airport checkpoints.
TSA even adopted (or just plain took) one of Clear's basic premises: segregating experienced flyers from the infrequent or the frequently flustered. The agency late last year began offering 'self-select' lanes at many airports, letting the true road warrior get into different and presumably faster lanes than the mom and pop who fly once a year. (Well, maybe you can blame TSA after all.)
What happens to the other 'trusted traveler' firm, FLO, is an open question. Shares in FLO have been at penny stock levels for some time, so its future is less than clear.
(Photo: Denver airport, via Flickr)

St. Louis blues: More American cuts

The people who run Lambert Field, the main airport in St. Louis, have a bond sale set for Monday. Nothing earth-shattering about this deal but its timing: it comes just as American Airlines says it will again slash its service at Lambert for the second time in less than a year. This cut, which starts to take effect in August, trims its total daily departures from 101 to 83, including all non-stop service to Las Vegas, Philadelphia and San Diego.
The totals may not seem drastic until you consider that back in 2001, when American bought St. Louis-based TWA, the carrier had about 415 daily flights at Lambert; within two years, that total had been cut to 207 daily flights, a total that has shrunk steadily ever since. Fitch Ratings airport bond analysts had already moved to downgrade the existing bonds issued by Lambert for renewal and enlargement because any replacement of the lost airline service "is uncertain in the near term."

(Photo: C. Williamson, Flickr)

Sure bet: slot machines at the gate

You bet. Out at the McCarran Airport in Las Vegas, they take in some $38.5 million a year from slot machines placed throughout the airport. People play the 1,300 slots when their flights are late, when their flights are on time, and when they've missed their flights. Fair enough in the City of Chance. Now the airport commissioners plan to place some 40 slot machines in the facility's new consolidated rent-a-car center. They're not sure how much money these one-armed bandits will bring in, but it can't hurt. After all, the annual take from this form of automated dice-rolling is more than 10% of the city's total annual airport revenues. This does raise the question: what if they put reminders of a city's major identifying activities in the airport? Would Washington have hot-air machines?

Planes and birds: capital punishment protest

Save the killers? We sort of feared this might happen when the Port Authority, the which runs New York City's airports, said it would kill off some 2,000 geese that nest right next to airports. The agency acted during the animals' molting season, when the birds can't fly and so can't fly into jet aircraft engines and so bring down planes, as they did in January.
That's when a flock of geese brought down US Airways Flight 1549, and even though all on board survived, that was the result of the pilot's skill and a goodly portion of luck.
The usual suspects turned up to protest the goose-gassing outside the Port Authority's Manhattan office, prompting this surprisingly witty official response: "Our responsibility is to think about safety for people before peace for geese," Port Authority spokesman Stephen Sigmund told The New York Times. The protesters may have a point: the Humane Society says that Canada geese can be managed by non-lethal methods.

Sniffing at the web: AirTran's dirty trick

AirTran's running a very peculiar campaign, ostensibly to promote the fact that it's close to completing installation of wi-fi on its fleet. The carrier is letting a New York film editor live on its planes for an entire month.
Mark Malkoff, a self-described comedian and fearful flyer from New York, just celebrated his “half-way point” of 15 days of residence on the fleet. To push the fact that the airline offers wireless Internet service, Malkoff is posting updates about his trip on Twitter, Facebook, MySpace and on his blog, http://www.markonairtran.com/.
We're sorry, but we don't see the link. You have the internet on your planes, so you're letting a guy live on board? Where's the tie-in?
We also have to note that Malkoff, who has pulled stunts such as visiting every Starbucks in Manhattan in less than a day and living in IKEA for a week, says he washes up in the on-board bathroom. Then, he says, he helps the flight attendants greet passengers as they board.
Okay, would you like to be greeted by a grandstander who hasn't showered in two weeks? (Malkoff says he just got his first shower, from an emergency crew at a Michigan airport.)

Legs, more or less

Economy, plus 10%? United Airlines, in retrospect, may have done something very smart. Back in the late 1990s, United said it would separate as much as one-third of its regular coach seats by as much as five inches more, dub it Economy Plus and set an additional fee on a sliding scale over regular coach fares. The carrier has never promoted Economy Plus heavily, but it it may be on to something.
Evidence of that comes from seatguru.com, the on-line service that just completed a survey that found its members would pay as much as 10% more for a little extra legroom. Some 42% of seatguru.com readers would pay for about five inches of added legroom. The same seatguru.com readers said that JetBlue has the best economy seats. That leads to the question, do they know that a chunk of JetBlue seats (in rows 11 through 25 in the all-coach cabin) just happens to have as much as five extra inches? And the carrier charges extra for only some of these seats?
(Illustration from United's website section on Economy Plus.)

Mergers, buying and selling

What a bad week - again. Layoffs and route cuts at American and Delta, a plea from US Airways. Some of it seems like a rerun, but this time there is something different. and it's not the repeated prediction/plea from the US Airways chief executive, Doug Parker, who again urged merger and consolidation throughout the industry. Parker has previously urged this course of consolidation, and went so far as to do one of the industry's few big mergers, the takeover of US Airways by Parker's America West.
But when you mention that, you pretty much have to mention the aborted merger of the old US Airways into United Airlines. Didn't happen (twice), ain't gonna happen. That's the difference: the other big voice for industry consolidation, United Airlines chief Glenn Tilton, has been quiet and his actions speak louder than words.
Tilton moved the other week toward making a major aircraft purchase, a multi-billion move that would effectively take United out of the running as a merger partner. (You don't buy a new fleet if you're going to merge because you have to know what kind of planes your merger partner flies.) Tilton may have other motives, including waving a really big pacifier before his unhappy pilots, promising them new planes if they'll just deal. But Tilton's big buy, even if you have some doubts about how real it is, seems to be United's declaration of independence.
(Illustration from the Association of Flight Attendants, which has some strong feelings about mergers and consolidation.)