Sunday, August 17, 2014

Here's Why You Shouldn't Panic When An Airliner Loses An Engine In Flight
By  Benjamin Zhang
Aug. 12, 2014, 4:37 PM

Boeing 787.

Over the weekend, a Thomson Airways Boeing 787-8 Dreamliner suffered a failure in one of its massive GE turbofan engines over the Atlantic. The airliner,traveling from the Dominican Republic to Manchester, England, was an hour and a half into the nine-hour flight. The jet, full of vacationers returning to the U.K., safely diverted on its remaining engine to a remote airport in the Azores Islands.

Instances of an airliner losing an engine are obviously not unheard of. It can and does happen. Most of the time, the pilot diverts and no one is injured.

However, there have been occasions in which pilots chose to fly on to their destination instead of turning around.

In 2005, British Airways Flight 268, routed to London, lost one of its four engines while taking off from Los Angeles International Airport. Instead of returning to LAX, the pilot and his Boeing 747-400 continued on toward Heathrow Airport. But because of unfavorable winds and operating conditions that caused the plane to burn too much fuel, the jumbo jet didn't have the gas to reach London and made an emergency landing in Manchester.

Airbus A340-300.

Long-distance and transoceanic flights have traditionally been flown by three- or four-engine wide body airliners. This is because when it comes to the engine count on an airliner, aviation thinking dictates that there is safety in numbers. 

But as modern turbofan engines have become more reliable, engine failures have become far less common. As a result, most airlines have turned to twin-engined mini-jumbos that are more fuel efficient.

These days, the three-engine airliner has gone the way of the dinosaur, and the four-engine jumbo jets that once dominated the skies are well on their way toward extinction. 

However, engine failures do still happen. As terrifying as they may be for many of the passengers on board, though, losing one engine on a twin-engined airliner like the Thomson Airways 787 isn't as serious as one might think.

When an aircraft is flying without one of its engines, it tends to fly at a lower altitude and work the remaining engine(s) harder. This makes the plane less fuel efficient and reduces range. However, the vast majority of twin-engine long-haul airliners can perform this maneuver with no significant reduction in capabilities.

Before a twin-engine airliner is allowed fly long distance routes over large bodies of water or through uninhabited regions like the Arctic, it must be certified by the Federal Aviation Administration (FAA) for ETOPS or Extended range Twin Operations.


Boeing 777-3J6ER.

When an aircraft is certified, part of the assessment is based on the plane's performance when flying on a single engine.

For example, the Boeing Dreamliner — like the one flown by Thomson Airways — is certified for ETOPS-330. This means that the aircraft can fly routes that take it as far as 330 minutes (five and a half hours) of single-engine flying time from the nearest viable airport.

Other twin-engine airliners, like the Boeing 777, are also certified for ETOPS 330. Airbus' popular A330 has been certified for 180 minutes of ETOPS flying, while the company's coming A350 is currently seeking 420 minutes of ETOPS certification.


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Monday, August 11, 2014

Bigger isn't better: Why the Airbus A380 superjumbo is struggling to take off

August 11, 2014 - 4:47PM Canberra Times

To get a sense of the Airbus A380's size and ambition, walk up the grand staircase of an Emirates version of the aircraft, go past the showers and the first-class suites and then pass by endless rows in business class to reach the bar at the back of the upper deck. This sleek semicircle, alluringly underlit and fully stocked with pricey spirits like Grey Goose vodka, is undoubtedly one of the defining features of this aircraft, which can hold more than 500 passengers. The plane dwarfs every commercial jet in the skies.

Since it started flying commercially seven years ago, the A380 has caught the imagination of travellers. Its two full-length decks total 557 square metres, 50 per cent more than the original jumbo jet, the Boeing 747.

Its wingspan barely fits inside a football field. Its four engines take this 560-tonne plane to a cruising altitude of 39,000 feet (12,000 metres) in less than 15 minutes, a surprisingly smooth ascent for such a bulky plane. Passengers love it because it's quiet and more reminiscent of a cruise ship than an plane. The A380 was also Airbus' answer to a problematic trend: More and more passengers meant more flights and increasingly congested tarmacs. Airbus figured that the future of air travel belonged to big planes flying between major hubs. "More than simply a big airplane," one industry analyst wrote when the first A380 was delivered to Singapore Airlines in 2007, "the newest industry flagship will change forever the way the industry operates." The prediction hasn't exactly come true. Airbus has struggled to sell the planes.

Orders have been slow, and not a single buyer has been found in the United States, South America, Africa or India. Only one airline in China has ordered it, and its only customer in Japan has cancelled. Even existing customers are paring down orders. The A380 has a list price of $US400 million ($A431 million), but the pressure has forced Airbus to cut prices as much as 50 per cent, according to industry analysts.

So far, Airbus has received 318 orders and delivered 138 planes to just 11 airlines - a disappointing tally given forecasts that the plane would be a flagship aircraft for carriers worldwide. Emirates has ordered 50 more Airbus A380 superjumbos, the world's largest airliner. The Airbus A380 is the world's largest airliner. Photo: Bloomberg Qantas was one of the early customers for the superjumbo and has ordered 20 in total, with 12 already in operation. But only one airline - Emirates - has made the A380 a central element of its global strategy, ordering 140 as it built a major hub in Dubai. But Emirates is unique.

No one else has bet on the plane with quite the same confidence. The A380 hasn't done so well for a number of reasons, some merely cyclical. The plane was introduced amid a deep downturn in the airline business. Airline executives were wary of expanding their fleets aggressively, especially for a costly, four-engine fuel hog. The Airbus A380 superjumbo, the largest airliner in the world, took off on its first commercial flight in October 2007. The giant plane has had plenty of ups and downs since then.

But critics like Richard Aboulafia, an aerospace analyst at the Teal Group, an aviation consulting firm in Fairfax, Virginia, say the main problem is more fundamental: Airbus made the wrong prediction about travel preferences. People would rather take direct flights on smaller airplanes, he said, than get on big planes - no matter their feats of engineering - that make connections through huge hubs. "It's a commercial disaster," Aboulafia says. "Every conceivably bad idea that anyone's ever had about the aviation industry is embodied in this airplane." Airbus spent roughly $US25 billion to develop the aircraft. The plane was delayed for years because of manufacturing problems while Airbus struggled to keep the plane's weight down and coordinate its complex design among dozens of suppliers across Europe.

In 2012, Airbus discovered small cracks in supporting ribs inside the A380's wings, an embarrassing and costly design error that the manufacturer is correcting. While the A380 program has been a boon for the European aerospace industry, Airbus is unlikely to recover its research and development costs. The best it can now expect is to break even on production costs, according to analysts, provided that it can keep orders going. Steven F. Udvar-Házy, an industry veteran who is chief executive of the Air Lease Corp, which leases aircraft, calls the lack of interest in the planes "a very unusual situation," especially among US airlines. "I've never seen this before in a big program," he says. Competing conclusions.

A little more than a decade ago, the two dominant plane-makers, Boeing and Airbus, looked at where their businesses were headed and saw similar facts: air traffic doubling every 15 years, estimates that the number of travellers would hit 4 billion by 2030 - and came to radically different conclusions about what those numbers meant for their future. Boeing figured that traffic would move away from big hubs and toward secondary airports.

So it started to build a smaller, more fuel-efficient long-range aircraft, which became known as the 787 Dreamliner. Airbus, on the other hand, saw the rise of international traffic through major hubs and decided to bet on a big plane to connect those big airports. "The A380 is not made for every route, but it is ideal for high-traffic routes, high-volume routes that are congested or where there are flying constraints," says Antonio Da Costa, the head of A380 marketing for Airbus. And there are a fair number of those routes.

Around 15 of the 20 largest long-haul routes by passenger volume in the world today are slot-constrained, meaning they face some restrictions on the number of daily takeoff or landings, says John E. Thomas, managing director at LEK Consulting, a transportation advisory firm. Here is one example of how the Airbus theory works in practice: This summer, British Airways plans to replace three Boeing 747s flying each day between London and Los Angeles with two A380s, freeing one slot at Heathrow Airport for another flight. Yet despite the congestion at hubs like Heathrow and the growth of megacities like New York, New Delhi and Beijing, the market for large planes remains small. Airbus predicts that in the next 20 years, airlines will order more than 29,000 planes from Airbus, Boeing and other makers.

But the bulk of those, or roughly 20,000, will be smaller, single-aisle planes that fly routes like New York to Chicago, or London to Frankfurt. Airbus estimates that the market for the biggest - and most expensive - long-range planes will be about 1700. Boeing, too, is facing lukewarm demand for its latest jumbo jet upgrade, known as the 747-8. The company has received just 51 orders for this big plane, which can seat about 460 passengers and lists at $US357 million. By contrast, it has sold more than 1200 twin-engine 777s, which sell for as much as $US320 million. (Airlines typically get discounts on the listed prices.)

More worrisome for Airbus is that it has struggled to find new customers for the A380 after a flurry of initial orders. Just three new carriers - Etihad Airways, Qatar Airways and Asiana Airlines - are getting A380 planes this year. And last month, Airbus cancelled an order for six A380s destined for Skymark Airlines, a low-cost carrier in Japan that has been losing money. Garuda of Indonesia recently dropped plans to buy the A380, deciding that the plane was too big for its markets. And Virgin Atlantic, which has options for six A380s, remains undecided about whether to proceed. The airline was partly acquired by Delta Air Lines in 2012;

Richard H. Anderson, Delta's chief executive, has said the A380 is "by definition an uneconomic airplane unless you're a state-owned enterprise with subsidies." Current customers, too, are cutting back their orders, including the major carriers in France and Germany, where the plane is assembled. Air France postponed the last two of 12 planes it had ordered. Lufthansa has scaled back its order to 14 from 17.

Bruno Delile, Air France's senior vice president for fleet management, says that there are a limited number of routes in its network with enough daily traffic to justify the expense of such a big plane. "The forecasts about traffic growth and market saturation haven't exactly panned out," he says. Airlines also have to gain the cooperation of airports to modify gates and widen taxiways to make room for the plane. Apart from the main global hubs, few airports have made these investments. No airport in Brazil, for instance, can handle an A380. The plane was only recently allowed in Mumbai.

"Airports haven't really been rushing to welcome the A380," Delile says. Airbus may have mistimed the market in a more fundamental way. While European engineers were developing the plane, their counterparts at Boeing were working on alternative designs. Out of this effort came the 787 Dreamliner, with a carbon-composite fuselage, a host of electronic systems and more efficient engines that could fly longer distances while consuming less fuel. That plane, which entered service in late 2011, had its share of high-profile problems; the entire fleet was grounded for three months in 2013 because of battery fires. Boeing says the problem has been resolved, and the company has orders for more than 1000 of the planes.

With versions that seat 210 to 330 passengers, and with a range of about 14,000 km, the 787 allows airlines to fly pretty much anywhere in the world and connect smaller airports without going through a hub. Japanese carriers are flying these planes from Tokyo to Dusseldorf, Germany, and to San Diego and Boston. This reduces the need for bigger planes to feed big hubs. And passengers are willing to pay more to avoid a connection, says Will Horton, an aviation analyst at CAPA - Centre for Aviation. Recognising the success of the 787, Airbus started developing its own version of a long-range, fuel-efficient plane, called the A350-XWB.

The first should be delivered to Qatar Airways before year-end. Airlines have ordered 742 of the A350s since the program was announced in 2006. "No doubt some airlines, given the opportunity to rewrite history, would not order the A380," Horton says. A Bar in the Sky The view from Tim Clark's office on the top floor of the Emirates headquarters in Dubai offers a stunning panorama of the city's airport, including a new $US4.5 billion terminal. Emirates operates 50 A380s, with more on the way, and has built its business model around the plane.

Traffic here never stops. Even at midnight, when flights from the east land and connect passengers who are headed west, the airport is alive and bustling. If most airlines appear skeptical of the A380, Emirates is a true believer. It stunned the industry in December when it ordered 50 more of the planes, beyond the 90 it already had on order, throwing Airbus a much needed lifeline. (Emirates also ordered 150 new Boeing 777Xs, a more efficient variation on the best-selling jet, helping to initiate the program for this new airplane, due in 2020.) Clark, the president of the airline, has turned it into one of the world's largest carriers by seat capacity. And he is the A380's most enthusiastic supporter.

"People get on the A380 and they absolutely love it," he says. The upper deck on the Emirates version, he adds, is "just one big party." The son of a tanker ship captain and an economist, Clark joined Emirates in the mid-1980s. His basic insight about the A380 is simple: It can be a canvas for a new kind of luxury flight experience. It was Clark who came up with the idea to install two showers for first-class passengers. Airbus engineers thought the idea was crazy because it would require more fuel to fly the water for the showers.

But he dismissed their objections. The showers would immediately distinguish the plane from anything else in the air. He also put a large bar on board, along with a pair of semicircular couches, equipped with seat belts in case of turbulence. "This thing is so popular and during the course of a 14-hour flight it becomes even more popular," he says. "They all want to have their picture taken behind the bar with their arms around the girls," he says, referring to passengers posing with the flight attendants.

That was certainly the atmosphere on a 13-hour flight between New York and Dubai earlier this year. While about 400 weary coach passengers on the lower deck tried to catch a few hours of fitful sleep, the upper-deck mood was more festive. Rudolph V. Pino Jr., an insurance lawyer from New York, enjoyed a glass of chardonnay and traded pleasantries and business cards with other passengers. The bar was staffed by cheerful flight attendants amid an endless supply of Champagne and canapes. "It's a special airplane," he said. "It brings some glamour back to air travel, just like in the days of TWA and the old Boeing 747s."

Unlike airlines in the United States, Emirates, which is a product of Dubai's aviation-friendly policies, operates from a single hub. The airport handled 66 million passengers last year, rivaling Heathrow as the busiest international hub. Emirates serves more than 140 destinations, essentially connecting flows of passengers with a single stop in Dubai. But for Emirates, the biggest selling point of the A380 is its ability to pack in more business-class seats and create an environment that appeals to big-spending passengers. "The upper deck of the A380 is an absolute gold mine for us," Clark says. "We elected to make it all premium. We elected to put in all the gadgets and gizmos. We were laughed at, at first."

There are more first- and business-class seats on the Emirates A380 than on the 777, and they are usually 75 to 80 percent full, Clark says. On some routes, like those to Heathrow, where Emirates has five daily flights, that figure can reach 90 percent. Once the whole plane is 85 percent full, its operating costs fall below those of a 777, he says. It's a simple-enough recipe. But for the plane to be successful for Airbus, Emirates can't be the only airline to make it work. "United would be a great operator from San Francisco to Asia," says Mark Lapidus, chief executive of Amedeo, an aircraft leasing company.

Last year, Lapidus announced that his company would buy 20 new A380s, in a deal valued at $US8.3 billion, and then lease them to airlines. It was an expensive gamble, and Amedeo doesn't have any commitments yet. The problem is that US carriers, including United, aren't interested. Wall Street analysts aren't convinced, either. Shares of United would plunge at least 10 per cent if it bought A380s, according to one analyst, because of concerns that they would bring too much capacity into the market.

In recent years, US airlines have found the way back to profitability by cutting capacity and retiring planes, effectively taking seats out of the market. A bigger plane, in the view of some analysts, would undo everything they've done. Some analysts are also worried about the resale value of an A380, once the planes come off their lease and enter the secondary market. With weak sales and limited interest today, aviation experts say, the plane's resale value could potentially depress new A380 prices even further.

In his aerie in Dubai, Clark appears untroubled by these considerations. Clark has repeatedly said he would buy more planes if Airbus could deliver them fast enough. "My view is that we've all got to tough this out," he says. "As I say to my friends at Airbus: Don't bottle this. The day will come again. The global economy will take care of you." He has encouraged Airbus to build an even bigger version of the A380. That, even Airbus would concede, seems unlikely.

The New York Times

Tuesday, May 13, 2014


TWA Flight 800 Remembered...10 Years Later 

For The Crews and People Who Never Had the Chance

To Say Good Bye

DATE: July 17, 1996 TIME: 2031 Eastern Daylight Time

Monday, May 12, 2014

A new airline hopes to fly nonstop from London City Airport to New York
Officials are trying to raise some money through crowdfunding
Ticket prices have yet to be announced
(CNN) -- You've finished your business in London and want to head directly home to New York.

Instead of traveling to far-off Heathrow or Stansted airports, imagine boarding a light-rail train directly to the closer London City Airport. There, you can quickly clear security and customs and walk a short distance to your gate, where you can board an all-business-class airline for your nonstop flight to New York.

That's the pitch from Odyssey Airlines, which hopes to start service in 2016.

"We are going after the traditional business traveler," Odyssey CEO Adam Scott said. "We are operating the most fuel-efficient and modern aircraft available." And flying out of London City Airport, with its proximity to the city center and short walking times to gates, "we are able to offer our travelers substantial time savings."

"The entire journey (to New York) will be significantly less than the journey that you might currently fly with one of the traditional carriers."

Odyssey plans to start service with 10 specially outfitted 40-seat Bombardier CSeries aircraft to fly nonstop from London City Airport to New York and elsewhere.

To do so, the new airline hopes to raise about about 5 million pounds ($8.48 million) by crowdfunding, including a current effort to raise 1 million pounds on Crowdcube. It's already raised about 5 million pounds from investors and peer-to-peer lending.

Overall, it needs to raise more than 60 million pounds ($101.8 million), mostly through institutional investors, to launch the airline.

Artists, solo entrepreneurs and even the makers of the "Veronica Mars" movie have turned to crowdfunding to launch products. But an airline?

Through fundraising on Crowdcube, Odyssey officials hope to recruit customers and build brand loyalty before the first aircraft takes flight.

"We're trying to get our name out and raise our profile," Scott said. "It's a way to engage early on with our would-be customers," who also could be early investors.

Airlines such as Eos, Maxjet and Silverjet tried and failed around the 2007-08 economic crisis to lure travelers to an all-business-class model. Some Silverjet executives have joined Odyssey for another attempt.

Those airlines operated under different business models: flying older, more inefficient aircraft and flying into airports farther from the London city center, argued Scott.

Besides its central airport location, Odyssey will fly new airplanes. The Bombardier CSeries aircraft will burn 20% less fuel and have 15% lower operating costs than its peers, company officials said in documents.

Odyssey's closest competition at City Airport is a British Airways flight. But the British Airways A318 can't take off from City Airport's short runway (about 4,000 feet) fully fueled and clear the skyline. It makes a stop in Ireland to completely fuel up before heading onto New York.
The Bombardier would be able to take off fully fueled from City Airport and fly nonstop to New York.

The company hasn't announced its target ticket prices, but Scott posted some hints.
"We're not going to be a discount carrier, but we're not going to be exorbitantly above our competition. We're going to be priced competitively in the market," Scott said.

Friday, April 04, 2014

American Airlines Has $10 Billion Burning a Hole in Its Pocket
By Justin Bachman     January 28, 2014  
The new American Airlines’ (AAL) fourth-quarter results were broadly in line with the profitable holiday travel season reported by its domestic peers. One thing that’s definitely not seen at other U.S. airlines, however, is the $10.3 billion in cash American has in its coffers—about one quarter of the airline’s annual revenue.

That kind of cash reserve is partly a response to what it takes to create the world’s largest airline, forged through a merger that will be rife with enormous costs, such as replacing older MD-80 jets by 2018 and raising salaries for workers. The cash cushion also helps to gird for emergencies—especially at a company with almost $17 billion in total debt—and to weather the eventual downturn of another recession or other events that depress travel demand. Still, executives acknowledged today on a conference call that $10 billion in the bank is too much.

“Holding more cash than the company needs to hold is not a good use of our shareholders’ capital, and we understand that,” Chief Executive Officer Doug Parker said in response to an analyst’s question about American’s conspicuous money pile. “It’s early on, but we understand the point and share the view. There’s no reason to hold more cash than we need.”

Delta Air Lines (DAL), which is considered the best financial performer among the network U.S. carriers, had $2.84 billion in cash and cash equivalents as of Jan. 1, while Southwest Airlines (LUV) has about $3.1 billion. Delta has resumed paying a quarterly 6¢-per-share dividend and using cash flow to repurchase its shares, spending $201 million on those activities in the last quarter.

“How much cash is normal?” CRT Capital analyst Michael Derchin asked Parker during American’s call, pressing the effort to figure out when American may begin paying a dividend or buying back its stock. “How much do you need?”

Parker replied: “We just don’t know. Twenty to 25 percent of revenues …  is too much in a world that really has been transformed. But we prefer to make sure that it really has been transformed before we say what that [cash] should be.”

On an operating basis, American had a $436 million profit, exceeding Wall Street’s forecasts; sales of $9.98 billion for the quarter also slightly topped the average of nine analysts queried by Bloomberg. Texas-based American left bankruptcy protection last month and merged with US Airways on Dec. 9, taking about $3.2 billion in charges for 2013, most of them tied to its Chapter 11 reorganization.

Later this year, the airline will begin adding more seats to its MD-80, 737-800, and 777-200 airplanes to help boost financial returns. That strategy, which requires employing a thinner aircraft seat, has been a trend across the industry as a low-cost method of increasing the revenue performance of each flight.

Thursday, April 03, 2014

Southwest Airlines, once a brassy upstart, is showing its age
Carrier copes with labor strife, high costs; some pine for days of co-founder Herb Kelleher

The Wall Street Journal
By Jack Nicas and Susan Carey
April 2, 2014 10:17 AM
CHICAGO—At Midway Airport here on Jan. 2, Southwest Airlines Co. canceled a third of its flights, lost 7,500 bags and, at one point, had 66 aircraft on the ground—about twice as many as the carrier has gates. Passengers were stuck on the tarmac late into the night.

A severe snowstorm was the main culprit, but Southwest managers also blamed ramp workers, suggesting that nearly a third of them called in sick to protest slow contract talks. The spat boiled into a legal battle, with the workers suing Southwest for requiring they provide doctor's notes. They say they are chronically understaffed and are being blamed for executives' mismanagement of the storm.

Labor strife has long roiled the airline industry, but not Southwest. The carrier never has laid off workers or cut their pay, and has had only one strike in its history, a six-day mechanics' walkout in 1980.

But now Southwest is asking for some of the biggest contract changes ever from employees in a bid to contain costs—and some union leaders are furious. "We built this airline," says Randy Barnes, a union representative for Midway's ramp workers. Now, he says, management is "tearing it down."

The recent acrimony is one way that Southwest is showing its age. Once the industry's brassy upstart, the airline, which took wing 43 years ago, has begun to resemble the mainstream rivals it rebelled against in its youth: carriers that were slow-growing, complex and costly to run.

First sketched out on the back of a cocktail napkin in 1967, Southwest was built on simplicity, thrift, labor harmony and rapid expansion. For decades, it was the fastest-growing and lowest-cost airline in the U.S., undercutting competitors' fares in new markets and sending traffic skyward—a phenomenon known in government and industry circles as the "Southwest Effect." To help keep things simple and cost-effective, the airline flew one model of plane—Boeing Co.'s 737—and stayed close to customers with wisecracking flight attendants and funny ads. For decades, that original formula helped the company soar.

Over the past year, Southwest's stock has risen 77.6% to $23.94, and the carrier remains the only U.S. airline with an investment-grade credit rating.

Still, the airline has failed to hit its long-standing goal of a 15% return on invested capital since 2000; it recently said it doesn't intend to grow overall until it does. Even with record profit last year, its return was 13%, up from 7% in 2012.

There are other big challenges. Southwest is flying fuller planes, connecting more passengers and serving bigger airports that are prone to delays. Partly as a result, some of its operational ratings have plummeted. Last year, it lost more bags per passenger than any other carrier. And after years as one of the most punctual airlines, just 72% of Southwest's flights were on time in the fourth quarter—dead last in the industry.

Southwest was "blessed for so many years with a product nobody else had and financial results that nobody else was able to touch that they kept doing things their old way," says Bob McAdoo, an airline analyst for Imperial Capital LLC. But now, industry changes and Southwest's maturation mean "there are so many areas they're under pressure to change, things the company never had to deal with," he says.

Gary Kelly, the chief executive who has run the Dallas-based company since 2004, says the Southwest model still works. He points to record profits of $754 million for 2013—up from $421 million in 2012—and a surging stock price. He argues that the launch of international flights this year will open new avenues for growth.

"Southwest is in a better position today than it has ever been in its history," Mr. Kelly says.

But the CEO also emphasized the need for Southwest to adapt. High fuel prices, for example, have forced it to "pivot" from its longtime blueprint of offering short-haul flights between midsize cities toward longer flights between bigger cities, which use fuel more efficiently. Fuel last year accounted for 35% of Southwest's costs, more than double the share a decade ago. That shift has required it to add larger planes, drop service to many small cities and enter bigger markets while meddling with key traits like its first-come-first-served boarding process.

Other U.S. carriers, meanwhile, have bulked up and trimmed spending through mergers and bankruptcy restructurings. The three U.S. airlines larger than Southwest—American Airlines Group Inc., United Continental Holdings Inc., and Delta Air Lines Inc.—offer first- and business-class service, elite loyalty programs and global networks that capture lucrative business travelers. Ultra-discounters, including Spirit Airlines Inc., are undercutting Southwest fares while JetBlue Airways Corp. and Virgin America Inc. are competing more aggressively for the middle-class customers whom Southwest long owned.

"Not only has the world changed, but our relative position within the industry on costs has changed," says Mr. Kelly, a 59-year-old Texan and former accountant who joined the company 28 years ago. "Now we just need to make sure our labor contracts are updated to reflect the current reality."

With its growth stalled, Southwest can't hire as many new employees at the bottom of the pay scale. From 2007 through 2012, Southwest's cost to fly a seat one mile rose 42%—more than any other major U.S. airline, according to Massachusetts Institute of Technology data that adjust for flight distance.

Its low fares, long the core pitch to customers, aren't so low anymore. Its average one-way fare was $144 in the year ended in September, a 21% increase over the same period five years earlier, when adjusted for inflation. That compared with single-digit increases at larger rivals and big price cuts at new ultra-discounters like Spirit, according to the MIT data.

Many longtime customers remain loyal fans. "If there's a Southwest flight going to where I'm going, I'll fly Southwest" even if it's more expensive, says Dr. Joseph Coyle, a psychiatry professor at Harvard Medical School. "They treat everybody equally."

Mr. Kelly says Southwest's research shows that at any given time, it is the least expensive option in as few as 40% of its markets, compared with more than 50% of its markets in 2000. He notes that Southwest is almost always the best deal for fliers with checked bags, since each passenger can stash two pieces of luggage free.

While nearly all competitors impose a bag fee, Southwest has stuck by its "bags fly free" mantra—although Mr. Kelly has said he is open to charging for bags in the future.

This year holds some pivotal tests. Southwest hopes to complete its integration of AirTran Airways, which it bought for $1.5 billion in 2011, by finishing up the work of training workers, overhauling airplanes and linking the carriers' networks. It plans to begin international flights under its own brand after inheriting several Caribbean and Mexico destinations from AirTran. That will require it to master marketing in foreign countries, hire overseas workers and even make sure its flight attendants have passports.

Southwest also faces costly upgrades to its outdated computer systems—a holdover from its simpler days—to bring them in line with industry standards.

After snowstorms forced airlines to cancel thousands of flights this winter, other carriers' computers automatically rebooked many customers. But at Southwest, employees had to manually reschedule each disrupted passenger, says Teresa Laraba, Southwest's senior vice president of customers.

Another problem: Southwest's antiquated phone system limits the number of incoming calls, so some passengers were met with busy signals. Southwest says it plans to soon replace those systems. "I've been waiting a long time" for the upgrades, Ms. Laraba says.

Perhaps Southwest's biggest challenge involves its 45,000 workers, who long have enjoyed unparalleled job stability and compensation. About 83% of its workers are unionized, and Southwest is currently in negotiations with nearly all of them over new contracts—some of which seek to freeze pay scales.

The average Southwest worker earned nearly $100,000 in 2012, including pension and benefits, compared with about $89,000 at a traditional hub-and-spoke airline, according to MIT. Southwest also shares profits with employees, paying them $228 million last year, or more than 6% of their pay.

"It is harder today for us to claim that we are the low-fare leader than it was before because our cost advantage has been narrowed," Mr. Kelly says. "And that is exactly what we want to make our employees understand."

He says Southwest is seeking savings from increased productivity and more flexibility in workers' contracts—not from pay cuts.

For its nearly 17,000 ground workers and customer-service agents, Southwest wants to tighten rules on sick time and largely hold compensation flat. In prior contracts, workers generally received raises. It also ultimately wants 40% to be part-time, meaning their families would have to pay more for health benefits.

The company says it aims to do this by filling new openings with part-timers, rather than forcing current employees into part-time status. Still, unions blanch at the idea, saying they want to protect careers, not just jobs.

The ground-workers' union recently won a victory when the carrier backed off a proposal to outsource a sizable number of jobs to outside vendors.

Randy Babbitt, Southwest's senior vice president of labor relations, says Southwest's existing contracts were designed for a smaller, short-haul airline that didn't fly late at night or adjust service levels according to demand. For example, Southwest now flies to Fort Myers, Fla., 20 times a day in the winter and 10 times a day in the summer.

"You've got to have something flexible or part-time," Mr. Babbitt says. "It's what everybody else has. We just never needed to address it until now."

Union officials argue that Southwest employees have a more demanding workload compared with others in the industry. The airline carries about 3,000 passengers per full-time employee, compared with 1,350 passengers per employee at its bigger rivals, according to MIT's data.

The flight attendants' union says it has made clear to the company that it won't agree to a rule that would require its members to fly a minimum number of hours—standard practice in the industry.

Capt. Mark Richardson, president of the pilots union, said the slow pace of negotiations is "frustrating" but acknowledged that Southwest is distracted by talks with other work groups.

Some Southwest employees still pine for Herb Kelleher, the raucous co-founder who stepped down as executive chairman in 2008 after 30 years in the post. He was beloved by employees and known to spend hours in employee break rooms, smoking cigarettes and chatting with workers. Mr. Kelleher, 83, is famous for his love of Wild Turkey bourbon, Harley-Davidson motorcycles and outlandish costumes. He declined to be interviewed.

"Ever since Herb…left, this has been more of a corporation and less of a family," says Mr. Barnes.

The winter's brutal weather aggravated the labor rancor. Over the first week of 2014, Southwest canceled 40% of its flights at Midway and delayed another 40%, largely due to weather. The carrier said that ramp workers at Midway called in sick more than 450 times over that week, for about 22% of their scheduled shifts.

After Southwest began requiring ramp workers to provide doctor's notes, the union sued the carrier for breach of contract in U.S. district court in Dallas.

In court documents, Southwest alleged the sick calls were "widely perceived to be a coordinated job action to protest the slow progress" of contract negotiations.

The union said there was no work action, but rather a spike in illnesses fueled by mandatory overtime that exhausted workers. The union also produced work logs that it said contradicted the company's sick-call figures.

A judge dismissed the case in February and instructed the union to file a grievance, which it has.

Mr. Kelly acknowledges that "mistakes were made" during the operational meltdown but he disputes the union's claims that the company understaffed Midway or mismanaged the operation.

While he says he has no desire to replicate Mr. Kelleher's flamboyant tenure, he was recently content to call upon the former CEO to deliver one of his signature no-holds-barred insights.

On March 12, the birthday of both Messrs. Kelleher and Kelly, the two addressed employees in a video posted online. Mr. Kelly asked his predecessor, "How do you respond to employees concerned about change?"

Mr. Kelleher responded: "What I tell them is…'What we're talking about here is your future. If we don't change, you won't have one.' "

Tuesday, April 01, 2014

A Charter Airline Shuts Down After 63 Years Flying U.S. Troops

A World Airlines MD-11 jetliner
Photograph by Ric Feld/AP Photo
A World Airlines MD-11 jetliner
A storied name in U.S. military transport is fading into history. World Airways shut down on Thursday amid a failure to find financing, four months after its parent company blamed Pentagon budget cuts for a sharp squeeze in business and put the airline into bankruptcy.

World Airways was founded in 1948 and transported U.S. troops starting in 1951, when the U.S. entered the Korean conflict. The charter airline flew its last flight on Wednesday, a day after its primary creditor declared the company in default and ended financing; World laid off 325 employees on Thursday. ”A lot of people have worked hard to try to save our airline,” Eric Bergesen, World Airways’ chief operating officer, said in a news release. “Despite this regrettable outcome, I sincerely thank each of our employees for their dedication and continued support as we attempted to build a future for the company.”

World’s parent, Global Aviation Holdings, blamed the airline’s latest financial difficulties on the U.S. Air Mobility Command, the Air Force unit that transports military personnel and supplies, which canceled its 2014 contract with the company as the military adjusted to a tighter budget. That decision stripped World of $54 million in revenue, the company said in its November 2013 filing in Delaware—World’s second Chapter 11 filing within a year.

Friday, February 21, 2014

Regional Flying

Why American Eagle Might End Its Flying Days

By Justin Bachman February 14, 2014

The airline that once handled nearly all the regional flying for American Airlines (AAL) is likely to shrink into a company that merely transfers luggage and refuels other airlines’ jets.

American Eagle—one of the world’s largest regional airlines—had sought wage-freeze concessions from pilots in exchange for adding 60 new, larger Embraer jets and speeding the career path for Eagle pilots to move to American Airlines. But this week the local chapter of the Air Line Pilots Association declined to forward that contract to American Eagle’s 2,600 pilots for a vote.

American Eagle President Pedro Fabregas told workers on Thursday that American Airlines would begin seeking other airlines to fly the new Embraers and would move some of American Eagle’s Bombardier CRJ-700 jets to “more cost-effective carriers.” That means new business for rival airlines such as Republic Airways (RJET), SkyWest (SKYW), and Air Wisconsin Airlines. This isn’t the first time the giant airline has sought to disentangle itself from its regional partner: American’s former parent, AMR, had also tried to sell the Eagle unit before AMR’s 2011 bankruptcy filing.

Story: Yes, There’s a Pilot Shortage: Salaries Start at $21,000

American Eagle will retain its 50-seat jets, but those models have rapidly lost favor in the industry and are being retired. Once American is able to move its regional operations away from the 50-seaters, American Eagle is likely to be a subsidiary that does little or no flying. What does a regional carrier do once its flying days are over? “Our ground-handling operation continues to thrive, and we have added new business and employees there at a rapid pace and will aggressively seek to continue this trend,” Fabregas wrote in a memo.

That plan appears to be fine with union leaders, given the widespread pilot shortage in the regional industry and the near-certainty that wages for regional airline crews will increase. “Our pilots decided they were not willing to work for less than the company is already paying our peers,” William Sprague, chairman of the local ALPA unit, told members. “We will now begin the process of assisting our pilots in identifying alternative career options within the industry.” Sprague told the Dallas Morning News on Wednesday that 30 American Eagle pilots are already leaving each month to fly for other carriers.

When large airlines sign new contracts with regionals to operate their “feeder” flights, those deals will reflect the higher costs of new federal rules mandating 1,500 flight hours for first officers. Those rules, supported by both ALPA and the major carriers’ trade group as a step toward further safety in the industry, virtually guarantee higher pilot salaries. Which is why the union was ready to risk seeing American Eagle grounded if it meant accepting stagnant salaries.

Bachman is an associate editor for

Monday, January 20, 2014

3 Extravagant Flights You'll Never Be Able to Afford

Some United first-class tickets cost more than $10,000 round-trip!
However, this is nothing compared with the luxury a few international carriers provide on their long-haul flights. From onboard showers to fully private suites to gourmet delicacies, these airlines have designed their service so that passengers are in no rush to land.

Not surprisingly, the prices for this kind of service can be astronomical. Here are three particularly extravagant examples.

The new gold standard
In the past decade or so, Emirates has quickly risen through the ranks to become the largest airline in the world in terms of international traffic. It has also developed a well-deserved reputation for luxury. The price matches the service; a round-trip first-class ticket from New York to Dubai for early March costs just over $22,000.

For that price, pampering begins long before you get on board. Emirates offers a complimentary "chauffeur drive" service to first- and business-class customers in most of the cities it serves. You don't have to worry about arranging a car service to get to the airport: Emirates will pick you up in a Mercedes.
Emirates is the largest operator of the massive Airbus A380 (Photo: Emirates.)
First class passengers get "fast-track" vouchers to speed up the check-in and security process at the airport. After clearing security, first class passengers have access to the Emirates Lounge, which has a gourmet buffet, open bar, TVs, Wi-Fi, and even showers.

Emirates flies the massive Airbus A380 for flights from New York to Dubai, and it uses the extra space well. First class passengers have fully private individual suites on Emirates' A380s, with seats that convert into a mattress for sleeping. At mealtimes, Emirates offers a seven-course gourmet lunch/dinner. However, first-class passengers can also order a multi-course meal at any time during the flight.
The onboard shower is a unique touch on Emirates A380s (Photo: Emirates.)
If you get "cabin fever," Emirates has lounges on board where you can get a drink and socialize with other passengers. Lastly, Emirates even has two showers that you can use before landing so you can hit the ground running upon arrival.

An Emirates first-class ticket is perhaps the most expensive thing in the air short of a private jet -- but you do get a lot for the money.

The business traveler's dream
While Emirates is rising fast in the aviation world, Singapore Airlines has also developed a great reputation for its premium services. It's comparatively affordable, too! Singapore Airlines no longer offers nonstop flights to the U.S., but its one-stop service from New York to Singapore costs just about $13,000 round-trip. (The plane makes a stop in Frankfurt along the way.)

Check-in for passengers departing from Singapore is especially luxurious. First-class passengers are directed to a dedicated check-in lounge where a Passenger Relations Officer handles the check-in process.
Most international travelers would love a lie-flat seat. Singapore Airlines' first-class passengers get a real bed! (Photo: Singapore Airlines.)
Singapore Airlines also uses the A380 for flights to New York. Like Emirates, it has used the extra space to offer private "suites" -- with leather and wood trim -- for first-class customers. A unique feature is that the suites feature standalone beds that fold down from the wall; first-class passengers don't have to sleep on a converted seat .

Singapore Airlines has impressive dining options, too. The airline offers gourmet cuisine from a variety of the countries it serves. It also has a unique "Book the Cook" feature that allows you to pre-order your main course from a wider selection of entrees 24 hours before the flight. The service may not match Emirates in every respect, but it's pretty close.

The classic
Cathay Pacific has been flying from Hong Kong since shortly after the end of World War II, and over a long period of time it has built a reputation for high-quality service. It flies to a variety of U.S. cities. A round-trip first-class ticket from Los Angeles to Hong Kong for early March would you set back almost $16,000.

As a member of the Oneworld airline alliance, first-class Cathay Pacific customers have access to airport lounges in most major cities across the world. In Los Angeles, the Oneworld lounge has hot and cold buffets, a bar, and shower facilities. In Hong Kong, Cathay Pacific operates several lounges with different premium amenities.
Cathay Pacific doesn't have private suites -- but its first-class seats are still very nice. (Photo: Cathay Pacific.)
Onboard Cathay's Boeing (NYSE: BA  ) 777-300ER aircraft, each first-class passenger has a semi-private suite. Not surprisingly, the seats convert to flat beds, and passengers are supplied with 500-thread-count linens for sleeping. Many Cathay Pacific customers swear by the carrier's flat-bed seats as the most comfortable in the industry.

Cathay Pacific offers meal service for first-class customers whenever they want to eat, and it has toasters, skillets, and rice cookers in its galleys so that food can be made to order. Other first-class amenities include organic cotton pajamas and his-and-hers toiletry kits. Cathay Pacific may not be as flashy as Emirates or Singapore Airlines, but it's comfy. The service is attentive, too, with two flight attendants assigned to the six-seat first-class cabin.

Unless you're a multi-millionaire, flying first class on Emirates, Singapore Airlines, or Cathay Pacific is out of reach. Even multi-millionaires might think twice about dropping $22,000 on a round trip from New York to Dubai!

Still, for these prices, first-class fliers do get plenty of perks. Whether it's an onboard shower with Emirates, a real bed on Singapore Airlines, or Cathay Pacific's gourmet cuisine, first class means real luxury on these international airlines. U.S. carriers like United and American do their best to offer an attractive first-class product, but at this point, they're not in the same league with some of their global rivals.

Friday, January 17, 2014

Let It Snow: The Makers of De-Icing Fluid Are Having a Superb Winter

Few people are as important in winter air travel as the crews that spray de-icing fluid onto departing airplanes. Without the fluid, there’s a good chance there won’t be a flight. More weekend snow across the Midwest—the forecast for the region predicts up to 5 inches and has airlines gearing up for more de-icing—promises to be a boon for the chemicals’ manufacturers.

“For the North America market, it’s going to be a a blistering good year,” says Gary Lydiate, chief executive of London’s Kilfrost, one of three big players in the de-icing fluid industry, along with Dow Chemical (DOW) and Swiss company Clariant (CLN:VX). Lydiate says Kilfrost has already shipped about 70 percent of the de-icing fluid it expected to sell this winter, with two-thirds of the season remaining. Come May, once most airport de-icing ends, Kilfrost says volume will total about 20 percent more than during the 2012-13 season.

In recent weeks the company has shipped more than 544,000 gallons of de-icing fluid to Illinois, most of it to Chicago’s O’Hare International, where Kilfrost customers American (AAL) and United (UAL) both have hubs. Airlines at O’Hare have used 1.06 million gallons through Jan. 15, compared with 1.1 million gallons for all of the 2012-13 season, a spokeswoman for the city’s Department of Aviation said in an e-mail. Most airports deal with multiple suppliers, given that carriers generally procure and apply their own de-icing fluid or outsource the job.
U.S. airlines spray more than 25 million gallons of de-icing fluid each year, according to a 2009 study of the industry by the Environmental Protection Agency. In Denver, where a May snowstorm isn’t terribly unusual, airlines used 1.9 million gallons of de-icing fluid last winter and are on pace to go through the same volume this winter, says Scott Morrissey, director of environmental programs.

Most de-icing is performed with propylene glycol, called Type 1, a pinkish-orange fluid you may see washing across your plane window. When weather is more severe—or when a plane must wait in a queue for takeoff—a thicker green liquid, akin to a gel, is applied to coat the airplane for longer periods. Both types of fluid are formulated much like other competitive products, be it motor oil, laundry detergent, or the top-secret syrup Coca-Cola (KO) blends with water and sugar, Lydiate says. “It looks like a simple thing on the surface, but underneath there’s a hell of a lot of technology to make it work,” he says of de-icing fluids. “This is not a commodity industry.”

The 3 to 5 inches of snow predicted for the Midwest and Great Lakes this weekend is likely to be followed by a second, frigid taste of the polar vortex, which earlier this month sent temperatures plunging as low as 25 below zero in parts of the Midwest and to single-digit temperatures as far south as Texas. Overnight temperatures could drop as much as 25 degrees below normal later next week, according to forecasts, as the jet stream takes a deeper dip south.

“There is the chance the cold may rival that of early January in some areas,” AccuWeather said in a Jan. 16 client note. The next time you’re on a delayed flight, as the plane is hosed ahead of takeoff, consider the positive: Nasty weather means nice profits for some companies.
Bachman is an associate editor for

Monday, December 23, 2013

On Jammed Jets, Sardines Turn on One Another

The New York Times
By JAD MOUAWAD and MARTHA C. WHITE | The New York Times –  5 hours ago

Flying coach can be a bruising experience these days.

Rory Rowland said he was rudely rebuffed after he asked the person in front of him not to recline his seat on a red-eye flight. When he later got up to use the bathroom, and the other passenger had fallen asleep, “I hip-checked his seat like you wouldn’t believe,” Mr. Rowland, a speaker and consultant, said, then feigned innocence when the enraged passenger complained to a flight attendant.

With air travelers increasingly feeling like packed sardines, flying has become a contact sport, nowhere more than over the reclined seat.

Now, it is only getting worse, as airlines re-examine every millimeter of the cabin.

Over the last two decades, the space between seats —  hardly roomy before —  has fallen about 10 percent, from 34 inches to somewhere between 30 and 32 inches. Today, some airlines are pushing it even further, leaving only a knee-crunching 28 inches.

To gain a little more space, airlines are turning to a new generation of seats that use lighter materials and less padding, moving the magazine pocket above the tray table and even reducing or eliminating the recline in seats. Some are even reducing the number of galleys and bathrooms.

Southwest, the nation’s largest domestic carrier, is installing seats with less cushion and thinner materials —  a svelte model known in the business as “slim-line.” It also is reducing the maximum recline to two inches from three. These new seats allow Southwest to add another row, or six seats, to every flight —  and add $200 million a year in newfound revenue.

“In today’s environment, the goal is to fit as many seats in the cabin as possible,” said Tom Plant, the general manager for seating products at B/E Aerospace, one of the top airplane seat makers. “We would all like more space on an aircraft, but we all like a competitive ticket price.”

Some carriers are taking the smush to new heights.

Spirit Airlines, for instance, uses seats on some flights with the backrest permanently set back three inches. Call it, as Spirit does, “prereclined.”

The low-cost airline started installing the seats in 2010, squeezing passengers into an industry low of 28 inches. While the Airbus A320 typically accommodates 150 passengers in coach, Spirit can pack 178.

And that is a good thing, Spirit says.

“Customers appreciate the fact that there is no longer interference from the seat in front of you moving up and down throughout the flight,” said Misty Pinson, a spokeswoman for Spirit.

Rick Seaney, the chief executive of, said the airline business had changed in recent years, after airlines parked older planes and started flying with fewer empty seats. In the past five years, he said, carriers had cut capacity —  the number of seats they fly —  about 12 percent.

“The flip side is they can’t afford not to fill up their seats,” Mr. Seaney said. “This is a massive sea change.”

With so little space to haggle over, passengers have developed their own techniques for handling the crowded conditions.

“They jam their knee into the back of your seat as hard as they can, and they’ll do it repeatedly to see if they can get a reaction,” said Mick Brekke, a businessman who flies for work a few times a month. “That’s happened to me more than once, and that usually settles down after they realize I’m not going to put it back up.”

The passengers Mr. Brekke has encountered are not even the most extreme: Some have taken to using seat-jamming devices, known as knee guards, that prevent a seat in front from reclining. Airlines ban them, but they work, users say.

Smaller seats are not the only reason passengers feel more constricted these days. Travelers are also getting bigger. In the last four decades, the average American gained a little more than 20 pounds and his or her waist expanded about 2.5 inches, according to the Centers for Disease Control and Prevention. The dimensions of airplanes, however, have not changed and neither has the average width of a coach seat, which is 17 to 18 inches.

As the cabins grow more crowded, airlines say they are thinking only of their customers, trying to keep costs down. Jude Bricker, the senior vice president for planning at Allegiant, said the airline’s nonreclining seats have fewer moving parts and so require less maintenance, which means lower costs. This allows the airline to keep its fares low, he said.

“We are continually reminded from customers and their behavior that what they want most is convenient service with a low fare,” Mr. Bricker said.

Several budget carriers in Europe have also adopted stiff seats, including Ryanair and EasyJet. Air France, for its domestic flights, which never take more than an hour, has installed nonreclining seats where the magazine pocket has been moved above the tray table to provide more space in the critical area around the knees.

For passengers willing to pay more, of course, airlines offer more room. Business class remains an ultracompetitive market with constant innovation and comfortable amenities, like seats that recline fully. Airlines are also increasingly offering several rows of coach seats with more legroom —  also at an extra price.

Still, the squeeze is on for most passengers in coach. On a flight from Washington to Frankfurt last year, Odysseas Papadimitriou, the chief executive of, a personal finance social network, was challenged by a tall passenger seated behind him when he reclined his seat. “He was like, ‘Hey, watch it, buddy. I don’t fit here with you reclining the seat,’ ”  he said.

Mr. Papadimitriou called the flight attendant to mediate the dispute and eventually tilted his seat back, but the price he paid to recline was a fitful night’s sleep, as the other passenger grumbled and pushed against the back of his seat for the rest of the flight.

There are ways of resolving conflicts other than bumping into other passengers, as Mr. Rowland, the speaker and consultant, found.

“I lean forward and tap them on the shoulder and say, ‘I’ll buy you a drink if you don’t push your seat back,’ ”  Mr. Rowland said. “It’s made flying very pleasant.”

Wednesday, December 18, 2013

 Airlines: No in-flight calls. Period.
Published: Wednesday, 18 Dec 2013 | 1:03 PM ET
By: Robert Ferris | Special to  

While the Federal Communication Commission reconsiders its longtime ban on in-flight-phone calls, Delta Air Lines says its own policy will remain as it is: no, no and no. And after it previously considered allowing in-flight calls, JetBlue has also decided to prohibit them.

The FCC is considering a proposal to step aside and let airlines determine their own policies on using electronic devices in the air. In an apparent attempt to test public opinion, the commission issued an open invitation to anyone willing to comment on the matter.

(Read more: 'Inattentive parents' top list of worst fliers)

Delta CEO Richard Anderson responded with a statement Wednesday, saying both his company's customers and crews are still cold on the idea of passengers chatting away into phones on flights.

Which electronics are banned in flight?

CNBC's Phil LeBeau breaks down the FAA rules: Anything with a cell signal is still banned, but e-readers, among other devices, will be allowed.

"In fact, a clear majority of customers who responded to a 2012 survey said they felt the ability to make voice calls on-board would detract from—not enhance—their experience," he said. "Delta employees, particularly our in-flight crews, have told us definitively that they are not in favor of voice calls on-board."

However, should the FCC overturn the ban, Delta said it will compromise by allowing passengers to text, email, or use their phones in other ways. Just so long as they do so silently.

JetBlue representative Morgan Johnston cited similar customer feedback to support its decision to forbid in-flight calls.

"We've heard from many customers, and the majority have shared that they do not want voice or video calls allowed on board," Johnston said in an email to CNBC. "We do not allow customers to use VOIP onboard, and have no plans on installing the cellular transponders that would allow cellular calls."

United Airlines gave CNBC a statement less final, saying the company is "evaluating the views of our customers and crew members on in-flight calling, and at this time we don't intend to permit use of cellphones."

Thursday, December 12, 2013

American Air Is a Sleeper Stock if US Airways/America West Is a Precedent

BY Ted Reed |  12/12/13 - 05:59 AM EST

CHARLOTTE, N.C. (TheStreet) -- The new American Airlines (AAL_) went public Monday with a half dozen analysts recommending it. 

New American may not meet the classic definition of being a sleeper stock, one that is likely to achieve unexpected success. Rather, it is a sleeper because of the promise that could be unleashed by having the America West management team take over American's vast route network, and perhaps because of all the lessons learned from previous mergers including the 2005 America West/US Airways combination.

"AAL shares appear to be trading as if this is a typical merger: we believe there is more to the story," wrote Imperial Capital analyst Bob McAdoo in a report issued Monday. McAdoo said he expects schedule changes visible as early as January will show the new management's impact.

In a previous report, McAdoo said the America West team could find $1 billion worth of revenue gains by eliminating unprofitable flying, which would buttress the value of the remaining seats.
Additionally, JP Morgan analyst Jamie Baker wrote Monday that "the earnings power of new American appears sorely underappreciated by the equity market, in our view." Baker has a $37 target price and has put the shares on the firm's "analyst focus list."

So expectations are high for the shares. New American traded for the first time on Monday morning at $23.95, after a one-for-one exchange with shares of US Airways, which traded as LCC. American shares closed Wednesday at $25.99, up $1.11 on a day when shares in every other major airline were down.

When the same management team, headed by CEO Doug Parker, President Scott Kirby and Chief Financial Officer Derek Kerr took over at US Airways in 2005, they quickly made improvements, primarily capacity cuts. In the first quarter as a merged company, revenue per available seat mile on the US Airways routes improved by 27.7%, a very high number. So Wall Street has faith in the team.
On Monday, CRT Capital analyst Mike Derchin initiated coverage with a buy rating and a target price of $31; he called AAL "one of our favorite ideas."

Derchin said equity distributions over the next 120 days should create buying opportunities. He said labor goodwill, a strong cash positioned and a strengthened OneWorld alliance, due to the addition of the US Airways destinations, will all benefit the shares.

"The main risk is now merger integration," Derchin wrote. "We believe management knows from personal experience and recent industry successes and failures how to get it right."

In an interview Monday, Terri Pope, US Airways/American vice president for Charlotte Douglas International Airport, said she has managed through four mergers at US Airways. "I've seen planning in the last 24 months that I had never seen in those four mergers," Pope told reporters on Monday. One lesson, she said, is that "it's not about how fast you make it happen, but that you make it happen the right way."

The point is that not only has the airline industry learned from the closely watched mergers over the past decade, but also that throughout its management ranks US Airways has people with broad experience in overseeing mergers. That was not the case at Delta (DAL_) or United (UAL_), which both stumbled in completing their mergers.

In his note, Baker wrote that new American's EBITDAR margins already rival Delta's and exceed United's" and we expect AAL to widen its lead going forward." Of the three, he said, Delta presents the least risk, with "little being asked of management besides staying the course, (while) United still requires heavy lifting, (yet) shares already trade at a premium following management assurances to do better.

"This leaves AAL, with a management team that has tackled integration in the past and is starting from a base of profitability already rivaling DAL's," Baker wrote. Like McAdoo, he warned that emergence from bankruptcy, accompanied by equity distributions, can lead to selling pressure.
Delta, he said, lost 18% of its value in the first month after emerging from bankruptcy, while United lost 10%.

Wolfe Research analyst Hunter Keay also said he sees favorable comparisons with United and Delta. In a recent report, Keay wrote that new American's "large discount to Delta and United is simply too much."

Keay also suggested "that the AAL merger integration risks are overblown (because) labor is large mollified entering the process and hard knocks IT experience from US Airways' prior merger (same executives, same reservations systems) should yield valuable lessons learned." He has a $39 price target and calls AAL his top pick.

Written by Ted Reed in Charlotte, N.C.
 To contact this writer, click here.
Follow @tedreednc

Monday, December 02, 2013

US Airways Can Find $1B in Revenue Gains at AMR, Analyst Says

Stock quotes in this article: AAMRQ, LCC 

CHARLOTTE, N.C. (TheStreet) -- American Airlines has cut costs by $1 billion in bankruptcy, and now the US Airways  (LCC_) management team is likely to find another $1 billion in financial gains from cutting unprofitable routes and better matching aircraft to routes, a veteran airline analyst said.

"This transaction is as much about fixing AMR as it is about normal merger integration," Imperial Capital analyst Bob McAdoo wrote in a recent report. McAdoo said he sees "well over $1 billion in opportunities to improve AMR's revenue generation potential and financial profitability, simply by shifting priorities and assets.

"AMR Corp. has been a chronic underachiever, particularly in generating revenue," he wrote. "AMR has struggled to generate revenue despite having its hubs arguably in some of the largest and most attractive U.S. cities and also having the largest U.S. carrier presence at London's Heathrow Airport, arguably the most important international airport in the world."

Shares in existing US Airways group and AMR Corp. are scheduled to cease trading on Friday. Dec. 6. On Monday, Dec. 9, AAL shares will begin trading. Existing LCC shares will be converted on a one-for-one basis to AAL shares. LCC shares closed Friday at $23.48, up 74% year to date. McAdoo has an outperform rating on the shares and a $36 target price.

In his report, McAdoo listed three key areas where he believes revenue per available seat mile (RASM) gains can be easily achieved.

On JFK-LAX, the largest U.S. market in terms of revenue, American loses $70 million annually, McAdoo estimated. While its competitors all operate narrow-body aircraft, American flies three-class Boeing 767 nine times a day. Those 767s have fewer seats than competitive aircraft, meaning higher costs per seat mile -- 44% higher costs per seat mile to generate only 7% more revenue than Virgin American, McAdoo wrote. The solution? American already plans to replace the 767s with Airbus A321s.

On JFK-Heathrow, American suffers from "its quantity of slots and its ego-driven tendency to virtually always fly each London flight with its largest B777 aircraft, (and) finds itself unable to always profitably operate to each of its hubs." Furthermore, American's hub in Chicago competes with its hub in Dallas and Los Angeles for London traffic, with the Chicago one-stop undercutting the non-stops. The solution? Cut flights.

On various domestic routes, for instance Chicago-La Crosse, Wis., American uses uneconomic 44-seat aircraft to fly four to five times daily, with the flights only two-thirds full. By contrast, McAdoo wrote, Delta (DAL_) flies Minneapolis-La Crosse three times a day with a 48-seat aircraft and generates far higher RASM.

In a 2005 merger, the America West management team led by Doug Parker took over at US Airways following a bankruptcy. In the first quarter as a merged company, revenue per available seat mile on the US Airways routes improved by 27.7%. Much of the improvement reflected capacity reductions. McAdoo said he believes the America West management team, little changed from 2005, will make similar improvements at American.

"Arriving from the much smaller America West Airlines in 2005, the (team) promptly delivered industry-leading margins at then bankrupt US Airways, a company three times the size of America West," McAdoo wrote. "The team, then and we assume now, has a determination to eliminate flying that could not be made profitable.