Tuesday, April 17, 2012

Merger hangover continues to pain United

April 17, 2012: 11:46 AM ET

A battle is brewing in Houston between United Continental Holdings and Southwest Airlines. Consumers hoping to fly south of the border may end up the victors.

By Cyrus Sanati

FORTUNE -- United Continental Holdings is learning the hard way that it isn't wise to mess with Texas. The recently merged airline's decision to choose Chicago as its corporate headquarters over Continental's hometown of Houston appears to have resulted in a big loss of political capital with the city and its airport authority. The move could end up hitting United's bottom line hard as rival Southwest Airlines targets Houston to be its first international hub.

There are a lot of unintended consequences when it comes to merging two companies, especially two major international airlines. When Chicago-based United (UAL) announced its merger with Houston-based Continental at the end of 2010, the decision to move the newly combined airline's headquarters up to Chicago wasn't given much thought. United had struck what it had said was a sweetheart tax and rental deal with Chicago city officials a year earlier to keep the airline's headquarters in the Windy City in the event of a merger with a rival airline. Houston, apparently, never had a chance.

The loss of Houston as Continental's headquarters meant moving most of its major corporate functions to Chicago. Continental's then chief executive, Jeff Smisek, not even a year into the job, became the combined airline's chief executive. Smisek was quick to make the move out of Houston but the mood at Continental's headquarters in downtown Houston was somber, as much of the staff did not want to move to Chicago.

Continental has always enjoyed a very good relationship with the city of Houston. The airline's chief executives were tight with the city's mayors and the airline got basically whatever it wanted – both big and small. When the airline's logo on its downtown headquarters violated a city ordinance that banned corporate advertising on skyscrapers, Houston's city council quickly voted to change the law, allowing Continental's blue logo to fly high. The city let Continental build itself a whole new terminal at Houston's Bush Intercontinental Airport last decade and is contributing a third of the $1 billion needed to build out another terminal for the airline, which is currently under construction.

The strong relationship helped the airline flourish. Eventually, Continental controlled around 80% of the air traffic in and out of Houston's Bush Intercontinental Airport, which is located on the north side of town. This total domination in air traffic gave Continental strong pricing power that has padded its bottom lines for years. Its only real competition in the city was with Dallas-based Southwest Airlines, but it operated out of Houston's smaller airport, Hobby, located 30 miles southeast of Intercontinental, and was limited to only short-haul domestic flights.

Perhaps most importantly, Continental dominated Houston's international market. The vast majority of these flights were jumps into Mexico, the Caribbean, Central America and the Northern part of South America. Eventually, Continental controlled 97% of the short to medium-haul international air traffic out of Houston. Its position as the main feeder airline into the city's only international airport allowed it to have a virtual monopoly on all international air traffic going to and from the city.

Gordon Bethune, former CEO of Continental, recently said that while he was chief executive, he had a sort-of gentleman's agreement with the mayors of Houston that Intercontinental would be the city's only international gateway and that Hobby, which was the hub for Southwest Airlines, would only be a domestic airport. In return, Continental would continue to be a good corporate citizen and work to improve air traffic at the big airport.

But all that intangible political capital was trashed when the airline merged with United. The loss of the Continental name was bad enough for the city, but the loss of the headquarters was a big blow to its ego. While Houston is still United's largest hub with over 17,000 employees living and working in the city, the loss of the C-suite appears to have been an unforgivable sin.

Southwest Airlines (LUV) is hoping to cash in on United throwing away its golden goose. It has brazenly asked Houston's airport authority to pay nearly $100 million to upgrade Hobby to receive international flights. The upgrade would allow Southwest to use Hobby to launch truly competitive international air service to the same locations where Continental has held an almost near-monopoly in non-stop service for years. This would, invariably, force Continental to lower prices on competing routes or to even pull out of some them completely if Southwest is able to put enough pressure on its margins.

This possible Southwest expansion also has larger implications for the airline industry. Southwest inherited international air service to a few destinations south of the border and to the Caribbean when it acquired AirTran in 2010. It has just started to put plans in motion to expand international service - under the Airtran banner, for now - launching routes to Mexico from Orange County, CA and San Antonio, TX. But unlike those locations, Houston is a major hub for Southwest and is seen as a major gateway to Latin America. If Hobby does go international, Southwest will be able to fill its Latin America-bound planes with passengers from any of the 36 domestic destinations it already serves through Hobby.

United is understandably upset about Southwest's attempt to move in on its cash cow. Southwest could target 85% of United's international routes out of Houston if the city signs off on the expansion at Hobby. United says that a Southwest expansion could force it to lay off hundreds of workers and could force it to end its support for the $1 billion expansion at Intercontinental that is already underway. The airline would also discontinue plans to introduce air service to four new international destinations and would not add to additional frequencies in existing markets in Houston over the next three years, a United spokesperson told Fortune.

Southwest believes United is overreacting and says that competition would be good for Houston. It would only have five gates dedicated to international service at Hobby- with expansion up to nine if all goes well. United currently serves 54 destinations in Mexico, the Caribbean and South America, with 103 daily departures. With five gates, Southwest claims that it could offer just 25 international flights out of Hobby per day, a quarter of that of United.

But it could still do damage if those flights were targeted at Continental's biggest money makers, which it surely would. It its defense, Southwest has launched a website dedicated to its struggle to "free" Hobby Airport. The airline plays up its Texan roots and makes it a point to say that it is competing against "Chicago-based United-Continental Airlines," and not the beloved Houston-based Continental.

Last week, Houston's airport authority recommended that the city council approve the Southwest expansion, saying that it would add millions to the local economy and would create, not decrease, jobs in the Houston area. United has struck back saying that the Airport authority's study was flawed. The city council is expected to vote on the matter in May. It looks like, for now, that Southwest is going to get their wish. Meanwhile, United executives are left wondering how different things would have played out if they had just chose to stay in Texas.
Cracks in the Cover-Up
Helen Davey
Psychoanalyst and psychotherapist

Posted: 04/13/2012 11:29 am

The recent very public emotional meltdown of a JetBlue pilot -- just weeks after an American Airlines flight attendant broke down in front of passengers waiting for take-off -- has many people wondering about the psychological health of pilots and flight attendants. What is going on with the employees in our airline industry?

As a former Pan Am flight attendant for 20 years, and now a psychotherapist and psychoanalyst for 25 more, I've been writing at length to sound the alarm about the decline of the American airline industry. In particular, I've discussed the traumatic emotional consequences to employees due to the massive changes they've had to endure.

In addition to ensuring the safety of passengers, pilots and flight attendants understand that their major role is to create the illusion of the flight crew's emotional invincibility. In other words, they reinforce the denial of death. This is what I mean by the words "cover-up." On board every aircraft are passengers who wonder how in the world this huge machine can actually fly. Moreover, they depend upon the comfort of knowing they have a fearless and confident crew taking care of them. Not always an easy task for the flight crew.

Having been a flight attendant, I know how psychologically stressful that job can be. Even in the glory days of American aviation, when all employees got to share in the largesse of the industry's perks, the emotional demands of the work could be grueling. Maintaining an outward persona of friendliness, calm, and utter fearlessness for countless hours on end can be very difficult indeed.

Pilots have a particular problem in this arena, especially when it comes to seeking help. Due to antiquated 1940's FAA standards, it's very difficult, if not impossible, to get help for psychological distress. For example, given that statistics show that at least 10% of the population suffers depression at some time in their life -- and I think that number is vastly underestimated -- then what are pilots to do?

In 2010, four anti-depressants were approved by the FAA for pilot use, but he or she must be grounded for at least six months (usually a year), and subjected to constant re-evaluation for the rest of his or her career. I understand the flying public doesn't want to hear or think about this, but restrictive and sometimes punitive measures discourage pilots from seeking the help they need, even for "talk therapy." This creates an atmosphere of shame about needing emotional help, and is paralleled by the shame that so often accompanies combat-related trauma.

Despite the herculean efforts by EAP programs in unions and airlines to get proper help for vulnerable crew members before their behavior explodes into headlines, some people slip through the cracks. I personally would much rather put my life in the hands of a pilot who has received proper psychological treatment than one who suffers silently but has a "clean" record.

A salient factor that has been left out of media reports and pundit observations about the pilot and flight attendant incidents, is that what they have in common was that both employees began ranting about terrorism. In fact, the flight attendant screamed about having a friend killed in the 9/11 terrorist hijacking of an American Airlines plane, as well as about the recent bankruptcy of her company.

When you see airline crews walking across the terminal with their suitcase on wheels, just know that they are also carrying another kind of baggage. There is always the possibility of a hijacking, a bomb on the plane, or unruly and violent passengers on board. Most people who go about their daily lives and work don't have to be hyper-vigilant about terrorists. They have not had friends or colleagues murdered by political/religious extremists. They don't have to imagine ways in which they can protect their own lives and those who depend upon them in the air. Nor are they plagued by nightmares about getting stuck on another continent with no way to get home.

The "cover-up" of their vulnerability by pilots and flight attendants with a facade of emotional invincibility used to be all about the reality of occasional airline catastrophes, but it has now been extended to the nightmare of worldwide terrorism that is often aimed at airlines. Cracks in the "cover-up" are beginning to show.

There are many reasons for that, and one only has to look at the strained relationships between airline management and employees to understand what's happening. Not only are employees feeling attacked from the outside, but they are feeling equally attacked from the inside by their own companies as well. The executive hierarchy of airlines has changed dramatically, and we are long past the glory days of aviation when men like Juan Trippe led the way, and airline employees were all imbued with a passion for flying.

Long-promised wages, benefits, and pensions are being slashed, and flight attendants are increasingly on the front lines of an angry and disgruntled public with no tools to offer the public for passenger comfort. Mergers and takeovers and bankruptcies are forcing airline employees to adapt to a new and unfamiliar workforce in which many feel like the ugly, unwanted step-siblings in a blended family.

And on top of all these issues, there have always been expectable hardships for airline personnel that come with the job, requiring a stable, flexible person who is physically strong. Passengers take this for granted.

Working conditions have worsened to the point that along with emotional invincibility, physical invincibility is being demanded as well. Extremely long workdays, constant time changes, irregular schedules, and the feeling that their companies don't have their backs, are wearing down the employees to an extent I have not seen before. After all, no human being ever "gets used to" jet lag, exhaustion, sleepless nights, or the feeling of not being valued.

As I've mentioned in previous posts, similar things are happening to employees in other venerable old companies and industries in the past few years. In the wake of the recent economic turmoil, traditional emphasis on pride in one's company and loyalty to it is being replaced by concern only for profit. This has had a shattering impact on the emotional lives of many people.

And nowhere is this more apparent than in the current state of the airline industry. As long as it stays in denial about this massive undermining from within, we're going to see more cracks in the cover-up. Another airline employee succumbing to the pressure, captured on tape and broadcast tonight on your evening news!

Monday, April 09, 2012

Snake Crawls Over Pilot In Australian Cargo Plane While in the Air

(AP) CANBERRA, Australia - An Australian pilot said he was forced to make a harrowing landing reminiscent of a Hollywood thriller after a snake popped out from behind his dashboard and slithered across his leg during a solo cargo flight.

Braden Blennerhassett, unsure whether the snake was venomous, said Thursday that his heart raced as he tried to keep his hands still while maneuvering the plane back to the northern city of Darwin. The snake popped its head out from behind the instrument panel several times, Blennerhassett said, and then the ordeal worsened when the animal crawled across his leg during the approach to the airport.

"I've seen it on a movie once, but never in an airplane," Blennerhassett told Australian Broadcasting Corp., referring to the 2006 movie "Snakes on a Plane," in which deadly snakes are deliberately released in an airliner as part of a murder plot.

The 26-year-old Air Frontier pilot was alone in a twin-engine Beechcraft Baron G58 and had just left Darwin airport on a cargo run to a remote Outback Aboriginal settlement when he saw the snake on Tuesday.

Air Frontier director Geoff Hunt described Blennerhassett as a "cool character" who radioed air traffic control to report: "I'm going to have to return to Darwin. I've got a snake on board the plane."

But Blennerhassett admits he was shaken, telling Nine Network television that his blood pressure and heart rate were "a bit elevated."

"You're trying to be as still as you possibly can and when you've got your hands on the power levers," he told ABC. "You're kind of worried about the snake taking that as a threat and biting you."
"As the plane was landing, the snake was crawling down my leg, which was frightening," he told Nine.

Once the plane had landed, a firefighter spotted the snake but authorities were not immediately able to catch it, Air Frontier official Michael Ellen said. A trap baited with a mouse failed to catch the snake by Thursday, and the plane remained grounded.

Wildlife ranger Sally Heaton said the snake was suspected to be a golden tree snake, a non-venomous species that can grow up to 1.5 meters (5 feet).
Blennerhassett was back in the air Thursday and could not be immediately contacted for comment.

Hunt said he was not aware of a snake being found in a plane before in Australia, but that he had heard of a young chicken being found alive under the floor of a plane and of an escaped juvenile crocodile crawling under a pilot's rudder pedal.

Saturday, April 07, 2012

JetBlue still upbeat, but not darling it once was

* Service defined by close connection with customers

* Higher costs, investor questions pose challenges

* Pilot incident adds to JetBlue headlines

* Travel system wound tight; surveillance cameras on planes

By John Crawley and Patricia Kranz

WASHINGTON/NEW YORK, April 5 (Reuters) - JetBlue's emergency response team barely had time to locate the Incident Operations Center at their new headquarters in Long Island City, Queens when they were summoned there to handle an emergency on March 27, a day after they moved in.

JetBlue pilot Clayton Osbon was behaving erratically on Flight 191 from New York to Las Vegas, running through the cabin screaming about religion and terrorists. Passengers tackled him in the galley. The plane had to be diverted to Amarillo, Texas, where a co-pilot guided it to a safe landing.

As the airline's emergency response team gathered around a 24-seat conference table, the shades were lowered to darken the room. Soon, all eyes shifted to the main wall, where the company's Twitter feed was projected in large letters.

"That's how we got a lot of the early customer responses and their experiences," said JetBlue spokeswoman Jenny Dervin. "As customer stories started coming in, we knew it was far more than just a medical emergency."

Close connections with customers and a willingness to embrace popular technology is vintage JetBlue. It was the first airline to equip its entire fleet with seatback TV screens. Flight attendants pass out food during a delay; some even offer massages.

Into its second decade, however, JetBlue is not the darling it once was, with passengers or with Wall Street. Previously known for being inventive, contrarian and taking customer service to a new level, JetBlue has more recently made headlines for long delays that caused passengers to be stranded for hours.

While last week's pilot meltdown was viewed as a rare incident that could happen on any airline, it could chip away at JetBlue's reputation even though the carrier still maintains a relatively high level of customer service.

JetBlue loses few bags. Nor does it cancel many flights or oversell seats, government figures show. But its planes are older and require more work, competitors have shaped up, and the business is as tough as ever, with soaring fuel costs, higher fares, crowded markets and a weak economy.

"I think in many respects they've matured and part of the maturation process is when you're a ten-year-old company, you have ten-year-old company costs. You're not growing as rapidly as you used to," said Robert Mann, an industry consultant and former airline executive.

Jet Blue shares were trading at under $5 this week, far below their peak of about $30 in October 2003 after adjusting for stock splits.

JetBlue is well managed and financially healthy, experts say, with a market value of roughly $1.4 billion. The airline captures about 5 percent of the U.S. market by revenue through 750 daily flights to 70 cities on 172 Airbus and Embraer jets.

But JetBlue is now facing head winds that will further test its strategic vision, employee morale and its service culture.

For starters, JetBlue's big overseas shareholder, Lufthansa , floated notes last week that give investors the option of a cash payout or JetBlue stock in 2017. The $311 million offering signaled possible willingness by Lufthansa to cut its nearly 16 percent stake in its New York partner, depressing JetBlue's stock. JetBlue posted higher-than-expected profit of $23 million for the fourth quarter of 2011. But rivals who used to lose tens of millions of dollars each quarter have made money, too. JetBlue's stock trades at roughly 9.4 times projected 2012 earnings, while multiples for other major carriers range from 12.4 for Southwest Airlines, to 5.1 at United Continental to 3.9 for US Airways.

A leading airline analyst, Dahlman Rose & Co's Helane Becker, has a "sell" rating on shares of JetBlue, one of only two airlines with that recommendation from her. The other had been Pinnacle Airlines, which filed for bankruptcy on Monday.

Becker says JetBlue has a respectable balance sheet and good management, and she believes the company has potential to do better. Bu t for now, she is sticking with early first-quarter analysis that noted competitive pressures JetBlue faces from Delta Air Lines at New York's John F. Kennedy airport.

Becker also said maintenance requirements on JetBlue's aging fleet would likely affect earnings growth this year.

JetBlue said it is sticking to its growth strategy despite heightened competition. "I am respectful of healthy competition, but I also believe there are plenty of customers in this industry," said JetBlue's chief administrative officer, Jim Hnat. "If you do it right you can win customer loyalty based upon brand and experience."

JetBlue was founded in 1998 by David Neeleman, a frenetic former executive of Southwest Airlines, which succeeded with a simple operating philosophy and low fares. At JetBlue, Neeleman stressed better travel through informality and customer service for its core leisure markets.

JetBlue was aggressively marketed, costs were kept low, and it grew fast - a new plane every 10 days from 2000 to 2005. Unions, a force in the airline business, were not part of the mix. Neeleman wanted a team-based culture.
JetBlue went public in April 2002 and won the affections of Wall Street, with the company's shares more than doubling in their first year and a half on the Nasdaq.

Planes were new, and routes were direct and not always contested. JetBlue made money while much of the industry collapsed into insolvency. Attempts by rivals to mimic it with spinoffs failed. JetBlue was a "giant slayer."

Then its operational shortcomings caught up with it.

A 2007 Valentine's Day ice storm in New York led to nearly 1,200 flight cancellations over several days and stranded passengers on planes with no food, water and overflowing toilets. A humbled Neeleman lost his job.

JetBlue was again in the news in August 2010 when a flight attendant, upset after an altercation with a passenger, bolted from a plane by deploying and sliding down an inflatable chute.

Then in October 2011, five JetBlue planes sat on a snowy tarmac in Hartford for hours, dredging up difficult memories for the company of Neeleman's downfall.

Explanations vary as to why JetBlue makes unwanted headlines - three times now in less than two years. Joanna Geraghty, JetBlue's chief people officer, said geography plays a role.

"The Northeast market is highly congested and highly competitive," she said. "And the concentration of our network is Northeast and South focused, so if you get something like a Hurricane Irene, that can have a pretty strong impact on our operations."

JetBlue's huge Twitter following also plays a role, Geraghty said. "If there's a hiccup, it gets played out in the media far more than other airlines'," she said.


Two of the events, including last week's emergency landing, involved the emotional health of workers during a stressful time for the airline industry.

"In the last year or two, passengers and crew members are acting as if they're under a lot of stress," Mann said. "There's nothing about JetBlue, but it suggests to me that the entire transportation system is just wound a little too tight."

JetBlue noted that it is the only airline that has video surveillance inside some of its planes (Airbus A320s). Cameras were installed primarily to keep tabs on passenger behavior (or misbehavior). But when Osbon left the cockpit last week, those cameras proved invaluable for another reason - the copilot was able to see the tumult in the cabin and galley on a video display without leaving the cockpit, and make the pivotal decision to lock the cockpit door.

The cabin surveillance system is a huge asset," said JetBlue Captain David Scott, who until recently was chairman of the airline's pilot values committee.

Hnat said JetBlue's growing pains were "natural" and helped it refocus. He characterizes its current state as a "growing-up phase" during which JetBlue will still seek to shake things up but not merge with another airline or change its culture.

Gary Chaison, a labor expert at Clark University, believes non-union employees at JetBlue must feel more pressure with profits shrinking, airline bankruptcies again making headlines, and more industry consolidation still possible.
"I think the workers are operating under some stress because they know the corporate culture says they are a joint partner in the company. They enjoy a special status, but I think they see it as not going to last forever," Chaison said.

JetBlue's Scott said pilots feel more secure after negotiating a new deal with management last November that built new safeguards into every pilot's contract with management.

"The biggest fear of a pilot is to be furloughed or let go," Scott said. "We're scared of a sale." One of the new provisions gives JetBlue pilots a voice in managing the seniority lists if the company is bought or merged. "It was a big deal," he said.

In the past, JetBlue grew just by adding new destinations. That's become tougher now. Former Continental Airlines Chief Executive Gordon Bethune said many attractive markets are already pretty full, and JetBlue's biggest rivals are in better shape and much tougher competitively than they were a decade ago.

Tere is no place to put an airplane where they don't have competition. It's harder to grow," he said.