Monday, August 19, 2013

Saying No the Flighty American-US Airways Deal
The Feds' Move to Block the Airline Merger Is Overdue

by Al Lewis - Wall Street Journal - August 18, 2013

Try to keep this straight:

American Airlines—which has already merged with Trans Caribbean Airways, Air California,
Reno Air and TWA—wants to merge with US Airways—which has already merged with
Lake Central Airlines, Mohawk Airlines, Pacific Southwest Airlines, Piedmont Airlines and
America West.

They want to merge because:

• United Airlines—which had already merged with Capital Airlines and part of Pan Am—
merged with Continental Airlines—which had already merged with People's Express,
New York Air and the original Frontier Airlines.

• Delta Air Lines—which had already acquired the Chicago and Southern Air Lines,
Northeast Airlines, Western Airlines and Pan Am's shuttle airline—merged with Northwest
Airlines—which had once swallowed Republic Airlines.

• And Southwest Airlines—which had acquired Muse Air, Morris Air and ATA Airlines—
recently took over AirTran Airways—which had merged with ValueJet.

The U.S. Justice Department, which rarely intervenes in airline mergers, last week sued
to block the $11 billion merger of American and US Airways. The deal, it complained,
would reduce the industry to just four big carriers controlling more than 80% of the
market, which means higher airfares and less air service for consumers.

The airlines, and a chorus of critics, immediately complained

 a) hey, this isn't fair, you already let everyone else merge,
 b) American is in bankruptcy and needs this deal to compete,
 c) one less major airline will actually increase competition by creating a stronger
competitor and
d) let the free market decide.

These arguments are as old as the industry. There has never been a free market in the
airline business. The industry has always been federally subsidized in one form or another.

It also has been subsidized by the bankruptcy process. Airlines battle each other for
market share and lose money until the day that they can't. Then they file for bankruptcy
and glue their pieces together.

Creditors, investors and employees take the financial hit while top executives walk away
with grandiose pay packages.

American wants to pay its chieftain Tom Horton $20 million for taking the carrier through
the bankruptcy it filed in November 2011—but the bankruptcy judge has scoffed at the

The Justice Department notes that executives from both airlines have bragged that they
could operate without the deal—so why not hold them to their words?

No, it's not easy running an airline. Beyond complex logistics and fending off competitors
who've slashed their operating costs in bankruptcy court first, there are spiking jet-fuel
costs, terrorist attacks and economic meltdowns to circumnavigate.

The solution always comes down to yet another bankruptcy and yet another merger.
Over time, planes become filthy, airline employees get grumpy, service gets spotty and
innovation is reduced to how to charge customers more fees.

What's left is an industry of bureaucratic, too-big-to-fail corporations that will live to file
bankruptcy again.

American and US Airways vow to fight. They'll likely bring enough corporate lobbying
power to bear, and offer just enough concessions, to put together some kind of deal.

And everyone will forget what American advertised when it bought what was left of TWA
in 2001: "Two great airlines, one great future."

—Al Lewis is a columnist based in Denver. He blogs at; his email address is

Saturday, August 10, 2013

A Captive Wi-Fi Audience Pays Off

By Kevin Fitchard

August 09, 2013

Our need to remain constantly connected everywhere is definitely paying off for inflight Internet provider Gogo. The company reported its first quarterly earnings since going public in June, and it shows that not only are more domestic flyers signing up for its pokey airborne connections, but that they’re also paying more for the privilege.

Gogo (GOGO) now connects 1,982 American Airlines, United (UAL), Delta (DAL), Air Canada (AC/A:CN), US Airways (LCC), Alaska Air (ALK), AirTran, and Virgin America planes in North America, and each plane brought in an average of $25,600 in the second quarter, up 22 percent from the same period a year ago. That’s a pretty hefty increase for a single year, but that’s not the half of it. Its overall revenue from commercial aviation increased an impressive 53 percent, to $49.8 million, in the second quarter.

It’s connecting not only more planes, but more flights with more passengers. The company estimated that in the second quarter, 77.1 million butts were in the seats of Gogo-linked flights. Not only did Gogo succeed in luring more of those passengers onto its network (5.9 percent vs. 5.3 percent a year earlier), but it also extracted more money from each passenger who did connect: $10.38 per session, a full $1.35 more than it did a year ago.

Gogo still isn’t profitable—in fact, its losses increased fivefold, to $72.6 million—but its revenue is increasing at a fantastic clip and shows few signs of slowing down. After all, Gogo has what amounts to a monopoly in the aircraft that it does serve, and our desire to check e-mail and surf the Web at 10,000 feet shows no sign of abating.

The irony is that the more successful Gogo becomes, the worse off its customers will be. Gogo is feeding all these flights with what is essentially a CDMA 3G network pointed at the sky, and as with all cellular networks, users must share their capacity. So just as a bunch of simultaneous smartphone users will congest and even take down a cell on the ground, the more Internet surfers there are on a flight, the slower the speeds will be for everyone.

Gogo is trying to keep up with that capacity demand by upgrading its networks, but so far only 312 of its planes can tap into the new system’s higher speeds. And even when its entire fleet is upgraded, we’re still talking about just a souped-up 3G network.

It doesn’t seem to matter to the flying public, though. We’re more than willing to shell out $20 a flight for slower than dial-up speeds. I do it every time I get on plane for San Francisco. So does Om Malik and pretty much everyone on the GigaOM staff. We’re holding out hope, though, that a new generation of air-to-ground systems—currently being debated at the FCC and developed by Qualcomm (QCOM)—will supply the same level of broadband quality that we’re used to on the ground up in the skies.