Travel Industry

You’ve probably heard a great deal of talk about the wonders of Open Skies between the US and European Union. It officially went into effect March 30, and now the world is a different place . . . right?

Well, not really. From the European perspective, this could open up a great number of new opportunities for flights between the EU and the US. For example, Air France is now flying London to Los Angeles and British Airways is starting an airline specifically to fly from New York to points in the EU beyond the UK. But for those airlines based in the US, it doesn’t mean nearly as much.

In fact, this whole agreement is really a one issue kind of opportunity for US airlines: access to London’s Heathrow airport. See, while this does allow open skies between the US and EU, the US already had fairly liberal agreements with most of the individual countries that make up the EU. With this new agreement, there are no new flights planned by US airlines other than those to Heathrow.

Previous agreements between the US and the UK allowed only two US airlines to fly into Heathrow airport. There were a host of other arcane restrictions in place on how many airlines could fly to each airport as well. Now, the new agreement wipes all that away and anyone can fly to Heathrow if they’re willing to pay the price of admission.

Before yesterday, American and United were the only airlines allowed into Heathrow (rights which they purchased from TWA and Pan Am, respectively). As of yesterday, Continental, Northwest, Delta, and US Airways have all moved at least some of their flights over to Heathrow from Gatwick. Of course, Heathrow is very crowded, so they had to pay multiple millions of dollars to buy slots from airlines that already had them. It’s an expensive proposition, but apparently it’s worth it for access to London’s premier airport.

Other than that, US airlines won’t see any new opportunities out of this agreement. What they may see, in fact they already have seen, is more competition from EU carriers on some routes. Ultimately, this agreement could be net negative for the US airlines.

American Airlines has decided to install a near lie-flat seat in business class, and it wants to tell the world about it. In principle, that makes sense. But here’s the problem: The airline is trying to plug its new business class seat in a television ad. First, let’s think about where business class passengers come from.

The majority of big business is managed travel. In other words, there are specific agreements between company travel departments and airlines to drive traffic. American could reach these people with a targeted sales campaign much easier than with television advertising. Then there are the frequent flier upgrades. Well, those people are easy to reach because they’re frequent fliers. American has all their information and can easily target a direct mail/email campaign toward them.

Who’s left? Other airlines’ frequent fliers? Sure, they’ll definitely want to try to sway those guys over to them, but is an ad campaign going to do that? Probably not. Even if it would, frequent fliers are savvy, and just a little bit of research would show that American’s new seats are inferior to most major international airlines anyway. The world’s leading airlines — British Airways, Singapore, Cathay Pacific, etc have all gone with a true lie-flat bed. Even United has slowly started to install its new fully lie-flat seat.

Maybe American just wants to show the world that it’s investing in its product, so that even passengers flying in coach will think it’s going to be better. I hope that’s not their goal. If it is, they’re just going to disappoint those fliers by having the same old product onboard. Even domestic First Class travelers will get the same old seat, so this is just going to get people’s hopes up.

It should be no surprise that American launched this campaign during this year’s Oscar telecast — their ad strategy is just as out of touch with reality as the Academy.

That didn’t take very long. A short couple of weeks after Brian Clark left Virgin America, Diana Walke has been tapped to fill his shoes as VP of Planning and Sales. Is this a good thing?

Well, Diana has a long resume filled with her time spent in the airline industry. Actually, it should be no surprise that her experience seems to be entirely at American Airlines. She started at the airline as a pricing/yield management analyst and worked her way up to be Director for Capacity Planning - Network Development. Why isn’t it a surprise? Well, new CEO David Cush came from American as well. I assume he’s bringing in his friends and favorites to fill out his roster.

Cush said in the release that “Diana brings an incredible wealth of experience in sales and distribution, revenue management, marketing and network planning . . . .” Yes, but that’s not necessarily a good thing. American is a hub-and-spoke legacy carrier. Virgin America is supposed to be a next generation, point-to-point, completely different kind of airline. In some areas, like maintenance and operations, you probably do want someone with a lot of experience, but I’m not so sure about that on the commercial side.

Capacity planning for a hub airline is very different from what Virgin America is trying to do. Does the mindset of someone who has spent her professional life at a network carrier lend itself well to a new startup trying to do something completely different? On the surface, I’d say that’s not the type of person you want in that role, but that doesn’t mean she isn’t up to the job. Hopefully she’ll prove me wrong.

(Image courtesy Virgin America)

It’s a rare sight these days to see any airline expanding with long haul domestic flights, but AirTran has decided to charge full speed ahead. This summer, the airline will operate two daily flights between Baltimore and both Seattle/Tacoma and Los Angeles.

Now, it’s no secret that AirTran has been building up its presence in Baltimore, but it is a little surprising to see them adding gas-guzzling long haul flights at a time when fuel prices are so high. Either the airline thinks that its cost structure is low enough to make these work while others have failed, or it just don’t have any better places to put its growing fleet of 737s right now. Let’s hope for the airline’s sake it’s the former, because they have 60-odd planes left on their current order.

Last summer, AirTran flew the Baltimore-Seattle route, but it was a utilization flight. In other words, the plane left Baltimore in the evening after most of its flying would have been done for the day. Then it turned around on a redeye, ready to work the full day of flights the next day out of Baltimore. If you can get enough demand, this is a great strategy because the plane would otherwise remain on the ground not earning any money. AirTran will bring that flight back this year.

Also this year, however, the airline is going to add another daily flight, and more importantly, it’s going to take a full day’s aircraft time. A morning flight west with a return midday means that you use the full day of flying on that plane, so more cost will need to be allocated to justify operating the flight. I’m not convinced they can make that happen.

Meanwhile, there’s the second daily LAX flight starting for the first time. This is a route littered with carcasses, and some unlikely ones at that. Currently, United flies the route twice a day, and AirTran had already announced a single daytime flight of their own. But back in the day this was a US Airways mainstay, and more recently, Southwest flew it, but they pulled out when they decided to pull back much of their long haul flying.

This announcement means that the airline will add a second daily flight, and this one will be a redeye. I wonder if bookings for the first trip are looking so good that they thought they could use another one. If that’s the case, it’s a rare sign of strength in the long haul domestic market these days.

The US Court of Appeals in Manhattan today did exactly what the airlines were hoping. They decided that the State of New York is not allowed to enact its own passenger bill of rights. Airlines should be happy about this (and they are), even if passengers aren’t.

This whole debate stemmed from some angry passengers being trapped on an American Airlines aircraft for an extended period of time. That was followed by JetBlue’s Valentine’s Day debacle, and it snowballed from there. (Pardon the pun.) Of course, nobody wants to be trapped on an airplane for up to 9 hours at a time. That’s ridiculous. But it’s not like the airline really wanted to keep people on board. There were a million little things that went wrong.

The airlines said they could self-police, and lately that appears to be happening successfully. But some people don’t trust airline promises. People like Kate Hanni, who endured one of those lengthy onboard delays, want regulation from the government.

The federal government has the jurisdiction here, but nothing had happened. So, New York State took things into its own hands by enacting a law of its own. This is a terrible idea. Can you imagine being an airline flying to, say, 40 states? Each state could craft its own rules about what is required in a delay, and there’s nothing saying it had to be the same as any other state. Compliance would be an absolute nightmare.

So I imagine there were some sighs of relief around airline headquarters today when the Court of Appeals ruled that the states aren’t allowed to do this. It is the domain of the federal government to do anything, if they so desire.

Of course, airlines would be happier without any regulation at all, but I have think that the idea of dealing with a federal rule is still far more appealing than a variety of state rules.

Taking a look at Virgin America’s December DOT numbers, we can actually see some signs of improvement. December load factors, though generally dismal, did break 70 percent on the LAX to JFK route. The long hauls tended to be more full than the half-full short hauls, but as we know, long hauls need to pay for a lot more fuel and high load factor doesn’t mean profitability.

Still, things seem to be improving, but not all is good for the airline by the Bay. First off, JetBlue will be entering Virgin’s best performing route in May. That’s right, they’ll lay down a handful of nonstops right on top of Virgin America between LAX and JFK, and that’s bound to hurt.

Another bad sign? Late last week, Virgin America asked the DOT to keep their Form 41 data confidential. Form forty-what?

The data I’m looking at right now is part of Form 41, but they clearly aren’t too concerned about traffic data. It’s the financial data that they don’t want to get out. That comes out quarterly, and the results from the airline’s first full quarter of operation will be due in a couple of weeks. They clearly don’t want to share it, and they’ve asked for an exemption to allow them to keep their numbers quiet until they’ve reached $1 billion in annual revenue. That’s a long way away, and I can’t imagine they’re going to be successful here.

My guess is that this request isn’t going anywhere, but it can’t hurt to try. Of course the airline wants to hide competitive information. Who doesn’t? This will at least delay the release of the probably dismal numbers until the final ruling comes out. Until then, I’ll just keep an eye on the information I can have.

It’s good to be an extremely popular airport. When airlines are willing to pay millions of dollars just for the right to land their planes on your runways, you know you can get away with murder. That’s exactly what BAA, the group that manages various airports including London/Heathrow and London/Gatwick, are getting away with right now.

OK, maybe it’s not literally getting away with murder, but a greater than 20 percent increase in landing fees is going to feel like someone stabbed a knife in the heart of the bean counters around the airlines flying to those airports.

Starting next month, BAA will be able to raise per passengers fees from GBP10.36 to GBP12.80, an increase of 23.5 percent. Each of the next four years will be allowed increases of inflation plus 7.5 percent. Gatwick can rise 21 percent up to GBP6.79 with annual increases of inflation + 2.5 percent. Seems steep, right?

Well, at Heathrow, they do have to pay for that soaring new behemoth known as Terminal 5, the new home of British Airways. Maybe they should have tried to make that terminal a little cheaper instead of attempting to create an architectural masterpiece. For some reason, airport planners love to build monuments of greatness at airports when really, functional yet inexpensive terminals will help lower fares and attract airlines to the airport. With Heathrow bursting at the seams, they don’t need to worry about that, I suppose.

For years, people have complained about the privatization of airports in the UK, especially when most London airports have been consolidated under one company. The lack of competition has led to indifferent service and high cost increases. As Chicago’s Midway airport gets ready to become the largest US airport to privatize, hopefully lessons from BAA will be taken to heart. With O’Hare maxed out on new flights, Midway needs to think about keeping its costs in line. Otherwise, it could open up an opportunity for a more distant Chicagoland airport like Gary to begin taking more flights (as it did with Mexican startup Viva Aerobus this week).

Remember, assuming supply is greater than demand, low landing fees will equal more airline service. In places like Heathrow where demand exceeds supply, it’ll just mean higher fares for passengers.