Suicide In The Airline Industry

For the most part, Northwest Airlines operations have been running fairly smoothly since the mechanics and cleaners strike started Saturday, August 20. The airline has reported an increase in cancellations since the strike began, however, not a significant amount to do lasting damage to the airline. At the same time, the airline and the union have broken off talks and don't seem to be getting to that stage anytime soon. Northwest keeps the latest updates on the labor situation here. The union is on the expressway to extinction especially since union leaders, including Dennis Sutton, president of AMFA Local 5 in Romulus, MI make comments like the following: "Enjoy this. This is the chance of a lifetime to screw Northwest." Why should the public support the union with comments such as these? Keep in mind, most of the union members are asking for semi-reasonable concessions, ones that can be negotiated with the airline, but the union is completely opposed to the cutting of 1,100 jobs (about 53% of the union) of heavy maintenance which Northwest is hoping to source to save money. The only way this union can win is if Northwest joins the August air crash club which is unfortunately growing after the recent incident in Peru. If a Northwest jet were to crash, the airline would be forced to re-hire the union mechanics to save its reputation. The PR would be horrible to say the least, but it's better than keeping the replacements on-line.

But Northwest isn't the only airline with suicidal employees. The management of Spirit Airlines, the East Coast/Caribbean carrier that manages to stay out of the media very nicely clearly want to be fired after Spirit's latest announcement to start daily service to Atlanta, Georgia from Fort Lauderdale starting February 16, 2006. There are many things wrong with this decision, the first being that with only 1 daily flight to a new city to start, the airline is unlikely to gain any real following quickly, and because Atlanta is a hub city for two very large airlines, which both have a very strong following among Atlanta-area consumers, AirTran and Delta, Spirit is unlikely to gain any attention particularly with only 1 daily flight. Second, the Atlanta flight departs in the morning, allowing for timely connections to the Caribbean, yet Delta serves all those destinations daily, and in many cases with multiple daily flights. AirTran serves FLL from Atlanta and will start Cancun service before Spirit's Atlanta launch. Third and finally, Spirit has many, many other markets that it can serve that probably have more rewards. Atlanta already has a great deal of competition and JetBlue was forced out a few years ago due to strong competition and Spirit doesn't have the attention or the presence to even come close. A bad, bad move. At least they have awhile to get the word across.

Finally on the suicidal list is Delta/Independence Air. Both will be filing bankruptcy before the new laws come into effect mid-October, and the only thing unclear is if Independence Air will try to restructure under chapter 11, or if they will give up and liquidate under chapter 7. Independence Air uses for the most part 50-seat Canadair Regional Jets (CRJs), and the economics of CRJs is pretty lousy, but when fuel is at $67 a barrel, the economics just simply won't allow you to break even. Delta is very exposed to regional jets, as its former subsidiary Atlantic Southeast Airlines owned dozens of them. Delta pays other small jet providers such as Skywest (which did flying for Delta before the ASA purchase) the cost of operating the airplane, plus a small profit. Because airlines like Delta still suffer due to pricing pressure, they don't have the revenues to generate profits from the airplane. Airline stocks have never been popular, and now is no exception. However, I wouldn't mind being in desert real estate or aluminum smelting stocks. Because that's the future. Delta can restructure, but it will be a future with far, far fewer 50-seat regional jets. More 70-seat CRJs will be flown, and maybe, maybe more turboprops will be flown. The Q400 70-seat turboprop costs the same amount to operate as a 50-seat CRJ. Which would you fly with $67 oil. Even the turboprops will find difficulty making money, then again these flights are needed to differentiate Delta from Southwest and to diversify the revenue streams of the airline. They need a new plan, and hopefully, that's what chapter 11 is for.