How Flight Information Improves Airline Delay Management

I recently conducted an interview with the CEO of Flightview, a leading provider of flight data information. Flightview provides flight delay information to a variety of entities, including the Port of Seattle, USA Today, and Hertz Rent-a-Car. Given that last year was one of the worst historically for flight delays, passengers are looking for flight information in more places.

A summary of my interview with Flightview CEO Mike Benjamin follows:

Benjamin believes that one of the most significant trends that has taken place in the past few years has been the ubiquity of flight information. Part of this is due to the explosion in Internet-capable mobile devices that allow business travelers to receive flight information on the go. But airports and airlines have also contributed to this change as well. In many terminals, displays are being redesigned so that travelers have more ready access to flight information, regardless of where they are. Instead of having centralized displays, smaller displays are being dispersed throughout terminals to make flight information more accessible. This allows customers to go to other parts of the terminal during the delay instead of huddling at the gate if they so choose. Unfortunately, airports in the United States are relatively poor facilities compared to many of their international counterparts, such as those in Dubai, Hong Kong, and Singapore. As a result, even if passengers can get away from the gate, they may not be able to make themselves very comfortable. As older terminals are remodeled or demolished, hopefully airport authorities are able to make the investments in comfort that passengers have an increasing need for due to the growth in delays.

Moreover, some airlines are also enhancing their gate-level displays to help customers view more information about flight delays. Especially if the delay is weather-related, customers often sympathize with the airline (since they would much rather be stuck in a terminal than in a dangerous airborne situation). But, that sympathy only exists if customers are truthfully informed of the extent of the weather conditions that are causing the delay. A lack of information is often what makes customers most irate, and by providing this information, airlines are improving their customer service records in at least one area of their operation at a time when they desperately need improvement.

Benjamin argues that in the next few years, flight information (including weather and other related data pertinent to the delay) will become even more widespread. When you go to fill up your rental car at a gas station near the airport, you could see this information. When you're in an airport hotel room, you could see this information. There are myriad possibilities and as flight information becomes more necessary to passengers in order for them to have a satisfactory travel experience, many of these could be developed further. The challenge for companies like Flightview will be to figure out ways of making this information consistent and accurate across mediums.

One of the most important concepts that seems to be lacking in some airlines' flight schedules, as well as the expectations of the traveling public, is the notion that weather events are likely to repeat themselves at certain airports, increasing their chances of delaying specific flights. For instance in Dallas, thunderstorms are a frequent occurrence during summer afternoons, and in Boston it's often windy conditions that can prevent one runway from being used, both of which increase the chances that specific flights will be delayed for specific reasons. According to Benjamin, airlines and airports need to remember "what's the capacity of an airport given certain conditions". By targeting these specific factors that cause delays, airlines and airports can hopefully work together to find ways to avoid them in the future by not scheduling many flights during delay-prone hours of the day. However, these delay-generating conditions may matter less to airlines and airports in the future, as the FAA develops its satellite-based ATC system which will make airlines less weather-dependent. But at least in the interim, passengers, especially those that travel certain routes often (typically high-yield travelers), need to understand this information in order for them to make better travel decisions that will help them be more satisfied customers.

For travelers, Benjamin says that delay evasion typically means not taking the last flight out and not booking tight connections. Checking the flight punctuality data when you book your flight will also help you avoid routinely delayed flights. Moreover, passengers are already starting to use alternate airports, not only because they often offer cheaper flights, but because their relative lack of congestion means they are more reliable. As passengers start making punctuality more of a priority when they book a flight, airlines could add flights to less congested airports or add flights to congested facilities during parts of the day that see less congestion. Stay tuned, because the delivery of flight information and the pressure on airlines to reduce delays will be topics, that while seemingly unimportant, will become more critical in passengers' travel experiences in the near future.

On Potential Merger Deals in 2008

The big issue that the airline industry will have to tackle in 2008 is to what degree consolidation will play in reducing costs for the industry given soaring fuel prices. A great deal of merger scenarios have been proposed, and many industry observers believe that early in 2008 will be the time when many of these deals are announced. Many executives believe that if consolidation occurs, Delta will be the catalyst that will make it happen. This was shown when in late 2006, US Airways made a surprise bid to merge with Delta, a bid that ultimately failed. However, with Delta being a very attractive merger partner, given its diverse operations and recent cost-cuts, it's likely that the carrier will be involved on an upcoming merger.
Moreover, other carriers, including low-cost carriers such as Southwest and Frontier, have been rumored as merger partners with each other or with legacy carriers. So-called low-cost carriers are also trying to cut costs and diversify their operations, and a merger may be the way for these carriers to do that, even though they will likely lose their ability to simplify some aspects of their operations, such as having one family of aircraft or having the luxury of flying relatively short routes. It will be interesting to see how the merger scenarios play out in the coming weeks and months, and stick with Airline Bulletin as we bring you additional information about the merger situation.

After a Tumultuous Summer, Airlines Make Some Adjustments

After a summer of higher fares, record load factors, some rough weather, and lengthy delays at security checkpoints and on the tarmac, airlines appear to be making a few adjustments as they prepare for the busy holiday travel season. Given all the difficulties airlines experienced this summer, airlines performed reasonably well, though there is still definite need for improvement. Airlines know that passengers are increasingly looking at other transport options because of the hassles of flying. The number of travelers who took cars or the train also increased this summer, and those increases could be more dramatic this coming winter if airlines don’t remedy some of their operational issues.

Perhaps an unexpected adjustment from airlines appears to be that they are finally scaling back some fare increases. While some of Delta’s latest fare increase over the weekend has stood, parts of it appear to have been rescinded. Recently, it has been Southwest doing many of the across-the-board fare increases, but it appears that fares have hit at least a temporary ceiling, and with most airlines in positions to be profitable in the next few quarters, downward pressure on fares from low-cost carriers will likely reduce the number of fare increases seen in the coming months.

One adjustment airlines appear to be making is in their customer service procedures. This article, first published in the Wall Street Journal and reprinted in the Arizona Republic discusses how airlines plan on holding more seats in reserve this upcoming holiday travel season, after a large number of customers had difficulty rebooking seats due to flight cancellations this summer. These plans also include spacing flights out more to reduce the chance of delays, and adjusting the formulas for standby list priority. Airlines are taking the right steps, but what is ultimately going to solve the problem is a multifaceted solution.

 

On the one hand, the FAA needs to get its act together and start building a modern, satellite-based air traffic control system that enables more efficient airspace usage and a more pleasurable experience for passengers. This is a project that finally appears to be gaining some traction, but has been long overdue and is very important to the long-term future of the US airline industry. Sadly, this new system will likely take at least 10 years or so to construct.

Moreover, one of the problems with airspace and airport capacity is how some areas and facilities are clogged during peak hours. The FAA is working on redesigning some airspaces, such as that in New York City, but while these improvements will help the situation, they will only be a stopgap solution to the problem of congestion in the nation’s most crowded airspaces. In order to alleviate some airspace congestion, airlines need to consider spacing out their ground operations more at different facilities.
Legacy carriers need to reconsider their usage of alternative airports as a way of dealing with the situation.

Right now, there are many large markets where legacy carriers don’t serve many alternate airports, which can provide a more comfortable passenger experience. Some examples include Seattle/Tacoma, Detroit, and Philadelphia. As Skybus is demonstrating, smaller, underutilized facilities such as airports in Bellingham, WA and Portsmouth, NH can provide superior passenger experiences to larger facilities. Granted, they are more distant from major metropolitan centers than their larger rivals, but they can still be more attractive to customers, even if the drive is a bit longer. If there is a storm, there aren’t a ton of planes on the ground that delay the return to a normal schedule afterwards, and customers don’t spend inordinate amounts of time waiting on the tarmac and in security lines because there are fewer planes and passengers at the airport.

The downside to all this is that the smaller airports have fewer amenities such as restaurants and seating areas, and if a flight is canceled, passengers have fewer alternate travel options. Regardless, legacy carriers use regional jets in alternate airports as a way of incrementally adding capacity, but this reduces the appeal of the service, since regional jets have such high costs that must be passed onto consumers. Using full-sized jets to smaller facilities, even if it’s only for one flight a day, could help make these facilities more attractive to passengers by lowering fares, and this could help airlines smooth out their operations as well.

 

While a shift to smaller airports will be a longer-term change in the industry, if it occurs at all, it’s a prospect worth considering. As small airports fight to gain any additional air service, congestion at larger facilities may encourage legacies to look more favorably on these facilities.

While customers will likely receive a mediocre experience this holiday, they will receive it at roughly the same fares they found for summer travel and they will find roughly the same number of passengers passing through the airport. In the interim, airlines will continue to make incremental improvements to customer service before the holiday travel season. However, it’s too early to say whether these will be successful, but airlines are getting better and better at learning from their mistakes. With renewed profitability in the industry, carriers should sense a bit more leeway when they determine their customer service plans for upcoming holiday travel, enabling airlines to deliver a more customer-friendly experience without trying to pinch every penny.

Airline On-Time Performance Rates Decline; What's Needed to Reverse the Trend

The Bureau of Transportation Statistics, an arm of the Department of Transportation, yesterday released on-time performance rates for the month of December, and for the entirety of 2006, and the results aren't good. Overall, 75.4% of flights were on-time in 2006, compared to 77.4% in 2005. This trend is indicative of the hassles and frustrations people feel when traveling by air these days. Not only do passengers have to endure longer lines and go through "stringent" security checkpoints, but flights are being delayed more often. However, the BTS statistics need to be taken with some skepticism. First, some airlines look worse on paper due to delays or cancellations they aren't responsible for. For example, in December, Frontier Airlines had the highest flight cancellation rate of any airline with 9.4% of flights canceled. That sounds like a lot, but when taken into consideration the December snowstorms that shut the Denver airport for several days, Frontier had a reasonable rate of cancellations, since all of Frontier's canceled flights during the days of the snowstorm counted towards cancellations on BTS statistics. Also, JetBlue had one of the worst on-time performance rates in December, with 64.8% of flights arriving on time. But that's in part because JetBlue has a policy of avoiding cancellations whenever possible, even if it means long delays. JetBlue had the lowest cancellation rate of any airline in December for this reason, with only .4% of JetBlue flights canceled in December. Also, some airlines can easily boost their on-time performance results by elongating the flight time to more than it actually takes to fly between two given cities. This allows airlines to look good to customers because planes often arrive early, and fewer "delays" occur. Delays are defined by the DOT as any flight that arrives 15 or more minutes late than the scheduled arrival time the airline sets. The government doesn't have strict rules governing what flight times airlines set between cities, so airlines can manipulate flight times to their needs. Southwest could set a flight time between two cities of 180 minutes, and United could set a time of 210 minutes, both within reason, but if both airlines fly flights that take 200 minutes to get between the two cities, Southwest's flight is late, and United's is early.

Nevertheless, these on-time statistics are still alarming, and airlines need to focus more energy on improving on-time performance. One of the ways airlines can do that is by speeding up the boarding and deplaning processes. By doing this, they can minimize the number of aircraft that arrive late and lead to additional late departures. Airlines have experimented with methods of moving people on and off planes faster, and that has helped cut turnaround times, allowing airlines to fly more flights with the same amount of aircraft. But airlines can do more, starting with the number of personnel who are turning aircraft around. Southwest is able to consistently turn aircraft around in 25 minutes at every airport it operates virtually all the time. This seems to be lost on many airlines, even so called "low-cost" airlines like Frontier and JetBlue which schedule 35-40 minute turnarounds at a minimum because they are afraid of causing delays that will reverberate for the remainder of the day. Southwest is able to do it because of the consistent teamwork of a large number of employees who all work together to create speedy turnarounds. This is in part due to a low employee/supervisor ratio (only 10 or 12 to 1 at Southwest, versus up to 40 to 1 at other airlines.) Other airlines need to do a better job of achieving fast turnarounds. The next flight doesn't necessarily need to be delayed simply because the previous flight arrived slightly late; quicker turnarounds would help keep planes on-time. However, turnaround times aren't the only source of late arriving aircraft. Sometimes airlines have errant passengers who check-in but don't board or mechanical delays that delay the remaining flights that aircraft is scheduled to fly that day. Those are unavoidable, and while airlines may do their best to prevent them from happening, most passengers understand that they will happen and aren't the airline's fault, even though it can be frustrating for passengers to endure these delays.

But there are more significant concerns about why flights are being delayed. In the United States, like in much of the industrialized world, our air traffic control (ATC) system is antiquated, with aging ATC equipment and infrastructure that was constructed decades ago. Delays due to ATC problems have been increasing, and they are costing airlines billions of dollars a year in lost revenues, additional labor costs, and compensation for passengers. New ATC equipment could not only keep a growing number of planes operating safely and quickly through our congested skies, but it could also allow aircraft to takeoff and land in some adverse weather conditions that they can't currently safely operate in. However, the FAA has repeatedly delayed many ATC improvement projects, and time is running out before a major slowdown in air traffic could occur due to equipment failures. But an even more pressing concern is the shortage of air traffic controllers monitoring our skies. In 1982, the air traffic controllers strike resulted in many air traffic controllers being fired because they stayed on strike after Regan's deadline. This meant that a new wave of individuals were hired to monitor the skies, and many of them are now reaching retirement age. Thousands of controllers are predicted to retire within the next five years, and that could leave this country with a critical shortfall of experienced controllers. With fewer people to staff control towers, flight patterns will slow as pilots wait for available controllers to guide them to the ground safely, and it will be difficult for airlines to add additional flights at a time when demand for air travel is growing. While pay and benefits for ATC controllers is adequate, many earn over $100,000 a year, the work is tedious and requires literally years of specialized training at a particular airport. The FAA hasn't sufficiently addressed this looming crisis, and it will only hurt airlines more in coming years. If we want to solve the problem of excessive aircraft delays in this country, ATC delays are increasing at an alarming rate, and this trend will only accelerate due to ATC controller retirements unless significant corrective action is taken soon to fix aging ATC infrastructure and hire additional controllers.

Of the delays that humans can control, late arriving aircraft and air traffic control delays are the two primary categories of delays that can and must be controlled better. But there are some bright spots, and passengers might be surprised to hear the statistics. Very few flights are delayed for security reasons, even though it seems to many passengers that with the various layers of airport security, security delays would occur frequently. Just .10% of flights in December suffered security delays, which is equivalent to one out of every 10,000 flights. More flights were diverted (2.3 out of every 10,000 flights) than were delayed for security reasons. Traveling by air is becoming increasingly difficult because of more passengers on planes, tougher rules at security checkpoints, and more frequent delays. Passengers understand the increasing demand for air travel and the necessity of stringent security, but for many, a delay is the last straw, and they get fed up with an airline, or traveling by air in general regardless if the delay is caused by the airline, the government, or Mother Nature. If the FAA and airlines can work together to at least alleviate some of the controllable delays, it would help tremendously towards making air travel more comfortable for passengers at a time when many passengers are avoiding air travel because of the numerous hassles associated with it.

Will San Diego Continue to Prosper Without a New Airport?

San Diego's lone single-runway airport, Lindbergh Field, is the world's second-busiest single-runway airport, after London's Gatwick Airport. But unlike Gatwick, Lindbergh Field has no plans to expand, since it would be virtually impossible to build another runway on the site given the fact that the airport is tightly bounded by the Pacific Ocean, residential neighborhoods, and a military instillation. There is no room on the current site to construct a new runway, and the airport is becoming increasingly crowded. New gates are being built, and soon the airport will operate at 86% of its total gate capacity. All experts project that with the growth of the San Diego region, the airport will eventually become insufficient to handle the amount of air traffic the region will demand, although it's debatable when that will occur. San Diego's economy might suffer, as airfares rise with increasing demand for seats to San Diego and consequently, many tourists may balk at the region. This past November, the citizens of San Diego voted down an advisory measure that would have allowed the airport authority to work towards building an airport at the Marine Corps Air Station Miramar near San Diego. That proposal was opposed by the military, because the plan involved the airport operating jointly with a military base, something the military wants to avoid at all costs. The failure of this measure means that there is no clear plan for a relief airport in the San Diego area. There are no ideal sites, and as the region grows, more and more potential sites will become developed and unusable for an airport.

Many residents have been fighting a proposed new airport, arguing that Lindbergh Field can handle much more traffic, and point to the example of London Gatwick as an airport that handles considerably more passengers with a single runway. However, while there are numerous flaws in that argument, the primary flaw is that many, if not a majority of the aircraft that use London Gatwick are operated by European low-cost carriers, which are notorious for packing in seats. Gatwick has two large terminals, and can accommodate all the passengers airlines bring in and doesn't need a second runway because the airlines that operate there operate aircraft with a very high number of seats at high load factors. EasyJet and Monarch are two of the largest carriers at Gatwick. EasyJet packs 156 seats into its A319s, and operates with an average load factor of over 80%. Monarch operates several aircraft types including the 757, which it packs a horrendous 235 seats into, making it a very, very uncomfortable aircraft to fly on. It too operates with very high load factors. Many airlines at Gatwick are charter airlines, and fly to many of their destinations less-than-daily, consolidating many passengers into a few infrequent flights. San Diego has to contend with many more different sizes of aircraft, from commuter aircraft to large single-aisle planes, and the majority of airlines that operate into the airport have reasonable seat pitch, and operate with lower load factors than carriers in Europe. San Diego isn't abnormal in that regard, that's simply the state of American air travel today. Southwest is the largest tenant at Lindbergh Field, and operates 122- or 137-seat 737 aircraft from the airport with load factors of around 75%. Part of the problem is that some of the flights San Diego has to support are regional flights on commuter aircraft to LAX or the Bay Area, which carry fewer passengers, but take about as much time to land as larger aircraft. Many airlines that do fly to San Diego fly there with 737-sized aircraft because that's what the market requires, and that won't change anytime soon if customers want frequent flights to a variety of cities throughout the day. San Diego will not be able to support anywhere close to the number of passengers Gatwick supports because of the nature of the airlines that fly there and the desires of customers who travel there.

One potential solution for Lindbergh Field is for the airport to require airlines to operate aircraft with a certain number of seats onboard in order to make most efficient use of the runway. Perhaps no airline should be able to fly aircraft to Lindbergh that have fewer than say 120 seats. That's a working estimate, and the airport authority could create a different restriction based upon the needs of the airport. This restriction wouldn't solve the gate problem, since the airport will still eventually run out of gates, but operating larger aircraft to the airport will allow airlines to make better use of the existing gates. If the airport put in a restriction requiring airlines to fly aircraft with a certain number of seats onboard, many airlines might get upset, since they want the flexibility to cater to customer's demands. Airlines feel that San Diego warrants 737-sized aircraft because many customers prefer more frequent flights to the airport. Also, many airlines are short on larger aircraft, and don't want to have to switch 757s or 767s from other, longer routes, to operate short jaunts to San Diego just because the airport can't accommodate more aircraft. It's difficult to fathom what would happen if airlines were forced to operate larger aircraft to Lindbergh Field, whether the airlines would simply go ahead with the proposal or fight it out with the airport. But one thing is clear; if the airport imposes restrictions on the number of seats an aircraft must have so it can land at the airport, airlines will be forced to trim flights, and while the number of seats may be the same as before, customers will lose some choice on flight timing and that will likely have an adverse impact on tourism and business in the region.

The people of San Diego must wake up and recognize the crisis that lies before them. Unless they work with the local airport authority and the military to find a realistic solution to overcrowding at Lindbergh, Lindbergh will become increasingly crowded and airlines will be unable to expand flights to meet the growing needs of the tourist industry as well as the residents of San Diego. Any solution will be far from ideal, and will likely be at least an hour away from downtown San Diego because unfortunately, that is the distance most realistic airport sites are from downtown. So when a new airport is built, it must include new high-speed rail links to downtown San Diego to help move visitors easily and cheaply from the airport. Any plan may also force residents to choose between loyalty to the military, and loyalty to economic growth and tourism because a new airport in San Diego may have to be built on a military facility, even one that is currently in use. It's far from ideal, but the rapid growth in the region doesn't leave the airport authority with many options. Unless residents are willing to stand up to the military, although it's unlikely in a military town like San Diego, a new airport may not get built until it's too late, and Lindbergh is operating over its capacity. When that happens, the residents of San Diego will regret not having taken corrective action to construct a new airport, because it will limit business and tourism growth in the region and make it a less attractive place to live.

Should Northwest Consider a Merger?

According to some recent reports, including this article by The Pioneer Press, the answer is yes. And there are many reasons why Northwest would make a good acquisition target, especially with US Airways (if the US Airways/Delta merger doesn't go through) or even United. However, the possibility of a Northwest merger with United is far less likely for antitrust reasons as both airlines have large market shares in Asia, and particularly China. Neither airline would want regulators to force them to give up what could potentially be their most lucrative routes. But, US Airways on the other hand is a very attractive merger target for Northwest. US Airways now has healthy financials, unlike Northwest, and US Airways's route network fits perfectly with Northwest's, making this merger nearly as attractive as the Midwest/AirTran deal.

US Airways has hubs on both coasts, but lacks a central hub in the Midwest, where Northwest's U.S. hubs are concentrated. Remember that part of the worry with the America West/US Airways merger was that the new airline would have a "barbell network", with extensive service on both coasts, but lacking in the Midwest and Rockies. A Northwest merger would solve that problem. The biggest problem with the two airlines' route networks is the number of hubs in both. If a merger occurred, the airline might consolidate hubs. It's less efficient to have hubs in two cities relatively close to each other, and both airlines already have that problem in their respective networks. Northwest has two close hubs in Minneapolis/St. Paul and Detroit while US Airways has two close hubs in Phoenix and Las Vegas. If a merger occurred, some hubs would likely be closed. Between them, the two airlines operate seven hubs in the United States in addition to Northwest's hub in Tokyo. It's probable that at least three hubs would close down and become focus cities if a merger occurred.

I would guess that Northwest's hub in Memphis, where Northwest's regional lift providers Pinnacle and Mesaba do most of the flying for Northwest, would be the first to go. Memphis is Northwest's smallest U.S. hub, and has struggled with traffic issues for a long time. Memphis is a bad, bad location for a hub, because it lacks a strong base of origin and destination (O&D) traffic, and is in a relatively poor location geographically. O&D traffic refers to the number of passengers that use Northwest to fly to its Memphis hub but who aren't connecting but rather departing or arriving in Memphis. Because Memphis is a relatively small city, the number of flights it gets is very disproportional to the number of passengers who actually are traveling to/from Memphis. Cities like Phoenix or Detroit have larger populations and are better locations for a hub, provided they are in a reasonable geographic location. If Northwest's Memphis hub closed, the merged carrier would probably realign its regional operations. Pinnacle, one of Northwest's two regional lift providers contracts exclusively with Northwest, and their hub is in Memphis. Unless Pinnacle can demonstrate to the merged carrier that it is a valuable supplier, they may have to liquidate. Consequently, a Northwest merger could be opposed by many of Northwest's regional lift provider employees. But, Memphis wouldn't be the only hub to go in a US Airways/Northwest merger. The next likely hub to go would be Minneapolis/St. Paul. Since the hub is located near Northwest's larger hub in Detroit, Minneapolis makes no sense as a location for a hub from a geographic perspective. But moreover, Minneapolis receives far too many flights given its O&D needs. A merged carrier will need a Midwestern hub, and Detroit is a prime location, with Northwest's new terminal and a larger O&D base. Northwest has committed to Minneapolis for too long, and they need to realign their flight schedules in the city to better reflect traffic levels. Minneapolis is simply a duplicate hub that would be too expensive to operate for the merged carrier.

It's important to remember that any hub will receive a disproportionate amount of flights, otherwise, it wouldn't be a hub, since some passengers won't be departing or arriving the hub city. But it makes no sense for an airline to put a hub in a city that will receive few O&D customers, since they help pump up load factors, and airlines can typically charge O&D passengers more since the hub carrier has muscled out low-cost carriers that lower fares. For example, AirTran is currently the only low-fare carrier in Memphis. Minneapolis/St. Paul only has AirTran, Frontier, and Sun Country. Northwest can charge a lot in those markets, and they will make great focus cities, but they don't make sense as hubs.

But now the question becomes which US Airways hub gets eliminated if there are to be four in the merged carrier's domestic network. US Airways operates hubs in four prime cities, Las Vegas, Phoenix, Philadelphia, and Charlotte, and if a merged carrier decides to dismantle a hub operation in a city, there will almost certainly be a smaller, but substantial focus city operation. At first glance, the most logical choice for which hub should be dismantled is Charlotte. The smallest O&D market of the four by far, the city is also relatively out of the way geographically. However, that's where the criticisms stop. There are numerous reasons why it would be foolish for US Airways to dismantle the Charlotte hub. First, the South is one of America's fastest-growing aviation markets, and if Northwest's Memphis hub is dismantled like it should be, then Charlotte needs to remain intact as the Southern hub for the merged carrier. Second, Charlotte itself is a prime business market, and US Airways is able to charge a premium to the business travelers, who travel to/from Charlotte. Charlotte is America's number two city in terms of banking operations, after New York City, so there is a lot of business traffic that goes to and from Charlotte. Third, Charlotte still supports a large network of US Airways regional flights. Even though US Airways has trimmed the size of its regional operation, it's still very sizable compared to other carriers' regional operations, and the Charlotte hub enables US Airways to profitably compete with Delta on flights to and from smaller cities. Charlotte could become a focus city, with the merged carrier dismantling most of its regional and international flights and leaving only point-to-point service from Charlotte to major business and vacation destinations. However, if that were to occur, it would allow Southwest to come in and compete directly with the merged carrier on the routes it still operated. The merged carrier would quickly lose market share to Southwest, and would be relegated a much smaller role in Charlotte. So is there another US Airways hub city that could become a focus city?

The answer is yes, and that city is Las Vegas. Las Vegas has traditionally been a very low-yield market, with low-fare carriers of all stripes hankering to compete in a leisure market with seemingly endless growth potential. With US Airways having reduced their costs considerably, they can compete head-to-head against Southwest and other discounters. A focus city at Las Vegas wouldn't reconstitute a drastic change in their schedule, it would only mean that US Airways dump what little regional service operates from the airport, and perhaps the little international service to Mexico that exists there as well. US Airways concentrates most of their West Coast regional services and international fights from its Phoenix hub. By reducing non-mainline flights at Las Vegas, the airline would concentrate those resources in a larger, and more profitable O&D market, Phoenix, and save Las Vegas for primarily low-yield O&D passengers.

But hubs aren't the only areas where Northwest and US Airways would be great partners. Northwest provides service to few cities in Europe from its Detroit hub and instead offers connections to cities throughout Europe from KLM's Amsterdam hub. Northwest has a code-sharing agreement with KLM that allows both airlines to offer effective connections to North America and Europe without Northwest having to serve too many cities in Europe and vice versa. US Airways also offers limited European service, but offers a broader array of destinations than Northwest. US Airways also has some flights to Central America while Northwest has extremely limited service to the region. US Airways doesn't have any service to Asia, while Northwest offers an extensive Asia network. Internationally Northwest and US Airways don't fit each other as well as other airlines, since if a merger occurred, Europe and Asia would receive plenty of flights, while Latin America would suffer. Every legacy carrier, except perhaps Delta, has a stronger position in terms of market share and routes in Latin America right now, than a merged US Airways/Northwest would have without any new routes. Domestically, both airlines offer limited point-to-point service, the exceptions being for US Airways flights from focus cities on the East Coast such as Boston, New York LaGuardia, and Washington National, and so if the hubs make sense fiscally and geographically, and Las Vegas, Minneapolis/St. Paul, and Memphis are cut as hubs, but left as focus cities, the combined carrier would have a very strong network domestically and internationally.

Fleetwise, this merger also makes a lot of sense. Both carriers are primarily Airbus carriers, and both operate A320 and A330-series aircraft. There are also some Boeing planes in both fleets, however. Both carriers operate the Boeing 757, so integrating those fleets (aside from some of Northwest's older 757s which have different emergency exit, and thus seating configurations) shouldn't be a problem. US Airways also operates ten older 767-200s, and dozens of older 737-300s and 737-400s. Northwest operates none of these models. Northwest operates the Boeing 747, an aircraft type that the old America West used to own in the 1980s, but has since rid itself of. Integrating these fleets shouldn't be much of a problem. The merged carrier could create a uniform seating configuration on all A320 and A330-series aircraft, and on most Boeing 757 planes. Current seating configurations could be kept on planes that only one carrier currently operates. Planes wouldn't also change their current routes much. If a merger occurred, Northwest's 747s would likely continue to operate Asia-Pacific flights, while US Airways's 767-200s could continue to be operated on Atlantic routes. If capacity cuts occurred, some of the older 737-300s or -400s would likely be taken out of service, helping the merged carrier save on maintenance costs for the older aircraft.

However, like many mergers, this one may encounter problems from labor. Northwest has already strained labor relations immensely, by forcing union mechanics to strike and bringing in scabs to replace them. Northwest also replaced all airport employees in non-hub airports with contract employees, and as a bankrupt carrier, Northwest has slashed employee wages significantly. Northwest pilots and flight attendants may be rightly worried about any proposed merger, but sadly, Northwest may be unable to thrive in the next decade if it doesn't make its route network and costs more competitive. These two labor groups should try to work with Northwest management to find an agreement by which the airline can merge, and the new company will keep seniority, pay, and benefits intact, because if they don't, pilots and flight attendants may decide to strike. It appears that while this merger won't happen right away, since US Airways still needs to figure out whether it will merge with Delta, it makes far more sense than the US Airways/Delta merger for the companies involved in terms of synergies of routes and fleets. What a Northwest/US Airways merger can't do, that a Delta/US Airways merger can do, however, is have the power to raise fares significantly, since Northwest and US Airways dominate different regions, while a Delta/US Airways merger would create a very powerful carrier on the East Coast that could hike ticket prices significantly to certain cities. But the US Airways/Northwest merger would allow both carriers to cut costs and to strengthen their respective networks, something both carriers need even more badly right now than the ability to raise fares.

Two Airlines Take Increased Risks With New Flights

Frontier Airlines announced that it would start new red-eye service between Denver and Hartford, Connecticut starting March 2. This move makes sense in many regards, but also raises some questions about the level of risk Frontier is willing to take in a new market. Hartford isn't a very large airport, and doesn't have much service to the West. But Hartford does have Southwest with service to several destinations that allow passengers to connect to Western Cities, including Nashville, Chicago, and Las Vegas. Southwest has already lowered fares substantially in the market and may make it difficult for Frontier to compete. One of the few things that Frontier has going for it is that it offers nonstop service to Denver, a city currently unserved nonstop from Hartford. In Frontier's press release, the service to Denver specifically seems to be promoted, more so than other press releases, especially in comments by Governor Rell, and Frontier's own self-promotional paragraph stating:

"Frontier is proud to be the first carrier to fly non-stop between Hartford and Denver, and we're confident passengers who are unfamiliar with our airline will enjoy our new comfortable aircraft, superior service, consistent on-time departures and arrivals, and in-flight entertainment," said John Happ, senior vice president of marketing and planning for Frontier. "We get more requests from passengers to serve New England than any other area in the U.S., so we're looking forward to bringing the Frontier experience to Connecticut and southern New England travelers. Not to mention that with our early morning departure from Hartford, passengers can be in Denver and up to the mountains by noon to enjoy a half day of skiing, biking, hiking or any of the great activities the beautiful Rocky Mountains have to offer."

While the service is timed to offer connections to other cities in the West, it appears that Frontier is launching this service primarily because it will be the only non-stop service between Hartford and Denver. But is there a reason why this market has been previously unserved? It's interesting that United, doesn't serve the Hartford-Denver market, even though both cities are thriving business centers and business travelers are United's core customer base. If United doesn't feel a need to serve the Hartford-Denver market nonstop, then there may not be a need for that flight. Even with Southwest's presence, Hartford is by no means a low-yield destination, and United could easily charge a premium on nonstop service if it wanted to since Southwest doesn't serve the Hartford-Denver route nonstop. Frontier's entering the market with fares that are likely below where United would set fares, which might spur demand, but it also might prevent the flight from becoming profitable.

One challenge for Frontier in Hartford is to make itself well-known. Hopefully the airline and the airport can work together to publicize the new service and make it a success. Southwest is currently the only low-fare carrier at Hartford with a substantial operation and Frontier's new service of one daily flight might get overlooked by consumers when they need to book a trip out West. Many customers in Hartford have never heard of Frontier because Frontier hasn't served New England for several years since they left Boston in 2002. Frontier needs to get it's brand recognized by consumers in the Hartford area if it wants to convince customers that there is a low-fare alternative from Hartford. That could pose a challenge, but Frontier is aware of the problem and will do what it can to stir publicity. Nevertheless, it will be difficult, after all, how does an airline with one daily flight publicize a new destination effectively? JetBlue did this successfully when it launched a daily nonstop red-eye flight from New York to cities such as Seattle/Tacoma, Salt Lake City, or even Denver. All of those routes have been very profitable, so marketing a single daily flight can be done well. Frontier is taking a big risk with Hartford, but if it works hard to publicize the new route and offer fares that are reasonable, the new route should succeed. One suggestion, though, Frontier should make its in-flight television free to all passengers on the route until the end of the summer, so customers can experience all of Frontier's superior amenities over Southwest.

But Frontier isn't the only airline taking risks with new flights. Delta also announced new flights between New York and Chicago, making the market share battle on the route all the more interesting after JetBlue announced new service from O'Hare to JFK several weeks ago. Delta plans to start new service between LaGuardia and Midway, the two most convenient airports for business travelers in New York and Chicago, respectively. Delta's regional partner Shuttle America will operate Delta Shuttle-like service between the two airports with E170 jets that seat 70 passengers. The aim is to attract business travelers, who will like the convenient airports (including the convenience of flying from the Marine Air Terminal at LaGuardia) and the regularly-scheduled flights Delta plans to offer. Delta also plans to add additional flights between JFK and O'Hare on 50- and 70-seat regional jets through Delta's regional subsidiary Comair. The new service will ratchet up the market share battle between New York and Chicago, and will ultimately create some losers. Airlines like ATA or AirTran that have smaller operations between Midway and New York City (ATA to LaGuardia and AirTran to Newark) could be marginalized if larger airlines like American, United, or Delta use their large market share to offer deep-discount fares, driving these smaller carriers out of the market. Both ATA and AirTran might have to withdraw from the crowded New York City to Chicago market if they can't distinguish themselves from their competitors and offer lower fares than carriers with larger market share.

But this move is dangerous for Delta as well. Even though Delta will be operating the new flights with smaller jets, there is still a whole lot of risk involved. Delta has a lot of market share in New York City at both LaGuardia and JFK, but they have less in Chicago. Marketing these flights to business travelers in Chicago as a plausible alternative to American and United may be difficult. Given that business travelers often stick with an airline that they've racked up the most miles with, Delta might have a hard time breaking into Chicago, where there are thousands of business travelers that have racked up significant amounts of miles on American and/or United. Delta also may have trouble operating the standard of service business travelers expect. American and United set high standards of service and comfort for their New York to Chicago flights. But Delta's flights involve smaller jets that business travelers typically dislike because smaller jets are less comfortable to fly on. If Delta truly wants to make the new flights business traveler-friendly, then they should operate them with mainline aircraft. But, if Delta wants to make the flights profitable, Delta should probably use smaller planes. With this latest grab for business traveler market share, there is little doubt that there will be realignment in the New York to Chicago market next year, and every airline that flies the route is vulnerable to competitive pressures. ATA and AirTran are most vulnerable to exiting the New York to Chicago market but all airlines on the route may to cut flights, even the strongest such as American or United. Fares on the route will likely decline slightly in the next six months, but may rise if some airlines retreat and remove seats from the route. It will be a very interesting year in 2007 on the New York to Chicago route, and Delta's announcement will certainly not be the last we hear about the route anytime soon.

By the way, this is a milestone for Airline Bulletin. It is the 300th post since the creation of the site over two years ago. I certainly hope to write at least 300 more in the coming years.

With LAX Threatening Rate Increases, Will Airlines Make a Further Push to Reduce Airport Costs?

Due to rising security and maintenance costs, Los Angeles International Airport (LAX) is considering increasing costs for some of its tenants. The new rates would only affect airlines with short-term leases up for renewal soon including Southwest, Alaska, and Frontier. However, these are low-cost carriers who are most sensitive to any rate hikes. With LAX feeling the pinch, will other airports follow with similar proposals and will carriers react by trimming or eliminating flights to certain airports? Let's take the example of Southwest at LAX. Southwest has been at LAX for over 20 years, and has no plans to leave anytime soon. LAX is one of Southwest's ten largest destinations with nearly 120 daily departures. Southwest has made a major commitment to LAX and won't likely leave anytime soon for a variety of reasons, but this potential rate hike demonstrates how vulnerable to cost increases many airlines including Southwest still are, and how increases at other airports could trigger additional losses for still-struggling airlines. But before I go any further, it's important to keep airport costs in perspective. While airlines are trimming all of their costs due to the pressure to lower fares, airport costs make up a relatively small part of an airline's budget and haven't been trimmed as much as labor or amenities. At Southwest, they make up less than 10% of Southwest's total costs, partly because some airport costs are passed onto passengers as taxes through Passenger Facility Charges (PFC) that airports can use for improvements. Different airports charge different amounts, depending on their needs. Airports can charge passengers $0.00, $3.00, or $4.50 per segment, adding up to $18 on a round-trip ticket.

Southwest is in the midst of a transition right now and consequently is vulnerable to any cost increases. For decades, Southwest has had the lowest costs of any airline in the United States, allowing the carrier to charge low fares. Southwest today still has low costs, but it's not because of free-for-all seating, no meals, or the use of alternate airports, it's because of their fuel hedges. Southwest made a brilliant, calculated gamble years ago that fuel prices would increase. They have increased sharply, and Southwest is reaping rewards no other carrier can come close to. But, Southwest's hedges are running out. Southwest has hedged successively less amounts of fuel in the coming years, from well over half of its fuel needs this year to 25% by 2010. This means that Southwest will have to start paying higher fuel bills, and their costs will increase. Southwest's labor costs are also relatively high in the industry since most legacy airlines have used bankruptcy to cut wages in the past few years and carriers that have made those cuts have passed on lower costs to their customers. Southwest is transitioning from 10-15% growth a year to likely 8-10% growth a year, as the airline can't sustain a higher growth rate given their current size. And Southwest is starting to serve airports it once shunned, such as Denver or Washington Dulles, because although they have higher airports costs than most of their other destinations, they command a revenue premium, and Southwest is willing to pay the higher costs if they can generate enough revenue to offset the cost of doing business at a higher-cost facility. But the jump in fees at LAX could increase Southwest's terminal lease cost from $13 million a year to $49 million a year, nearly quadrupling its cost of doing business at the airport.

While it's unlikely that Southwest would jettison LAX because of their longstanding commitments, what would happen if the rate increase forced the airline to leave the airport? Southwest would likely try to replace most of the service at other airports in the LA Basin, including Burbank, Ontario, and Orange County. But Southwest couldn't replace all of its lost service because of the size of replacement airports, and would likely lose considerable market share in the region. There are also runway constraints at Burbank and Orange County, both of which have short runways that prevent Southwest from operating longer flights out of those airports. Southwest might consider entering low-cost Long Beach, but given the battle for the existing slots between JetBlue, American, and Alaska, Southwest likely couldn't commence a sizable operation at the airport without considerable legal action to get the necessary slots. Southwest's airport costs would certainly diminish, but a move out of LAX would cost the airline revenue, market share, and loyal customers and would be more trouble than it's worth. But Southwest did exit another high-cost airport in California six years ago. In 2000, Southwest left San Francisco International and moved all its SFO operations to nearby Oakland. Southwest did this for several reasons, the most important being airport costs. San Francisco costs several times more per passenger to fly from than what Oakland costs, and Southwest wasn't commanding a sufficient revenue premium to stay at the airport. Moreover, San Francisco is a delay-prone airport, and Southwest was having trouble sticking to its schedules when they weren't able to execute 25-minute turnarounds due to frequent fog. Oakland is a large airport, and has worked with Southwest to minimize costs. In the San Francisco Bay Area, there was a real alternative for Southwest that could handle the now 139 daily Southwest flights cheaply and efficiently. In the Los Angeles Basin, there is no sufficient alternative for Southwest. None of the alternate airports in the region can accommodate Southwest's traffic level.

However, that hasn't stopped Southwest from trying to reduce airport costs in another key market. A year and a half ago, Southwest created a plan to leave Seattle/Tacoma International Airport and start commercial service from Boeing Field near downtown Seattle, an airport with no commercial service. Southwest was upset at a massive expansion at Sea-Tac that included an unnecessary new runway and a modern, new terminal that went over-budget numerous times. Instead of paying for that project, Southwest pledged to spend hundreds of millions of dollars to build a brand new terminal at Boeing Field. Alaska Airlines immediately responded with a similar plan, and both were later rejected a year ago by King County, which owns the airport. Part of the reason was that many residents were worried about increased noise, however, that was a fallacious argument, as cargo carriers routinely fly into Boeing Field with aircraft that are several times louder than Southwest's. Nevertheless, residents jumped on the anti-noise bandwagon forcing the county to table Southwest's and Alaska's plans to expand commercial service to Boeing Field. But, Southwest is still committed to the issue, and will continue to fight for the right to build a terminal at Boeing Field, although it now lacks much of the political capital to do so given the current public opposition to the plan.

But Seattle isn't the only city where airlines may change airports to find lower costs. St. Louis' Lambert Field will cost considerably more to operate from in the next several years, as American Airlines downsizes and other airlines are having to pay a higher share of American's costs. Southwest has the second-largest operation at the airport and will find itself with a substantial cost increase in the coming years. But, a plausible alternative does exist in the MidAmerica Airport across the river in Illinois. Currently, the only scheduled service at MidAmerica are Allegiant's flights to Las Vegas and Orlando. But if Southwest entered, they would have a lot of leverage with the airport about costs and charges. Any entry into MidAmerica might have to come with a new terminal, financed by Southwest, but if the airline made a commitment to the facility, it could save Southwest millions of dollars a year. The airport is only 30-45 minutes from downtown St. Louis, not ideal for travelers, but certainly manageable. However, like the LAX scenario, this one's unlikely, but it's plausible, and if St. Louis continues to hike fees, then Southwest might seriously consider a move to MidAmerica.

But even at airports that Southwest won't leave from anytime soon, Southwest still has leverage and an incentive to reduce costs. One example is in San Jose. The airport is undergoing an expansion to create a new Terminal B and a new North Concourse that will force the airport to raise fees significantly. Southwest, one of the airport's largest tenants along with American, has encouraged the airport to scale back its plans to make the terminal more economical. A year ago, the airport announced that it would proceed with a scaled-back plan after Southwest's protests. Unfortunately for Southwest, unlike in San Jose, they voted to approve Sea-Tac's expansion plan without much question, raising Southwest's fees considerably. If Southwest wants to stop more of these massive expansion projects, they need to look well into the future and make the assumption that the project will go over-budget. That doesn't mean Southwest should try to block any airport improvements, but they should be economical, specific, and appropriate for the airport and the airlines that serve it. Oakland doesn't need the same kinds of improvements that a larger San Francisco needs because of the two types of airlines that serve each airport. Overall, low-cost airlines like Southwest and JetBlue serve Oakland, and legacies and international carriers serve San Francisco, and the latter carriers might not feel the pinch of airport costs as much as Southwest does.

Many cities want their airports to become museums, with plenty of open space, artwork, and class. Airports want to project a classy image to woo businesses to the airport. After all, when a new businessperson comes to town, the first thing he or she sees is the airport, it can make a great first impression, or a sour one. But airports need to radically reconsider how they are expanding, and passengers need to reconsider what an airport terminal should look like. Airports aren't shopping malls, and they aren't luxury hotels, and if passengers continue to demand low fares, then airlines will try to force rate cuts on airports. In Europe, the balance between cost and class has shifted at some airports. One example is a low-cost terminal opening in Marseille to the likes of Ryanair and EasyJet. The terminal costs airlines about 1.30 Euro per passenger instead of 6 Euro for the main terminal. The terminal was constructed out of an old freight warehouse and offers no jetbridges and few amenities to passengers. This is similar to Amsterdam's low-cost Pier H where the gates are a 10-15 minute walk from the restrooms. While this won't happen immediately in the States, some airports may begin to reconsider what an airport terminal looks like, and passengers may need to understand that in order to keep costs low, airport terminals may need to have more retail space, fewer seats, fewer restrooms, and no jetbridges. If airlines in the United States really want to lower airport costs, they need to start pressuring airports to completely redesign terminals in order to maximize the number of passengers that the terminal can accommodate while minimizing the cost to airlines.

Is Lower-Cost Premium Class Travel Attractive?

Two relatively new airlines, MaxJet and Eos offer premium class service between the United States and London. MaxJet offers an all-business class configuration in 767-200 aircraft that seat 102 passengers. MaxJet has expanded rapidly, acquiring new aircraft and opening new routes quickly. MaxJet operates routes between New York and Washington D.C. to London and will open nonstop Las Vegas to London flights in November. MaxJet has pioneered a new model: discount premium class flights between major business markets. MaxJet has attracted business travelers from companies that want to provide their employees with business class travel, but want to save on travel costs. MaxJet is able to cut costs in a number of ways that they then pass onto their customers. First and foremost, MaxJet operates from London's Stansted Airport, which costs considerably less to operate from than the larger, and closer Heathrow and Gatwick Airports. MaxJet also only operates one aircraft type (a no-brainer for a brand new airline) which saves money on maintenance. MaxJet is also able to cut costs by operating only one class of travel. Like low-fare airlines that have all-coach configurations, MaxJet is able to cut costs by offering the same level of service and amenities to all passengers instead of offering select amenities to preferred passengers like many legacy carriers do. But one area MaxJet hasn't cut costs is in the product it offers. It offers a standard business class product, complete with all the meals, comfort, and lounges a business traveler comes to expect these days. Like many new carriers, MaxJet's initial load factors were a bit low, but they have picked up in recent months. One might expect that MaxJet's load factors might be a bit lower since they offer premium class travel, which entails more of a fight for passengers, since business travelers (and their companies) are typically more loyal to airlines than those passengers who fly in coach. But MaxJet has surprised many doubters; this past summer, the airline achieved a load factor of over 70% on their established New York to London route and a load factor of over 60% of their Washington D.C. to London route, which just commenced in April. But not everything has been so easy, due to low load factors or aircraft breakdowns in the early days of the Washington D.C. to London route, MaxJet decided to combine some flights between Washington D.C. and London with their New York and London flights, flying from Washington D.C. to New York and onward to London. This angered many passengers who were faced with delays and long waits on those flights. As a business traveler, it's the last thing you need. But, with more aircraft and higher load factors, however, that shouldn't be as much of a problem. MaxJet's latest move into Las Vegas has raised some eyebrows. Las Vegas is seen as a market with extremely low yields, as the majority of passengers hope to get down to Vegas for a weekend jaunt to beat the odds. But with an increasing luxury travel market growing in Las Vegas, perhaps MaxJet's new service will fit right in, just in time for Londoners to experience the desert prior to winter. But, like with its New York and Washington D.C. routes, MaxJet faces stiff competition from established carriers British Airways and Virgin Atlantic. Another question raised is whether MaxJet's proposed two weekly flights on the route will be convenient enough for travelers who want flexibility. It appears that MaxJet's next market will be Boston to London, and they will likely announce the new service soon, after they acquire additional aircraft.

But the new wave of discounted premium class travel doesn't stop there, another new airline, Eos, offers discounted first class service between New York and London. The airline now offers two daily flights between the two cities on reconfigured 757 aircraft that seat only 48 passengers. Like MaxJet, they have found success in attracting business travelers and the businesses that pay for their travel because of their reduced fares and terrific service. Eos has attracted increasing amounts of passengers; reservations are up by 62% over the previous three months, according to a September 6 press release. Eos also plans on expanding to other markets after obtaining additional aircraft like MaxJet has. Because first class travel comes with additional amenities and additional costs, Eos's fares are higher than MaxJet, and certainly well above what most travelers would consider "low-fare". At over $3000 for the cheapest round-trip fare between New York and London, it's likely most of us will never experience travel nirvana. With two successful premium class operations out and successful, two questions remain to be answered. The first is how much these two airlines can expand, how many markets can support airlines dedicated to premium class travel? The second is whether an airline will be able to replicate the Eos or MaxJet model with all-economy class travel, a la People Express (while People Express did offer premium class travel on international routes in their early days, the vast majority of the seats on their 747s were left to those paying as little as $149 each way in economy class).

To answer the first question, it's important to recognize who is flying Eos and MaxJet: business travelers. MaxJet and Eos have had it hard enough to break into large markets where there are many business travelers to support the new entrant. But in smaller markets dominated by other carriers, possibly hub markets such as Chicago or Los Angeles, it could be harder to break into the market when businesses already have contracts with established airlines, and business travelers don't want to give up earning what is most precious to them: frequent flyer miles. Business travelers also want frequent flights, and while Eos offers daily service, MaxJet only offers service several times per week from its three markets, making it less convenient for some business travelers who want to fly with the airline. Most established airlines have daily flights on international routes, allowing for convenient travel for many business travelers. Also, London is the biggest European market for business travelers. Flights to other cities like Paris, Frankfurt, or Brussels might increase the airline's visibility, but flights to those cities will likely be offered several times per week, instead of daily. Will MaxJet and Eos continue to expand? Yes, they have far to go before the market is completely saturated. Boston, Los Angeles, San Francisco, Chicago, Houston, and Miami could all support nonstop flights on these carriers to London, and the larger ones could likely support service to other European cities. Are other business markets outside of Europe possible, could we see service to Tokyo or Shanghai? Perhaps, but that's a long ways off, and right now MaxJet and Eos are focused on obtaining more aircraft to grow their operations and attracting and keeping passengers to their carriers. If both carriers can create the same cult following among passengers that JetBlue did when it began low-fare service with plenty of amenities, then they will definitely be able to grow. But the big worry that faces either carrier is if their product is devalued. If another airline comes in and treats passengers better, with additional amenities and service, even if it's nominally more expensive, business travelers will likely flock to that airline. MaxJet and Eos need to stay on top of their product and their customers, to make sure they aren't being beaten in the amenity marketplace.

To answer the second question, I would argue the answer is yes. If a new carrier couldn't offer customer service equivalent to legacy carriers in the United States or Europe (which, quite frankly, isn't that hard to do), then it could come in and take passengers away from established carriers. Many passengers in Europe are used to flying on long-haul flights with the array of charter airlines that offer services to the Middle East, Africa, or Orlando. Those airlines typically provide as much legroom in economy class on an eight hour flight as Ryanair does on a two hour flight. The model that comes to mind is the Corsairfly model, which lightly resembles People Express. Corsairfly, a French charter airline, operates 747s with 587 seats onboard. That's more seats than most airlines plan to put on the much larger A380 that will eventually appear in the skies. But to do that, Corsair packs the plane full of seats, giving travelers in economy a seat pitch (the distance between any part of their seat and the same part of the seat in front) of 29 inches. The standard on American carriers is 31 or 32 inches, and even Ryanair and EasyJet offer 30 inches. However, like carriers that operate dedicated premium class service, carriers that operate all-coach, or aircraft with the vast majority of seats in coach can only do so on certain routes, and it's the routes that have enough traffic to support airlines with varying service standards.

One such market is the London to Hong Kong market, which is rich with business travelers and tourists alike. A new airline, Oasis Hong Kong Airlines, will commence service at the end of October between London's Gatwick Airport and Hong Kong using two 747 aircraft. The airline plans to later expand from Hong Kong to Berlin and Colonge in Germany, to Milan in Italy, and to the United States including Oakland (as an alternate airport to San Francisco International), and Chicago. No firm dates have been set on launch dates for routes to the States. Oasis will offer two classes of service, business and economy, and the lowest round-trip introductory fares between Hong Kong and London are going for 3,643 Hong Kong dollars (including taxes). That's about $467 US. Regular fares in economy will be a bit higher, but nevertheless, they will undercut the established carriers on the route, including British Airways, Virgin Atlantic, and Cathay Pacific. Sales have been strong, and as the airline obtains more aircraft, they will expand to new routes around the world. Oasis will offer 32-inch seat pitch in economy and complementary meals and entertainment. However, passengers can purchase better meals or cosmetic kits for a nominal fee. But the London to Hong Kong market is so large that it can support a new entrant running a few flights a week between the two cities. Most city-pairs aren't like that. Even in the largest markets, an Oasis or Corsair could likely only run one flight a day on a widebody aircraft, demand is there for ultra-low priced flights, but only so many travelers are willing to take an airline without the name recognition or the legroom they desire. And even in markets that can support a dedicated all-coach or nearly all-coach airline, sometimes another conventional airline already does the job of significantly lowering fares. Just take a look at the New York to London market. In my post a few months back about Delta's new expansion on the route, I noted that two airlines that might surprise many consumers offer service on the route. Both Kuwait Airways and Air India offer flights between New York and London, as a way of serving New York by combining the New York to Kuwait or Delhi flight with a London flight, hence increasing aircraft utilization. But, both airlines have the rights to sell seats for just the New York-London portion of the journey, and because they are counting on many of the seats being empty since people are boarding or departing in London and the flight to New York has many empty seats, they can sell the extra seats. But to get weary travelers to fly with an airline they may never have heard of, they undercut the fares of established carriers such as American Airlines or British Airways. So a coach-focused carrier would have a tough time breaking into a market where passengers that don't care about their comfort already have two options. These passengers may also want to have a wide palette as Air India still serves curry on the New York to London flights.

Does that mean that there aren't possible markets for Oasis-like carriers to serve? No, there still are plenty of markets, particularly on flights to Asia, a region that is likely to grow much faster than flights to Europe or South America. But carriers need to locate markets that are big enough for them to serve, but don't have a spoiler carrier like Air India or Kuwait Airways that substantially lowers fares on the route. For example, that eliminates Los Angeles to Tokyo (both Korean Air and Singapore Airlines operate nonstop flights between the two cities, who knows why?), but many other markets from Boston or Washington D.C. to Europe or San Francisco or Los Angeles (and to a lesser extent Seattle/Tacoma and Phoenix) to Asia could suit a discount long-haul carrier just fine. The carrier needs to be willing to shift aircraft around to where they can make the most money, and that does mean flying many routes three to four times weekly instead of six or seven times a week in order to fill up the plane. It's unlikely that a new deep-discount airline will offer all-economy seating, a new entrant needs to focus on packing in seats in economy, but also serving a business clientele who can pay more and subsidize the low fares in economy to some extent. But coach passengers will accept these caveats as long as things don't go wrong and the flight is cheap. If a deep-discount long-haul airline isn't able to master customer service, then they will fail. Particularly on long-haul flights, customers demand reasonable service and expect the airline to be there if something goes wrong. If the airline can't handle hundreds of irate customers due to a canceled or delayed flight, then word will quickly spread that that carrier isn't worth patronizing. That is certainly a possibility, it's happened many times before. Perhaps Ryanair can get away with shortchanging passengers on intra-Europe flights, but no airline can get away with shortchanging passengers on long-haul flights.

I hope that when Oasis does move into the United States, it's only the beginning of new entrants that promise to offer consumers on long-haul international routes, because travelers to cities that don't have spoiler airlines are finding it increasingly difficult to fly abroad due to the high ticket prices. As airlines in the States fight for rights to fly to China (more on that in a later post), in the next few years it will be very clear which airlines will dominate between the United States and Asia and which won't. If an Asian deep-discount entrant is able to offer service between Asia (and particularly China) and the United States, it would strengthen the relationship between the United States and Asia, even though U.S. carriers will likely get slaughtered by Asian carriers like Oasis. Carriers that currently print money between the United States and Asia (United, Northwest, Cathay Pacific, Singapore Airlines) might get a nasty surprise, but it's one that will benefit consumers in the long run.

Can Regional Lift Providers Become Independent Airlines?

As many airlines are finding new regional jet routes prohibitively expensive, many regional lift providers are seeing their flying contracts cut or rebid in an effort to cut costs. Many airlines are renegotiating lift contracts, and often the lowest bidder with the worst service (in most cases Mesa) gets the contract. Providers with excellent service and reliability but higher costs like ExpressJet are being squeezed as airlines such as Continental are turning to cheaper sources of lift. Providers in the middle such as Skywest or Republic are doing well, though those two companies will thrive for two different reasons. Skywest has had longstanding contracts with Delta and United and has been able to offer reliable service at a reasonable cost, something both those airlines demand. Also Skywest is particularly locked into Delta, after buying Delta subsidiary ASA. Republic is growing very quickly and will thrive because it has established relationships with several carriers and offers reliable service with different aircraft types (ranging from 37 to over 70 seats) to meet clients' needs. But companies that are getting squeezed such as ExpressJet, Mesaba, or even Pinnacle (which plans to renegotiate some of its contracts with Northwest that could result in less contract flying for Pinnacle) have few outlets to place those regional jets. The Frontier announcement to fly up to 20 regional jets to support Frontier's burgeoning hub in Denver is a big exception. Even with oil prices coming down, regional jets are still very unattractive planes to fly. So what can companies that are getting squeezed do? Many regional lift providers want to start independent airlines, a la Independence Air, which was formed after Atlantic Coast Airlines realized that a shakeout was coming in the regional lift market and that they needed to change their business model to accommodate that. Independence Air failed because the Independence business model was the wrong way to go about finding new opportunities for regional jets, but at least they made the effort. ExpressJet made the bold move to continue to lease regional jets from Continental at higher lease rates even after they are pulled from contract flying for Continental. ExpressJet hasn't told investors what they plan to do with those jets, and time is running short. ExpressJet may start their own airline, but has given no hints as to what that may be. Mesaba may liquidate in three months if that operation can't turn itself around quickly, and their planes will likely end up in the desert. Pinnacle may also operate some routes independently, though it remains to be seen if they really want to fly that direction. Can regional lift providers create successful airlines?

Recent history tells us no, that in fact the two most recent attempts at independent airlines resulted in abysmal failures. Independence Air had a bad business model, built on artificially low fares and overservice to many markets that were too small to handle the sudden jump in traffic. That experiment took longer to fail than I thought it would, but it succumbed to its balance sheet full of red ink. Another example is Mesa's attempt at setting up an semi-independent (still a subsidiary of Mesa Air Group) Hawaiian airline that would fly interisland routes. That operation, known as Go!, is losing money and is reporting low load factors, even over the hot summer months. Unfortunately, 50-seat regional jets just don't have good economics with $19 or $39 fares compared to 717 or 737 aircraft that are used by Hawaiian and Aloha, respectively, on interisland routes. Hawaiian and Aloha can easily match Go!'s fares. But I think that in both cases, these operations were built on bad business models. Hawaii didn't need another airline and White Plains didn't need three flights a day to Washington D.C. But, that doesn't mean that companies such as ExpressJet or Pinnacle can't find successful markets to fly their planes. I see two ways these companies can fly their regional jets, and I think both of them can make money, although they will not be easy.

One way regional lift providers could create a successful airline is like how Allegiant does it. Regional lift providers could continue to serve many of the small cities that they serve, but instead of serving leisure markets like Orlando or Las Vegas, that airline could serve business markets such as New York City, Boston, Chicago, San Francisco, Los Angeles, and Seattle/Tacoma. Like Allegiant, an independent airline could serve a given route a few times a week, not a few times a day, and most of these markets could support weekly service to major cities. However, unlike the leisure crowd that flies Allegiant, many business travelers who fly to the above markets need the option to fly daily. That could be a problem for any potential carrier. But, conversely, offering point-to-point service between markets that don't currently have nonstop service could be attractive, as nonstop service would shave hours off the travel time when connecting at a hub. Smaller airports that have been begging for new service could welcome an independent carrier to provide point-to-point service to different cities, even if it's only a few times a week in a small regional jet. The new service could be a boon to Wichita, Greenville/Spartanburg, Fort Collins, Waco, Abilene, Des Moines, Lansing, or dozens of other small markets that could use service. Allegiant's flights are nice for airports, but they aren't a way for airports to grow more prosperous. A few flights a week to the same vacation destination doesn't help an airport's goal of attracting passengers who will fly from the airport on a regular basis, not once or twice a year. The way an airport gets regular flyers is by trying to get business travelers, and you can't get business travelers unless there are businesses that need people to travel, and most businesses avoid locating themselves away from frequent flights. Adding flights to major business cities helps expand the attractiveness of a certain location to a business. That's why airports in smaller cities are so desperate to get service. Many of the markets listed above could use service to business cities in order for their regions and airports to prosper. An independent airline that uses regional jets could get a very attractive package from an airport, and, if marketed correctly, plenty of passengers who are tired of connecting, or driving to a larger city to fly.

But for an independent airline to succeed, the destinations are just as important as the origins. The markets listed above (New York City, Boston, Chicago, San Francisco, Los Angeles, and Seattle/Tacoma) were chosen because they support a lot of traffic, but with the exception of Chicago, those that are hubs don't offer considerable service to smaller markets in the Rockies, the Midwest, or the South. Independence Air and Go! failed (and will fail) respectively, partly due to the intense competition on the routes they served. 50-seat regional jets just can't be expected to compete head-on with a JetBlue A320 or Hawaiian 717, it doesn't make economic sense. But in most of the origin cities, the only competition an independent regional jet carrier would face are airlines that fly regional jets to their hubs. Allegiant has faced surprisingly little competition, pulling out of Oklahoma City after many months because of the nonstop competition from Southwest Airlines, but in other markets, the only head-to-head competition Allegiant faced was from Northwest Airlines, which "brilliantly" decided many months ago to send A319s from North and South Dakota to Las Vegas a few times a week in a misguided attempt to compete with Allegiant. Only now are the flights being pulled after the airline realized that they aren't too profitable. Head-to-head competition is the one thing that could destroy a regional jet carrier, but if an independent regional jet airline selects its markets well, such that they are large enough to support a few weekly flights or a daily regional jet flight, but are too small to support flights with larger aircraft. That's why it's important for this airline to fly to cities that don't currently have nonstop service to the larger market. Other destination cities are possible from the ones listed above, cities such as Miami, Washington D.C., Portland (Oregon), or Philadelphia. But the cities that are chosen will most likely be near the coasts, as most airlines choose to fly regional jets to the closest hubs, which are usually in nearby cities such as Dallas, Denver, St. Louis, Salt Lake City, Detroit, or Cincinnati. The big business markets, the ones people typically need to connect to, are on the coasts. Regional jets are capable of flying to the coasts from the Midwest, but longer, three or four hours will fully utilize the endurance of the small 50-seat aircraft, as well as the passengers inside.

Before I end, I want to touch on another model. A regional lift provider may decide that serving smaller markets isn't the best idea. But there are markets that are a step up in size from a Greenville/Spartanburg or Peoria that could support daily flights to many cities that are unserved nonstop from that airport. Like in the earlier model, cities in the Midwest, Rockies, or South would be prime targets, because of the number of underserved markets, and because of the technical limitations of regional jets, which can't fly nonstop across the United States, but can fly nonstop between cities in the center of the country and the coasts. Also, the time saved by flying nonstop needs to be worth the likely added cost. Markets such as Omaha, Oklahoma City, Tulsa, Austin, Colorado Springs, Indianapolis, Milwaukee, or El Paso are all possible candidates for service. These markets are larger, but could easily support daily flights to the destination cities above, even though many lack nonstop service to them. In fact, airlines that have larger 70-seat regional jets might also find opportunities for daily service from these markets. An independent regional jet airline that set up shop in one of these larger markets might face more competition from established carriers that offer connecting service to a major destination. An independent regional jet airline would need to offer daily flights in these larger cities to provide a convenient alternative to established carriers. But if a new airline could demonstrate that it could support daily flights with marginally higher fares between midsized markets and larger markets on the coast, then that airline could gradually move into smaller markets as long as it is economically and technically feasible.

A new independent regional jet airline would face many challenges. But if planned correctly, it could be a major success for the regional lift provider that provided the initial aircraft. Besides possible competition, one of the challenges not mentioned earlier is keeping passengers happy. 50-seat regional jets are extremely cramped planes, and most passengers can withstand them for an hour or two, which is how long most airlines use regional jets. But if a new independent regional jet airline began to use regional jets on longer routes, it will need to find a way to keep passengers happy. Independence Air tried to do that with top-of-the-line service, and the lone flight attendant onboard needs to be active in ensuring passenger comfort. But a new airline would also need to offer something more inflight to keep passengers happy and make them forget how small the plane really is. Innovative snacks like JetBlue has are one way to do it, but even inflight entertainment needs to be considered. Almost all regional jets are not equipped with inflight entertainment due to the high costs and the relatively short flights the aircraft are used on, but if portable entertainment such as digEplayers were used, that might make the flight go much faster. In addition, the two examples of regional jet airlines (Independence Air and Go!) both promised to be "low-fare" airlines. But an airline can't be a low-fare airline without being a low-cost airline so you can pass the cost savings onto consumers, and airlines that use regional jets simply aren't low-cost. A new independent regional jet airline needs to admit this. Fares will likely be higher than if a passenger were to connect to their destination on another airline. But are the two, three, or four hours saved by flying nonstop worth the nominal $10, $20, or $30 extra an airline would need to charge to cover its expenses? For most passengers, particularly business travelers, an extra $10, $20, or $30 is well worth it. Plus, if a new independent regional jet airline could charge extra for tickets, it could easily charge a few dollars more to add to their profits. Today, profitable airlines only make a few dollars per ticket sold, and hopefully a smaller regional jet airline could sell seats at a higher profit margin. If so, then the new airline wouldn't go out of business at the end of 12, 24, or 60 months. That would be a major accomplishment for an airline that's founded on aircraft that are being written off as we speak.