American Airlines Announces Jet Orders – Airbus breaks the Boeing lock on AA

by: Siva Vayali - July 20th, 2011   Filed under: Airlines 1 Comment

American Airlines today announced an order for 460 aircraft. Claimed as the largest aircraft order ever by any airline, American said the order would include 260 Airbus A320 family planes and 200 Boeing 737NG family planes. Deliveries of both Airbus and Boeing planes would start from 2013. The deal also includes options to buy additional 465 planes through 2025. The deal is worth more than $38 billion.

American Airlines A321- Courtesy: American Airlines

The aviation media was abuzz with reports of American finalizing the plane order for sometime now. With this order, Airbus broke the monopoly Boeing held for years over American’s fleet.

Boeing was forced to react to market realities by agreeing to supply B737s fitted with more fuel efficient engine rather than developing a brand new replacement for the best selling plane in the aviation history.

The order is a major coup for Airbus. My prediction is that US airlines would announce new plane orders structured like the one by American Airlines, giving almost equal share of planes to Boeing and Airbus. That is a significant victory for Airbus’s bet on modifying the A320 family with New Engine Option (neo) rather than designing a brand new plane.

Tags: , , , ,

American Airlines reportedly in talks with Airbus and Boeing for a huge plane order

by: Siva Vayali - June 30th, 2011   Filed under: Airlines Add Comment

American Airlines is talking to Airbus and Boeing for a huge order of new aircraft, according to a report from the Wall Street Journal. American, one of the two major all-Boeing operators in the US (Southwest being the other), first got a tentative deal hashed out with Airbus and took that to Boeing for counter offer, the report says.

Boeing managed to have a virtual lock on American fleet by offering it a special status in terms of discounts and delivery.

Here are some interesting thoughts: Airbus’ A320 is currently the best-selling plane in the commercial aviation industry (even though B737 retains the title as the best-selling plane in the history of commercial aviation). If anything is evident from the recently concluded Paris Air Show, it is the Airbus’ trouncing performance over Boeing in terms of aircraft orders, especially with the huge popularity of its A320 neo (New Engine Option). This puts more pressure on Boeing to spice up its 737, either by upgrading it or completely redesigning it. Boeing already announced that it would detail the plans for 737 by end of this year. With American now talking to Airbus, it puts additional pressure on Boeing to show something that it can tout as an alternative to the A320 family.

It would be interesting to see how American’s plan would affect the fortunes of the two biggest aircraft makers. Let’s wait and see!

Tags: , , , ,

US Airlines Earned $3.4 Billion in Baggage Fees For 2010

by: Siva Vayali - June 15th, 2011   Filed under: Airlines Add Comment

The US Airlines raked in a whopping $3.4 billion in baggage fees for 2010, according to the statistics released by the US Department of Transportation.  Compare this to $1.14 billion for 2008; the revenue from baggage fees has grown almost 300%. Delta claimed the top spot with almost a billion dollars in baggage fees. The four major network carriers (Delta, United, American, US Airways) each earned more than half a billion dollars in baggage fees.

[TABLE=6]

Combine this with $2.3 billion in reservation change/cancel fee – the US passengers paid $5.7 billion in fees. These fees have become a lucrative revenue stream for the airlines in times when the cost of fuel has soared. The industry trade group, Air Transport Association of America (ATA), defends these fees as one way to keep the carriers in black. These fees are here to stay, no matter what happens to the fuel prices.

Some interesting observations:

The big four network carriers account for nearly 80% percent of the baggage fee.

The baggage fees are exempted from the 7.5% excise tax levied on tickets.  So most airlines charge baggage fees as a separate line item to take all the profit generated from this ancillary revenue.

Spirit, not a top-15 airline in the US ranks at number eight in baggage fees. As you know Spirit charges for carry-on bags as well (only the carry-on bags stored in overhead bins, not the ones stowed under the seat!). Most airlines do not charge fee for the first carry-on baggage.

Southwest stands out

While all other airlines collect baggage fees, Southwest does not. Southwest needs to be commended for this. Despite being squeezed by the increasing fuel costs, the airline maintains that it has no plans to impose a baggage fee.

More transparent rules are coming

The Department of Transportation in April announced a new set of rules related to the baggage fees. They include:

The airlines must refund the baggage fee (in addition to the compensation) if the baggage is lost or not delivered in a timely manner. As of now, if the baggage is lost or delayed, most airlines do not pay back the baggage fee. Some offer credit for future travel. DOT has not clarified what it would consider a timely manner of delivery. This rule will be effective from August 23, 2011.

Airlines must clearly disclose all the fees in the ticket. This rule will be effective from October 24, 2011. The ATA has asked the government to delay the implementation of these rules for another six months.

Hopefully, with these new rules, the passengers get a fair deal while paying for baggage fees.

Tags: , , , , , , , ,

American Airlines plans to firm up Qantas ties – A response to Delta’s tie-up with Virgin Australia?

by: Siva Vayali - May 16th, 2011   Filed under: Airlines, Airports Add Comment

American Airlines and Qantas today announced their intention to form a Joint Business Agreement on their services between the United States and Australia/New Zealand, within these regions and beyond to third countries. The irony is that American Airlines does not operate to Australia/New Zealand. So, this is not a revenue sharing agreement since AA does not generate anything.

Qantas B747 - Courtesy: Qantas

Qantas B747 - Courtesy: Qantas

American and Qantas are part of the Oneworld alliance and already place each others code on their respective schedules. So, what does this agreement bring to the table? The main reason behind this tie-up is the shift of Qantas’ services from San Francisco International Airport, where it has virtually no connection feed, to Dallas/Fort Worth International Airport, where American operates its biggest hub.

The idea makes sense on many fronts: Qantas had virtually no connecting traffic from San Francisco. It had to compete with United, which operates a major trans-pacific hub there with lots of feed from throughout the US and Canada. Shifting the route to DFW makes sense as it opens up the entire US and Canada to Qantas through American’s extensive network. This also gives Qantas a nice way to balance the US flights between a West Coast (Los Angeles) and a Midwest (Dallas/Fort Worth) destination offering better connections. For American, which does not have an aircraft that can stretch the DFW – Australia route nonstop, it offers a nice compromise by placing its code on Qantas’ Australian and New Zealand destinations. Qantas will operate only four services a week and hence it is a decent start. American might consider operating its own metal on this route (or from Chicago?) when it gets B787 dreamliner (expected in 2014).

It is interesting to note that this proposal comes in the wake of Delta Air Lines and Virgin Australia gaining approval from the US Department of Transportation for their alliance. Delta, which is expanding its presence in Los Angeles, already operates the Los Angeles – Sydney route. V Australia, which is the international arm of Virgin Australia, operates flights from Los Angeles to Sydney, Melbourne and Brisbane with connections throughout Australia and New Zealand.

So the competition in the US – Australia air service market is heating up. Qantas and United Airlines are the largest operators in this sector with Delta trying to gain some market share. With the Joint Business Agreement with American Airlines, Qantas, which is the largest player in the sector, is trying to protect its turf. United Airlines, the second biggest player in the sector, has Air New Zealand as the Star Alliance partner. United also has plans to start the Houston – Auckland route when it gets the B787. With Delta, finally getting approval for its alliance with a re-invigorated Virgin Australia, the battle lines are drawn.

Let the games begin!!!

Tags: , , , , , , , , , , , , , ,

American Airlines Q1 Results – A Snapshot

by: Siva Vayali - April 20th, 2011   Filed under: Airlines 1 Comment

American Airlines today announced its Q1 results. As expected, the carrier lost money. Last year American outlined turnaround plan that would focus on its five cornerstone markets (New York, Chicago, Los Angeles, Dallas and Miami), implementing joint venture agreements on Trans-Atlantic and Trans-Pacific routes. The results reflect the fact that American’s efforts for a turnaround are hampered by the rising cost of fuel. As the only legacy carrier that did not declare bankruptcy, American continued to be hurt by its huge debt, higher labor costs and pension obligations.

Q1 highlights

  • Unit Revenue (PRASM) up by 5.2%
  • Passenger yield up by 6.2% (year-over-year)
  • Unit costs down by 1.8% (excluding fuel costs and special items)
  • Mainline capacity up by 2.7%
  • Joint business with British Airways and Iberia implemented on Trans-Atlantic routes
  • Joint business with Japan Airlines implemented on Trans-Pacific routes
  • Enhanced service at Los Angeles LAX (including new LAX – Shanghai route launch)
  • New agreements signed with Expedia (and Hotwire)
  • New agreement signed with Priceline
  • Law suit filed against Orbitz (and Travelport, LLC)

Guidance

  • Planning to reduce the domestic capacity and increase international capacity
  • Planning to retire 25 more MD-80s in 2011
  • Fuel is the biggest concern
  • Cost of fuel expected to be $3.10/gallon for Q2 and $3.07/gallon for 2011
  • For Q2, 49% of fuel hedged at average cap of 2.66/gallon and 39% of fuel hedged at average floor of $2.04/gallon
  • For entire 2011, 41% of fuel hedged at average cap of 2.63/gallon and 35% of fuel hedged at average floor of $2.02/gallon
  • Cost per Available Seat Mile (CASM) is expected to be about flat to 2010, excluding fuel and potential new labor costs
  • Other concerns include Labor Contracts, Facilities and Healthcare costs
 

  • Unit Revenue (PRASM) up by 5.2%
  • Passenger yield up by 6.2% (year-over-year)
  • Unit costs down by 1.8% (excluding fuel costs and special items)
  • Mainline capacity up by 2.7%
  • Joint business with British Airways and Iberia implemented on Trans-Atlantic routes
  • Joint business with Japan Airlines implemented on Trans-Pacific routes
  • Enhanced service at Los Angeles LAX (including new LAX – Shanghai route launch)
  • New agreements signed with Expedia (and Hotwire)
  • New agreement signed with Priceline
  • Law suit filed against Orbitz (and Travelport, LLC)
Tags: , , , , , , , , , , ,

American Airlines and British Airways optimize their schedule on New York – London route

by: Siva Vayali - March 18th, 2011   Filed under: Airlines, Airports Add Comment

American Airlines and British Airways have finally managed to optimize their schedules in the New York JFK – London Heathrow sector. It is the most lucrative transatlantic air travel market. Thanks to the joint venture between AA, BA and Iberia, the service dubbed as London Express, ups the ante against other major players in the market: Delta Air Lines (from JFK), Virgin Atlantic (from JFK and EWR) and Continental (EWR), part of the new United.

AA, BA and Iberia - Part of Oneworld - Courtesy: Oneworld

AA, BA and Iberia - Part of Oneworld - Courtesy: Oneworld

New York – London air travel market is one of the most competitive in the world.  The Oneworld alliance is already the most dominant player in the market. With this schedule alignment, it is trying to protect its market share against increased competition from Delta and the new United. From March 27, AA/BA will have near hourly departure from New York JFK in the evening. With BA’s multiple departures from Newark to Heathrow and from JFK to London City, Oneworld covers the entire geography of London and New York. Continental recently announced increasing its services from EWR to LHR.

Competition is heating up on many US – London routes. Oneworld has optimized its schedules on Chicago – London, Miami – London and Boston – London routes. This comes around the same time Delta announced its Miami – London and Boston – London services (ironically from the slots it got from Oneworld as a part of the Anti Trust Immunity approval from US DOT/EU competition commission).

It would be interesting to see how the landscape unfolds! Let’s wait and see!

Tags: , , , , , , , , , , ,