Southwest announces Atlanta flights

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

Southwest has announced its initial schedule of fifteen daily departures from Atlanta. As expected, Southwest’s hubs in Baltimore/Washington (BWI), Chicago Midway (MDW) and Houston Hobby (HOU) will get the first set of flights. Austin (AUS) and Denver (DEN) are the other two airports to get flights from Atlanta. Fare will start from $79 to $99 each way. The services start from February 12, 2011. This is the first round of flights announced by Southwest for its entry into Atlanta. I guess, Dallas Love Field (DAL) was not included because of the Wright Amendment restrictions (Love Field will get a one stop, single plane service from Atlanta).

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AirTran already flies from Atlanta to all these airports except Austin. So, expect some good competition at Atlanta once Southwest and AirTran fully combine their routes. It is good news for customers flying to Atlanta, the airport dominated by Delta. It will be interesting to see what would be the next round of expansion cities from Atlanta. And Delta’s response too!

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Delta and US Airways get preliminary approval to LaGuardia – Reagan National Slot Swap

by: Siva Vayali - July 22nd, 2011   Filed under: Airlines, Airports 2 Comments

The US Department of Transportation on July 21, 2011 gave a preliminary approval to the slot swap proposal submitted by Delta Air Lines and US Airways for New York’s LaGuardia Airport (LGA) and Washington’s Reagan National Airport (DCA).

As expected, DOT approved the proposal with minor changes.

One condition is to divest the slots in a blind sale to airlines that currently have little or no service at these airports. Note the term blind sale. The proposal from the airlines did not mention blind sale, so it is not clear whether this is an additional condition. Originally Delta and US Airways preferred the slots to be divested to airlines of their choice, but Southwest objected it by requesting DOT to divest these slots in an open auction. But, I think,  this should not  be  a  problem because the number of  slots  to be divested by  Delta  and US are minimal (eight slot pairs at Reagan National and 16 slot pairs at LaGuardia) compared to what they gain if  the  proposal is  approved (US Airways would gain 42 slot pairs at Reagan National in exchange  for swapping 132 slot pairs at LaGuardia with Delta).

The other condition for Delta and US Airways is to wait for 90 days before starting their new operations using this slot pairs so that the new services by other airlines can establish in these airports. This too, should not be a problem.

Both Delta and US Airways seem to be happy with these conditions.

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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.

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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.

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Delta and US Airways announce new slot swap agreement – is it really new?

by: Siva Vayali - May 24th, 2011   Filed under: Airlines, Airports 2 Comments

Delta Air Lines and US Airways yesterday announced a new agreement to swap each others slots in New York’s LaGuardia airport and Washington’s Ronald Reagan National airport. This is the third try between the two airlines to strengthen operations in their respective dominant airport – Delta in LaGuardia and US in Reagan National. May be the third time is the charm?

Why LaGuardia and Reagan National are important?

LaGuardia is the closest airport to Manhattan. Reagan National is the closest airport to downtown Washington. So, business and O&D traffic prefer these airports. The two airports have a lot in common:

  • Slot controlled, meaning the number of take-offs and landings are restricted by FAA.
  • Most preferred airport of choice in their markets.
  • Have perimeter rule that restricts long distance flights with few exceptions.
  • Traffic is mostly O&D with a huge proportion of high paying business travelers
  • Virtually no room for expansion and hence making their slots the most sought after commodity in the airline industry.

Why Delta and US Airways keep on trying for the slot swap?

Delta wants to wrest the title of New York’s biggest airline from the new United (which dominates the nearby Newark). Delta is already a dominant player in JFK, where its routes are mostly international with most of the domestic flights timed for feeding these flights. By becoming the leading airline at LaGuardia, it wants to capture the business travel market. Delta’s vision is to gain market share in New York air travel market by dominating both JFK and LaGuardia.

US Airways, though has the highest number of slots at LaGuardia, flies mostly to smaller communities with fuel guzzling turboprops. The exceptions being the mainline flights to its hubs in Charlotte and Philadelphia and the Shuttle service to Reagan National and Boston Logan. US Airways has no incentive in joining the turf battle waged between the big three in New York (United, Delta and American). Instead, it can gain market share in another important business travel airport – Washington Reagan National, where it is already a dominant player. This will perfectly fit in its strategy of focusing on its hubs in Charlotte, Philadelphia and Phoenix and the focus city in Washington.

Agreement Details

Here are the highlights:

  • Delta would acquire 132 slot pairs at LaGuardia from US Airways
  • US Airways would acquire from Delta 42 slot pairs at Reagan National
  • US Airways would acquire from Delta the rights to operate additional daily service to Sao Paulo, Brazil in 2015
  • Delta would pay US Airways $66.5 million in cash.
  • The transaction could result in the divestiture of up to 16 slot pairs at LaGuardia and eight slot pairs at Reagan National to airlines with limited or no service at those airports.

Operational Details

  • At LaGuardia, Delta will take control of Terminal C in addition to Terminal D. It will build a connector to connect the two terminals.
  • Delta will continue to operate its hourly Delta Shuttle from its six gates at the Marine Air Terminal.
  • US Airways’ hourly Shuttle service between LaGuardia, Reagan National and Boston will remain unchanged. US Airways will continue to offer its customers high-frequency schedules from LaGuardia to its Charlotte, N.C. and Philadelphia hubs and Pittsburgh with more than 60 daily weekday flights.
  • All US Airways flights from LaGuardia will continue to arrive and depart from nine gates and parking positions in Terminal C
  • US Airways plans to add at least 15 new destinations from Washington.
  • US Airways will operate approximately 230 peak-day departures at Reagan National, a 20 percent increase over current service levels.
  • The airline anticipates an increase of approximately 20 to 25 percent in passenger enplanements at Reagan National as a result of the new flights and schedule improvements.
  • There will be no increase in congestion at Reagan National due to US Airways’ planned increase in scale and Delta’s reduction in slots.

What are the chances for approval of this agreement?

Even though both airlines prefer to call it a new agreement, it is essentially a tweak of the previous two agreements – both denied by the US Department of Transportation. This time though, they may have a better chance of getting it approved.

The airline industry has changed a lot since the last agreement. In addition to the merger of United and Continental to create a new behemoth, Southwest, through its acquisition of AirTran, has gained access to both Reagan National and LaGuardia. Jet Blue has entered into Reagan National (through the slots it acquired from American).

But some of the original reservations of the US DOT remain: Delta will control more than 50% share in LaGuardia and US Airways will control close to 50% in Reagan National. The low fare competition will still be limited because of the paucity of new slots. The agreement does not specify which airlines would acquire the divested slots. Delta and US have interests in keeping Southwest from gaining these slots (Southwest argued with DOT to do a open auction for the divested slots last time). Despite these reservations, the agreement now has a better chance of getting approved.

Let’s wait and see!!!

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SkyTeam/Delta Plans To Reduce Winter Transatlantic Capacity By 15%

by: Siva Vayali - May 19th, 2011   Filed under: Airlines, Airports 1 Comment

Delta Air Lines today announced plans to reduce the transatlantic capacity by 15% during winter. Delta’s President Edward H. Bastian made this announcement during the presentation in Bank of America Merrill Lynch Investor Conference. This is in contrast to the original plans to increase the capacity. Delta itself will reduce the transatlantic capacity by 10–12 % (against the original plan to increase the capacity by 3–4 %). The JV partners will reduce the capacity by 7–9 % (against the original plan to increase it by 7–8 %).

Transatlantic business has been the weakest link during the March quarter and almost entirely contributed to the year-over-year profit decline. Delta is planning to align its revenue, capacity and structure to build a sustainable business model at $3+ per gallon jet fuel. Delta anticipates the jet fuel price to be $3.20 for the June quarter and $3.10 for the September quarter. Because of the additional expenses due to fuel, Delta plans to keep other costs flat by reducing capacity, retiring more aircraft.

Memphis hub reduced: Delta already indicated that it would reduce the departures from Memphis by 25%. Even though Delta claims that the reduction in departures will not significantly reduce the ASM, I do not believe it. Would Memphis be next Cincinnati? Would it cut the daily Memphis – Amsterdam service? It is possible.

New York and Atlanta will have minimal impacts: New York JFK and Atlanta would retain most of its routes as JFK has the best O&D traffic and ATL is the world’s largest connecting airport. But expect frequencies to be trimmed on many sectors, especially from ATL.

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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!!!

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Thoughts on Lufthansa’s selection of Miami as the next A380 destination

by: Siva Vayali - March 31st, 2011   Filed under: Airlines, Airports 1 Comment

Lufthansa today announced that Miami would be the next US destination to be served by Airbus A380. The world’s largest passenger airplane would replace the Boeing 747 currently operated on the Frankfurt – Miami route.

Lufthansa A380 - Courtesy: Lufthansa

Lufthansa A380 - Courtesy: Lufthansa

Lufthansa’s selection of North American destinations for A380 is interesting:

New York JFK is currently served four times a week using A380. The JFK service will become a daily on A380 starting April 10, 2011 (this means LH will delay the resumption of A380 service to Tokyo Narita, suspended due to the recent Tsunami and Earthquake, for a longer period). San Francisco will be served using A380 starting May 10, 2011. Miami will get A380 service starting June 10, 2011.

The JFK service is a no-brainer. The interesting thing to note here is Lufthansa’s preference of Miami and San Francisco over Newark Liberty (EWR), Chicago O’Hare (ORD) and Washington Dulles (IAD), all Star Alliance hubs and major gateways for LH. As more A380’s join the fleet, these gateways would get the service, but right now, they are not included.

There could be several reasons for this. I believe the following reasons played a major role in the selection process.

1. Single daily flight is easy to upgrade: Miami, with just one flight per day, and virtually no connection traffic, gives Lufthansa the flexibility to switch the metal from B747 to A380. San Francisco, though a Star hub, is also served by a single Lufthansa flight. So, it is easy for LH to replace the B747 with A380. Newark, Chicago and Washington need multiple flights from Frankfurt, as Lufthansa connects majority of its US bound traffic from these hubs through Star partner United. From these hubs, Lufthansa needs multiple frequencies a day to provide better connection options to its frequent flyers.

The exceptions to this theory are Toronto (YYZ) and Los Angeles (LAX), both Star hubs with a single Lufthansa flight (though Toronto is served by 2 daily flights from its anchor Air Canada).

2. A380 better than B744 on non-hub cities: Operating an A380 is more cost effective than a B744. Lufthansa’s B744s have poor customer reception. Replacing them with A380 would provide a better chance to protect its turf in hubs dominated by other carriers (MIA is a good case – it could deter American Airlines from starting a competing service).

3. Alliance Partners have a say in equipment upgrade: United and Air Canada have a transatlantic joint venture with Lufthansa and the schedules at Star hubs are coordinated between these carriers for optimal connections. United, being the anchor at EWR, ORD and IAD, has to make sure parity of service quality with Lufthansa in these hubs. So, United may be less receptive to LH upgrading these routes with A380, because its own product would fall behind in quality. The same argument goes for YYZ and Air Canada.

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So, my prediction is this: the next Lufthansa destination for A380 will be Los Angeles, followed by Houston and Boston.

Newark, Chicago, Washington and Toronto will have to wait get their turns.

Moral of this analysis: sometimes, being a hub with multiple daily flights to a destination can be a drawback to get better service!!!!

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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!

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Jet Airways talking to Delta, Air France and KLM – A gain for SkyTeam?

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

Jet Airways is reportedly in talks with Delta Air Lines, Air France, KLM and Alitalia to form a transatlantic joint venture with SkyTeam. As India’s largest and most respected airline, currently Jet does not belong to any of the major alliances. It has code sharing pacts with many airlines from different alliances.

Jet Airways Boeing 777 - Courtesy: Jet Airways

Jet Airways Boeing 777 - Courtesy: Jet Airways

Why considering a Joint Venture with SkyTeam now?

Ideally, Jet would like to join Star Alliance. It has strong relationship with Star through its code share pacts with Brussels Airlines, United, US Airways, Air Canada, and ANA. Majority of Jet’s European traffic is routed through Brussels Airlines. Jet uses Brussels Airport as a transfer point for connecting passengers between India and North America. It also has strong ties with Oneworld carriers through code share pacts with American Airlines and Qantas. Jet has no code share partner from SkyTeam, except with Alitalia through its recently launched Delhi – Milan Malpensa route.

SkyTeam Partners - Courtesy: SkyTeam

SkyTeam Partners - Courtesy: SkyTeam

So, why Jet would consider the option of joining SkyTeam or a JV? With Air India joining Star and Kingfisher Airlines joining Oneworld, Jet is running out of options. It has been reported that the Indian government was against Jet joining Star as it might dislodge Air India as a second tier partner. SkyTeam does not have any major airline from India in its kitty. So, the deal could be mutually attractive.

Is it good for Jet?

Jet Airways has built a nice little operation at Brussels Airport. It is an efficient operation with all flights arriving and departing within the same short window of time. This makes transfers easy. Brussels Airport, being small compared to other European hubs and a one-terminal facility, also helps (but, I have heard few complaints about passport control and security scrambling to handle high passenger volumes in short window of time). Code share partner Brussels Airlines (now part of the Lufthansa group) provides decent connections throughout Western Europe and Africa. Jet Airways can keep the revenue from lucrative North American traffic to itself as the later does not have flights across the Atlantic.

Joining an alliance with SkyTeam would involve Jet transferring its hub from Brussels to Amsterdam’s Schiphol airport, where KLM operates a mega hub. KLM offers much better connections throughout Europe, Africa and North America than Brussels Airlines. Delta Air Lines also has significant operations at Schiphol. This greatly expands Jet’s ability to offer connections. If Jet starts a flight to Atlanta, it would virtually put the entire North America under its map through Delta’s network.

But, the downside is that Schiphol has a much better transatlantic connectivity and competition than Brussels and how much control would Jet get on the transatlantic routes from there. Media reports suggest that SkyTeam is willing to allow Jet to takeover only one route from Amsterdam. Currently Jet Airways operates its own metal on Chennai – New York JFK, Mumbai – Newark, and Delhi – Toronto sectors, all routed through Brussels. It has plans to add more North American destinations in future. If Jet has to shift the hub to Amsterdam, would it be able to offer these routes? KLM serves to Delhi and Delta servers to Mumbai currently. From Schiphol, KLM and Delta pretty much cover the entire North and South American continents. Under these circumstances, what could Jet offer using its own metal? How the revenue would be shared? What would happen to Jet’s existing code share agreement with American Airlines? All these questions need to be answered.

A win for SkyTeam and a loss for Star Alliance

If this happens, it would be a major win for SkyTeam.  It was scrambling to find a partner in India. It could not ask for a better one than Jet Airways. Jet connects the length and breadth of India. SkyTeam instantly gains access to the second fastest growing economy in the world.

It would be a major loss for the Star Alliance. Star would be better served with the inclusion of Jet than the current proposed partner in Air India. The government owned Air India is in survival mode and it’s joining the alliance has been delayed due to several operational reasons. Air India is also financially bleeding, with massive debt and labor issues and it is steadily losing market share in both domestic and international routes. I don’t know why Star, especially Lufthansa, preferred Air India over Jet. One reason could be that, Lufthansa has a major presence in India and did not want a stronger carrier that could compete with it.

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