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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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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Reagan National Airport And Long Distance Flights

by: Siva Vayali - February 9th, 2011   Filed under: Airlines, Airports 3 Comments

The FAA Re-Authorization bill is stuck in the United States Senate because of a battle over allowing more long distance flights to Ronald Reagan Washington National Airport (commonly called just National Airport in the Washington/Baltimore metro area).

Ronald Reagan Washington National Airport - Courtesy: Metropolitan Washington Airports Authority

What is the Perimeter Rule?

Reagan National Airport has a Perimeter Rule that prevents flights longer than 1250 miles. It is also a slot-controlled airport, which means the number of take-offs and landings are strictly controlled by the FAA. Any increase to the number slots has to be approved by the FAA/DOT. This means the slots are one of the most valuable commodities. Airlines scramble to get slots at Reagan National. The traffic is mostly business travelers and O&D.

Why Perimeter Rule was put in place first?

  1. The initial objective of the Perimeter Rule was to drive traffic to the newly built, once thought as a white-elephant, distant Dulles International Airport.
  2. With the advent of Jet age, the rule was cited as a preventive measure to control noise around the densely populated Northern Virginia suburbs of Arlington and Alexandria.
  3. With the terrorist attacks on September 2001, the security angle also came into play, because of the airport’s proximity to downtown Washington and Pentagon.

Why the Rule is still in place?

The real reasons for not relaxing the rules are the following:

  1. The local population living around the area vehemently opposes any relaxation of these rules fearing increased air and noise pollution. This means the local politicians have no incentive to support this measure.
  2. Both Reagan National and Dulles are run by the same agency – Metropolitan Washington Airports Authority, which sees no big reason to change the status quo.
  3. The local population is used to drive to Dulles, as it is the main international gateway to the region. People on the Maryland side of the beltway have easy access to Baltimore Washington Thurgood Marshal Airport (commonly referred here as BWI). BWI offers excellent low fare choices as it is the hub for Southwest Airlines.
  4. All the three airports thrive because of their unique advantages (National – preferred by the business traveler, mostly O&D traffic; Dulles – primary international gateway with wealthy population living around; BWI – excellent low fare choices).
  5. And finally, the local law makers and airport administrators have some concern of loosing traffic to Reagan National if more flights and destinations are added (which is not true as I explain it later).

These reasons make sense as it is a local transportation issue and hence the local people and leaders should make decision.

Why Perimeter Rule is a problem?

  1. The restrictions are against the free competitive market spirit of America.
  2. Also, the Western US markets such as California, Oregon, Washington, Arizona, Colorado and Utah want direct non-stop access to Reagan National Airport. Their argument cannot be dismissed either – they want to have access to the closest airport to downtown Washington.

What is the problem in adding more services to Western markets?

  1. The issue gets complicated as there are no free slots available to add more flights.
  2. Adding new slots will be opposed by the local population living around the airport.
  3. Exiting slots cannot be used to start services to these new markets because of the fear that the smaller markets in the Midwest will loose their existing service. The law makers and business leaders in Midwest would not agree to that.

So, what should the Congress do?

Should it repeal the Perimeter Rule? No.

Should it keep the rule as is? No.

Congress should strike a compromise.

  1. Allow very limited number of new slots to Reagan National in order to serve San Francisco, San Jose, San Deigo and Portland, OR markets of the Western states. These markets lack non-stop service to Reagan National airport.
  2. These slots should not be used for expanding existing services to markets such as Los Angeles, Las Vegas, Phoenix, Denver and Salt Lake City, because they already have non-stop services to Reagan National.

What are the implications of adding few new slots?

Local Population Living Around National Airport – With modern jetliners, the noise and air pollution is much less than what we think. So, this should not affect their quality of life.

Markets that already have services to National Airport – New slots are used for these services and hence it should not be a problem.

Dulles Airport – There are some concerns with the local law makers and airport administrators that Dulles might loose some traffic. But, the impact on Dulles would be minimal. Dulles thrives and it is the largest airport in the region. It serves two of the wealthiest counties in country (Loudoun and Fairfax). It also serves the economic engine of Northern Virginia, namely the Tysons Corner and Dulles Technology corridor. With United operating its transatlantic hub, there should be plenty of connecting traffic in addition to the O&D.

BWI Airport – BWI would do fine too, as it caters to the Baltimore market in addition to the Washington market. It also has the low fare juggernaut in Southwest.

US Airways – Ideally US Airways would prefer to use its existing slots because new slots would be very difficult to justify as it is the dominant carrier at National. But, it could argue with DOT that as a dominant carrier, it should get some new slots so that it can offer connections to West Coast for smaller Eastern communities through National. I am not sure how this argument will fly with DOT. So, if new slots are allowed, it would mostly be negative to US Airways as other airlines would compete to get them. If few of the existing slots are allowed to start these services, US Airways would be the major beneficiary.

United Airlines – United also has something to gain and loose in this arrangement. As a dominant airline at Dulles, it might loose some business traffic to National Airport because San Francisco is one of the top destinations in Washington/Baltimore area. On the same token, as a dominant airline in SFO, United could win new slots to serve SFO from National (Virgin America would compete to get these slots too).

Other Airlines – If Portland, OR is allowed to have direct service, Alaska airline may benefit.

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