Boeing v. Airbus Issues

Small Community Air Service
Grant Program Update

Flim-Flam From
Academia: The
Airline Quality Ratings

Bush:  Foreign
Control of US Airlines

Wright Amendment Debate:
Using Kids As Shills

UAL Execs
Suing For More Booty

Year 2006 Predictions

Airline Industry Trend
Forecast: 2006
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Airline Bankruptcy Myths

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Jan-May 2005 

Hot Flash Archives
June-December 2005

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Archives - 1/06 Through 6/06

Hot Flash - June 26, 2006

Five Years of Mineta's Proven Ineptitude & Lack of Leadership
This Is Not The Time To Be Gracious

Norman Mineta will leave the DOT in two weeks. It ends five and one half years of poor leadership, bad decisions, and a legacy that has made the USA a laughingstock. That's politically incorrect to say, but the facts are inescapable, the performance too ghastly to ignore.

We Must Hold Mineta - and Bush - Accountable. This is a war - terrorists really do want to kill us. Therefore, it's not only stupid, but absolutely irresponsible to gloss over and ignore the failures of public figures such as Mineta. And there were lots of them that we are now paying for.

Sorry, despite how nice a guy he might have been, or what a great "team player" he was, or what he did in his past, the fact remains that as Secretary of Transportation Mineta was ambarrassing failure.

We have the same dumbo security that was in place on 9/11 to prove it. We have the TSA - which is merely pre-9/11 FAA aviation security on financial steroids - to irrefutably prove that Norman Mineta should walk out the door on July 7 with his head down in shame. Or, that Bush should have drop-kicked him out the door on 9/12/01.

Mineta clearly didn't rise to the challenge.

But, this is Washington, So, at this juncture, plan on hearing all the gracious, caring, and non-critical kudos to Norman Mineta. The Washington cognoscenti will issue flowery statements regarding alleged "outstanding achievements" he had in the job as Secretary of Transportation, and send him glowingly on his way to whatever lucrative job in private industry awaits.

And most of it will completely ignore the fact that as DOT Secretary, the guy's performance ranks him as direct competition to what's hanging on the racks at Mens Wearhouse. But he's the Democrat token in a Republican administration - which means neither side will dare even make a peep about Mineta's lack of leadership after 9/11, or the fact that aviation infrastructure has continued to decline on his watch.

Protocol: Don't Say Bad Things. Even If They're The Truth. The inner workings in Washington seem to be sort of like a bi-partisan version of a Jane Goodall special on the social behavior of chimpanzees. They fight, they scrap, but at the end of the day, they all get together and "groom" one another, scratching each other's back and picking bugs out of each other's hair, showing that they are, after all, one big happy family.

That's pretty much where we are today in Washington in regard to defining the job done by Mineta as DOT Secretary. No fighting, just political "grooming." Therefore, the next person in the job need not worry.

One can now hear the guffaws from the aviation cognoscenti, the ones who stand on the sidelines and watch for directions on political correctness: Oh, this is so mean! How dare you take shots at this great public servant?

Easy: It's called telling the truth. To intentionally ignore the truth to support a preconceived political conclusion is dishonest. To ignore and try to muzzle the truth about public officials when they fail - as has Bush in his lack of significant concern for aviation security, and as has Mineta in his bungling of transportation security - is the moral equivalent of lying - regardless of which side of the political fence one is on.

As for the "great public servant" stuff, get this: just being DOT Secretary isn't an immediate coronation as a savior of the public. The measure is the quality of the job performance, and Mineta - as proven by the facts - was a dismal failure.

Ladies & Gentlemen! Let The Grooming Begin! Mineta's underling, FAA Administrator Marion Blakey, began the grand back-scratching last Friday...

"Secretary Mineta is a real icon in the field of aviation... his work made terrific contributions to reducing congestion and to the safest period in aviation history. He has certainly left his mark on our skies."

"Reducing congestion?" She must be talking about nasal congestion, not the national airspace. Mineta ain't done diddly in that area. Nor has Blakey, for that matter.

This from the same FAA Administrator who can't pass a microphone without whining about the burgeoning congestion that's about to bring our air transportation system to its knees. The same congestion that's mostly the result of FAA/DOT bungling of air traffic control upgrades. The same bungling that has left our ATC system understaffed, ineptly managed, and, effectively, in a quiet state of shambles. Now she says Norm has "reduced congestion."

Keep on scratchin' & groomin', Marion.

As for aviation safety, we're lucky that her and Mineta's ATC mismanagement didn't succeed in marring this "safest period in aviation history." What kept it that way has been the dedicated work of the nation's air traffic controllers, who've been on the front line of having to deal with all this. It was despite the Norman & Marion show, not because of it.

But now it might be of value to recount Mineta's greatest achievements as DOT Secretary:

• The Transportation Security Administration. In record time, and spending record amounts of tax dollars, Mineta oversaw the creation of one of the world's largest, most ineffective and bungling bureaucracies - the TSA. When it comes to total lack of vision, zero credibility, and a clear track record of being unable to do its intended job, the TSA sets a new standard.

Test after test, review after review have proved conclusively that the TSA has not disturbed the moribund status-quo in aviation security achieved by its predecessor, Jane Garvey's FAA. (No wonder Blakey's happy.)

The TSA is truly something to make Mineta go down in the history books. What took the FAA years - nay, decades - to achieve in entrenched, intractable bureaucratic stupidity, Mineta created at the TSA in mere months. It's the government equivalent of the Yugo - it doesn't run well, it's flimsily constructed, and it's completely unreliable. The worst part is that, unlike the Yugo, the TSA's still in production.

And what a program it is, too. Not since Napoleon marched the Grand Armee into Russia has the world seen anything as breathtaking in scope, as lavish in spending - or as big a failure in what it was intended to achieve. The TSA stands as one of America's most prominent embarrassments, and Norman Mineta can take full and proud credit.

• The Air Traffic Control System. Under his watch, virtually every major ATC upgrade program has remained fashionably late - indeed, years late - and prominently over cost-estimate. Airlines are getting zapped to the tune of at least $8 billion annually in excess costs, simply because of Norman Mineta's approach to participative management - no results are OK results at the DOT/FAA.

• The 9/11 Response. Aside from the fact that it was his subordinate - FAA Administrator Jane Garvey - that treated aviation security prior to 9/11 as an afterthought, Norman Mineta today still trumpets how he was Johnny-On-The-Spot on the morning of 9/11. "I ordered airliners out of the sky," he deeply intones.

And, in fact he did.

Unfortunately, by the time he bumbled around to it, airlines had decided to take matters in their own hands, and a number of them had already directed their aircraft to land. What Mineta did was the equivalent of pulling the alarm handle after the fire trucks had already arrived, and then dishonestly trying to take credit for discovering the fire. He leaves this out of his autobiography of heroism.

• Assuring Continuity of Incompetence After 9/11. And we can also point to his tough management performance in the days after 9/11. The guy's own FAA security had allowed four airplanes to be hijacked, killing 3,000 people. This despite warnings from FAA Red Teams regarding doctored airport security inspections. In light of this, Mineta fired no one, and re-organized nothing. To the contrary, he made sure he publicly congratulated Jane Garvey and her FAA team for their excellent work.

Which is like thanking the boll weevil for visiting the South.

The Private Sector Will Get In On The Grooming, Too. Naturally, we can expect the usual comments from the private-sector aviation Peanut Gallery. "Norm did a great job." will be the general mantra. "What a fine public servant. Why, I heard him speak at the Wings Club, and he was marvelous!" will tend to be the ooze coming from a lot of the veneer East Coast aviation cognoscenti, many of whom will be in suck-up mode, lest Norm land a position at another powerful defense contractor.

We can also of course look forward to the expected missive this week from the senior management of Alphabet organizations such as the AAAE, lauding Mineta on his "excellent" performance, and how much they "enjoyed working with him" as he generally did nothing particularly positive to upset the Washington Apple Cart.

Let's Cut To The Facts. Summarizing, Mineta leaves with the DOT/FAA in a mess. The TSA, now under Homeland Security, is a  huge mass of inert bureaucratic marshmallow, and our aviation system no safer than on 9/11. And the usual suspects will call this "wonderful progress" under Mineta's leadership. Scratch and groom.

But referring to what Ms. Blakey said in her press release, Mineta has left his mark on our skies. 

Kinda like Willie Sutton did on the banking industry.

(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - June 19, 2006

In The Airport Forecast Flash: The Boyd Group provides first overview of what types of new service we may see at Love Field. (Click Here)

More Air Service Recruitment Success. The Boyd Group is pleased to have assisted Sarasota Bradenton International Airport in its successful application for nonstop US Airways service to Reagan National Airport. A-319 flights begin in August.

If your airport is looking for new thinking - futurist thinking, aggressive thinking - in its air service development program, click here for more information, or, better, just give Mike Mooney here at The Boyd Group a call. We produce results for our clients.

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The Wright Agreement... This Party May Not Be Over
AA & WN Got What They Wanted...
But Will The Troops Demobilize?

The tentative agreement on the Wright Amendment announced last week gives a win to both AA and to Southwest. Fundamentally, both airlines got what they thought they needed.

The question is, will it stick? There are a lot of potential kinks in the deal. It has to be approved by Congress, which is 535 individuals, many of whom have agendas regarding DAL. Some have gone on record calling for closure of Love. Others are operating under the fantasy that they're gonna get Southwest service at the local airport, if only the Amendment is repealed.

Another question is, will the proponent civic armies that both sides whipped into a righteous frenzy now pack it in and go home, or, disappointed they didn't get their way, will they stay in the streets and try to oppose the deal?

Let's Take A Look At The Players...

Southwest - Problem Pretty Much Solved. Overall, the carrier gets the bottom-line solution it was after, namely, the ability to bring its isolated and under-performing DAL markets up to its system average.

As it stands today, WN faces a stagnant future at Love, an airport with a shrinking catchment area due to the growth in service and in ground access at DFW. Southwest needs to attract more traffic to more places to offset this trend at DAL. Connect and through-ticketing will do this nicely for the foreseeable future.

Sure, the deal prohibits Southwest from tossing airplanes nonstop to places like SEA, BWI, and LAX from Love for eight years (which, as we'll explain below, effectively could mean never) but it will give WN exactly what it needs right now - higher load and revenue factors which will be the result of approximately 27 new market opportunities from Dallas/Love.

The Airports:USA Weekly Forecast Flash analyzes this. (The link to Airports:USA is above.)

On the surface, proponents and opponents will claim, from varying perspectives, that the agreement will permanently constrain Love operations. Meaningless, because Love Field, by virtue of its location, size, access, and demographics is already fundamentally and inalterably constrained.

Regardless, simply limiting gates at Love is probably ok with Southwest, whose goal has been to fix its Love operations, not blot out the sun over Northwest Highway with fleets of 737s.

Remember, Southwest never claimed at anytime in this silly affair that they intended to turn Love into the next O'Hare. What's been missed over the past year is that it was American, not Southwest, that made all the noises about moving dozens of flights to Love, turning it into some kind of congested inter-galactic airline crossroads. An empty threat, to be sure, but it wasn't one made by Southwest.

And as we pointed out in our study, the number of  net-new markets where Southwest would bring low fare nonstop flights to the Metroplex could be pretty much counted on one hand, anyway.

American - They Can Stand Down. Between the lines, AA wins, too, although they were in line to win in a competitive sense regardless of the outcome of this deal, simply due to the inexorably declining role of DAL and the ascendance of DFW as the dominant Metroplex airport.

Under this deal, AA knows that the real-world likelihood for additional Southwest long-haul nonstops from Love is now right up there with the triumphant return of Elvis to Caesar's Palace.

Point to again emphasize, because it's been lost in the smoke and mirrors on both sides of the issue: Love, far being a huge threat to DFW, is a declining asset in terms of being a major gateway to the Metroplex.

Further, eight years from now, the growth dynamics of the region clearly point to Love being one very marginalized gateway. As we noted in our study, think of it as the airport equivalent of Dien Bien Phu - it looks strong, but the fact is that its traffic catchment perimeter is, and will continue to be, one that is shrinking as access and service levels grow at DFW. By 2014, the growth on the west and northwest side of the Metroplex will make the past year of Wright controversy look like the childish tantrum it really was.

The Mercenary Armies - Will They Now Pound Websites Into Plowshares? And here we come to the troops - the eager civic groups that were armed and supported by airlines and others on both sides of the Wright battle. These, we submit, are the now no-longer-needed troops that both sides raised and supported.

The question is whether they will quietly demobilize and go home, or, denied the victory they were promised, will become guerilla forces no longer controlled by either airline.

Already, we hear the groans and disappointment from both sides of this "civic forum."

Or, in some cases - on both sides, it might be better described as the civic forum of manipulated misinformation, intentional disregard for common sense, and/or dedicated focus on trendy pre-conceived notions that had no connection with reality.

Will "Stop & Think" Do Either? On one hand, we had the Chicken Little movement, perhaps best typified by Stop & Think, funded by American Airlines. It was not much more than an angry cyber-mob with a seeming dedication to ignoring facts, creating hysteria, and generally looking like people who just emerged from a No Money Down Real Estate Seminar. Lots of enthusiasm. Not much intellectual substance.

Regardless of the fact that many of these people had fine, honest motives, it doesn't change the fact that the whole movement was manipulated into a cheap exercise in cyber-emotion.

They started - or, should we say, were fed - from the beginning with the sacred belief that Wright repeal would be a threat to children second only to having Michael Jackson running around the neighborhood. It brought the discussion into the realm of cheap emotion that had nothing to do with the facts. If you were for repeal, you were against "the children."

We can assume that financial support from American Airlines for Stop & Think will now come to a quick halt. But will they close the headquarters and go home? Remember, this was the gang that was whipped into a frenzy, including frequent calls to shut Love Field down because, the doctrine went, that it was a clear and present danger to the environment, to education, and - to read the drivel on the website - probably to World Peace, too.

Now that AA's happy keeping DAL open, these folks might just feel a bit used. Which, of course, they were.

(A couple of the stellar moments on the Stop & Think website really illuminated how shabbily this movement was organized. Early on, there was the mother who claimed her 6-year-old supposedly had nightmares of being squashed by a Southwest Airlines plane, shamelessly playing on the tragic event at Midway. Then there was the guy who wrote that he was worried about the extra noise Wright repeal would create over his home in Colleyville. Take a look at the map, it it's clear that the man was geographically challenged. Both of these comments, and probably others, were apparently eventually deleted from the website.)

What? No Southwest Service to Grand Island? But we also have what is appearing to be deep dismay and disappointment in some parts of the pro-repeal crowd. While there is no question that full repeal was what should have been done, the problem on this side of the battle lines was in a few circles a deep-seated, and largely self-inflicted, case of excessive expectations.

There seems to be an ambient belief in some corners that repeal would bring immediate cheap nonstop flights to dozens and dozens of markets from the Metroplex. While Southwest did indeed work this angle, at no time did they say or strongly imply that they would implement nonstop DAL service to lots and lots of new destinations.

This was accessorized in some places with the side agenda of "getting even" with American Airlines for the dastardly deed of creating a huge global hub at DFW, and shock! actually dominating the hub it built. Wright repeal, some of the warped thinking went, would teach AA the lesson it deserved.

Senator Snort Might Not Be Happy, Either. Finally, there are the politicians in various parts of the nation who somehow got the idea that the Wright Amendment was the only thing preventing Southwest from flying into East Cowpaddy Municipal. That could mean bitter disappointment and some resistance in Congress, which has to approve the deal.

Bottom line so far - the deal gives WN the traffic flows it needs to bring its Love operations where they need to be. AA gets near-ironclad assurance that Love Field will always be a constricted facility with declining competitive value.

Is It An Airport or An Exclusive Country Club? But the deal, apparently, appears to simply carve up Dallas Love for just Southwest, American, and Continental. It's entirely possible that other carriers - which a week ago had no intention of even looking at DAL - might try to queer the deal in congress.

It's a public facility, and it could be argued that AA and WN have gotten together to make it their facility. That's not an accurate perspective, but this is business. If other carriers can keep American and Southwest at each other's throats, from their point of view, so much the competitive better.

Film at 11. This deal might not be done.

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An Airline Industry Visionary Moves On...

We are sad to report the passing last Friday of Mr. Roger Street, a pioneer and visionary in airline customer service.

While a lot of other executives have had higher profiles, few have had the long-term impact on airline passenger service that Roger did. Roger began his career as an airport agent with Braniff in San Antonio, eventually rising to the position of VP of Field Customer Service for the growing airline.

Over a twenty-five-plus year career, he was intimately involved in implementing a number of service innovations that airlines and passengers today take for granted.

• Back when seat assignments and boarding passes were dispensed only at the   gate within an hour of departure, it was Roger Street who conceived and implemented the first systems that provided the convenience of both multi-location check-in, and connecting boarding passes at first point of contact with the airline. Braniff had both of these breakthrough conveniences in place and operating system-wide long before American. Before United. Before any other airline.

• If you like those check-in kiosks that are now ubiquitous at airports around the nation, say thanks to Roger Street, who in the 1970s implemented the industry's first automated, stand alone ticketing machines. Certainly not as compact and spiffy as those today, but "BraniMatic" devices allowed customers to avoid waiting in lines.

• The concept of remote, drive-through ticketing was another Roger Street innovation, with the first such facility being opened in Dallas in the late 1960s. The remnants of the facility are probably still there at 7701 Lemmon Avenue, not far from the former Legend Airlines terminal. The concept was extended to the Love Field parking lot, where passengers could be ticketed before they took a monorail into the terminal. There's an airline in Dallas today that has claimed it was the "first" to implement drive-through ticketing. They didn't.

It's a shame the airline industry has too few Roger Streets - too few people who see the goal and act decisively. In this way, Roger assisted Braniff in transforming from a small player into a global operator. By the time competing carriers had formed their task forces and committees, Roger and his team had the goal accomplished.

Just one example was in the last days of regulation. The CAB awarded Delta rights to open Reno, with service to LAS, which at the time was a desperately underserved market. Delta responded that they'd start service in 90 days. Braniff - which had no staff or facilities whatsoever at Reno - jumped in, committing to be up and running within 72 hours from the time of the award.

Roger and his team pulled it off - in less than 72 hours, Braniff had opened a full station and three very full 727s were departing daily for Las Vegas. Delta was out in the cold.

Roger left Braniff in 1979, and ultimately went on to a distinguished career serving his country as a diplomat in the US State Department, including being directly involved in US diplomatic liaison with the Chinese government during the return of Hong Kong from the British.

All of us who were honored to work for and with Roger Street will miss him. But it is comforting to see millions of airline passengers benefiting from his vision.

(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - June 12, 2006

Quote of The Week...

"The union wants us to mortgage the future of the national airspace system."

That was the conclusion of FAA Administrator Marion Blakey in regard to her view of the controllers' union demands across the bargaining table.

Based on the way Blakey and her little friends are managing the ATC system, with virtually every major upgrade program years behind schedule, if that statement's true, the controllers are trying to settle real cheap.

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A Case Study In Squandering Brand Equity?
United Fails In Entering Denver-Midway...
On Second Thought, Maybe They Were Never There

United has announced that it's dropping its attempt at breaking into the Denver-Chicago/Midway market.

Strange. Of the three carriers that entered the DEN-MDW market, United would at least on paper appear to hold all the cards. Or at least the best hand.

It made sense for United to initiate flights in the market to take on Frontier. First, it's got a huge feed operation at Denver. Bigger than that of Frontier, and more substantial than what Southwest (which came in last January) has on the Midway end. Next, it's got customer service that's the standard other carriers should shoot for. United also has bazillions of card-carrying MileagePlus members in both Chicago and in Denver. More than Frontier has at Denver. More than Southwest has, too. Finally, United has huge brand awareness at both ends of the route.

But when load factors are compared for the first two months of the year, however, it's clear that entering the MDW-DEN route was simply was a dud for United, even in spite of its strong brand equity in the Chicago market. A big, embarrassing dud. They got nowhere gaining market share.

 

So what gives?  It appears that United in this case may have essentially squandered its advantages of consumer awareness because it didn't promote the MDW service as "United."  Instead, it entered the market, and promoted it as "TED" - the paint-job-masquerading-as-a-separate-airline that some expensive "advisors" convinced United to pursue. Unlike most other markets where United put Ted-painted airplanes, MDW was different - it was not an established route for UA, nor was it one that was leisure-oriented. It's essentially a business market.

In a sense, the message was very possibly that United wasn't really in the market at all, and -  given a 47% load factor - a lot of the public apparently believed it.

With all the advantages United should have had over its competitors in the MDW market, it's pretty difficult to otherwise explain how it ended up playing load-factor caboose, even behind ATA, whose capacity has now been replaced by Southwest.

Two of the basics of Marketing 101 are to have a clearly-defined product identity, and not to target products with perceptually different values to the same customer segment. United has succeeded in trampling on both of those basics. Although "TED" is essentially an integral operational part of the United system, and really isn't "low fare" (or low-cost) any more so than the rest of the United-painted fleet, its marketing thrust has been to try to convince the public that TED and United are two separate products.

In this case, it looks like they succeeded in doing just that.

(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - June 5, 2006

Note: Airport Forecast Flash: To avoid a Monday rush, the Airports:USA Forecast Flash will now be published on Wednesdays.
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In The Aviation Security Update: Don't be concerned. Those are just friendly bullets. Click Here.
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Wall Street Journal Discovers Yesterday

There are good parts of the print media, and there are great parts of the print media.

The Wall Street Journal falls in the latter category. Generally, the only major problem with the WSJ is that there are too many stories that have "jump" pages - "Please turn to Page A9" which can be a challenge when trying to read the paper while exercising at the gym. But at least the quality of the story is well worth the risk of falling off the elliptical trainer.

Except, maybe, for some of the aviation reporting. Sometimes, they are apparently reporting from another planet. For example, back when US Airways was heading to do a Chapter 11 re-run, a WSJ editorial lamented the fact that US Airways wasn't non-union like Southwest. To describe WN as "non-union" is as ignorant as describing Samuel Gompers as a notorious strike-breaker.

From The Gee-Duh School of Reporting. Today, the WSJ did it again. They've discovered that "legacy" airlines had materially cut back their mainline fleets, and are, according to the WSJ, supposedly now "unwilling to fly half-empty aircraft to stay competitive on a given route just for the sake of feeding their nationwide networks..."

As for reporting on fleet changes, they are journalistically a year late and a 767 short. Nice they noticed... especially since the mainline fleet trends have been obvious for years.

We'd note that attendees at our Annual Aviation Forecast Conference last fall learned that the equivalent of one entire mainline Continental Airlines had been removed from the system since 2001.

Meanwhile, back then the WSJ was probably spouting about "over capacity" in the industry. As for "half-empty" airplanes they talk about - when was that? Load factors have been at or near what is essentially capacity - 70% or above - for over a year. The WSJ just today reported it as news.

Fewer Airplanes? But the fundamental flaw in the Journal story is that the number of airplanes operating in the colors of major airlines, and flying within major airline systems, has not declined anywhere near what the story implies.

For example, United may indeed have unloaded its 737-200 fleet, but it's also leased-in more aircraft - including a mainline-cabin E-170s - from small jet providers, such as Republic and Skywest. (The WSJ may still believe that these "regional airlines" are just distinct and separate small city feeder lines, instead of the major leasing companies that they've morphed into.)

That airplane in United livery flying between Denver and Atlanta, or Dallas and Denver, is no different in application if it's leased from ILFC and flown by a United crew, or if it's leased from Republic and flown by a Republic crew. It's all one United product, one United system, controlled and scheduled and priced by United, regardless of who owns the airliner.

Wow! Now It's Profits That Airlines Want! There was another giant airline industry revelation in the story, too: airlines "are now focusing ... aggressively on the profitability of each route and flight..."

No kidding. Airlines are focusing suddenly on, yes! profitability! Up until now, as we all know, they've been doing their nails and sitting around watching re-runs of Oprah in the back room.

But the statement is misleading and inconsistent with network airline fundamentals.  The fact is that airlines are not in the business of making "each route and flight" segment a stand-alone profit center, as the story inaccurately implies.

Getting back to the issue of leased-in aircraft from small jet providers, the on-segment revenues do not - and in many cases cannot - match the on-segment costs of the airplane. ABY-ATL will never be stand-alone profitable as an O&D market for Delta. But the incremental system feed it provides makes up more than the difference. And that's the case in dozens of markets at virtually every airline hub operation across the nation.

Indeed, take a gander at United's financials or those of Frontier in regard to their SJP costs. The play is the incremental system feed. It's a slippery issue, but to imply that airlines are now trying to make every O&D market profitable could only come from either a high school case study or from a concentrated lack of knowledge of the subject matter.

Get Ahead of The Curve. And Ahead of Rearview Mirror "Forecasts" The WSJ story started with "...major airlines are staging a recovery from five years of brutal losses, something many analysts didn't think possible as recently as six months ago.."

We're relieved to point out that the attendees at our Annual Aviation Forecast Conferences have been much better informed regarding airline trends than these faceless "analysts" the WSJ refers to, whoever they are.

Our forecasts as long as two years ago outlined the fundamental strengths of the legacy carrier segment, the trends in play, the new roles of what were once "regional airlines," and the challenges facing LCCs.

Articles such as this one in the WSJ are unfortunate in that they focus on a couple of data points and build out conclusions that are either already in evidence, or have a tenuous relationship to reality. The Wall Street Journal is much better than this.

If you want to get a better - and more accurate - picture of emerging aviation trends, we suggest you click here to register for The Boyd Group's 11th Annual Aviation Forecast Conference.

We cover what other analysts will be reporting a year from now. After it's safely obvious.

(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - May 30, 2006

Airports, Suppliers, Financial Institutions On The Line
Boeing v. Airbus: Fundamentally Divergent Futures

Marketing classes are full of stories about how once-powerful companies made the wrong decision, bet on the wrong horse, or simply mis-read the future, resulting in their ultimate demise. 

Boeing v Airbus may be the latest episode.

The aircraft industry takes up a lot of chapters in Marketing Missteps 101. Douglas, the dominant pre-war and post-war airliner manufacturer, stumbled out of the gate with the introduction of the DC-8, giving Boeing the market advantage.

Lockheed, in the 1950s believed that turboprops, not pure jets, were the future, and produced the Electra. (They weren't alone, by the way. The president of American Airlines in 1955 noted the high fuel consumption of pure jet airliners, and proclaimed that while his airline would buy some of them, he would not move his company "backward" into the jet age.)

Since 707s and DC-8s were fast, Convair trendlined the concept with an even faster airliner, coming out with the Convair 600 (yes - 600) supposedly because it would be a 600-mph sky-burner. They quickly shifted the name to 990, and also produced a junior version, the 880. Technologically a wonder - it was fast - the 990 was also an operational pig that couldn't fly over a maintenance hangar without stopping, and ultimately it didn't have the range promised. The 990/880 program put Convair out of the airliner business.

Then, moving from antiquity, we have the burlesque witnessed in the early 1980s, as "regional" airlines began to morph from mom-and-pop, hope-to-make-the-payroll companies, into entities that had value to major carriers. We had ATR, Beech, CASA, Cessna, BAe, Shorts, Saab, Fairchild, deHavilland, Embraer, and others, all armed and marketing-dangerous, peddling airplanes to small airlines, a few of which had management who pursued, shall we say, "alternative" views of things like maintenance and safety. Take a gander at how many of these manufacturers are still in the airliner business. It's Embraer, ATR, and Bombardier (deHavilland), mostly, and the latter company is riding a downward demand curve for RJs and new-generation turboprops.

Big Leagues. Big Risks. No Guarantees. That takes us to the Boeing v Airbus situation. Take it to the bank: point-in-time sales volume is no indicator of long term survival. Just ask Saab. Just ask Douglas. The measure of long term success, particularly in a world where the R&D costs are in the billions, is the "vision clarity" these companies have of the future.

Boeing settled on the need for materially higher efficiency, and went in the direction not of just a new airplane, per se, but of new production technology, with the 787 being the first example. Airbus, secure in its fat orderbook, apparently saw the future as a continuing trendline from the past. The result is the A-380 - a 600-passenger conveyance that would eclipse the 747 in size, per-seat economics, and sheer grandeur.

And, based on the orderbook, not much else.

As it stands today, Airbus has clearly bet on the wrong horse. Airlines are looking for efficiency. The A-380 will almost certainly be a winner from the perspective of ASM expense, but with 550 - 600 seats to sell, it's going to be an expensive aircraft from the perspective of raw sector costs. That limits its market applications. Severely.

Meanwhile airlines are probably finding Boeing, the only game in town with a new-generation airliner, and with a cascade of new orders, getting a bit frosty when doing deals. Airlines and leasing companies would like to see a 787 competitor that would bring some price leverage to the market.

To respond to the 787, not to mention the demands of existing Airbus customers, the folks in Toulouse created the A-350 concept, a perfumed A-330 with some composites and other upgrades, to at least provide something that approaches the cost advantages of the 787. It has failed miserably to impress the airline industry, notwithstanding a recent 22-unit order from Aeroflot, which reportedly was sweetened with a $100 million discount.

To further modify the A-350 design, or to start with a clean-sheet airliner, would cost Airbus billions more Euros and be at least 2010 before the thing rolled out of the hangar - years after Boeing had exploited the competitive battlefield with the 787.

Impact on Aviation Players. Players throughout the entire aviation industry - be it suppliers, airports, small jet providers, financial institutions - are also at some planning risk in this fleet demand game.

Based on the latest Fleet Forecast from The Boyd Group, here are a couple of planning points to consider:

• Airports are entities that need years of lead time for facilities. Events in the aircraft industry mean that some airports - but only a few - are prudent to investigate the cost/benefit aspects of upgrading to handle the A-380. The challenge here is that there is no guarantee that the tens of millions - in some cases, hundreds of millions - necessary to handle a couple of WhaleJets each day will make economic sense.

The 787 is shaping up to be a very disruptive airliner in terms of operating economics. If it is indeed 15% - 18% more efficient, it will give its operators a huge economic advantage, and therefore will become an economic imperative for airlines to purchase. But the 787 does not appear to be an airplane that will be facility-disruptive, simply because it is within the gate envelope of existing airliners.

Not An Issue of Hub v Point-to-Point. One thing to consider: Boeing's hype is that the 787 is a "point-to-point" airplane that will allow airlines to avoid hubs. Forget it. A $200 million piece of machinery is going to be used between big cities - and most big cities are the site of an airline connecting hub. Folks in Omaha: you're not getting nonstops to Budapest.

Bottom line: the main pitfall for airports to avoid is building long-term facilities for short-term airliners. The "regional jet" is one such instance. The A-380 for many airports is another.

• Financial Institutions are beginning to see that residual values of some airliners simply aren't so residual. Therefore having a clear, ruthless view of the long-term global airline demand and of airline strategies will be critical. Hint: if it's bigger than a 747, it might be a dog on the secondary market.

• Suppliers. There is some ugly mis-information circulating that there will be a strong secondary market for "regional jets." Don't buy it. Take a specific look at where these airplanes may find a home once they come off lease. Generalities don't count - the question is which airlines in the next five years will be interested in leasing a bunch of used 50-seat jets? Hint: if it's smaller than 70 seats, its strongest future might be as part of a Budweiser display.

Get The Full Update. The point is that the past - even the recent past - is no reliable indicator of the future. Identifying the emerging trends is what separates the winners from the losers, the survivors from the also-rans. These are the issues that we cover at The Boyd Group Annual Aviation Forecast Conference.

Our global fleet forecasts were the first to predict the slide in demand for RJs, the first to outline the now-obvious demand for 70-100 seat E-Jets, and the only source which from the start forecast that the A-380 would have less than 400 units of demand.

As our attendees know, we cover the data, and the dynamics behind the data. We rely on no "consensus" forecasts - which are nothing more that an intellectual skirt to hide behind when the data proves to be wrong. Smart planning for the future cannot be based on projections created by a committee.

On October 8 - 10, we're presenting the latest fleet, passenger, and airline trend forecasts at Deer Valley, Utah. In addition, key industry decision-makers will be there to outline their view of things to come. It's an event that aviation leaders clear their calendars for.

For more information on The 11th Annual Boyd Group Aviation Forecast Conference, click here.

 

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Hot Flash - May 22, 2006

News & Reviews For The Week

Yet Another Reason For Home Schooling Beyond 12th Grade

Regarding the recently-released (although seen long ago) security camera photos of the AA 757 slamming into the Pentagon, the wacko fringe has chimed in...

"It's a charade," said James Fetzer, a philosophy professor at the University of Minnesota-Duluth and co-chairman of a group called Scholars for 9/11 Truth.

"There is no new information here whatsoever, even though that is how it is being spun. You can't tell what in the world is hitting the Pentagon, but it is too small to be a Boeing 757."

You also can't tell what level of mediocrity is teaching at UM-Duluth, but it's too stupid to be anybody connected in any way with reality.

See, this guy is part of a dedicated cadre of idiots who claim that it was really a Navy bomber, sent by George Bush, that fired a missile at the Pentagon. And, professor, just where did that American 757 go? Abducted by aliens?

This is the type of fruitcake that's in the front of our classrooms. Apparently, the University of Minnesota must have a hard time getting good help.

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In The Airport Traffic Flash:
Love Field - Southwest's Got A Real Problem -
But American's In More Danger Than It Thinks.

The cheap Vaudeville theatrics on both sides of the Wright Amendment issue have been wonderfully entertaining.

It's all there - silly, paid-for "studies" with all the credibility and plot twists of a re-run of Dynasty, "citizens groups" whining about how "the children" are being threatened, and politicians all over the nation, clueless to the facts, taking one side or another.

Aside from the raw displays of how ignorance can foster civic indignation (like, the "Stop & Think" cyber-parade of innuendo and assumed facts-not-in-evidence) it's pretty much the folks on the other side of the debate - the ones calling for repeal - that are in line for some real disappointment - particularly if they get their way.

These are the citizens and politicians who are laboring under the fantasy that a Wright repeal will bring oodles and oodles of low fares to dozens of destinations from the Metroplex, thereby "breaking" that ugly "monopoly" that common lore claims AA has on the Dallas/Ft.Worth region. A dedicated, concentrated ignorance of reality seems to be something both sides have eagerly embraced.

The real issue here is one of airline economics. Right now, with the Wright Amendment in place, Love is not a market with long-term affection for Southwest's system economics. How that pans out, and the actions that WN may or may not take, could have some very nasty impact on American Airlines in the long term - impact that AA has not yet considered.

We've reviewed the long term strategic issues.  (Click Here)

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Hot Flash - May 15, 2006

Clintonian Definitions Continue
"Strategery" Was Just The Start -
The New White House DOT Lexicon

If you don't like the law, don't change it. Just say that the meaning of the words in the law are totally different that what a dictionary might say.

It's not a new concept. We all remember when Bill Clinton - you remember, since a lot of people have conveniently forgotten, the only president to be barred from practicing law for lying under oath - implied that the the word "is" was not clear.

Now, the Bush Administration has apparently found the Clinton-Edition of Funk & Wagnall's in some drawer in the White House. Today, the word not to understand is "control."

Specifically, airline industry control, foreign v domestic. Like, when does an entity, say, from France, really have "control" of an airline?

Now, the Bush Administration has decided to re-define the entire term. According to them, the new definition means that if a foreign entity actually runs a US carrier, making fleet decisions, deciding where to fly, determining pricing and deciding the carrier's strategic future - well, that certainly isn't by any means "control."

Orwellian Thinking At The DOT. U.S. Deputy Assistant Secretary of State for Transportation Affairs John Byerly says that nothing has changed, really. It's just that the existing rules on foreign control (no more than 25% of voting stock, and no input in running the airline) - would just be "applied differently." Like, no more than 25% of voting stock and the total ability to decide how the airline operates.

Only from Washington could drivel like this be issued with a straight face: According to the DOT:

"The DoT proposal would .... allow foreign nationals to control, to direct, to be involved directly in the management of the commercial side of a U.S. airline... Things like the choice of equipment, what routes you fly, what prices you charge, what kind of services you provide. What kind of advertising you do."

Notice, he used the word "control" - but he really, really, didn't mean control. Sure. And, by the way, at an airline, what's there beyond "the commercial side" of the carrier? The fact is that "the commercial side" is the only reason the airline is in business. The "commercial side" is the airline. The rest of it is just moving paper around to support the commercial side.

Like, the Administration is saying that a foreign entity can decide everything an airline does, while the American "ownership" can run the back room for their overseas masters in the front office:

"At the same time to address the concerns of Congress ... the DoT rule would require American citizens to retain control of safety matters, security matters, anti-terrorism matters and related."

Translation: If an American is responsible for doing the paperwork, that constitutes control. Translation: This Administration doesn't have a clue.

Or worse, they have an agenda.

There's a rat here somewhere, because the DOT keeps repeating the mantra that this change in mere "definition" will cause a flood of new capital into US carriers. (Just where this pent-up funding is, was not made clear.) See, foreigners, according to the DOT, will need some "incentives" to make these necessary investments - which, speaking clear English, means to control and direct the airlines into which they invest money.

Therefore, the Administration's argument seems to be that American carriers, operated and directed by US citizens are, by nature, a rotten investment for all those fine, upstanding investors overseas, who really, really care about assuring that Muskegon, Flagstaff, and Fresno continue to have viable air service.

Let Me Buy Continental, Or You Won't Fly To My Country. Open-skies is a part of this whole brouhaha. The idea is that unless foreigners are allowed to get control of US airlines, well, then US carriers can just forget about more access to Heathrow. Is this really "open skies" - or is is a Trojan Horse blackmail threat to the benefit of foreign investment houses?

Certainly, having investment from any legitimate source isn't by nature bad. But this Administration deal has a very strange, very inept, and very transparent tinge to it. Judging by the DOT's arguments, one cannot but start to wonder whose side this Administration is on, and whose interests this proposal is intended to favor. It almost looks like they are shilling for folks in other countries that want to make a fast buck in the US airline industry.

Here's An Idea: Tell It Like It Is. Regardless of the rhetoric, we need to cut through to the truth, and it's important that the proponents and opponents not descend into Clintonian babble. The bottom line is that the Bush DOT is proposing that foreign entities be allowed to control US airlines. Period.

Draw your own conclusions on what this could mean.

Clearly, the Bush DOT has. But we're not sure which side it's on.

(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved
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Hot Flash - May 8, 2006

New Update On Status Of 2006
Small Community Air Service Grants

News & Reviews

Update From The Watch What You Read File...

The New York Times has issued a retraction/disclaimer/oh-never-mind note on last week's page one "scoop" regarding Airbus allegedly not only offering a standing-room only seating configuration on the A-380, but that some airlines were claimed to be actually interested in the concept.

It was a semi-retraction on a story that was, in a word, embarrassing. On page A1 of the New York Times, no less. In the Times' retraction/disclaimer, it noted, as we did (Go There), that the reporter really didn't seem to understand the subject matter of aircraft passenger capacity, and how it is determined.

They added that the real problem was that, when researching the story, the questions asked of Airbus were, in their words, "imprecise." This despite the tiny fact that the reporter earlier had claimed, "...Too bad Airbus didn't just answer my questions in the first place..."

Too bad the Times put a seemingly-preposterous story on its front page without checking it out first. Too bad media outlets across the nation got schnookered by it.
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United:
It's Not Our Fault OPEC Didn't Read Our Re-Org Plan...

Regarding the issue of watch-what-you-take-as-gospel in some parts of the media (including some of the aviation media,) remember all the stories that pronounced, as indisputable fact, that once an airline dives into chapter 11 it will give it a gargantuan cost advantage over those that don't?

This particular bit of Airline Scripture has also been a favorite of some of those college professor charlatans who posture themselves at airline experts, yet don't have the industry knowledge to read a bag-tag. In the classroom of real-life, they continue to get an 'F."

The latest example illuminating this dogma-without-knowledge is United Airlines' first quarter results. That's the airline who's bankruptcy reorganization plan boldly predicted fuel prices based on $50 oil. The same management reorganization plan that seemed to have a disturbing resemblance to the carrier's first ATSB loan guarantee application - happy numbers, but not much reality.

Reality just started to arrive at the gate.

The first Q results are out for United, and, if one reads the airline's press releases, there's dancing in the streets in Elk Grove Village. But beyond United senior management's grand back-slapping congratulations to each other on their wonderous 1st Q performance, there is a disturbing fact - a $171 million operating loss.  This, even after spending enough time wallowing in chapter 11 to give birth to an entire Serengeti of elephants.

Compare and contrast this to American and Continental, which reported 1st Q operating profits, which means, accounting gymnastics aside, they made money running an airline, and United, after all the time in chapter 11, listening to hundreds of millions of dollars in advice from outside advisors, did not. And, memo to academia, AA and CO did it without taking the supposed medicinal waters of chapter 11, and without defrauding their employees of their pension plan.

This is not to imply that United can't make money - fundamentally it has one of the strongest revenue systems in the industry, including the all-important Asian access. It is the industry standard when it comes to one-on-one customer service.

Maybe it's a leadership issue.
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Airport Forecast Flash:
More LCC Capacity Coming On Line...
AirTran, Southwest, jetBlue - all on a capacity expansion kick. The question is for how long.

(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved
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Hot Flash - May 1, 2006

More Reason To Question What You Read
Yet Another Runway Legend Is Born

When it comes to reporting on the airline industry, urban legends, or more appropriately, Runway Legends, seem to be the order of the day in a few sectors of the national media. These are things that, well, "everybody knows" or, as we saw last week, it comes from a prestigious daily newspaper, so it's safe to repeat without doing a scintilla of fact-checking.

For example, right after Delta and Northwest filed Chapter 11, the usual veneer experts in the media immediately touted the ever-profitable "regional airlines" as the model those inept legacy carriers should follow. Such as, say, Comair, and Mesaba. A Runway Legend, totally devoid of hard fact or a shred of knowledge on the industry. But it was repeated across much of the media, like a bunch of dogs barking in the neighborhood. That Basset Hound down the street starts in going woof-woof, and they all follow, not having a clue as to why. Some of the media follow this pattern.

As another example of a Runway Legend, until just about six weeks ago, was the oft-repeated one that "low cost carriers make money, and therefore they should survive, letting those mismanaged legacy carriers go out of business." Again, it was nothing more than a mindless mantra chanted over and over again, with reporters filing stories whose sources were not much more than prior stories filed somewhere else. Anyone with a brain and who could read financial filings had the real story.

All The News That Fits (My Objective) We Print. The unfortunate point is that the public really can no longer trust as gospel everything they read or hear regarding the airline industry. To be sure, there are some incredibly expert reporters and correspondents out there. But there are also some that are little more than journalistic porch-poodles, passing on the barking sound they just heard from the newspaper next door.

We saw the latest example this past week. Possibly hundreds of local newspapers and TV stations, not to mention some major networks, ran breathless stories, somewhat along the following lines:

"...Airbus, the European aircraft manufacturer, has come up with a potential program to shoehorn over 850 passengers into its new A380, by making them all stand up, strapped to vertical board, the New York Times reported..."

It was even more juicy - the story indicated that the idea was actually being shopped to a couple of Asian carriers. And the source was nothing less than the New York Times, don't ya know.

Sounds shocking! Sounds newsworthy! Depending on the slant, the secondary reporting of this Times story went from humorous to outrage. Some indignant reporters and editors shifted the story to focus on those baaaaad, evil airlines, accusing them of a sinister plot to now take even seats away from passengers. That notwithstanding the point that it was an airplane manufacturer, not an airline, that supposedly came up with this grand idea. Supposedly is the operative word.

But, without checking out what clearly sounds preposterous, media outlets all over the world just repeated it. After all, the source was a story in the New York Times.

Taking 2+2 And Coming Up With Zero. Unfortunately, the whole thing, when viewed in the context of reality, was one that has made a lot of journalists who repeated it, without any fact-checking, look like talking-head buffoons. The only source was an unverified article in the New York Times, and most media outlets did little more than just assume this was a 100% accurate source.

Joke's on them.

To be clear, the foundation of the Times story wasn't concocted, nor a hoax. Essentially, the story was just fluff masquerading as hard journalism that "discovered" things that have been around for years, like airlines going to thin-line seats and higher density cabins. Sort of an expose of the obvious.

It was simply a case of a reporter getting some data, and not having the energy or the whatever to understand what the information really meant, ran with it as if he'd just discovered the Watergate break-in. Yes! He'd discovered that Airbus had actually looked at the concept of a stand-up cabin. It's a scoop! Then, with righteous indignation, he reported the situation to his readers...

"...But with standing-room-only seats, the same plane (A-380) could conceivably fit in 853 passengers, the maximum it would be permitted to carry... "

Oops, journalistic strike one. The 853 number is what the airplane could conceivably be certificated to operate with seats. The reporter's lack of subject matter extends to not knowing that what an airplane is "permitted to carry" is based on evacuation tests based on people sitting in actual seats, not standing in the cabin. A little industry knowledge would be nice.

The article implied heavily that Airbus has been shopping this stand-up cabin to airlines, including All Nippon Airways. Journalistic strike two, according to the airline

Airbus had talked with us about an 800-seat configuration for domestic flights," said Rob Henderson, a spokesman for All Nippon Airways. "It does not fit with our present plans going forward."

Seats. Not non-seats. Not vertical gurneys with humans strapped in.

A "Source" Isn't 12 Column Inches In The Times. When asked about the story by a major national news network, we advised that they contact Airbus for confirmation, rather than run with a piece that relied entirely on a printed story in the New York Times as the core source. Luckily, they did, and they were the first to report that the story might not be as it seemed to appear.

Airbus indicated that the concept was essentially a brain-storming session idea that was looked at two years ago. (It's probably not the first time it's been noodled about in a aircraft manufacturer's back room.) They probably did have conceptual, what-if drawings. But that doesn't mean that they're actively shopping the concept, nor that, as seems to be implied by the New York Times, airlines will jump at the concept.

Airbus indicated strongly that there was no such concept under market consideration. Again, the reporter was ignorant of airliner certification processes - the 853 passenger number is one that would be the maximum seats on the aircraft, and not the number of people who could be leaned up against the bulkhead like so many pieces of lumber.

In fact, Airbus thought it was important to assure that the flying public was fully aware of the quality of the New York Times report.

They labeled it "crap."

Apparently, they wanted to avoid any ambiguity. But the reporter, instead of hitting the books to get a basic knowledge of the industry he purports to report on, is indignant...

"... While researching my recent story about standing seats, I did everything within my power to allow Airbus to comment on its idea. I emailed. I called. About the only thing I didn't do was to send a message by carrier pigeon.... Too bad Airbus didn't just answer my questions in the first place. Then all of this could have been avoided..."

Journalistic strike three.

Funny, at least one national network had no problem getting through. But the guy is right in one sense. A lot could have been avoided, including making the New York Times look like a half-baked Third World weekly. Reporting a story that relied upon "sources" that may not be completely accurate could have been avoided. Writing a story that was based on lack of knowledge of the subject matter also could have been avoided, too.

Note to the reporter: aircraft manufacturers have no requirement to respond to every reporter's inquiry. Reporters, however, have a responsibility to get the facts and understand the subject matter before they take pen to paper. Not done here.

Unbowed, and underscoring his continuing shortfall of airline industry knowledge, the same reporter continues to opine that stand-up seats will soon appear on some airlines. Hopefully in the meantime - which will be a very long time - some journalistic excellence may appear, too.

Maybe while the New York Times is re-loading between taking pot shots at Fox News, they may want to look at their own backyard.

(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved
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Hot Flash -  April 24, 2006

Airport Forecast Flash: jetBlue/Carolinas
Click Here For A Review
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Security Update:
Newark Completely Without A Security Plan
But, That's Okay, According To TSA

It keeps getting spookier and spookier at the Transportation Security Administration. Newark, it turns out, has no comprehensive security plan, four years after 9/11... Then an equipment failure that unnecessarily shut ATL down for two hours is declared another example of security "success" by Kip Hawley.

Put a musical score to this, and we've got a smash comedy. 'Cept only terrorists will be laughing. Click here.

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Just When Airlines Thought It Was Safe To Get Back Into The Black...
$75 Oil - A Whole New Dimension

Hot Flash Summary: It's fairly certain that if oil stays above $70 - or goes even higher - the airline industry will need to again fundamentally change.

Here's another strategic trend forecast from The Boyd Group, one that the aviation cognoscenti will sneer at today, and next year will be preaching like an evangelist who just discovered a gospel tent: The airlines best postured to weather this oil price storm are legacy carriers. The ones that will be hurt worst and first will be low-cost carriers.   Some key points:

• Legacies have reduced their operating costs, so they aren't wildly at variance with LCCs any longer.

• Higher fuel costs will lead to higher fares. Higher fares will hit discretionary, price-driven passenger segments first. Passengers who in the past were created by low fares to Orlando will think twice with higher ticket prices and $3-per-gallon gas for the SUV.

• Legacies will continue to have access to the strong growth traffic at places such as Shreveport, Taipei, Montgomery, Tupelo, and Kaoshiung. (Tupelo? Yup. Traffic's up almost double in two years. Maybe it's the consultant they hired.)  LCCs don't have the fleets or the route systems to access these flows.

• Most importantly, legacies are not as vulnerable to traffic down-turns as are LCCs. That's because several legacies have significant fleets they can quickly park, and have limited aircraft on order, unlike most LCCs. In fact, the new-airliner orderbook may well be the Achilles Heel of the LCC segment in the next 18 months.

First Qtr 2006 - It's Revenue Front & Center. Let's start with the good news. Legacy carriers have made the turn.

Sorry to disappoint some of the lightweights in the financial world, or some of those college professors who purport to know the airline industry, yet couldn't recognize a flight coupon from a speeding ticket. The facts are now clear: it's the LCCs that have the problem, while re-structured legacies have the revenue advantage.

• Fact: American and Continental both reported operating profits - which, for all those ivory tower academics out there, means they made money running an airline, and did so paying essentially retail for fuel.

• Fact: The low-cost phenomenon, as it is structured today, is running out of steam. Fact: without the fuel hedges (which, again, was a brilliant bet) Southwest would have reported not only net losses, but probably operating losses as well. The conclusion is inescapable that the future is in the revenue stream - and that's where the traditional low-cost model is running into problems.

Rather, it's where low-cost carriers are running into each other. And that's fixin' to get worse, with the capacity increases coming on line at Southwest, jetBlue, and AirTran.

Morphs To Come: Southwest. Southwest - take this to the bank - is fully aware of the situation, and is without doubt in the process of revising its traditional set - yes, set - of business models. The easy-meat markets are gone, so they have to now concentrate more heavily on taking share from other carriers, like at Denver and IAD, as opposed to relying on fare stimulation.

They surely know that their traditional product - such as the "fall of Saigon" boarding process  - might have been fun for the DAL-Lubbock crowd, but it's less and less competitive when compared to what Frontier, AirTran, jetBlue, United, and the rest of the industry are offering. They also know that their labor costs need to be addressed. Some exciting labor negotiations may be in the cards.

Regarding Southwest, it's in it for the long-haul, and it's not going to be a static target for other carriers to shoot at. So plan on film at 11. Or, more correctly, film around the end of the year - there will be changes, and watch Wall Street go into a hissy-fit.

Now, the bad news... None of the above might make any difference.

If You Can't Afford Go-Juice, Park The Plane. Regardless of the shifts in the financial models of LCC v legacy, it's all a moot point if oil prices keep climbing. At $60 a barrel, the legacies have the costs and the revenues to carve out at least a break-even performance, while it's an open question if the traditional 100-150 seat legacy model has enough growth potential to support the new capacity they're adding, at least at current price points.

But at $75 a barrel, all bets are off - for everybody. If oil stays at that level - or goes higher - it changes the fundamentals of even this newly-restructured airline industry. Tumble to it: if oil keeps going up, more major changes in the air transportation system are inevitable.

See F-16 Run. See Oil Run, Too. A lot of the price of oil is based on emotion - one missile attack on Iran's atomic-weapons facilities, and the market could head toward panic city. We could see the price of jet fuel to go toward $2.50 or even $2.75 per gallon. Depending on how fast this run-up occurs, it could send airline strategic planning back to the drawing board.

Doing a cursory glance at the globe, things are not going in the right direction. One African oil producer is threatening to cut off supplies if the World Bank doesn't allow its loans to be used for essentially the personal use of the country's president. There's our buddy Hugo down there in Venezuela, wiping out democracy, rigging elections with the approval of Jimmy Carter (senility is always fun), and who's contemplating selling oil mostly to China. Topping this off we have a wacko running Iran, one who's an open and enthusiastic proponent of reviving Hitler's "final solution."

Some Outcomes...

If oil stays at $75, or goes higher, we can expect some very fast moves by the airline industry:

• Fares: No More Testing The Waters. Whether it's via a $20 fuel surcharge, an across-the-board fare hike, a juggling of fare buckets, or a combination of the above, air fares will be jacked up materially.

• Traffic: Strong Economy Or Not, It'll Head Down. Keep in mind that as airlines find it imperative to raise fares, gasoline prices will go up, too. That means less disposable income to take the kids on a vacation to see grandma. Less in the travel budget at businesses. So, demand will drop - albeit unevenly by region and by market - and carriers will find it necessary to slash capacity. That's hard to do when you've got a bunch of new airplanes on hard order. Easier to do when you have a static fleet, and the ability to park some birds in the sun.

• Fleets: Call Your Realtor At Coolidge, AZ. Desert space will be at a premium for airplane parking, as carriers cut back capacity. Carriers in the best shape, at least fleet-wise: Northwest, with a flock of DC-9s that can be easily parked and have little or no debt service. American: a large fleet of MD-80s that can be parked, aircraft rental costs notwithstanding. Delta: it has plenty of excess RJ lift that can come out, and, possibly, dumped under Chapter 11. Airlines in more difficult shape: those that a) have lots of new airplanes on order, and b) are focused on a plan that's predicated on domestic traffic growth to carry the day. Draw your own conclusions regarding who's who.

• Labor: Already Pretty Much Bled Dry. Unlike in the past, labor cuts are not going to be in the cards, except at possibly at Southwest, and - as if it matters - at some "incremental lift re-sellers," a.k.a, small jet providers, a.k.a. regional airlines. This latter segment will be hit very hard, as the ability to generate sufficient revenues with high-cost 50-seaters will be even more dicey.

• Rural Air Service: The Bar Is Going Up. The costs to access the incremental revenues at smaller airports are going to go up astronomically. That means that the ability of some communities to continue to support air service will be torpedoed.

Re-focus: Revenue Streams. The mainstream analytical crowd is just now starting to notice this, sort of like a Realtor who walks into the room that has the stove, sink, and dishwasher, and announces to the client, "This is the kitchen..." Logically, the airlines most vulnerable to $75 - $80 oil are those with the most vulnerable revenue streams - and it's not rocket science to see which ones are at the top of the hit parade. Discretionary passengers will be the first to go. Less affected will be core business travel, particularly intra-regional traffic, and international traffic. Figure it out.

For the airline industry, long-term $75 oil will be the quiet equivalent of another 9/11 attack.

(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved
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Hot Flash -  April 17, 2006

Pirates Fighting Over The Plunder?
More Human Suffering From The United Bankruptcy

Amid stories of United employees having to sell their homes as a result of pay cuts they endured to save their airline, and United retirees finding their pensions dumped into the ceramic fixture of life, we have yet another tale of human tragedy from that carrier's journey into Chapter 11.

Yes, friends, real tragedy is at hand... some United executives feel cheated, regardless of fat pay and big stock deals. Now, some are actually threatening to sue the airline for more.

It seems that United's Executive Vice President has been forced to negotiate a severance agreement, which, according to media reports, will leave him with a mere $3.6 million in lovely parting gifts. But another $300K in money supposedly due the guy is tied up in the bankruptcy aftermath, and he may only get pennies on the dollar. The pain, the pain.

This Executive VP was actually suing his own company for more post-Chapter booty. There's lots of it, apparently, to go around, but now senior United executives are  fighting over it like a pack of drunken pirates. There're at least two more current or past executives in the process of hitting the courts to get more long green from the company, too.

This is yet another jewel in the management history of United Airlines. A string of folks with a great track record, management that a) led United into bankruptcy after squandering millions on a merger attempt that they subsequently and unilaterally pulled out of, not to mention dimbulb hundred-million dollar stunts like the failed Avolar biz-jet fiasco, b) wallowed United through three years of chapter 11, having to pay outside advisors hundreds of millions to tell them what to do, and c) deftly engineered huge stock deals for themselves.

Now, the big rewards come for the people responsible for all this fun. And if it's not enough, they can sue the company for more, as at least three United executives are threatening to do.

That United CEO put together one heck of a "team," eh?

Stock, pay, prizes. All on the backs of employees. Nineteenth-Century robber barons must be jealous.

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News & Reviews

Flight 93 - Too Bad Nobody Cares. It's interesting to watch all the hoopla and media coverage regarding 9/11 and United Flight 93. Cockpit tapes were played for the first time in the Moussaoui trial. There's a new Hollywood movie production. Endless interviews with family members of 9/11 victims.

Funny, not one word, it seems, on the direct and proximate cause of 9/11. Not one retrospective on the security failures that resulted in Flight 93 ending up in a Pennsylvania field. The fact that there could be more Flight 93s - or worse - isn't even mentioned.

Nobody cares about the total incompetence of Jane Garvey and the FAA who were directly responsible for an aviation security system that was known to be riddled with failure.

Worse, none of these 9/11 Family groups and their politician hangers-on who are riding the Flight 93 media wagon seem to give a hoot about stopping another terrorist event. Just three weeks ago, we had the report of screening points missing 21 out of 21 critical tests. And where were all these oh-so-interested people?

They're all quiet, or playing to the cameras. But not any concern about the fact that the TSA is just as corrupted at the top, and just as incompetent, as the FAA was on the morning of 9/11. Flight 93 - it's not a case of "never again."

It's a case of "again, only when."

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Not A Question To Ask Around Here Right After April 15. The Russians are planning to install lie detectors at airports, in order to thwart terrorists. The question to be asked is, "Have you ever lied to Authorities?"

A negative result from the truth machine, and the passenger will be taken aside for a more "critical" screening questions, probably involving rubber hoses, bright lights in the face, and pictures of Madeline Albright in the all-together.

The Russkies have ways of making you talk.

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Hot Flash -  April 10, 2006

Airport Forecast Flash
Southwest Maneuvered Into Dulles

It isn't the non-existent "vacuum" from Independence Air. It's another necessary pre-emptive strike. Click here for this week's Forecast Flash.
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Update
Small Community Air Service Development Grant Program

As of the deadline Friday, there were 57 known grant applications. With some stragglers that will come in by US Mail, it should be close to the 60 applications we predicted, down from about 83 last year.

This year, the time-consuming, bureaucratic cyber-mess surrounding the need to file an essentially useless federal form SF424 may have deterred some applications. Imposed on the   public and on the DOT, there's no telling how many man-hours airports around the nation wasted trying to get this silly form filed via a website that was surely designed by somebody who's a big fan of the Spanish Inquisition.

To help our clients, we assigned one staff member - Joan Keith - who was  on-call straight through the last two weeks, working 7AM to 7PM (and later) assisting airports in getting their 424s filed successfully. We're also gratified that a few non-client airports called on us for this expertise, when they found their own consultants didn't have a clue.

We've reviewed the SCASD applications that have been filed. For details, click here.
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The Delta Situation
A "Strike" Isn't Possible, Anymore

The media's full of stories on the potential for a pilot strike at Delta Air Lines.

Time for some perspective. Delta's pilot group has taken substantial compensation cuts over the past two years. Not once, but twice. Regardless of where they started before this crisis come along, there is a human cost when labor agrees to concessions. Telling your family that the household income is now 20% or 30% or 40% less isn't easy nor pleasant.

Unlike a lot of other airline jobs, the complex and sophisticated skills gained in a 20-year career as a pilot have limited direct transferability to other industries, or, due to seniority issues, transferability even within the airline industry, at least from a financial perspective. Jumping to another airline isn't really an option, as there simply are not many flying jobs out there. (Not all airline pilots, by the way, have successful side-businesses, as lore might have it.)

But the reality is that the price of fuel has gone through the stratosphere - and that's a cost that nobody on either side of the bargaining table has much control over. At $65+ per barrel of oil, even carriers that took the bet and hedged a few years ago are facing a financial brick wall.

It's the whole industry that's been nailed. American's pilots (and the rest of their employees) were caught in this squeeze play. Same at United, except they also got defrauded of their pensions to boot. So, the situation at Delta isn't specific to that airline. It's a set of realities that affect the entire industry. (Indignant e-mails railing about how WN is profitable will not be returned. We don't match wits with the unarmed and uninformed.) 

Nevertheless, the way airlines have reacted to this cost crisis differs from carrier to carrier. There's no question that one can point to American, and ask the question why Delta's prior management didn't do what AA accomplished.

But right now, that's water - or more correctly, money - under the bridge. It's a non-sequitur.

The anger and hurt among Delta employees are not to be discounted. But that shouldn't mask the hard realities. To threaten a strike if an arbitration panel - one, by the way, that the union agreed to - rules a different way than the union wants, simply sends a message to the consumer: spend your money elsewhere. But this isn't a normal situation - anything that threatens to undermine consumer confidence can be lethal to an airline.

So, unfortunately, in clear fact of reality, the strike option no longer exists for Delta's pilots union. True, they can walk off the job. But in this case, regardless of the legal interpretation, it won't be a strike.

Typically, a strike is a valid and often effective negotiating tool to force the management team sitting on the other side of the bargaining table to move off their positions. A strike - as nasty as it can be - is a tool to change things for the future. But in this case, there is little doubt that in Delta's financial condition any major interruption to the airline's revenue stream would torpedo the carrier's future. And that specifically includes a situation where pilots walk off the job.

This is reality. It makes no difference what the issues are on the bargaining table. It makes no difference how outrageous either side's demands and counter-demands may be. It makes no difference what's been done in the past. A lock-out or a strike could kill the airline in short order. The folks at the top of the Delta ALPA union know this full well. It's a rotten bargaining hand, but turning the table over and making sure that nobody works at Delta, isn't the way to go.

The point is that the situation is so dire that using a strike as an option to move negotiations to another level simply is no longer possible. Therefore, no matter what happens, there won't be a "strike" per se. Delta's ALPA leaders know the financial score. They know that a work-stoppage now would be a one-time event where nobody comes back - not only the pilots, but over 40,000 other employees, too. Within the context of knowing what they surely know, if Delta's ALPA unit leaves the property, it will be the equivalent of an intentional and focused act that will put Delta out of business, not a strike.

This is not to diminish the situation that pilots at Delta, as well as other employees, face. Getting paychecks hammered, benefits cut, work rules changed, and in some cases one's pension trashed, are events that are nothing short of cataclysmic.

But killing off Delta isn't a solution, and it's likely that everybody involved knows this. Delta's rank-and-file employees care about their airline, regardless of the posturing. Therefore, the best guess is that there will be a settlement.

Probably.

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(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved

Hot Flash -  April 3, 2006

Air Service Update:
The Boyd Group Helps Durango Recruit SLC Service

Delta Air Lines is adding Durango as its newest destination from Salt Lake City on July 1. The Boyd Group prepared the route and market data that was instrumental in interesting the carrier in the new market. We're also proud to have assisted Durango in winning a $750,000 Small Community Air Service grant last year.

The Boyd Group is a resource that provides a wide-range of assistance to airlines, airports, aircraft manufacturers and financial institutions. Helping small communities in air service development isn't the only thing we do.

And that's why we're better at doing it.
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Journalists: Don't Get Schnookered...
It's Airline Fools Day!

(Folks in the media, you might want to check this out before filing any stories today about the "problems" in the airline industry.)

Last Saturday was April Fools Day.

Today, we observe another rite of spring, Airline Fools' Day - the day the annual "Airline Quality Ratings" report is issued. 

By now, you may have seen stories on the local TV news... Steve Cute, the studio anchor, intones gravely to the camera:

"A new report issued today shows that the airline industry has a long way to go to get passengers back on their side... For more, let's go to Angie Airhead, reporting on-the-scene from East Upchuck International Airport... Angie, this report is quite revealing..."

Angie, perfectly made-up, wearing a sporty NewsTeam 9 blazer, almost imperceptibly nods her head: "That's right, Steve. Consumers we spoke to here at East Upchuck seem to agree that the airlines are missing the target... (Switch to film of Angie earlier interviewing some nudnik passengers in line, with leading gee-duh questions like, "This study says airlines aren't doing well with passengers, what do you think?..."

Then, as they show B-roll of airport scenes, such as airplanes taxiing and taking off, Ms. Airhead will intone all the grand findings of this new report. She'll also report on the carriers that did well in the "ratings" - including "airlines" that, unbeknownst to Angie and the authors of the study, nobody can book a seat on. Then, she's back on the screen... "This annual report is quite telling... Live from East Upchuck International, back to you, Steve..."

Sounds Great. But It's Bogus Innuendo, Not Fact. What's really telling is that the joke's on them. The ratings report that Angie and Steve are so trustingly referring to has all the intellectual value of a barroom Ouija Board just before closing time. In terms of accurately describing the airline industry and its problems, it's essentially based on DOT data that's about as reliable as backyard gossip.

Plan on it, friends, the usually entertaining "Airline Quality Ratings" will probably be splattered all over the news outlets today. Issued by a consortium of Midwestern universities, it's essentially just an innovative re-hash of DOT consumer report data, much of which to start with is neither scientific nor anywhere near real-world accurate.

But two out of three ain't bad for the Airline Quality Ratings. It does discuss airlines. And, it does spew out "ratings."  It's the "quality" part that's in question.

Intellectually, this report is a joke. All it essentially does is repeat veneer numbers from the DOT, issue some veneer conclusions, and then announce to the media that they've discovered the Source Perrier of all airline truth, which is to be accepted without question. These are university professors, for crying out loud, so take it as gospel.

Garbage In. AQR Out. The "findings" of the AQR are postured to the media as the Word from On High - regardless of the fact that much of the DOT data they're using are random and not verified.

See, things like DOT consumer complaints are not checked for accuracy or veracity, and they might not be even properly categorized. Anybody can complain about anything and it gets recorded, valid or not. Second, things like baggage performance, and "bumping" rates all come from the airlines themselves, with differing definitions of things like "voluntary" and "involuntary" bumping. Finally, the data is filed by certificated entity, not by airline system. So, watch for silly comparisons between, say, Alaska Airlines and Skywest, the latter being a top-notch company, but one that isn't an "airline" anybody can book a seat on.

The point is that it's this annual AQR "report," not necessarily the airline industry, that has a quality problem.

The M.O. is to issue this document from the high reaches of Academia, with the assumption that, with all them-there letters after the authors' names, no low-life reporter would ever dare ask: are your data sources really verified as accurate? Are your conclusions consistent with all factors involved?

Which, of course, they are not. But that would spoil the party for the academics, and could deprive the reporter of yet another juicy airlines-in-trouble story.

We've covered this in the past. Click here for a run-down on why nobody but rank amateurs would concoct a report based on this type of data. It's unfortunate that so many folks in the media get bamboozled by this stuff.

Industry Knowledge Need Not Apply. One of the expected pre-comments in a PR tickler on the AQR was indicative of the levels of industry ignorance it tends to spit out:

``(Airlines are) less on time, they're losing bags at a rate they've never done before and people are complaining again,''

If that's a statement made as a flat-out fact, we've got lots of silly jive in store from this year's AQR. That's because it's been this type of arrogant, condescending, and essentially half-accurate innuendo we've come to expect from this annual display of just how far higher education has sunk.

Here's a bet: Want to wager that the AQR will rail on about lost bags and not mention anything about the fact that the chain of custody of checked luggage is no longer entirely in the control of airlines. Remember, there's the TSA that gets it. And remember, there's a major theft problem at the TSA. But don't bet these clowns will refer to that - it's not in the DOT data. Fact: to say that airlines are losing bags, without any investigation of the new TSA system, is intellectual dishonesty.

And delays... wanna bet there'll be lots of indignant whining about airlines' scheduling practices and lack of concern for the customer. And they'll leave out anything about how the ATC system is in deteriorating disarray to the point that it's the major cause of flight delays. Don't expect these lightweight "ratings" to include anything on GAO reports that have noted ATC upgrade programs are three to a dozen years late. Oh, forgot. The causes of delays do not include - by design - anything to do with the fact that the ATC system is a mess and can't handle weather problems.

Fact: to broad-brush delays as the entire fault of the airline industry could only come from a source that doesn't bother to look beyond the end of their professorial noses.

It Used To Be Even More Fun. Fact: this AQR is nothing more than an academic exercise in academic arrogance. This Airline Quality Rating isn't about facts. It's about condescending emotion from a corner of the world that is used to not having any accountability.

Up until about three years ago, the AQR was wonderfully accessorized with fantasy commentary about the evils of the industry. The AQR would rail about concocted outrages such as airlines forcing children to sit in the back of the plane, prohibitions on bringing food into cabins, and the sinister "gate-lock" practices of the major carriers. All without a shred of supporting data, and certainly none from the body of numbers contained in their "report." Alas, they later cut out the rambling, idiotic, and fictional doggerel, and now just regurgitate DOT data, re-jiggered by a complex formula we mere mortals dare not question, to come up with rankings of who's naughty and nice in the airline business.

Airline Industry Expertise Is Optional. Knowing the players isn't really needed, apparently. Last year, as we recall, they talked about "Delta Airlines" and "Jetblue Airlines." (If these guys are supposed "experts" on the airline industry, one might think they'd know at least the carriers' correct names.)

They may rank "airlines" including Skywest, American, Alaska, and Comair all as independent carriers, when in fact the authors apparently don't have a clue who's a carrier and who's simply leasing planes and crews to various airline systems. See, that type of necessary industry knowledge isn't contained in the weak data they get - for free - from the DOT.

Note To The Media: the entities who put out the AQR are not very well versed in what's going on in the airline industry, nor are the data they use to support their "findings" from a reliable source. And most importantly, the "conclusions" aren't necessarily based on hard, deep research.

All the AQR does is take publicly-available DOT data, and essentially repeat it as if they've done a doctoral study on the matter. In reporting boldly, for example, that Alaska Airlines has an X% on-time performance, all they're doing is taking free DOT statistics and repeating them as if the AQR has discovered something. Real academic excellence. 

Again, folks in the media, you might want to check this out before filing any stories. Most of the grand conclusions the AQR purports to "find" are already there in monthly DOT reports.

So, the real story here isn't about the airline industry. It's about the AQR itself. To be sure, there isn't really a reliable source of true comparable data on airline customer service. But taking bad DOT data, and massaging it with an esoteric mathematical formula, simply creates more bad data. And to posture it as credible does the consumer an injustice.

For reviews of some of the ridiculous past "findings" of the AQR, click here. We're not kidding - we are talking about "findings" that are utterly without fact, but heavy on very amateur opinion.

If challenges in the industry are to be addressed, misleading the public with sloppy opinions and bad data isn't the way to go.

(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash -  March 27, 2006

Security Failures:
Cooler Heads Prevail. Just Like Before 9/11.

As we predicted, the fallout from last week's revelation that the TSA can't find everyday bomb components at screening points has turned into a gentle rain of non-criticism.

We all must be patient, is the general reaction. After all, the TSA has a big job, and heck, nothin's been detonated, at least yet.

Congressman Mica, who ordered the GAO tests, has been quiet as a church mouse at a catnip convention. Ditto his ranking member, DeFazio, whose main solution is always to just throw more money at the TSA. The AAAE has returned to polishing whatever trophies they almost certainly will be awarding to the TSA at their big convention next month. And, as expected, W and the Administration don't have a clue.

The fact that once again the TSA has been caught flat-footed and flat-out incompetent is, according to general wisdom, nothing to be concerned about. One aviation writer lauded this muted response, noting that we have the proper "bikini" approach to airport security - i.e., you only cover the essentials.

He's quite right. We're in a terrorist blizzard, and from a competence point of view, the TSA's decked out in a pair of Speedos.

In the meantime, it's business as usual among the aviation cognoscenti, just like on 9/10/2001.
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Hide The Children!
The Wright Monster's On The Loose!

Just how silly the Wright controversy can get is anybody's guess.

Last week, American Airlines took the bold step of lowering the intellectual ante. They brought out the ultimate weapon - yes, they brought out the children to fight the evils of Wright repeal.

A Really Bad Daytime Soap. But first, let's recap the continuing saga of the Wright Amendment debate. It has all the components of a real, live soap opera: a storyline that's incredibly shallow, really dumb acting, villains on all sides, and plot twists that are so vapid so as to be interesting only to housewives sitting at home, bored out of their gourds.

Now, American, which has successfully engineered its image in this matter from being one of the good guy on the high ground, to the Metroplex equivalent of Darth Vader, has taken the ultimate step deeper into the Dark Side.

Winner Trying To Lose The Game. Point: whoever's giving AA strategic advice in this matter is either running on a baseball-score IQ, or is secretly being paid by United Airlines to zap a competitor. It is simply beyond belief that an airline as well-managed and with the track record AA has over the last three years, could come up with such inept, clumsy, and zero-credibility tactics in the Wright controversy. Somebody at CenterPort may want to put down the purple Kool-Aid and tell Mr. Arpey that this stuff isn't playing well.

When silly "studies" didn't work, when chest-beating failed, when it became clear that moving flights to Love just made them look foolish, they resorted to getting down to a lower emotional level. Just dump all intellectual discussion, and bring in the children.

American is now funding an entity called, incredibly, "Stop And Think." The first part is not a problem. The thinking part is what's missing. Don't miss the quotes from concerned citizens in the initial "Stop And Think" press release...

"As a mother of two young children, I'm worried about how changes at Love Field will affect my family..."