Professional Research on JetBlue Airways and Southwest Airlines --
Airliners Relish on a Profitable Quarter

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Monday,  August 9, 2010

Scary Airports?
Some Of The Media Are More Scary

Two weeks ago, a blog on a travel website - called Smarter Travel - published a list of the world's "scariest" airports.

One was Charleston Yeager (CRW). See, the blogsite initially posted, it has a runway of just 4,700 feet, and it's at the top of a 962-foot cliff. The implication was that if you miss that approach you'll be up close and personal with St. Peter. It's right up there with the old Kai Tak in Hong Kong, where aircraft aimed at a checker-board on the side of a mountain before turning toward the runway. Or those mountainside strips in rural Laos. Wow! Third World flying thrills right here in the USA!

It was on what is postured to be an authoritative travel booking site. One that helps consumers travel smarter. Save money. Avoid hassles. And become erudite, sophisticated and informed.

One little problem: The information was bogus. Charleston's runway is 6,302 feet long, and it's not perched on a cliff. It's at 962 feet above sea level. The website didn't have a clue.

Some blog replies apparently flooded the site - with the correct information. Then, amazingly, the blog editor flippantly posted:

Thank you, readers, for your attention to detail! Yeager's primary runway is indeed 6,302 feet, and we have updated the copy to reflect this. However, the airport's secondary runway (now closed) is 4,750. I know I'd be gripping the armrest either way!

Memo to website: Lady, what you need to grip isn't the seat. And what you know isn't important - because it's apparently very little. You irresponsibly posted damaging mis-information on the world-wide web about the largest commercial airport in West Virginia, and in acknowledging your stupidity, you then went on to imply that  landing on a 6,300 foot runway is still a semi-unique daredevil event. That's flat irresponsible.

At least this wasn't as numbingly stupid as a report in Forbes a couple years back that listed those small  "rip-off" airports where fares are so much higher than, say Midway, or Dallas/Love. You know, those little airports that set fares so high and gouge passengers. Got a lot of circulation - sort of like journalistic sewage.

Caveat reader.
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Data Snapshot: Southwest Top Markets - 1Q 2010
Going To Hubsville?

We've taken a look at the top passenger markets for Southwest Airlines In the 1Q 2010. The data is instructive, particularly in regard to average yields, not to mention the increasing shift away from what a lot of Wall Street types still believe is a point-to-point system.

Competitive Challenge at Denver. The DEN market is apparently a fare battleground. Its average yield is  fully three cents lower than the top ten average - lower than highly-leisure markets such as MCO and LAS.

More Hubbing. The Mile-High city is also becoming a major connecting hub for Southwest, with 32.3% of passengers either connecting or on through flights. BWI is now almost 37% through and connecting. (The data above are local O&D only.)  Indeed, Southwest revenues depend on throughs and connections - at BWI, the local traffic would provide only a 46% load factor on the capacity offered. In a very real sense, Southwest is becoming a multi-hubbed airline. There's DEN. BWI, BNA, MDW, MCI, SLC, and an emerging DAL that are experiencing increasing connect traffic. The linear, point-to-point Southwest system is melting away.

These data are examples of the Analytical Firepower that Aviation DataMiner provides. It allows financial institutions, airports and airlines to go beyond the surface and get the incisive market intelligence that gives them the competitive edge.
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Monday,  August 2, 2010

Stop The Presses... The Key Findings Vary A Lot
First Quarter Traffic & Fare Performance
... And They're Very Different From The Raw BTS Data

Boyd Group International today has issued the  Airport Traffic Review , covering the top 150 US airports for the 1st Quarter of 2010. It is available for download now.

It's Heresy, But It's Accurate. The picture is significantly different from the raw data recently reported based on recent BTS filings. In many cases the average actual fares paid at some airports across the nation were much higher, and some of the O&D is non-reflective of the actual travel patterns of US consumers.

The issue is the outdated reporting mechanisms the BTS is saddled with.

• The traffic of some "regional" airlines - including some that are significant parts of a major airline system - are not reported because they operate only 50-seat and smaller airliners, skewing the data at some airports into inaccurate oblivion.

• Some traffic is missed entirely. In one case, a client at a mid-size city called to report that the BTS data listed as its #1 O&D market a route the carrier had filed to drop due to insufficient traffic.

• Flow allocations are often missed. The raw data in the past has insisted that Cheyenne WY's top O&D market is Denver - when the vast majority of that O&D is connecting. Almost nobody is flying O&D in the market, but since it is served by an independent commuter, the flow traffic is often missed. Some lightweight consultants report this stuff as gospel. Forgive them. They don't know any better.

• "Certificated carrier" is not the same as "airline." The raw data does not identify all of United Airlines' traffic, nor that of Delta, or of other major brands in markets where the "certificated operator" is, say, SkyWest. They report it as SkyWest, and most consultants just toss it into a "commuter" category. In an airline system where over half of United's branded departures are operated by other "certificated carriers," this type of raw, unfiltered data can send airports into the air service planning weeds real fast. It's unfortunate that some consultants pass this stuff off as if Moses just dropped it off on his way home from Mount Sinai.

•  Today, not having a current understanding of the difference between today's airline industry and the one in existence when the DOT/BTS reporting systems were set up can lead to some memorably embarrassing moments in consulting. There's the report where one of those multi-billion dollar, "we've-got-more-MBAs-than-you-do, plus offices-around-the-globe" firms recently told a client that Lafayette, LA was served by 12 carriers. (It's probably news to Lafayette, too. We assume the airport is right now searching the perimeter looking for all those airlines.) The consultant, apparently, just took BTS T-100 data and reported it, as is, where is.

Boyd Group International respects the fine people  the DOT/BTS, particularly under the reporting systems they are required to use. But, unlike other consultants, we don't accept DOT/BTS data at face value, because we and our clients are aware that the reporting systems are built on airline industry structures that no longer exist, and significant amounts of the raw DOT/BTS data require extensive review, filtering, and interpretation.

Some Key Findings In The Airport Traffic Review:

Average National Fare: $189.50. So What?. That includes all federal fees and taxes. Aside from maybe having some value as an ice-breaker at a cocktail party, it is a totally meaningless factoid. There is no "average airport" no "average market" and no average passenger. Every airport is different in demand structure, economics, size, and competition. Much of this "average" is skewed by traffic at the 20 largest airports, which are very different in economic base than airports such as Amarillo, Shreveport, Columbia, and Bloomington. So do ignore the panting media stories comparing average fares - it is not a metric that by itself has any real value.

Denver - site of a major capacity battle between Southwest, United, and Frontier, generated  more local O&D than Chicago/O'Hare. (Note, not more than Chicago. Just more than ORD.) The unknown for the future is whether Southwest will capitalize on United's heavy reliance on RJs at Denver before the CO/UA merger brings in what may be a new strategic regime at UA.

CVG - the fastest growing O&D market in the nation over the past two quarters, is apparently beginning to find service and fare equilibrium, with a lower growth rate. By 4Q 2010, CVG will be stable.

Huntsville - Sorry, You're Not The Highest Fare Airport. The media stories have parroted BTS data, listing HSV as having a $500 RT average fare - the highest in the nation, they report. The data is wrong. It's actually $554, - 10% more than what BTS is printing - including federal fees, taxes, alleged security tack-ons and other Washington extortion. But HSV is actually number five down the high-fare hit parade. (And this is only the top 150 US passenger airports If we go below that threshold, it can get really low-oxygen. SHV, for example is now over $600.)

Fares - Up. Expect More "Up" In 2011. While the increase in "average fare" was+ 6.8% 1Q/1Q at the 150 largest airports, it's a figure that by itself is just a factoid. More important is the trend - we did see 133 of the 150 airports experience an increase in local average fares paid. Plan on that continuing. US airlines are pulling capacity down by nearly 3% in the 4Q from current levels. Depending on how much deeper the recession cuts into demand (hey, wake up and smell the economic data: Washington is trashing the economy) airlines may cut more to maintain unit revenues.

Get Some Hard Real-World Market Intelligence. To download a copy of the report, which provides the data in several sorts, click here. Please be patient, it is a substantial report and will take a minute or two to download.
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International Aviation Forecast Summit Update

We are excited to announce that Lufthansa will be presenting its views of the future of alliances on air travel patterns. In addition, the irrepressible Dr. Bill Swelbar will be at the event, and we are planning a very lively and incisive look-over-the-horizon session. We're still mulling it, but the general topic will be something along the lines of, "The Future - Should We Hang Around, Or Get Scotty To Beam Us Up Now?

Workshops. Four optional workshops are planned for Sunday  afternoon, October 24.

• Air Service Enhancement – A Whole New Approach
  The airline industry is not what it was five years ago. Attracting and retaining air service now requires new approaches and new techniques. We’re covering how traditional approaches like “leakage studies” and “internet surveys” need to be supplanted by more effective tools. We’ll be reviewing what works and what kinds of snake-oil to avoid in the future to assuring a communities air access.

• Airline Financials – Making Sense of Complex Information
  This is a popular Workshop that reviews how airlines report data, and how to read through the data. It’s valuable knowledge for anyone involved in planning processes that involve airline participation, such as airports, suppliers, unions, and financial planners.

• Airport Economic Opportunities & Impact
  This will cover the range of revenue streams that can be implemented or expanded to help build an airport’s economic role in the region. Aeronautical and non-aeronautical areas will be addressed along with avenues to pursue specific applications. Workshop that reviews how airlines report data, and how to read through the data.

• Airline 101 For Board Members
  Most airline board members have “day jobs” and are not fully versed in how airlines operate or how they make business decisions on where they fly. This Workshop is designed to bring them up to speed on the latest airline strategies and realities. It’s an invaluable session for newcomers to the position, as well as updating existing ones to the new air service realities.

Bring Your Board Members. It Might Avoid Bloodshed. The Airline 101 Workshop may be particularly valuable in these uncertain times to guide and inform, as well as to avoid what seems to be a trend of frustrated airport boards resorting to becoming angry torch-carrying mobs, blindly lashing out over issues such as fares and service levels. It can get very nasty and counter-productive.

As one example, we understand that an ad-hoc, but not well-informed "let's get lower fares" air service committee at a small airport recently set up a conference call with a planner at a major airline, without bothering to inform the carrier that it would be a "how come you charge us so much" ambush call, with the media there to cover it . Smooth thinking. Yup, that'll sure get more air service. Luckily, a level thinking airport staff member saved the day by getting the call cancelled at the last moment, probably to the rage of the committee who were hell-bent on beating up the airline in public. 

This is the kind of understandable community frustration that this Workshop can address, and help channel such energies into productive efforts, not ones that are lashing out in blind rage.

For more information and to register for the Summit, Click Here. We look forward to seeing you. And your board, too. Hopefully, without carrying any burning torches.
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Monday,  July 26, 2010

Making Financial Whoopee From Adversity
United's PS Strategy Pays Off

In its three-year stint in Chapter 11, United pursued a number of, well, interesting, marketing and product experiments. We won't speak evil of the dead, a.k.a. "Ted," a concept nobody really understood. As it turned out, "Ted" did absolutely no marketing harm to the airline, as the consumer never really got the punch line, and never saw the re-painted A-320s as anything but United. One can only hope that whatever outside advisors who convinced the carrier to pursue the Ted concept have moved on to inflict their mayhem on some other industry.

Market Share? It Can Be An Expensive And Misleading Metric. When United re-structured its fleet, retiring numbers of 767-200s, it shifted its NYC-California lift to 757s. But instead of just downsizing cabin capacity commensurate with the smaller airliner, it took the bold step to instead to just largely give up the chase for highly price-driven passengers. Conceptually, if not actually, United took the first class, business class, and premium economy seats off the 767s and installed them on 757s. About 70 or so traditional low-economy seats were left off. They branded it as "PS" - premium service.

That pretty much resulted in United not being able to compete for market share with American, Delta - and now jetBlue and Virgin America - in the JFK nonstop transcon markets. It meant - without question - that United would lose presence in key long-haul markets where it traditionally was a leader. The airline textbook says that to lose share is to lose the battle.

United has now proven that that part of the textbook is in need of revision. Yes, they have lost market share - big time. Between 2003 and 2009, United's capture on these routes plunged by more than half. In the JFK-LAX market it's dropped from 27.1% to 13.4%. JFK-SFO, it's headed south big-time, from almost half of the market (48.6%) to just 22.5%.

Want To Fight For Trash Fares? Go Right Ahead. But it's share they probably are quite happy to surrender to other airlines. It's not market share that counts. It's the amount of revenue that can be shoehorned into the cabin. In that regard, United is cleaning up. Reviewing key data (full year 2009) for the main nonstop carriers in these markets reveals that not only is United doing well, but it is superbly postured to deal with the threat of Virgin America in these key transcon markets.

Two take-always here. The first is that United is focusing on a range of specific products - first class, business, and premium economy - that Virgin America's model would find it tough to go after, a nice F/C cabin notwithstanding. Ditto jetBlue.

The second data point is the trip origination figures. United has the lowest JFK-origination rates of any of the nonstop carriers. That means its brand drill-down is predominantly in the California cities. And that's where the LCC competitive threat is the greatest. The PS product has circled the wagons around the most important consumer segments - the ones that a) are after a premium product, and b) tend to be the most brand-loyal.

To be fair, AA's metrics in these markets are nothing to sneeze at, either. The difference is that United is getting fully 33% more revenue per sold seat, and is far less dependent on capturing price-sensitive consumer segments that have all the brand loyalty of sailors on shore leave.

Clearly, this is not a strategy that can work everywhere for United or any other carrier. History is littered with the wreckage of schemes to provide all-premium cabins. But United has surgically focused the concept where it can be successful and competitively viable.

Finally, United must be delivering the goods. With 70 or so fewer seats to sell per flight, a high load factor is critical.  Their PS JFK load factors for the 12 months ending April 30 was 87.8%.
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Life After The Hub... St. Louis

In the DataFlash page, we've reviewed the changes in air service that have befallen St. Louis Lambert International since American dismantled its hub operation.

Actually, the STL market has done resiliently well since 2004. Despite losing over 700,000 quarterly AA departure seats, and enormous numbers of nonstop destinations, the local O&D generation has not really changed. Only a few of the AA-deleted nonstop markets have seen other carriers jump into the "void" - that's because there wasn't much of a void in the first place. In terms of seats, STL is down about 17% from 2004, and down about 35% in terms of departures. It's now at equilibrium - there are no real service gaps.

In the top 25 O&D markets, traffic has fallen materially - which is a function of the hub supporting nonstops that stimulated local O&D. But for the STL market at as whole, O&D has stayed stable - down slightly at 1.1%,

Click here to go to the DataFlash for more. We also review the city's efforts to make STL some sort of an air cargo gateway from China. (?)

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Finally... A Couple of Updates

Latest Traffic Data. Aviation DataMiner on-line subscribers now have access to O&D traffic data for the first quarter of 2010. The Airport Key Performance Metrics & Short Term Forecast  will be out to hard copy subscribers by Friday of this week.

US DOT Small Community Air Service Grant Program. The 2010 docket (OST-2010-0124) was issued last Thursday, and was withdrawn on Friday. It will be reissued later this week.

If it is re-instated, and If congress rolls over and "fully" appropriates the Program, they will lavish nearly $6 million for awards. That's just 20% of what the program was originally postured to be.

Let's put this dollar amount in context. Yessir, we have a really forward-thinking congress. They want to slobber $8 billion on high speed rail between big cities - a trendy, "sustainable" scheme that's guaranteed to lose money permanently. Rural America, well, you can just sing the air service blues.

The worst part of this political boondoggle is that it's guaranteed not to be "high speed" rail, regardless of whatever supposed whiz-bang-Bullet-Train-Starship-Enterprise-TGV rolling stock might be used. Any such rail line will entail stopping at every politically-connected burg on the way. It takes a long time to get a train to 80 MPH and a long time to slow it down to make a stop at East Nowhereville on that Chicago and Minneapolis route.

Back to SCASD. It is what it is. It's the hand that the folks at the DOT have been dealt - $6 million. And maybe it will be nothing, until the DOT clarifies the program status.

We are still sending out filing checklists to our clients this week. Full details and updates on the SCASD program can be found by clicking here.
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Monday,  July 19, 2010

First, A Quick Update:
More Analytical Firepower™ From Boyd Group International

We're implementing a number of fundamental enhancements to the industry-leading data and market intelligence systems offered by Boyd Group International.

• To better describe the global scope of our growing market intelligence and data planning products, Airports:USA®  DataMiner™ is now Aviation DataMiner™. Concurrent with this, we are updating the program to make the industry's easiest data-access interface even more intuitive. These conversions are underway and will be completed by August 15.

• Airports:USA® Enplanement Forecasts will now become one of the components of Aviation DataMiner™. Already the only airport traffic projections accomplished independently in the private sector, without political intervention or second-agendas, the program is being completely redesigned to be fully on-line interactive. When events take place that will affect enplanement levels at any of the 146 airports covered, the entire forecast is revised. The complete program is scheduled to be in place by October.

• We're also pleased to announce the addition of Jason Rew to our staff to direct these new data products. Jason joins Boyd Group International with extensive background in web programming and related products. Beyond that, he brings extensive general aviation expertise to the firm. A graduate of Embry Riddle Aeronautical University, he is an active pilot and is second in command of a Colorado Civil Air Patrol emergency wing. He is also a graduate of the US Marine Corps Officer Candidate School, in the top third of his class.

In the future, the need for reliable industry data and information will be replaced by the need for immediate and reliable industry data and information. That's what sets Aviation DataMiner™ apart. Other sources just regurgitate government numbers. Our data come with the professional industry expertise of Boyd Group International. That's what moves it from just data to Analytical Firepower.

 It's our clients' competitive advantage.
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US Capacity Is Not Materially Expanding... Neither Will Traffic

Based on airline schedule and capacity data filed as of 7/14, any expectations for strong passenger traffic gains for the rest of 2010 are optimistic at best.

The enplanement increases seen through June were mostly "squeezing into the margins" - simply filling seats at the edges of capacity - late nights, week-ends, etc. At prime travel times, load factors were already high, and for an airline to gain factor points beyond the 80% level means it's mostly incrementally-open seats that are accounting for the gains.

That's very healthy news for the industry and is a reason that there's been increased pricing traction - unit revenue increases - over and above the increases in ancillary fees.

But the growth in passengers is likely to plateau or actually begin to decline in the 4Q. The reason is, again, capacity. There's no capacity increase of any measurable level in the 3Q over the prior year. And, while there is some Y/Y increase in the 4Q (at least as is scheduled at the moment), there is an actual decrease in seats and departures as carriers enter the 4Q from the 3Q.

The chart - analysed from data from our partner Innovata, LLC - shows the Y/Y changes in 3Q capacity and the Y/Y changes in 4Q capacity:

Takeaways:

• Third Q traffic expansion over 2009 will likely be limited - the "capacity margins" are all that will be left as a source of new passengers - a 0.7% increase in seats isn't much.

• The 4Q Y/Y comparison appears to be a positive 3.5% growth, but it is still a 2.8% reduction coming off the 3Q. Also, note that just about half of the Y/Y 4Q capacity increase is from just two carrier systems - Delta and US Airways. (Remember, the Wall Street wizards told us the mergers these two carriers experienced were made necessary by the imperative to reduce seats. More group-think.)

• As Boyd Group International has pointed out in prior forecasts, the (relatively) strong demand seen in the 2Q may be the eye of the financial storm. Regardless of the political hype to the contrary, the recession continues. Job growth is nil after seeing 7.9 million evaporate. The printing presses are going full speed to print dollars - and fuel is denominated in dollars.

It May Not Be Just The Recession That Grinds Growth To A Halt. Finally, if the current administration is successful in ramming a cap-and-tax carbon scheme into effect, we can stop the silly posturing. Whatever side of the political aisle one is on, physical reality cannot be ignored: it will tank air travel growth by raising costs and sucking discretionary dollars out of the consumer's wallet. Jacking up the costs of fuel, simply by taxing it and passing the money on to Washington, will neither clean the air nor help the economy, regardless of the "hyperbole" that the politicians may spout.

Note: This caliber of insight and data are a key part of the 15th Annual International Aviation Forecast Summit. We discuss what's really unfolding in the global industry. The Summit provides hard data that can be put to planning use immediately. Click here to reserve your space.

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What Was That Stuff Pena Promised, Again?
You Can't Divert! It's An All-Weather Airport

There are now five flights awaiting sentence from the DOT for having broken Secretary LaHood's edict on forbidding three-hour "tarmac" delays.

What's interesting is that four of the five were due to weather diversions of flights unable to land at Denver International Airport.

What? Tell us it ain't so. Remember, in all the reasons for building the new Denver Airport, one was that it would be the world's first "...all-weather airport, capable of landing three streams of aircraft, no matter how bad the weather..." That's how the city put it to the Rocky Mountain News. Denver International was about to conquer physics. An all-weather airport! A fine follow-on to the unsinkable ocean liner, by the way.

We only bring this up because, incredibly, we were the only aviation consulting firm to stand up and  point out this was pure concocted jive intentionally aimed at bamboozling those who aren't well versed in things like common sense and Newton's Law. We were just stating the truth. But a lot of people actually bought into it.

At the time, the special interest lobbies that supported this project got all hot and bothered that we would dare call into question this and other blatant fairy tales they were spinning about the new airport.

Today, the people behind the "all-weather" nonsense admit it wasn't true, and explain it away as having been just some minor "hyperbole" - even though it was part of their core spiel to financial institutions to shore up funding for the project. 

In our part of the consulting world, we don't describe that sort of thing "hyperbole." We call it something different.
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Finally...
Now That It's Obvious, They're all Predicting It.

There are lots of stories suddenly predicting that the Bombardier C-Series will be a threat to Boeing and Airbus.

That's real insightful, now that orders are coming in for the airliner.

But go back two years. Back then, the aviation media cognoscenti were calling the C-Series a "regional jet" - for no other reason that it was a Bombardier project, and "we all know" that Bombardier builds regional jets. The concept of looking at the potential for the design platform - things like cross section, capability of the wing to handle stretches, existing global inventories of 737s and A-320s, etc., were not considered. The C-Series was going to be a regional jet, see, because it's a Bombardier product, and "everybody knows" that's all they do for a living - build little jets.

We'd again point out that the Global Fleet Demand & Trend Forecasts from our firm outlined more than three years ago that the C-Series was not a "regional jet" but a project that would land right in the middle of Boeing's Wheaties bowl, and that of Airbus, too. Just considering the promised economics showed that the C-Series was a "category-crosser" - the numbers showed it could operate a much wider range of missions than its initially-announced seat capacity would traditionally indicate.

That forecast was not in agreement with the usual suspect sources that tend to rely on the rearview mirror as a forecasting tool. What we saw in the C-Series was a clean-sheet platform that would threaten Boeing and Airbus, and possibly induce those two to accelerate next-phase single-aisle airliner programs. Most other sources opined on how it would affect the "regional jet market" - a market that's been shrinking for the last decade and is now a marginal area of demand.

Worry Not About Boeing, Airbus, or Bombardier. Today, both Boeing and Airbus are substantially tied up, fortunately with what will be enormously successful and market-needed aircraft, the 787 and the A-350XWB. This could well leave a big opening for Bombardier. This scenario has been monitored at the Aviation Forecast Summit for the past three years - while most other forecast sources tossed the C-Series into whatever trend-lined projections they had for "regional jets."

Going forward, our forecasts indicate a very robust future for these three main global airframe manufacturers. The 787 is a near-term game changer, notwithstanding the delay in getting suited up and out of the factory. The A-350XWB comes on the market right when a lot of earlier widebody airliners conveniently start to come off lease. The C-Series may have the traditional 90 to 150 seat single aisle market cornered - based on its seat-cost performance.

For more on this, join us in New Orleans October 24-26 for the International Aviation Summit. We'll be covering this subject head-on, including forecasts directly from the manufacturers themselves. Click here for information and to register.

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Monday,  July 12, 2010

The New Airline Business Is Here...

There's lots of speculation as to what the airline industry will look like five, ten, fifteen years out. Lots of projections about consolidation, alliances, cross-border financing, etc. The question that's missed seems to be the forest-for-the-trees situation: how has the structure of the airline industry already changed in the past five years?

The answer: plenty. The business structure and operating models of the US airline industry are materially different from just five years ago, and fundamentally different from a decade ago.

• For suppliers and financial institutions, the target customer is no longer just the airline, but often an array of sub-contractors with which the airline brand does business.

• Labor is facing challenges in strategizing within a diffused airline system where a brand is comprised of several operators and huge amounts of work already outsourced.

• For airports, the old templates for facilities and infrastructure have changed. Ten years ago, the goal was to assure the facility was fully leased-out. Today, it's increasingly a matter of managing the highest and best use of gates and public space.

• The evolving airline structures and strategies are rendering obsolete traditional air service development techniques. Regardless of veneer newspaper stories implying the contrary, having community groups send cookies, local gastronomic dishes, tricked-up bottles of Wild Turkey, or even furniture to airlines, doesn't do diddly to move the route-planning needle. Airlines don't make million-dollar decisions on the basis of a box of brownies or a videoed chorus of "We Are Fam-a-lee" from the local Chamber. Airlines want hard statistics, not schtick. More importantly, market decisions and resource application strategies will increasingly be affected by the goals of the airline's alliance, not just the airline brand.

• Businesses are finding that the corporate fare deals are now being negotiated not so much by the airline, but by the global alliance to which it belongs. With capacity constraint, the airlines and the alliances are less in the Monty Hall mode.

The Changes Are Here - And More Coming. At the 15th Annual International Aviation Forecast Summit, being held in New Orleans in October, this subject will be one of the key forecast sessions. What we'll cover will be very different from the rambling opinion panels found at other industry events. The fact is that while all the speculation has been going on, the entire global airline industry has evolved fundamentally, and done so in a process that most analysts have missed completely.

Three Trend-Streams. At the Summit, we'll be reviewing the three major "trend-streams" the airline business is experiencing. We dub them trend-streams because they are not static processes - they will mutate and expand in several directions depending on the carriers involved, the regions, and other external factors.

The first is Intra-Global Traffic Focus. It's no longer a business where independent national carriers transport passengers and goods just to and from the country where the airliners are registered. Survival will be in the ability to cross-flow traffic between entire regions. What Emirates is doing at Dubai is a nascent form of this model. It's what will lead to key airports in North America being developed into what Boyd Group International has discussed at prior Summits: Global Portals interconnecting continents.

The second trend-stream is the replacement of airline brands with Alliance Brands. This will go way beyond the current alliance arrangements, which focus mostly on end-to-end connectivity with each other's route systems.

The future will be the entire system being alliance-centric, with individual airlines more and more just providing lift. We're talking the whole strategic enchilada - from fleet decisions, to market planning, to purchasing, to major schedule decisions being made by the alliance. Take a read of the proposed Joint Business Agreement (JBA) between American, British and Iberia, and the future is clear. What we'll be seeing are cohesive operational systems that do not recognize national borders and in comparison will make the once-ground-breaking KLM/Northwest alliance of the 1990s look like corporate tickle-and-slap.

The third trend-stream is Siloed Production,  where the airline operation is the product of individual and sometimes conflicting functional departments, in many cases outsourced.  Goals tend to be "vertical" - toward departmental or function-area metrics, rather than "horizontal" - where all parts of the production line worked toward a single ultimate objective - the customer.

Twenty five years ago, when a consumer took an air trip, he or she dealt with an airline. The entire process was accomplished by airline employees - reservations, ticketing (give or take some of it that may have been done by travel agents), check-in, the flight itself, baggage delivery - was all done by "an airline." Even things like fueling and cleaning the airplane were done by airline employees. Conceptually, if not actually, the airline was a cohesive set of employee classes and crafts all working in a horizontal linear direction for the same company, and ostensibly for the same goal: to produce a team product for the customer - optimally intended to be better than the competition.

That system has largely been eclipsed by economic realities.

On one hand, the virtual airline, where various functions are handled by outside vendors, is here. Today, it's possible for a traveler to take an entire trip, and never actually deal with a single employee of the airline brand on which he's booked.

On the other hand, increasingly, whether outsourced or not, this is part of a dynamic that puts emphasis on "function goals" instead of "system goals." Instead of a connected, cohesive internal process from reservation to delivery of passenger at arrival curbside, airline operations are becoming more and more "siloed" where the goals and metrics to measure those goals are departmental-centric more than system-focused. Or, lamentably, more than customer-focused. Indeed, too often it seems that the objective is more toward customer compliance, than on customer service.

This is not to imply that all these evolutionary trends are avoidable or reversible. They represent the realties of the of the airline business. But they're realities that fundamentally change the tactics, strategies, and even the revenue streams of entities doing business with the airline industry.

Join us in New Orleans October 24-26 at the International Aviation Forecast Summit. We'll be reviewing how these new airline dynamics will effect aircraft manufacturers, airports, suppliers, financial institutions, and labor. Click here for more information and to register.
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Finally - We're Looking At The Challenges of 2011

Boyd Group International is growing. Over the past year, we've brought in new staff, new expertise, and new approaches to aviation research, forecasting and market intelligence. Aviation has been moving fast. We're planning on moving faster. We practice what we preach to our clients: we view the future as an opportunity that requires clear, decisive tactical planning.

Our business plan for 2011 indicates that the consulting and research that aviation will need in the future will be far more demanding than in the past. As a result, we're considering adding staff with specific skillsets that match our vision of the aviation industry of the future.

 We're a cohesive professional firm, not a loose aggregate of "associates" who live across the nation and wait for things to happen. If you've got a fire to make a difference in aviation, and if you're interested in joining a cohesive team, there might be a fit here.  Click here for more information.  

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Monday  July 5, 2010

More Reasons A Sealy Posturepedic Is A Better Place For Your Money

Wall Street. Disneyland. Pirates of The Caribbean.

They all have a lot in common. The price of admission is high, and they often represent a complete escape from reality.

That's particularly true when it comes to much of the 'Street's views of the airline industry.

Some of the prognostications that come out of Wall Street range from laughable to stupid, to outright sloppy work. All of it says it's caveat emptor to the max when taking advice from the shamans on the 'Street. Three examples clearly show that at least in a mattress your money is not at the mercy of whims coming from alleged experts.

Hard Data? Nah. We Don't Need No Stinkin' Data. One of the most egregious examples of Wall Street analyst slop was a simple comment that put into motion a set of events that unnecessarily forced an airline - Frontier - into Chapter 11. It was the financial equivalent of yelling "fire" in a crowded theater. The ensuing panic trampled the carrier into bankruptcy.

In a prognostication that would have embarrassed a Ouija Board, a statement was made, almost off the cuff, that Frontier Airlines couldn't survive at Denver, supposedly sandwiched in between United at the top end and Southwest at the bottom. The Wall Street Journal picked it up, listing Frontier right up there with Alitalia (?) as a failure candidate. The only analysis, apparently, was the observation  that Frontier was selling aircraft and was under competitive pressure. The reasons for those fleet shifts and the extent of the "competitive pressure" were not covered. Just a little factoid text box was all that was provided. Not the proudest day for the Journal, which typically can be relied upon as a sole-source for straight and in-depth aviation reporting.

No review of how Southwest was performing at Denver, or what it was doing to United at that airport. Just the "everybody knows" assumption that, hey, Frontier certainly can't compete with Southwest. The word was out: Frontier was deep into the swamp. Then it got repeated in a number of other media outlets, including at least one cable business channel. It took on a viral life of its own: Frontier's in trouble.

In all this din, nobody, apparently, bothered to check any hard data.

The truth was that Frontier was actually making life difficult for Southwest at Denver. In fact, when these gurus pronounced sentence on Frontier, the data at hand showed that it had higher load factors and higher yields in virtually every nonstop market where they competed head on with Southwest. 

Also not mentioned was that Frontier's brand-loyalty in the Denver area, measured by trip originations, remained almost un-affected by Southwest. Frontier was fighting a battle, to be sure. But it wasn't one they were losing. The data were impressive - too bad the 'Street gurus didn't bother to check them out.

Unfortunately, Frontier had just changed credit-card processors. When all these supposedly-expert sources reported that the airline was essentially doomed ("could not compete at Denver" was the way some were phrasing it), they had no choice but to act to protect themselves. They immediately increased their holdback, suddenly depriving Frontier of cash, and forcing it into Chapter 11 protection to stay alive. An action like that could have forced any airline into bankruptcy.

One analyst brazenly maintained that the card processor must have done its own due-diligence before taking action. Nice try, guy. It was nothing more than a rumor that the alleged aviation media cognoscenti jumped on so they'd appear to be in the know. Herd mentality.

Rudeness Is OK If The Stock Price Isn't Jacked Up. Then we had the American Airlines call-in with financial analysts a few weeks ago. 'Course, AA is not necessarily a favorite of some of the inhabitants of Wall Street. See, American doesn't feel they need to merge, and "everybody knows" that's heresy.

When the CEO and CFO finished their outline of the carrier's future, one analyst demanded insultingly, "Is that all you've got?" lamenting that he heard nothing that he deemed sufficient to spike the airline's share price. This from a stock analyst to the senior executives of a major airline.

The airline executives answered politely, to their credit. A perfectly proper alternative response would also have been, "We are professionals. This is a professional call. Please call back when you learn to behave in such a manner." See, share value has more importance to these Wall Street people than solid management planning. Fly the airline into the financial ground, but just make sure the stock price goes up.

Success Doesn't Count If It Differs From The Street. Finally, we had Continental's June results. Let's look at how Forbes covered the data:

"... Including regional flights, Continental Airlines reported traffic rose by 4.7% in June, while passenger revenue per available seat mile rose between 21% and 22%... Despite the disappointing numbers, James Higgins, equity analyst at Soleil Securities, believes last month's weakness was due to the late Memorial Day holiday shifting more business traffic to May from June... "

It needs to be noted that Continental also screwed up in June by having their load factor go up over two percentage points. Let's see. Traffic up 4.7%. Unit revenues up over 20%. Load factors - like, more people sitting on airplanes - were up, too. Yup that's real weakness.

Wild improvement is what Wall Street calls "disappointing." In the real world, out where we mere mortals live, and where 2+2 equals four, Continental operationally kicked tail and took names. But, see, some Wall Street types had predicted CO would see unit revenues up 25%. And their estimates are - of course - solid-gold reliable, even though some of these people wouldn't know the difference between GSE and a GE refrigerator.

It's About Opinion, Not Fact. Here's a flash for Wall Street from the far reaches of the Galaxy Reality: When an airline spikes its unit revenues by more than one fifth, it would be disappointing only to folks who bet on it going higher and missed the bet. And a bet is all it was.

Bottom line: A lot of what drives the 'Street isn't the bottom line. This is not to imply that all of the financial analysis on airlines is bogus. It isn't. But there's enough of it that's little more than opinionated slop as to give anyone pause before taking any of it at face value.

Probably, it's the same in other industries, too.

 

 

 Copyrignt (c) 1997 - 2010 Boyd Group International, Inc. All Rights Reserved.

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