Aviation Hot Flash - Straight Talk From The Boyd Group

The Boyd Group, Inc.
Advisors to the Aviation Industry
Since 1984

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The Boyd Group Advantage

Aviation Perspectives & Insights
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Archives
June, 2005 - December 2005

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Hot Flash - December 27, 2005

Message From United Management: Let Them Eat Cake
Now That Your Pension's Gone...

United Airlines senior management just announced another part of its grand Chapter-11 exit plan. It seems that when the company emerges, 400 select members of United Airlines' executive and senior management team will be awarded 15% ownership of the carrier, worth a tidy $285 million - or more.

From The Marie Antoinette School of Management... Nice compensation. Royalty does have its privileges and perks, you know.

And, why not? Now that United's employee rank-and-file saved their airline via double-digit pay and benefit cuts, not to mention having their pensions trashed, United's management, naturally, sees fit to reward itself, with a stock deal that will almost certainly make at least some of them - if not all of them - a whole lot richer.

Forget the fact this is the same wonderful team of brilliant thinkers who have made United a million-dollar playground for who-knows how many lawyers and other outside "advisors" who dreamed up vapor-brained and vapor-results ideas like Ted. Or, how 'bout the deal early on, according to news reports, where this same management team had to pay some outside company $1 million a month to tell them how to re-structure the United Express system. Funny, if this management team is worth the better part of a third of a billion bucks in exit-rewards, how come they couldn't figure stuff like this out for themselves? It's probably yet another indication of just how hands-on this UA senior management team must be.

Meanwhile, Out In The Provinces... But while United's senior leaders are probably planning how to use this eventual wonderful windfall - maybe a nice condo on Longboat Key, or a college fund for the kids, or maybe just a new Porsche Cayenne Turbo-S, the scene among the rank-and-file might be a little bit different.

How's this for starters - as a direct result of the cuts they gave to save their company, some current and retired employees are finding it necessary to materially cut back in their own lifestyles. Some are actually selling their homes because that pension they worked so hard for is now essentially a bargain-basement monthly check from the PBGC. With pay cuts of 25% or more, Christmas this year was no doubt tough on a lot of United families.

But not, apparently, on the key leaders at United - some of whom were the very people in charge when the airline sank into bankruptcy in the first place. There is nothing wrong with valid management compensation. But under these circumstances, a "reward" that averages something like $710,000 per executive has a real nasty odor to it.

Sure, there's two comebacks to this. One that it's to "keep good talent in place," which is an argument that they'd probably best not bring up. The second is that, hey, it's not cash, just stock - probably stock they can't sell for a couple of years. Right - so these guys can depend on the rank-and-file to work hard at their new, lower salaries to make sure the value of the shares goes up even more.

It all has a nasty resemblance to the stuff a nineteenth century crackpot named Marx used to babble about.

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2006 Updates To Airports:USA Forecasts

Over the next few weeks, subscribers to Airports:USA(tm) traffic forecasts will find seven additional airports included.

The additional airports are Peoria, Springfield (MO), Medford, Key West, Kalamazoo/Battle Creek, Saginaw, Erie, McAllen, and Nantucket.This brings the total to 145 airports, comprising over 95% of all US enplanements.

Comprehensive, five-year forecasts are accomplished for each airport, along with the key trends that are driving growth or decline in traffic in each of seven regions of the nation. These are in addition to in-depth forecasts for all 23 major hubsite airports and 24 large, non-hubsite airports such as Tampa, Seattle, and LaGuardia.

Published since 1992, Airports:USA is the only source for enplanement forecasts accomplished entirely in the private sector. Based on a comprehensive, bottom-up methodology, Airports:USA forecasts are the most accurate available, and analyze all current and future trends at each individual airport. FAA forecasts typically only rely on extending trendlines, which can - and do - often entirely miss key spikes or declines at individual airports.

For more information on the Airports:USA(tm) suite of data and forecast products, click here.

(c) 2005, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - December 19, 2005

Sarasota-Bradenton: 2005
Strongest Fundamental Traffic Growth

It appears that Sarasota-Bradenton will likely finish the year as the nation's fundamentally fastest growing airport, when extraordinary traffic spikes are factored out at other cities.

The year 2005 has been unique - one where outside events - irrational airline pricing in the East, and storm-driven traffic shifts - have skewed the airport growth picture.

Baton Rouge will likely finish the year somewhere in the region of 30% over 2004, but that is mostly due to BTR's role as the post-Katrina gateway to the region. As MSY recovers, this spike will flatten. However, it is very likely that at least half of this new traffic base will be fundamentally retained at Baton Rouge as the region is rebuilt.

The Independence Air Traffic Spike Coming To A Close. Six of the ten top growth airports are the beneficiaries of fare-driven traffic due to desperation pricing by Independence Air. It is unclear how far the traffic bubbles at these airports will deflate when (if?) I-Air goes to airline heaven.

That leaves SRQ and MLB as the strongest fundamental growth airports, mainly due to increased capacity that has re-captured existing traffic that had been driving to other airports.

The Airports:USA forecast for 2006-2011 is now being updated. However, at first pass, it appears that high oil prices have not dampened air travel demand. This points to another year of 4.5% to 6.0% growth in 2006.

Capacity Reductions & Airline Consolidations. Don't plan on any major cuts in airline capacity that would materially increase fare levels. There is enormous new LCC capacity coming on line, and while a repeat of the I-Air pricing nonsense is not likely, this will bring enormous fare discipline, particularly on transcons and in the East.

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American & D/FW International:
Painted Into Their Own Corners

The PATCO strike of 1981.
The economic hit of post-9/11.
Jet fuel prices doubling since 2004.
Southwest flying 737s from Love to Kansas City and St.Louis.

These, apparently, are among the major financial disasters that have befallen the airline industry since deregulation.

At least that seems to be the party line coming from D/FW International Airport and from American Airlines. Now that WN can fly to MCI and STL from Dallas/Love, the entire air service health of North Texas, the nation, and, indeed, the world is being threatened.

Yes, friends. These two markets - DAL-STL, and DAL-MCI - are ostensibly the key underpinning of the health of the Dallas-Fort Worth Metroplex. And now that Southwest will be flying these routes, according to D/FW International, plan on the entire Texas economy eventually being reduced to the level of a bazaar in Kabul.

Sound & Fury Signifying Sloppy Hype. Love has become the airport equivalent of the Wizard of Oz, at least the way that American and D/FW International seem to see it.

They've built it up in their minds as this huge threatening bugaboo, yet the reality is that it's a peanut-size threat once you look behind the curtain. The reality is that American is in the driver's seat in the Metroplex, regardless of what happens with the Wright Amendment. Love is a declining, depreciating asset for the Metroplex. D/FW International is where the growth and the market power is and will be. AA doesn't see it that way, though.

Peru: 'Cause Of Herb, You Can't Meet Me In St. Louie, Luis. In response to Southwest, American claims that it's now been forced to move two - count them - the equivalent of two - MD-80s within its fleet of several hundred airliners, to compete at Dallas/Love. As a result of this major fleet shift, they and their friends at D/FW International Airport are telling the world that the following evils are unavoidably falling on consumers, all because Southwest is a first cousin to Darth Vader:

Loss of all AA service from D/FW to Long Beach. The fact that this is the worst-performing load factor AA market in the Los Angeles basin was not mentioned. (Wonder if this opens up LGB-DFW for jetBlue. That'll have a nice effect on AA's DFW-LA Basin yields.)

Loss of nonstop service from D/FW to Providence, Green Bay, Rochester MN, and Toledo.

Reduced service to SAT, AUS, STL, MCI, and CVG.

And, they claim, as a direct result of Herb Kelleher, D/FW will lose all nonstop service to Lima. (The one in Peru, not Ohio, although AA may claim that the latter city is in precarious shape as a result of the loss of DFW service at nearby Toledo.)

All of this is a truckload of theatrical overkill. With stuff like this, one can only wonder just what cosmic turnip truck these people think we all fell off of.

The strategy and tactics AA's using to fight Wright repeal look like something jointly concocted by Vito Corleone and Kermit The Frog. On one hand, tough threats and dire warnings. Then when they try to follow through, it looks like a bunch of puppets tripping over their own strings.

The result is that the airline is coming off like an angry, frustrated gorilla banging on its cage, tossing you-know-what aimlessly in all directions.

Suggestion for AA: open the windows, let in some fresh air, and maybe some fresh thinking, too. American appears to be operating from a position of fear and weakness, instead of being the dominant carrier in the region - a position that Wright repeal won't change, but AA itself could be in the process of scuttling.

It's inconceivable that the enormous brainpower inside AA doesn't contain some people who can easily see the chosen tactical strategy to fight repeal is weak, transparent, and backfiring out in the provinces. That you-know-what is beginning to splatter back.

Neutrality Not An Option? Speaking of backfiring, a key part of the AA strategy has apparently been to toss fear grenades at smaller communities, trying to gain their support in stopping repeal. There's no doubt that AA's passion for its position is real, but whether intentional or not, it can come across like a visit from Bugsy Siegel.

Trumpeting the cuts in service to PVD, GRB, and TOL is AA's attempt to strike fear in the hearts of other communities who don't fully agree with AA in regard to the Wright Amendment. Some airports have received calls from AA, intimating that jets will be cut to turboprops, or worse, if they don't wake up and join AA in the fight against further weakening of the Wright Amendment.

From the Morning Telegraph in Tyler, Texas, a community that lost three of seven AA Eagle nonstops "as a result of" the failure to stop WN from adding STL and MCI flights from Love:

"Officials with American Airlines warned Tyler's Airport Authority in May that the city (should support AA's position) or face a reduction in flights..."

Tyler didn't. And now AA is responding with major cuts. AA stated that they needed to "divert scarce resources" from Tyler to fight Southwest at Love. Real bad timing, as this was right at the point when AA announced entirely new service between DFW and Gulfport. The the current PR image of American out in the provinces isn't real swift.

D/FW International - A Delicate Financial Flower? D/FW International came out with their own "statement" - one that was consistent with its approach to this matter from the beginning - i.e., a completely inane tantrum that not only made no sense, but assumed that consumers are total idiots.

They also seemed to blame Herb Kelleher personally for AA dropping nonstops to Lima. Maybe their intent was to get the support of Alberto Fujimori, who's currently running for president of Peru from his jail cell in Chile. Any help is welcome.

It is obvious, however, that D/FW International has several disadvantages over Love Field - grave flaws that the management of D/FW has been trying desperately to conceal from the public:

D/FW is saddled with a location that accesses the entire Metroplex - all of it and all of its population. Love has the advantage of accessing only the slow-or-no growth Dallas area.

Unlike Love, D/FW has quick, easy, fast freeway access from all areas of the Metroplex. Love has the advantage of nothing but stop-and-go traffic on choked roads leading to a single, traffic-lighted entrance to the terminal area. And Love doesn't need to worry about handling the future traffic that will result from domestic and international investment in Fort Worth and the Northwest/Alliance quadrant of the Metroplex. It's simply too far away, and its surface access takes too long.

Love has the advantage of far less runway capacity. D/FW is cursed with lots of efficient capacity for future growth.

D/FW has just opened the Skylink - a rail system that has turned what was a clunky 1970s multi-terminal design into one of the most connection-efficient and passenger-friendly airports in the nation. Whatever you do, D/FW, don't let information like that leak out.

Lions Cowering In Fear. Not since Richard Nixon's staff forgot to call a Realtor before visiting Watergate, have we seen such examples of folks trying desperately to yank defeat from the jaws of victory.

American over the past three years has become the model of a well-run airline that's preparing for the future. A CEO who's brought the company together. Costs slashed. Cooperation with its labor unions in a manner that other airlines would kill for. They've short-stopped United at ORD, grabbing important China authorities. Their hub at D/FW International is better postured than any other in the nation to take advantage of the emerging revenue cross-flows between Latin America, Northern Mexico, the Deep South, and China.

And now they're trying to have the world believe that Southwest can queer the whole deal, just by being able to toss more flights from a highly-constricted airport that currently, and in the long run, is completely non-competitive with D/FW. Sorry, the "Love is far more preferred" line is total, concocted yogurt.

Bottom Line: WN gets to fly DAL-MCI and DAL-STL. AA responds by dumping part or all service to 13 cities. All this because AA decided to shift two MD-80s and a couple of RJs.

Memo (or did they used to call it an AOI?) to AA: A new strategy is desperately needed. Nobody's buying the current one.

(c) 2005, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - December 12, 2005

Not Exactly A Prime Opportunity For Another Airline
Virgin America - More Capacity Fun

If all goes as planned, Virgin America will be flying a fleet of A-320s from a San Francisco base sometime in late 2006.

It's kind of difficult to find a clear and demonstrable market gap for another big scale, low-fare airline. Virgin will add yet another fleet of A-320s to the 250 or so net-new 100+ seat airliners that Southwest, AirTran, jetBlue, Spirit, and Frontier are bringing to the market over the next few years- with zero retirements to offset the capacity.

The LCC Segment - Getting Saturated. In 2006 - 2008, the haze of financial cordite will be heavy in the air, because these carriers are going to find themselves in one giant dogfight with each other, clawing for market share in big markets that can support high-frequency flights with 100-to-150-seat airliners.

Don't buy into the trendy guff that it's legacy carriers that will have to give up revenue territory. Absent a catastrophic event that kills off a current legacy (such as a pilot strike at Delta) it's going to be LCCs that will be wallowing in the competitive mud with one another.

Let's quickly look at what Virgin America might bring to the party. Lots of fall-out:

San Francisco - Where's The Traffic? The argument can be made that Virgin America is facing a situation at SFO similar to that jetBlue found at JFK. Relatively high fares. Limited LCC presence. Strong local traffic generation.

Similar in appearance, but in fact very different.

First, SFO faces huge competition from a giant Southwest presence at Oakland, easily accessed across the Bay, assuming that an earthquake doesn't level the bridge. Virgin will also be bracketed on the south by WN service at San Jose. Second, New York travel demographics are entirely different from those at SFO. jetBlue had a huge, immediate price-sensitive Florida market that it could tap. SFO has nothing to compare with this.

In virtually every market that can support an A-320, Virgin America will need to fight for share, either from an existing LCC, or from a re-structured legacy carrier that has strong connecting cross-feed. Or both.

Don't Bank On Transcon Share. The Independence Air fiasco gives another hint. With the intent of being the dominant carrier at Washington, I-Air's transcon A-320s have been a massive traffic flop. America West tried transcons, as did ATA. So did Frontier. All of it was disappointing. Therefore, the prognisis for V-A isn't clear.

United: Now, What Was That About Improved Yields? United's grand bankruptcy exit plan includes the assumption that unit revenue will go up. Now, it's going to face yield pressure at DEN, with the entry of Southwest, and at SFO, with the establishment of Virgin America. United may have to re-sharpen its pencil, but with its domestic and international hub feed, probably less than it might appear.

More Pressure On Southwest. A low-fare Virgin at SFO will almost certainly reverse some of the price-sensitive leakage now using OAK and SJC. Another issue is the increasing product disparity between WN and its LCC competition. Presumably, Virgin will offer seat-assignment, and likely, an inflight entertainment system. Southwest could see some of its traffic base start to erode in the Bay Area.

Bottom line: Virgin America will need to have enormous brand loyalty at SFO, and a service product that's got an edge. But that also described what was facing Independence Air.

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Cheap Politics Over Common Sense
Congress Trying To Scuttle The SCASD Program

If it works successfully, break it so it doesn't.

That seems to be the m.o. of our intrepid leaders in congress. The latest example is the effort to cut the Small Community Air Service Development Grant Program in half. Forget the fact that the program, funded at a comparatively microscopic $20 million to start with, has produced enormous amounts of new service for communities across the nation.

Now congress wants to shift half of the SCASD dough into the Essential Air Service Program.

EAS, as we all know, is the brilliant, retro-1970s scheme that funds airplanes people don't want to ride, often going to DOT-defined "hubs" that have less connectivity than a drug dealer at a Baptist Revival. All so local politicians can claim they have "air service" at airports some of which don't generate enough passengers to fill a VW Microbus.

The EAS program can be fixed, but tossing more money at it isn't the answer. There are communities where it can be enormously important. But in its current form, much of the money is little more than pork-barrel spending.

SCASD Cut: Possible Congressional Excuses? By congress' standards, the SCASD program probably needs to be killed off. See, the program has done some pretty evil things.

Like being responsible for a 20% traffic growth at Rhinelander, which has no doubt exacerbated crowding at MSP, where these passengers are connecting to points around the world.

Like allowing Chattanooga to contribute to ATC congestion by recruiting nonstops to Houston.

Like attracting a low-cost carrier to Sarasota, causing a catastrophic decline in ambient air fares that have saved local consumers probably more than the total amount congress has allocated to the entire SCASD program. Lord knows that all that extra money in consumers' pockets will contribute to increased inflation. Quick, call Alan Greenspan.

Ditto with the success Fresno had recruiting Frontier with their grant award, bringing more low-fare competition to the region.

Don't forget the SHV-DTW service that an miscreant grant made possible. That service has made the GM truck factory at Shreveport more competitive, saving jobs that may have been on the chopping block. This has now contributed to the global glut of automotive production capacity.

Meanwhile, the EAS program has done wonders. Like subsidizing lost-cause flights at places such as Pueblo, giving consumers a couple of 19-seaters to Denver as an alternative to driving 45 minutes to Colorado Springs.

Or Manistee, Michigan, where consumers can sit on a 1900 for nearly an hour and a half to connect at Milwaukee as an alternative to a shorter drive to well-served Traverse City. Or, perhaps the wonderfully-creative 1 hour 45 minute EAS jaunt twice a day so consumers at Huron can get to Omaha, which is a connecting hub only in the fertile and outdated minds of the DOT. The intermediate stop at Brookings is an added competitive attraction.

It's still uncertain just where this will settle out. In any case, we can probably expect a docket to be issued for the 2006 program sometime in the next eight weeks.

For details on a GAO report on the SCASD program just issued this past week, click here.
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Hot Flash - December 5, 2005

News & Reviews

More On Those "Bullet-Proof" Regional Airlines

Northwest has been given permission by the bankruptcy court to dump 15 CRJs now being operated by Pinnacle. Delta's looking to cut 30 from the Comair fleet.

Gee, that seems to run counter to all the sunshine stories in the media last week - the ones with headlines like, "Majors Suffer, While Regionals Grow & Prosper." Note to the business editor: When fleets are getting cut, and at least one regional is in bankruptcy, it's real hard to buy into the conclusion that this is a growth segment of the industry.

The Northwest and Delta moves are just the continuation of a trend that will accelerate in the months ahead. Our fleet forecast still points to 200 CRJs and ERJs coming out of the US system over the next 18 months.

Note to airports: make sure those new jet bridges can handle things bigger than 50-seaters. Building more RJ-specific facilities is now the equivalent of planning a mooring mast for the Hindenburg.

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And They Tell Us We're Safer
The Creature From The Bureaucracy Lagoon

The Blob.

Anybody remember that 1950's classic, starring a then-unknown actor named Steve McQueen? It related to some sticky mass of goo that kept growing and growing, devouring everything in sight. It would slide under doorways, around corners, over cars all the while getting bigger and bigger. It had no brain. It had no direction. It had no purpose except to ooze all over the place, gobbling up people and making a mess of things. Once it got onto or into something, nothing known to man could get rid of it.

It was a fun, campy science fiction movie. It could never happen in real life.

Think again. The Blob is here. In real life.

Only, now it's called The Transportation Security Administration.

It is truly a Blob. It is huge, and getting bigger all the time. It has no direction. It has no real idea of what it's supposed to do, except ooze all over our transportation system, growing larger by the day, aimlessly screwing things up, and devouring increasing amounts of taxpayer dollars.

Yes, it is the bureaucratic Blob. Except in this case there ain't no Steve McQueen to save us from it.

We have yet more proof of this, supplied again by Mr. Steve Elson, a former FAA inspector, and one of the few experts who dare to tell the truth about the TSA.

Growing - Even As We Speak! See, while the media is busy and distracted swooning about how the TSA will now let scissors and screwdrivers onto airplanes, the TSA Blob continues to ever-expand.

The latest example is yet another layer of administrative sewage, in the formation of something called the Office
of Transportation Sector Network Management.

Just what we need at the TSA, an organization whose track record reads like a defunct Soviet bureaucracy. Yet another "Office of," complete with lots and lots of staffing and maybe be a dozen or so new "General Manager" positions to be filled, covering all areas of transportation, including airlines, rail, maritime, pipeline, etc.

Forget Terrorism. Let's Just Feel Good. The new General Manager job, according to a memo published by the head of the TSA, will be responsible for "establishing" relationships with government and industry "partners" to assure "cohesive and consistent communications related to transportation security."

And here are the qualifications that the TSA is seeking for this General Manager position:

Applicants for these exciting detail assignments must have experience in leading complex organizations, building external relationships, fostering teamwork and collaboration. Additionally, the General Manager must possess a demonstrated capability to leverage resources, and to engage industry and governmental partners in the execution of TSA's mission.

As Steve Elson points out, there is an important word missing from this breezy description of qualifications for the "exciting" position of General Manager. Notice what that word is? It's SECURITY. These bozos are out hiring high-level staff without any requirement that they know diddly about security. Nor is there any requirement to have expertise in the specific area of transportation that the job would supposedly cover.

Sure, there's the requirement that applicants come from certain levels within the TSA, but as we've seen with stellar patronage appointments like Mineta's press secretary and the assistant FSD at Newark, that by itself isn't any guarantee of past expertise in security matters.

Amateurs v Terrorists. That's probably what makes the job so "exciting" - the applicants don't need to know squat about security or the segment of the transportation system the position will cover. It's all OJT - a great way to protect the nation from professional terrorists.

Now,let's compare and contrast. While this grand expansion is going on, the fact is that the TSA has absolutely no cohesive, focused security plan for our nation's airports, seaports, railroads, and pipelines. No anticipative planning for each airport's vulnerabilities. No contingency or mitigation plan to contain the damage a terrorist event might cause. None. Nada. Mei-you. But this job is intended not to address that shortcoming, but to "bring everyone together," sort of like a great big, multi-officed Rodney King. "Can't we all just get along?"

Just like The Blob: no brain, no real purpose, except to eat money and mess things up further by hiring more bureaucrats whose "qualifications" are simply having been a bureaucrat.

This new office should fit well with some of the totally un-qualified people currently in key TSA jobs. Former press secretaries, personnel-types, and who knows what other escapees from the labor pool. Now, this bureaucratic mass of glutinous goo will be working to add more non-qualified people into jobs that probably never should have been created in the first place. But not one bit of this tightens national security.

Sure, we are just kicking butt in the war on terror.

We have sophisticated terrorist organizations actively planning to kill Americans, and this is the quality of our response.

Only thing fixin' to get "executed" is common sense and any chance of a viable defense against terrorism. The TSA's mission, apparently, is to hire lots of people, create safe jobs for politically-connected hacks, and make grand press announcements like this. The new bureaucratic Blob lives.

Anybody who claims the TSA has made us safer is deluded. Or worse.

Let's cut again to the chase. The Transportation Security Administration is a national corrupted fraud. There is no other way of putting it, because that is an indisputable fact, proven over and over again.

But Let's Not Criticize. Even more despicable are some of the Quisling leaders in certain alphabet organizations in Washington who know what the situation really is, and could raise their voices. But instead they actively collaborate and actively encourage the individuals in charge of this boondoggle. Power in Washington is paramount, even if it means playing along with inept security that puts the nation at risk.

They know better. But they also know where their power base is, too.

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And, Finally...
Somewhere Over The Atlantic...

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Hot Flash - November 28, 2005

"Economists" & Academics Can Fix Everything
Knowledge of Airline Industry Dynamics Need Not Apply

It seems that today just a title, particularly one from some college or university, is all that's needed to make one an "expert" on the airline industry. It's seen over and over again in media stories regaling us with the airline "solutions" coming from doctor-ated and Ph-deeded "experts" who couldn't tell the difference between a jumbo jet and Roseanne Barr.

It's sort of like the witch doctor in some primitive jungle village - whatever he says must be accepted, feared, and revered by the masses, even if he's a total doofus. The witch doctor maintains his control over the people with smelly potions, fearful spells, and incomprehensible incantations. Some of today's elite academics do the same with titles, incomprehensible combinations of letters after their name, and reams of studies issued with the reverence of a sacred tome not to be questioned.

Tick off the witch doctor, and he'll wave his wand and threaten to turn you into a cockroach. Threaten the elite academics with some hard questions, and they're likely to wave their degrees, labeling you a cretinous slug, not much above a cockroach.

In both cases, it's all based on smoke, mirrors, and a good deal of bluster. The last thing these guys want is for somebody to call them on their stuff.

We saw this about a year ago, when a couple of professors at Wharton put out a "study" riddled with enough errors to embarrass a GED graduate. Regardless of blatant inaccuracies - such as attributing American Airlines' relative success to its bankruptcy filing (?), the media just printed this nonsense as if it came straight from Delphi. After all, it was from Wharton. (Go There and click on the link to the left.)

Off The Cuff. But On The Record. All of which brings us to a Minneapolis Star Tribune article last week that showcased another gaggle of latter-day witch doctors and their magic potions to fix the airline industry. The focus of the piece was what "economists" think needs to be done for air service in the Twin Cities. As if just being an economist or a college professor makes somebody an expert on the airline industry.

Which it doesn't, of course, But the titles of these elite folks, apparently, were enough to make up the credibility gap. Even if the comments bordered on the ridiculous.

One of the interviewees was a director of the Federal Reserve Bank. He was quoted with the all-knowing, all-wise statement that in the event Northwest failed, there'd be just as much service for the Twin Cities: "...if Northwest isn't flying, someone else will..."

Ah, the perks of being in the elite, one of which is never having fear of someone daring to question such a statement. Like, asking, "Northwest not flying where?" Is this guy taking about, say, Amsterdam, which without the NW hub feed (which includes the KLM alliance) would be hard pressed to support a high-density DC-6? Or is he talking about, say, Lansing-MSP, which, according to this guy, someone else would just love to jump into? And, by the way, who's the "someone?"

The same guy, whose long experience in air traffic analysis, airline economics, revenue generation, and hub dynamics was somehow not listed, also had a grand plan to increase competition: Just don't let any airline have more than 50% of the gates at MSP.

See, if NW is forced to dump half the gates on its regional concourse, dozens of new carriers would just swoop in to fly their own turboprops to places like Thief River Falls, Aberdeen, and Fargo. That's because it is gates that create new competition out of thin air, don't ya know. Don't question this, friends. It comes from the director of research from the Federal Reserve Bank, a well-known hotbed of aviation intelligentsia.

Northwest, The Abductor. Another economist, from the high reaches of the University of Minnesota, dreamed up a grand concept that his students probably must parrot blindly or face a failing grade: "Regulatory Capture" - sort of an administrative hostage situation. "...Regulatory capture is when a monopoly is able to persuade a regulatory agency that maintaining its monopoly power is good for everyone..."

He went on to state as a basic fact, with zero supporting data, (not that he felt he needed any) that this was what Northwest has done with the MSP airport - they've achieved "Regulatory Capture." Yes, friends, Northwest Airlines is keeping the entire Metropolitan Airports Commission in a state of house arrest.

And, we all must accept as fact the professor's contention that Northwest has a nasty monopoly. That's probably because the learned one sees that NW is the only carrier flying from MSP to places like Indianapolis, Kalamazoo, Des Moines, Billings and Asheville, and concludes that's prima face evidence that NW has inflicted, yes! a monopoly on MSP consumers.

It would be nice if he had any understanding of what a connecting hub is, or how it works. Oh, forgot. He's a college professor. Hapless students probably have to accept whatever comes out of this guy's intellectual Crock Pot. The real world, however, demands a much higher standard. Like, some basic knowledge of the subject matter.

Bow Before The Title. Don't Question. The intellectual dodge here is the unstated rule: you're expected to never question vox deorum. Even if the vox is coming from a source considerably below that having anything to do with deorum. (Figure it out. No apologies offered to Latin scholars.)

Hey! Why Not Make It A Series? Note to the Minneapolis Star-Tribune: As long as you're interviewing people with no specific airline knowledge or experience, why not next time get real creative. Like, say, talk to hairdressers, for the beautician slant on MSP air service. Or, maybe get the perspective of the dentist community in the Twin Cities as well.

They're professionals, too, just like college professors. Even more important is that their credentials as aviation and airline experts are just as impressive.

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Regional Airlines - The New Success Story
Sourcing The Facts From The Rearview Mirror

The media has discovered a new mantra this week - regional airlines are all the rage. They're making money!

One article comes out, and it gets followed by a couple dozen me-too stories, all breathlessly reporting on how "regional" airlines have found the Holy Grail of operational profitability. One article recounted how these entities are buying those 50-seat jets that are so much more economical to fly. Right.

Somehow, they missed the dynamics that put Mesaba up close and personal with a bankruptcy judge - dynamics that affect every "regional" airline.

Not to worry, when the SJP shake-out becomes too big to miss, the same column inches will be recounting the trials and travails of "regional" airlines.

Give it six months.
(c) 2005, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - November 21, 2005

This'll Cut Congestion At Washington Reagan
Lie Detectors - A Great Way of Reducing Screening Lines...
At Least At Some Airports

An Israeli company has reportedly developed a new way of keeping terrorists off airplanes.

Install lie detectors at screening points. The idea is to ask some pertinent questions, and if the machine indicates that the passenger is fibbing, toss him out of the airport.

Which means a lot of folks in congress will need to consider Amtrak.

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The RJ Era: Officially Over
The Next Phase: RJ Fleet Reductions

The president of Embraer last week indicated that the company is considering pulling-down production of its regional jet line in 2006. This comes just weeks after Bombardier's decision to cease production of its own 50-seat model. Embraer in the meantime is up to its vertical stabilizer in orders for its E-170/190 platform of airliners.

This isn't what the aviation analyst cognoscenti predicted not too many months ago. But it was no surprise to clients of The Boyd Group...

"... after 2004, the demand for net new regional jet units may not be sufficient to support the current RJ manufacturers... "
- The Boyd Group Global Fleet Forecast, June, 2000

Questioning The Sacred "Consensus." We mention this simply because up until very recently, our fleet forecast for RJs has earned us some sneers from the all-knowing sectors of the aviation media, who were busy trying to out-do one another with sunshine stories on the glorious future of the "regional jet."

Not to mention the snickers from other analysts. This is because our forecasts ran counter to the ones being put out by the giant "Global Advisory, Strategic-Thought-Process, Analytical-Braintrust, MBA-Supported" consulting cabals. "Everybody knows," has been the accepted wisdom, "that regional jets are the wave of the future...It's the consensus..."

Now that it's happened, the same analysts and some in the aviation media who snickered at our forecasts are suddenly "predicting" and announcing the demise of 50-seaters. Safe timing, y'all.

But the fact remains that it's a trend that the staff at The Boyd Group identified for our forecast clients over five years ago.

What's Next: Can You Say, Mojave, Boys And Girls? As we outlined in the fleet forecast session at our Annual Conference in Savannah last month, the prognosis for RJ-series airliners in US service is not very good.

We forecast that as many as 200 of these airliners will be excess to market needs in the next 18-24 months. For the financial entities holding paper on these things, prepare for a haircut. There isn't much potential - anywhere in the world - for an RJ after-market, short of a Bud Light promotion.

The number of RJs in operation will continue to decline at some rate going forward. How much will be determined by a range of factors, including fuel prices, mega-carrier strategies, yield trends, and competitive issues. One thing is certain, however. The 1,500+ RJs in the US fleet is now at least 200 too many, and it's entirely possible that additional double-digit declines in the number in service could be seen in the next three years.

The Delta system in particular appears to be way over-invested in RJ deals. Tossing cost-plus RJs into off-hub, point-to-point missions to destinations in Florida where yields are lower than W's approval rating, looks like an expensive way of maintaining market share.

Finally, using RJs on routes competitive with carriers operating mainline-cabin equipment, such as 737s or even E-170s, makes passengers get real itchy to take another airline. This was one of the major problems with Delta's now-gone DFW hub - it became RJ-centric and non-competitive.

SJP Future: Expand Upward. There will also be a shake-out in the number of companies that operate RJs. Two Small Jet Providers - Mesa and Skywest - appear to be bullet-proof for the foreseeable future. Skywest, because it has the pole position for last-man standing in the Delta SJP network. Mesa, simply because it has its RJ eggs in a number of baskets, and has management that understands the future context of the airline industry. But after these two, it's a declining scale of who's going to survive and who might not.

Forecasting Is Risky. So's Life. To be sure, the firms for which we do forecasting - airports, OEMs, aircraft manufacturers, powerplant manufacturers, financial institutions, and suppliers - have learned that our data sometimes doesn't paint a rosy picture.

But we're a whole lot more accurate than "following the consensus."

Which pretty much describes what lemmings do when they run off a cliff.
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Speaking of Airliner Forecasts...
A-380 WhaleJet: Even Less Demand Than Earlier Predicted

We are now revising our current Global Fleet Demand Forecast to accommodate the decision by Boeing to build a follow-on to the 747.

As before, the net in-fleet requirements for airliners in the +400 seat category is not expected to be particularly robust in terms of growth. However, the advent of the 747-8 represents the injection of new dynamics in the demand mix.

First, if this slightly larger model has significantly better economics, it would face strong demand mostly as a one-on-one replacement for the -400, as well as some A-340s. Since used widebodies will likely have very limited aftermarket demand as passenger airplanes, this would tend to shove a lot of additional 747-400s into the cargo conversion arena, which could have no telling what effect on residual values.

However, one effect it could have would be to yank just enough potential orders out from under the A-380 to make that program really, really financially challenging for Airbus. Just a dozen feet longer than the -400, the new 747 would not face a world where relatively few airports could handle it, making it a much more flexible aircraft than the A-380. And if the 747-8 can deprive the A-380 of say, 50 or 60 orders it would have otherwise registered, it could make sleeping at night much more difficult for the folks at Toulouse.

You Want the A-380? Or What's Behind Door #3? Boeing by no means holds all the cards. The A-380's flying now. The 747-8 is at least three years away. That means the pressure's on Airbus to peddle as many A-380s as fast as possible in the next 12 months to keep potential customers from deciding to wait for the new Boeing.

So for airlines, it's going to be let's-make-a-deal time with the local Airbus salesman. That, however, puts pricing pressure on Airbus - pricing pressure created by what right now is essentially a concept airplane.

The pressure is also on at Airbus to assure that the A-380 doesn't disappoint when it comes to promised performance and delivery dates. Otherwise, the Europeans will find that they've essentially built the successor to the MD-11.

Regardless, The 747-8 Will Take A Toll. As it stands, the A-380 has about 160 orders, give or take what might be announced this week at the air show in Dubai. With the 747-8 on the horizon, our initial pass at global fleet needs now points to a demand for fewer than 350 A-380s over the next 15 years.

(c) 2005, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - November 14, 2005

Airports:USA Forecast Flash: A review of where jetBlue can be expected to apply its early E-190 deliveries. Click here for details.

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Independence Air Discovers Gravity
Bolting From UAX Was Visionary.
After That, It Was Blind-Man's Bluff With A Dumb Business Plan

Independence Air's bankruptcy filing - not much of a surprise to anybody awake and sober - has started the expected gaggle of media stories on how the airline got here. Amid the din of the rearview-mirror analysts who are just now declaring that I-Air “never” could have made money, one very important factor is missed.

The people running ACA three years ago – the ones who decided to jump the ship at United Express and attempt doing their own thing – well, these people were visionaries.

Yes, visionaries who were trying to do the right thing. They correctly saw the future, and attempted to adjust to it. Jumping from UAX was not a totally dumb idea. In fact, it was a smart one, at least in concept if not in execution. The business of being a small jet provider is a declining one, and ACA recognized it early on. The musical RJ game now going on at various SJPs proves it.

Hey, Pass The Kool-Aid. All that said, what ACA did afterwards was the problem. It doesn’t take the brainpower of a chimpanzee to recognize the wreckage of Independence Air. Their performance in the last 18 months is one that can take its place in the Pantheon of dimbulb management, joining such suicidal bonehead plays as Braniff’s 1981 “Texas Class” fiasco, and WestPac’s move from COS to Denver.

To be sure, there are lots of "pre-post mortems" going on in the press about I-Air. High oil prices is one supposed cause for its problems. Nasty competition is another suggested villain. I-Air itself has even intimated that it was the competition that forced it to offer brainless fares as low as $29 bucks.

Wrong.

What has essentially killed I-Air is not fuel prices. It wasn’t competition, either. This was an inside job. The fatal flaw was that they developed a business plan that may have been based initially on reasonable assumptions, but ones that would need to be proven, and if they didn't pan out, the carrier would need to change plans pronto.

But from the outset, the airline seemed to assure that any real scrutiny of the plan wouldn't be possible. That's because what they did was create the airline equivalent of Jonestown.

Drink the purple liquid and chant the dogma, y'all. It seems to have become a near cult, with bumper stickers cheering on the true believers, including exhortations such as “i am not normal.” or "i do not follow."

At least in regard to turning their balance sheet into the financial equivalent of Hiroshima, there's no doubt that good sense was one of the things they certainly didn't follow.

Fooled By The Numbers. And Bad Advice. Not that the initial I-Air concept – the one that a lot of analysts now decry – was completely foolish. At least on paper.

Do the math. In a lot of IAD markets, a fare with a 30-cent yield represented not only a major cut in existing fares, but one that in dollar terms was a relatively low nominal price, often under $100, and could provide a good return, even with high ASM-cost RJs. That identified a lot of markets that with just a bit of traffic stimulation, could validate I-Air's original plan.

For example, before I-Air entered the Raleigh-Durham market, the average fare to IAD from Raleigh-Durham was a cool 86 cents a mile. So if an airline could charge, say, 25 cents on an RJ that had ASM costs of just 15 cents, well, bingo! that's a no-brainer. It is, if you can assume that, a) the market could be fare-stimulated, and b) I-Air's grand plan to win huge brand loyalty in the Washington area came to pass.

As it turns out, within 90 days of starting operations, the airline knew, or should have known, that these things weren't happening. But they stayed with their sacred plan. It was, after all, divine dogma. In reality, it was simply a dog.

Leaving the United Express network was a sound decision. What they did afterwards was a case study in dumb. And for that, there’s not much of an excuse.

Visionary or not.
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The Wright Circus Continues
Tossing Crumbs To Politicians

A three ring circus, this past week in Washington. And P.T. Barnum must be smiling broadly from above.

We're referring to the Wright Amendment hearings. The only thing missing was an elephant act and a trapeze routine. But the performances were stellar and perfect for diverting attention from reality.

In one ring, we had the proponents of repeal of the Wright Amendment. Most (but not all) of these folks were proclaiming benefits just short of world peace and an end to psoriasis, should the law be repealed.

In another ring, we had the opponents of repeal. These included a whole spectrum of people, from strutting senators to a number of small airports, cowering in a state of naked panic, begging congress to keep the law in place. These are the poor folks that swallowed the silly threat that without the Wright Amendment, American Airlines will surely commit hara-kari and dismantle its hub at DFW, thereby destroying air service at small towns all across America.

And in the center ring, there were the usual fence-sitters, like Senator Kay Bailey-Hutchinson (R-TX), trying to make political points by taking both sides, while not taking any side.

Lots of bombast. Lots of great entertainment. And the folks in the center ring were tying to cut deals that would at least satisfy some of the anti-Wright politicians. One was a deal to allow service from Love to Missouri – aimed, naturally, at buying off that state’s two anti-Wright senators, while making sure that the powerful lobbies in favor of Wright get their way.

Tempest In A Terminal. It's amazing how a simple proposal that would have so little impact has taken on so much controversy and has generated enough hot air to support a balloon convention. The fact is that Love Field is a non-sequitur in the future of the DFW Metroplex. One hint: Note that Southwest has carefully refrained from claiming that they’d turn Love into the next O’Hare, which is something that American claims would happen.

The reason is that any Southwest expansion at DAL would be minor – with flight frequencies that would rise to about the level Southwest operated at Love before 9/11. Sure, they'd be going to about a dozen more cities, but that's not a threat to American nor DFW.

Great Theatrics. Not Much Substance. There are lots of issues here, all revolving around enlightened self-interest. Sure, American is right to fight to keep the Amendment, because regardless of the degree, it does shield it from some additional competition. DFW International also has a vested interest in keeping Love semi-shuttered. Finally, Southwest needs markets to expand and spread its costs. Love is one of those places.

But some of the tactics are downright silly.

No doubt DFW regaled congress with the melodramatic "report" it revealed to the world last summer. Put a musical score to this thing, and it's a sure hit as Phantom of The Airport, and just about as credible. Ignoring recent history of service attempts at Love, it foretold dire economic disaster for North Texas if Southwest was allowed to toss a few more 737s out of Love Field. A truly pace-setting analysis - predicting that more service in a region would result in less economic growth. The new math, no doubt.

American probably reprised its own "study" - one that was admittedly far less theatrical than DFW's - for the benefit and edification of our elected leaders. It's an accurate discussion of what happens when an airline eliminates a hub, but somehow it failed entirely to give any logical reason AA would need to do so at DFW. It then proceeds to insult the intelligence of anyone with more than a high school knowledge of the airline industry by contending that WN expanding at DAL would zap air service at Fort Wayne.

Fear grenades in all directions.

Southwest's at a severe disadvantage here, at least from an entertainment point of view. Its study on the matter was nearly devoid of incendiary predictions of gloom and human misery. Unlike the other studies, it was calm, reserved, and was almost completely devoid of any good laughs.

But all of them were partisan reports.

So if you want a really independent perspective on what a Wright repeal might mean, click here. It'll take you to where you can read a synopsis of The Wright Amendment - Now For Some Facts.

If you want the facts, that is.

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It Happened One Night At Newark
We Told You That A Good PR Guy Is Essential To National Security

Recall a couple of weeks ago when the TSA bolstered the war on terror by appointing their former press flack as the Assistant Federal Security Director at Newark. We noted at the time that we could look for some great PR in the event of a security incident. (Go There and scroll down.)

Well, it's happened. Seems that a passenger got through the TSA's well-known sloppy security at EWR without a boarding pass. Went right to an American Airlines gate, too.

The reaction from the TSA at Newark? A press assault on American Airlines. See, it's American's fault that the TSA let the guy through, even though he was actually screened.

Just like Mohammed Atta was.

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Update: Forecast Conference Highlights

We've posted highlights of speaker presentations and forecast sessions. And, some pictures, too. Binders and CDs of presentations and forecast sessions will be available this week. Click here.

(c) 2005, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - November 7, 2005

Airport Enplanement Picture Mixed
It'll Stay Strong In 2006, But...

Year to date, enplanements nationally are up just short of 6% compared to 2004.

No Single Enplanement Trend. While that's a positive growth rate, the airport-by-airport picture is jumbled by region and by city, and is affected by a lot of things not directly related to the economy.

We have the continuing "make-it-up-on-volume" pricing at Independence Air, which has temporarily skewed traffic upward at a number of airports in the East. Then there's the hurricane-related issues that have decimated MSY, but caused Baton Rouge and Jackson to skyrocket. How much of this traffic-diversion bubble will be retained for the long term at these airports is not clear. However, it is highly likely that substantial business re-investment will be made along the I-10 corridor west of MSY, pointing to additional future air service demand at BTR.

Factor: Discretionary LCC Effects. The entry of discretionary LCCs, such as Allegiant, at smaller airports can cause enormous spikes in enplanements, and, should they delete service, corresponding declines in passenger volumes. Some airports with small enplanement bases, such as SWF and ABE, can gain or lose enormous numbers of passengers with the entry or departure of a discretionary LCC. But since this type of service is typically focused on just two markets - Las Vegas and Orlando - the effect on the airport's core air service access is much less than the percentage change in enplanements might indicate.

More Focus On Metro Airports. On the other hand, the metro-peripheral growth in markets such as Flint and Akron/Canton will tend to flatten out, after years of double-digit expansion. In some areas, this strategy could be reversing itself (although not at FNT or CAK) - the entry of jetBlue into Boston, for example, could be having a nasty effect on some of the reverse leakage that Southwest may have been enjoying at MHT and PVD. At ISP, whatever small portions of the lunatic fringe who enjoyed the Long Island Expressway odyssey into Manhattan, after saving a couple bucks flying WN into Islip, likely will find jetBlue's JFK flights a lot less of a hassle.

Secondary, Targeted Market Growth. The new airline game is no longer just costs, but revenue streams. As was noted at The Boyd Group Forecast Conference, markets such as GSO, GSP, CHS, MGM, SHV, AZO, LAN (to name a few) represent the genre of markets where new investment - particularly Asian investment - will create strong new domestic and international flows. Note that these types of markets tend to be ill-suited for LCC entry.

Unclear: Fleet Shifts At C-11 Airlines. At many cities, future air service and enplanement levels will be driven by what happens to aircraft fleets that are controlled by mega-carriers.

Airlines in chapter 11 are playing a game of financial chicken with aircraft lessors and with small jet providers. Aircraft lessors and SJPs are in line to get squashed big-time if they don't play ball and do some heavy pencil-work on existing lease rates and operating costs. The Boyd Group fleet forecast analyses at this time indicate that most turboprops (not that there are lots of them) will probably remain, as the lessors will play ball, not to mention that any extreme excess in turboprop fleets has long since been retired.

Not so, however, with "RJs" - this herd's in for a real cull. Operators and lessors of "RJs" either come to the table ready to do business, or they're going to be stuck with a lot of pretty metal sitting on ramps around the country. At least 200 currently-flying RJs are excess to the needs of the US airline industry. And that's for starters.

However, the main effect of these retirements will be in the area of off-hub flying, such as the nonstops operated by DL between secondary cities in the South and Midwest on one hand, and Florida cities on the other. Paying an SJP to fly passengers on 12-cent airplanes in 8-cent markets that don't provide system revenue contribution is an expensive way of maintaining market share.

Key Trend: The Hubsite Is The Key. For most airports, including the vast majority that do not have the traffic density to support the high-volume LCC model, the future is connectivity to major airlines' connecting hubs. Ignore the herd-mentality "studies" and "papers" issued by various financial analysts and college professors that predict the demise of the hub system, and the failure of "outdated" legacy carriers. Folks who spout this stuff are ill-informed and blissfully unaware of emerging national and international economic trends.

Current Forecast: Continued But Uneven Enplanement Growth. As of now, the year 2006 is shaping into what will be 4.5% to 5.25% passenger increases. This is vulnerable to economic shifts, higher taxes, and dimbulb policies by the FAA, such as at ORD. Nevertheless, watch for the strongest overall enplanement and revenue expansion at mid-size cities in the Deep South.

Forecast Hint: Air travel demand generally chases economic growth.

(c) 2005, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - October 31, 2005

Song Changes Tune
But It's Still Singing

And the winner is: Sherwin Williams.

Other than oil companies, it's paint suppliers that are cleaning up in the airline industry.

There's TED, where United seems to believe that changing a color scheme will bring mystical results to what is essentially the same system as before. Now, Delta's decision to end the separate Song brand means another uptick in demand for airplane coatings.

And that's about all it means.

It's amazing to read comments from some "financial advisors" regarding this decision by Delta. These guys come out with grand statements describing the "failure" of Song, and how it's being "shut down."

All of this is without any review or analysis of what's actually being done. And these are the people who want you to entrust your money with them.

Essentially, all Delta's doing is re-branding Song as mainline Delta. In most cases, the aircraft will be flying the same routes, with fares unchanged. When they dreamed up this scheme, Delta had the option back then of leaving it within the Delta identity, or trying to create a separate brand. They chose the latter. Now, they're just re-painting the aircraft back to DL colors, making the configurations compatible with the rest of the airline, and continuing doing what they've been doing.

The concept, whether it's called Song or Delta, remains in place, and remains a valid marketing approach. Unlike TED, which carries the same passengers within the same hub system as planes with a regular United paint job, Delta's objective was to isolate low-yield traffic flows, particularly to Florida, and carry them outside of their core hub system on a nonstop basis. They made the additional decision to gussy up the product to win consumer loyalty. Based on reported load factors, and anecdotal reports, it seemed to work.

The downside was that as a separate sub-brand, it brought with it some operational issues. Apparently, Delta has decided it can keep the passengers and cut overall costs by doing away with the separate Song brand identity. And that's pretty much the sum total of what they're doing. It's not a retreat from jetBlue. It's not a "shut down" of an airline.

It's another paint job, mostly.

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CRJ: Out of Production
Just Like We Called It

The Boyd Group Fleet Forecasts since 1999 have advised clients - aircraft manufacturers, OEMs, airlines, as well as the attendees at our annual Forecast Conferences - that there was a limit to the number of "regional" jets the US airline industry could absorb, and that there would be an excess of these airplanes by the early 2000s.

Three years ago, we forecast that the end had come for any further large orders for these airplanes. There were more in operation and on delivery than the industry could support, our independent data showed. Add to that the relatively slim economics, tight ergonomics, and what was a propensity for some carriers to treat these airplanes and the passengers they carried as second-class, and the outcome was not in doubt.

Naturally, the usual suspects disagreed. Some forecasts indicated nearly indefinite demand for these things. "Everybody knows," they contended, that RJs are the future of the airline industry.

Actually they're the future of desert real estate. As we pointed out at our recent Forecast Conference, look for around 200 (CRJs and ERJs) to find themselves enjoying retirement over the next three years.

Beginning of The End of The RJ Era. Last week, facing a lack of new orders, Bombardier announced it would end production of the 50-seat CRJ. The stretched versions continue, but even there, the writing is on the wall.

Bombardier is in a very difficult position. They know full well that the CRJ line has run its course. But a follow-on, the 130-seat C-Series, won't be out for at least three and maybe four or more, years. That means there could be a thin period for airliner production coming sometime in the next 36 months. It's possible that the company may address this by offering trade-outs to existing CRJ-200 operators to swap for new 70-seat CRJs. The cabins and the consumer issues are the same, but the operating economics, assuming there are passengers to fill the extra seats, are a whole lot better. This could keep things running at the factory pending the roll out of the C-Series.

The 90-seat CRJ? Forget it. Most major airlines will opt for mainline jets in that category, such as the Embraer 170/190 platform.

Going forward, higher fuel prices, consumer backlash, and other issues will point to slowly reduced applications for RJs.

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We Must Be Good:
Another Website's Blatantly Copying Our Comments

We've received a number of e-mails from folks pointing to another airline-related website/blog/bulletin board that just seems - just seems - to publish "insight" on issues that reads suspiciously close to what appeared on the Hot Flash a couple days before.

Some of the terminology is exactly the same, and the metaphors used are just slightly modified.

Imitation is the sincerest form of flattery. But posing other folks' work as one's own "analyses" is unethical. We won't mention the site, lest its lack of integrity get more visitors.

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Our People Must Be Good, Too:
We Just Got Poached (And We're Proud of It)

It's with some sadness, but with a whole lot of pride, that we announce the departure of Brian Streeval, Director - Project Analysis, from The Boyd Group.

Brian joined us five years ago from US Airways, and has been a key part of the growth of The Boyd Group. While we'd prefer he stay here, he's got an offer he can't refuse. We're proud and honored that a prestigious international airline - Emirates - saw fit to swoop in here and poach one of our key staff. It says a lot about Brian, and a lot about the reputation we've earned within the airline industry.

His leaving is a tough event for us, because we really will miss Brian, as will the numerous airport clients that have worked with him over the years. Aside from his outstanding analytical and forecast skills, he also consistently kept the office from becoming too serious about things. Put it this way, with Brian around, things tended not to be dull. So, he leaves a real vacuum here, not only professionally, but personally, too.

Brian will be Manager - Market Planning for Emirates, and will be based in Dubai. We wish him the best, and are confident he'll find profitable routes for those 45 A-380s the airline has on order.

(c) 2005, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - October 24, 2005

Aviation Forecast Conference Highlights
It was the largest conference yet, and the most exciting, too.
A review and pictures will be posted later this week. Yes, pictures.
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Southwest & Denver:
More Proof of The Maturing of The LCC Model

Head scratching.

After years of literally telling the world it would not come to Denver, Southwest suddenly announces it's doing it. To a lot of folks, it looks like the airline planets are out of alignment. Colorado Springs was supposed to be the heir apparent for Southwest service in the Rocky Mountain region. Denver International was too expensive. Heck, the president of Southwest actually said so, not too long ago.

This is the same airline that less than a month ago was threatening to bolt away from Sea-Tac because of high airport costs. The same airline that has made clear in the past that airport costs were a critical component in serving a city.

Then they announce Denver, which, regardless of the hype, is an expensive airport.

An Airline Under Attack - From More Than One Side. This has a lot more to do with what's going on at Southwest than it does with Denver International, airport costs notwithstanding.

To be clear, Southwest - its great service, motivated employees, and incredible brand equity notwithstanding - is an airline under siege. Quietly, but still under very serious siege.To be sure, this can be said of any airline, but WN has some real issues of its own.

Labor costs are high. Fuel will edge up for them next year. Meanwhile, legacy carriers are getting their own costs down - to the point that they're on the ragged edge of actually breaking-even or making a profit. Without fuel hedges, which are essentially a situation where the somebody else is getting the short end of the deal, Southwest would be losing money. And, while the carrier is well-hedged going forward, its fuel bill is still going to go up nastily in 2006 and 2007.

But most dangerously for Southwest, the LCC skies are getting more and more crowded. Look for another 250 or so 100+ seat airliners over the next three years, including just those with planned deliveries at AirTran, jetBlue, and Southwest. A lot of those competitors to Southwest have raised the service ante, with seat assignment, inflight entertainment, and wider seats. The number of markets where the low-cost, price-stimulated model can work is not unlimited. And as The Boyd Group was the first to point out, the LCC model is not well suited to take advantage of the new emerging revenue flows between mid-size communities, as well as those developing to international points.

So here's the sea change: Southwest - regardless of the sunshine media stories - is no longer alone, nor is it immune from competition from other LCCs, nor from re-structured legacy carriers. Far from being the invincible airline dreadnought that some lightweight Wall Streeters think it is, Southwest has a lot of vulnerabilities. (Again, after these become too obvious to miss, the same clowns will be "forecasting" the problems at Southwest.)