AAAA Monday Scribble Sheet

ATC “Reform” – Following The Gambino Model

Anybody remember Paul Castellano?

He was the all-powerful Don of the Gambino family in New York.

He got whacked by his underlings in a high-profile hit in front of Sparks Steakhouse in 1985.

It seems they disagreed with the Don regarding management issues, but had no disagreements about the underpinnings of the family activities themselves.

It resulted in a complete management change in the family. But at the end of the day, the family was operating just as it did before Big Paul met his untimely demise. Just new faces at the top.

“ATC Reform” – Whacking The FAA… But Keeping The System. What took place long ago on East 46th Street is pretty much along the lines of the current hoopla around whether to “reform” and privatize the air traffic control system, or leave it in the clumsy control of a bungling government agency.

The reform crowd, not to put too fine a point on it, wants to corporately take out the current ATC Don – the FAA – and take over the “family” – the air traffic control system.

And like the Gambino capos who wanted Big Paul out, the ATC reform folks have no quarrel with the core business activities of the current FAA Don. They just want control – in this case, that means control of the NextGen program. Not change it. Just control it.

As a factual matter, neither side in the ATC squabble have issues with what the FAA is actually doing… they have no criticism whatsoever on NextGen. it’s just the management style they disagree with.

Nothing personal – it’s strictly business.

Much Ado About Going Nowhere New. The noise surrounding whether the air traffic control system should be “reformed” or left in the clumsy cloak of the FAA gets louder – and more irrelevant – with every press release from either side.

The “reform” crowd all contend that putting the ATC system under a semi-private structure will result in a new modernized system. Poof! Just like that. No other changes necessary.

These vapor claims are sometimes accessorized with un-supported and frankly fruitcake predictions that “reform” will massively cut airline delays by double-digit amounts.

The anti-reformists are warning that privatizing ATC will be devastating to the air transportation system, as they claim it will turn it over to the evil airlines, who’ll certainly use to make more money at the expense of the consumer.

A key tenet of the anti-reformists is that privatization will result in small communities losing air service – a contention completely concocted and being nothing more than a desperation fear-grenade… not much different from the clowns that claim an end to EAS will close airports.

The point in all this is that neither side has a clue. Neither side has a problem with the ATC NextGen “family business” – which is a fraudulent scandal that both want to continue to worship and retain.

Neither side has promulgated any fundamental changes in ATC modernization. Nobody has dared mention that NextGen has a rap sheet of failure longer than I-95. Nobody has suggested structural changes that address the bungling at the FAA for the last 30 years.

Both sides agree, apparently, that NextGen is the answer… they only differ on how it should be managed… or, mismanaged.

It’s An Airline Problem Now… And That’s Where The Solution Is. What is becoming more and more clear is that the path to improving air transportation efficiency does not lie within the FAA or the ATC system, regardless of who’s running the show. Neither contender to the ATC throne has so much as a suggestion on what to do differently from today in regard to modernizing the system.

So, it’s now the responsibility of the airlines. No more excuses. If flights can’t deliver passengers in accordance with the schedules the carriers themselves publish, the buck stops in the airlines’ front offices.

GAO studies on ATC – the majority of which, by the way, do not blame funding for the mess the FAA has created with NextGen – have noted that the actual causes of airline off-schedule operations are not fully understood. In some cases, the ATC system is the cause. In others, airport congestion. In others, sheer dimbulb operations management by airlines.

But one thing is now certain: this hype about “reform” is based on bogus assumptions and PR doggerel. This is not to say that ATC modernization should not be taken away from the klutz-masters at the FAA.

It just illuminates that whether “reformed” or remaining in the status-quo, there are no ATC-based solutions on the horizon.

Both sides want to retain the problem, under different management systems.

Great planning.

The End of FF Programs. Not With A Bang, But A Whimper

Good Business For Airlines. Good For Competition, Too

It’s Reflective of New Airline Economics

On August 26-29th, leaders throughout the industry – from airlines to airports – to suppliers – to financial institutions will be at the 22nd Boyd Group International Aviation Forecast Summit to tackle the inter-connected trends that will affect future planning at airports, airlines, financial institutions, suppliers and manufacturers.

The financial underpinnings of air travel are changing, and assuming that the future is just a trend line of the past is a great way of getting stuck there – in the past.

At the IAFS™ we go into areas that other events don’t even get close to. Two weeks ago, for example, we reviewed how we will be exploring capacity expansion in the future, and how it will affect different categories of airports in the future.

This week, we give a preview of one of the other areas we’ll be exploring at the IAFS™, which are the changes in airline consumer marketing.

Specifically, the evolution – or maybe evaporation – of key parts of frequent flyer programs – and the net benefits for airports around the nation.

Take it to the bank. No other event will deliver the insight that the IAFS™ delivers. We’d suggest joining industry leaders August 26-29 at the Wynn Las Vegas Resort and get ahead of the planning curve.


Traditional Frequent Flyer Programs:

Giving Away What You Can Sell… That’s Not Good Business

American has again re-structured its frequent flyer program.

In the future, earning status levels, perks and rewards will be determined by spend, more than just miles.

It’s part of a trend across the industry – and one that spells the end of frequent flyer programs as a major factor in carrier choice for millions of consumers.

AA is not alone. Delta and other carriers are moving to make FF perks and program levels more connected to dollars that are spent… meaning that they’re kicking the program financially upstairs.

Reason: the original business reasons for frequent flyer programs no longer exist.

But it was a great marketing idea, back in 1981.

“Here’s the deal,” the marketing VP probably said as he pitched to idea to the CEO. “Our average load factor is just 60%. We have lots of inventory available. So, let’s make it an incentive for customers to fly us, instead of another airline…”

“… all we do is let them get a free ticket for every 10,000 miles they fly with us. We can dangle free trips to Hawaii, California and across our system.”

“Yes! Dynamite idea!” the CEO chortled. “We can fill unused capacity, and take business from the competition! And we can dangle free first class upgrades. Right now that cabin’s full of non-revs.”

“You betcha, boss,” the VP responded.

“Now consumers will be less likely to fly the competition. Like TWA. Or Braniff. Or Continental. Or Piedmont. Or Republic. Or PSA. Or Pan Am. Or Eastern. Or Northwest. Or AirCal. Or Texas International. Or Ozark. Or any of those pesky other competing airline systems!”

Now fast forward to today.

That then-gangbusters 60% system load factor is now closer to 80%-85% – meaning the inventory is being sold, and there’s a lot less available for free giveaways, not to mention the need to give away seats.

All of those expanding competitors are now the subject of airline nostalgia conventions. First class cabins are now occupied substantially by paying passengers.

What’s the message? Simple. The entire original raison d’etre for frequent flyer plans has pretty much evaporated. Today, it’s not good business to reserve inventory for FF use when it can be sold anyway.

As a result, the airlines have no choice but to pull back on the perks – not only do they no longer need to offer them, but they don’t have the inventory to deliver them, anyway.

The American changes to its FF program are simply good business. Carriers have less need for brand-loyalty programs when they can sell most or all of their inventory without the brain-damage of managing a massive frequent traveler marketing program.

Gold Status: Maybe Not Worth Chasing Anymore. But this also means that for many of the former status-chasers in these programs, the “status” isn’t worth the hassle of keeping  his or her business all at one airline.

For all but the top-tiers of top-spending customers, a first class upgrade is getting as likely as an Elvis sighting. The hurdles to getting a free trip are way up, particularly to places like Hawaii, and even then, the itineraries offered sometimes look like an inspection trip of the airline’s route system.

And as for the “priority” boarding that some carriers depict in TV ads as just a quick stroll into the cabin, it’s more likely the experience of standing in a numbered pen, where the line-up begins 45 minutes to an hour before departure, and snakes 50, 60 or more people down the concourse.

At peak times at a major hubsite connecting bank, the concourse looks like individual DMVs at rush hour.

Not only that, but the lower-tier frequent traveler, who’s concentrated flying dozens of flights on the airline to get this wondrous “priority” boarding perk, finds himself behind the family of four, that travels once a year, but has one of the airline’s affinity credit cards.

No More Penalty For “Disloyalty”. It’s a matter of time before a lot of consumers recognize that the incentive to give all their business to one airline and earn a higher status is no longer there.

That’s great news for airports – particularly hubsites. At least hypothetically, this will tend to make flying alternative carriers more attractive for frequent business travelers. Since there is less chance of earning a status level that has any real benefit, spreading the business around no longer has a downside.

This will continue to open a whole set of competitive consumer patterns in the future. For one, it reduces – at least on paper – the barriers for competitors at airline fortress hubsites.

The complete fallout will become more apparent over the next three years, as mid-level frequent flyers start to adjust to a world where it’ll be mostly the top-spenders – the global sky warriors – that will be the main beneficiaries of these programs.

Join Us In Las Vegas For Real Futurist Planning Insight. This is just one of the changes in the competitive structure if the US air transportation system that we’ll be illuminating and exploring at the IAFS.

There are others that we’ll be covering… areas that other events miss entirely… but which will be critical factors for future aviation planning.

We’ll be doing blunt analyses of dynamics such as “hub-choke,” increased regionalization of air access, “road hubbing,” parallel ULCC options, changing fleets, supersonic airliners, exciting new international access for secondary US airports, and more.

Click here for more information and to join us August 26-29 at the Wynn Las Vegas Resort. It will be an intense couple of days, but prepare to leave with insights and perspectives that will be your competitive advantage.