WSJ OpEd on UA/CO: Does the Journal Understand the Industry at all?

Read today's Wall Street Journal OpEd here on the impending Continental/United merger and then ask yourself if the WSJ has a clue about the airline industry.

The Journal's points supporting the UA/CO merger are well founded, however their knowledge of the airline industry appears to be quite flawed.

First, United and Continental have limited "overlap" across the North Atlantic. In fact, there are zero routes where both airlines operate head to head. They fly to many of the same cities in Europe of course, but not from the same cities in the United States.

Virgin America is no longer "under attack to provide its 'U.S. citizenship'," this was resolved many months ago with a new influx of capital and the departure of the previous C.E.O. Not was the compliant filed by "Air Alaska" - there is no such airline. Alaska Airline or Alaska Air Group, yes, but not "Air Alaska" anymore than France Air or Blue Jet. Oh, and Alaska Air is NOT a low cost carrier along the lines of Southwest and JetBlue as intimated.

JFK is not able to expand landing slots because there is simply no more runway capacity at peak times - this is why they are called landing slots. Short of adding new runways, as O'Hare has done, adding more slots and, hence, flights is a very poor idea - flown out of JFK lately?

Similarly, airports do not add more air traffic control technology as you suggest - this is not something local airports can go out and buy. It is the responsibility of the FAA to improve our creaky ATC infrastructure - something which must be done soon.

These miss-statements unfortunately leave this opinion grounded.

P.S. - If you are not a WSJ subscriber, simply drop "Mergers in Midair" into the Google and voila, you can view the whole OpEd for free.

Continental: No More Free Lunch - Probably for the Best

Continental Airlines, which has made considerable marketing hay about the fact that they still served airline food for free, has decided to drop the practice.

Clever Continental advertising pieces like these will need to be re-worked a bit but free (airline) food can't be as big of a draw as other airline purchasing influencers such as price, schedule and frequent flyer program.

Back when other airlines began imposing baggage fees, Continental was among the last of the airlines (save Southwest of course) that opted to begin charging for checked baggage. We are told that Continental was looking for signs of share shift away from airlines that were adding baggage fees. Alas, no share shift was apparent so ultimately Continental decided to match the other mainline hub and spoke carriers and enjoy the revenue benefit.

Similarly, it has probably become impossible for Continental to show any share-shift (and resulting revenue gain) from continuing to serve food. In fact, they may have actually been at a disadvantage as some carriers have started to really sell some good food.

From recent first-hand experience, we can report that while free food on CO was nice, it was certainly nothing to write home about. In fact, some of the buy-on-board food has become so good (particularly on Delta) we'd actually prefer to pay a few extra bucks and actually get something that is fresh, healthy and tasty. Or not.

So, we'll see some costs come out and, hopefully, some nice ancillary revenue gains - Continental is projecting about $35M in improved revenue and cost savings - and that's a lot of sandwiches.

DOT: $27,500 PER PASSENGER Fine for Long Delays. Total insanity.

In what is being heralded as a "Christmas Miracle" by some air travel watchdog groups, the DOT announced new fines for airlines that keep passengers on board an aircraft for longer than 3 hours after departure from the gate.

While we are not advocating that passengers should be kept on aircraft for long periods of time and deprived of basic necessities, we do worry that this arbitrary time limit will have a huge (and negative) effect on how airlines operate during periods of bad weather. Airlines don't intentionally keep people stuck in a tube for hours on end - it is clearly not in their best interests either. And a few of the incidents that have drawn widespread media attention (the Continental Express flight that spent the night on the tarmac in Rochester, Minnesota, for example) are so egregious that we agree something had to be done. But issues like the one in Rochester happened because of utter stupidity and the failure of the crew and airline to properly monitor a nasty situation - not because of malice or profit motive.

The new fine of $27,500 per passenger (which is going to the government, mind you, not the passengers sitting on board!) is arbitrary and capricious. I guess the DOT was trying to send a message, but they might want to check in with the FAA what is a reasonable fine. For example, lets assume a 228 seat 767 sits on the runway for 3 hours and 5 minutes waiting to take off. This would subject the airline to a $6,270,000 fine! In contrast, the FAA recently proposed fining United Airlines $3.8M for flying a 737 on over 200 flights with shop towels covering an oil sump area rather then the proper caps. And most FAA fines are reduced by half if the error is corrected and not repeated. So, a 3 hour delay costs over $6M but 200+ flights with rags in the engine costs ~$2M. This makes no sense. Ont top of that, no compensation goes to the passengers actually sitting on the plane. At least when an airline bumps you (under rules also set by the DOT) the compensation goes to the passenger, not the enforcement agency.

Further, because the fines are so large, airlines will be extra careful in ensuring the aircraft return to the gate in order to avoid these fines. Get ready for your next flight to be sitting in line waiting for takeoff on a snowy evening and after waiting for two hours or so, you head back to the gate. As such, you lose your spot in the queue, maybe the crew goes illegal, bags have to removed etc - you end up stuck in an airport. Some Christmas Miracle indeed.

Net/net, less passengers will make it to their final destination with this new fine.

This is a classic example of the government over-reaching into the operational aspects of a business for reasons beyond protecting the safety and welfare of citizens. Yes, something had to be done to prevent another Rochester, MN but this is not the answer. This is a cheap headline, hardly a "Christmas Miracle."

United Allows Unlimited Upgrades and Goes After Competition

United just announced that they will allow unlimited complimentary upgrades for all Mileage Plus elite members. Not only that, but in an email from United, they make the elite benefits of the Mileage Plus program pretty clear vs. the competition. We haven't seen this aggressive of competitive positioning (by name, no less) from an airline in a long time - remember the Shuttle wars?

How long will it take American to match this change for AAdvantage members? We bet not too long - UA and AA match pretty much everything the other does in the loyalty space within days. And what of United's newest Star partner, Continental? They dont fare too well in this (decidedly one-sided) accounting - but we bet United would love to have a lot of CO passengers start crediting over to UA....

Goodbye US Helicopter:

US Helicopter (USH)which had flown back and forth between JFK/Newark and the Wall Street and E34th Street Heliports abruptly ceased service today. USH had codeshare agreements in place with Delta and Continental for their respective hub airports. USH has service has already been dwindling over the last few months - frequencies have been cut and some flights were scheduled to make stops at one or the other of the two heliports before heading out to JFK or EWR.

The USH website says the suspension is "temporary" while they add new aircraft and routes.

Huh? If you are going to expand, it really doesn't do a lot for the brand (or your customers) to halt service while you "regroup" which is probably code for "try to raise some funds." Sadly, we predict US Helicopter will be joining the ranks of Eastern, Braniff and NY Helicopter in bankruptcy.

New York Air Market Continues to Heat Up: American Offering Double Miles

The highly competitive market in New York continues to just get hotter. Today, American launched a new promotion offering New Yorkers double AAdvantage frequent flyer miles for the rest of the year. On all routes, all fares, worldwide.

This is clearly a response to a similar offer that Delta made a few weeks ago for which was broader in some respects (you don't have to live in NY) but also more targeted because you need to be a Delta American Express card holder.

What is interesting is that American felt the only place they needed to match the offer was the NYC market. The New York area has increasingly become a battle ground between Delta, Continental and American. AA and DL (especially DL) have added extensive new flights from JFK, AA has opened a new terminal at JFK. Continental continues to operate the largest operation of any of the carriers, albeit over at Newark - NY's third airport even though it is in New Jersey. (Which simply allows Delta to claim more flights from New York meaning the state rather than the metropolitan area - funny, they dont make the same claim in Cincinnati where the airport (CVG) is actually in Kentucky!) But we digress.

Complicating the story is Continental's impending move from the Skyteam Alliance (of which Delta is part of) to the Star Alliance which has not had a strong New York presence. Many NY travelers split their loyalty between Delta and Continental and credit their miles on both into one program. This is about to change as consumers will no longer be able to credit CO flights to DL and vice-versa. This change, set to happen this fall, raises the stakes for both carriers to hold on to the other's travelers.

Oh, and if you want those double miles on AA, go here and register....

Rep. Oberstar (D - MN) Proposes Bill to Limit Airline Anti-trust Immunity - We Propose Limiting Congress

Congressman Oberstar has introduced new legislation that would not only limit future airline anti-trust immunity but also re-examine the existing pacts that have already been negotiated and approved. Anti-trust immunity (ATI) allows members of an airline alliance to jointly coordinate fares, schedules and sales efforts. Normally, airlines are required to compete against each other in these areas but when they form marketing alliances (a la Star, oneworld or Skyteam) they frequently ask for Anti-trust immunity in order to fully realize the benefits of such tie-ups.

To be blunt, with all due respect, we feel that Congressman Oberstar is far off the mark with his concerns. Continental has already commented and was much more delicate (for obvious reasons) in their response than we will be.

In the news release, Congressman Oberstar claims that "He said competition among carriers is declining, resulting in higher fares, especially on routes between the United States and Europe."

Really? Congressman, have you noticed the flury of new route announcements offering new and enhanced service to Europe in the last six months? Your own constituent, Northwest Airlines has added new flights from Seattle, Minneapolis, and Detroit to London Heathrow in the last nine months. (OK, so Seatte didn't work out so well.) Delta has added slugs of new service including routes such as JFK-Malaga, Spain, JFK-Prague to name just a few. And lets talk about the explosion of new flights from London Heathrow following liberalization there. Continental has added flights from Houston, Newark and Cleveland. Delta has added Atlanta and New York. And new service hasn't been limited to just US carriers - Air France tried (and failed, mind you, because of TOO MUCH competition) to operate London Heathrow-LAX flights, BA's new subsidiary OpenSkies has added flights from JFK to Amsterdam and Paris-Orly. Need I go on?

Next "Oberstar called the immunity grants 'a de facto merger of these airlines,' and said the result is less competition. He said in 1990 there were six airlines competing on the route between Paris and New York's Kennedy Airport, while today there are only three, with SkyTeam alliance partners Air France and Delta Air Lines Inc. controlling 75 percent of the market."

Again, really? Lets look at who was operating JFK-Paris in 1990. If memory serves, that would probably be Air France, American, TWA, Pan Am, Air India and one other "5th Freedom" carrier operating to the US via Paris.

I don't know about you, but I don't really miss TWA or Pan Am. Air India isn't exactly my first choice of airlines either.

Now we have Air France operating a slug of flights (all codeshared with Delta), American operating two 767-300 widebody flights daily plus new competition from British Airways via OpenSkies. And this does not include the rise of flights from Newark which includes nonstop flights on Continental (3 daily flights this summer) plus Air France, plus BA's new acquired Le' Avion (yet another new competitor)

And finally, back to your constants, Congressman, lets look at the unparalleled success that Northwest Airlines has been able to achieve through a very tight alliance with KLM. This was one of the first alliances and the first to be granted full ATI. Without ATI, there is emphatically no way that your home-town airport, Minneapolis-St. Paul could support even one daily nonstop to Amsterdam, let alone the three widebody nonstops per day that Northwest and KLM will be operating this summer. Without the ability to share in costs and risks, coordinate schedules and fares etc, these flights simply would not exist. Similarly, Northwest and KLM have combined forces to operate a number of other routes that would never see service without full ATI such as Hartford-Amsterdam and Memphis-Amsterdam. I am sure the tax-payers in both of those cities are proponents of ATI because of the new service it has afforded them.

The best benefit for consumers and our ailing airline industry would be to allow for increased Anti-trust immunity as it actually provides more service in an already brutally competitive industry. We don't need six carriers operating from JFK to Paris. If JFK to Paris is so lucrative, any airline could start flying it tomorrow.

We should allow more ATI, not less. Now that London Heathrow has been opened to flights from all airlines, oneworld should promptly be given ATI. Similarly, now that Continental has taken the bold step of switching alliances (from Skyteam to Star) lets allow them to vigorously compete under the ATI umbrella.

Congressman Oberstar, please let us know when you are ready to hold hearings on this matter - we are ready to share the traveling public's voice.