Baltia moves closer to launch

A few months ago I wrote about start-up Baltia Air Lines, which seeks to initially connect New York with St. Petersburg, Russia. It seems like they're moving closer to getting off the ground, now that they've registered and taken delivery of their first aircraft, a Boeing 747-200. The airplane, which was delivered in 1975 to TAP Air Portugal and has subsequently flown for Pakistan International Airlines, is to be registered N705BL. Baltia paid $475,000 for it (and it came without engines, apparently), but the airline has announced that it has started overhauling the plane, "preparing [it] for upgrades to conform to the company's business model, and for maintenance."

I haven't been able to find out much more about Baltia's progress, although apparently the Wall Street Journal is getting interested, which could add a bit more credibility to the start-up operation, not to mention some more facts about the subject. (If you do have any updates on Baltia, please do let me know.)

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A British Airways-Iberia merger: what does it change?

The fact that Iberia and British Airways are planning to merge isn't news by now. The deal's going to mean that the combined airlines become the third-largest airline group (behind Air France-KLM and Lufthansa), and there's the usual talk of synergies and cost savings, etc. We are laying the foundations of what will be one of the most important airlines in the world, a real global airline, said Iberia CEO Antonio Vázquez. I believe that, thanks to this transaction, which is the most important in the European airline industry in recent years, we are more prepared than ever to face future challenges. Meanwhile, British Airways CEO Willie Walsh has said that the merger will create a strong European airline well able to compete in the 21st century. Both airlines will retain their brands and heritage while achieving significant synergies as a combined force.

Sound familiar? Check out what the CEOs of Northwest and Delta had to say back in 2008. And I'm sure it's been said many times before. But besides giving graphic artists the chance to create some hybrid BA-Iberia tails, what does the deal really do? What do these types of mergers do nowadays, anyway? Sure, the deal will help both airlines stave off the other two big airline groups in Europe, but will it effectively deal with BA's oft-publicized woes? Or, as one comment on the BBC's website asked:

Will the cost of jet fuel be any cheaper if they merge? Will the service be better? Will things go back to the golden days of air travel when you could take just about all the luggage you wanted for free, and the onboard meals where for free as well as the soft drinks? Will there be more legroom in economy class? Will we be treated slightly better than cattle? Will they ban cell phone chatter and lap top tickering on planes - finally, thankfully? Will there be Peace and Quiet? No? Why merge?

Granted, no one's expecting the glory days of air travel to come back; nor does the merger have much to do with cell phone use or legroom, of course. But it did make me think about how airline CEOs sometimes talk about mergers as silver bullets - even if they don't really change much, as the BA-Iberia linkup will probably do.

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Editorial: Glenn's gotta go at United

There has been a lot of stuff out there written about United Airlines, and most of it isn't positive. We're all familiar with the United Breaks Guitars video (the second of three is out on YouTube, by the way), and the infamous "Untied" complaint website has been a thorn in the airline's side for many years now. I was on the website of United's Association of Flight Attendants the other day when I came across an account of how AFA members picketed the airline's 2008 shareholder meeting. I figured that it would be another story about angry union protesters, but then the last part of the article caught my attention:

The worst part of the meeting was when Los Angeles Customer of the year, James Anderson, stepped up to the microphone and respectfully addressed [United CEO Glenn] Tilton as a shareholder and a loyal customer who spent $100,000 at United just last year. Employees clapped and cheered for Mr. Anderson. He explained to Tilton that he felt caught in the middle of all of this and expressed concern about the discord at the meeting and the state of employee morale at the airline. He questioned whether he should continue to buy tickets on United Airlines. Tilton shrugged his shoulders and told him it was his prerogative if he wanted to take his business elsewhere but that it was going on at every airline in the industry - so where would he go? There was a shocked silence from the room and Mr. Anderson seemed bewildered at having been so easily dismissed. He paused before quietly stating, "What I’m trying to say is that I’m concerned about this. You talked about aircraft enhancements in your presentation – and they’re great – but they don’t put smiles on the faces of your employees.”

I haven't been able to independently verify the above story, and an email I wrote to the AFA requesting further details remains unanswered. But if the story is true (and I have no reason thus far to believe otherwise), then Tilton should be ashamed of spouting that kind of crap. First of all, it's not going on at every airline in the industry. And secondly, what kind of CEO, airline or otherwise, tells one of his best customers to go ahead and shove it? Maybe if you're Michael O'Leary, CEO of Ryanair. But O'Leary can do so because his airline's fares are so low that people will always come back, regardless of service. If the price is right, service doesn't really matter. But United's no Ryanair, and the airline can't afford to alienate key customers (let alone the rest of us).

That's the attitude that Glenn Tilton conveys - we don't really care about you. And you know what? Chances are that attitude is going to trickle down to the rest of the employees. And while I know that there are thousands of United employees that take pride in their work and do their best, I've also experienced a lot of less-than-stellar service on United. And you can't really blame them too much, either. I'd probably be pretty cranky, too, if my pay and benefits were slashed while Tilton & Co. raked in the dough. A great article over at Forbes, entitled "United Airlines Shows You How Not to Run Your Business," has this to say regarding employee morale:

United's workers... have had their wages, pensions and benefits cut even as the chief executive officer has been paid nearly $20 million dollars over the last five years (despite United's stock dropping 43% during his tenure)... All employees share the pain equally. If there are big cutbacks anywhere, senior management should take substantial pay reductions and limits on its privileges, such as fewer business class flights and trips on private jets. The troops look to senior management for direction. If those troops see the top brass caring for itself at the expense of others, the spirit of the entire organization erodes.

And there you have it. It's no secret, Glenn - perhaps you should look across the Pacific at another airline that's in trouble. JAL has been bleeding red ink as of late (posting a $1 billion Q2 loss). But their CEO takes the city bus to work and gives himself just $90,000 a year in salary (less than the pilots make), as CNN reports:

United's long-running financial troubles show no sign of abating. Tilton's strategy has been to try to polish up the airline enough to sell it off or merge it. Delta was always seen as the likely choice, but it opted for Northwest. And Continental figured that it would be better to just "remain good friends" with United (as evidenced by the new alliance between the two airlines) rather than a full merger. Nobody wants United, and that throws a wrench in Tilton's plans. United's fleet of planes is starting to get a little long in the tooth, and despite the airline's recent talk about shopping around for a big airplane order, it's clear that the airline would have a difficult time obtaining financing. As is pointed out in this Chicago Business article, United has billions in debt, and Tilton's already burned most of the furniture already. There's not much left.

Which means, quite simply, that it's time for Glenn Tilton (and probably a lot of the rest of UAL management) to go. I don't want to play armchair CEO, but it's clear that whatever's going on in Chicago needs to change, and change soon. Times are tough, sure, and everyone's hurting. But United has consistently been a loser in many categories - financial performance, customer service, etc. Firing Tilton wouldn't fix all of these problems overnight, but it would be the first major step on United's much-needed road to strength and stability.

Edit 8/26 7pm: I managed to get in touch with Sara Nelson at the United AFA, who provided me with the following: We do not have a video clip of the meeting. However, Mr. Anderson, himself wrote about his experience on FlyerTalk. And, he appeared again at this year's Shareholder meeting. I personally witnessed both meetings and his interaction with Glenn Tilton. This year Chicago Tribune reporter Julie Johnsson wanted to meet the man Tilton had dismissed and hurried to greet him once the meeting was over.

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Baltia Air Lines, the 20 year old startup

A few weeks ago, I stumbled across a press release that said that a New York-based startup, Baltia Air Lines, had signed a letter of intent to purchase a Boeing 747. Who the heck is Baltia? I did a little research (mostly in the form of 10-Q filings with the SEC) and turned up some basic history about the airline.

Baltia was founded on August 24, 1989 (that's right - a startup airline older than I am) with the goal of connecting New York-JFK to the then-Soviet Union. In June 1991, the carrier received permission from the DOT to start flying between New York and St. Petersburg (then Leningrad). They also were to fly between JFK and Riga, Lativa, and from there serve Kiev, Minsk, and Tbilisi, Georgia. That same month, Baltia expressed interest in grabbing two Boeing 767s to fly to Riga and St. Petersburg, as well as some 737-200s to use on connecting flights to the three other destinations from Riga. That was all in 1991 - and then the news articles about Baltia stopped, until just recently. It was as though Baltia just dropped off the radar for the better part of the last twenty years.

So now for the obvious question - why, twenty years later, are they still in the startup process? What's taken them so long? In a nutshell: lots of financial problems. Let's take a look at the timeline (which has some holes in it, but should be helpful nonetheless):

• 1991: The airline's "financing efforts were destroyed" as a result of the August 1991 attempted coup d'état in the USSR, according to an SEC filing. "Subsequently the route authorities terminated for dormancy."
• 1995: Baltia reapplies for the JFK-St. Petersburg route.
• 1996: DOT reissues JFK-St. Petersburg route authority to Baltia, "based upon reexamination of the Company's operating plan and fitness as a US air carrier." By then, the airline had apparently dropped plans for Riga and instead focused on serving St. Petersburg with a single Boeing 747.
  
• 1998: Baltia makes a $100,000 down payment on a Boeing 747-200 owned by Cathay Pacific.
  
• 1999: Baltia finally "had all the variables" needed for flight operations in place, except for enough working capital. The airline was supposed to raise the cash through an IPO, but that failed, and the DOT revoked its route authority, telling it once again to come back when it had the money.
• October 2007: Baltia files once again for non-stop service between JFK and St. Petersburg. The third time must really be the charm, because it's granted by the DOT.
  
• December 2008: DOT declares Baltia "fit, willing and able" to fly.
• Currently: Baltia is "conducting the FAA Air Carrier Certification process under Part 121. Upon completion of the Air Carrier Certification, Baltia intends to commence scheduled non-stop service from its Base of Operations at Terminal 4, JFK... to Pulkovo II Int'l Airport of St. Petersburg."

I called up Barry Clare, Baltia's VP of Finance, to ask him about his carrier's long, long history. Why has it taken so long, and why will this latest attempt be the one that works? Clare said that the airline had many setbacks raising capital in the 1990s, and part of that had to do with the fact that the airline wanted to launch with several airplanes. The latest attempt, Clare notes, will see Baltia starting out with only one airplane, a Boeing 747 purchased from an American carrier (since the deal is still in the works, he could not divulge which model or from which airline it was purchased).

"It was always a lack of capital, not a lack of know-how... it's been a bunch of fiascos with Wall Street professionals who make promises and never delivered," he said. "This time around, we went out and raised the capital that we felt was necessary to launch, even before we submitted our application to the DOT in 2007. We raised $2.7 million... it looks like this time around, Baltia Air Lines will fly." Clare expects that the first flight will take off before the end of the year, and that the airline is seeking to codeshare with a "major American airline" to provide some feed into JFK.

Baltia's planes will be configured in a four-class layout: Voyager Class (coach), Super Voyager (what Clare calls a "step up from regular coach), business, and first. "Service aboard the plane will be second to none," says Clare, noting that there will only be 296 seats on the main deck of the 747.

The airline plans to gradually ramp up its schedule. Baltia is only planning on flying one round trip between JFK and St. Petersburg for the first month; the second month will see three round trips per week, to be increased to five trips by the third month. After the first four months, the airline plans to take delivery of a second 747 and start service to Moscow and start with the same schedule frequency, to be followed by Minsk, Kiev, and so on. "Within a two year period, we'll have five aircraft in the air servicing the Baltic region, generating close to $500 million in revenue."

As for finances, Clare claims that one 747 will generate $40 million in profit off of $100 million in revenue annually, even with a 64% load factor. Voyager tickets will be between $800 and $1,200; Super Voyager seats will be around $2,000 apiece. Business class seats will go in the range of $4,000 to $5,000, while first class seats will set you back a slick $16,000. "First class has only twelve seats," explains Clare. "It's sort of a gimmick because we want to show that we have that kind of service available. Even though service will be superior throughout the entire aircraft, first class service will really be far superior. The entire upper deck... will be dedicated as a first class lounge, with a bar and gourmet chefs, live entertainment, strictly for the first class passengers... If the [first class] seats get filled, great; if not, it's there to show that Baltia Air Lines has that kind of service." The airline is hiring "stewards" from "fine restaurants, not flight attendants who work for other airlines that have bad habits. The experience will be incredible... like the grand old ocean liners."

But I've got a feeling that this isn't the best time to be starting up a premium-travel carrier. Remember that whole slew of premium transatlantic carriers a couple years back? Silverjet, eos, MaxJet? They're all gone, and BA's OpenSkies is on life support. Baltia may not be business-class only, like those airlines, but it's clear that they're going after the upscale traveler here. Premium travel has taken a huge hit, and it's not likely to bounce back anytime soon. And while the airline understandably touts its non-stop New York to Eastern Europe service, is it going to be able to compete with the likes of Lufthansa and Air France, which offer frequent connecting flights to the same destinations that Baltia will serve? It's trying to be a niche carrier, but I'm not sure that that niche is big enough, even for a small carrier like Baltia.

(Oh, and you'd think that an upscale airline would choose a better name for its frequent flyer program than Freeloaders, but that's what Baltia's done. Not kidding.)

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Southwest lands in Boston

I had known that Southwest Airlines was going to start service from Boston for a while, but it wasn't until my good friend Dan at Things in the Sky talked more about it that I started thinking about how I could go and see it happen. Dan kindly sent a last-minute email to the wonderful Paula Berg at Southwest, who put me on the list of attendees for the weekend's festivities.

On Saturday, Dan and I showed up at Terminal E at Logan Airport. We got our gate passes and wandered over to the Southwest gates, which used to be the old Northwest gates before they made the move over to Terminal A with Delta. Having used those gates before, I can say that Southwest certainly did a good job of sprucing up the place and adding a bit of color.

We waited around for the ferry flight from Dallas' Love Field to arrive; Southwest flight 8500 touched down around 4:30 on Saturday afternoon and received a water cannon salute as it pulled up to gate E1A. Unfortunately, we weren't allowed to join the folks down on the ramp.
Cheering Southwest employees and friends of Southwest streamed into the terminal, and Southwest PR Manager Paul Flaningan made a short speech. Then Southwest's Boston station manager, Brian Kunkel, told the crowd, "Five years from now... it's going to be one if by land, two if by sea, and if by air, Southwest it will be!"
Next, it was off to the House of Blues (right near Fenway Park) for dinner with a wonderful bunch of both Southwest employees as well as a few great Southwest fans from FlyerTalk. Paula Berg and Christi Day, both from Southwest's Emerging Media department, were there, as well as Ginger Hardage, Southwest's SVP of Culture and Communications. They all exuded Texas-style hospitality, even though I was the 'local'. Dinner was followed by some fantastic karaoke.
I got up bright and early the next morning to meet up with Dan and Drew (curbcrusher on Twitter and FlyerTalk) to take the subway over to Logan. By the time we got to the gate, passengers were already boarding the very first Southwest flight from Boston - flight 1309 to Chicago Midway, a Boeing 737-700. The plane pushed back shortly thereafter, and took off around 8:40.
We also stuck around for the first arrival, which flew in from Baltimore/Washington late that morning. In the meantime, Southwest had put out quite the breakfast spread near the gates, handing out pastries, bagels, muffins, and coffee. I observed quite a few passengers saying how excited they were that Southwest was finally coming to Boston - it's an airline that really knows how to build up a solid fan base.

Monday morning I ventured over to Logan one more time for the airline's press conference, which was held outside of the airline's check-in area in Terminal E. The nice thing about this area is that Southwest is the only domestic airline there. Because all of the other carriers are international, their flights (with the exception of the morning BA flight to LHR) all leave starting in the mid-afternoon, meaning that the terminal is pretty empty for a good part of the day. Matthew Brelis, Massport's Director of Media Relations, was kind enough to take me from Terminal E over to the water taxi stand, where Southwest employees and the news media had gathered. A Massport fire boat switched on its sirens and started spraying water as soon as the boat carrying Southwest CEO Gary Kelly (you can see him in the picture below, waving) came near.
Once everyone had disembarked from the boat, we walked over to where a duck boat was waiting for us, complete with Southwest banners on the sides. I was lucky enough to grab a seat in the back. The boat (really an amphibious tour bus) drove us over to Terminal E, but the driver, unfamiliar with the layout of the airport, accidentally took us on a brief detour on the highway. But we pulled up in front of the terminal soon enough, and the "Lexington Minute Men" were there, playing drums and flutes.
Here's a video with a few clips from the duck boat ride (note the driver asking Gary if he's really in charge of Southwest) and one from inside the terminal, where the airline was presented with an official citation from the Commonwealth of Massachusetts.

Inside, Ginger Hardage, Massport CEO Tom Kinton, and Gary Kelly all addressed the assembled crowd, which was mostly comprised of the media and employees (although I did notice a few curious passers-by who stopped to watch, too).
Southwest also handed out some delicious clam chowder and iced tea following the speeches, and I even had the opportunity to have my picture taken with Gary himself.

I had never been to an station opening before, and it was really a wonderful experience. I met a lot of great people who were both Southwest employees as well as those who were just Southwest fans. I was able to observe first-hand the immense brand loyalty that Southwest has, and based upon the incredible company culture that I saw, it's not difficult to figure out why. The employees are genuinely excited to be working at Southwest, and it shows. The airline also extends a welcoming attitude to bloggers like myself, which is quite refreshing. Right after he got off the boat at Logan, Paula introduced me to Gary as an aviation blogger. Gary put his hand on my shoulder and said, "We're glad you're here" - not something that I expected from an airline CEO. A big thanks to all of the folks at Southwest who worked hard to make the opening weekend here at Boston a successful and enjoyable one!

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US Airways and Delta work out a trade

Some interesting news today - US Airways has announced that it is going to swap slots with Delta and get some international routes from them as well. Under the terms of the deal, which is still pending regulatory approval, US Airways gains 42 pairs of slots at Washington's Reagan Airport and will be able to start flying to Sao Paulo, Brazil from Charlotte and Tokyo from Phoenix. In return, Delta will get 125 pairs of slots at New York's LaGuardia airport.

US Airways was quick to point out that the slots that Delta is getting are currently being used by the US Airways Express operation, and that mainline US Airways service (including the Shuttle) won't be touched. Still, it's possible that mainline traffic could take a hit if there's less traffic being fed into LGA by the Express carriers, which will stop flying to 26 destinations from LaGuardia. And there will be around 300 layoffs at the airline's Piedmont regional subsidiary.

But the airline also gets some interesting assets in return. US Airways will start serving some major destinations from Washington DC (Cincinnati, Montreal, and Miami, among others) as well as smaller cities (Savannah, Pensacola, Ithaca, and more). The airline also noted that it would boost the number of seats that it flies to Washington by using "larger dual-class jets." And the deal also gives US Airways two key international routes. US Airways currently does not fly to Asia, and the airline has repeatedly delayed the start of Philadelphia-Beijing service. But Phoenix-Tokyo, which will be flown by Airbus A330s but not until 2012 at the earliest, would be a great way for the airline to offer another international connection at its western hub. US Airways will also launch Charlotte-Sao Paulo service next year.

Let's look at Delta, which already has significant domestic and international operations across town at JFK. The airline's press release notes that the airline will "build a hub operation at LaGuardia that will increase the number of customers served... without increasing congestion." It'll do the same thing that US Airways plans to do at Washington - operate larger planes. "In every slot where US Airways operates small turboprops today, Delta will operate larger jets," said Delta. "These new markets and larger aircraft would allow more than two million additional passengers to transit LaGuardia each year without increasing the total number of takeoffs and landings... Many small- and medium-sized communities throughout upstate New York and New England will benefit from service upgrades where Delta will operate larger regional and mainline jets."

The airline also plans to spend $40 million on a project to upgrade and rebrand the US Airways and Delta operations at LaGuardia, so it's clear that they're planning on making this a hub. At the same time, "Delta will continue to invest at its hub at New York's leading international airport, John F. Kennedy International," the airline said. So now the airline will be pursuing a rather interesting strategy of operation two hubs in the same city, one of which is primarily international and the other domestic. This could pose some interesting challenges; what happens to passengers seeking to connect between the two airports for an international or a domestic flight?

For more information, check out the US Airways press release here and the Delta release here.

photo by ChrisI1024 on Flickr

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United's wheel of fortune

I didn't know about this until it was pointed out to me yesterday (thanks to @derekwhit and @melissaiscool on Twitter), but it seems that for the last couple of months, United Airlines has set up a 'spin the wheel' setup at key airports. More after these pictures from FlyerTalk:
Apparently, you can spin the wheel and claim your 'prize', which is either one of United's new "Travel Options" or a promotional item:

• An Economy Plus upgrade for all of your flights that day
  
• a Premier Line pass (you get to use United's Premier check-in and security lines as well as priority boarding)
• A Red Carpet Club pass (clever clever - they won't actually give you a pass, but instead stamp your boarding pass - that way you can't sell the pass)
• A 'game book' (crosswords and Sudoku puzzles)
• A bottle of water
• Playing cards - this one surprised me; I thought that the days of airline playing cards were long over.
• There's also a "luggage tag" event, where United laminates one of your business cards and on the back throws in a promotional Economy Plus message.
  

Judging by the wheel, the most likely option that you'll land on is Economy Plus. People might be asking why United would give away more seat upgrades than bottles of water, but it all comes down to price - if there are available Economy Plus seats available for a flight, the cost to United to give it away is nothing.

At first, I thought that this 'spin the wheel' was kind of dumb - after all, it's nothing more than giving away a few cheap freebies and promoting the various ways that United can take more of your money. And it really only benefits existing United customers (after all, someone traveling on American isn't going to be able to take advantage of the game, unless they win a bottle of water). But I had a change of heart, and now I think that this could be one of United's rare good marketing ideas. United isn't focusing on passengers on other airlines; nor is it focusing on its highly-valued "elite" travelers, who probably already have those benefits. Instead, United's targeting the casual flier by giving them a 'free sample' of one of their Travel Options, with the hope that they'll 'upgrade' more often. The cost to them is very little (giving away an otherwise vacant Economy Plus seat, letting another person into the Red Carpet Club, etc.), but if it convinces a good number of passengers to start upgrading their Travel Options more frequently, it would be a marketing accomplishment that United could be proud of.

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JAL loses $1 billion in second quarter

You thought Delta's second quarter loss of $257 million was bad? Or even American's $390 million loss during the same time? Even perennial money-loser Alitalia's financial performance pales in comparison to Japan Airlines' whopping $1 billion loss between the months of April to June, which is larger than the amount it lost for all of 2008 (only $35 million). As a result, the airline has announced that it will reduce flying or switch to smaller planes on 25 international routes, although I'd think that more cuts will have to follow in short order.

Can JAL sustain these heavy losses? The airline got a $1 billion bailout from the Japanese government in June, although it asked for twice that amount. The government will probably end up ponying up more cash to keep JAL afloat. It's true that JAL was hit pretty hard by swine flu fears earlier this year, not to mention the ongoing worldwide recession. Even Singapore Airlines, usually a rock of financial stability, has warned that it could post its first full-year loss since 1972, the year it was founded. But JAL is in much worse shape than its arch-rival ANA, which lost almost $300 million during the second quarter. While everyone's hurting right now, JAL clearly has some problems of its own that it needs to clear up quickly. Traffic (especially business traffic) isn't going to rebound anytime soon, and while JAL has made some progress at cutting costs, it's going to have to do much more if it wants to stick around.

photo by St Stev from Flickr, licensed under the Creative Commons

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Lufthansa's rainy day fund

Never mind Lufthansa's current financial difficulties, which I wrote about yesterday - the German carrier is intent on keeping clouds out of the picture with its new "sunshine guarantee". If you're on vacation and your day's a washout, don't worry - Lufthansa will give you 20 euros (approx. $30) for each rainy day of your vacation, up to 200 euros. "If the sunny stay hoped for by many is spoiled by rain, maybe 20 euros compensation ...will brighten the mood," the airline said, quoted by AFP. In order to qualify, the German weather website wetteronline.de must show at least five millimeters of precipitation at your vacation destination (one of 36 eligible cities), and your flights have to be booked between now and August 18 and must be flown from Germany between September and October.

Some of the destinations - Abu Dhabi, Tel Aviv, Dubai, Cairo, Madrid, Barcelona - all seem like pretty fair weather cities, so the money that isn't spent there can be spent on other cities that are also covered in the deal, like New York and Washington, which have a lot more rain (especially this summer!) than those other cities.

photo by So Cal Metro from Flickr

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Lufthansa allowed to purchase Austrian

German carrier Lufthansa recently got the go-ahead from the EU Commission to purchase Austrian Airlines, but maybe it will have reason to re-think its decision in a few months. After all, Austrian recently reported a 78.5 million Euro ($113 million) loss between April and June, and has lost 166.6 million Euros ($239.8 million) for the first half of the year. Lufthansa, on the other hand, managed to obtain an operating profit of 8 million euros ($11.5 million) from January to June, although it also posted a net loss of 216 million euros ($311 million). The EU Commission has approved the takeover, and although a final decision is expected in a couple of weeks, the deal's pretty much as good as done. Of course, Lufthansa had to make some concessions in order to avoid running afoul of the European antitrust policies, giving up some prime take-off and landing slots at Vienna's airport.

Some remain optimistic about Lufthansa's financial future. "We remain optimistic from a mid-term perspective," said one analyst. "Lufthansa has impressively demonstrated that it is able to reach a small profit even in a disastrous environment." "Based on its superior financial strength and its anti-cyclical approach to acquisitions, we expect Lufthansa to emerge as a long-term winner from the current global economic crisis," said another. Yet it's clear that in the short term, Lufthansa faces some serious struggles; not only does it have to cope with the weak demand for travel, but also the purchases of Austrian, bmi, and Brussels Airlines. Austrian, for its part, has been quickly racking up debt - almost two billion euros of it, which is over five times its equity.

Still, Lufthansa apparently thinks that it can turn around Austrian and make it profitable. And while this isn't an unrealistic expectation (and it helps that a new cost-cutting program was introduced at Austrian last week), this particular acquisition poses some interesting challenges. Two of Lufthansa's earlier purchases, Swiss and Brussels Airlines, are relatively new airlines, having been formed in the past decade. They were both created out of the ashes/assets of two historic but loss-making carriers, Swissair and Sabena, which both failed in 2002. This allowed Lufthansa to take over some choice assets without dealing with the incredible debt burden that caused the two airlines to collapse.

Austrian, as I mentioned before, has almost two euros in debt, and that number isn't likely to shrink anytime soon. A 200 million euro government bailout earlier this year is the only thing keeping the airline afloat, and it's already burned through two-thirds of that cash. Niki Lauda, founder of Austrian subsidiary Lauda Air and now founder of budget airline flyniki, has claimed that the deal is the "biggest catastrophe [for Austria] since World War II." "It takes no skill to give away an airline and then still pay 500 million euros on top of that," he said, referring to the fact that the Austrian government has agreed to absorb a third of Austrian's debt.

Still, Lauda got some good slots at Vienna thanks to the deal, so he can't be all that upset. And Lufthansa, if it manages to get Austrian's house back in order, could end up profiting from Austrian's extensive Southern and Eastern European route network. So it will take quite a bit of work, but that's something that Lufthansa and its CEO, himself a native Austrian, is willing to put forth.

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Southwest wants to buy Frontier

In a pretty surprising announcement today, Southwest Airlines has said that they've submitted a proposal to purchase Denver-based Frontier Airlines, which is still under Chapter 11 bankruptcy protection. Southwest will bid for the airline in a bankruptcy auction next month, along with Republic, which said last month that it would bid for Frontier. There aren't too many details out right now, but some interesting information is available over at the Southwest blog. Some excerpts:

What’s in proposal?
What we can say is that we are interested in a substantial investment in Frontier and to operate Frontier as a wholly-owned subsidiary, independently and separately from Southwest Airlines, for a period of time until the carrier could be combined into Southwest.

Is this a response to Republic’s bid?
Frontier has been in bankruptcy since April 2008, and we’ve been considering a bid for some time, independent of any action Republic took with its bid proposal. In the past month, we began an intensive study of the airline and expressed that interest to Frontier.

More details will emerge soon, but this has some big implications for service at Denver, where Southwest has been going up against well-established United and hometown carrier Frontier. One question that I have - what happens to the Airbuses that Frontier operates? Would Southwest keep them for a while, or swap 'em out eventually for Boeings?

As for what this means for the Republic deal, here's an excerpt from a press release issued today:

The Republic investment agreement provides for an auction period, during which Frontier may seek higher or otherwise better competing bids. If Frontier identifies such a bid, it can terminate the Republic investment agreement and accept the other offer. Under the auction procedures approved by the Court, interested bidders must submit an initial proposal by Aug. 3, 2009, and a final proposal by Aug. 10, 2009. Frontier and its advisors, in consultation with the Unsecured Creditors’ Committee appointed in Frontier’s Chapter 11 cases, will conduct an auction, if necessary, on Aug. 11, 2009, to consider all qualified proposals and determine the highest or otherwise best proposal.

photo by Taurus Photographix from Flickr

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Big changes in store at Aeroflot

Big changes are happening over at Aeroflot - a new CEO, no more Russian jets, better in-flight service, and a plan for a slimmer company (as well as slimmer flight attendants). And if you have a complaint, simply email the CEO himself.

By the end of this year, all of the airline's Tupolev Tu-154s - previously the backbone of the medium-haul fleet - will be retired, replaced by Airbus A320 family aircraft. The airline also has retired its Ilyushin Il-86 fleet (to be replaced by three leased MD-11s), leaving the Ilyushin Il-96 as the sole Russian type left. Aeroflot has been itching to get rid of those for a long time, as they're rather expensive to operate. The Il-96s will leave the fleet by October, along with the Tu-154.

Meanwhile, the airline, like most others, is struggling to cut costs. CEO Savelyev revealed in an interview with the Russian business paper Vedomosti that 40% of the airline's routes are unprofitable, with the worst being Moscow-Los Angeles, losing $14 to $21 million a year. "But we aren't looking at abolishing the route," he said, stating that the airline is closely reviewing all costs and is planning on making money on the route by June 2010. "If there's demand and good capacity, then why dump it?" The airline is also seeking to slim down, and plans to trim 6,000 of its 15,000 employees. "This number doesn't come from the ceiling," said Savelyev. "We invited the international consulting firm Bain to develop a new corporate structure... The optimal ratio is 1 million passengers for every 1000 employees. In 2008, Aeroflot carried 9.2 million passengers, so the company should have just over 9000 people."

The size of the company itself isn't the only thing that Savelyev wants to make narrower; he's set his sights on the airline's flight attendant corps. “These will be very eye-catching, very striking girls,” he says in the Moscow Times, which reports that they will not exceed a Russian size 48 (US, 12 to 14). New uniforms are also in the works, with orange on the way out: “A sociologist told us that, unfortunately, the color of our old uniforms was a repulsive color, that it made passengers nervous." His son, studying in England, sent him a video of Virgin Atlantic flight attendants (seen here on YouTube); "in bright red they look like professional models," he said. In-flight service is also looking to get a much-needed overhaul; apparently a Singapore Airlines hospitality trainer flew on a couple of Aeroflot flights to judge the service. “We scored a C plus or a B minus," said Savelyev, "but the good news is that our mistakes are easily correctable."

The familiar hammer-and-sickle logo will still be around, though - Savelyev has said that he "likes" the "bird with the hammer and sickle." Back in 2003, when the airline introduced its current color scheme, branding experts suggested that the airline drop the logo since it carried rather negative connotations. The first planes to get the new livery actually flew around for awhile with the logo applied as a sticker, so that airline management could get rid of it if desired. But the hammer and sickle wings are so synonymous with Aeroflot that the airline decided that they might as well be retained, the last vestige of the airline's Soviet past. Things have changed - for example, customer service. "As for all of the complaints," said Savelyev, "passengers can write to my email address, which is listed in the Aeroflot in-flight magazine.

photo by Aleksander Markin from Flickr, licensed under the Creative Commons

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Sydney-Los Angeles game of chicken continues

If you're a passenger thinking about flying between Sydney and Los Angeles, things can't get much better. If you're one of the four airlines that fly that route, things can't get much worse. Earlier this month Delta became the fourth airline to fly between the two cities, joining Virgin-backed startup V Australia, which had entered the market this past February. They joined Qantas and United, which have shared a cozy duopoly for the past 15 years on the route (since Continental stopped flying it), and the result is a four-way game of chicken and a fare war that won't end until one airline drops out - all amidst a dismal business travel climate.

The airlines are resorting to tactics that have an air of desperation to them. Qantas is allowing kids to fly for free on the route, and when you buy a business class ticket, you get two for the price of one - deals that the airline has labeled "unprecedented." Said a Qantas spokesperson: "This is the first sale of its kind for many, many years." Qantas, which used to control nearly 75% of traffic on the route, now flies around half. Before things got bad, the airline made around a quarter of its cash on the route, and even though it's losing money there like everyone else, Qantas has interest enough to stick it out and wait for the situation to improve.

Then there's United, which has come out with the uncharacteristically ballsy proclamation that it would match any competitor's fare between Sydney and Los Angeles. "United is determined and committed to matching the initiatives of other carriers and we'll compete aggressively on price if that's what's required for us to protect our business here," said their Pacific vice president, James Mueller, quoted in The Australian. "I look at our services to Australia as sort of our southern cornerstone of our overall Pacific product offering... [we] fully intend to keep operating here indefinitely." According to the article, United's revamped premium cabins have paid off, with the airline's market share on the route holding steady (for now). United has been flying the route for nearly 25 years, ever since it purchased Pan Am's Pacific route network in April 1985.

And then there are the new entrants: V Australia and Delta. Things have become more complicated now that Delta has announced a joint venture with V Australia parent Virgin Blue, to say nothing of the latter's codeshare agreement with United on domestic flights from Sydney. Some analysts are predicting that one of the airlines could leave the market as early as October, but which one? Both Qantas and United are so well-entrenched in the route that I don't see either giving it up; this leaves Delta and V Australia. Some have said that Delta, being the larger of the two, won't be the one to pull out, but I'm not so sure. If Delta does drop LAX-Sydney, they might lose their claim to flying to all six inhabited continents, but right now it can't be much more than another international route for them. V Australia, on the other hand, doesn't have anywhere else to turn to if they drop the route, apart from service to Los Angeles from Brisbane and Melbourne.

So, if you're planning a trip to Australia, book now while prices are low - before the game of chicken comes to an end.

photo by code20photog from Flickr

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BA loses $2.3 million a day as OpenSkies cuts back

Dow Jones is reporting that British Airways is burning through £1.4 million, or $2.3 million, a day, according to the airline's CFO, Keith Williams. Williams said in February that the airline was losing £2.7 million of cash a day, which is almost $4.5 million, so I guess that's an improvement. But William is also warning that the "cash burn isn't sustainable," and that rate is likely to increase during the winter. So BA is by no means out of the woods yet.

And in related news, BA subsidiary OpenSkies has announced that it will drop its New York - Amsterdam route next month, leaving the premium BA offshoot flying just one route (New York - Paris). OpenSkies CEO Dale Moss has said that "while OpenSkies developed more than 16% market share during only nine months, it was not enough to sustain a profitable service at this time." "We tried very hard to make it, but the current market forces were just a bit too difficult," he said on the company's blog. "My most sincere wish is that someday OpenSkies will return to Amsterdam and make it another signature route." But despite Moss' optimistic outlook, parent British Airways has hired an investment bank to find a buyer for the airline.

photo by bribriTO from Flickr, licensed under the Creative Commons

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How to make money from Ryanair

The Times recently shared a clever way to take back the money that you might have lost with Ryanair's £5 online check-in fee. A cup of coffee on board sets you back either £3 or €3, so you can pay for your coffee with either currency and ask for your change back in either currency. If you pay with a €50 bill, you could get €47 back in change, but that's only worth around £41. Instead, pay 50 euros but ask for your change back in pounds sterling - and instead of getting £41 back, you get £47 and make a profit of £6. Not only do you get back your online check-in fee, but you get an extra quid on the side (depending on the exchange rate, of course). I'm surprised that Ryanair boss Michael O'Leary, famous for his fanatical low-cost approach, hasn't removed this loophole yet, but I'm assuming that it's only a matter of time.

photo by jon gos from Flickr, licensed under the Creative Commons

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Wi-fi and the future of inflight entertainment

US Airways announced yesterday that it will become the latest airline to offer in-flight wi-fi, starting next year. It'll be provided by Aircell's Gogo Inflight system and only available on the airline's A321 fleet for now, but Gogo is already present on the entire fleets of Virgin America and AirTran. United, American and Delta are also looking at installing Aircell's service, while Southwest and Alaska are currently testing the competing Row44 service. (As an aside, US Airways removed power outlets on its A321s, so if you're planning on using the internet for awhile, be sure to bring a spare battery.)

Some airlines, like American and AirTran, have been offering free wi-fi for a limited time on certain routes (after all, that is the most effective way to get people hooked). But there's no doubt that in-flight wi-fi is here to stay, and it could be that pretty soon laptops could replace the TV as the key means of entertainment.

And wouldn't airlines like this? An excellent article in Reuters points out that there would be significant cost savings for airlines. After all, they've got to pay for the installation of the systems and any upgrades, as well as the extra fuel costs related to hauling around all of that extra equipment. And next time you're watching a movie on a transcontinental flight, keep in mind that the airline had to pay a licensing fee to the movie studio. Which means that NBC pockets a bit of cash every time I watch an episode of The Office on United.

There's even another bonus. From the article:

Passengers engrossed with their laptop PCs and mobile entertainment devices that can be used continuously as a result of the power sockets on every seat could also free up cabin crew. "I've heard stories about the number of crew on board each flight being cut by airlines after they introduced personal TVs on every seat," said Anthony Prakasam, an aviation consultant.

So basically, the internet would help further distract passengers from the ever-declining level of in-flight service? Perfect! Makes you wonder why airlines haven't rolled out wi-fi already. Maybe because it costs at least $100,000 to outfit an aircraft? I'm not sure, but perhaps airlines should trim down their current inflight entertainment systems to just long-haul routes and hand out free wi-fi access instead. They might be able to recoup their costs pretty quickly with all of the savings of getting rid of the conventional IFE systems on some flights. Of course, I'm not a bean counter at an airline so I'm not sure if that would make economic sense. What do you think?

photo by DrewVigal from Flickr, licensed under the Creative Commons

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What's next for JetAmerica?

It's been a week since much discussed startup JetAmerica announced that it was shutting down operations, blaming difficulties with securing slots at Newark. Still, there's the possibility that the airline could always start up again. From a Florida Today article:

The airline’s chairman vowed to return to service this fall, however, with Melbourne [Florida]’s airport serving as the base for the operation’s lone Boeing 737-800 jet. “Melbourne will be our focus city,” Steve Schoen said in a telephone interview late Friday from Clearwater, where the airline is based. He later added that the airport in Lansing, Mich., will also be a “target city.”

That's right - we might not have seen the last of the JetAmerica yet. But airports would probably be pretty wary of giving JetAmerica (or its latest incarnation) another chance. The Melbourne airport allocated $25,000 to help promote JetAmerica, and most of that's been spent. And the Toledo-Lucas County Port Authority, which was JetAmerica's focus city, has already spent $119,000, and that amount could end up being as high as $150,000.

I recently asked Toledo Airport's President and CEO, Michael J. Stolarczyk, a few questions about his airport and JetAmerica. If JetAmerica were to start up again, "we would certainly hope that Toledo Express is considered," said Stolarczyk. "If Steve Schoen starts another air carrier, we would welcome the discussion and would fully vet the proposal as we did the first time. The operations team that Steve Schoen compiled was comprised of professionals from the industry and there were several points in their model that will prove to be viable. Fortunately, I’m sure they have learned some valuable lessons from this experience – as have we - and I fully hope Mr. Schoen reemerges with a strong product and that he considers Toledo Express as a service corridor."

Stolarczyk also notes that JetAmerica should have gone with a less aggressive schedule. "Daily service to the New York area is provided from Detroit and we truly wanted to capitalize on that and capture some of those travelers. We can capture those travelers; however, we may not be able to fully load daily service to New York right from the start. In the future, we will begin with three to four times per week service to this market…and then grow that service to its maximum potential."

And as for Toledo and those other airports which were seeking new air service, Stolarczyk remains optimistic. "The team at Toledo Express is going to continue to be diligent in our efforts to secure air passenger service. We will continue to bring the best offer to the table that we possibly can for our partners in these efforts –just like we did with JetAmerica... We bring the same spirit of enthusiasm and support that we showed to JetAmerica to all potential passenger air service partners. It is not a matter of if we will obtain additional air service; it is truly a matter of when."

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A Manhattan airport in Central Park? Not really

Today's epic airline prank is brought to you by The Manhattan Airport Foundation, which wants to bulldoze Central Park and put up an airport in its place. Yes, you must be thinking that this is a joke, and yes, you're right.

Beyond the sheer implausibility of razing Central Park to make way for an airport, let's look at the details. Their address is "233 Broadway, 58th Floor," which is in the Woolworth Building. But the building, which was completed in 1913, only has 57 floors. Perhaps the 'Foundation' has open-air offices on the building's rather angular roof. They've also secured financial backing from the "Waalwijk Charitable Trust" and the 'Tokyo-based holding company' Yamanote Ltd. Problem is, neither entity actually exists. However, that's not preventing the Foundation from accepting a thousand dollars in return for naming rights to a bench. You could throw in some cash, but you'd end up feeling more burned than a JetAmerica investor.

The Foundation claims that it exists to promote "the immediate development of a viable and centrally-located international air transportation hub in New York City for the benefit of all New Yorkers," claiming that "Central Park squanders 843 acres of the most valuable real estate in the world." It touts Central Park's location as a more convenient alternative to JFK, LaGuardia, and Newark, and even claims that "Environmentalists Rally In Support Of Manhattan Airport." Perhaps most hilarious, however, are excerpts from the laughable Frequently Asked Questions:

Q: I own an apartment alongside Central Park. What will Manhattan Airport do to my property value?
A: History has proven that bringing a transportation amenity to an underserved region elevates the perception and economic well-being of the area... [Right, like having 747s flying into Manhattan is going to raise property values on the Upper East Side.]

Q: What about the environmental impact of building Manhattan Airport?
A: Research shows that single-passenger car-service and taxi trips between Manhattan and JFK/EWR/LGA account for up to 9% of automobile-created carbon-based emissions in the region... [Research also shows that 86% of non-cited statistics are made up on the spot.]

Q: Will taxpayers shoulder the financial burden of building and operating Manhattan Airport?
A: No. Manhattan Airport is a privately-financed corporation. To date, nearly 100 investors have signed on to provide approximately $130M in equity with another $80M from the bond market making Manhattan Airport the most ambitious privately-funded airport development project in US history. [Because 100 investors are really going to invest in a fake airport.]

It's impossible to figure out who's actually behind the prank; the website is deliberately vague. Still, I wonder why someone would come up with such an elaborate ruse. Are they trying to send home a point, or do they just have too much time on their hands? Perhaps we'll find out; in the meantime, check out some pictures of the proposed 'airport':

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El Al's new "low cost economy" experiment

Capitalizing on the willingness of travelers to pay more for a (theoretically) better passenger experience, a lot of airlines have added "premium economy" products over the last several years, with Air France, British Airways, Virgin Atlantic and United Airlines among them. And on other end of things, a lot of airlines have also launched (and also abandoned) their own no-frills, low-cost carriers, in an attempt to emulate the success of the standalone LCCs. Remember Delta's Song? Or United's Ted? Or Continental's Continental Lite? (Well, not many may remember that last one.)

The Israeli newspaper Haaretz is reporting that Israeli carrier El Al is introducing something that I've never seen before: a stripped-down version of its economy class product, but within its existing economy class. This comes as low-cost carrier easyJet announces service from London to Tel Aviv; British airline bmi has already entered the market. German LCC Air Berlin also serves Israel, and El Al, being a 'traditional' carrier, is apparently feeling the heat. But instead of launching its own LCC (a concept which Haaretz says the airline's previous management explored but ultimately rejected), the airline will be turning a block of seats in regular economy class into a low-cost economy class.

The new sub-economy class will take up about 10-20% of all seats on the plane, and those seats will be grouped together, not located around the cabin. Although the seats are the same (no Ryanair tricks here), amenities like checked baggage, meals and headphones will cost those passengers sitting in sub-economy extra cash. "Our plan is to open on the planes another class, the low-cost economy," said El Al CEO Haim Romano. "While leg room will be the same as in the rest of the economy class, low-cost passengers will receive no free services. They will have to pay for every suitcase they check in, for food and beverages on board, for headphones or any other entertainment service, for blankets and pillows and for reserving seats." Which could work well for the airline, although how they're going to prevent a sub-economy passenger swiping a headset from a "regular" economy seat or going to the galley to get a free coffee might need to be worked out.

As of right now, El Al is only planning on rolling out the new low-cost economy class on its European flights, which makes a lot of sense; the airline doesn't face low-cost competition on its longer routes, where profit margins are usually higher. But the airline has said that if the experiment is successful, El Al might introduce it on its long-haul flights too.

photo by caribb from Flickr, licensed under the Creative Commons

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JetAmerica shuts down

I'll be writing more about this soon, but for now, here's the news release:

JetAmerica Suspends Sales
$900,000.00 in Refunds to Passengers
Clearwater, Florida - July 17 – JetAmerica, the public charter air carrier operator, announced today that it is suspending sales to all markets and that it would immediately begin to notify affected customers and process refunds to all customers who have booked seats on its flights.

“We are reluctantly suspending our public charter operations effective today,” said John Weikle, CEO, who has been with the company since April. “Finalizing the slots required to support our charter program at Newark has taken longer than expected and we have decided to suspend our flights in order to refocus on different markets. We still strongly believe that there is an unmet need for affordable air service to secondary markets and we look forward to offering this option again in the near future," concluded Weikle.

"We will be refunding more $900,000 in ticket reservations for flights from August 14 through the end of September," said Bryan Glazer of World Satellite Television News and Media Relations, which represents JetAmerica.

Glazer's firm, which previously represented JetBlue and Virgin Atlantic Airways, was retained by JetAmerica in May. The firm's national media blitz generated headlines across America that helped sell more than 20,000 tickets during the first JetAmerica's online e-commerce operations.

"It is unfortunate that so many consumers' will be affected. This was unavoidable. I worked closely with the executives of JetAmerica for several months and know they did their very best to overcome the challenges that the slot situation posed. But in the end, the business plan never called for paying for more than a half million dollars for slots," said Glazer.

He added, "Don't be surprised if JetAmerica comes back with new routes and new destinations."

All customers will receive automatic refunds within 7-14 business days. Any customer not receiving a full refund in 14 days should call 727-451-3970.

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Air France dismisses report of a "black year" in 2010

Air France executives have dismissed a report in the French financial newspaper Les Echos which claims that the airline could face a "liquidity problem" in 2010. The report, published under the headline "Air France: les risques d'une année noire" (the risks of a black year) says that accountants from the accounting firm Secafi, hired by Air France's works council, have painted a couple of pictures regarding the airline's financial strength, none of them very pretty.

Under the first scenario, an upswing in traffic occurs at the end of the 2009-10 financial year and oil stays around $61 a barrel, and Air France, taking advantage of reduced costs, could keep its losses to a minimum, or even break even.

More realistic, says the report, is the second scenario, in which traffic numbers stay sluggish, revenue declines 9%, but oil stays low (around $58 a barrel), which is "more or less" what the airline faced in late May. But the airline would still post a loss that's much higher than the 184 million euro loss posted in the 2008-2009 financial year, and revenue declines in the past month have approached 20%, not 9%.

Then there's the worst scenario, which a decline in revenue of over 9% but oil reaching $70 a barrel. "In this scenario, the operating loss would cause us to consume more than 1.5 billion euros in cash in 2009... this means that it wouldn't be a year before the company runs out of cash," says the report. A "black year" indeed.

Pretty serious stuff, especially as oil is currently trading in the low sixties. Even if oil sticks around $61-63 a barrel, scenario #1 isn't likely, as air traffic probably won't rebound for the airline before the end of the 2009-10 financial year. And it's unlikely that oil prices will be around $58 a barrel for a long period, as they are in scenario #2. Still, it might be taking things too far to say that the airline could run out of cash within a year; the airline issued over 600 million euros worth of bonds last month to finance new aircraft purchases, and perhaps they could do the same in the future if needed.

Unsurprisingly, Air France management isn't buying the gloom-and-doom forecasts. In a statement, the airline said that "the Executive Management of Air France-KLM wishes to make clear that in no respect does it validate any of these imaginary scenarios [and] that its financial position is, and will remain, extremely healthy in the coming years." The statement went on to say that Air France had 4.5 billion euros on hand at the end of June, along with 1.2 billion euros in available credit lines.

photo by caribb from Flickr, licensed under the Creative Commons

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Lufthansa struggles with Austrian purchase

Lufthansa has been really putting together quite the airline empire over the last few years, acquiring Swiss Air Lines, Italian carrier Air Dolomiti, and German carriers Germanwings and Eurowings outright, as well as purchasing large stakes in British airline bmi and Brussels Airlines (and will own the latter outright by 2011).

It's also trying to wrap up a deal to take over Austrian Airlines in its entirety, although the plan has dragged on for a long time, thanks to roadblocks from the anti-trust unit of the European Commission, which is concerned about a lack of competition on some European routes. Lufthansa has already apparently agreed to more concessions, including dropping flights between Vienna and Frankfurt and Vienna and Geneva, but it's unclear whether or not this will be enough for the EC.

Austrian has been bleeding red ink recently; the airline lost 429 million euros last year, has more than one billion euros in debt, and has already burned through two thirds of a 200 million euro injection from the Austrian government that it received this spring. Its chairman has said that if the Lufthansa deal falls through, the airline would need over one billion euros in new capital. Austrian's future is being increasingly called into question as the prospects for the deal's success look dimmer.

And meanwhile, Lufthansa is also struggling (although not to the same extent as Austrian). The Austrian deal, with a deadline of July 31, is still dragging on and on and becoming ever more expensive, and Lufthansa is looking at ways to lower acquisition costs. It also reluctantly purchased fifty percent of bmi from its founder, Sir Michael Bishop, who for many years held an option that would force Lufthansa to buy his stake. Bishop actually ended up suing Lufthansa back in May in order to make Lufthansa proceed faster with the deal.

But the deals with Austrian, bmi and Brussels have contributed to Lufthansa's increasing financial pressures. The airline today announced that it would roll out a costs-saving initiative called "Climb 2011," which calls for savings of one billion euros ($1.4 billion) per year starting in 2011. The plan focuses on lowering passenger costs as well as shedding 20% of its 2,000 office jobs in its passenger airline core business. Lufthansa has also said that it will defer delivery of some aircraft from 2010.

Depending upon how many further obstacles it receives from the EC, Lufthansa might just decide to axe the takeover of Austrian, especially as the costs of a takeover mount and Austrian's financial situation becomes more and more perilous. Austrian could be looking less and less attractive, especially while Lufthansa digests the the financial burden of taking over bmi and Brussels. With the global airline industry stuck in a deep downturn, Lufthansa needs make sure that it doesn't bite off more than it can chew, and should concentrate on solidifying its core operations - after all, that airline empire is no good if the carrier at the center of things isn't strong.

photo by caribb from Flickr, licensed under the Creative Commons

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