I thought I'd share a few thoughts on the just-announced United-Continental merger. There's a lot out there about the terms of the deal and other specifics, but just to recap, the $3 billion merger (which has yet to be officially approved) would create the world's largest airline. The airline would be based in Chicago and keep the United name (but the Continental logo) and would be led by Jeff Smisek, the current Continental CEO.
(Yes, that is a 787.)
Here we see the consummation of Glenn Tilton's dream - for several years now, nearly every other word out of his mouth has been either "merger" or "consolidation." And it's a great fit, network-wise: there's little route overlap, which should help the deal get anti-trust approval pretty easily. (For another perspective, check out Dan Webb's post at Things in the Sky.)
But I'm going to focus on one aspect of the merger here: branding. There's a picture of Jeff Smisek and Glenn Tilton shaking hands in front of the new United logo, which is nothing more than the Continental logo with "United" in there instead. And the paint job would be exactly the same as Continental's - again, with the name "United."
Maybe it's just me, but it looks pretty bad. I've come to associate the United name with that familiar block typeface and the "tulip" logo, which has been around for almost 35 years now. I can see that perhaps management wants to appease Continental employees concerned with the disappearance of their name. And this would certainly be a relatively low-maintenance rebranding, too; just replace the word "Continental" with "United" everywhere and you're done. Apart from the fact that United's the one that's technically doing the buying here (despite the 'merger of equals' talk), one of the reasons that the United name is the one that's staying is because it has a stronger global reputation.
I'm hoping that once the merger gets final approval, some more time and effort goes into designing a better brand - if they're going to keep the United name, they should also keep the logo.
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.
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.
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.
Last week, a music video was posted to YouTube that was every airline PR executive's nightmare: a catchy country-music song, professionally edited with a humorous music video, that was quickly spreading across the internet. Normally this wouldn't be a problem, but the song was called "United Breaks Guitars," by Canadian singer Dave Carroll and his band, Sons of Maxwell, and describes his fight with the airline to receive compensation after United baggage handlers in Chicago damaged his $3,500 Taylor guitar.
In the last week or so, the song/video (which only cost $150 to make) has reached almost three million views on YouTube, gained prime-time exposure on CNN's Situation Room, and was the most popular song at the band's concert last Friday. “Everybody was calling for that song the minute we hit the stage,” Carroll said to Rolling Stone. “It was unbelievable, 1,500 people raising their hands in the air to the ‘United breaks guitars’ tag line in the chorus."
That's got to be causing some serious pain over at United headquarters in Chicago. It's bad enough when a YouTube video critical of your airline (no matter how light-heartedly) garners millions of views; it's even worse when you see that the song has had such success that over a thousand people put their hands in the air to the words of "United breaks guitars." How many of them are going to have that chorus line stuck in their heads at the first mention of United? And how many discussions of the song ("Did you see that video on YouTube?") are going to evolve into discussions about a lack of customer service on United ("You know, I flew with them last April...") ? And it's not over, yet - there are still two more songs on the way.
Obviously, it's hard to blame United for not seeing this particular incident arising. I don't think a case where someone, slighted by an airline, has turned around and released a wildly popular country song about their experiences. But it does highlight some serious customer service policy deficiencies, ones that United is seeking to rectify. As the pictured "tweets" show, United Airlines' PR department has been working hard to respond to comments on Twitter regarding the song, and has said that the video will be used for training, and that they've "apologized for, have fixed, and most importantly, learned from" the mistake, too. Airlines are starting to understand the power of social media - a $150 music video can be more effective than a multi-million dollar Madison Avenue ad campaign.
Perhaps airline reps everywhere now will be thinking in the back of their minds, "Could this turn into a smash YouTube hit?" After all, it worked for Carroll - national attention and a priceless amount of free publicity. Rolling Stone has said that Bob Taylor, of Taylor Guitars, personally phoned and offered Carroll two free guitars of his choice for the second video, while other airlines have reportedly offered him free tickets.
The Department of Transportation ignored a recommendation from the Department of Justice that Continental Airlines not be allowed to join nine other Star Alliance carriers in recieving antitrust immunity on international routes, and instead granted it permission earlier today. (Thanks for the heads up from Airline Route.)
The airlines (Air Canada, Austrian, bmi, LOT, Lufthansa, Scandinavian, Swiss, TAP, United and now Continental) can benefit from "limited and carefully considered" antitrust immunity on international routes, saying that "the transaction will not substantially reduce or eliminate competition."
In its ruling, the DOT also stated that the Continental's joining "does not materially alter the competitive landscape or increase overall market share to any significant degree," noting that Continental's move to Star allows for "a more competitive alliance in markets where oneworld or SkyTeam have a strong presence."
The DOT also noted that Continental currently overlaps with other Star carriers in fourteen city-pair markets, but stated that creating "carve outs" (routes that are not covered by the antitrust immunity) would "detract from the efficiencies that the alliance would otherwise create." Existing "carve outs," such as Chicago-Frankfurt, Washington-Frankfurt, San Francisco-Toronto and Chicago-Toronto, are still in effect. As for domestic competition (especially with United), the DOT concluded that "the benefits of the alliance outweigh the comparatively small risk of harm that could occur in domestic markets."
Of course, the whole argument of alliances being good for the consumer only stands if "metal neutrality" is practiced. "Metal neutrality" is when airlines that jointly market services aren't picky about who actually operates the flight (and thus keep more of the revenue). For example, if I wanted to fly from Boston to Frankfurt as seamlessly as possible, I could take a direct Lufthansa flight, or instead fly United through Washington Dulles. If I book my ticket with United Airlines, under "metal neutrality" they'd put me on the Lufthansa flight, even though they'd make much less money than if they put me on their flight through Washington. If things are kept metal-neutral, the DOT argues, then carriers won't spend time worrying about making sure that a passenger flies on their airline; instead, they can work on syncing their flight schedules and sharing financial benefits and losses, which give them incentive to make things as convenient as possible to the passenger.
photo by James Willamor on Flickr, licensed under the Creative Commons
I recently came across a country singer's airline-related story of woe on United Airlines (thanks to Alex for the heads up). Dave Carroll was flying from Halifax to Omaha on United Airlines, with a stopover in Chicago, when his guitar was damaged (full story here):
In the spring of 2008, Sons of Maxwell were traveling to Nebraska for a one-week tour and my Taylor guitar was witnessed being thrown by United Airlines baggage handlers in Chicago. I discovered later that the $3500 guitar was severely damaged. They didn’t deny the experience occurred but for nine months the various people I communicated with put the responsibility for dealing with the damage on everyone other than themselves and finally said they would do nothing to compensate me for my loss. So I promised the last person to finally say “no” to compensation (Ms. Irlweg) that I would write and produce three songs about my experience with United Airlines and make videos for each to be viewed online by anyone in the world.
Frustrated with United customer service, Carroll found a creative way to try to get even with the airline: write a song. Called "United Breaks Guitars," the catchy, country-sounding song details his experience. Of course, I'd like to point out that his troubles could have been prevented had he carried his precious guitar with him on board the aircraft - I'm pretty sure that this is possible, having seen passengers carrying guitars on board planes in the past. Nevertheless, it makes for enjoyable watching (and listening).
photo: Delta flight 16, a Boeing 777-200LR, gets ready to leave Sydney. Photo by AFP
Delta Air Lines started Los Angeles - Sydney service on July 1, becoming (as Fish pointed out) the first US airline to fly to all six 'inhabited' continents since Pan Am. If anything, it further sends home the message that Delta is now a major international player, and that it's putting some of the route authorities it acquired with Northwest to good use. Even though the US, unlike so many other countries, has never had an official 'flag carrier,' Pan Am was the closest to it until it went bust in 1991. So perhaps now Delta has assumed that mantle - not bad for an airline that, 80 years ago last month, started out as a crop-dusting operation in Louisiana.
But Delta had better not be expecting an easy ride on the US-Australia route, which is known for being a major cash cow for the airlines that fly it. Up until recently, those airlines were Qantas and United, and they both made a lot of money (Qantas apparently makes 20 to 30% of its money on the route, and I recall that United also also attributes a pretty hefty amount of its earnings to the route as well). United and Qantas had a lock on the market, and if you didn't like one of those airlines, your options were, well, rather limited (unless you wanted to fly via Asia, which adds several hours). Qantas flew about 70% of the traffic, leaving United with the remaining 30%.
But Virgin offshoot V Australia started flying between Sydney and Los Angeles this past February, and suddenly things got complicated - the formerly lucrative route has turned into a money-losing one. Fares went down, as they usually do when a carrier enters a new market; over the past year, prices have gone down by more than half. Qantas' market share on the route is expected to fall to just over 50%, and just as badly, their international yields were down 25% in May versus the same month last year. Capacity will be going up by as much as a third, now that there are new airlines flying the route and Qantas is using the A380, and that can also lead to lower yields.
Still, nobody's giving up, at least not yet. "[The route] is such a jewel that we intend to keep it," said Alison Espley, United's general manager for Australia and New Zealand. "Someone may not last the distance, but we will." She said that United has been flying the route for 24 years and isn't going anywhere, and that other airlines are going to "have to look very seriously" at exiting the route. Virgin chief Richard Branson similarly predicts an airline exiting, but of course, not his own: "I would put money on either Delta or United not flying across the Pacific in two to three years." By year's end, predicts Flightglobal, the market share on the route will be Qantas 60%, United 17%, V Australia 15%, and Delta 8%.
What used to be a comfortable money maker is no longer, and chances are that at least one of the four airlines might have to consider stopping flying Sydney-Los Angeles pretty soon.
The Department of Justice recently expressed objections to the antitrust immunity agreement that nine Star Alliance carriers (plus Continental, which will be a Star member later this year) are seeking. The airlines, which include United, Lufthansa, Air Canada, SAS and Swiss (but notably, not US Airways), have been looking to obtain global immunity from antitrust laws for some time now. In April, the Department of Transportation gave the carriers a tentative green light, but last Friday, the DOJ instead called on the DOT to "deny the broad requested immunity and instead grant a more limited immunity" - probably just a more limited transatlantic cooperation.
Right now, Continental technically competes with Star Alliance members on its routes, but under the proposed immunity agreement, that competition would be eliminated. The DOJ went further in its explanation, saying that Asian and Latin American routes flown by United and Continental would probably see price increases, as the airlines would no longer be competing. And the DOJ also took fault at some transatlantic routes; Continental has a pretty extensive list of European destinations, and the DOJ said that competition on some routes between the US and some of those cities would decrease substantially.
So, what implications does this have? First, it shows that the federal government is getting more serious about enforcing anti-trust policies, especially under the new presidential administration (as had been expected). Secondly, it could have serious effects for a similar agreement that rival alliance oneworld is trying to put together, and could be in the shape of things to come for such global agreements. And the DOJ statement also goes after cooperation between United and Continental on domestic US routes; "a sweeping grant of immunity raises significant concerns about harm to domestic competition," it said - something that might indicate obstacles to a potential United-Continental merger.
I really can't remember the last time that I heard some good news regarding United Airlines, at least in terms of financial performance. Let's see here... good news, good news, good news... can't think of any. If you can, please do let me know.
In his blog post What a Difference a Decade Makes on the Wall Street Journal's website, Scott McCartney rounded up a few interesting statistics that looked at United and Southwest - both today, and ten years ago. United has dropped from the largest airline in the US to the third-largest; its North American passenger traffic for the first five months of 2009 is down 26% from the first five months of 1999. Between 2000 and 2008, the airline's fleet as been cut by a third; its passenger numbers have dropped 38% and its workforce has been cut in half. In the last ten years, the airline has also had to deal with one of the largest Chapter 11 bankruptcy filings in American corporate history.
So the news about United has been pretty bad for the last ten years, and there's no sign of that changing. Even though it tried to strike an upbeat tone with the recent news that it was shopping around for new planes, the recent financial numbers that it has posted are pretty ugly - if you've got shares in United Airlines, the numbers are likely to make your teeth start itching. Traffic fell a whopping 12.3% in May, and the airline expects the amount of money that it makes for every mile that a seat flies (also known as 'unit revenue') to drop 18 to 19 percent this quarter, compared to a year ago.
And Fitch downgraded United's debt ratings, saying that its "credit profile is likely to weaken further, as extreme pressure in the revenue environment continues to undermine the positive cash flow impact of lower jet fuel prices in 2009." United's "heavy exposure to premium business markets" means that it's been hit particularly hard by the cutback on corporate travel spending.
But perhaps the most visible sign of United's financial distress came when TV host Jim Cramer blasted CEO Glenn Tilton on his show, Mad Money, saying that Tilton belongs on the CEO 'Wall of Shame' because United's abysmal stock performance is awful, even for an airline. The airline's shares have lost 88% since it left bankruptcy back in 2006, and are down 63% just this year.
Nobody's really predicting the imminent death of United, nor are they saying that the airline is likely to file for Chapter 11 a second time. And when the entire industry is facing its worst crisis since, well, the last major crisis a few years ago, it's unfair to think that United is going to start posting a profit or something. But the results that UAL has been posting have been significantly worse than the industry averages. United's got some strong assets - a sturdy, if somewhat tarnished, brand name; membership in the Star Alliance; some good international routes. But there's always been gloom-and-doom talk about how a big US carrier needs to fold in order for the rest of the industry to return to profitability, and if United doesn't want to be 'that one,' it had better come up with a better plan for financial viability, and soon.
photo by superciliousness from Flickr, licensed under the Creative Commons
It seems like a few years can't go by without US Airways CEO Doug Parker talking about a merger. Parker came over from America West Airlines when it merged with US Airways in 2005, and by the end of 2006 had made a hostile bid for Delta. That fell through pretty quickly, but didn't put an end to speculation that Parker would be interested in shopping his airline around or looking to combine it with another. Back in April 2008 Parker mentioned in a letter to employees that the airline would merge if the time was right, and yesterday, addressing the company's annual meeting in New York, he said that further consolidation was much needed in the airline industry.
"The industry continues to be far too fragmented... The result is far too many hubs across the nation and far too many seats competing for those same passengers," Parker said. He also stated that the Delta-Northwest merger was a good thing, since it went pretty far in helping to simplify the industry, but that it wasn't enough: the industry needs to get smaller if it wants to become profitable.
Who could US Airways potentially merge with? The first option that people seem to mention is United. The airlines tried to merge back in 2000, but this was rejected on antitrust grounds; United and US Airways talked last year about a merger once again, but this time United walked away. Nothing has been ruled out between the two airlines in the future, though. American could be a good fit for the airline, too. And even if US Airways doesn't end up merging, the fact remains that capacity needs to be further cut for airlines to stay afloat during these tough economic times.
photo by matt.hintsa from Flickr, licensed under the Creative Commons
United Airlines is eying a large new order for up to 150 airplanes, worth $10 billion, according to an article in the Wall Street Journal. United is apparently choosing between Boeing and Airbus, and according to the article, it's an all-or-nothing deal, meaning that purchases won't be split between the two manufactures; this way, United might be able to get a better deal. And the deal shows that United has been thinking ahead, by waiting to order until bad times for the industry. This way, the planes could be delivered starting as early as 2010, when the industry is expected to look up.
The order also comes at a time when the airplane manufacturers are desperate for orders. Boeing, for example, has signed up 60 new orders so far this year, but has also lost 60. United is probably hoping that they can turn the manufacturers' desperation into their gain, in the form of lowered prices and permission to revise the order at a later date. I'm not exactly sure how United's expecting to pay for the order, especially given big losses and a pretty bad credit rating at the airline, but the article suggests that United might be seeking financing from the aircraft manufacturer, among other places. At the time of posting, United had not yet returned calls from The Airline Blog seeking comment.
So what planes are going to be replaced, and with what? The airline's A319 and A320 fleets are, on average, ten years old, and they're probably not going to go anywhere anytime soon. The 737-300 and -500 fleets are much older (20 and 17 years, respectively) and are already on their way out. United's new order is probably seeking to replace the larger 757-200, 767-300, and 747-400 aircraft, and maybe some of the 777-200s too. The airline has an average fleet age of 13 years - younger than most of its rivals - but much of that is due to the relatively young age of the Airbuses. The 757s are getting pretty long in the tooth, and it wouldn't be too surprising if they were replaced with the A321 or the Boeing 737-900ER. Neither of them could completely replace the 757, though; they'd probably just be used to replace the oldest ones or to simply supplement them. The 777s aren't old, either, since the 777 itself is a pretty new aircraft model. But United, being the launch customer for the type, has some of the oldest 777s flying, and some of those are the non-extended range variety. The different versions of the 787 might be a successful replacement for both the 767 and some of the 777s; maybe the A350 would work here too. And the 747-8 (which so far only Lufthansa has signed up for) might replace some of the 747-400s.
Virgin America recently released a list of the ten cities that are most requested for new VA service. The survey is still up, so if you don't see your preferred route listed below, you can still vote.
SFO- Chicago
SFO- Honolulu
SFO- Miami
LAX- Miami
SFO- Portland
LAX- Chicago
SFO- Phoenix
JFK- Miami
SFO- Denver
LAX- Portland
Many of these routes are currently flown only by a few legacy carriers. The San Francisco - Chicago and Los Angeles - Chicago routes, for example, are currently flown only by United and American. JFK - Miami is flown only by American and Delta, and American has a monopoly on the San Francisco - Miami and Los Angeles - Miami routes. Even though Virgin America would certainly be taking a risk by flying into the fortress hubs of legacy carriers (United in Chicago, American in Miami, etc.), their relatively premium product would probably attract quite a few unsatisfied AA and UA customers. Those are the routes (LAX-MIA, SFO-ORD) that would be best for Virgin America to fly, especially as they would avoid head-to-head competition with other low cost carriers (i.e. Frontier on SFO-DEN).
Continental Airlines yesterday received a tentative OK to join Star Alliance, although the US Department of Transportation will require Continental, United, Air Canada and Lufthansa to release an 'annual report' on the alliance. Star Alliance is already by far the largest airline alliance, and the addition of Continental just makes it even bigger. As such, the US government has expressed concern about the impact on competition - and so has Delta, Continental's current partner in the SkyTeam alliance, which has complained that the impact on US domestic routes would be too large, given that United and US Airways are already members.
The Air Line Pilots Association (ALPA) and the United Airlines MEC (Master Executive Council) have created a website, GlennTilton.com, which calls for the removal of Glenn Tilton as United's CEO. The website said, "As professional pilots, we believe in accountability. Glenn Tilton, Chairman, CEO, and President of United Airlines, has failed all of us… costing shareholders, employees, and the travelling public billions of dollars."
Is Glenn Tilton to blame for United's troubles? The website says he is. "To Glenn and his staff, responsibility for United’s predicament belongs to everyone and everything other than themselves... Their excuses include high fuel prices, increasing costs of security, more competition, and stronger regulation, and they see themselves as victims of these uncontrollable factors. It just isn’t right, and it just isn’t true. These same factors influence every airline, and all the others are handling challenging conditions much better than United."
Or are the pilots just upset with management? Leave your opinion; please comment!
American Airlines, Iberia, and British Airways announced earlier today that they were forming a three-way alliance that would allow them to cooperate on flights between Europe and North America. Although the three airlines are already part of the oneworld alliance, the deal allows them to work more closely together and to cut costs. Not surprising, Virgin Atlantic's Richard Branson took a dim view of the deal, which he said would create a "monster monopoly".
The announcement comes at a time when other airlines are also seeking to link up: United, Continental, Air Canada and Lufthansa are working on a transatlantic alliance, similar to the AA/Iberia/BA one announced today.
Even after merger talks between United and Continental fell through a few months ago, the two airlines are still interested in cooperating - yesterday, they announced plans to start codesharing and for Continental to join Star Alliance, of which United is a member. According to an email sent out to Mileage Plus members, United expects the deal to start sometime in 2009.
It remains to be seen what this means for US Airways, which has been a Star member for a few years now. It's possible that it could remain in Star, but having three US airlines in the same alliance could lead to some overlap.
Well, it was a bit of a surprise. After the linkup between Delta and Northwest a few weeks ago, many (myself included) expected to see continued industry consolidation. And a merger between United and Continental was seen as a likely one; rumors floating around pointed to an announcement as soon as this week. The merger would have created an airline that might rival Delta/Northwest in size, as well as international coverage (United's strong Asia presence would fit nicely with Continental's extensive European route network).
But last week, a little something occurred that made Continental think twice: United posted a $542 million loss for the first quarter of 2008. Even in the airline industry, a half billion dollar loss is pretty big, and it's a sign of an ailing airline. United's huge loss scared away Continental, which announced on Sunday night that it was abandoning merger talks with United.
The airline made the announcement in a letter to employees from CEO Larry Kellner and President Jeff Smisek. "We want you to know that our Board of Directors met today and has unanimously supported management’s recommendation that, in the current industry environment, the best course for Continental is to not merge with another airline at this time," it read... The Board very carefully considered all the risks and benefits of a merger with another airline, and determined that the risks of a merger at this time outweigh the potential rewards, as compared to Continental’s prospects on a standalone basis." The letter - which never identified United Airlines by name - went on to say that the airline will "continue to review potential alliances and our membership in SkyTeam. We are considering alternatives to SkyTeam as we carefully evaluate which major global alliance will be best for Continental over the long term."
Continental's decision is certainly a setback for United, which has been looking to merger for some time now. I don't think that the decision to not merge was arrived at easily, since there could have been some benefits from linking with United. But the folks over at Continental are betting that a merger with United, which is racking up heavy losses, could also drag them down as well. Even though Continental definitely wants a better Asian route network - and they could have obtained it through a merger with United - it might be able to get it another way. If United files for bankruptcy again, Continental might be able to grab the Asian routes by themselves, without having to deal with United's poor financial shape.
Continental has also reportedly been in talks about forming a three-way alliance with American Airlines and British Airways, although, from an anti-trust standpoint, this might be a bit difficult. And as for United - well, this is certainly bad news. CEO Glenn Tilton tried to remain upbeat in a statement released Sunday night: "Our strategy is consistent. Consolidation is underway - ensuring you have the right partner is everything. We will pursue all options to ensure a strong, sustainable future for our airline and will not shy away from the tough choices necessary to create value for our shareholders and benefit our employees and customers." A United-US Airways merger might happen, but I don't know if it will do much good. Both airlines are still dealing with their respective trips to bankruptcy court, and I don't think that a merger between them will solve anything.
In a letter sent to employees yesterday, US Airways CEO Doug Parker said that "airlines are going to have to make dramatic changes" if they want to survive. Although he said that he couldn't "comment on any specific discussions or transaction," he said that the media have suggested that US Airways is in merger talks with United and that American would make a good match as well. "Rest assured," said Parker, "if US Airways chooses to participate in any industry consolidation, we will do so because we believe it is the best interests of our employees and our airline."
Would US Airways be a good match for United, which has been seeking out merger partners? They already code-share (a benefit that the Delta/Northwest combination has), and US Airways has a strong presence in the Northeast and Southeast (two areas where United's route structure is weaker). But I don't see US Airways' route network as being as much of a plus for an airline like United, which needs more international routes. Of the six largest legacy carriers, US Airways has the smallest international route network. United might prefer a rumored merger with Continental to one with US Airways.
US Airways still has problems of its own, too, from its last merger (between US Airways and America West). And let's not forget that the last time United and US Airways tried to merge, it was rejected by the Justice Department on anti-trust grounds.
By the way, here's the original message sent out by Parker (posted on the US Aviation boards):
From: Corporate Communications Sent: Wednesday, April 16, 2008 8:36 AM To: Corporate Communications Subject: USNews Now: An Important Message from CEO Doug Parker Importance: High
An Important Message from CEO Doug Parker
April 16, 2008
Dear Fellow Employees,
With the recent news of a potential Delta/Northwest merger, analysts and media are speculating about the next potential combination. While we had hoped to remain on the sidelines of this speculation, today’s Wall Street Journal suggests we may be in merger talks with United and another article in the Dallas Morning News suggests we might make a good merger partner for American.
While I can’t comment on any specific discussions or transaction I certainly didn’t want you to hear this speculation without hearing directly from me about what this might mean for US Airways.
Most of you know my views on consolidation and those have not changed. Our industry is far too fragmented and consolidation, if done properly, could result in a much healthier industry which would be good for our employees, our customers and the communities we serve. Rest assured if US Airways chooses to participate in any industry consolidation, we will do so because we believe it is the best interests of our employees and our airline.
Despite all of the challenges of merging two airlines, we are a much stronger company today as a result of the merger of US Airways and America West. We posted the highest pre-tax margin of the big six airlines in 2006 and even with our operational challenges we posted the second highest pre-tax margin in 2007.
And we have an improving airline. We’ve made great strides with our operational improvement plan, including top three performances in on-time arrivals for three consecutive months. As we continue through 2008, we feel extremely good about our ability to continue to improve our operational performance relative to the industry.
But we can't ignore what's happening in the world around us. Oil has risen to over $113 per barrel and Wall Street is anticipating a recession that, if it happens, will lower all airline revenues. And the DL/NW combination potentially creates a formidable competitor. In that world, all airlines are going to have to make dramatic changes to their existing business models in order to be viable.
I know airline merger speculation can be distracting so for now, I encourage all of us to remain focused on running a great airline. Our work on the reliability, convenience and appearance initiatives continues and we are running an extremely reliable airline as a result. Whatever we do, we will always take great care to ensure the path we choose returns value to our shareholders and customers, and also provides long-term stability for our employees.
Thanks for all you do for our customers and keep up the great work.
As an Open Skies agreement between the United States and Australia takes effect, Richard Branson's newest addition to the Virgin fleet was announced earlier this week. V Australia, a division of Australian carrier Virgin Blue, will fly from Sydney to Los Angeles starting in December, competing with Qantas and United (which are the two airlines that currently fly the route). Branson said that "there is going to be very fierce competition, as there is with Virgin Blue and Qantas in Australia, and fares will definitely drop quite dramatically across this route... Our philosophy is never to go out with an empty seat."
Fares are relatively cheap - V Australia's return economy seats start at $1899. A special promotional round-trip fare of $777 for the first 1000 US passengers to book sold out quickly. In terms of aircraft, V Australia will start out with a single Boeing 777-300ER (it has ordered 6 total). Right now, Los Angeles is the only concrete destination, but the airline has also been interested in flying to Japan. It has also applied to the US Department of Transportation for approval to operate from Sydney to San Francisco, Las Vegas, Seattle, and New York.
I thought I'd share a few thoughts on the just-announced United-Continental merger. There's a lot out there about the terms of the deal and other specifics, but just to recap, the $3 billion merger (which has yet to be officially approved) would create the world's largest airline. The airline would be based in Chicago and keep the United name (but the Continental logo) and would be led by Jeff Smisek, the current Continental CEO.
(Yes, that is a 787.)
But I'm going to focus on one aspect of the merger here: branding. There's a picture of Jeff Smisek and Glenn Tilton shaking hands in front of the new United logo, which is nothing more than the Continental logo with "United" in there instead. And the paint job would be exactly the same as Continental's - again, with the name "United."
