Revenge in Russia

Russian flag-carrier Aeroflot has announced that it will purchase Airbus A350 airliners, when only a few months ago it had said it would purchase Boeing's 787. The reason? The U.S. has opposed Russia's potential membership in the World Trade Organization, and this move by Aeroflot is seen as politically motivated.

In December 2005, according to the newspaper Vedomosti, Aeroflot was considering a purchase of 22 Boeing 787s. But as relations between the U.S. and Russia deteriorate, Aeroflot's switching sides is no surprise. Especially when the fact that the Russian government owns 51% of Aeroflot is revealed.

Airbus wouldn't comment, and Aeroflot wouldn't say much beyond that the contracts haven't been signed yet. "We haven't chosen the planes yet," a spokeswoman for Aeroflot said, but I think that Aeroflot will go ahead with the A350 purchase.

Boeing, which has been trouncing Airbus in the orders area, seemse to be suffering from American diplomacy at the moment. Beside the Aeroflot situation, there's trouble for Boeing in Asia: China Airlines (which is based in Taiwan) might cancel its order for Boeing's new 747-8 after a spat between the Taiwanese and American governments over transit stopovers for the Taiwanese president.

Airbus, on the other hand, is seemingly immune to diplomatic events like these, mostly because it is a multi-national consortium of European manufactures as opposed to Boeing, which is based in the U.S.

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The Frequent-Flyer Program Turns 25

Yesterday was the 25th anniversary of the start of AAdvantage, the frequent flyer program of American Airlines. Even though it seems like every airline nowadays has a FFP, the idea was a foreign concept twenty-five years or so ago.

On the eve of the deregulation of the industry in 1977, executives at American Airlines knew that there had to be a better way to gain the loyalty of their top customers. United Airlines gave customers a wall plaque on which they could add a star for every hundred thousand miles they flew. Michael Derchin, head of the airline's marketing department, devised a plan. Seemlingly simple enough today, it was a radical idea at the time: the more a passenger flew, the more miles he or she got. It took a few years to get the kinks worked out (and to get adequate computer systems introduced), but on May 1, 1981, the world's first frequent flyer program debuted.

United Airlines rolled out Mileage Plus eleven days later. And the rest is history.

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Olympic Airlines To Change Its Name?

Olympic Airlines has been in quite a bit of trouble recently. After the Hellenic government's failed privatization bid back in 2004, when it aimed to privatize the state-owned Greek flag carrier, Olympic finds itself in more troble with the government.

This time, it's over illegal loans. The European Union alleges that hundreds of millions of euros were illegally given to the airline through loans by the Hellenic government. Kathimerini, a Greek English-language newspaper, reports that the government has submitted a business plan to the EU in which Olympic Airlines would cease to exist but have its network taken over by a new airline, Pantheon Airways. (For an in-depth look at the name, head over to Strategic Name Development's blog.)

But to make things more confusing, Finance Minister Giorgos Alogoskoufis said in an interview that the Olympic brand name might not be disposed of after all. “It is our objective to keep the name, despite the fact the [would-be new] company is known by the code name Pantheon,” he said.

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Swan(Song) For An Airline

First off, I apologize for my absence. I've got lots of catching up to do with this blog. Hopefully the few readers I've got haven't abandoned me yet.

That said, today's big story: the final flight of Song Airlines. Song was the low-cost arm of Delta Air Lines. First flying on April 15, 2003 (mostly to stave off stiff competition from jetBlue at JFK), it tried to emulate jetBlue's model (except with Boeing 757-200s instead of Airbus A320s). For a while, the lime green 757s flew from the hubs at JFK and Orlando. Yet there was a strategy change at Delta (it was no secret that Song didn't live up to the airline's expectations), and in October 2005 Delta announced that it would fold Song back into mainline Delta. That process was completed yesterday, as flight 2056 flew from Las Vegas to Orlando.

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(More) Bad News for Airbus

Singapore Airlines said the other day that Airbus has to redesign its Airbus A350 if it wants to really compete with Boeing's 787.

Bloomberg reports that it took Airbus four attempts to come up with today's A350. And the most interesting fact is, the A350 is pretty much a revised A330. Just use more composites, new parts, and a new tail, and you have a totally different aircraft, right?

Wrong, says pretty much all of the industry executives. Singapore Airlines CEO Chew Choon Seng said, "Having gone to the trouble of designing a new tail, and introducing a lot of new composites, and everything else, they might as well go the whole way and design a whole new fuselage as well instead of using something old. It would make it more directly competitive with the 787.'' And according to Steven Udvar-Hazy, CEO of ILFC, an airplane lessor company, Airbus needs to spend $8-10 billion dollars to revamp the A350 and should completely redesign the plane to make it bigger and faster. "This removes any possible doubt that Airbus needs a new plane. When the most prestigious airline in the world and the biggest leasing company in the world both send you the same message, you need to listen," said Richard Aboulafia, vice president of the Teal Group, a Fairfax, Virginia-based consulting company.

After Boeing announced the 787 project (back when it was called the 7E7) back in December 2003, Airbus dismissed it. Of course, Airbus was busy on its A380 project (which they need to delay again, by the way) and publicly annouced garbage to the tune of, "Nobody wants an airplane like the 7E7. More airlines wants the A380." And while airlines did want the A380, a bunch want the 787. So when orders for the 787 took off (bad airplane pun intended), Airbus scrambled to come up with a competing product. The result was the A350, which as I said before is really a modified A330. As of March 30 Boeing has 298 orders while Airbus only had 100 orders and 92 committments.

So, how much does an A350 and a 787 cost? The A350 is $170 to $190 million each, while the 787 is $142 to $150 million. And speaking of money, Airbus' parent company EADS is under lots of financial pressure, noted analyists. Redesigning the A350 would cost billions of dollars, and BAE Systems, which owns 20% of Airbus, announced recently that it was selling its stake. So EADS now needs to buy that 20%, which is valued currently at $4.3 billion.

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United vs. Southwest (Part 2): Showdown in DC

Southwest Airlines, that bastion of low fares for the past thirty-five years, has announced it will serve Washington's Dulles airport this year. And to make matters even more interesting, it's the second hub of United Airlines that Southwest has invaded this year. (It started servicing Denver International in January.)

CEO Gary Kelly said that Southwests moves into markets that "are overpriced and underserved", and with the liquidation of Dulles-based Independence Air in January, there's been a low-cost carrier gap at the airport that hasn't been filled until now.

As of now, Southwest only wants two gates at Dulles' Terminal B concourse, and the airline did not specify where it would fly to from IAD. But its CEO said that service would most likely start in the early fall with ten to twelve daily flights to four or five destinations.

This move by Southwest is somewhat confusing to me. On the one hand, the collapse of Indy Air leaves reasonable space for a low-cost carrier to move in. On the other hand, Southwest has a hub just to the north in Baltimore, where it is one of the dominant carriers at BWI.

United, Ted, and United Express handles about 60% of the traffic at Dulles, and a United spokeswoman said, "We compete vigorously everywhere we fly." But an industry analyist pointed out that following this move, United once again has low-cost competition at each of its hubs - Southwest at Chicago's Midway Airport, across town from United's megahub at O'Hare; Frontier at San Francisco; Frontier and Southwest at Los Angeles; Frontier and Southwest at Denver; and now Southwest at Dulles.

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Behind The Name: Compass Airlines

I recently was contacted by a reader that referred to this blog in his article about the reasons why Compass is a good name for Northwest's new subsidiary. Read this excellent and interesting article at http://www.namedevelopment.com/blog/archives/2006/04/northwests_comp.html.

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