(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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Northwest's New Subsidiary: Compass Airlines

In June, Northwest Airlines (which, by the way, lost almost $500 million in February) wants to start its new way to screw pilots over- whoops, start a new subsidiary airline called Compass Airlines. Compass will fly from Northwest's three hubs in Minneapolis, Detroit and Memphis. The first flight, in June, will be the Minneapolis-Washington Dulles route.

Compass is part of what I see as Northwest's big plan to a) cut costs, b) retire those Flying Fossils that are the DC-9s, and c) rely less on the 'express airlines' like Mesaba and Pinnacle. The pay scale for Pinnacle will be lower than Northwest's, so the airline saves money there because the pilots get paid less. Northwest is eager to get rid of those DC-9s, which average 30 years or older. And the airline has had a rocky relationship with some of its express airlines that fly under the Northwest Airlink name recently.

Although Compass will share corporate headquarters space with its parent in Eagan, Minnesota, the AP reports that flight operations will be headed out of Dulles. Not coincidently, that's where defunct Independence Air has its hub. On March 10 I wrote that Northwest bough Indy Air's certificate, which they put to good use here. At the beginning Compass will fly a single fifty-seater Bombardier CRJ-200, the type Indy Air used to fly. And Compass will hire a bunch of ex-Indy Air employees, like the director of safety, operations, and maintenance. (The CEO of Compass will be Northwest's current CFO.) Of course, all this is still up to the Department of Transportation to allow, and that takes time. But with Compass basically taking bits and pieces out of the carcass of Independence Air, they'll be able to shave off some time and get those planes in the air.

Speaking of planes, Northwest hasn't decided what type Compass will operate in the future. Northwest had to wrangle with the unions over the number of seats on planes that Compass could fly. Originally NWA wanted Compass to fly 100-seaters, but the union didn't buy that, so they dropped it down to 76-seaters and the union gave the green light. Understandably, some junior pilots over at Northwest were concerned that Compass would replace their jobs. Laid-off Northwest pilots and flight attendants get first priority for jobs at Compass. How benevolent.

But the airline has said it will fly either Bombardier's CRJ-900 model or the Embraer 175. Compass plans to have 36 planes by the end of 2010. The brass over at NWA are hoping that their new airline-within-an-airline will pay off. With Northwest losing what it called a 'staggering' $2.6 billion dollars in 2005, they're hoping that Compass will point the airline in the right direction.

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LAN To Get More 767s

LAN Airlines SA said it will purchase three Boeing 767-300s, to be delivered in 2007 and 2008. The cost: $270 million. LAN already bought a dozen of the type from Boeing last August.

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AA & Others Eager To Fly To China

Reuters is reporting that American Airlines is going to fly to Shanghai from Chicago on Sunday. Not only that, but they've been waiting fourteen years to get in. That's right - over a decade ago they set up an office in Beijing, and it's only now that they're getting to fly to China.

The airline expects to fly up to 245 passengers to China a day, and the load factor's pretty nice, too: AA predicts that 86% of its seats will be full. They'll definately be making money on that flight. And American also predicts that the amount of people flying between the two nations will grow by 500,000, or 17%, per year. Right now 3,000,000 fly betewen China and the U.S. each year.

Right now only three U.S. airlines fly to China: United to Beijing from Chicago, Los Angeles, New York, San Francisco and to Shanghai from Chicago and San Francisco and Continental to Beijing from Newark. (Northwest flies via Tokyo to Beijing, Shanghai and Guangzhou, but not directly from the U.S.)

And when more - if limited - rights are given starting in 2007, you can be sure that they'll be arguing over who gets 'em. Continental wants to fly to Shanghai from Newark, but United - which has been flying to China for a long time - wants even more routes to Beijing, Shanghai and Guangzhou. In March 2007, the Department of Transportation will dole out 14 round trips to 'existing U.S.-China carriers' - meaning, at this time, either United or Continental. Half of those round trips must be to smaller cities, and an agreement with the Chinese government allows the DOT to allow a new carrier to start flying to China in 2008. My guess is that Delta will be this next carrier. After all, it's tried to get permission to fly to China from Atlanta and was turned down.

International routes are mostly profitable for U.S. airlines. Flying a bunch of people to Tokyo or London more often than not creates more cash than flying a bunch of tourists down to Disney World. The US and Chinese governments will be holding talks in Beijing on April 19 and 20 over the opening of Chinese skies. The top three airlines in China have sent letters to the country's top aviation board, the CAAC, opposing the freer skies that United and the like want so badly.

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Siberia Airlines To Get A319s

Siberia Airlines, or Sibir as it's officially called, announced that it will try to lease ten ex-Northwest Airlines Airbus A319s as it tries to phase out the aging Russian-built Tupolevs. As of now the airline operates six Airbus A310s, ten Boeing 737-500s, nine Ilyushin Il-86s, twenty-eight Tupolev Tu-154Ms and two Tu-204s. It plans to lease at least two more 737s and two more A310s this year, according to Flight International. Sibir will also obtain a leased 737-400 in June for charter work.

S7, as the airline markets itself, is trying to modernise its fleet - especially on domestic routes, which make up about 78% of its business. However, says the airline, the Russian airline industry has to worry about aging fleets and airports, rising fuel prices and overcapacity - there are 185 airlines in Russia. That's a lot for a nation that only has 35 million passengers, according to the airline.

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