Hello there, Godzilla here. I know it’s been a while since I’ve graced the pages of PlaneBuzz, so to speak. I won’t give the old “I’ve been too busy” because I hate when people use that as an excuse. No, I’ve not been too busy to write, perhaps I didn’t think I had anything of value to add, though some would say I never let that stop me before. I’ve been filling my time doing some very un-airline/aviation stuff, some would say going back to my routes, er, roots. I’ll fill you in later on that though, because I want to talk about the Texas – Two Step Delta is doing with their hub in Cincinnati.
An article on Cincinnati.com yesterday outlined Delta’s plan to further reduce their CVG hub by another 12% this coming January. This cut follows a steady diet of previous reductions and downsizing/rightsizing or whatever the MBA catchphrase of the moment, that have been occurring for the past 4 years.
The truth is that reducing or eliminating CVG as a hub made sense even without the merger of Northwest, but adding the three NW hubs to the mix (affectionately known as Snow-town, Mo-town, and No-town), CVG is definitely superfluous. The problem is that the DL/NW merger is supposed to be a merger of addition and not subtraction. Uh-huh. According to the article January 2009 flying from CVG will be 33% less than January 2008.
As I said, that makes sense. What is irritating is the PR spin being put on the bad news so that the community actually thinks it is good news. Speaking about the announced reductions, the chairman of the Kenton County Airport Board, which controls CVG operations said –
“This is good news in that it keeps things pretty much as they are, but I would not say it is wonderful news,”
Well Mr. Chairman, the news might be good but the truth is not-so-good. Fully 85% of the operations at CVG will be in RJ equipment, and the number of banks at CVG will be reduced from 9 to 5. Glen Hauenstein is the person in charge of rationalizing the two route systems, which is not an easy task. However turning CVG into an RJ hub and giving it until the summer of 2009 to turn a profit is akin to throwing a drowning man an anchor.
“We really wanted to keep the hub there because of its location, layout and the great facilities, but it took us awhile to figure out how to do it,” Hauenstein said. “So Delta is now reaffirming its commitment to the Cincinnati hub through the summer season of next year and then we’ll take another barometer reading on how the economy is doing.”
That’s nice. We all remember how well the Independence Airlines hub did at IAD, right? They helped prove that the RJ isn’t a low cost machine, it’s a point-to-point O&D bird. Taking the wrong airplane and running it through a hub that used to have 9 banks and now will only have 5 means that the cost of operation at CVG for DL is going to be higher. The only semi-good news in all of this is that the CVG fares are high, which means DL will lose money more slowly, unless the economy continues to tank.
Although I don’t agree with it, I understand the need to be politically sensitive to air service issues, especially during a merger. Perhaps if I had been more politically correct my airline career would have been longer, though this is more fun anyway. But DL is better off saying as little as possible about it rather than trying to spin the reduction as a way to “coordinate times between two hubs [DTW and CVG]”.
“That way we can offer two medium-sized hubs with better connectivity and efficiency to compete with one mega-hub (for rivals American and United) in Chicago,” Hauenstein said. “This is all about connections and making those more plentiful. Now we can offer a traveler in say, Albany, connections through Atlanta, JFK, Detroit, Minneapolis and yes, Cincinnati – you get something nobody has been able to offer you before. And Cincinnati is a part of all of that.”
Well it sounds to me like a phased reduction into oblivion, which by the way Is a good decision. The spin doctors should have left this one alone though.
While perusing the local paper here yesterday I came upon a story about the service reductions going on at TUS. As earlier announced airline service reductions begin to appear in the current schedules, the manifestation of those cuts will be reduced passenger counts and service to fewer cities. Tucson Airport passenger numbers for July dipped 3% versus last year, and that’s before any real reductions hit. As of of next week the list of cities served from TUS will shrink 41%, down to 18 cities.
The brunt of service reductions will occur at medium and smaller airports, like TUS, but even hub airports will feel a pinch. Phoenix Sky Harbor, long the nemesis of Tucson Airport, will see an 11% reduction in scheduled service during the 4th quarter of 2008. However it will still be a viable alternative to TUS, who will see a reduction of 26% for the upcoming quarter. Complicating matters a bit is the price of driving your own vehicle from TUS to PHX, not to mention the 2 hours out of your life (each way).
It will be interesting to see how airport managers react to the new reality of airline service. Long thought to be a “cost of doing business”, in the era of charging for pillows and blankets airport operational costs are squarely on the airline’s radar scope. The problem with some (most?) airports is that they are run like a bureaucracy, not a business. I, for one, don’t choose an airport because of the cool artsy fartsy statues in the lobby or the facade of the terminal. If then air service is there at a price that makes sense, the restrooms are clean, and the baggage claim area roof doesn’t leak, then I am a happy man.
Clearly this is an opportunity for some small and medium sized airports to actually grow, at the expense of those airports who fail to understand that their costs have a direct relationship to the level of air service at their facility. Airlines are parking airplanes and putting employees out on the street. Airports need to participate in the pain by tightening their belts and lowering their costs, or watching their service levels drop.
Hi there, Godzilla here. It’s been a while since I’ve posted (and even longer since I’ve said anything of real value), but more on that in a minute.
Further to Holly’s observation about how the TSA “inspected” 9 airplanes right into the maintenance shop in Chicago, TSA is now rattling its saber about pursuing security violations against the airline.
The mind boggles.
A published report says that the inspector (obviously from the shallow end of the gene pool) was able to gain access to 7 of the 9 airplanes “inspected”. Whether or not that is true is immaterial, because once the manner in which the airplanes were entered rendered them unairworthy anyway. The TSA further stated that it was not their intent to “cause delays or potential damage to aircraft as a result of our inspections,” and that the agency acted quickly to “re-enforce education about sensitive equipment located on the exterior of a plane.”
Yes, the TSA needs to reinforce the meaning of “No Step” when painted on an aircraft; perhaps an English class is in order?
I’ve been a bit quiet lately because I’ve been busily trying to secure some type of gainful employment that includes airplanes. It’s come down to two choices, one being an FO for a Part 135 operation flying a Citation I, and the other being a pilot for the local Sheriff’s department’s version of Con Air. It’s a tough choice, I must say. Neither of them pay very well, but it’s better than working for a living. Either choice will still leave me time to contribute, hopefully more regularly, to Holly’s blog.
Was that a sigh of relief or a groan?
Trolling the headlines and news releases today I came upon one of those promotions-disguised-as-a-news-release that I see every day on the newswire. The headline to this one was interesting – Airline Study Shows Brands Struggle in Downturn. Really? In other news, Christmas will be on December 25th this year.
From the sublime to the ridiculous. First we have those who would equate airline to utility companies, and now this not so subtly disguised promotional piece touting a study that purports the solution to the current airline dilemma is better brand management. Airlines as The Electric Company, or yogurt.
The news release provides a link to a “Market Study” on 6 major airlines, which is really simply an analysis of their advertising strategy. In addition to being poorly written, complete with typos and an interesting use of grammar, the content was fairly lame and simplistic. Northwest and Delta were included as separate “studies” with no mention of their merger, nor how the new merged carrier might carry out a new brand management strategy.
Here’s an excerpt from an airline industry blog on the site written by the CEO of the company who wrote the study – “The REAL loser here is you and I (Passengers) and the employees. Earth shattering change is needed and cutting out our pretzels, beverages and the other pittance of amentites (sic) currently offered will never make any of the (sic) successful. It is as if thier (sic) problem can be solved by charging me for my carry-on-bag. That is a sure way to encourage me to prefer them!”
It gets worse, both in terms of content and the recommendations. Absolute drivel. Don’t get me wrong, in a normal business during normal times, brand management is critical. However, this ain’t it.
Trying to rationalize the absolute disparity between article I wrote about a couple of days ago and this one was an interesting exercise. I’ve resisted the idea that the airline business is a commodity business, but the present set of circumstances are unprecedented. It’s survival now, not marketing. It’s like a heavy weight prize fight; sometimes winning is just being the only guy standing when the bell rings.
At any airline, everyday there are thousands, perhaps millions, of transactions that take place. The obvious transactions are between the airline and it’s customers, but there are also transactions between airline employees. Each of those transactions have a plus or minus effect on the day’s results. I think creating an environment where line employees and senior management are on the same team and feel the ups and downs equally with the line worker is part of the answer.
In addition to the self-promoting “news release” about airline brand management I saw today, I also saw a release from Southwest Airlines. I am not sure if there are any airlines out there today who would give a surprise party to a retiring airline president, except Southwest Airlines.
Hello there, Godzilla here. I’ve been enjoying an early monsoon season here in the Ol’ Pueblo, and in the spirit of “green”, I went to my favorite store last week (Ace is the place!) and bought a 50 gallon rain barrel. You set the barrel up under a down spout to catch water, and then it has a couple of outlets where you can hook up hoses for watering, or hooking up several barrels in series. The night after I set it up we had over an inch of rain and the barrel filled up! I was so happy it was like I had made it rain or something.
So of course the next step was to buy a couple more barrels and hook them up in series. Unfortunately the wifely unit put a stop to that project. Even when I explained all of the money we’d save on water (though the barrels cost $90 each, so, the payoff comes in 126 years), she shut me down. I’ve attached a picture here for your unbiased opinion. I think it looks kinda neat, no?
Regardless of your opinion on my rain barrel, I need to talk a little about reregulation, and specifically about an article by RSM EquiCo calling for congressional action on airline reregulation. The piece is very well written and goes through the obligatory bullet points listing the reasons that airlines need to be regulated again.
The article correlates the health of the airline industry to the general health of the economy, and although the airlines tanked before the economy did, the weak airline industry is exacerbating the general economic woes. The article quotes liberally from a speech given by Robert Crandall recently, where he drew a parallel between the airline industry and public utilities.
Further the article promotes “a structure in which a commission is established to review airline prices is essential, given the utility-like characteristics of airlines, and that if anything is to come out of possible industry re-regulation, it should be an updated pricing model.”
Of course, oil at $150 a barrel will also spawn an updated pricing model, while removing all of the excess capacity that caused the low prices in the first place.
Bad idea, bad, very bad. Airlines are not similar to utilities. Everybody needs lights and heat, not everybody needs to fly for business or pleasure. Setting up commissions and boards, and getting the government process involved in the airline business (in fact, I think getting government involved in any business) will be an absolute disaster for passengers. You can’t regulate common sense, and the glut of capacity and resulting pricing madness in the U.S. airline business has been a boon for passengers.
Now, it’s time to pay the piper (or the oil man, take your pick). Airlines that have grown because they have good fundamentals and a strong product will weather this current set of unbelievably bad circumstances. Airlines that have skated along with no plan, no strategy, no product, and no business being in this business will fail. We don’t need government regulation to limit the airlines that have this business figured out, while simultaneously propping up the ones who don’t have a clue.
Every industry has it’s own set of language quirks; three letter acronyms (TLAs, if you will) that become part of the language of that business. Traversing the Transportation Security Administration (TSA) web site it’s hard to read an article without a decoder ring. They’ve got TLAs, FLAs, and at least one FILA on their site. I read a story on their web site that announced more random screening at gates this summer. They describe TSOs (Transportation Security Officers) being supervised by STSOs (Supervising Transportation Security Officers) working with BDOs (Behavior Detection Officers) and BAOs (Bomb Appraiser Officers) to detect IEDs (Improvised Explosive Devices), along with VIPRs (Visual Intermodal Prevention and Response teams), to enhance the ADASP (Aviation Direct Access Screening Program). That’s right, I SYN.
While the airline industry bathes in red ink and airports are being asked to cut their costs or lose airline service, the Department of Homeland Security is looking for a 6.8% INCREASE in their FY2009 budget to $50.5 billion. Yes, that’s billion with a B. You can check out the highlights here, but it includes an increase of $55 million for “deploying the Transportation Security Administration’s Travel Document Checking program to airports nationwide”. I looked for any reference to automation being developed for this purpose, but could find none. In TSA Administrator Kip Hawley’s testimony to the Commerce Committee last May, he referred to “Travel Document Checkers”, which sounds like those people who check your ID and boarding pass before you get to security. An extra $55 million for those folks (I guess we can call them TDCs)??
The TSA is pushing ahead with its CAPPS derivative called Secure Flight, and with an increase of $32 million (who knows how much they’ve already dumped down this hole), they feel like TSA will be able to take over passenger vetting by the end of 2009. I can’t wait.
Earlier this month the Washington Times reported that an independent audit of the TSA produced by KPMG revealed, among other problems, that TSA was unable to provide documentation to back up $585 million listed in its financial documents due to weak accounting practices. Oh, heck, what’s half a billion anyway? Besides, they are a security administration; they don’t do accounting. But evidently they don’t have all the bugs worked out in employee screening either. The same audit found TSA didn’t consistently conduct background checks on new employees and contractors who provide IT security to the Coast Guard’s financial center. DHS didn’t argue with the report and said it is “taking aggressive action to implement the recommendations provided in the report,” according to a letter written by David R. Nicholson, assistant administrator and chief financial officer at TSA.
Why on God’s Green Earth (GGE) should we provide additional funding to an agency that has problems figuring out where the money goes? An agency that dumped who knows how many millions down a dry hole once called CAPPS II, now called Secure Flight (it needs one more word in the name for an official TLA), got its butt kicked by privacy groups, and now is trying this? They’ve been found lacking in screening employees who provide IT security and the KPMG report showed TSA has been allowing new employees “too much access to the computer systems immediately after employment”. Let’s spend $100 million on a passenger vetting system that requires a passenger provide name, address, and date of birth. What can possibly go wrong? GMAFB.
I am all for using airline reservations data to enhance security, but Secure Flight ain’t it. It’s virtually impossible to verify someone’s identity with the information contained in a reservation without impinging on privacy, not to mention the gazillion dollars it will cost for the hardware and throughput required if the system is supposed to be even close to real time. Reservations can be an investigative tool. Time of booking, route, booking source, form of payment, telephone or email contacts, and of course name, are all present in a reservation and can assist intelligence folks tracking bad guys.
The real issue here however is that TSA doesn’t seem be reading the news. The cost of travel is going up, there will be significantly fewer seats offered for sale from significantly fewer airports. And it doesn’t appear to be a short term blip. What airlines and their passengers do not need is additional upward pressure on fees associated with air travel. Even in the name of “security”.
Hello there, Godzilla here. It’s been a while since I’ve posted on PlaneBuzz, and not for a lack of subjects available considering the current state of the airline industry. To be honest, sometimes writing about the gloom and doom out there is physically draining. I think Holly would agree with that.
So here is a little diversion; a little side trip away from tracking the daily increase in the price of a gallon of gas, or the calculation of reduced ASM’s from the latest announcement of air service cutbacks. As some of you may know, I am a pilot and a Certified Flight Instructor (FAA code named CFI/A/I/ME) and I own an airplane. Late last year I learned about a group called Veteran’s Airlift Command, a group of over 700 volunteer pilots who fly wounded soldiers and their familes to and from treatment facilities, at no charge. Soldiers receiving treatment for their injuries receive first rate care, but that care is often at a facility far from their family. Having family members close by during recovery is an important, some would say the most important, factor in a speedy recovery. The mission of the Veteran’s Airlift Command is to “……provide free air transportation to wounded warriors, veterans and their families for medical and other compassionate purposes through a national network of volunteer aircraft owners and pilots.”
I flew to San Diego this week and visited the Naval Medical Center San Diego (NMCSD), also known as Balboa Naval Hospital. While visiting several facilities co-located on the hospital grounds I had an opportunity to talk with the most impressive group of people I’ve ever had the pleasure of meeting. Located in the same area as NMCSD is Fisher House Balboa, an amazing facility that houses families of recovering military personnel free of charge.
Down the street from Fisher House I met with both the Army and Marine staff in charge of their respective programs. The Army program is called the Warrior Transition Company, and the Marines call it the Wounded Warrior Battalion.
The purpose of my visit was to make the staff aware of the service available, and as I said, they were an amazing group of folks.
But that wasn’t the really impressive part. The really impressive part, or maybe the most humbling part of the trip was talking to the Soldiers and Marines.
Like Army Specialist Joe who had come in for a haircut. He’s only been married for two months and is a bit new at the Husband occupation. Joe selected a couch for their new place without soliciting the approval of his new wife, with the expected result (take it back). I told him I thought red was a great color for a couch (!), and although I am not the person to give advice about either marriage or haircuts, I was pretty sure that anything going into a living room needs wife approval. Joe is a bilateral amputee and because of the severity of his injuries, using prosthetic legs is very painful and he can’t use them for long periods of time. But as he walked off the elevator and extended his hand to me you couldn’t tell he was feeling any pain at all from the legs. What a tough kid.
As I was waiting in the reception area for the Wounded Warriors Battalion I had the opportunity to observe the interaction between Marines who seem to continually come, go, and wait. These were young people who had some terrible injuries, but they were still wising off and busting chops.
I watched as two Marines walked by each other in the hallway, one raising his hand over his head and saying “Give me four” to the other, who was missing a finger on his right hand. Another Marine walked by his friend who was wearing a new prosthetic leg and said “Dude, that’s a F#$%@d up lookin’ leg!”
One Marine came in to the waiting area wearing shorts and a T-shirt that said “Please tell your boobs to stop staring at my eyes”, which made me laugh out loud. As he hoisted himself from the wheelchair to the couch (he was also a bilateral amputee) with ease I also noticed he was missing a finger on his right hand and his right eye was glass. He struck up a conversation with another Marine waiting there, who was missing his right leg below the knee, his left leg was in a brace, and his right arm was in a type of cast from wrist to shoulder. They talked about stuff guys their age talk about, and I after a while I felt at ease enough to add my opinion on the subject (which was about the ridiculous salaries of Major League Baseball Players).
My point in describing the injuries is not to overshadow who these young people are; on the contrary. Although they have permanent injuries they still have lives to live. They still want to do the things that young people do as they grow up (although I did point out that the Boobs T-shirt was probably not the best way for him to accomplish his current goal). They are alive and they will live (hopefully) long fruitful lives. But as a society we owe these people something. A lot, actually.
It is not my purpose to have a political discussion on the war against terrorism. For the young people I met in San Diego it was a simple matter of doing their duty as they were asked. Now it is our duty to make sure these lives are not wasted. There are a lot of groups who need help providing assistance to wounded warriors and you can certainly donate to the Veteran’s Airlift Command and click on “Ground Support….Make a Donation”. Also, Fisher House is building another facility at the Balboa Naval Hospital and you can contribute to that endeavor through this link.
We now return to our regularly scheduled airline blogging.
Thanks for reading.
Godzilla here. Perusing the newswires today there were several stories that caught my eye, so here they are in no particular order.
Not on the newswire, but nonetheless of utmost importance (at least to me and MB), Skylar (aka Skydog) has recovered from her rattlesnake bite without the aid of anti-venom. Evidently Mr. Snake slithered through a very small gap between our wrought iron fence and block wall in pursuit of a pack rat. Skydog thankfully came upon the rattler after it had expended some of its venom on the rat, so she didn’t get a full dose herself. Since there is a shortage of anti-venom in Tucson and her blood count was low but not critical, the vet didn’t give her a shot. After a couple of days of looking like a Shar Pei the swelling went down and she was her old self, which includes running out to the spot where the rattler was every time she goes outside. We’re working on that.
A Fool For A Client
Delta is being sued for a million bucks by one of its customers, who also happens to be an attorney, for ruining his vacation. Must’ve been a helluva vacation he had planned.
According to the suit the passenger and his family “spent three days in airports, went days without their luggage, were treated rudely by airline employees and were forced to spend $21,000 on unused hotel rooms in Argentina, replacement clothes, and other costs.” Evidently their flight from New York to Atlanta was delayed for 2 hours, and “the family was not allowed to board” their connecting flight in Atlanta. Because there were no Delta flights available for 2 weeks (according to the suit), the passenger re-booked his family on another airline and arrived at their destination three days late, with the luggage arriving five days after that.
Gag me with a habeus corpus.
Their flight was late out of NYC (we know THAT never happens) and although the connecting flight was still on the gate when they got there, it was too late to board. Due to the holiday season there were no Delta flights available, so it required flying on another airline. So far nothing sounds unusual, But $21,000 in unused hotel rooms, clothes, and “other costs” is unusual enough. Filing suit for $1 million is preposterous, and if the guy wasn’t an attorney it would be very unlikely another attorney would even take the case.
My hope is that Delta tells him to go pound sand and asks that he not fly them anymore. Especially nowadays, no airline can afford a customer like that.
Fare or Fare?
When I read the headline “American Airlines Debuts Traditional Indian Fare” my initial thought was why AA would be announcing fare initiatives when everybody else was trying to raise fares and fees. But after reading the text I realized it was a promotion for their new inflight meals on the Chicago – Delhi service. I dunno, I’d probably have picked a different headline if I were writing the release.
IATA put out a report saying the number of international airline passengers traveling first class and business class in March declined the most since 2003. Just what airlines need – reduced volume from high margin business travelers with $130/barrel oil prices. The global first/business class numbers fell 3.9% in March 2008 compared to March 2007. Within that number there was some slop, mostly the fact that Easter fell earlier this year as compared with 2007. Adjusted for this factor the overall decline was 1 – 2%, but within those numbers the U.S. domestic first/business class market declined 8.5% and intra-Europe was down 17%. Just another day in paradise.
Traditional wisdom (now there’s an oxymoron if I ever wrote one) is that business travel has relatively inelastic demand and is less affected by economic cycles than leisure travel. However, business travel is not immune to having their travel budgets reduced, which precludes them riding up front. In addition, the price difference between F/C and Coach on international segments is not insignificant.
A typical Business Class fare from the U.S. to Europe can easily cost $10,000, while a coach ticket on the same airplane, though in the back of the bus, can be had for less than $2,500. Though some corporations have a travel policy that prescribes the conditions under which the employee can fly in F/J, expense budgets were made to be cut. Even if there were work rules precluding it, offering employees an incentive to sit in coach bus might even make sense.
In light of this it is not surprising that MaxJet and EOS foundered, nor that the list of international service being eliminated by major airlines is growing almost daily.
Here snakey snakey, come on snakey snakey, give us a little rattle. Come “say hello to my lil friend”, Mr. .22 long rifle. Oh, sorry. In between trips taking Skydog to the vet I’ve been hunting for a rattler in my back yard. My walled in, sealed up, and supposedly snake-proof back yard, at least until this week. We’ve had snakes before in the walled in dog run, which is down in the wash behind the house, but never in back of the house. Ms. Skydog isn’t feeling that well, but we’re hoping to nurse her back to health. Meanwhile Nikko and I have been patrolling the back looking for revenge.
In between sorties to the backyard today I was reading some press releases by several airlines announcing the inevitable fare increases made necessary by you know what. (I am committed to write at least one post without using the “O” word).
United announced a $10 – $60 roundtrip fare increase (I hope it’s closer to $60 than $10). Midwest Airlines announced it would begin charging $20 for the second checked bag. I know people in Wisconsin are nice, but that boat already sailed. Airlines are begining to charge for the First checked bag now, if the recent American Airlines initiative sticks.
One announcement that was relatively amusing was that Frontier had raised a whole host of their service fees, including raising the fee to check antlers from $75 to $100. Their baggage fees will obviously have the biggest positive revenue impact, since presumably more passengers check bags than animal parts, but I could be wrong.
Of the three announcements I think the United initiative will generate the most revenue for the least additional cost. A fare increase is the most logical and equitable way to recoup costs that are caused by the rising cost of you-know-what; although baggage (and antlers) do add more weight and consequently incrementally increase the cost of flying the airplane, it’s like urinating in the ocean. Not much of a difference to the ocean whether you do, or whether you don’t.
However, unless the airline is set up to force those fees into the initial transaction while the customer is buying their ticket, or at least provide the flexibility for the customer to pay the baggage fee while checking in at the kiosk, I think the revenue benefit will be mitigated. Maybe a lot. Down in the FAQ section of the Frontier announcement is a statement that says “You must pay the baggage fees at the ticket counter only.” That doesn’t sound to me like it is available at a kiosk. This will force lots of additional people to check in with a live person, and those are sometimes at a premium while at an airport. Head count is usually the first cost to eliminate when it is time to cut costs, so implementing a fee that requires a passenger is manually processed by a person is counter-productive, or ticket counter-non-productive, if you will.
Most traditional airlines have traditional distribution systems, meaning they are pretty good at collecting fares and not-so-good at collecting ancillary fees. Airlines like Allegiant or Air Canada, who have gone to great lengths to commodotize their products can more easily charge for each feature. Airlines with more traditional distribution who try and match this flexibility without corresponding flexibility in how they collect the fees, will be increasing their costs to collect the fees.
In addition to the hard costs of personnel, the boarding process becomes more complex. It will be interesting to see how airlines will handle checking those carry-ons that don’t fit on the airplane. That there will not be enough room for carry on bags doesn’t usually become apparent until towards the end of the boarding process. The usual drill is for the bag to be tagged at the jetway and then put in the baggage compartment – will that be cash or credit card sir?
Just raise the stupid fares.
There was an article in the Memphis Business Journal yesterday quoting Doug Steenland from NW as saying the combined DL/NW mega-carrier may ultimately be a smaller company if fuel prices continue to soar.
The reason? Simple. Fares have to go up to offset the high cost of oil, and rising fares will temper demand and result in fewer flights being offered in the marketplace. Where have I heard that mantra before? Oh yeah, me. I’ve posted several items about how the continued high price of oil has to be offset by higher fares, blah, blah, blah.
This news shouldn’t be a surprise to anyone, except maybe to the people who heard the initial description of the merger as being a “1+1 = 2” transaction. Even with oil at $50 a barrel there would have to be some economies of scale realized from a merger, or else why do one? But with oil over $120 a barrel the economics are pretty clear; no matter how big you are, you can only last as long as your cash holds out.
The thing that bugs me about this is the way management has positioned this as a win-win (I hate that term). On the Delta web site there is a blurb touting the greatly improved pass benefits for employees. The sub header in the piece says “New reciprocal travel program adds to previously announced plans for a substantial equity stake, pay increases, seniority protection and other benefits for Delta, Northwest employees”. That article is dated April 29 and the piece in the Memphis Business Journal is dated May 12. Has that much changed in 2 weeks?
To my knowledge the employees of Northwest and Delta are all tax paying adults who have responsibilities to pay their bills, raise their kids, and take care of their families and themselves. They deal with the realities of life every day, which includes dealing with bad news, and they certainly understand the basic tenant of economics that says if you have too much month left at the end of your money then something has to change. Better pass benefits are great, but if you can’t afford to put gas in the SUV then a weekend flight to Disney World is just, well…….goofy (sorry, couldn’t resist).
My advice (and you know what they say about free advice) to the people running NW and DL is to treat their employees like adults and level with them. Raising expectations about pay increases and seniority protection in the current economic situation is not going to have the desired result. The inevitable backpedaling has already begun, as witnessed in the quotes from Doug Steenland.