Monthly Archives: February 2009

Here’s Official Ammunition: Airline Hubs Have Lost Their Cost Advantage In Terms of Airline Profitability


“In 1999, there was evidence of scale economies for connecting flights. Conditioning on other variables, the marginal cost of serving a connecting passenger on a long route was $18 less than that of a direct passenger, or roughly 12 percent of the average marginal cost.

The cost advantage of connecting flights disappeared in 2006. Conditioning on other cost shifters, the marginal cost of a connecting flight was $12 more expensive than that of a direct flight. The change is probably driven by the increasing fuel cost in the sample period. Since the fraction of fuel consumed at the takeoffs and landings could be as high as 40 percent, rising fuel costs offset the benefit of denser traffic created by connecting flights.”

So says researchers Steven Berry at Yale and Panle Jia at M.I.T.

In a new working paper the two have published entitled, “Tracing the Woes: An Empirical Analysis of the Airline Industry, ” they confirm that it used to be cheaper for an airline to place a passenger on a connecting flight — rather than a direct one. But by 2006, that advantage had gone away. Why? One simple answer: the increasing cost of fuel.

According to the two researchers, “Channeling passengers through a hub airport allows carriers to increase the load factor. But it also requires extra fuel, both for the two extra landings and the longer distances passengers have to travel. The authors estimate that in 1999, the marginal cost of servicing a connecting passenger on a long route was $18, or about 12 percent, lower than that of servicing a direct passenger. That cost advantage disappeared in 2006, probably because fuel was more expensive. In 2006, servicing a connecting passenger cost $12 more and reported inflation-adjusted operating costs increased from 11.4 cents per available seat mile to 12.5 cents.”

The authors estimate that by 2006 the legacy airlines were transporting 4 percent more passengers with 9 percent less revenue and 19 percent less in profit than in 1996. And, despite the bankruptcies and mergers in the early 2000s and the sharp downturn that followed 9/11, the average revenue-passenger-miles divided by the available-seat-miles of a flight, known as the load factor, rose from 71.2 percent to 79.7 percent from 1999 to 2006. It reached a record high of 80.5 percent in 2007.

There is a summary of the paper available for free here. The entire work is available for $5. Spend the money and buy it. It is well worth the read.

United Boeing 767 Gets Hosed


Now I know the rest of the story.

This week one of our friendly airline geeks on a list I am on sent out some disturbing pictures in which it appeared someone at United AIrlines decided to take a pressure washer to one of the airline’s Boeing 767s — knocking out windows and generally making a huge expensive mess.

But that wasn’t a pressure washing. It was from fire hoses.

Kieran Daly wrote on his blog, Unusual Attitude this week that he was told that United took a Boeing 767-300, and gave it the full customer-facing treatment. New seats, interior fittings, and best of all,”Panasonic’s all-singing, all-dancing in-flight entertainment.” All of this was done at its Chicago maintenance base.

That’s when all hell broke loose.

If you would like to read the official MX write-up of the damage, you can access it at Kieran’s blog. It runs for pages and pages. And pages.

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Airline Stocks Tumble as It’s One Messy Day On the Street


Poking our head around the damage from today’s Wall Street activities, it was not a good day for the airline stocks, as almost every one of them ended lower for the day.

While the Dow Jones Industrials were down as much as 200 points earlier in the day, the Dow ended the day down 80.05 points, or 1.09% for the day.

However, the Dow Transports and the AMEX Airline Index both had a more miserable run of it. The AMEX Airline Index ended the day down a little more than 4%, closing at 16.43, while the Dow Jones Transportation Index ended down 4%, closing at 2602.06.

The top losers for the day included: AirTran, which lost 9%, closing at 3.27; Alaska, which lost 7%, closing at 22.27; JetBlue which lost 7%, closing at 4.26; US Airways, which lost 10%, closing at 3.30; Southwest Airlines, which dropped another 7%, closing at 6.07; and Continental, which ended the day down 6%, closing at 11.15.

Ugly day.

Readers Write In on Continental Express Crash: Pilot Actions Could Have Been Warranted

Thanks for your feedback on the news concerning Southwest’s move into Boston. I’ll strip off names and summarize comments I’ve received via email later today.

But first — let’s talk about what has been going on of late concerning the NTSB and their investigation concerning the actions of the pilot in the crash of Pinnacle/Colgan/Continental Express Flight 3407 last week.

If you are like me, you probably did a double take when you read the the Wall Street Journal article yesterday in which the paper reported that “evidence suggests pilot error” as the likely cause of the crash. The New York Times then ran with a story that said that the “crew may have overreacted” after the auto pilot system pointed the plane’s nose down to generate speed. No sources were named in either paper’s reports.

While officially the NTSB has not publicly made such comments, the assumption would have to be made that someone on the inside of the investigation was feeding both news sources.

Enter a number of our pilot readers.

Here is a “Read Before Fly” announcement that was sent to Southwest Airlines’ pilots yesterday. Sound familiar?

Last night more than one pilot sent me a copy. And they weren’t all Southwest pilots. Apparently the notice was posted on the PPRUNE site, or at least that is what one American Airlines‘ pilot wrote me.


Safety Alert 2009-01 – February 18, 2009

There is a potentially significant hazard concerning the ILS to runway 23 in BUF.

Information has been received indicating it is possible to obtain a significant nose pitch up, in some cases as much as 30 degrees, if the glide slope is allowed to capture before established on centerline. Pilots who are preparing to configure and land have the potential to experience abrupt pitch up, slow airspeed, and approach to stall if conditions present themselves in a certain manner.

This effect is the result of an earthen obstruction close enough to the ILS to affect the integrity of the glide slope signal. This has resulted in the issuance of an advisory given on ATIS which states that “the ILS Glide Slope for runway 23 is unusable beyond 5 degrees right of course.” When attempting to intercept the runway 23 ILS from right traffic, the ILS glide slope indication may read full deflection down. Just prior to intercept it may then move up in such as manner as to enable approach mode to capture in such a way as to result in a nose up pitch and loss of airspeed. Southwest Airlines has issued a notice reading: “Until further notice, when executing the KBUF ILS/LOC Runway 23, DO NOT select Approach Mode until established on the localizer inbound.”

This issue is being addressed on several levels in an attempt to address procedures, facilities, and communication regarding this matter. If you experience any issues related to this, please file an ASAP form and or call SWAPA Safety at SWAPA toll free 800-969-7972.


Interesting, eh? Especially because if this is the case, then the pilot could have been doing exactly what he was supposed to have been doing. He was trying to save the aircraft, not stall it. My point in all of this is that no one involved with the NTSB investigation should be “leaking” information to news sources such as that which was obviously leaked for publication in both the New York Times and the Wall Street Journal Wednesday. Especially given this advisory that was just issued to Southwest Airlines’ pilots.

It’s Official: Southwest Moving into Boston

It appears our flurry-ette of emails this afternoon was spot on.

An article posted just a few minutes ago on the Boston Globe’s online site says that Southwest Airlines’ CEO Gary Kelly told them in an “exclusive” interview that the airline plans to begin flying out of Logan International Airport by the fall with between eight and 12 daily departures.

Now go talk amongst yourselves about this.

I have my own thoughts. What are yours?

Rumor of The Day: Southwest Airlines to Boston?

I’m sitting at the vet’s office with an ailing Momma kitty. But in a space of about 25 minutes I’ve received a flurry… Well maybe a flurry-ette of emails saying that Southwest Airlines is going to announce new service to… Boston??

This makes no sense to me, given the airline currently flies into both Manchester and Providence.

I guess we can just wait and see what happens. Kind of the same here. Waiting for the results from Momma kitty’s blood test.

Anyone else have any intel?

(On the Southwest rumor.. Not Momma kitty’s bloodtest.)

It’s Official: Allegiant Picks LAX for New Base City

It’s official. For those Allegiant fans out there, you know the airline talked on its recent earnings call about setting up a new base city. Last week Cranky Flier went public with his guess — and his guess wasn’t really much of a guess after the airport manager in Sioux Falls went public about it being Los Angeles. Duh.

So why was the airport manager in Sioux Falls talking about it anyway?

Because on Allegiant’s website the airline had asked folks to guess what their new base city was going to be. The only information they were giving out last week is that the airline was going to start service out of the new base city to 12 destinations. And yes, one of those destinations just happened to be ….Sioux Falls.

Here are the 12 cities that Allegiant will begin operating to out of LAX:

1, Bellingham

2. Billings

3. Des Moines

4. Fargo

5. Grand Junction

6. McAllen

7. Medford

8. Missoula

9. Monterey

10. Sioux Falls

11. Springfield

12. Wichita

Hmmmm. This should be interesting.

Republic Holdings Reports Earnings; Better Than Expected, But Growth, Or Lack of It, Is the Issue Going Forward


I wrote this week in PBB that the last week or so has been one where we’ve been focused on the regional sector. First, we saw again how poorly most of the regionals performed in the recent DOT Airline Consumer Travel Report. Particularly Comair, Atlantic Southeast and American Eagle.

Then we had the less than positive numbers reported by the regional airline that used to outperform all the other regionals — hands down. While SkyWest reported a profit for the fourth quarter last week — the future looks murky for the regional powerhouse in terms of growth, as Delta AIr Lines continues to pull back on its contract flying. Even, as we learned in the airline’s call, below contract minimums.

Top this off with Mesa’s share free fall last week, in which shares of the airline dropped to 4 cents a share — and Pinnacle suffered a crash involving its Colgan operation, and well, it was a week when the regionals were continually in the forefront, but not for very positive reasons.

Today the regional airline that has been consistently posting the strongest results in the sector for the last year or so, Republic Holdings, reported its earnings for the fourth quarter.

So how did the airline do?

The good news is the airline posted a profit. It also posted a 9.1% operating margin. Excellent. (Although that margin was 1.3 points lower than the fourth quarter of 2007).

The bad news is that this profit was much less than the one the airline reported for the same period in 2007, and that growth prospects are, well, you know.

Republic reported today that net income slipped 21.7% for the fourth quarter, to $18.9 million or $0.56 a share.

This compares to the fourth quarter of 2007, when the airline posted a profit of $24.27 million, or $0.65 per share.

However, on the positive side, the results were better than what analysts had forecast. Consensus had the airline coming in at around a $0.47 a share profit.

The company took delivery of eight new E175s during the fourth quarter, while it removed seven CRJ200s and the last two E135s from service. As of Dec. 31 Republic operated 221 aircraft, only two more than at the end of 2007.

Overall, in listening to the call, we were once more reminded of just how difficult it is to run a regional airline these days. There really is no script beyond 30 days, it seems, and your major partners are concerned with one thing — trying to squeeze as much profit out of their operations as possible. If that means putting more pressure on their regional partners, then so be it. The same was true with Republic in the fourth quarter. And as utilization levels drop, costs are going to go up.In the case of Republic it also got hit with Frontier’s bankruptcy this year. All of a sudden there were a lot of planes coming back to them — what were they going to do with them? How much were the carrying costs going to be on these aircraft?

But having said all that — the airline really did do an excellent job of navigating a rough quarter.

The problem now is — what about 2009?

For those of you with really inquiring minds, you can read the public posting of the airline’s earnings call transcript here.

We’re Back

Hi all. Whew. It’s been a busy week or so for me. Tiring one too. As most of you know, earnings continue to roll out in the sector. Today we heard from Republic Holdings. I’ll talk about their numbers in the next post.

In addition, yours truly flew home to the Worldwide Headquarters last week, and within 12 hours was sick as a dog. Head, eyes, ears, nose. Ugh. My head’s still killing me today.

Yesterday morning it was clear something was not right as PlaneBusiness Banter subscribers went to pull this week’s issue and saw the “tease” page for last week’s issue. Duh.

Two of the reasons I had to come home this week are teeth-related. As in, dentist and orthodontist. Yes, it’s those damn braces again.

So here I am, at the orthodontist’s office, with wires sticking out of my mouth, newly tightened coils stretching across my front teeth, and an assistant hovering over me with pliers that looked like they came from Home Depot, and my phone goes off. Then it goes off again. Then it goes off again.

I immediately said to myself, “Self, what didn’t I do before I left the house in a tizzy?” Self knew immediately. I had failed to update the front page of the main website with this week’s issue information, and I had forgotten to update the “tease” page that subscribers see when they log in.

Wasn’t much I could do about it at that point.

So I let the doctor and his assistant finish their torture and finally I was able to get up and call back to the office and walk David, our subscription manager, through what he needed to do. But not before a SLEW of subscribers had sent me notes of woe at being locked out from this week’s issue.

Sorry. My fault.

But see, I was sick. That’s my excuse.

Okay smart guys. I know. Some of you out there are saying, “So what’s new?”

Anyway, this week I should be more visible here on the blog. Last week was spent working with a number of folks on our new site. And yes, you’ll notice that we’re starting to move the furniture around here on the PlaneBuzz page just a little bit as well. We’re now a three column format — not a two column one.

More tinkering to come.