Archive For The “Delta Air Lines” Category
Richard Aboulafia, VP Analysis at Teal Group, shares his thoughts on what Delta’s team might be considering and pondering as they view the Airbus neo vs. the Boeing MAX. And the shadow in the corner called C Series.
The Centre for Asia Pacific Aviation is a highly respected consultancy, and we at AirInsight have met their leadership team and respect their capabilities and ethics. They are an outstanding firm. Annually, they award “man of the year” honors to an industry participant. For 2017, the award was presented to Qatar Airways CEO Akbar al-Baker.
CAPA’s rationale for choosing Al-Baker was straightforward and logical. Qatar has faced a ban on the use of airspace by neighboring countries, and a ban on its flights in the region. That has required a reconfiguration of destinations, routes, and essentially a recalibration of Qatar’s entire network. The ability of Qatar to continue to grow and prosper under those circumstances, and to turn a setback into an opportunity is a credit to Akbar Al-Baker’s management skill. Qatar Airways has faced difficulties that would be the equivalent of Canada and Mexico shutting off airspace to US carriers, and has adapted to conditions that its political opponents hoped would drive them out of business. Thanks to Al-Baker’s leadership, the airline continues to thrive.
Unfortunately, CAPA is now coming under fire from a lobbying group in the US, The Partnership for Open and Fair Skies, who have publicly criticized that selection and impugned CAPA’s integrity. Their spokesperson, Jill Zuckman, stated that “Cheater of the Year” would have been a more appropriate title, and that “This recognition should be viewed as nothing more than an unsubtle attempt by a CEO who is reliant on government subsidies to buy credibility from an organization that lives in the pocket of the Gulf carriers.”
Who is the Partnership for Open and Fair Skies? This group, according to their website, consists of American Airlines, Delta Air Lines, United Airlines, Air Line Pilots Association, Allied Pilots Association, the airline division of the International Brotherhood of Teamsters, the Association of Flight Attendants-CWA, the Association of Professional Flight Attendants, the Communication Workers of America and the Southwest Airlines Pilots Association.
While Delta, American, United and their unions have been waging a PR campaign against the growth of the ME3 in the US market, their PR folks may have gone too far in defaming a well-respect industry consultancy. CAPA has noted that it has no contracts with the ME3, and made the choice based on the actions of Qatar to counter the shut-down of airspace due to politics, a dangerous precedent that violates the principles of the Chicago Convention of 1945.
The Bottom Line
The Partnership for Open and Fair Skies went a bit too far, and is not doing a service to its members on the world stage. CAPA is a respected organization, and Akbar Al-Baker has done what no one thought possible – turning a threat to survival into a new network that has been able to stabilize the situation and reposition the airline towards growth in 2018, with the boycott still impending the viability of recent aircraft acquisitions. We stand with our colleagues at CAPA in our recognition for what Qatar has been able to accomplish in very challenging circumstances.
AirInsight also has no business ties to Qatar Aviation or the ME3, and join CAPA as a US-based organization in recognizing Akbar Al-Baker our Man of the Year as well, in support of our colleagues in Asia.
It is disappointing that some of the finest legacy carrier in the world, American, Delta, and United have opted for a strategy that we can only characterize as misguided against an internationally recognized consulting firm. While we appreciate the challenging nature of the competition from the ME3 that those carriers have been faced with, and in particular the velocity upon which this competition has been materializing, we reject any attempts at questioning the integrity of our CAPA colleagues with their selection of Mr Al Baker as their Man of the Year.
One can only wonder how Mr. Al-Baker’s assumption of the leadership of IATA’s general assembly in 2018 will impact the US3 legacy carriers on the international stage. Stay tuned.
Today it emerged that Qatar Airways has bought another stake in an airline. This time it spent $662m on a near 10% stake in Cathay Pacific. The move by the airline follows a pattern as the table illustrates. We can expect a move in India soon, too.
The green boxes are all members of the oneworld airline alliance. Qatar tried to get a stake in American and was rejected by its’ CEO. American and the other two US network carriers are embroiled in a dispute with the ME3. So the winds were not in favor of this deal, though Qatar Airways’ irascible CEO was willing to make the investment despite the dispute.
The Qatar investment in IAG has already proven to be very helpful. Qatar was able to send several A320s to London to help BA maintain its service during a recent labor dispute.
Qatar Airways is clearly focused on buying stakes in oneworld. Despite the regional problems with the UAE and Saudi Arabia, Qatar keeps building its airline. Investing in other reputable airlines is a smart move. Which is, perhaps, the mistake made by neighboring Etihad which bought stakes in weak airlines hoping to turn them around.
Looking at the members of oneworld, it could be the next stakes Qatar Airways acquires are in Qantas and JAL. These are well-run airlines, with excellent global brands. Thought both these airlines have seen stock prices rise because of their improved profitability, Qatar is not a short-term investor. Its MO appears to buy a stake of around 10% to get a board seat. By having significant stakes across the oneworld alliance, Qatar will continue to build its own brand and influence. Rather than react the way Doug Parker did at American, these other airlines might look at how collaboration with IAG has worked. This looks like a clean way to move towards consolidation of interests. And at considerably lower risk than the Etihad approach.
Qatar’s approach is not unique. American recently acquired a $200m stake in China Southern. Delta is moving towards owning 49% of AeroMexico and has 10% of Air France/KLM. Air France/KLM bought 31% of Virgin Atlantic, and with Delta’s stake, these two now effectively control that airline. The world’s big airlines are quietly consolidating their interests. This keeps alliances tighter than ever.
If one limits the active airline passenger fleet In the United States to between 100-150 seats, then as of 2Q17 there were 1,671 aircraft. Of these, 699 were Airbus, 794 were Boeing and 178 were Douglas. Please bear in mind that even as we are in the 3Q17, the data is for the previous quarter.
Breaking this down further, the top eight airlines account for 93% of the fleet. The table lists the top ten, and the yellow highlights are airlines that have publicly opposed Boeing’s complaints to the DoC. We should highlight at least one more, but cannot since this was not made public.
Looking at the market by model, we see the following.
Of the fleet, the Douglas aircraft are oldest. Boeing is next. Airbus has the youngest fleet. Boeing’s tension about the sub-150 seat market is understandable.
Now take a look at this. This was Delta’s fleet at the end of 2Q17. Is there any surprise they are moving on the CS100 and have an interest in the CS300? Delta is clearly not enamored with the 737-700 or the A319. Even its A320s are aging (ex-Northwest) and Delta has shown interest in the A321 and the 737-900ER which are outside this segment. But there are 115 Douglas aircraft that are quickly approaching their appointment with the desert. Neither Airbus or Boeing offer what Delta wanted.
As Delta’s CEO said this morning on their earnings call: “I think my words were very clear – we will not pay the tariff that are being discussed or debated. First of all, those tariffs are preliminary, as I mentioned. In our opinion, it is very difficult for Boeing or any other US manufacturer to claim harm with a product we purchased that they did not offer and that they don’t produce. In fact, they ended the production of the 717, which would be the closest, ten years ago. When we went through the RFP to select the C Series, Boeing competed very hard for the order. Except they were competing with not their own product but a Brazilian product, an Embraer product, that wasn’t even new, it was used E190’s, ironically from all places, from Canada. So, as you look through this and try to see how exactly a harm case is going to be developed, particularly to justify the type of tariffs that are being discussed, to us it’s unrealistic, a bit nonsensical. We’re working closely with our partners at Bombardier.”
In summary, we can understand Boeing’s concern about the sub-150 seat segment. They have lost their traditional leadership role. Airbus has won business and its fleet is younger so less likely to be replaced for a while. The Douglas fleet, a natural for Boeing to win, is not attracting Boeing orders. Bombardier is a threat to Boeing and Airbus in the sub-150 seat segment. So is Embraer, which will be coming into the 100-150 seat segment within 18 months.
The MAX7 (and A319neo) have not attracted a lot of interest. But the C Series and E2 have and will continue to do so. In the US market, suing Bombardier does not look like winning Boeing any MAX7 orders. Southwest’s MAX deliveries will be MAX8s for a while still. We wonder if they will ever take a MAX7. American does not look like a MAX7 buyer, nor does United which changed its last 737-700 order. Delta, we are quite certain, will not buy the MAX7. In short, Ray Conners’ concern is a reality already.
In the US market, suing Bombardier does not look like winning Boeing any MAX7 orders. Southwest’s MAX deliveries will be MAX8s for a while still. Southwest has 30 MAX7s on order compared to 170 MAX8s. We wonder if they will ever take a MAX7. American does not look like a MAX7 buyer, nor does United which changed its last 737-700 order. Delta, we are quite certain, will not order the MAX7. In short, Ray Conners’ concern is the reality already. The US market does not look like MAX7 friendly territory.
All the noise at the DoC claiming damage and a threat from Bombardier is too late. Boeing lost the sub-150 seat battle before the Delta order for C Series.
Airbus has a strong portfolio over 150 seats and does not seem worried about Bombardier or Embraer. Boeing also has a strong portfolio over 150 seats. So what, exactly, is all the fuss about? Boeing’s concern about the sub-150 seat segment is understandable (they are losing some business there) but seemingly irrational (they are winning big above 150 seats).
Embraer made another big win this morning with its E-175 in the US. SkyWest is taking another 20 (a firm order). Of these, 15 will be the 70-seat (Special Configuration) version which can be retrofitted to 76 seats. The remaining five will be at the standard 76-seat configuration.
The deal means Embraer has won 45 E-175 orders this year from SkyWest. The announcement offers no more details. The thinking among industry people we spoke with is the 70-seaters may be headed to Delta’s regional service. The other five may be going to Alaska.