Archive For The “Delta Air Lines” Category
As the ITC reasoning behind its decision to deny Boeing’s claim is digested, the next dominos are falling. Delta’s statement is “Delta is pleased by the U.S. International Trade Commission’s ruling rejecting Boeing’s anticompetitive attempt to deny U.S. airlines and the U.S. traveling public access to the state-of-the-art 110-seat CS100 aircraft when Boeing offers no viable alternative. The airline looks forward to introducing the innovative CS100 to its fleet for the benefit of Delta’s employees, customers and shareowners.” It turns out that Delta’s testimony seemed to carry the most weight for the ITC.
An aspect of the ITC reasoning that is getting some attention is the airline is now able to take deliveries of the CS100 from Mirabel and not wait for years until the Mobile FAL is operating. Delta and Bombardier, understandably, are not saying anything about this.
The ITC result was unexpected by Bombardier like it was for almost everyone following the industry. There was a not very secret plan for any Mirabel built CS100s to go to AeroMexico. Bombardier and Delta must have been busy for months working on contingency plans. Then along came the unexpected ITC ruling and those plans, in place and well thought out, became moot.
Now Delta and Bombardier have to go back and essentially undo the plans they put in place. Delta had already planned to extend the use of their MD fleet in the event they had to wait for the Mobile FAL. Bombardier had to figure out where to put the Delta deliveries in their production slots because the expected ITC ruling was going to mess up any delivery plans. Details of how any aircraft were going to end up in Mexico are still secret. As one can see several moving parts had to be stopped once the ITC made its ruling.
We expect to see a CS100 is Delta colors soon. Both the airline and Bombardier want this. Delta believes the CS100 is going to disrupt its competitors and they have good reason to believe this. If passengers are given the choice of a regional jet or the more spacious CS cabin, the choice is easy. We expect Delta to make a big fuss of this feature in every market they take the CS100. Since most passengers have no idea which aircraft they are flying, Delta will need to undertake an education strategy.
Winning over customers to their CS100 at the start of a trip means Delta should be able to keep more traffic in its network. This means they can use the CS100 to increase market share and in the oligopoly without touching fares. Travelers who are price driven, rather than mileage loyalty driven, are likely to swing to the Delta product. Finding a spacious cabin with bigger seats will be something of a revelation for US air travelers. Once captured, these travelers might develop a liking for Delta’s product and service.
This outcome has been seen at CS300 launch customer airBaltic. “With the introduction of brand new Bombardier CS300 aircraft, this year airBaltic has increased the number of passengers served by 21 percent. Thanks to the improved efficiency of the aircraft, this summer was the strongest in the history of airBaltic. For several months in a row, airBaltic, which turned 22 this autumn, reached record high passenger flows as well as revenue,” the airline reported.
If Delta can their first CS100s in service quickly, we expect to see American and United react by either also acquiring CS100s or E190-E2s. Southwest may not be immune from this impact either. Delta’s deployment of the CS100 is likely to be good for Bombardier and also for Embraer.
The Icelandic carriers, Icelandair and WOW air, are on a tear to find every niche they can. Both carriers have announced new service to the US. In Baltimore, they will be going head-to-head soon. The competition is interesting for several reasons. The airlines fly different fleets – Icelandair is a Boeing customer and WOW is in the Airbus camp. It also pits these two OEM’s long-range single aisles against each other.
But of these new markets announced, one stands out as something different. Take a look at this map provided by the Kansas City Department of Aviation. As their Deputy Director of Aviation – Marketing and Air Service Development, Justin Meyer, noted: “I think one of the things that makes the MCI opportunity so interesting is the massive geographic void of TATL service that exists between Dallas-Minneapolis and Chicago-Denver. This catchment area includes notable markets such as Omaha, Des Moines, Wichita, Lincoln, Columbia, Topeka, Tulsa, and more.”
In other words, just the kind of markets that are big enough to generate a good load factor on a long-range single-aisle aircraft like Icelandair’s 757. Moreover, the route is being developed as the airport works on a $1.3Bn renovation. Icelandair plans a three days per week service and allows for connections to 25 EU city pairs beyond Reykjavik.
“I think it shows the confidence Icelandair has in Kansas City to be able to make this commitment now for the summer season,” Tim Cowden, president and chief executive of KCADC, said. “Icelandair believes in Kansas City and, in turn, Kansas City believes in Icelandair. This is a true partnership.”
Moreover, the Iceland market is attracting attention for American, Delta, and United. But none of the US carriers can match the convenience of a non-stop; thereby avoiding increasingly unpleasant, crowded, hubs that are subject to weather snafus. Any success at Kansas City will inevitably attract attention from WOW. And behind them are Norwegian and Primera, who will also be watching closely.
The results are grim. Etihad reported a loss of $1.9bn. Emirates announced its first decline in profits in five years. And Qatar is besieged and indications are to expect it to report 30% lower revenues because of the neighboring countries blockade of airspace. What was once the future, and the center, of the Airbus and Boeing wide-body sales efforts has run out of steam with alarming speed.
To make things worse, the ME3 had big plans to “invade” the US. With far better service levels and new aircraft, they were well placed to win over business travelers. The threat was obvious to the US majors, who rather than compete, ran for cover in Washington DC. These earlier proponents of Open Skies suddenly didn’t like the idea of competitors having access to “their” market. US business travelers could easily have taken a US-flag flight to the Gulf. But for equal (or less) money they could fly on an ME3 flight – where they are offered award winning service and industry leading cabin design. The market spoke and the US majors shrank schedules to the Gulf due to a lack of traffic.
But it got even worse. The US government decided to hit business travelers hardest when they imposed security regulations that forbade travelers from bringing laptops into the cabin from certain countries, including the home airports of the ME3. For a business traveler, this is akin to saying “go away.” Business travelers have zero tolerance for disruptions and immediately changed to flights connecting through the EU. The impact was to freeze out ME3 business traffic. The ME3 quickly had to cut back US services. The US majors are determined to rid themselves of the ME3 threat.
The security limits have since been lifted. But the message was clearly received.
Not satisfied with their first moves, the US majors seem bent of following through with additional efforts to stop them. American canceled its codeshare with Qatar, claiming it and the other members of the ME3 are receiving state subsidies. Though Qatar seems determined to become a shareholder in that airline. Delta has taken a 10% stake in AF/KLM, while welcoming that group as a fellow shareholder in Virgin Atlantic. What United has planned is not reported as yet, but it is unlikely to sit out the opportunity to also cement its alliances with Star Alliance partners including Lufthansa, which competes against the ME3 in Europe.
These moves by the older network airlines speak to more than holding the ME3 at bay. These moves provide old network airlines a chance to literally lock up markets. This becomes a profound problem if one looks forward even a few years. What was an opportunity for travelers to have more choice is being curtailed. Consolidation does not and never will work in favor of the consumer or traveler. Cutting choice only serves the interests of the supplier, never the buyer. How the US airline consolidation was ever allowed remains a mystery for those familiar with antitrust law. (Useful primer) This is a story that needs to be re-told and the implications, including the fact that consolidation has chilled new entrants, examined closely. When six majors become three, competition is essentially eliminated.
On top of the competitive threats that consolidation brings, consider the plight of employees. Pilots are in ever shorter supply. A knee-jerk reaction in Congress to an unfortunate accident raised transport pilot requirements so high as to cause a pilot shortage in the industry. It was already nearly impossible for a cadet pilot to get a job at a living wage and repay their eduction, and the shortage is thankfully raising wages. (US Regionals are paying new hires between $38,000 to $65,000k with bonuses plus training costs of about $30,000.) The cost of education and pilot training are prohibitive, causing a large drop ut rate. Regional airlines face wafer thin margins under today’s Capacity Purchase Agreement structure. Meanwhile the regionals are seeing some new hires progressing quickly from joining the regionals to moving on to a major in under a year. The pilot shortage is pulling people through the system – but that means regionals are continually searching for new talent.
Non-pilot employees don’t have an especially attractive career either. Working for an airline has proven to be a rather good way to see your benefits and wages cut and have a high likelihood of losing your job to consolidation. Look at the next chart and try persuading yourself that an airline job is a great career. You must do more, earn less (never mind inflation) and run the risk of working in an industry known for retrenchments and layoffs.
The ME3 problems are ensuring they are a declining force in the US market. But even as we understand that City States cannot typically generate sufficient traffic for a large carrier, we also can see what happens when truly open skies are closed. The double-digit ME3 growth rates were unsustainable long-term, but the recent actions demonstrate why one should show them sympathy. They were not beaten by competitors, but by governments.
We should show appreciation for their disruptive behavior that demonstrated to the traveling public what true airline service could be like, with modern fleets, innovative interiors, and world-class service.
Airbus released this PR: “Delta Air Lines today placed an order with Airbus for 100 of the manufacturer’s modern A321neo ACF (Airbus Cabin Flex configuration) aircraft. The U.S.-based carrier selected the largest member of Airbus’ single-aisle Family to meet Delta’s future requirements for aircraft with greater efficiency and additional capacity. The airline’s A321neo ACF planes will be powered by Pratt & Whitney PW1133G-JM geared turbofan engines.
“This is the right transaction at the right time for our customers, our employees and our shareholders,” said Delta CEO Ed Bastian. “Delta, Airbus and Pratt & Whitney share the same commitment to safety, efficiency, innovation and continuously improving the customer experience. This order for the state-of-the-art A321neo with Pratt’s Pure Power next-generation jet engines reflects our long-term commitment to these values for Delta people and all our constituents.”
“We at Airbus are very happy we won this hotly-contested campaign, together with our partner Pratt, and we are proud to serve Delta with the A321neo. This important order will further strengthen our partnership with Delta – one of the world’s best airlines – which we have developed over many years.” said Tom Enders, Airbus Chief Executive Officer. “It is also good news for our employees in Mobile, Alabama, where most of the Delta planes will be manufactured. We look forward to seeing the A321neo ACF flying in Delta colours soon.”
Delta’s announcement on the A321neo ACF follows several orders in recent years for the current engine option (ceo) version of the A321. Delta has ordered a total of 117 A321ceos, each powered by CFM56 engines from CFM International.
The A321neo ACF introduces new door and fuselage enhancements allows airlines to make best use of the cabin space with a range of up to 4,000 nautical miles. The A321 is the largest member of the A320 Family, seating up to 240 passengers. Incorporating the latest engines, aerodynamic advances, and cabin innovations, the A321neo will offer a significant reduction in fuel consumption of 20 percent by 2020. With more than 5,300 orders received from 96 customers since its launch in 2010, the A320neo Family has captured some 60 percent share of the market.
Most of Delta’s A321neos will be delivered from the Airbus U.S. Manufacturing Facility in Mobile, Alabama. The airline has taken delivery of 13 U.S.-manufactured Airbus aircraft since last year. In addition, the 50th aircraft to be produced by the Airbus U.S. Manufacturing Facility will be delivered to Delta later this week. The Mobile factory produces four aircraft per month for delivery to Airbus’ U.S. customers. Plans for further production ramp up are currently being discussed.
In addition to Airbus’ U.S. manufacturing, the company has a long and strong partnership with American aerospace supplier companies. Today, there is more U.S. content in Airbus aircraft than from any other country, with more than 40% of the company’s aircraft-related procurement coming from the United States.“
The selection of the A321neo over the 737 MAX10 has longer-term implications. For Boeing, this is a tough loss – even though it was widely expected. There is damage to the relationship between the airline and Boeing that predates this selection. While the earlier selection by Delta of the C Series is probably not a primary factor in the latest selection, it almost certainly was a significant demerit for Boeing in the competition. Next week, when the ITC meets to review the Boeing vs Bombardier fracas we will see how the complaint will begin to play out.
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.