Archive For The “United” Category

Sour Grapes: CAPA Man of the Year

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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.

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Premium – EU-based Airbus single aisles for United?

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Pondering the US DoC tariff on Bombardier

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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).

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The Single Aisle Segment – some perspective

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United adds more A350s

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Last year United’s CFO shared that the airline may modify its order for A350-1000sfor smaller models.  Today Airbus announced that United Airlines increased the number of A350 XWB aircraft it will bring into its fleet, updating and expanding its previously existing order for 35 A350-1000 to 45 A350-900 widebody aircraft to replace older, less efficient aircraft, supporting future growth at the airline.

“For the past year, United has done a complete review to ensure that we have the right long-term fleet strategy, and it was clear that the A350 aligns with our replacement needs and our network,” said Andrew Levy, Chief Financial Officer of United Airlines. “The combination of the range performance and efficiencies make the A350 an attractive aircraft for United.”

Ensuring United stayed an A350 customer is key for Airbus.  So Airbus loses some A350-1000 orders but gains -900 orders.  United needs a state of art aircraft to replace older 777s and the 747s but doesn’t want to lose any deposits. Both sides can declare victory.

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Delta Versus the ME3 on Open Skies

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Delta Air Lines last week produced a 15-minute film to educate employees about the company’s aggressive stance against the ME3. That video can be viewed here. This film is the latest effort in Delta’s campaign to urge the US government to enforce Open Skies agreements with the United Arab Emirates and Qatar. For those who don’t want to watch a 15-minute video, a two-minute summary can be found here.Clearly, the videos are biased towards the position of the US Big 3, which is that the Gulf carriers are subsidized and the US carriers cannot effectively compete. But let’s examine why the ME3 have grown so substantially in recent years:

1. They offer the fastest connections between Europe and Asia, Europe and Africa, and the US and the Middle East, based on their geography
2. They offer far superior customer service, on newer aircraft, with better passenger amenities than their US counterparts
3. They offer competitive fares that are typically similar to both US and European legacy carrier fares
4. Their service levels are such that passengers that have flown with the ME3 typically do not choose to fly on US carriers once they’ve experienced the difference.

This may not be a matter of an inability to compete, but the lack of a willingness to improve on-board service to effectively compete with the service levels of the ME3.

A countervailing viewpoint can be found here and here, which while a bit harsh in calling out Delta, provides some balance. There are two sides to every story, and we find that the failure of US carriers to file an Article 12 complaint and instead lobby Congress somewhat telling.

We’ve flown on American, Delta and United internationally as well as on Emirates, Qatar, and Etihad. The difference (at least in business class services we’ve tried) is markedly better on the ME3, and our preference would be to fly on the ME3, ceteris paribus.

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