Archive For The “United” Category
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.
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.
In the quarterly earnings report yesterday, Delta’s Glen Hauenstein announced the airline would base its first CS100 in New York. The idea is to relieve that hub of the 76-seaters which be moved elsewhere to replace the 50-seaters which will leave the fleet.
The recent publicly released documents of the Boeing complaint against Bombardier indicated Delta’s deal with Bombardier is for a low MTOW CS100. This means the Delta CS100 will have less than its full range capability. SWISS also has a “lighter” CS100 and their aircraft have a range of 1,900NM. The following map shows how far the CS100 can go from JFK with this range. That is a large market. It is certainly far larger than what the 76-seaters offer which Delta will take out of JFK. Indeed the CS100 could open several new markets. (Something which will catch the eye of JetBlue)
Another important statement that came out was from Delta CEO Ed Bastian who addressed analysts on the call: “We do not intend to slow down any of the deliveries we have for the CSeries.” He added: “We will take the first delivery this coming spring.”
There is a sense that the CSeries program has slowed down. Company officials have spoken about a back-loaded 2017. The Boeing complaint must have thrown some uncertainty into airlines (specifically American and United) considering the aircraft.
United changed its previous order for 737-700s, so a fleet gap there is open. Moreover, United has 122 A319s (averaging 16.7 years) plus 40 737-700s (averaging 18.3 years). American has 250 A319 (average 13.2 years). Although Airbus and Boeing continue to offer updated variants of these models in neo and MAX, the market has not been knocking the doors down to order them.
Which means that as these two airlines consider a refresh, Bombardier and Embraer are where they need to turn. Delta’s reaffirmation helps Bombardier and incidentally, Embraer as well. Smaller, lighter, aircraft with a useful range offer airlines the opportunity to develop new markets.
An incident resulting from a bumped passenger being physically and violently taken off an airplane has gone viral. The flight needed space for four employees, exacerbating the impact of overbooking. You can watch the video here.
The Bottom Line
The repercussions of this video going viral and with the video shown on international news media, it will likely cost United dearly in image and lost revenue. We’ve even seen reports that some Star Alliance partners are concerned because their passenger may have United flights and are understandably balking after viewing this incident. Unfortunately, United doesn’t get a “do-over.”
• This is another black eye for United, only two weeks after the “leggings” incident
• The airline has a habit of shooting itself in the foot, as this situation could have easily been avoided
• With two negative viral incidents in recent weeks, UAL clearly needs to up its social media image.
There was a previous battle in world war two. The next one will not be violent but looks to be as belligerent. The next battle will be in the skies over the Atlantic as the newcomer LCCs pour capacity into the market and upset what has become a comfortable club for network airlines.
The belligerents include the network airlines from the US (American, Delta, and United) and the EU (Air France/KLM, British Airways, Lufthansa, and their partners). On the other side of this fight will be Norwegian, and soon JetBlue, with more to come. To try offset the disruptive role being played by Norwegian, British Airways and Iberia are offering LEVEL. Now Lufthansa is going to extend the reach of its Eurowings brand. Air France is creating something called Boost.
Norwegian probably could never have imagined such a competitive response. The EU competition is rolling out their big guns. LEVEL and Eurowings will deploy A330s. It’s not clear what Boost will deploy, but the bet would be A330s as well. These aircraft are cost effective and paid for. Norwegian will deploy 787s and MAX8s. JetBlue will deploy the A321neo and A321LR. Then there is WOW and Icelandair also growing their reach. These last two have home bases that will allow for disruptive use of single aisle aircraft in the market.
As we have seen numerous times before, the plans at airlines are easily disrupted by labor strife. The big three European airlines about to get into this battle have long histories with strikes. Air France’s decision to hire cabin crew for Boost at 40% less than its mainline has been described as “scandalous”. Lufthansa has just ended a long-running fight with its pilots. British Airways crews are getting annoyed again, too. No wonder LEVEL will be based in Spain.
Jean-Marc Janaillac Air France-KLM CEO noted “We are lagging behind in terms of competitiveness. Since we are a legacy carrier, we are old, with many layers of management. We are not agile and lean enough to be innovative. We need to reduce our unit costs and continue our productivity efforts in order to grow.” And there’s the rub. This comment applies to the network airlines on both sides of the Atlantic. The aircraft will not make the difference. It will be the people. Imagine the reaction at these airlines when and if the sclerotic layers are cut? The US airlines are further down the road on this, and although we have seen better financials, we have also seen what happens when exogenous factors like weather throw operations into a crisis. The management layers are a problem – until you need them. Since airline operations are subject to many exogenous factors, sometimes you need those people.
However, it is clear that newer airlines like Norwegian are doing things differently. The way they hire people saves the airline a lot of money. In the US, Norwegian faced pushback from local airline unions. And then, suddenly, the problem was gone. Is Norwegian more supple and flexible? Absolutely and the legacy airlines cannot match this. Their labor relations are much more complex and the legacy airlines can’t pivot as quickly. Recall the attempts by Delta (Song) and United (Ted) to invent sub-brands and how that worked out. Corporate culture is not something that grows more flexible over time.
The Atlantic market is getting more crowded and the network airlines are going to lose market share and revenues. Given their high costs, the size of the impact is not clear, but we can be sure the impact will be negative.