Lufthansa to buy stake in jetBlue

jetBlue announced earlier today that Lufthansa would "make a minority equity investment" in jetBlue. The agreement between the two airlines states that Lufthansa will buy about 42 million newly issued shares of jetBlue (19% of the airline) at $7.27 a share, about $300 million. Lufthansa would also get a seat on jetBlue's Board of Directors. (Per US law, Lufthansa would be limited to under 25% voting rights.)

Lufthansa CEO Wolfgang Mayrhuber said that Lufthansa was "very pleased to become an investor in JetBlue" and that "this investment presents Lufthansa with a compelling opportunity to invest in the U.S. point-to-point carrier market as the industry continues to evolve." Dave Barger, jetBlue CEO, was pleased with "this significant endorsement of JetBlue's franchise from one of the most respected leaders in global aviation" and said that the investment "will also improve our balance sheet and give us greater financial flexibility as we move into 2008."

In a conference call this afternoon, it was revealed that Lufthansa was the one that approached jetBlue (sometime during the late summer). The deal should close sometime during the first quarter in 2008. This seems to have been the right time for Lufthansa to move in for a deal; shares of jetBlue are relatively cheap at the moment, and the airline could use some extra cash. jetBlue has had some trouble over the past years with high oil prices and increased competition (especially now that Virgin America's competing in the transcontinental market). Shares of jetBlue have fallen by half since last February's mess at JFK involving passengers stranded on planes for several hours, an event which damaged the airline's reputation. In addition, with the low value of the dollar versus the euro, Lufthansa's getting a pretty good bargain.

As of now, the two airlines haven't said that they would cooperate in any areas other than "operation cooperation". No code-share deal was announced, either, and besides, jetBlue's reservation system doesn't allow for code-sharing (at least not yet). If the airlines were to integrate schedules, Lufthansa would certainly benefit from US domestic feed at JFK. Then again, Lufthansa's premium passengers might not want to go from Lufthansa's premium classes of service to jetBlue's all-economy service (even if they do have DirecTV).

But there are still a few unanswered questions. Lufthansa is close partners with United Airlines and US Airways, all three of which are Star Alliance members. It's unknown if Lufthansa's US partners had any say-so in the deal or not, or what the potential ramifications of the deal are for the two. And there's no word yet if this could eventually lead to jetBlue becoming a Star Alliance member. United has been rumored to be interested in jetBlue as a potential merger partner, and if Lufthansa were to increase their stake to 25% and if United were to buy 26%, then the two airlines would have a controlling interest in jetBlue. Right now Lufthansa is limited to 25% ownership, like all foreign carriers, but if this cap is lifted (and with the Open Skies deal announced earlier this year, it might be soon), then Lufthansa might eventually purchase a controlling stake in jetBlue.

A319 service to Antarctica

© Australian Antarctic Division 2006

The Australian government has started air service from Hobart, Australia to the Wilkins Runway in Antarctica. The route is flown by a single Airbus A319-115LR, which is capable of flying from Hobart to Antarctica and back without refueling (the flight takes about 4.3 hours). The first flight, which was made earlier this week, was a proving flight and only carried operational personnel - regular passenger flights will hopefully get approval from authorities to commence soon. (View a video of the landing here.)

According to the website of the Australian Antarctic Division, the service will operate during the summer months only (too cold during the winter!). The Wilkins Runway is basically 'paved snow' on top of blue ice, but is still capable of handling an Airbus A319. If all goes well, the flights will take about 19 passengers in a highly flexible configuration, which allows it to transport a combination of both passengers and cargo. It can also serve as a medical evacuation plane, too.

ATA to challenge NY's passenger bill of rights

The Air Transport Association (ATA), the US airline industry trade group, is going to try to block New York state’s airline passenger Bill of Rights. Scheduled to take effect January 1, it would require airlines to provide adequate food, water, and access to waste removal if a New York-based flight has to wait more than three hours for take-off. According to the law, the state can fine airlines up to $1000 per passenger.

Airlines leaving passengers stranded on planes for hours is nothing new; winter weather at JFK airport this past February resulted in thousands of stuck travelers on planes for hours (as well as jetBlue’s much-publicized ‘Feburary meltdown’). Local politicians supported the move. "Airlines are not doing their job, and the federal government has dropped the ball," said New York senator Charles Fuschillo. "I hope other states follow." And New York state, with such airports as JFK and LaGuardia, is especially prone to long delays.

The ATA, however, maintains that long waits on the plane, like what happened back in Feburary, are a rare occurrence (not to mention unavoidable), and that if other state legislatures pass laws that change from state to state, it could lead to confusion among airlines. They also state that only federal authorities, not state legislatures, can regulate the airlines.

This move by the ATA isn’t surprising. It’s true that some events, like winter storms, are certainly out of the airlines’ control. But maybe airlines should take measures to ensure that passengers who are stranded on board planes have access to these critical “amenities”, because it only takes one ‘fiasco’ involving passengers stuck on a plane to result in some pretty negative PR.

United pays investors while unions upset

United Airlines on Friday announced a $250 million onetime payout to shareholders, with management lauding the move highly. CEO Glenn Tilton announced that the payment, which will be given out at $2.15 a share, shows the airline’s “commitment to creating value for our investors… [United must] “compete for shareholders, just as we compete for customers.”

Unions, rather unsurprisingly, gave a dim view of the payout, and said that the airline should be spending the extra cash on employees, rather than give it to investors. Mark Bathurst, head of the pilots union at United, said that “the battle lines have now been drawn…by its actions, [United management] has abandoned any pretense of working in partnership with its employees to make United strong and profitable.”

While it’s nice that United is in a financial situation that’s stable enough to be able to make these payouts, management ought to keep an eye on the unions, too. They have a valid point – United’s workers did sacrifice quite a bit during the airline’s stay in Chapter 11 bankruptcy. It’s time that employees got a little something back. Even a relatively small sum could be seen as a nice gesture on the part of management and would certainly be money well spent. United has had a history of antagonistic labor-management relations, and taking some money and spending it on employees could help improve things a bit.

MAXjet suspends shares

“Boutique airline” MAXjet Airways today requested that its shares be suspended in advance of a statement from the airline about its rather precarious financial situation. MAXjet flies five Boeing 767-200s from London-Stanstead to three US cities (JFK, Las Vegas, and Los Angeles) with around 100 leather seats apiece and four-course meals (not to mention champagne cocktails and canapés). The airline went public in June, but has since flown into a rough patch (their stock has fallen 50% and new route from London to Washington was axed, in addition to planned service to Miami starting next February).

Not all the news is negative, though. MAXjet carried 47% more passengers last month than it did last November, while the airline’s load factor increased 11% to 69%. But although more seats are being filled, MAXjet is finding it harder to make money. Lots of factors – increased competition with carriers like Silverjet and EOS, high oil prices, and a weak US dollar (which particularly affects an airline with so much UK-based traffic) could be to blame. The airline’s loss increased to $49.5 million in the first half of 2007, up from $30.4 million in the same period a year ago.

According to MAXjet, everything is business as usual, for now. The airline’s announcement about its finances, according to a statement released by the airline, will “be made as soon as possible”. “The company wishes to confirm to its employees, customers and suppliers that business continues to function as normal.” Whether or not MAXjet will be able to get over this remains to be seen – the transatlantic business travel market is notoriously competitive, and with British Airways getting in on the game soon, things aren’t likely to ease up. If BA arch-rivals Air France or Lufthansa also consider entering the premium transatlantic market at a more competitive rate (and Lufthansa has already made moves towards doing this), they could seriously jeopardize the futures of all-business class airlines like MAXjet.

Olympic Airlines under pressure

photo by caribb

Greek flag carrier Olympic Airlines appears to be flying into even more turbulence. The Greek transport minister, Costis Hadzidakis, said that although the government was dedicated to keeping Olympic afloat, "the situation for Olympic has become even more difficult," especially after Ryanair complained to the EU that Olympic has not repaid over 700 million euros ($1.2 billion) of illegal state aid that it received between 1998 and 2002. The government has said before that calls for repaying the money is making it impossible to find investors interested in a possible privatization of the airline.

If Olympic is forced to close, Hadzidakis said, then none of the airline's 8,500 employees would lose their jobs, and none of the Greek islands would lose air service to the mainland. But the fact that the country's transport minister is issuing such a dire projection of Olympic's future is widely regarded as a sign that the airline might have to close down soon. According to the Greek government, Olympic costs Greek taxpayers 300,000 euros ($442,830) a day.

Skybus VP: we're "best financed" US airline

According to Skybus vice president Dennis Carvill, Ryanair-imitator Skybus is "the best-financed airline in the history of the aviation industry in the United States... We are capitalized to $160 million of initial startup capital, and that has given us the ability to do what we are doing, that is to grow rather quickly." By comparison, jetBlue, which started out a few years ago with quite a lot of cash, had an initial capitalization of $128 million.

Although initial capital is indeed important (and it certainly helped out jetBlue), Skybus' lack of amenities (e.g. no in flight entertainment, no food or drink, no telephone number to call) might not sit well with some passengers, and Skybus will have to focus on keeping its flights prompt in order to make up for the often out-of-the-way airports that they service.

Airbus could build plants in US, Russia

photo by mathoov

According to a story in the German business weekly WirtschaftsWoche, Airbus is considering building assembly plants in the US or Russia. This is due to the strong euro, which Airbus parent company EADS head Louis Gallois said is threatening the long-term existence of the company.

The story said that if a plant were built in the US, it would probably be in Mobile, Alabama - this is also important because the company has long been seeking a contract with the US military to build tanker airplanes. An Airbus official pointed out that if the company were to build the tankers in the US, it would be more difficult for the military to reject Airbus' offer because they are a European company.

Three interested in Alitalia

photo by WTL photos

Italian Prime Minister Romano Prodi recently said that Air France/KLM, Lufthansa, and Italian domestic carrier Air One were interested in making a bid for struggling Alitalia. (Previously interested Aeroflot has already quit the bidding.) All bidders have until December 6 to make a non-binding offer. In an interview with the German newspaper Frankfurter Allgemeine Sonntagszeitung, Lufthansa CEO Wolfgang Mayrhruber said that "Alitalia has big and barely manageable problems. We are studying whether we can find a recipe (to fix these) and make a bid."

It should be pointed out that Alitalia is losing about 1 million euros a day and is affected by frequent strikes (both inside and outside of the company). If one of those airlines is going to make a bid for Alitalia, they'll have to deal with "big and barely manageable problems" indeed.

Interflug IL-62 lands on field

DDR-SEG featured on the cover of an October 1985 Interflug publication

Perhaps it's because I'm a fan of Soviet aircraft, but I couldn't resist posting about these videos that I came across recently, which show an Ilyushin IL-62 from the now-defunct East German airline Interflug landing on a field. Apparently the story goes like this: On October 23, 1989, aircraft DDR-SEG was landed (intentionally) on a 900-meter grass runway at the Stölln-Rhinow airfield, north-west of Berlin. The aircraft was put on display and can still be viewed today (there's a museum there). It's also used for weddings.

Hawaiian dumps Boeing for Airbus long-haul

photo by Ack Ook

Hawaiian Airlines announced yesterday that it was replacing its 18-strong fleet of Boeing 767-300s with 24 new long-range airplanes from Airbus. The order, which is for six A330-200s and six A350 XWB-800s (plus six options on each kind), is worth approximately $4.4 billion at list prices and will "enable [the airline] to open new routes to more distant markets on a nonstop basis from Hawaii," said a company press release. The first A350s will be delievered in 2017 (that's a ten year wait!), but Hawaiian will only have to wait five years for the first A330.

Mark Dunkerley, Hawaiian CEO and president, said that "we are building flexibility into the plan with some aircraft purchased, some to be leased and having options for others, which will allow us to scale the fleet according to our needs and opportunities over the next two decades". He also said that agreements with Airbus allow the company to lease additional A330s starting in 2009, which will allow Hawaiian to expand and to replace the Boeing 767s with leases that are due to expire in the next few years.

American to spin off Eagle

photo by caribb

American Airlines announced today that it will be spinning off its regional carrier American Eagle. In a press release earlier today, parent company AMR said that the spin off, which is expected to be completed by 2008, "is in the best interests of AMR and its shareholders". American Eagle could be spun off to AMR shareholders or to a third party (or in yet another way).

AMR went on to say that the spin off will allow American to focus on its mainline operations but still have access to a "cost-competitive regional feed". However, this depends upon how the spin off proceeds - if Eagle gets sold in parts (i.e., if one airline were to take its operations at Miami, and another airline were to take its operations at Chicago), then this might be a bit problematic.

A possible explanation for the spin off (besides the official corporate explanation) that I've seen comes down to finances. American Eagle uses a capacity purchase agreement with American Airlines. Eagle only makes money if it can operate for less than American Airlines pays it. But if Eagle's costs go up compared to other, similar carriers, the cut that American Airlines gives Eagle might have to go up to. It might be that AMR is looking for lower-cost regional feed in the future.

Since the event was only announced today, there are certainly going to be a lot more details announced in the future - stay tuned.

SAS looks towards fleet renewal

photo by Larsz

ATW has reported that Scandinavian carrier SAS has announced that it will be looking to replace its fleet of Bombardier Q400s (like the one pictured above) as well as its sizable fleet of MD-80s. Last month, SAS made the decision to ground its fleet of 27 Q400s after three much-publicized crash landings in a six week period. Although Bombardier has repeatedly said that the Q400 is safe, SAS CEO Mats Jansson said in a statement that "confidence in the Q400 has diminished considerably" and that SAS "customers are becoming increasingly doubtful about flying in this type of aircraft.'' (Qantas, Austrian, and Horizon are three airlines with larger Q400 fleets, and as of right now, none have plans to ground their fleets, although Qantas did temporarily take its Q400 fleet out of service to perform safety checks.) Finding a suitable replacement for the Q400 is "a top priority," according to a spokesperson for the airline, and it is currently seeing "big interest from airlines all over the world" as it looks to sell off the Q400s.

SAS will also be looking to replace its 44-strong MD-80 fleet, and a spokesperson for the airline said that a decision could be made as early as the first half of 2008. SAS is split up into three divisions: SAS Sweden, SAS Denmark, and SAS Norway. (SAS Norway does not operate the MD-80.) Along with the MD-80, SAS Denmark operates A319s and A321s while SAS Sweden flies the Boeing 737-600 and 737-800. This might mean that SAS would order new airplanes from both the A320 and 737 families. SAS Norway, which acquired several Boeing 737-400s and -500s from its merger with Braathens, might also be looking at some newer 737 models as well.

United's "urge to merge"

The world of airline mergers has been buzzing since last week's report that United Airlines and Delta Airlines were being pushed by Pardus Capital Management (which owns a sizable stake in both airlines) to merge. Delta CEO Richard Anderson stated that "there have been no talks with United regarding any type of consolidation transaction and there are no such ongoing discussions." In a press release, Delta said that it "will not speculate on possible airline consolidation".

It's no secret that United has been shopping around for a merger partner for some time. They haven't bought any new planes in quite some time, and United has relatively thin profit margins and high debt.

That said, rumors have been flying for the last few years that United would find a merger partner. These partners have included Continental (which already said no) and Northwest (which wouldn't work out because the two airlines both have strong Midwest hubs) - almost everyone except American (a United-American merger couldn't happen because the combined airline would be too big). The latest to crop up on the aviation forums involves jetBlue, since the two airlines have complementary fleets/networks. United would use jetBlue as an opportunity to become a player again at JFK, which would tie in nicely with international feed from Star Alliance carriers and make it more competitive on the East Coast. And a United-jetBlue merger would also put an end to the fight at Washington-Dulles between the two airlines.

But a United-jetBlue merger isn't too likely, and any merger wouldn't be a cure-all fix for United. Even though United may be holding out on buying new planes to attract merger partners, they're going to need to upgrade eventually to keep up with competitors. And employee-management relations aren't very good, either. Merger or no merger, United really needs to address these issues (and others) if it wants to remain a viable competitor in the industry.

Amazing 757 Landing

Another slow news day, so here's a video clip of an amazing landing of an American Airlines 757 at Tegucigalpa, Honduras:

Forbes: America's Worst Airlines

photo courtesy of tizzie

Forbes magazine recently released a list of the country's "Worst Airlines", based upon flight delays, lost bags and cancellations. ASA came in worst, although Forbes noted that air traffic control is more likely to delay flights with fewer passengers, and because ASA flies smaller jets, they're more prone to being delayed. And weather was also a factor - several storms at Dallas affected American Eagle's performance, and Comair, which has a large presence in the Northeast, is also affected by severe weather. (Note that Hawaiian Airlines and Aloha Air aren't listed on the 'worst 10' - in fact, they're near the top for on-time performance, mostly due to a lack of severe weather.)

1. Atlantic Southeast Airlines: On-time performance: 63.3% (worst), Baggage mishandling: 16.9 per 1,000 passengers (worst), Cancellations: 4.4% (second worst)
2. Comair: On-time performance: 66.6% (second worst), Baggage mishandling: 11.9 per 1,000 passengers (third), Cancellations: 5.4% (worst)
3. American Eagle: On-time performance: 69% (fourth worst), Baggage mishandling: 13.5 per 1,000 passengers (second), Cancellations: 4.4% (third)
4. Mesa Airlines: On-time performance: 72.5% (seventh worst), Baggage mishandling: 10.1 per 1,000 passengers (fourth), Cancellations: 2.7% (sixth)
5. ExpressJet Airlines: On-time performance: 73% (ninth worst), Baggage mishandling: 8.9 per 1,000 passengers (fifth), Cancellation rating: 3.4% (fourth)
6. US Airways: On-time performance: 68.3% (third worst), Baggage mishandling: 8.6 per 1,000 passengers (seventh), Cancellations: 1.9% (ninth)
7. American Airlines: On-time performance: 69.9% (fifth worst), Baggage mishandling: 5.8 per 1,000 passengers (11th), Cancellations: 2.0% (eighth)
8. United Airlines: On-time performance: 72.4% (sixth worst), Baggage mishandling: 5.4 per 1,000 passengers (12th), Cancellations: 2.1% (seventh)
9. Delta Airlines: On-time performance: 75% (fifth worst), Baggage mishandling: 6.6 per 1,000 passengers (eighth), Cancellations: 1.5% (13th)
10. Alaska Airlines: On-time performance: 72.8% (eighth worst), Baggage mishandling: 6.6 per 1,000 passengers (ninth), Cancellations: 1.2% (15th)

British Airways orders 787, A380

British Airways announced last Thursday that it would order 12 Airbus A380s and 24 Boeing 787s, with options for 7 more A380s and 18 more 787s. The planes will be delivered between 2010 and 2014. "This is an exciting day for British Airways with our largest fleet order since 1998," said Willie Walsh, BA's chief executive. "It's great news for our business, our customers and the environment." Walsh also pointed out that the two new types are environmentally friendly and also produce a quarter of the noise of a Boeing 747-400.

BA has said that they will use the A380 to "provide more capacity for the airline's key high-density markets and [to] maximise use of scarce Heathrow slots", while the 787 will "be used to start new routes and increase frequencies in existing markets". The airline also announced that it is looking to replace the 747-400 and is looking at the 787-10, 777-300ER and A350XWB models as potential replacements.

Singapore announces first A380 commercial flight

Singapore Airlines has announced the day of the first commercial flight of the A380. The flight, SQ 380, will be on October 25, from Singapore to Sydney. ""Everyone at Singapore Airlines is keenly anticipating the delivery of this new plane, and our people are working hard on final preparation for its entry into service," said Singapore CEO Chew Choon Seng. "The first flight promises to be one of the most exciting occasions in aviation history."

All of the proceeds from ticket sales for the flight will go to charity. (Apparently, ExxonMobil is also donating fuel for the trip. ) If you're interested in purchasing a seat on either the first flight (or the first return flight the next day), you'll be able to bid for one on eBay starting August 25.

AirTran isn't done with Midwest yet

Apparently AirTran isn't quite yet ready to give up on acquisition target Midwest Air, even though two days ago Midwest announced that it would go ahead with a deal led by TPG Capital. While the TPG offer was $16 a share, AirTran's latest offer, of $445 million in cash and stock, is valued at $16.25 a share. (Its old offer was $15.75 a share.) Midwest's board said earlier today that they would take the "revised offer under consideration".
Even though Midwest was expected to strike a formal agreement with the TPG-led group on Wednesday, AirTran might get its way in the end. Over half of Midwest shareholders were for the original AirTran deal, and Pequot Capital Management, the largest shareholder in Midwest, said today that they had "significant concerns" about a deal with TPG. Pequot's managing director said that in the long term, a deal with AirTran might be more valuable because the two airlines would be able to eliminate overlaps in their route networks - a move that would save a lot of money.

Midwest CEO to employees about TPG offer

This was posted online, and I thought I'd re-post it here on The Airline Blog:

To: All Midwest and Skyway Airlines Employees
Date: August 12, 2007
From: Timothy E. Hoeksema
Subject: Board of Directors Update #4

The Midwest Air Group Board of Directors today said that it has unanimously determined to pursue an all-cash offer from TPG Capital, L.P. on behalf of an affiliate of TPG and one or more partners to acquire all of the outstanding shares of Midwest for $16.00 per share.

The board took this action after receiving a letter from AirTran Holdings that stated the airline was making its best and final offer to acquire all of the outstanding shares of Midwest common stock at $15.75 per share, valued at Friday's closing price of AirTran's common stock. In reaching its determination, our board concluded that the TPG offer presented greater value and certainty for Midwest shareholders than the AirTran offer.

Under the terms of the offer from TPG, the private equity investor indicated that its acquisition "would permit the Company to continue its rich legacy as a leading provider of customer oriented quality air service." The board expects that Midwest and TPG will execute a definitive merger agreement no later than August 15, 2007.

TPG is one of the largest private equity investors in the world and the most experienced in the airline sector. It has invested in Continental Airlines, America West Airlines, Ryanair, Hotwire and Sabre with the goal of helping management teams build long-term value for stakeholders. TPG's offer to Midwest is set forth in a letter that was received by the Midwest board on August 12. The letter is attached at the end of this memo for you to read.

This announcement is sure to result in intense media coverage. I will again remind you that news coverage is often highly speculative. Be assured that we will inform you of any developments as there is news to report.

Northwest-backed group offers takeover bid for Midwest

photo: "Midwest N905ME", by Drewski2112

A group of investors, led by TPG Capital and which includes Northwest Airlines, said that it would buy Milwaukee-based Midwest Air for $400 million. The TPG-led bid was announced right after AirTran, which coveted a Milwaukee hub, said that it would no longer pursue its hostile takeover of Midwest. AirTran's final offer of $15.75 a share was less than TPG's $16.

Beyond the per-share figures, though, there might be another reason that Midwest might go for the TPG bid. The airline code-shares with Northwest, which is a key player at Milwaukee. Northwest didn't want another airline to move into the market, so Midwest's rejection of the AirTran bid is good news for them. However, Northwest said in a statement that they would not take part in managing Midwest (if the TPG bid is successful, of course).

The deal still needs to clear the anti-trust regulators, and AirTran CEO Joe Leonard has voiced, unsurprisingly, pessimistic views about this, saying that the "Midwest board has chosen a path that will benefit current senior management by selling out to a private equity firm and a so-called 'passive' investor whose involvement will surely raise antitrust concerns, casting doubt for shareholders on whether a transaction can, in fact, close." But a Midwest spokesperson was more upbeat, saying that the airline expected the deal to go through.

United international route rumors

photo: "N646UA", by Drewski2112

There have been a few rumors floating around that United Airlines might start some new international routes. Among them:

• Chicago - Moscow. Aeroflot used to fly this route but stopped in 2001, and United holds the dormant route authority for the route, which it obtained in a deal with Pan Am back in 1991. (If United did fly this route, it would probably skip Moscow's Sheremetyevo Airport (SVO) and instead fly to Domodedovo Airport (DME) because its fellow Star Alliance carriers fly there.) But the US-Russia market is currently served by a lot of routes - Delta flies Moscow - Atlanta and Moscow - New York (JFK), and Aeroflot flies Moscow - New York (JFK), Los Angeles, and Washington (IAD).
  
• Chicago - Milan. If United did fly this route, it would compete with Alitalia.
• Chicago - Düsseldorf. United used to fly this route but stopped in 2001. Star Alliance partner Lufthansa flies it with an Airbus A319, but is supposed to upgrade the route to an Airbus A330 in May.

It has also been rumored that United would upgrade some of its Boeing 767-300s, including a switch from a two-class domestic configuration to a three-class international one, and an engine upgrade. These upgraded 767s would be used on the route.

Air France and Delta might become closer

photo courtesy of caribb

The AFP and the French newspaper Les Echos are reporting that Air France is in joint-venture talks with Delta Air Lines, which is a fellow SkyTeam partner. A spokeswoman for Air France said that it "is still in negotiations with Delta, but nothing has been finalized". She also said that "the agreement being negotiated should be signed in the autumn."

The joint venture would happen in two stages - the first would start in April 2008 and include New York - Paris flights, as well as flights from Heathrow airport in London to cities in the US. In 2010, the second stage would cover the rest of Air France and Delta's trans-Atlantic flights. Les Echos reports that both airlines would split their profits from their main trans-Atlantic routes 50-50.

Air France-KLM, Northwest, and Delta have also applied for a joint venture agreement. Northwest and KLM have been close partners for more than 15 years, and this venture, if successful, will bring the four much closer together than they already are (all are SkyTeam members).

United stock buyback plan raises controversy

photo courtesy albspotter

Executives at United Airlines have been talking about the possibility of the airline buying back stock or paying dividends to shareholders. “We realize the importance of doing something for shareholders," said CFO Jake Brace.

But the idea has not gone over well with the unions, who claim that the airline should be doing more for its employees, who had to sacrifice a lot during the airline's extensive stint in Chapter 11 bankruptcy. To be fair, United might want to consider setting up a fund for employees that have faced personal crises - rather like jetBlue and Delta have. The bankruptcy process adversely affected employee morale (and pay) - if United has a little cash left over, at least some of it should go back to employee's pockets.


But personnel issues aside, there's another issue for United management to consider: fleet renewal. Crain's Chicago Business quoted a United spokesperson as saying, “We have one of the industry’s youngest fleets, and the likely availability of next-generation narrow-body aircraft fits well with our timing for replacement planes, giving us a competitive advantage.” United's average fleet age is 12 years, which is pretty average but still on the older end of the spectrum. And with its rivals buying newer planes - Northwest, for example, has ordered the 787 and there are rumors that American and Delta will do the same - United should tuck away some cash when this issue arises in a few years.

And last, but not least, there's the airline industry itself, which is notoriously cyclical. Right now might be a time of (relative) prosperity for the industry, but like it has always done in the past, it will eventually take a dive. United needs to make sure that it has enough cash on hand to weather any downturns.

This isn't to say that a stock buyback plan isn't a bad idea, but United's management needs to get its priorities straight first. Work on clearing away debt and do something to help out employees. This doesn't mean to necessarily cave in to every demand, but if the airline is making a little extra cash, maybe give some of it back to employees - after all, they're the ones that have the potential to satisfy customers, who will then (hopefully) reward with repeat business.

No buyer, no Alitalia?

What happens next for Alitalia?

The Italian carrier has seen its suitors drop out one by one: Aeroflot said no, Lufthansa-backed Italian carrier Air One said no, and MatlinPatterson, a US firm, was the last bidder - and it too said no. That leaves, well, nobody to bid for Alitalia, and it leaves the Italian government in a bit of a bind: it is under some pressure to solve the problem - especially when the 'problem' is losing 2 million euros ($2.8 million) a day. "When something is diseased, you need to amputate it," said Infrastructure Minister Antonio Di Pietro. But on the other hand, the Italian government has come under fire from the unions and opposition groups for the collapse of the seven month-long sale, and the current quagmire is not making it look any better.

Why aren't there any interested bidders? A major reason: the terms and conditions imposed upon the potential buyers by the Italian government. A buyer wouldn't be allowed to cut as many of the 20,000 employees as it wants to, for example. The dual hub system, at Milan and Rome, is inefficient, especially when Alitalia's competitors only have one (e.g. Lufthansa, British Airways, Air France, etc.) And labor unrest is a major discouraging factor - in fact, 100 Alitalia flights were canceled yesterday as some of its staff went on strike. Who knows, though - maybe the government's threat of liquidation might scare the unions into not striking. And there still might be bid in the future - the Italian government has said that it might directly contact some of the former bidders to strike a deal, since it is (understandably) seeking to get out of this mess (and to sell 39.99% of the airline, even though it could sell up to 49.9%). And Alitalia, Air One and MatlinPatterson have said they might be interested in buying - if the government relaxes some of its regulations. The newspaper Il Corriere has said that the Air France-KLM group might be interested, even though a spokesperson for the group said that the Air France-KLM would not be interested in Alitalia unless it is restructured.

In any event, it's up to the Italian government now to make the next move. I'd be interested to hear the opinions of The Airline Blog readers - do you think Alitalia, the historical flag-carrier of Italy, should be saved? Or is enough, enough - should it just liquidate (and maybe start over)?

US carriers look for more US-China routes

Several US airlines are pushing for more nonstop routes between the US and China, beginning in March 2009. And they're also going straight to the customer for help - most of them have designed separate websites highlighting their bids and are asking fliers to help out by signing petitions that will be presented to the Department of Transportation. Here are the airlines:

• American Airlines filed an application on Monday to start nonstop Chicago O'Hare - Beijing service, to start on March 25, 2009. (This isn't the first time American has tried to do this - a few months ago it filed a similar petition but failed because it couldn't agree with its pilots on work rules for the rather long flights.)
• Continental Airlines wants to fly between Newark and Shanghai starting on March 25, 2009.
• Delta Air Lines applied for Atlanta-Beijing and Atlanta-Shanghai service.
• MAXjet quietly filed for Seattle-Shanghai service, with a continuing flight from Seattle to Los Angeles.
  
• Northwest Airlines wants to fly Detroit-Beijing and Detroit-Shanghai.
  
• United Airlines is seeking San Francisco-Guangzhou service in 2008 and Los Angeles-Shanghai service in 2009.
• US Airways has proposed flying between Philadelphia and Beijing.

The Department of Transportation can only allow one new airline to enter the US-China nonstop market each year. Currently, all of the above airlines except Delta, MAXjet and US Airways serve China nonstop - a fact that might give them a bit of a competitive edge. My prediction: the Continental and Delta proposals will pass, mostly because there isn't any New York area-Shanghai service and Atlanta/the southeastern US are also underserved when it comes to nonstop US-China flights. United Airlines will also probably get at least one of their routes, too.

A big change for Delta, indeed

Well, it's certainly been a long road for Delta, but only three months after exiting Chapter 11 bankruptcy, it has posted a $1.8 billion profit.

"Delta’s emergence from bankruptcy was a significant milestone in the history of the company and the airline industry,” said Gerald Grinstein, Delta’s chief executive officer, in a press release today. “In delivering the kind of outstanding financial, operational and customer service results we saw this quarter, it is clear Delta people at every level are producing a strong airline with a bright future.”

Delta's profit is even more amazing when compared to the airline's financial performance this time last year (it posted a $2.2 billion loss). Not counting bankruptcy-related costs, profits came out to 70 cents a share - much better than the 59 cents per share that analysts had predicted.

We'll see how United and Northwest, two carriers that have also gone through long, hard bankruptcy processes, have performed financially when they release their second quarter results (on the 24th and the 30th of the month, respectively).

And now for a bit of an editoral. Recently I've noticed that it doesn't seem like United or Northwest are announcing their bankruptcy exits the way that Delta has. Its 'Change the Experience' website allows travelers to suggest ways to improve Delta (or so the website says), and touts such things as its "Clean Campaign". The airline has also run television and print advertisements announcing its 'change'. It also put up a 'Today is a new day' banner on its website following its exit from bankruptcy.


I'm not sure if this effort is having any impact with the flying public, but it probably wouldn't hurt Northwest and United if they did the same thing. After all, Chapter 11 bankruptcy - even if it doesn't really affect the day-to-day operations of an airline - can have a negative effect on the average flyer. So when you exit bankruptcy, be sure to announce it as much as you can. Delta's done a pretty good job of it, and their agressive PR campaign, combined with the latest posted profit, will probably continue to improve the airline's image. (Oh, and the fact that the CEO is giving up a lot of his pay to a fund for employees - that might help employee morale a bit, and morale, good or bad, is something that affects the flying experience.)

To be fair, Northwest has announced its exit as well. In the July 2007 copy of WorldTraveler, its inflight magazine, President and CEO Doug Steenland penned a letter entitled 'A New Day at NWA, along with a link to the "NWA Moments" photo gallery on Flickr. And United did release a Hemispheres magazine article highlighting the changes it underwent during restructuring. But whether United and Northwest can genuinely 'change' (and whether Delta's 'change' extends beyond a slick PR campaign) remains to be seen.

Lufthansa economy-class sleeping area?

Recently on both Airliners.net and FlyerTalk.com there have been rumors floating around of Lufthansa introducing an economy-class sleeping area on overnight intercontinental flights. In an email survey that the airline recently sent out, one of the questions was:

To increase the travel comfort on intercontinental night flights, Lufthansa is thinking about a separate sleeping area within Economy Class. There, you would have the possibility to sleep in beds with an angle of 180° (Full Flat). This option could be booked instead of a seat.

In the future, when booking a night flight with Lufthansa from Johannesburg to Frankfurt, would you generally be interested in booking into the sleeping area instead of a seat in Economy Class?

Apparently Lufthansa also included a picture of the 'sleeping area' (see above; click on it to see the larger version). While it might raise some safety issues (could the bunks be occupied during takeoff/landing?), it certainly might be worth a try on a fifteen hour overnight flight, especially when compared to regular economy-class seating on Lufthansa.