Southwest wants to buy Frontier

In a pretty surprising announcement today, Southwest Airlines has said that they've submitted a proposal to purchase Denver-based Frontier Airlines, which is still under Chapter 11 bankruptcy protection. Southwest will bid for the airline in a bankruptcy auction next month, along with Republic, which said last month that it would bid for Frontier. There aren't too many details out right now, but some interesting information is available over at the Southwest blog. Some excerpts:

What’s in proposal?
What we can say is that we are interested in a substantial investment in Frontier and to operate Frontier as a wholly-owned subsidiary, independently and separately from Southwest Airlines, for a period of time until the carrier could be combined into Southwest.

Is this a response to Republic’s bid?
Frontier has been in bankruptcy since April 2008, and we’ve been considering a bid for some time, independent of any action Republic took with its bid proposal. In the past month, we began an intensive study of the airline and expressed that interest to Frontier.

More details will emerge soon, but this has some big implications for service at Denver, where Southwest has been going up against well-established United and hometown carrier Frontier. One question that I have - what happens to the Airbuses that Frontier operates? Would Southwest keep them for a while, or swap 'em out eventually for Boeings?

As for what this means for the Republic deal, here's an excerpt from a press release issued today:

The Republic investment agreement provides for an auction period, during which Frontier may seek higher or otherwise better competing bids. If Frontier identifies such a bid, it can terminate the Republic investment agreement and accept the other offer. Under the auction procedures approved by the Court, interested bidders must submit an initial proposal by Aug. 3, 2009, and a final proposal by Aug. 10, 2009. Frontier and its advisors, in consultation with the Unsecured Creditors’ Committee appointed in Frontier’s Chapter 11 cases, will conduct an auction, if necessary, on Aug. 11, 2009, to consider all qualified proposals and determine the highest or otherwise best proposal.

photo by Taurus Photographix from Flickr

Big changes in store at Aeroflot

Big changes are happening over at Aeroflot - a new CEO, no more Russian jets, better in-flight service, and a plan for a slimmer company (as well as slimmer flight attendants). And if you have a complaint, simply email the CEO himself.

By the end of this year, all of the airline's Tupolev Tu-154s - previously the backbone of the medium-haul fleet - will be retired, replaced by Airbus A320 family aircraft. The airline also has retired its Ilyushin Il-86 fleet (to be replaced by three leased MD-11s), leaving the Ilyushin Il-96 as the sole Russian type left. Aeroflot has been itching to get rid of those for a long time, as they're rather expensive to operate. The Il-96s will leave the fleet by October, along with the Tu-154.

Meanwhile, the airline, like most others, is struggling to cut costs. CEO Savelyev revealed in an interview with the Russian business paper Vedomosti that 40% of the airline's routes are unprofitable, with the worst being Moscow-Los Angeles, losing $14 to $21 million a year. "But we aren't looking at abolishing the route," he said, stating that the airline is closely reviewing all costs and is planning on making money on the route by June 2010. "If there's demand and good capacity, then why dump it?" The airline is also seeking to slim down, and plans to trim 6,000 of its 15,000 employees. "This number doesn't come from the ceiling," said Savelyev. "We invited the international consulting firm Bain to develop a new corporate structure... The optimal ratio is 1 million passengers for every 1000 employees. In 2008, Aeroflot carried 9.2 million passengers, so the company should have just over 9000 people."

The size of the company itself isn't the only thing that Savelyev wants to make narrower; he's set his sights on the airline's flight attendant corps. “These will be very eye-catching, very striking girls,” he says in the Moscow Times, which reports that they will not exceed a Russian size 48 (US, 12 to 14). New uniforms are also in the works, with orange on the way out: “A sociologist told us that, unfortunately, the color of our old uniforms was a repulsive color, that it made passengers nervous." His son, studying in England, sent him a video of Virgin Atlantic flight attendants (seen here on YouTube); "in bright red they look like professional models," he said. In-flight service is also looking to get a much-needed overhaul; apparently a Singapore Airlines hospitality trainer flew on a couple of Aeroflot flights to judge the service. “We scored a C plus or a B minus," said Savelyev, "but the good news is that our mistakes are easily correctable."

The familiar hammer-and-sickle logo will still be around, though - Savelyev has said that he "likes" the "bird with the hammer and sickle." Back in 2003, when the airline introduced its current color scheme, branding experts suggested that the airline drop the logo since it carried rather negative connotations. The first planes to get the new livery actually flew around for awhile with the logo applied as a sticker, so that airline management could get rid of it if desired. But the hammer and sickle wings are so synonymous with Aeroflot that the airline decided that they might as well be retained, the last vestige of the airline's Soviet past. Things have changed - for example, customer service. "As for all of the complaints," said Savelyev, "passengers can write to my email address, which is listed in the Aeroflot in-flight magazine.

photo by Aleksander Markin from Flickr, licensed under the Creative Commons

Sydney-Los Angeles game of chicken continues

If you're a passenger thinking about flying between Sydney and Los Angeles, things can't get much better. If you're one of the four airlines that fly that route, things can't get much worse. Earlier this month Delta became the fourth airline to fly between the two cities, joining Virgin-backed startup V Australia, which had entered the market this past February. They joined Qantas and United, which have shared a cozy duopoly for the past 15 years on the route (since Continental stopped flying it), and the result is a four-way game of chicken and a fare war that won't end until one airline drops out - all amidst a dismal business travel climate.

The airlines are resorting to tactics that have an air of desperation to them. Qantas is allowing kids to fly for free on the route, and when you buy a business class ticket, you get two for the price of one - deals that the airline has labeled "unprecedented." Said a Qantas spokesperson: "This is the first sale of its kind for many, many years." Qantas, which used to control nearly 75% of traffic on the route, now flies around half. Before things got bad, the airline made around a quarter of its cash on the route, and even though it's losing money there like everyone else, Qantas has interest enough to stick it out and wait for the situation to improve.

Then there's United, which has come out with the uncharacteristically ballsy proclamation that it would match any competitor's fare between Sydney and Los Angeles. "United is determined and committed to matching the initiatives of other carriers and we'll compete aggressively on price if that's what's required for us to protect our business here," said their Pacific vice president, James Mueller, quoted in The Australian. "I look at our services to Australia as sort of our southern cornerstone of our overall Pacific product offering... [we] fully intend to keep operating here indefinitely." According to the article, United's revamped premium cabins have paid off, with the airline's market share on the route holding steady (for now). United has been flying the route for nearly 25 years, ever since it purchased Pan Am's Pacific route network in April 1985.

And then there are the new entrants: V Australia and Delta. Things have become more complicated now that Delta has announced a joint venture with V Australia parent Virgin Blue, to say nothing of the latter's codeshare agreement with United on domestic flights from Sydney. Some analysts are predicting that one of the airlines could leave the market as early as October, but which one? Both Qantas and United are so well-entrenched in the route that I don't see either giving it up; this leaves Delta and V Australia. Some have said that Delta, being the larger of the two, won't be the one to pull out, but I'm not so sure. If Delta does drop LAX-Sydney, they might lose their claim to flying to all six inhabited continents, but right now it can't be much more than another international route for them. V Australia, on the other hand, doesn't have anywhere else to turn to if they drop the route, apart from service to Los Angeles from Brisbane and Melbourne.

So, if you're planning a trip to Australia, book now while prices are low - before the game of chicken comes to an end.

photo by code20photog from Flickr

BA loses $2.3 million a day as OpenSkies cuts back

Dow Jones is reporting that British Airways is burning through £1.4 million, or $2.3 million, a day, according to the airline's CFO, Keith Williams. Williams said in February that the airline was losing £2.7 million of cash a day, which is almost $4.5 million, so I guess that's an improvement. But William is also warning that the "cash burn isn't sustainable," and that rate is likely to increase during the winter. So BA is by no means out of the woods yet.

And in related news, BA subsidiary OpenSkies has announced that it will drop its New York - Amsterdam route next month, leaving the premium BA offshoot flying just one route (New York - Paris). OpenSkies CEO Dale Moss has said that "while OpenSkies developed more than 16% market share during only nine months, it was not enough to sustain a profitable service at this time." "We tried very hard to make it, but the current market forces were just a bit too difficult," he said on the company's blog. "My most sincere wish is that someday OpenSkies will return to Amsterdam and make it another signature route." But despite Moss' optimistic outlook, parent British Airways has hired an investment bank to find a buyer for the airline.

photo by bribriTO from Flickr, licensed under the Creative Commons

How to make money from Ryanair

The Times recently shared a clever way to take back the money that you might have lost with Ryanair's £5 online check-in fee. A cup of coffee on board sets you back either £3 or €3, so you can pay for your coffee with either currency and ask for your change back in either currency. If you pay with a €50 bill, you could get €47 back in change, but that's only worth around £41. Instead, pay 50 euros but ask for your change back in pounds sterling - and instead of getting £41 back, you get £47 and make a profit of £6. Not only do you get back your online check-in fee, but you get an extra quid on the side (depending on the exchange rate, of course). I'm surprised that Ryanair boss Michael O'Leary, famous for his fanatical low-cost approach, hasn't removed this loophole yet, but I'm assuming that it's only a matter of time.

photo by jon gos from Flickr, licensed under the Creative Commons

Wi-fi and the future of inflight entertainment

US Airways announced yesterday that it will become the latest airline to offer in-flight wi-fi, starting next year. It'll be provided by Aircell's Gogo Inflight system and only available on the airline's A321 fleet for now, but Gogo is already present on the entire fleets of Virgin America and AirTran. United, American and Delta are also looking at installing Aircell's service, while Southwest and Alaska are currently testing the competing Row44 service. (As an aside, US Airways removed power outlets on its A321s, so if you're planning on using the internet for awhile, be sure to bring a spare battery.)

Some airlines, like American and AirTran, have been offering free wi-fi for a limited time on certain routes (after all, that is the most effective way to get people hooked). But there's no doubt that in-flight wi-fi is here to stay, and it could be that pretty soon laptops could replace the TV as the key means of entertainment.

And wouldn't airlines like this? An excellent article in Reuters points out that there would be significant cost savings for airlines. After all, they've got to pay for the installation of the systems and any upgrades, as well as the extra fuel costs related to hauling around all of that extra equipment. And next time you're watching a movie on a transcontinental flight, keep in mind that the airline had to pay a licensing fee to the movie studio. Which means that NBC pockets a bit of cash every time I watch an episode of The Office on United.

There's even another bonus. From the article:

Passengers engrossed with their laptop PCs and mobile entertainment devices that can be used continuously as a result of the power sockets on every seat could also free up cabin crew. "I've heard stories about the number of crew on board each flight being cut by airlines after they introduced personal TVs on every seat," said Anthony Prakasam, an aviation consultant.

So basically, the internet would help further distract passengers from the ever-declining level of in-flight service? Perfect! Makes you wonder why airlines haven't rolled out wi-fi already. Maybe because it costs at least $100,000 to outfit an aircraft? I'm not sure, but perhaps airlines should trim down their current inflight entertainment systems to just long-haul routes and hand out free wi-fi access instead. They might be able to recoup their costs pretty quickly with all of the savings of getting rid of the conventional IFE systems on some flights. Of course, I'm not a bean counter at an airline so I'm not sure if that would make economic sense. What do you think?

photo by DrewVigal from Flickr, licensed under the Creative Commons

What's next for JetAmerica?

It's been a week since much discussed startup JetAmerica announced that it was shutting down operations, blaming difficulties with securing slots at Newark. Still, there's the possibility that the airline could always start up again. From a Florida Today article:

The airline’s chairman vowed to return to service this fall, however, with Melbourne [Florida]’s airport serving as the base for the operation’s lone Boeing 737-800 jet. “Melbourne will be our focus city,” Steve Schoen said in a telephone interview late Friday from Clearwater, where the airline is based. He later added that the airport in Lansing, Mich., will also be a “target city.”

That's right - we might not have seen the last of the JetAmerica yet. But airports would probably be pretty wary of giving JetAmerica (or its latest incarnation) another chance. The Melbourne airport allocated $25,000 to help promote JetAmerica, and most of that's been spent. And the Toledo-Lucas County Port Authority, which was JetAmerica's focus city, has already spent $119,000, and that amount could end up being as high as $150,000.

I recently asked Toledo Airport's President and CEO, Michael J. Stolarczyk, a few questions about his airport and JetAmerica. If JetAmerica were to start up again, "we would certainly hope that Toledo Express is considered," said Stolarczyk. "If Steve Schoen starts another air carrier, we would welcome the discussion and would fully vet the proposal as we did the first time. The operations team that Steve Schoen compiled was comprised of professionals from the industry and there were several points in their model that will prove to be viable. Fortunately, I’m sure they have learned some valuable lessons from this experience – as have we - and I fully hope Mr. Schoen reemerges with a strong product and that he considers Toledo Express as a service corridor."

Stolarczyk also notes that JetAmerica should have gone with a less aggressive schedule. "Daily service to the New York area is provided from Detroit and we truly wanted to capitalize on that and capture some of those travelers. We can capture those travelers; however, we may not be able to fully load daily service to New York right from the start. In the future, we will begin with three to four times per week service to this market…and then grow that service to its maximum potential."

And as for Toledo and those other airports which were seeking new air service, Stolarczyk remains optimistic. "The team at Toledo Express is going to continue to be diligent in our efforts to secure air passenger service. We will continue to bring the best offer to the table that we possibly can for our partners in these efforts –just like we did with JetAmerica... We bring the same spirit of enthusiasm and support that we showed to JetAmerica to all potential passenger air service partners. It is not a matter of if we will obtain additional air service; it is truly a matter of when."