United’s New Seats: the Good, the Bad, and the In-Between – Conde Nast Daily Traveler
United is rolling out new seats on its A319s and A320s. Here’s the good and the bad of the move.

Operating in Indonesia is no easy task. The frequent stormy tropical weather makes for some challenging flying, especially around the often mountainous terrain. That shouldn’t mean it’s unsafe, but Indonesia has a terrible accident record across most airlines. In fact, all but a handful of Indonesian airlines are on the European Union’s blacklist of airlines you shouldn’t fly for safety reasons. That list includes Lion Air.

Lion Air started flying in 2000, and since that time, it has had 7 accidents, though most avoided fatalities. The most recent was in April when a 2-month old 737 ran off the runway in Bali. Nobody was hurt, but the preliminary report shows some very serious pilot training issues.

The accidents, however, are just the most visible sign of a stressed operation. Lion has struggled with on time performance, only achieving around 65 percent on time in 2011. (I can’t seem to find a more recent report, but hopefully it’s improved by now.) Oh, and there was that whole “pilots with crystal meth” thing.

In other words, this sounds like a lot of Indonesian airlines. You would think this would mean Lion Air was on the ropes, right? Well, we have no idea. It’s a private airline and says nothing about finances, but there are some very public signs that this airline has plenty of cash if it needs it. This is one of the fastest growing airlines in the world. As the airline approaches 100 airplanes in its fleet (including a couple 747s that it uses to fly to Saudi Arabia), it prepares for another… 500+. Yeah, I’m serious.

Last year, Lion Air ordered 230 airplanes from Boeing. That’s an order for 29 more 737-900ERs and 201 737 MAX aircraft. Then this year, it ordered 234 airplanes from Airbus. This time, the order was for 60 A320s, 109 A320neos, and 65 A321neos. This is in addition to the aircraft already on order.

Not quite blown away yet? This airline has its fingers in a million different things. It started a regional airline, Wings Air, back in 2003. This airline is now on track to operate 60 ATR-72s within the next couple years. Last year it said it would launch a private jet company called Space Jet, though I can’t figure out if that actually happened. It’s also said to be working on a pilot training academy.

Just this month, Lion launched a new full service airline called Batik Air in the city of Manado. I’ll admit, I needed a a little help from Google Maps to find Manado. It lies in the northeast of the country, a thousand miles closer to Davao in the Philippines than it is to Jakarta. Manado only has about 400,000 people, but they better be rich for this full service airline to work.

Unfortunately, what’s public is pretty much all we know about Lion Air. The last press release the airline posted on its website was from 2006. And the “Contact Us” link just gives me a server error. This is one strange airline. But in the next few years, it might be one huge, strange airline. There’s no question that Southeast Asia is going to see tremendous growth in air travel, but what role with Lion play? It could be a big player or it could just be a blip on the radar depending upon what happens in the next few years.

[Original photo via Flickr user IMAM HARTOYO/CC 2.0]

It looks like Virgin America has started to release results before the DOT does it, so that’s why we have both fourth quarter and first quarter results arriving at once. This appears to be part of the airline’s efforts to work toward a public offering by releasing numbers on a more traditional schedule. (This shouldn’t actually matter.)

Let’s start with the bad news. No surprise here; the airline lost money. It lost just shy of $25 million in the fourth quarter ($145 million for the year) along with another $46 million loss in the first quarter of this year. That’s terrible, but the first quarter numbers were less terrible than last year’s first quarter.

And that’s the good news. Virgin America looks like it shifted to a yield-based strategy and that meant the airline did much better on the revenue side. What do I mean by a yield-based strategy? Well, airlines tend to waffle back and forth between two revenue strategies. The yield-based strategy means you charge more for each ticket and you deal with filling fewer seats. The load factor-based strategy is to moderate your fares to fill as many seats as possible. In this case, Virgin America has clearly gone for the former.

The average fare in the first quarter was up a whopping 19 percent versus the year before. Some of that can be explained by the fact that the airline actually cut capacity in the quarter. For an airline that has been in hyper-growth mode, that’s a big change. And the results are very clear. But even on less capacity, Virgin filled fewer seats as a percentage of total. Load factor dropped from 80.6 percent last year to 77.3 percent this year.

In this case, it all turned out very well. Unit revenues were up over 17 percent (though part of that increase was due to a shorter average flight length). And that largely accounted for the decrease in the loss. But there’s a problem. Even with such massive increases in fare, they still lost a ton of money. Net margin was a negative fifteen percent. Oh, and one other problem? Unit costs excluding fuel jumped nearly 8 percent. This is an airline that cut capacity but it increased the number of employees. And the workforce is starting to become more senior. That means they get paid better. By the way, its airplanes are starting to age as well. Maintenance costs were up more than 12 percent in the quarter.

The Push to Go Public
As we head toward the airline’s 7th year of existence, losses continue. What’s the plan to end this? Well, if the airline continues to keep the lid on capacity and the demand for tickets remains stable, then Virgin America might be able to squeak out a meager profit during the good times. In fact, Cush says that 2013 will have a “significant” operating profit in 2013 (whatever that means) and a net profit for the second half of the year. We’ve heard this before, so I’ll believe it when I see it. But I wouldn’t be surprised to see an operating profit this year if demand stays steady. That’s good. But, then what?

The plan here is very clear. Cush wants (or is being pressured) to take this airline public with an initial public offering either at the end of next year or the beginning of 2015.

In the press release, Virgin America notes that it made the following financing changes.

• $290 million in debt (nearly a third of total debt) will be wiped off the books. Instead, it will be converted “into equity that [the debt-holders] would own once the company went public and the stock hit certain targets.”
• The interest rate on the remaining debt will drop. This combined with the conversion of some debt means the company’s interest expense in the second half of 2013 will be merely a third of what it was in the second half of 2012.
• The airline took out yet another loan, this one for $75 million.

Why on Earth would the debtors give up so much… and then loan more money? The only reason I can think of is that they were afraid they were going to get nothing if the airline failed. And they would have had to be fairly certain about failure for them to be willing to do something like this. But that first bullet point is key. The investors have been stuck in Virgin America for a long time now and they want a payday. All efforts are going to be on going public because even more is riding on that happening now.

I just have a hard time understanding how they could actually go public with the results they’re posting. The worst performing airline out there may improve to near-profitability this year, but it will hardly have the track record or even favorable industry comparisons to really entice someone into investing. I mean, would you buy stock?

Things will most definitely look better with this restructured debt, and Virgin America will live to see another day. But from the way Cush is talking, it sounds to me like the airline has maybe a couple years to go public or… die trying. I’m not sure that’s enough time. Good luck.

The new de-hubbed schedule goes into effect in November, so I looked at a Monday in December and compared it to a similar day in December 2009, before the merger, to show what’s happening.

When Southwest took over AirTran, there was hope that this meant the combined airline was going to be able to use the AirTran 717s to serve smaller markets. Instead, Southwest shipped those off to Delta for cheap and shrunk the AirTran system dramatically. You can clearly see the results of that first phase in this chart:

I included one summer date in there just for comparison purposes. AirTran was always a highly seasonal airline, so I thought it was interesting to show. But if we look at the December before Southwest took over, AirTran was running 199 daily flights to 51 destinations from Atlanta. By this December, Southwest will have shrunk Atlanta departures by more than 20 percent, dropping the hub to only 156 daily departures.

At the same time, it has shed a net of 7 cities. But that destination count isn’t exactly telling the whole story. Most smaller cities in the US have been dropped while some growth has occurred in the existing Southwest network and to the Caribbean.

I thought the shrinking work was done, but I was wrong. In this new schedule, Southwest decided to end service to another three smaller cities from Atlanta: Buffalo, Pensacola, and very interestingly, Memphis. (They’ll still be in the Southwest network, just not from Atlanta.) Instead, Southwest has added nonstops to Hartford and Oklahoma City.

I was surprised to see Memphis lose that flight. It’s not so easy to compete against Delta when that airline’s costs have dropped while Southwest’s have risen. But that’s not the point here. The point is to talk about what this whole de-hubbing thing means. Let’s take a look at a cross-section of a day in Atlanta:

As you can see, the distribution of flights has changed dramatically. Previously, AirTran was set up to be able to fill more flights by flowing more people through Atlanta. That’s why nothing left before 8a; there needed to be time to get people from other cities into Atlanta to fill the flights out. (During the summer, there were earlier flights.)

You can see the big banks were in the morning and late at night. Southwest has changed that around. Now mornings are still busy, but you see a more even distribution through the day. However, that late night hub has basically been dismantled. AirTran used to have 24 flights departing after 930p. Now there will be 4.

That probably means reduced aircraft utilization, and that means costs will rise. Delta must love that. But it also means that Southwest is scheduling flights to be at times that are more attractive to travelers in Atlanta itself. And Delta doesn’t like that.

Keep in mind, this doesn’t mean Southwest is abandoning connecting traffic. When Southwest bought AirTran, 60 percent of Atlanta traffic was connecting. Southwest expects to see Atlanta connections drop to 40 percent of the total traffic in Atlanta, similar to what’s in Chicago and Baltimore. So Southwest is still going to take a huge amount of connecting traffic – it’s just not scheduling for it anymore.

It seems like that should make sense – local traffic has long been more lucrative than connections. Connecting traffic has become more valuable, however, thanks to consolidation and rising fares. But the valuable connecting traffic is coming from smaller cities for the most part. And those are the cities that Southwest abandoned when it bought AirTran.

So Southwest is focusing on local traffic and flight times in local market will generally get better. There are now early morning flights to places like Washington/National and New York/LaGuardia; that makes day trips for business easier to accomplish. In theory, it should mean business travelers in Atlanta will now be more likely to use Southwest if they like Southwest’s product offering, oh, and if they don’t need to fly to smaller cities that have now been abandoned.

Looking at the big picture, this whole “de-hubbing” means that Southwest took what AirTran had built in Atlanta and then dismantled it. It then rebuilt Atlanta to look like every other focus city in the Southwest network. So why did it need AirTran in the first place? Well, it’s a lot easier to build an operation with only one big competitor in town instead of two. It’s the same exact thing we would have seen in Denver if Southwest had succeeded in buying Frontier.

In Atlanta, Southwest saw opportunity, but it couldn’t make it work with a much lower cost carrier in the market. So it decided to buy it and effectively shut it down, making way for its own operation.

In the Trenches: The Value of Face Time – Intuit Small Business Blog
Though we’re a virtual organization, there is definitely some value to getting together in person.

Flying with an Infant: Demystifying the FAA’s Confusing Rules – Conde Nast Daily Traveler
The FAA rules are surprisingly vague on traveling with an infant. I try to break it down the best I can here.

People have long looked at birds flapping their wings and thought, “hey, if we just have wings like that, we could fly too.” Most of those people are dead. It didn’t work. You get guys who thought they could fly looking like this:

That is actually Clem Sohn, and he was more about gliding than flying. Still, he never made it to his 30th birthday when his parachute failed to open. It didn’t take too long for people to figure out that fixed wings worked a lot better than a flapping wing, and that’s what we see today.

But as we all know, science is awesome. And so when I was flipping through my latest issue of George Washington University’s research magazine (that’s my alma mater), the work that Adam Wickenheiser is doing with his Smart Systems Laboratory to reduce turbulence caught my eye.

Granted, the work he is doing is for unmanned aircraft, and that makes sense because they fly lower to the ground and are more prone to turbulence. (Plus, there’s probably a lot more money for something that’s related to defense spending, unfortunately.) But I would bet this would have a commercial aircraft application if it works well.

On an aircraft today, you see big panels that sit on the wing – ailerons, flaps, slats, and spoilers. These do everything from helping to turn the aircraft to allowing for more stability at slower speeds. And yes, they can be used to alleviate the impact of turbulence on the airplane.

With all these control surfaces, aircraft manufacturers have worked hard to create gust suppression systems that help reduce turbulence today. There are sensors that look for air pressure and wind speed changes, something that would indicate turbulence. Then, computers calculate the best course of action to reduce the impact on the aircraft before it hits (ideally). That idea is great, but could a different wing structure make it work even better? Wickenheiser thinks going small could be the answer.

The new concept would have smaller panels in greater numbers on the wing, as you can see at right. As Wickenheiser says, the panels would “move in clusters that emulate a feathered wing.” So why is this any better?

Well it gives a more flexible structure to the wing. You could spread out the individual panels to help slow the airplane down. Or, the coolest part, is that it could open up panels to allow wind gusts to pass through that might cause turbulence otherwise. Naturally, this isn’t something that can be pilot controlled. It requires some very sensitive sensors in the wing to realize something is coming and react accordingly, but as we know, aircraft manufacturers are starting to do that today.

If this sounds like crazy awesome stuff that’s hard to do, I have no doubt that’s the case. It needs to get to the point where you have computers in the wing that are processing extremely quickly. But if it works, the result should be like walking on cobblestones, says Wickenheiser.

“If I step on an uneven piece of ground, I don’t really think about it. I just adjust automatically and walk over it.”

The current plan is to do more computer simulations over the next few months and then some actual wind tunnel tests later this summer. For more information, visit the Smart Systems Laboratory website.

[Original wing photo via Shutterstock]
[Feathered wing comparison photo via Adam Wickenheiser]

The first trip was a trip of firsts. I ended up being upgraded on all my flights into First Class, giving me a great opportunity to compare three distinct products. It was my first time flying out of the new concourse in Long Beach, my first time in First Class on a US Airways regional jet, and then my first flight in Envoy on a US Airways (East) 757.

For the first trip, I left my home an hour before departure out of Long Beach as usual. The new security area is big and spacious but the TSA was completely mismanaging it. They had a regular line and an elite line leading to the same one ID checker. With a constant stream of elite/First Class travelers the other line never moved. People in that line started getting angry and finally someone came to help. (On my second trip, they had fixed this problem.) Once through, I still had time to kill before the flight.

I got on when they called for First Class boarding and took my seat in the last row of the cabin, on the left side where it’s just a single seat. There’s nothing special about the seat itself other than it being a bit wider and having decent legroom. The tray table comes out of the armrest, and there is a little place to put a cup so you don’t have to pull the entire table out. A flight attendant quickly came through offering pre-departure drinks and I had a water.

It turned out I had a friend who was also booked on this flight for business. She pulled up just past the deadline and they wouldn’t let her on. A rule is a rule, but with 25 minutes until departure, she easily would have made it in a place like Long Beach. It’s really too bad they can’t be more flexible when reality dictates.

We pushed back on time and then waited for a couple minutes at the end of the runway before departing into the marine layer, my favorite way to start a flight. Soon, the gloom was under us and we were in the bright (though hazy) morning sun. The flight attendant had taken orders for drinks before we departed, so he brought me a ginger ale as requested.

Then he came through and brought a basket of snacks for people to choose from. He did a great job, and in fact, provided better service than I received on the 3 US Airways-operated flights. When my glass was empty, he saw it and gave me a refill. In the meantime, he was just trying to help the other flight attendant with the drink service for the coach cabin. Soon we were on our way into Phoenix.

After a very busy week in Phoenix, I was on my way back to the airport. Instead of going back to Long Beach, I had weekend plans in San Diego, so I ducked out a little early from the symposium to catch the 510p flight.

This flight operates 5 days a week with an A319, but on Friday and Sunday, a 757 that usually spends the night in Phoenix does a little turn to San Diego because of the higher demand. This is an East 757 with the old school Envoy cradle seats, so I was excited to try it out.

The security line was really long, but my First Class boarding pass helped speed up the process. I was with another person who had PreCheck and he sailed through about 10 minutes before I did. I really need to get that. Our 757 had come in from Philly and was parked at the far end of the concourse. Soon we were boarding.

It’s always a treat when you get to turn left after entering an airplane. US Airways has a mini-coach cabin and then three rows of Envoy in front of the boarding door.

While coach looked like you would expect on any US Airways aircraft, Envoy was old school. The bins were smaller, the window shades were old and yellowed, the seats were scuffed up. This was an old cradle-style business class seat at its finest. And you know what, I’d take it any day over an angled flat bed.

A flight attendant came through with pre-departure drinks. (I soon found out she was a 35-year Piedmont veteran.) I just had water, but the guy in front of me asked for a gin and tonic. Then he stopped her and asked what kind of gin she had. The reply? “I don’t know. It’s just gin.” Oy.

We pushed back and had no delay getting into the air. There’s nothing quite like the whine of those Rolls Royce engines pushing the airplane effortlessly into the sky. We climbed through the usual afternoon chop in Phoenix and then headed south before going west toward San Diego.

It was a quick flight, but I had time for a drink. The flight attendant asked before departure what everyone wanted, and I asked for a scotch. She came back and said, “Here’s your scotch. It’s a double.” And smiled. Excellent.

In the meantime, I went to play with the seat. It was scuffed up but it worked just fine. Other than the lack of underseat storage (my laptop bag barely fit), there wasn’t much to complain about for such a short flight. Oh, there is an arm that comes out of the seat to hold the inflight entertainment, but we weren’t handed the units. That was weird that it wasn’t built-in, but then again, these seats were old.

It was pretty easy to get the cradle seat into a position that was comfortable to me. I can’t really sleep on airplanes, but I got drowsy pretty quickly once I found that comfort spot. Others were passed out already, including the guy in front of me who appeared to be dead he was so soundly sleeping. I was actually surprised how comfortable it ended up being. Do I want to take it over the Atlantic? Not overnight if I can have a flat bed. But it would be great for a daylight trip, and like I said, I’d take it over an angled lie flat seat in a second.

I didn’t have much time to rest because we descended into San Diego all too quickly. It was a beautiful late afternoon with stellar views of Coronado and downtown on the way in. We landed and taxied to the gate in just a couple minutes. Soon I was on my way to a weekend with friends.

I had a great time in San Diego, but then I went back home for a couple days. On Wednesday, it was time to head back to Phoenix once more for the US Airways annual leadership conference. This was the first time they extended a broad invitation to the media, and I was eager to go. But this time, I just did a day trip.

Have I mentioned I love Long Beach Airport? I woke up at 530a, was out the door at 545a, parked in the long term lot, went through security, and was at my gate by 610a. That gave me a little time to check emails and then it was time to board. My only complaint? The parking is absurdly expensive. There is no cheap long term option. If it’s more than a day trip, it’s cheaper for me to take a cab.

US Airways is still running one mainline flight a day into Long Beach. It’s the late night flight in and the morning return. I was again in First Class, and this gave me the chance to compare mainline to Express. The seat was wider and certainly more comfortable. But it felt like there was less legroom. There was still plenty for me, since I’m short. The flight attendant came by with a cup of water before departure.

We didn’t seem to be in a hurry to push back, and that’s not a surprise. Flights can’t depart Long Beach until 7a, so we took our time getting down to the end of the runway. Once there, we waited a couple minutes and then launched into the marine layer. A minute later, we were in the brilliant bright sunshine, such a great contrast to the gray beneath the deck.

As soon as I heard the ding, I pulled out my laptop and worked on a post. There was wifi on this A319, but I wasn’t about to pay Gogo’s rate just to use it for 30 minutes.

The flight attendant came through with another round of drinks but no snacks. It seemed strange that my Express flight offered more than mainline. But soon we had crossed into Arizona and we were on our way into Phoenix.

It was a good day, but I was downright exhausted as I headed back to Sky Harbor for my flight home. Security lines were non-existent and I was at my gate with time to spare. I was glad when it was time to board, because I just wanted to go home.

This flight attendant was in a great mood, and the First Class cabin enjoyed it. One woman lost her phone, so he called it and found it for her. Then he said that as a New Yorker, he couldn’t just give it to her but instead offered to sell it back to her. Then he went through the cabin bringing drinks to all. I told him I’d just have water but I’d have a scotch in the air, and he just brought me the mini bottle before departure so I’d have it ready.

We pushed back on time and taxied to the runway only to pull off of it and sit for another 10 minutes. Not sure what the delay was, but the captain never told us. After letting maybe a dozen other planes go, it was our turn and we headed west.

Once airborne, drinks came quickly and this time we got, as a friend calls it, “salty death mix” with nuts and about 10 times the recommended daily salt intake. But it was tasty. With Santa Ana winds kicking up around the LA Basin, we were told that it was going to be bumpy. So they buttoned up the cabin very early and took their seats for the ride in. After only a couple of minor bumps, we were on the ground and I was ready to hit the pillow.

Most of the presentations were the same as what we saw at media day a week earlier, but there were some differences. Most notably, the tone was different. Senior leadership was visibly more relaxed, especially during the Q&A session when they were often found playfully roasting each other. There were members of the American leadership team in the room each day, and they must have been completely bewildered by something that I couldn’t even imagine being done at American today.

But in addition to the difference in tone, this event had more slides that what we saw at media day. They took more time to talk through much of the rationale for the merger and the benefits it would bring. My favorite slide of the day was this one:

It was last March when I wrote about Jamie Baker’s discussion about the importance of an American/US Airways merger to “small to moderate East Coast cities.” But I think this slide shows it best.

All of these cities lie east of American’s big hubs in Dallas and Chicago. If you’re a resident of these cities, that makes heading west easy. But what if you need to go east? Some of these cities have limited service to Miami in order to connect to South America, but it’s not realistic to use that service to connect throughout the east coast. On this list, only Cincinnati has a flight to New York, but that’s a single daily flight to JFK meant to connect to Europe. It’s in the middle of the day and won’t work on a business schedule.

On the flip side, US Airways serves all these cities from its hubs in the east. (I’m not sure when they officially started calling Washington/National a hub, but we saw that mentioned multiple times at the events over the last couple weeks.) You can connect up and down the east coast and into Europe with ease. But you can’t go west. None of these cities have enough demand to support a flight to the only US Airways hub in the west, Phoenix.

When you bring the two networks together, you gain the ability to get people in all these cities (and there are plenty more not mentioned here) wherever they need to go. That allows the combined airline to compete with Delta and United, both of which can already go both ways from these cities.

Why does that matter? Well, it means the new American will be more competitive for corporate contracts in those cities. By providing a legitimate third option to United and Delta, it should increase competition in those place. That bleeds over into leisure demand as well. If people become loyal American fliers for work, it increases the likelihood of them choosing American for leisure. That’s particularly true if the AAdvantage program remains structured well and continues to draw people to it in droves.