The story seems to have been uncovered when a couple of business partners tried to book side by side. They each got different prices despite doing the same search. So what happened?

According to Delta spokesperson Paul Skrbec, the airline “updated our search function as part of a phased approach to improve the site.” The people who were logged in were using the glitchy new search function whereas those who weren’t logged in used the old one. That meant that you would get conflicting results depending upon whether you were logged in or not.

Despite press reports that those who were logged in were charged more than those who weren’t, Delta told me that sometimes the fares were lower, if they were different at all. This went on for somewhere between one and three weeks before Delta reverted to the old technology throughout the site. (It’s unclear to me how long Delta knew there was a problem.)

It’s not necessarily a big problem if Delta wants to try and charge different prices to different people (though charging elites more is pretty stupid because that will encourage elites to not log in when they buy). We can have that conversation another time, because I’m sure a lot of you disagree with me. The big problem in my mind here is if the airline does it without telling people it’s going to happen.

Why is that an issue? Because people aren’t stupid, and it’s way too easy to see through something like that. People would catch on when they compare using different sites or when they book side by side with someone. Long time readers will remember the first and only fire-red-with-anger Cranky Jackass award that I gave US Airways for quietly slipping in booking fees on its own website. That practice is long gone, but it was sneaky because the airlines have spent years drilling into people that they will get the lowest fare on airline websites. If that quietly changes without any sort of notice, then I consider that deceptive.

Fortunately, that’s not what we’re seeing here with Delta. We’re just seeing yet another problem with the Delta website. People already lack trust in the website’s terrible SkyMiles redemption capabilities and this could shake faith in the paid booking process as well, depending upon how big this story gets.

This is definitely a black eye for Delta since a lot of the media reports make it seem like Delta is deliberately trying to charge its frequent fliers more. What does that mean for Delta? It means people will be more likely to search other sites to verify the pricing seen on Delta.com. It also means people may try to book without logging in. Delta shouldn’t like that because it’s always better to be able to tie behavior to a specific user if you can. It helps a smart business better serve that person.

Possibly the most frustrating piece of this whole thing is that some people likely were overcharged and they really wouldn’t have any way to know it. If you do know that you were overcharged for one reason or another, Delta told me that the best way to deal with it is to contact Customer Care. But how would you even know? You probably wouldn’t.

So, conspiracy-theorists, was this really some super-secret attempt to test price discrimination across customer types? I don’t think so. I think it was just a mistake.

That being said, I won’t be surprised if we see an airline try that kind of pricing at some point in the future, but I’m hopeful that when it happens, that airline will be completely up front about it.

[Original photo via Flickr user Hugo90/CC 2.0]

And then if you go over to JFK, just a little update. Of course, terminal five, we’re close to celebrating four years of really just optimum performance through that facility. We’re very close with the Port Authority of extending terminal five. We call it T5 International internally. It’s on the footprint of the former terminal six. Terminal six is — was not landmarked. It was obviously, as you know, originally there to support National Airlines decades ago. It is now a tarmac, and we are very hopeful that we will be breaking ground on an international arrival facility similar to what you see happening over at terminal four. There’s a lot of growth happening at Kennedy. We believe that having all of our operation under one roof — and again we will have Hawaiian Airlines in here very shortly — is really exciting.

This might not be breaking news, but it’s the first time I’ve really thought about this. An international facility at Terminal 5 would do wonders, wouldn’t it? Of course, it would allow JetBlue’s own international arrivals to land at Terminal 5 instead of running a split operation today, but it can do much more than that.

JetBlue has already announced that its partner Hawaiian will begin flying out of T5 when it comes to JFK. Hawaiian, however, is the only partner that can do that right now. American is certainly too large and it has its own new facility there anyway. Cape Air, the only other domestic partner, doesn’t fly to JFK. All the other partners are international, though I do wonder if Aer Lingus could move today because of its pre-clearance. I’m not sure. But, if JetBlue builds a new international wing on the footprint of the old Terminal 6, that opens a whole new opportunity, and it comes at a good time. Here’s JetBlue’s corner of JFK:

Remember that Delta is actively working to take over a huge chunk of Terminal 4 as a replacement for Terminal 3. With that, all existing airlines in Terminal 4 will be pushed to the eastern concourse, I believe. And you know which airlines are included there?

Aer Lingus, El Al, Emirates, LOT, Singapore, South African, TAM, and Virgin Atlantic are all both partners with JetBlue and tenants in Terminal 4. Given the opportunity to make connections simple and move to a brand new facility, you would think that many of these would jump at the chance. Sure that might not include airlines like Virgin Atlantic, which have invested a significant amount of money in facilities, but others don’t quite have those deep ties.

That would create a monster of an opportunity. Keeping all those flights in the same terminal reduces minimum connecting times and allows airlines to schedule tighter connections. For an airline like El Al, it could help make connections more competitive by reducing total transit time. The shorter the travel time, the higher those flights show up in reservation system displays. That could be a big deal for some of these airlines, which might be at a disadvantage versus other airlines that can connect within the US on their own flights.

I haven’t seen a ton of information on this Terminal 5 expansion yet, but it seems like a great plan for both JetBlue and its partners.

I’ve spent time on the phone with people at Delta, I’ve read investor presentations, and I’ve even had beers with a couple of folks who work for big oil companies. In other words, I tried to really get my head around what this all means. Here’s how I understand it.

How This Works
Delta has set up a subsidiary to buy the Phillips 66 refinery in Trainer, Pennsylvania which is in the southeast corner of the state on the Delaware River right near the Delaware border, for $180 million. The actual outlay is only $150 million because the state chips in $30 million for a variety of reasons. This is really cheap.

The subsidiary, which is awesomely named Monroe Energy LLC after, I assume, Delta’s original hometown of Monroe, Louisiana, will then invest $100 million to convert the refinery so that it can make as much jet fuel as possible. From here on, I’ll just refer to the subsidiary as Delta to make things easier.

Delta has set up an agreement with BP to provide the crude oil to the refinery and then Delta will refine it, so the airline doesn’t have to source its crude needs. As part of this deal, Delta is going to own a pipeline that sends the oil up near New York City to a deepwater port. Delta can then use its existing fuel network to transport fuel to its New York hubs and via ship and truck elsewhere around the Northeast.

The problem with jet fuel, however, is that you can’t just turn crude oil into it and nothing else. The process ends up with a lot of byproducts in the form of things like gasoline, diesel, etc. In fact, after optimizing the refinery to produce as much jet fuel as possible, Delta will still only see a third of the total output come in that form. So what Delta has done is agreed with both Phillips 66 and BP to have them take all the non-jet fuel product and exchange it for jet fuel. BP and Phillips 66 will sell the gasoline, diesel, etc through their channels and then they will provide Delta with jet fuel at locations around the US for Delta’s other operations outside the northeast.

By the time everything is up and running, Delta thinks it will be able to provide 80 percent of its domestic jet fuel needs from this project. This year alone, Delta expects to save $100 million in fuel costs and that should increase to around $300 million at today’s prices.

Sounds great, right? Well sure. But where I’m still fuzzy is on how the savings will actually occur.

The Dreaded Crack Spread
Last year, Delta paid around $12 billion for fuel, so that $300 million savings is around 2.5 percent of the total. That’s not bad. Of that $12 billion, $2 billion came from the crack spread.

The refining process is known as “cracking.” And the crack spread is the cost of the refining process that gets baked into the price of jet fuel. (It’s not really the cost but rather market driven.) So as you can see above from this, ahem, slightly-modified Bloomberg chart, that cost can swing pretty insanely from down around $5 a barrel at its low to almost $40 a barrel. That’s big money. Last year, Delta paid just over 15 percent of its total fuel bill to pay for the cracking process. Put another way, the crack spread accounts for about ten percent of the airline’s total unit costs so it’s a massive expense.

Of course, Delta still has to operate a refinery, so it’s not like it can completely save the cost of the crack spread. But it’s brought in an industry veteran and has come to a tentative agreement with the refinery workers to put it back into production. Delta thinks this works well no matter what happens.

How This Doesn’t Work Well
To me, the obvious downside is if the crack spread on jet fuel in the market drops. What if it goes down to $5? Wouldn’t Delta lose a bunch of money because it could just get fuel cheaper elsewhere? It certainly seems that way to me, but the crack spread seems to travel with the price of oil, at least over the last few years. So if the crack spread drops a lot, that means oil dropped a lot as well. That’s why over the last five years this would have been a money-losing proposition only at the end of 2008, when fuel prices crashed. Every other year, it would have saved the airline money.

If that kind of crash happens again, Delta will end up paying more for fuel than it would if it bought it on the market, but jet fuel will have dropped so much that the impact will be acceptable in theory. Does this sound familiar? That’s because it’s really just another type of fuel hedge. You may lose money if fuel price drops but you win if it doesn’t.

Dwindling Supply
Part of this isn’t about price at all but rather about supply. Apparently, about half of the jet fuel refining capacity has been shuttered in the northeast over the last few years. With this, Delta can guarantee its supply. Delta shows that the Trainer refinery makes money, so why would it have been idled by its previous owner?

I have to assume that it wasn’t making money, especially on the gasoline by-product which has slim to no margins. We do know that the price of refining in the northeast is more expensive than in the south, and for some types of gas, it’s even cheaper to just buy it from Europe or Asia. So is Delta going to be paying a premium to refine in this area? Maybe.

But there is a big benefit to being in the northeast, because Delta has a lot of thirsty airplanes in the region. Some of the higher costs are offset by lower transportation costs since this is right near Delta’s New York operation. That direct pipeline that goes near the New York airports is one reason that Delta thinks this is a unique opportunity. Having that network significantly lowers transportation costs, and it dumps the fuel out right near two of Delta’s hubs.

I suppose we’ll look back on this in a few years one of two ways; it’s either an incredible move or it’s colossally stupid. Delta seems to have thought through all the different scenarios, so on paper it makes sense. But will it be the same in practice? This one is definitely way outside my knowledge, but it kind of sounds like it might be a great move. Then again, what do I know?

[Original photos via Flickr users Simon_sees, pedrosimoes7, and Wikimedia Commons user Walter Siegmund/CC 2.0]

We had prepared well for the big day with a very different packing regimen. For the first time in years, we checked a bag (two on the return). That meant we brought only his necessities along with a computer or two in our carry-ons. Oh, and we brought the car seat and stroller to be checked at the gate. It worked out well.

To make things easier, I decided to try a service recommended to me by my friend Johnny Jet. We drove to LAX Parking Curb Express, and for $14.95 a day, they drove us from their facility to the terminal and dropped us off. It was well worth the price.

We went to the Sky Priority check in area since we were traveling in First Class and a friendly agent got our bags tagged and we were on our way. Security took forever with a baby. We had to pull him out of the stroller and my wife walked through the metal detector with him. The car seat went through the x-ray machine, but the stroller had to be hand-inspected. Then they tested the breast milk. It was pretty cumbersome, but we left plenty of time for that reason. (The TSA agents were far from friendly that day, so I’m glad we weren’t in a hurry.) Then we were off to the gate.

We pre-boarded and my wife got settled while I dismantled the stroller and car seat to check at the gate. Once onboard, the flight attendants were fantastic. We were on a 767, so the First Class cabin was good-sized, but every flight attendant came over to say hello and offered to help if we needed it. Welcome drinks were offered as another flight attendant announced to the coach passengers that “now is the time during boarding that we like to call creative stuffing” – she encouraged people to find ways to get their bags in.

The little guy was dressed for the occasion, though he had the wrong airline in mind. (Thanks for a US Airways friend for that baby gift.) My wife tried to feed him as we climbed through the shallow marine layer, but he was out like a light before we left the gate. He apparently inherited that from her. He slept the first couple hours while we ate (I had the cereal while my wife had the omelette, which she really liked). We logged on to Gogo wifi and had a movie going in the seatback TV as well. Totally connected.

He woke up a couple hours in and we prepared for the worst. Fortunately, he was in a great mood. We went to change him in the empty area near door L1 (the flight attendants said that was our best bet since that plane had no changing table) and we ended up staying in the galley for about 10 minutes with the flight attendants because they were having fun with him. They even gave him his first wings. (Wing pins are back!) I asked the flight attendant if she could ask the captain for the aircraft registration since I couldn’t see it at LAX, and the first officer actually came out to give it to me. He asked what I did and we started talking a little. He’s one of those guys who thinks that he should have the same contract he had in 2000, but I wasn’t about to argue with him when he had an airplane to fly.

Our connection was looking a little tight until they switched the runways around and we unexpectedly landed early. We found an elevator to get us down to the train and made our way to the C gates. Our plane was all the way at the end, but that gave us a chance to stretch our legs (and change him in a restroom along the way). Our corner of the ATL wasn’t having much luck. First a Knoxville-bound flight went mechanical, then another flight was weight-restricted, and finally ours broke too. We were told that a tire needed to be changed, but upon further inspection, they changed their minds. Seriously. I asked after the flight and the first officer told me that they found out the foreign object wasn’t as deep as he first thought.

We boarded to find a CRJ in terrible condition. The bulkhead was threadbare. There were multiple holes in each seatback pocket. The lighting was dirty with stains. The safety placards were all worn down. Delta should have been embarrassed to have ExpressJet flying this airplane under the Delta name. It looks even worse in this photo because of the flash, but it was bad in any kind of lighting. (I tweeted it and Delta responded quickly. They informed maintenance that the airplane needed to be looked at.)

Fortunately, the airplane itself worked just fine. The little guy wasn’t nearly as thrilled with his coach ride on a CRJ. But he did hold his own for most of the flight. The flight attendant was great, introducing herself personally after we boarded in case we needed anything. She did a nice job with service on the sub-1 hour flight. We stayed just north of an imposing storm most of the way and somehow landed without even touching a cloud.

On the ground, it took them some time to get the door opened for us to walk out on the ramp, and the airplane was hot. The little guy had enough and started wailing. At least he made it that far. Everyone on the airplane was very friendly about it and tried to see if they could calm him from their seats. Soon enough, we were off the airplane and in the very tiny Wilmington terminal.

—

Our return started very early – at 1215a Pacific Time when we woke up to make the trek to the airport. It was supposed to be a beautiful sunny day, but apparently a surprise storm showed up and it was overcast with rain in the area. We were dropped in front of the sleepy, North Carolina-inspired terminal and went to check in. There was an earlier connecting flight in Atlanta and we hoped we could do same day confirmed for $50 to get on it. We went into the Sky Priority line and a woman at the counter shouted a question whether we had checked in at the kiosk. We told her no, because we wanted to see if we could make this change. She told us that we had to get in the other line to do that. I asked what the point of Sky Priority was, and she said something about how they don’t really do that. They just worked one line. Right.

Clearly this woman had no idea what to do because the other guy behind the counter told her to do it. She said she didn’t know how. He told her to call someone. She didn’t, and he finally dismissed her and said he’d just deal with it. So we had to wait for him to finish helping someone. Finally, he told us that it’s impossible to do same day confirmed unless we’re changing the first flight. I found out when I was in Atlanta that wasn’t true, but it meant we wasted about 20 minutes that we didn’t need to waste.

We went through security and it was an odd experience. They pulled me aside for a random check, which meant swabbing my shoes and that was it. No pat down, no bag search, nothing else. Then they made my wife hold the little guy for awhile because they wanted to swab the stroller but they didn’t have anyone to help right then. That was a lot of fun.

Having left plenty of time we made it into the gate area before boarding began and we were ready to go when it was time to pre-board. This ex-Atlantic Coast/Independence Air aircraft was built around the same time as the aircraft that brought us to Wilmington, but its interior was in MUCH better shape. We took our same seats as on the way out and soon we were on our way to Atlanta.

We were in the clouds and it was pretty bumpy for the first 20 minutes or so. Turbulence on those CRJs always feels worse, I guess. We finally got out of it and landed in a nice, clear Atlanta day. Since we had checked bags, there was no way to change to an earlier connection even if we could have, so we had a couple hours to kill. We wandered around, my wife got coffee, and I stared at airplanes.

We pre-boarded once again, and I was definitely used to the stroller/car seat routine. The first officer was coming up from his walkaround and he stopped to say hi to the little guy. I asked how the ride was looking, and he said it was bumpy on the way in from Jacksonville and “it’s always bumpy over the Rockies.” Ok. (We never even got near the Rockies, passing over El Paso.) This wasn’t the last oddity to come from the cockpit.

On the airplane, the flight attendants were once again very friendly and eager to visit with the baby. He, however, was exhausted and after fussing a little at the gate, conked out for a couple hours. Despite their best efforts, the flight attendants couldn’t get the inflight entertainment system working, so it was all up to Gogo to carry the load (and it carried it well).

We took off to the west and that’s when the seatbelt follies began. First, the captain came on and told us that it was going to be bumpy so he was going to turn the sign on. But he had never turned it off, so he actually flipped it off when he meant to turn it on. I mentioned it to the flight attendant but the captain didn’t fix it. Later, he did the reverse, eventually correcting it when the flight attendant told him that time. There could have been a serious liability issue if we hit severe turbulence and the sign was mistakenly off.

But we didn’t hit anything severe, though there was light chop much of the way. I held the little guy for a lot of the flight, and I didn’t end up eating. My wife had a different kind of omelette than on the way out that she really liked. The little guy decided to wake up and scream briefly, and we got nervous that we were bugging those around us. We went up front and changed him, and soon he was back asleep again. Whew.

We sat in the clouds of a late season storm for much of the last hour or so, but we landed very early. Ah, the curse of landing early. We slowly taxied out to the very end of a taxiway and sat there. The captain came on to tell us that an airplane was in our gate and it would be about 10 minutes. About 15 minutes later, he came on and said that the airplane was just doing some last minute catering and then we’d be there in 5 minutes. We started moving, but we stopped again. Meanwhile, we had a diaper breach and had to change him. But we couldn’t get upon an active taxiway, so we had to do in the seat.

Finally, more than 45 minutes after we landed, we were at the gate. The captain’s inaccurate and sporadic updates were frustrating.

Once we pulled in, our stroller car seat came back up, but the stroller was damaged. A mud flap was gone and the foam handle was broken. We were told to file a report, so we did. When we finished up, I had called LAX Parking Curb Express to come pick us up. They showed up quickly, we checked out the car, and we were on our way. They send another car to pick up the driver so we didn’t have to take him back.

Overall, it was a very successful first trip with the baby. The flight attendants absolutely stood out on all these flights for doing some great work.

Basic Economy was first rolled out in the Detroit to Orlando, Ft Myers, Ft Lauderdale, and Tampa markets. If you’re surprised by those markets, don’t be. Those all have multiple flights per day on Spirit, and Delta must be concerned that it is losing out on passengers to fill up the back of the bus. So it introduced Basic Economy which has the following rules:

• No changes are permitted at all
• Fare are completely non-refundable
• Seats are randomly assigned at check-in and cannot be changed
• All fares on a reservation must be Basic Economy (no mixing with other fares or other airlines)

You can buy some of what Delta is now calling “Trip Extras” to add on with things like priority boarding, etc, but that’s about it. It’s a highly restricted ticket. Delta shows it this way on its website:



It’s very clear what you’re getting when you book this way, so there won’t be any surprises. But what about those who book through an online travel agent? Looking at the four big guys, Expedia, Orbitz, Priceline, and Travelocity, only Travelocity made any attempt to show that this fare was different than others. Here’s how they break down, from worst to best.

Priceline
Priceline is by far the worst here, because not only does it not make any effort to disclose that there are extra rules here, but it actually makes you think you can choose seat assignments in advance. After going through the entire booking process, Priceline presents a link to the raw fare rules and restrictions as filed by the airlines and leaves it up to the traveler to decipher it. Priceline asks if you want to assign a seat, and then lets you pick from the seat map. Undoubtedly, that will get bounced out by Delta later, but will the traveler even know?

Orbitz
Orbitz, like Priceline, makes you go through the whole booking process before it shows you a link to the airline-filed rules on the payment screen. This is incredibly frustrating because you have to go through multiple pages of upsell attempts before you can find the rules, if you would even bother to pull up the link that’s buried. I can’t imagine anyone is doing it.

Expedia
Expedia is only slightly better than Orbitz because it brings the link to the rules page further up front. Right on the flight details page after you pick your flights, you’ll find the link, which again goes to airline-filed rules. This is at least much easier to access because it’s earlier in the booking process.

Travelocity
Travelocity is the only one that makes any attempt to differentiate the fare in the fare display itself, so it should receive kudos for that.



It’s not perfect, especially since it appears that the link is broken, but I imagine if it worked, it would link to a page or pop-up that would show all special restrictions on the fare.

–

I understand how difficult it is for online travel agents to try to make sense of all the different rules that different airlines put out there, but even something as simple as what Travelocity has done will make a tremendous difference.

I spoke with Ben Baldanza, CEO of Spirit Airlines, when I was at the Phoenix Aviation Symposium and asked him how many of his bookings came from online travel agents. He said it was around 25 percent, but he noted that 100 percent of the complaints about the airlines policies are from those bookings. People who book direct have a very clear understanding of what’s included and what’s not on every airline website. The online travel agents, however, aren’t keeping up with changes in this industry.

And this isn’t limited to just online travel agents. Metasearch sites like Kayak are also not doing a good job. Kayak shows you the Delta fare without any details at all. The difference is that it sends you to the Delta website, but it deeplinks you. So you do see that the ticket is non-changeable in small type but you don’t get that clean display that you would if you went to Delta.com directly.

Travelocity certainly deserves credit for at least doing something about this problem, but there’s more that needs to be done. If nothing changes, then online travel agents will make themselves more and more irrelevant as time goes on.





]]> http://crankyflier.com/2012/04/16/deltas-basic-economy-fares-show-why-booking-through-online-travel-agents-is-becoming-more-and-more-hazardous/feed/ 16 http://crankyflier.com/2012/04/16/deltas-basic-economy-fares-show-why-booking-through-online-travel-agents-is-becoming-more-and-more-hazardous/ http://feeds.crankyflier.com/~r/CrankyFlier_Delta/~3/qRi2uQRS_1A/ http://crankyflier.com/2012/04/06/topic-of-the-week-delta-wants-to-refine-its-own-oil/#comments Fri, 06 Apr 2012 10:45:45 +0000 CF http://crankyflier.com/?p=9248 Word is out this week that Delta wants to get into the oil refining business. I would assume the idea is to be able to buy fuel at cost, but I really don’t know enough about the oil business to know whether this is brilliant or completely insane. So which is it?





]]> http://crankyflier.com/2012/04/06/topic-of-the-week-delta-wants-to-refine-its-own-oil/feed/ 16 http://crankyflier.com/2012/04/06/topic-of-the-week-delta-wants-to-refine-its-own-oil/ http://feeds.crankyflier.com/~r/CrankyFlier_Delta/~3/HQaQkOCpY80/ http://crankyflier.com/2012/04/03/pinnacle-files-for-bankruptcy-protection-you-shouldnt-care/#comments Tue, 03 Apr 2012 10:45:26 +0000 CF http://crankyflier.com/?p=9217 Another day, another bankruptcy. On Sunday night, Pinnacle Airlines Corp filed for Chapter 11 bankruptcy protection to the surprise of nobody. I should say, to the surprise of nobody who has ever heard of the airline.

You probably haven’t heard of Pinnacle because it and its subsidiary airlines fly under the Delta Connection, United Express, and US Airways Express names. The group carried nearly 20 million passengers last year, so this should be a big deal. But it’s not if you’re a passenger. Let me explain why that’s the case.



Pinnacle Airlines itself was originally called Express Airlines I. It proudly carried the red tail as Northwest Airlink for many years (and Republic Express before that). A name change came a few years ago and it tried to expand. After getting Delta to give it some flying, Delta and Northwest merged bringing the airline back to square one with a single partner.

In recent years, Pinnacle expanded through merging. It acquired Mesaba from Northwest and it acquired Colgan Air. You may know the Colgan name. That’s because Colgan operated the Q400 that crashed in Buffalo a couple years ago. It’s no surprise that Pinnacle planned to phase out the Colgan name in favor of Mesaba, but it never quite got there. So now, bankruptcy is going to accelerate some big changes.

One of Pinnacle’s big problems is that it agreed to a lot of unprofitable contracts to fly express operations for major carriers in its effort to break into new flying opportunities. That wasn’t the smartest plan, but now those are all going to end.

Colgan built up a small Saab 340 turboprop operation for US Airways at LaGuardia, but with US Airways shrinking that operation thanks to the Delta slot swap, there was no need for Colgan anymore. The remaining few flights will be done soon. That has very little impact on travelers since it wasn’t going to last much longer anyway.

Perhaps more surprising is Colgan’s decision to end operations as United Express. Some of that was on Saab 340s but the real shock was the decision to stop flying its thirty Q400s as well. The Q400s had found a nice niche in the northeast as Continental Connection, but apparently the contract simply wasn’t producing for Colgan. It’s walking away completely with all flights under the United name stopped by the end of November.

Now that does seem like something that should concern you as a traveler, but it really shouldn’t. It’s not like these routes are going to disappear just because Colgan walks away. I asked United for a statement and was told this:

We are working with Colgan to transition their flying for United Express to other carriers, and are working hard to accommodate our customers. We have contingency plans in place and will contact any customer whose reservation may change as a result of the transition.

In other words, while there could be some disruption, United will just find someone else to take over Colgan’s flying. Maybe United will turn to Horizon Air, a very experienced Q400 operator. Or maybe Republic will pick up the flying since it has been flying those airplanes for Frontier. Or maybe United will just transition to jets. The point is, United can fill the hole and you won’t ever know the difference. That’s one reason airlines like outsourcing. They can always replace an operator if things don’t work out.

Pinnacle will also be reducing its Delta flying a little, but not much. A handful of CRJ-900s will disappear since they fly under yet another unprofitable contract. But Delta is now the sole reason for Pinnacle to exist.

In fact, Delta is forgiving $44.3 million in debt as well as pumping in another $30 million to keep the airline flying while it restructures. If Delta didn’t pump money in, then Pinnacle might not have been able to arrange financing at all and could have been gone by June.

In return for this infusion, Pinnacle agreed to modify its “most valuable contract” operation 50 seat CRJs with Delta to be more favorable. As part of this, it got an extension to allow it to fly all 140 of those airplanes until the next decade.

So what does all this mean? It means flights will continue to fly. United will have to find someone else to do the flying while Delta will just get much of its flying for less . . . if you don’t count the $70+ million it’s investing in this deal.

If anything, this could be a good thing for passengers. Why do I say that? Well, Delta is getting a better deal on the CRJs because of this. That means some marginal small city routes might now look better with lower costs applied.

But beyond that potential benefit, there really isn’t much here that concerns the traveler. It’s just yet another bankruptcy.

[Original photo via Flickr user DearEdward/CC 2.0]





]]> http://crankyflier.com/2012/04/03/pinnacle-files-for-bankruptcy-protection-you-shouldnt-care/feed/ 44 http://crankyflier.com/2012/04/03/pinnacle-files-for-bankruptcy-protection-you-shouldnt-care/ http://feeds.crankyflier.com/~r/CrankyFlier_Delta/~3/vV13Fxn5mp8/ http://crankyflier.com/2012/03/29/delta-hawaiian-and-southwest-talk-fleet-strategy/#comments Thu, 29 Mar 2012 10:45:28 +0000 CF http://crankyflier.com/?p=9170 One of the more interesting panels in Phoenix last week was the one that focused on fleet strategy. There’s always a ton of discussion about buying airplanes, and each airline has a different philosophy. On the panel, there were representatives from Air China, Delta, Hawaiian, and Southwest from the airline side. The CEO of Airbus Americas Barry Eccleston was also there.

Today, I want to focus on the the three US airlines there and their different strategies. It’s interesting that all may include the Boeing 717 in one way or another.



 

Delta the Opportunist
I was most interested in hearing from Delta’s VP of Fleet Strategy and Transactions Nathaniel Pieper. You might remember my post addressing why Delta had bought current generation 737-900ERs instead of waiting for next generation airplanes. Certainly Delta’s fleet strategy has differed from other legacy airlines.

I was particularly interested in the rumor broken by Holly Hegeman at PlaneBusiness that Delta would be acquiring the AirTran 717 fleet from Southwest. We didn’t get any details on that in this panel, but after hearing Nathaniel speak, it seems clear to me that the 717 would work quite nicely for Delta considering its strategy.

Nathaniel described Delta’s fleet strategy as one of opportunism. “We have every fleet type known to man.” That’s because Delta will go into the secondary market and buy airplanes if it makes sense. The MD-90 is a perfect example of that. Delta has been acquiring every MD-90 that’s on the market because they’re cheap to acquire and they’re good airplanes that can fly many of Delta’s medium haul missions.

Nathaniel wasn’t afraid to judge others, noting that you “won’t see us enter into a commitment for 460 firm aircraft with 500 options. We’d rather play the game a bit more conservatively, be in the game a bit more frequently and take smaller bites instead of one big chunk.” Hmm, I wonder why he picked that “460″ number. Oh right, that coincidentally matches a certain recent order from American. Heh.

What about airplanes even smaller than the 717? The news is not good. To the surprise of nobody, Nathaniel explained that the “economics of the [50 seat RJ] is very challenging right now.” As if that wasn’t clear enough, he confirmed that Delta would like to shrink that fleet “substantially lower.” What would replace those airplanes? Either fewer flights on bigger jets or some markets might lose service all together.

Hawaiian Loves Its Fleet
Moving over to airlines that actually operate the 717 today, how does Hawaiian feel about the airplane? Peter Ingram, EVP and Chief Commercial Officer for the airline has nothing but love. “For the unique flying we do of 100 to 200 mile hops in the islands, the 717 is very good…. We like the 717 fleet and expect to be in it for this decade at least.”

The more interesting fleet for Hawaiian is that of the bigger jets. In the last two decades, Hawaiian has gone from the L1011 to the DC-10, then to the 767 and now to the A330-200. Why the A330? The airplane apparently has “great economics” to the west coast while at the same time giving more range to reach more places in Asia. Since that’s where Hawaiian has been expanding, this makes a great deal of sense.

Southwest, the Simple Airline
Let’s go from an airline that loves its 717s to one that wants to see them gone yesterday. Did Southwest tip its hat about the fate of the 717 at the airline? No, but the way Brian Hirsham, SVP of Technical Operations spoke, it sounded like the writing is on the wall to me.

Brian explained that the Southwest fleet strategy has two parts. The first part is simplicity. “We realize tremendous synergies by operating a simple fleet.” The 717 hurts that simplicity argument, of course.

The second piece? Flexibility. “We have the ability to flex up and down in terms of fleet size.” Southwest will be retiring 120 737-300/500 “classic” aircraft over the next couple years and replacing them with current generation 737-700/800 instead. But if demand rises, Southwest can simply keep those classic 737s flying longer. And yes, that could happen if, say, Southwest decided to drop an entire fleet type.

In the end, everyone seemed pretty confident with their strategies, and that’s no surprise. A good fleet strategy is key to running an airline. Sometimes, what works for one airline might not for another. And that’s why I’m keeping a close eye on those AirTran 717s…

[Photo via Flickr user redlegsfan21/CCSA 2.0]





]]> http://crankyflier.com/2012/03/29/delta-hawaiian-and-southwest-talk-fleet-strategy/feed/ 21 http://crankyflier.com/2012/03/29/delta-hawaiian-and-southwest-talk-fleet-strategy/ http://feeds.crankyflier.com/~r/CrankyFlier_Delta/~3/qTLukRK3EUY/ http://crankyflier.com/2012/01/24/why-delta-is-interested-in-buying-american/#comments Tue, 24 Jan 2012 11:45:28 +0000 CF http://crankyflier.com/?p=8810 When the news broke that Delta was sniffing around the possibility of making a bid for American while it sits in bankruptcy, there were a lot of people shaking their heads, thinking that the mere thought was ridiculous. I couldn’t disagree more. Delta could and should have a real interest here.


What we’re seeing is Delta being really smart, and really aggressive. That’s fun to watch from an airline that used to just be a sleepy old Southerner. The first thing people say about this is . . . there’s no way it would pass anti-trust review. But is that true? I’m not an expert in anti-trust law, but I have no doubt that Delta has been actively working with its lawyers to see what would work and what wouldn’t. If Delta is truly expressing an interest, then it’s done its homework to make sure that it would even be a possibility under the law.

I think the key here is that I imagine Delta isn’t entirely interested in walking away with all of American. Remember when I first wrote about how US Airways should buy American, I suggested that maybe US Airways wouldn’t have much interest in LA or New York? Well, guess who would be interested? That’s right, Delta.

In LA, the market is highly fragmented. I can’t imagine any sort of anti-trust concern if Delta took over American’s operation there. It might even benefit LA by finally building up a stronger single carrier. Sure, the Asian oneworld partners would have a fit, but that’s not Delta’s problem, or the US government’s.

In New York, it might be a tougher sell, but it’s not really that much of a stretch. At JFK, JetBlue carries around 40 percent of the passengers already. So Delta and American combined wouldn’t be a monopoly by any measure. LaGuardia would probably be more of a concern, but the DOT could require some more slots to be auctioned off to low cost carriers and fix that problem right up. I’m sure Delta would be happy to comply if it means eliminating a full service competitor and sprinkling the slots around to other low cost guys.

Of course, this is just one possible scenario, Delta might want Miami as well here, or some other pieces. The point is that the default assumption that the big three airlines can’t combine isn’t true. There are creative ways that they could try to come together with other entities to make a proposal that could work. With American in bankruptcy, it’s really anybody’s game to win, except American’s.

Sure, American could stay as a standalone entity, but the oddsmakers (analysts) aren’t giving that a good chance of happening. When you go into bankruptcy, you lose absolute control of your company. That doesn’t mean that you can’t get out unscathed, but it means that others are going to take a real shot.

Do I think it would be better if Delta bought American? Nah. I mean, I think it’s good to have three large airlines in three separate airlines that can compete with each other. That doesn’t mean, however, that I’m against bits and pieces being moved around to make each remaining airline stronger. But would American be able to survive if Delta took New York and LA?

I don’t see why it couldn’t work if US Airways took the rest. Were I the surviving American in this case, I’d look to buy Alaska Airlines immediately to solidify at least one strong position on the west coast and take that partnership away from Delta. Not sure if that could happen or not, but the point is that there are opportunities for three large airlines to survive even if Delta “buys” American in some fashion.

Will it happen? I have no clue, but Delta would be stupid not to be sniffing around. (And in case you were wondering, United would be stupid TO be sniffing around because it’s hands are very full right now.)





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