Bold ’08 predictions from Mike Boyd

Mike Boyd of the Boyd Group has released his 2008 airline industry predictions. Key among them: $100 oil will drive regional jets (RJs) to the desert graveyards sooner than expected; desperate “low-cost carriers” will need to cut capacity somehow; and “comprehensive network carriers” will need to improve their management of every minute. Boyd’s weekly commentaries, archived here, are always must reading for its boldness and contravention of conventional wisdom. If you recognize his name, it’s because he’s quoted in newspapers all the time. An industry consultant, he openly acknowledges who he’s consulted for when relevant (for example, he’s very bullish on Embraer’s E-Jets, for which his firm consulted). He’s also a spicy writer:

• “The point is that it’s dumb and useless for some Steve Cute in a studio in New York to tell the world that an airport across the continent has ’30 minute delays.’”
• “No question, Senator, that when it comes to the FAA, the Bush Administration is on an intellectual vacation to the Outer Rim.”
• “We’re referring, of course, to Ted, where United got the brilliant idea to simply re-paint some A-320s, make ‘em all economy class, put them right back in service, and, poof!, try to convince the public that it was now a ‘low cost’ and ‘low fare’ airline. The assumption, apparently, was that the entire naive flying public had fallen off a turnip truck.”
• “The DOT criticizing airlines for flight delays is like Willie Sutton writing a nasty letter to banks complaining about robberies.”
• “Leslie Neilson beware: Bush is auditioning for your part in the next Scary Movie sequel.”

Boyd was given a blogging gig for the New York Times‘s Jet Lagged in December, which is (sadly) closed. Hopefully, it won’t disappear forever. In the meantime, I’m sure readers will find Boyd’s predictions worthy of discussion.

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Gates, terminals, fees, and the business of airports

Airports in the United States are almost always owned and operated by municipal or county authorities. (In a few cases, like Indianapolis and Chicago Midway, private companies have managed airports for the authorities.) These airports lease gates to airports in long-term leases, and then that airline has exclusive use of those gates. Most big-city airports have extra space to accommodate new entrants or airlines wishing expand service, as airlines rarely wish to lease more gates than they need. In some cases, however, gate unavailability has limited the entrance of new carriers. (Issues like this have threatened US Airways international expansion in Philadelphia.)

Airlines who lease gates at airports usually offer the same amenities to all airlines/tenants: baggage facilities, concessions, and the like, which means that gate-lease fees vary little. If there is competition for amenities and fees, it is among airports. For example, Providence and Manchester offered lower fees and attracted discounters like Southwest unwilling to pay the higher fees of Boston’s center-city Logan Airport. The same applies for Miami versus Fort Lauderdale, Orlando International versus Orlando Sanford, and several others. There has been until now little competition within U.S. airports for fees and amenities.

Austin-Bergstrom International Airport in Texas is now attempting to pull this off. Its only passenger terminal, the Barbara Jordan Terminal, is fully occupied and leased. So, to add significant service, it will need to build more space. But this new space is intended to serve the super-discount airlines like Skybus and Mexico’s vivaAeroBus that Austin wants to attract. Back in June, it began negotiations with GE Commercial Airline Services (GECAS) to build and operate a no-frills terminal at Bergstrom. GECAS would operate the terminal for thirty years, and it would be expressly designed for super-cheap airlines, with neither luggage facilities nor assigned gates. Gate fees at the GECAS terminal would presumably be much less than those at the Jordan terminal.

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Airlines and cake

The title above has nothing to do with inflight meals, unfortunately, and everything to do the airlines wanting to have their cake and eat it too in the congested airspace brouhaha (see yesterday’s post). There are several options the FAA is currently weighing to resolve the delay problem:

• Charging more for slots at congested times of day (I think this is preferable)
• Imposing arbitrary schedule cuts
• Fines for chronically delayed flights (due to lack of truth in advertising about scheduled flight times)

The airlines are having none of it. “‘We’re disappointed that they’re taking this course of action given the effort by industry to significantly reduce delays,’ said David Castelveter, spokesman for the Air Transport Association,’ reported the AP. I’m as leery of fines like this as the airlines, but do the airlines like any alternatives? AP: “But airlines say that so-called ‘congestion pricing’ approach would simply result in higher fares and pledged to challenge mandates for it, or mandated schedule cuts, in court or legislatively.” Oh, I see. So the airlines oppose any measure that will reduce delays. Combined with their insistence that they cannot cut schedules on their own, this leaves them rejecting every possible alternative.

Now, the airspace redesign and other ancillary improvements at JFK can cut delays, but will such cuts keep pace with the airport’s recent and ongoing dramatic growth? The airlines’ only solution is the long-term issue of air traffic control’s technological and financial transformation. They claim to want to avoid delays and yet they reject any measures that might actually stop delays. I tend to support self-enforcement, but when the airlines refuse even to consider it, then market forces should be permitted to make congestion unprofitable.

U.S. May Fine Airlines for Chronically Delayed Flights [AP via Aviation.com]

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Protection drives up fares and cuts travel. Every time.

The latest example of this is at Dallas’s Love Field, which was stifled for many years under the ridiculous Wright Amendment, a provision pushed through by a powerful House Speaker to promote the closer-to-his-hometown Dallas-Fort Worth International Airport. Even with only a few restrictions lifted and several still in place, fares have dropped and passenger volume is up–at both airports. As has been shown time and time again, protection and regulation are not consumer-friendly, nor are they healthy for the airline industry.

Flights up, fares down one year after Wright Amendment changes [Today in the Sky]

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Families seek video-free enclave on planes

After her four- and seven-year-old sons were exposed to an R-rated movie with “a lot of nudity” on recent flight, a parent took her concerns to Congress, where two North Carolina legislators have introduced a bill to require airlines to offer “family friendly” seating sections without any visible TV screens. This parent apparently received an apology from the offending airline. (It’s not like R-rated movies are standard fare on main-cabin screens; I once endured the ghastly Princess Diaries 2: Royal Engagement on a Northwest flight.)

I do question the wisdom of Congress regulating customer service standards, I also have to wonder–is this even legal? Are airlines considered public spaces, and if so, how does case law on decency standards apply? Perhaps The NV Flyer, who specializes in this sort of thing, will weigh in for us.

Kid-friendly areas on planes proposed [AP via Things with Wings]

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Pittsburgh sees the light on incentives

In 2004, US Airways downgraded its operations at Pittsburgh International Airport from hub to focus city status, taking with it half its flights and leaving swathes of terminal unused. Scott McCartney relates the story of what happened next: fares fell through the floor and low-cost carriers rushed in to take advantage of the situation. For a season, Pittsburgh mourned the loss of its hub and especially its prestigious transatlantic service to London and Frankfurt. But the Allegheny County Airport Authority takes a realistic view about luring back transatlantic service: “We have to depend on our market, and that may only be able to support international flights seven or eight months out of the year.”

Now, Things with Wings reports, US Airways is cutting back even more. Rather than respond with histrionics, the airport authority is welcoming the opportunity to get more flights from low-cost carriers. Moreover, according to a quotation over at Towers and Tarmacs, Pittsburgh is deploying incentives strategically: “We don’t rely just on the incentives. Any airline will tell you that if a market is not there, incentives will not work. The incentives are more a way to help increase brand awareness by telling passengers that there’s not just one carrier at Pittsburgh. At one point, 87% of our flights used to be with US Airways.”

The lesson Pittsburgh has taken to heart–that hub closure is not necessarily a long-term loss–is one for several other airports intent on remaining captive to high fares at their fortress hubs.

More US Airways Cuts Coming to Pittsburgh? [Things with Wings]
Pittsburgh Continues Efforts on Airline Diversity [Towers and Tarmacs]

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Chinese consequences

Per an earlier post, the Chinese aviation sector–and, by extension, Chinese travelers–are already beginning to experience the consequences of the central regulator’s decision to cut back on growth. The burden will fall most on low-cost carriers, stunting increased access to travel for the middle-income burgher class just beginning to emerge in China.

LCCs, new entrants feel effects of CAAC decision to limit growth [ATW Online]

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Travel-size holy water

Airport security restrictions apparently apply to vials of holy water received from Roman Catholic pilgrimage sites, the AP reports. Several pilgrims returning to Rome from Our Lady of Lourdes in France had their holy water confiscated if it was in bottles that exceeded EU airline safety limits. The travelers were flying on the just-launched, Vatican-backed, charter service of Mistral Air. The airline, perhaps blessed with the gift of prophecy, offered a travel-size bottle of Lourdes holy water to each passenger once on board.

Holy water seized from fliers at Lourdes airport [AP, via Today in the Sky]

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Red Wings for Russia?

Is it a bit unsettling that Russia’s newest low-fare carrier has adopted the colors identified with the Soviet Union? Coincidence, or part of the “Putin restoration”?

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Competition gets all Thai-ed up

According to an AFP report, Thai “airlines are now required to submit their low-fare ads to the government for approval.” This after the government received complaints about additional taxes and fees and limited availability. Low-fare carriers have long neglected to advertise fees–as have mainline network carriers–but regulatory pressure is forcing innovative airlines to include taxes in their advertised prices, as legendary nickel-and-dimer Ryanair now does. Regulatory pressure may have the consequence of making travelers more immune to the high taxes currently charged, especially on international flights, but the Thai action seems to go beyond that, giving governments far too much authority over airfares, preventing true competition.

Thailand tries to clarify prices in ads by budget carriers [AFP via Yahoo News]

See also: How nickel-and-diming is consumer-friendly.

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