What’s wrong with commercial aviation?

My story in The American magazine is now up on its website. Here’s the lede: “Thirty years ago this October, the era of affordable mass air travel was unleashed. Why was this revolution stalled, and what can be done to finish it?”

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Back home after SWA media day

I’m back in Washington after a great visit to Dallas and Southwest Airlines’ headquarters for media day. Kudos to their communications team for putting together a fantastic program for the reporters, analysts, and bloggers present. Thanks are also due to Southwest for its hospitality and openness. Southwest had us meeting and talking with their top executives, right up to Gary Kelly.

Me with Paula Berg

A special thanks goes to Southwest’s “blog girl” and communications director, Paula Berg, who was responsible for inviting us “emerging media” folks down to Dallas. She runs Nuts about Southwest, which Brett Snyder calls “the best” of the airline blogs. It was a real pleasure to meet Paula.

Me with Rob Mark

I also had the pleasure of meeting a number of the industry’s top bloggers in person, all of whom you’ll find in the blogroll on the right and many of whom I’ve communicated with by e-mail in the past. Jetwhine‘s Robert Mark; Flight reporter Megan Kuhn, who writes the Terminal Q blog; Holly Hegeman of Plane Business; and Star-Telegram reporter Trebor Banstetter, who blogs with a Metroplex focus at Sky Talk.

Paula said she had hoped that Brett Snyder (a.k.a. the Cranky Flier) could make it, but his nuptials this weekend seem to have taken priority. Congratulations!

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Airport congestion through Southwest’s eyes

DALLAS — I had the chance to talk today with Bob Montgomery, Southwest’s vice president for properties, about the challenge of congested aviation infrastructure. He said that the problem is not truly a national problem; instead, there are “four or five cities” with the kind of congested airspace, runways, and ramp space that causes snarls. Unfortunately, he added, these airports are the kind where you can’t just build a new runway: LaGuardia, San Francisco, JFK, Washington National.

But he said there’s a lot we can do to fill in the gap, especially in modernizing our air traffic control system by pursuing required navigational performance procedures and completing the NextGen basket of updates. Another problem, Montgomery said, is the “gauge” of aircraft using these congested airports. We can upgrade flights to mainline narrowbodies instead of using so many regional jets. Pricing mechanisms can promote these kind of changes.

Will Southwest be moving into markets like LaGuardia or National anytime soon? Montgomery chuckled and wouldn’t say yes or no. “It’s a matter of slots and economics,” he added.

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“Wild times”: Southwest’s Gary Kelly announces service to MSP, discusses challenges in airline industry

Southwest Airlines chairman, president, and CEO Gary Kelly announces new Southwest service to Minneapolis-St. Paul.

DALLAS — Southwest is well-positioned in tricky times for the airline industry and will launch new service to Minneapolis-St. Paul in March 2009, Southwest Airlines chief Gary Kelly said today. The Twin Cities are the first new Southwest market since 2006, and the first planned service will be nonstop to Chicago’s Midway Airport.

The announcement of expansion comes at a time when the airline industry is contracting. Southwest has been on a cautious and slow expansion track, focusing more on filling in gaps between its current cities than opening new markets. The new service comes after one of the most difficult summers for the airline industry. “It is a wild time” for us, Kelly said. “We’ve got to get our revenues per departure up. . . . Our costs have gone up. I don’t see costs going back down.” Even so, he said, “if you take out fuel, our unit costs are way below the legacy carriers.”

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Thought leaders on aviation trends

From left: Tom Parsons, Randy Petersen, Terry Trippler, Peter Greenberg, and Rick Seaney

DALLAS — Our lunchtime entertainment here at Southwest headquarters was provided by a panel of five airline industry thought leaders who offered their thoughts on the future of the industry. Rick Seaney of FareCompare.com kicked off the discussion. Some of the trends he noted include a “decline in human interaction” through the increasing utility of technology. He also expected “advertising in aircraft like in a subway car” and “a la carte aviation pricing” (the latter I think is a good thing, as regular readers will know). Seaney also announced that he expects to see an airline passengers’ bill of rights soon (PBOR), a theme echoed by other panelists.

Peter Greenberg, the travel editor for the Today show, said that most airlines are adopting an attitude of “we’re not happy till you’re not happy,” and added that it will be hard for airlines to improve customer service with so many unhappy employees. With respect to delays, he said that there will be no meaningful delay reductions until local airport authorities cap operations on their runways to what those runways can actually handle. And he cautioned U.S. airlines to prepare for foreign ownership and even cabotage: “it’s going to happen. Get ready for it.”

On the merits of a PBOR, Terry Trippler of Trippler and Associates said, “Once the government gets involved, they will not stop.” He recounted experience working with the Civil Aeronautics Board in regulation days and said it was not consumer-friendly. The reason airlines offered such extraordinary service (compared to today) is that they could compete only on service — not on fares. Instead of a PBOR, he said, “I want the free-enterprise system to work it out . . . and I think it will. . . . I want the Southwests of the world to be free to go where they want to go, be what they want to be, and charge what they want to charge.”

Frequent-flier-mile guru Randy Petersen of Inside Flyer and Boarding Area contested Trippler’s faith in the private sector to work out the issue: “Free enterprise hasn’t proven to work.” He discussed trends in frequent flier miles, arguing that some of the more negative pronouncements going around today are exaggerated. Finally, BestFares.com’s Tom Parsons talked about how with fares rising, “best fares” will be thought of as “reasonable fares,” and he commented that Southwest is leadeing fare increases, much to the delight of the legacy carriers.

During the Q&A period, friend of this blog and Jetwhine editor Rob Mark called attention to the issue of people being kept on planes for hours on the ramp. Greenberg suggested a renewed appreciation for the virtues of airstairs. Then, he said to my amusement, “Let’s talk about the history of denied boarding. It starts with Ralph Nader being thrown off an Allegheny flight.” More seriously, he said that if airlines don’t embrace common-sense measures like deplaning passengers on long delays, they will get a PBOR. Parsons said that we need a PBOR “with meat on it,” because to date the private sector hasn’t been successful.

Photo by Evan Sparks

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Southwest comments on Stop Oil Speculation Now

DALLAS — During the summer, the Air Transport Association and its member airlines launched a campaign to “Stop Oil Speculation Now.” I (and the rest of the aviation blogosphere) commented on it, arguing that limiting “speculation” on oil futures wouldn’t bring down the price of oil. Mark Ashley added that he was surprised about the campaign: “One surprise: Southwest signed the letter. By the logic of the letter, Southwest is one of the ‘speculators,’ and in fact it’s a major reason Southwest has been eating everyone else’s lunch. Yet they signed the letter decrying their own business practices. Huh.”

Southwest has, as is commonly known, aggressively hedged its fuel costs. According to Laura Wright, Southwest’s CFO, hedging is part of Southwest’s conservative financial strategy, controlling fluctuation in costs. She said that Southwest is 80 percent hedged in the third and fourth quarters, and 86 percent of its hedges are backed up by cash collateral and thus minimally exposed to counterparty risk.

I caught up with Wright to ask about the apparent inconsistency with calling for an end to “oil speculation” and engaging in risk-management practices that involve speculation about the future price of oil (i.e., hedging). Isn’t hedging the same sort of financial operation as speculation on oil futures? Wright said that the ATA’s proposal to stop oil speculation is aimed at “players [in the market] that aren’t end users” of oil products.

Wright said that Southwest doesn’t hedge for financial gain as much as it does for financial stability. The fact that Southwest is paying as little as $51 per barrel is a financial benefit not to be sneezed at, but its benefit is primarily in terms of being able to predict what costs will be and being insulated from fast-moving fluctuations in the price of jet fuel. Hedging permits Southwest to “have costs predictable within a range.”

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SWA and the FAA, six months later

DALLAS — Six months after the debacle over safety inspections at Southwest Airlines, after which I concluded that the FAA had scapegoated Southwest with a massive penalty after it became clear that Congress would be scrutinizing FAA inspection practices and personnel. Southwest executives I spoke to emphasized that Southwest is in full compliance with FAA regs, and they reiterated Southwest’s long-term safety record. They also said that the incident has had no negative effect on long-term customer support or opinion — in fact, they told me, people were impressed with “how transparent we were” in dealing with the situation.

But given that Southwest had not yet paid the FAA’s record fine — reports indicate that the airline is negotiating it — I thought I’d see if the airline has any thoughts about improvements in the FAA’s structure or operations. It turns out they don’t. One executive I talked to referred to the independent review team that gave the FAA high marks last month. He also cited the superiority of the U.S. aviation system’s safety record, confirmed in August by the International Civil Aviation Organization. Given these assessments and results, he said, the FAA is doing things right.

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Dallas-bound

I’m leaving for Dallas shortly to attend Southwest Airlines’ media day. Look forward to a dispatch or two from Dallas in this space tomorrow. Is there a policy issue you’d like me to ask Southwest about? Let me know in the comments.

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North by Southwest

Posts like this remind me of why I love the Southwest Airlines blog:

It’s official, WestJet will be our first international partner and we will be offering travel to some pretty cool destinations all the way to Canada! Okay, I know, it doesn’t feel that international because it is Canada and traveling to Canada is quite simple. But they do speak different languages, eh..and those accents…and the beer…the temperature…the metric system…work with me here…this is start of some really cool stuff.

This blog isn’t just a corporate organ. It speaks with real people’s voices.

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Southwest’s Kelleher gives Lindbergh Lecture

Herb Kelleher, the legendary founder of Southwest Airlines, proponent of low fares, and friend of deregulation, delivered the Charles A. Lindbergh Memorial Lecture tonight at the National Air and Space Museum in Washington, D.C. He reflected on his long career in aviation, on the fundamentals of Southwest, and offered a few comments about the future of the airline industry. As usual, Kelleher’s lecture was full of humor — most of it at his own expense.

Kelleher recounted a number of critical moments in Southwest’s history, from the four years of litigation just to get started to the fight to operate out of Dallas’s Love Field. When Southwest launched with $26 fares, its competitors undercut the price by half. Kelleher said that he would still offer the same fare, but that every customer would get a bottle of whiskey. “We became the largest liquor distributor in the state of Texas!” he chuckled.

Even though almost all the major airlines opposed deregulation, and although observers thought Southwest would get stomped in a competitive environment, Kelleher said, “Southwest Airlines supported deregulation of the airline industry throughout the 1970s.” A sign of deregulation’s success? When Southwest launched, only 15 percent of American adults had been on a commercial airline flight. Today, 85 percent have, although this is not only due to lower fares but also a growing economy and general better standards of living.

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