Dear US Government: I hope you are reading the newspaper

Thinking About Three Headlines from January 24, 2008

So much of the current discussion surrounding US airline industry consolidation scenarios involves only the Network Legacy Carrier (NLC) sector. In an earlier post this week, I wrote about the catalysts for consolidation. In that post the importance of economies of scope, scale and density is discussed and how they are a most important ingredient to a healthy industry structure. These economies are critical to all players – even the LCCs.

Three headlines in yesterday’s news underscore the negative effects of a highly fragmented and hypercompetitive US domestic industry structure – and those negative effects are not limited to the sector of the industry that is forever blamed for the industry’s woes – the NLCs. Yes, there is even bad news emanating from the Low Cost Carrier (LCC) sector. The very sector that many policymakers believe is solely responsible for the consumer benefits that the entire industry delivers each and every day - NOT.

First off, Holly Hegeman writing in her blog Planebuzz reports the first credit downgrade of the period. No it is not one of the NLCs, it is Southwest Airlines. Not that this is anywhere near the end of the world for the carrier with the industry’s best credit rating – even after the downgrade – but noteworthy in my view.

Second, Terry Maxon in his Airline Biz blog writes about additional stock sales by David Neeleman, founder and non-executive Chairman of jetBlue. Whereas there are always multiple reasons for stock sales, Neeleman has sold nearly 30% of his holdings since May of 2007. This particular announcement comes just days after jetBlue finalized a stock sale to Lufthansa that was designed primarily to address some near term liquidity concerns.

Third, last night Reuters reported out on Frontier’s earnings. The short article was entitled: Frontier reports wider loss, to sell four jets. Enough said.

For government regulators generally: the bad news regarding the industry’s financial performance is not limited to one sector. If you were right, and I was wrong, that the LCCs were/are the sector that will keep the US industry in a global leadership position, then it is time to step back and recognize that even this sector is beginning to show signs of troubled economics. And given that this sector is largely confined to the 48 contiguous states, that would be a good place to start your analysis of the industry’s structure.

For government officials in smaller US communities: the bad news is that the LCC sector of the industry is not your answer. The bad news is that industry economics do not support all of the service currently being provided. The good news is there is an opportunity to look at the current industry structure and allow it to make necessary commercial changes. Scrutinize the proposed changes for sure. But, changes that keep your airport market connected to the US air transportation system is much better than being the subject of attrition from the airline map.

For government officials in cities that serve as corporate headquarters: keeping your city as a critical dot on the global airline and trading map is much more important than housing a few thousand workers. It is simple economic impact math.

Much more to come,

Swelblog.com: The First 31 Days

Whereas it has only been one month since I ventured into this unknown world of blogdom, suffice it to say that this labor of love has been among the most gratifying endeavors I have ever experienced. As I said in my very first post entitled Swelblog.com Taxiing Into Position: click here “I did not start this blog to win friends or influence anyone. I’m a data guy, and I’ve been studying the industry long enough to come up with some strong opinions . . . many of which aren’t popular in either boardrooms or union halls. My approach is analytical because, in my view, the numbers don’t lie.”

I have been moved by the comments made in other blogs and the press about this site and the use of some of the comments expressed here. To Holly Hegeman Planebuzz, Terry Maxon Airline Biz, Trebor Banstetter Sky Talk, and Loren Steffy Houston Chronicle I am grateful. To these, and all other, enlightened influential watchers of the industry and the many other readers who have commented to me via other mediums, I very much appreciate your welcome.

While I may not need to reiterate this point, I am going to as I want to make sure the readership fully understands that this blog and the MIT Airline Data Project are separate. I use the MIT site’s data to analyze issues because I know how the various metrics have been calculated, vetted and presented.

It was the second post, “All Eyes on Texas” that certainly seemed to launch this blog. Some agreed with my ordering of the difficulty of the pilot negotiations and others questioned my ordering. That is the sort of healthy debate that I hope happens here as the blog matures. As a result of my immediate previous post where I addressed a sensitive issue regarding the cost of the APA pilot opener, there were a number of comments made. I have always wanted this site to show both the “positive” and the “negative” comments regarding what I have written and, until Monday, I have made each of the comments available for public review.

But as the days following that piece unfolded, Monday morning I posted a comment that I should not have posted and ultimately deleted it. While it had some valid points, this blog was starting to become a venue supporting the views of one employee at AA challenging another. Then after I authorized the post to be published, a follow on comment was made which I deemed was exacerbating the situation versus having a meaningful exchange of views. I rejected this post. It is one thing to attack me -- and trust me you are in a long line of those that have had the opportunity long before I started this blog.

I welcome, no, I want comments on the issues discussed here -- but check the emotion at the door. From this point on, this site will not be used for personal attacks on another person commenting – period. There are many other venues for that. This is my blog and my rules. And they are changing as I learn.

There was a comment from flyby519 posted to Swelblog that I did not acknowledge and should have as it was precisely the type of thoughtful comment that I want to address in this blog click here. We will pick up here over the next couple of days.

Happy Halloween